Fitch Ratings has affirmed the ratings for Accenture plc
(Accenture) and subsidiaries, including the Accenture's long-term
Issuer Default Rating (IDR) at 'A+'. The Rating Outlook is
Stable.
Fitch's actions affect approximately $1 billion of debt,
consisting of an undrawn credit facility. A full list of rating
actions follows at the end of this release.
KEY RATING DRIVERS
The ratings and Outlook reflect Fitch's expectations for
continued strong operating performance over the intermediate-term,
driven by solid recurring revenues and free cash flow (FCF) from
long-term contracts, significant customer and end market
diversification and solid organic growth prospects.
Profitability should remain near current levels but that more
competitive pricing, including by low-cost offshore competitors,
will continue constraining meaningful profit margin expansion. In
conjunction with lower capital intensity than its IT services
peers, Accenture's consistent profitability will translate into
solid annual FCF and financial flexibility.
The ratings are supported by Accenture's:
--Fitch's expectations that debt will remain negligible over at
least the intermediate term;
--Solid liquidity supported by consistent annual FCF in excess
of $2 billion, despite cyclical demand associated with the
consulting and systems integration (C&SI) business. Fitch
expects $2 billion to $2.5 billion of FCF in 2015, driven by solid
operating performance.
--Long-term client relationships and domain expertise, resulting
in revenue stability and a significant percentage of sole-sourced
new contract awards;
--The company's significant and diversified offshore delivery
capability, which translates into strong market position in
targeted IT service markets with solid projected long-term market
growth rates, especially application and business process
outsourcing;
--Recurring revenue associated with longer-term outsourcing
contracts, which represent more than 45% of net revenues, and lower
capital-intensity relative to peers;
--Diversified portfolio of customers, industries, geographies
and service line offerings, supporting Fitch's expectations for
more consistent revenues.
Ratings concerns center on:
--Potential for sizable debt-funded share repurchases or
acquisitions, although Fitch believes Accenture's strong balance
sheet and consistent FCF provides considerable financial
flexibility at the current rating;
--Fitch's expectations that intense competition from
multinational, offshore (primarily India-based) and niche IT
Services providers will continue pressuring prices;
--Fitch's expectations that long-term software as a service
(SaaS) adoption on will suppress demand for traditional systems
integration services, particularly enterprise resource planning
software. Fitch believes total IT services SaaS revenue generation
could be less than traditional software implementations over the
software's life cycle, despite higher initial revenue from
integrating SaaS into clients' existing systems.
--Threat of new market entrants in the traditional outsourcing
market due to increasing cloud computing adoption.
RATING SENSITIVITIES
Negative rating actions could occur if:
--Significant debt-financed acquisitions and/or share
repurchases that results in Fitch's expectations for adjusted debt
to EBITDAR approaching 2.5x for a sustained period;
--Increased capabilities from low-cost outsourcing competitors
resulting in expectations for reduced renewal rates and,
ultimately, pressuring revenue growth and recurring FCF.
Positive rating actions are unlikely in the intermediate term,
given Fitch's expectation the company will maintain financial
flexibility to support growth and shareholder returns.
As of Aug. 31, 2014, Accenture's liquidity was solid and
consisted of:
--$4.9 billion of cash and cash equivalents, almost all of which
was available, given the company's incorporation in Ireland;
--An undrawn $1 billion revolving credit facility expiring
October 2016. The credit facility agreement requires the company to
maintain a consolidated leverage ratio (debt/EBITDA) of less than
1.75 times (x).
Fitch's expectation for more than $2 billion of annual FCF also
supports liquidity. Fitch anticipates Accenture will continue to
use FCF for share repurchases and acquisitions.
As of Aug. 31, 2014, Accenture had negligible outstanding debt,
given the company's FCF internally funds shareholder returns and
acquisition.
The company does have off-balance sheet debt in the form of
significant operating lease commitments since it does not own any
of its real estate as part of its 'asset-light' strategy.
Nonetheless, Fitch expects total adjusted debt to EBITDAR will
remain below 1.5x and was 0.8x for the fiscal year ended Aug. 31,
2014.
Fitch affirms the following ratings:
Accenture
--Long-term IDR at 'A+'.
Accenture International Capital SCA
--Long-term IDR at 'A+';
--Senior unsecured bank credit facility at 'A+'.
Accenture Capital Inc.
--Long-term IDR at 'A+';
--Senior unsecured bank credit facility at 'A+'.
Additional information is available at
'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (May 4, 2014).
Applicable Criteria and Related Research:
Corporate Rating Methodology - Including Short-Term Ratings and
Parent and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=955375
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Fitch RatingsPrimary AnalystJason PompeiiSenior
Director+1-312-368-3210Fitch Ratings, Inc.70 West Madison
St.Chicago, IL 60602orSecondary AnalystDavid PetersonManaging
Director+1-312-368-3177orCommittee ChairpersonJohn Culver,
CFASenior Director+1-312-368-3216orMedia RelationsBrian Bertsch, +1
212-908-0549New Yorkbrian.bertsch@fitchratings.com