# Accenture plc (ACN) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Accenture plc's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1467373/000146737323000324/acn-20230831.htm
Accession: 0001467373-23-000324
Filing date: 2023-10-12
Report date: 2023-08-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/ACN/
All MD&A years: /company/ACN/mda/
Previous year: /company/ACN/mda/fy2022/ (FY 2022)
Next year: /company/ACN/mda/fy2024/ (FY 2024)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related Notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis also contains forward-looking statements and should also be read in conjunction with the disclosures and information contained in “Disclosure Regarding Forward-Looking Statements” and “Risk Factors” in this Annual Report on Form 10-K.

We use the terms “Accenture,” “we,” “our” and “us” in this report to refer to Accenture plc and its subsidiaries. All references to years, unless otherwise noted, refer to our fiscal year, which ends on August 31. For example, a reference to “fiscal 2023” means the 12-month period that ended on August 31, 2023. All references to quarters, unless otherwise noted, refer to the quarters of our fiscal year.

We use the term “in local currency” so that certain financial results may be viewed without the impact of foreign currency exchange rate fluctuations, thereby facilitating period-to-period comparisons of business performance. Financial results “in local currency” are calculated by restating current period activity into U.S. dollars using the comparable prior-year period’s foreign currency exchange rates. This approach is used for all results where the functional currency is not the U.S. dollar.

Overview

Accenture is a leading global professional services company, providing a broad range of services and solutions across Strategy & Consulting, Technology, Operations, Industry X and Song. We serve clients in three geographic markets: North America, Europe and Growth Markets (Asia Pacific, Latin America, Africa and the Middle East). We combine our strength in technology and leadership in cloud, data and AI with unmatched industry experience, functional expertise and global delivery capability to help the world’s leading businesses, governments and other organizations build their digital core, optimize their operations, accelerate revenue growth and enhance citizen services—creating tangible value at speed and scale.

Our results of operations are affected by economic conditions, including macroeconomic conditions, the overall inflationary environment and levels of business confidence. There continues to be significant economic and geopolitical uncertainty in many markets around the world, which has impacted and may continue to impact our business. These conditions have slowed the pace and level of client spending for smaller contracts with a shorter duration, especially for our consulting services. From an industry perspective, we are also experiencing reduced demand particularly in our Communications, Media & Technology industry group.

Key Metrics

Key metrics for fiscal 2023 compared to fiscal 2022 are included below. We have presented operating margin and diluted earnings per share on a non-GAAP or “adjusted” basis to exclude the impact of $1,063 million in business optimization costs and, with respect to diluted earnings per share, the impact of a $253 million investment gain recorded during fiscal 2023. For additional information, see Note 1 (Summary of Significant Accounting Policies) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

•Revenues of $64.1 billion, representing 4% growth in U.S. dollars and 8% growth in local currency;

•New bookings of $72.2 billion, an increase of 1% in U.S. dollars and 5% in local currency;

•Operating margin of 13.7%, compared to 15.2% in fiscal 2022; adjusted operating margin expanded 20 basis points to 15.4%;

•Diluted earnings per share of $10.77, compared to $10.71 for fiscal 2022; adjusted earnings per share increased 9% to $11.67; and

•Cash returned to shareholders of $7.2 billion, including share purchases of $4.3 billion and dividends of $2.8 billion.

[[GREPCENT_TABLE]]
[["Table of Contents"],["ACCENTURE 2023 FORM 10-K","","Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations","34"]]
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Revenues

[[GREPCENT_TABLE]]
[["","Fiscal","","Percent Increase (Decrease) U.S. Dollars","","Percent Increase (Decrease) Local Currency"],["(in billions of U.S. dollars)","2023","2022"],["Geographic Markets (1)","North America","$","30.3","","$","29.1","","","4","%","","4","%"],["Europe","21.3","","20.3","","","5","","","11"],["Growth Markets","12.5","","12.2","","","3","","","12"],["Total Revenues","$","64.1","","$","61.6","","","4","%","","8","%"],["Industry Groups","Communications, Media & Technology","$","11.5","","$","12.2","","","(6)","%","","(3)","%"],["Financial Services","12.1","","11.8","","","3","","","7"],["Health & Public Service","12.6","","11.2","","","12","","","14"],["Products","19.1","","18.3","","","5","","","9"],["Resources","8.9","","8.1","","","10","","","15"],["Total Revenues","$","64.1","","$","61.6","","","4","%","","8","%"],["Type of Work","Consulting","$","33.6","","$","34.1","","","(1)","%","","3","%"],["Managed Services (2)","30.5","","27.5","","","11","","","14"],["Total Revenues","$","64.1","","$","61.6","","","4","%","","8","%"]]
[[/GREPCENT_TABLE]]

Amounts in table may not total due to rounding.

(1)In the first quarter of fiscal 2024, our Middle East and Africa market units will move from Growth Markets to Europe, and the Europe market will be referred to as our Europe, Middle East and Africa (EMEA) geographic market.

(2)Previously referred to as our outsourcing business.

Revenues for fiscal 2023 increased 4% in U.S. dollars and 8% in local currency compared to fiscal 2022. During fiscal 2023, revenue growth in local currency was very strong in Growth Markets and Europe and solid in North America. We experienced local currency revenue growth that was very strong in Resources and Health & Public Service, strong in Products and Financial Services, partially offset by a modest decline in Communications, Media & Technology. Revenue growth in local currency was very strong in managed services and modest in consulting during fiscal 2023. The business environment is competitive, and we are experiencing lower pricing across the business. We define pricing as contract profitability or margin on the work that we sell.

In our consulting business, revenues for fiscal 2023 decreased 1% in U.S. dollars and increased 3% in local currency compared to fiscal 2022. Consulting revenue growth in local currency in fiscal 2023 was driven by strong growth in Growth Markets and solid growth in Europe, while North America was flat. Our consulting revenue continues to be driven by helping our clients accelerate their digital transformation, including moving to the cloud, embedding security across the enterprise and adopting new technologies. In addition, clients continue to be focused on initiatives designed to deliver cost savings and operational efficiency, as well as projects to accelerate growth and improve customer experiences. While we continue to experience demand for these services, we are seeing a slower pace and level of client spending, especially for smaller contracts with a shorter duration.

In our managed services business, revenues for fiscal 2023 increased 11% in U.S. dollars and 14% in local currency compared to fiscal 2022. Managed services revenue growth in local currency in fiscal 2023 was driven by very strong growth in Growth Markets and Europe and strong growth in North America. We continue to experience growing demand to assist clients with application modernization and maintenance, cloud enablement and cybersecurity-as-a-service (formerly managed security services). In addition, clients continue to be focused on transforming their operations through data and analytics, automation and artificial intelligence to drive productivity and operational cost savings.

As we are a global company, our revenues are denominated in multiple currencies and may be significantly affected by currency exchange rate fluctuations. While a significant portion of our revenues are in U.S. dollars, the majority of our revenues are denominated in other currencies, including the Euro, Japanese yen and U.K. pound. There continues to be volatility in foreign currency exchange rates. Unfavorable fluctuations in foreign currency exchange rates have had and could in the future have a material effect on our financial results. If the U.S. dollar weakens against other currencies, resulting in favorable currency translation, our revenues, revenue growth and results of operations in U.S. dollars may be higher. If the U.S. dollar strengthens against other currencies, resulting in unfavorable currency translation, our revenues, revenue growth and results of operations in U.S. dollars may be lower. The U.S. dollar strengthened against various currencies during fiscal 2023, resulting in unfavorable currency translation and U.S. dollar revenue growth that was approximately 4% lower than our revenue growth in local currency for the year. Assuming that exchange rates stay within recent ranges, we estimate that our fiscal 2024 revenue growth in U.S. dollars will be approximately equal to our revenue growth in local currency.

[[GREPCENT_TABLE]]
[["Table of Contents"],["ACCENTURE 2023 FORM 10-K","","Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations","35"]]
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People Metrics

[[GREPCENT_TABLE]]
[["Utilization","","Workforce","","Annualized Voluntary Attrition"],["91%","","733,000","","13%"],["consistent with fiscal 2022","","compared to approximately 721,000 as of August 31, 2022","","compared to 19% in fiscal 2022"]]
[[/GREPCENT_TABLE]]

Utilization for fiscal 2023 was 91%, consistent with fiscal 2022. We hire to meet current and projected future demand. We proactively plan and manage the size and composition of our workforce and take actions as needed to address changes in the anticipated demand for our services and solutions, given that compensation costs are the most significant portion of our     operating expenses. Our workforce, the majority of which serves our clients, increased to approximately 733,000 as of August 31, 2023, compared to approximately 721,000 as of August 31, 2022. The year-over-year increase in our workforce reflects people added in connection with acquisitions and hiring for specific skills.

For fiscal 2023, attrition, excluding involuntary terminations, was 13%, down from 19% in fiscal 2022. For the fourth quarter of fiscal 2023, annualized attrition, excluding involuntary terminations, was 14%, up from 13% in the third quarter of fiscal 2023. We evaluate voluntary attrition, adjust levels of new hiring and use involuntary terminations as a means to keep our supply of skills and resources in balance with changes in client demand. During the second quarter of fiscal 2023, we initiated actions to streamline operations and transform our nonbillable corporate functions to reduce costs.

In addition, we adjust compensation in order to attract and retain appropriate numbers of qualified employees. For the majority of our people, compensation increases became effective December 1st of fiscal 2023. Given the overall inflationary environment, compensation has increased faster than in prior years, but is moderating. We strive to adjust pricing as well as drive cost and delivery efficiencies, such as changing the mix of people and utilizing technology, to reduce the impact of compensation increases on our margin and contract profitability.

Our ability to grow our revenues and maintain or increase our margin could be adversely affected if we are unable to: match people and skills with the types or amounts of services and solutions clients are demanding; recover or offset increases in compensation; deploy our employees globally on a timely basis; manage attrition; and/or effectively assimilate new employees.

Operating Expenses

The primary categories of operating expenses include Cost of services, Sales and marketing and General and administrative costs. Cost of services is primarily driven by the cost of people serving our clients, which consists mainly of compensation, subcontractor and other payroll costs, and non-payroll costs such as facilities, technology and travel. Cost of services includes a variety of activities such as: contract delivery; recruiting and training; software development; and integration of acquisitions. Sales and marketing costs are driven primarily by: compensation costs for business development activities; marketing- and advertising-related activities; and certain acquisition-related costs. General and administrative costs primarily include costs for people that are non-client-facing, information systems, office space and certain acquisition-related costs.

Gross margin (Revenues less Cost of services as a percentage of Revenues) for fiscal 2023 was 32.3%, compared with 32.0% for fiscal 2022. The increase in gross margin for fiscal 2023 was primarily due to lower labor costs, including lower subcontractor costs, partially offset by higher non-payroll costs, primarily for travel.

Sales and marketing and General and administrative costs as a percentage of revenues were 16.9% for fiscal 2023, compared with 16.8% for fiscal 2022. For fiscal 2023 compared to fiscal 2022, Sales and marketing costs increased 40 basis points due to higher selling and other business development costs as a percentage of revenues. General and administrative costs decreased 20 basis points as a percentage of revenues.

During fiscal 2023, we recorded $1,063 million in business optimization costs primarily for employee severance. For additional information, see Note 1 (Summary of Significant Accounting Policies) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

Operating margin (Operating income as a percentage of Revenues) for fiscal 2023 was 13.7%, compared with 15.2% for fiscal 2022.The business optimization costs recorded during fiscal 2023 reduced operating margin by 170 basis points. Excluding these costs, operating margin for fiscal 2023 increased 20 basis points to 15.4%.

[[GREPCENT_TABLE]]
[["Table of Contents"],["ACCENTURE 2023 FORM 10-K","","Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations","36"]]
[[/GREPCENT_TABLE]]

Other Income (Expense), net

During fiscal 2023, we recorded a gain of $253 million related to our investment in Duck Creek Technologies. For additional information, see Note 1 (Summary of Significant Accounting Policies) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.” 

Effective Tax Rate

The effective tax rates for fiscal 2023 and 2022 were 23.4% and 24.0%, respectively. Absent the business optimization costs of $1,063 million and related reduction in tax expense of $247 million, as well as an investment gain of $253 million and related tax expense of $9 million, our effective tax rate for fiscal 2023 was 23.9%.

Earnings Per Share

Diluted earnings per share were $10.77 for fiscal 2023, compared with $10.71 for fiscal 2022. The $816 million of business optimization costs, net of related taxes, decreased diluted earnings per share by $1.28 and the $244 million investment gain, net of related taxes, increased diluted earnings per share by $0.38 for fiscal 2023. Excluding these impacts, diluted earnings per share were $11.67 for fiscal 2023.

Our operating income and diluted earnings per share are affected by currency exchange rate fluctuations on revenues and costs. Most of our costs are incurred in the same currency as the related revenues. Where practical, we seek to manage foreign currency exposure for costs not incurred in the same currency as the related revenues, such as the costs associated with our global delivery model, by using currency protection provisions in our customer contracts and through our hedging programs. We seek to manage our costs, taking into consideration the residual positive and negative effects of changes in foreign exchange rates on those costs. For more information on our hedging programs, see Foreign Currency Risk under Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” and Note 9 (Financial Instruments) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

Non-GAAP Financial Measures

For fiscal 2023, we have presented effective tax rates and diluted earnings per share excluding the business optimization costs and investment gain, as well as operating income and operating margin excluding the business optimization costs, as we believe doing so facilitates understanding as to the impact of these items and our performance in comparison to the prior periods. While we believe that this non-GAAP financial information is useful in evaluating our operations, this information should be considered as supplemental in nature and not as a substitute for the related financial information prepared in accordance with GAAP.

New Bookings

[[GREPCENT_TABLE]]
[["","Fiscal","","Percent Increase (Decrease) U.S. Dollars","","Percent Increase (Decrease) Local Currency"],["(in billions of U.S. dollars)","2023","2022"],["Consulting","$","36.2","","$","37.9","","","(4)","%","","(1)","%"],["Managed Services (1)","36.0","","33.9","","","6","","","10"],["Total New Bookings","$","72.2","","$","71.7","","","1","%","","5","%"]]
[[/GREPCENT_TABLE]]

Amounts in table may not total due to rounding.

(1)Previously referred to as our outsourcing business.

We provide information regarding our new bookings, which include new contracts, including those acquired through acquisitions, as well as renewals, extensions and changes to existing contracts, because we believe doing so provides useful trend information regarding changes in the volume of our new business over time. New bookings can vary significantly quarter to quarter depending in part on the timing of the signing of a small number of large managed services contracts. The types of services and solutions clients are demanding and the pace and level of their spending may impact the conversion of new bookings to revenues. For example, managed services bookings, which are typically for multi-year contracts, generally convert to revenue over a longer period of time compared to consulting bookings.

Information regarding our new bookings is not comparable to, nor should it be substituted for, an analysis of our revenues over time. New bookings involve estimates and judgments. There are no third-party standards or requirements governing the calculation of bookings. We do not update our new bookings for material subsequent terminations or reductions related to bookings originally recorded in prior fiscal years. New bookings are recorded using then-existing foreign currency exchange rates and are not subsequently adjusted for foreign currency exchange rate fluctuations.

[[GREPCENT_TABLE]]
[["Table of Contents"],["ACCENTURE 2023 FORM 10-K","","Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations","37"]]
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The majority of our contracts are terminable by the client on short notice with little or no termination penalties, and some without notice. Only the non-cancelable portion of these contracts is included in our remaining performance obligations disclosed in Note 2 (Revenues) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.” Accordingly, a significant portion of what we consider contract bookings is not included in our remaining performance obligations.

Critical Accounting Policies and Estimates

The preparation of our Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses. We continually evaluate our estimates, judgments and assumptions based on available information and experience. Because the use of estimates is inherent in the financial reporting process, actual results could differ from those estimates. Certain of our accounting policies require higher degrees of judgment than others in their application. These include certain aspects of accounting for revenue recognition and income taxes.

Revenue Recognition

Determining the method and amount of revenue to recognize requires us to make judgments and estimates. Specifically, complex arrangements with nonstandard terms and conditions may require contract interpretation to determine the appropriate accounting, including whether promised goods and services specified in an arrangement are distinct performance obligations and should be accounted for separately. Other judgments include determining whether performance obligations are satisfied over time or at a point in time and the selection of the method to measure progress towards completion.

We measure progress towards completion for technology integration consulting services and some non-technology consulting services using costs incurred to date relative to total estimated costs at completion. Revenues, including estimated fees, are recorded proportionally as costs are incurred. The amount of revenue recognized for these contracts in a period is dependent on our ability to estimate total contract costs. We continually evaluate our estimates of total contract costs based on available information and experience.

Additionally, the nature of our contracts gives rise to several types of variable consideration, including incentive fees. Many contracts include incentives or penalties related to costs incurred, benefits produced or adherence to schedules that may increase the variability in revenues and margins earned on such contracts. We conduct reviews prior to signing such contracts to evaluate whether these incentives are reasonably achievable. Our estimates are monitored over the lives of our contracts and are based on an assessment of our anticipated performance, historical experience and other information available at the time.

For additional information, see Note 2 (Revenues) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

Income Taxes

Determining the consolidated provision for income tax expense, income tax liabilities and deferred tax assets and liabilities involves judgment. Deferred tax assets and liabilities, measured using enacted tax rates, are recognized for the future tax consequences of temporary differences between the tax and financial statement bases of assets and liabilities. As a global company, we calculate and provide for income taxes in each of the tax jurisdictions in which we operate. This involves estimating current tax exposures in each jurisdiction as well as making judgments regarding the recoverability of deferred tax assets. Tax exposures can involve complex issues and may require an extended period to resolve. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized and adjust the valuation allowances accordingly. Factors considered in making this determination include the period of expiration of the tax asset, planned use of the tax asset, tax planning strategies and historical and projected taxable income as well as tax liabilities for the tax jurisdiction in which the tax asset is located. Valuation allowances will be subject to change in each future reporting period as a result of changes in one or more of these factors. Changes in the geographic mix or estimated level of annual income before taxes can affect the overall effective tax rate.

We apply an estimated annual effective tax rate to our quarterly operating results to determine the interim provision for income tax expense. A change in judgment that impacts the measurement of a tax position taken in a prior year is recognized as a discrete item in the interim period in which the change occurs. In the event there is a significant unusual or infrequent item recognized in our quarterly operating results, the tax attributable to that item is recorded in the interim period in which it occurs. We release stranded tax effects from Accumulated other comprehensive loss using the specific identification approach for our defined benefit plans and the portfolio approach for other items.

[[GREPCENT_TABLE]]
[["Table of Contents"],["ACCENTURE 2023 FORM 10-K","","Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations","38"]]
[[/GREPCENT_TABLE]]

No taxes have been provided on undistributed foreign earnings that are planned to be indefinitely reinvested. If future events, including material changes in estimates of cash, working capital and long-term investment requirements, necessitate that these earnings be distributed, an additional provision for taxes may apply, which could materially affect our future effective tax rate. We currently do not foresee any event that would require us to distribute these indefinitely reinvested earnings. For additional information, see Note 11 (Income Taxes) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

As a matter of course, we are regularly audited by various taxing authorities, and sometimes these audits result in proposed assessments where the ultimate resolution may result in us owing additional taxes. We establish tax liabilities or reduce tax assets when, despite our belief that our tax return positions are appropriate and supportable under local tax law, we believe we may not succeed in realizing the tax benefit of certain positions if challenged. In evaluating a tax position, we determine whether it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Our estimate of the ultimate tax liability contains assumptions based on past experiences, judgments about potential actions by taxing jurisdictions as well as judgments about the likely outcome of issues that have been raised by taxing jurisdictions. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. We evaluate tax positions each quarter and adjust the related tax liabilities or assets in light of changing facts and circumstances, such as the progress of a tax audit or the expiration of a statute of limitations. We believe the estimates and assumptions used to support our evaluation of tax positions are reasonable. However, final determinations of prior-year tax liabilities, either by settlement with tax authorities or expiration of statutes of limitations, could be materially different from estimates reflected in assets and liabilities and historical income tax provisions. The outcome of these final determinations could have a material effect on our income tax provision, net income, or cash flows in the period in which that determination is made. We believe our tax positions comply with applicable tax law and that we have adequately accounted for these positions.

Revenues by Segment/Geographic Market

Our three reportable operating segments are our geographic markets, North America, Europe and Growth Markets. In addition to reporting revenues by geographic market and industry group, we also report revenues by two types of work: consulting and managed services, which represent the services sold by our geographic markets. Consulting revenues, which include strategy, management and technology consulting and technology integration consulting, reflect a finite, distinct project or set of projects with a defined outcome and typically a defined set of specific deliverables. Managed services revenues typically reflect ongoing, repeatable services or capabilities provided to transition, run and/or manage operations of client systems or business functions.

From time to time, our geographic markets work together to sell and implement certain contracts. The resulting revenues and costs from these contracts may be apportioned among the participating geographic markets. Generally, operating expenses for each geographic market have similar characteristics and are subject to the same factors, pressures and challenges. However, the economic environment and its effects on the industries served by our geographic markets affect revenues and operating expenses within our geographic markets to differing degrees. The mix between consulting and managed services is not uniform among our geographic markets. Local currency fluctuations also tend to affect our geographic markets differently, depending on the geographic concentrations and locations of their businesses.

While we provide discussion about our results of operations below, we cannot measure how much of our revenue growth in a particular period is attributable to changes in price or volume. Management does not track standard measures of unit or rate volume. Instead, our measures of volume and price are extremely complex, as each of our services contracts is unique, reflecting a customized mix of specific services that does not fit into standard comparability measurements. Revenue for our services is a function of the nature of each service to be provided, the skills required and the outcome sought, as well as estimated cost, risk, contract terms and other factors.

[[GREPCENT_TABLE]]
[["Table of Contents"],["ACCENTURE 2023 FORM 10-K","","Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations","39"]]
[[/GREPCENT_TABLE]]

Results of Operations for Fiscal 2023 Compared to Fiscal 2022

Revenues by geographic market, industry group and type of work are as follows:

[[GREPCENT_TABLE]]
[["","Fiscal","","Percent Increase (Decrease) U.S. Dollars","","Percent Increase (Decrease) Local Currency","","Percent of Total Revenues for Fiscal"],["(in millions of U.S. dollars)","2023","","2022","","","","2023","","2022"],["Geographic Markets (1)"],["North America","$","30,296","","","$","29,121","","","4","%","","4","%","","47","%","","47","%"],["Europe","21,285","","","20,264","","","5","","","11","","","33","","","33"],["Growth Markets","12,531","","","12,209","","","3","","","12","","","20","","","20"],["Total Revenues","$","64,112","","","$","61,594","","","4","%","","8","%","","100","%","","100","%"],["Industry Groups"],["Communications, Media & Technology","$","11,453","","","$","12,200","","","(6)","%","","(3)","%","","18","%","","20","%"],["Financial Services","12,132","","","11,811","","","3","","","7","","","19","","","19"],["Health & Public Service","12,560","","","11,226","","","12","","","14","","","20","","","18"],["Products","19,104","","","18,275","","","5","","","9","","","30","","","30"],["Resources","8,863","","","8,082","","","10","","","15","","","14","","","13"],["Total Revenues","$","64,112","","","$","61,594","","","4","%","","8","%","","100","%","","100","%"],["Type of Work"],["Consulting","$","33,613","","","$","34,076","","","(1)","%","","3","%","","52","%","","55","%"],["Managed Services (2)","30,499","","","27,518","","","11","","","14","","","48","","","45"],["Total Revenues","$","64,112","","","$","61,594","","","4","%","","8","%","","100","%","","100","%"]]
[[/GREPCENT_TABLE]]

Amounts in table may not total due to rounding.

(1)In the first quarter of fiscal 2024, our Middle East and Africa market units will move from Growth Markets to Europe, and the Europe market will be referred to as our Europe, Middle East and Africa (EMEA) geographic market.

(2)Previously referred to as our outsourcing business.

Revenues

The following revenues commentary discusses local currency revenue changes for fiscal 2023 compared to fiscal 2022:

Geographic Markets

•North America revenues increased 4% in local currency, led by growth in Public Service for our U.S. federal business, Health and Utilities. These increases were partially offset by declines in Communications & Media, High Tech, Banking & Capital Markets and Software & Platforms. Revenue growth was driven by the United States.

•Europe revenues increased 11% in local currency, led by growth in Industrial, Banking & Capital Markets and Public Service. Revenue growth was driven by Germany, Italy and France.

•Growth Markets revenues increased 12% in local currency, led by growth in Chemicals & Natural Resources, Public Service and Banking & Capital Markets. Revenue growth was driven by Japan.

Operating Expenses

Operating expenses for fiscal 2023 increased $3,075 million, or 6%, over fiscal 2022, and increased as a percentage of revenues to 86.3% compared to 84.8% during this period. The increase as a percentage of revenues is primarily due to business optimization costs of $1,063 million recorded during fiscal 2023.

[[GREPCENT_TABLE]]
[["Table of Contents"],["ACCENTURE 2023 FORM 10-K","","Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations","40"]]
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Operating expenses by category are as follows:

[[GREPCENT_TABLE]]
[["","Fiscal"],["(in millions of U.S. dollars)","2023","","2022","","Increase (Decrease)"],["Operating Expenses","$","55,302","","","86.3","%","","$","52,227","","","84.8","%","","$","3,075"],["Cost of services","43,380","","","67.7","","","41,893","","","68.0","","","1,487"],["Sales and marketing","6,583","","","10.3","","","6,108","","","9.9","","","474"],["General and administrative costs","4,276","","","6.7","","","4,226","","","6.9","","","50"],["Business optimization costs","1,063","","","1.7","","","\u2014","","","\u2014","","","1,063"]]
[[/GREPCENT_TABLE]]

Amounts in table may not total due to rounding.

Cost of Services

Cost of services for fiscal 2023 increased $1,487 million, or 4%, over fiscal 2022, and decreased as a percentage of revenues to 67.7% from 68.0% during this period. Gross margin for fiscal 2023 increased to 32.3% compared to 32.0% in fiscal 2022. The increase in gross margin for fiscal 2023 was primarily due to lower labor costs, including lower subcontractor costs, partially offset by higher non-payroll costs, primarily for travel compared to fiscal 2022.

Sales and Marketing

Sales and marketing expense for fiscal 2023 increased $474 million, or 8%, over fiscal 2022, and increased as a percentage of revenues to 10.3% over 9.9% during this period due to higher selling and other business development costs as a percentage of revenues.

General and Administrative Costs

General and administrative costs for fiscal 2023 increased $50 million, or 1%, over fiscal 2022, and decreased as a percentage of revenues to 6.7% from 6.9% during this period.

Business Optimization Costs

During fiscal 2023, we recorded business optimization costs of $1,063 million, primarily for employee severance. For additional information, see Note 1 (Summary of Significant Accounting Policies) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

Operating Income and Operating Margin

Operating income for fiscal 2023 decreased $557 million, or 6%, from fiscal 2022. Operating margin for fiscal 2023 was 13.7%, compared with 15.2% for fiscal 2022. The business optimization costs reduced operating margin by 170 basis points. Excluding these costs, operating margin for fiscal 2023 increased 20 basis points to 15.4%.

Operating income and operating margin for each of the geographic markets are as follows:

[[GREPCENT_TABLE]]
[["","Fiscal"],["","2023","","2022"],["(in millions of U.S. dollars)","Operating Income","","Operating Margin","","Operating Income","","Operating Margin","","Increase (Decrease)"],["North America","$","4,474","","","15","%","","$","4,977","","","17","%","","$","(503)"],["Europe","2,333","","","11","","","2,437","","","12","","","(105)"],["Growth Markets","2,004","","","16","","","1,953","","","16","","","51"],["Total","$","8,810","","","13.7","%","","$","9,367","","","15.2","%","","$","(557)"]]
[[/GREPCENT_TABLE]]

Amounts in table may not total due to rounding.

[[GREPCENT_TABLE]]
[["Table of Contents"],["ACCENTURE 2023 FORM 10-K","","Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations","41"]]
[[/GREPCENT_TABLE]]

Operating Income and Operating Margin Excluding Business Optimization Costs (Non-GAAP)

[[GREPCENT_TABLE]]
[["","Fiscal"],["","2023","","2022"],["(in millions of U.S. dollars)","Operating Income (GAAP)","","Business Optimization (1)","","Operating Income (Non-GAAP)","","Operating Margin (Non-GAAP)","","Operating Income (GAAP)","","Operating Margin (GAAP)","","Increase (Decrease)"],["North America","$","4,474","","","$","465","","","$","4,939","","","16","%","","$","4,977","","","17","%","","$","(38)"],["Europe","2,333","","","433","","","2,766","","","13","","","2,437","","","12","","","328"],["Growth Markets","2,004","","","165","","","2,169","","","17","","","1,953","","","16","","","216"],["Total","$","8,810","","","$","1,063","","","$","9,873","","","15.4","%","","$","9,367","","","15.2","%","","$","506"]]
[[/GREPCENT_TABLE]]

Amounts in table may not total due to rounding.

(1)Costs recorded in connection with our business optimization initiatives, primarily for employee severance.

We estimate that the aggregate percentage impact of foreign currency exchange rates on our operating income during fiscal 2023 was similar to that disclosed for revenue for each geographic market. In addition, during fiscal 2023 each geographic market’s operating income was unfavorably impacted by business optimization costs. The commentary below provides insight into other factors affecting geographic market performance and operating income, including the impact of foreign currency exchange rates where significant for fiscal 2023 compared with fiscal 2022:

•North America operating income decreased as revenue growth was more than offset by higher labor costs, including an increase in selling and other business development costs as a percentage of revenues.

•Europe operating income increased due to revenue growth in local currency, partially offset by the negative impact of foreign currency exchange rates.

•Growth Markets operating income increased primarily due to higher contract profitability and revenue growth in local currency, partially offset by the negative impact of foreign currency exchange rates.

Interest Income

Interest income for fiscal 2023 was $280 million, an increase of $235 million over fiscal 2022. The increase was primarily due to higher interest rates.

Other Income (Expense), net

Other income (expense), net primarily consists of foreign currency gains and losses, non-operating components of pension expense, as well as gains and losses associated with our investments. During fiscal 2023, Other income (expense) increased $169 million over fiscal 2022, primarily due to higher gains on investments, partially offset by foreign currency exchange losses. For additional information on investments, see Note 1 (Summary of Significant Accounting Policies) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

Loss on Disposition of Russia Business

We recorded a loss from the disposal of our business in Russia of $96 million during fiscal 2022.

Income Tax Expense

The effective tax rate for fiscal 2023 was 23.4%, compared with 24.0% for fiscal 2022. Absent the business optimization costs of $1,063 million and related reduction in tax expense of $247 million, and the investment gain of $253 million and related tax expense of $9 million, our effective tax rate for fiscal 2023 was 23.9%.The slightly lower effective tax rate for fiscal 2023 was primarily due to lower tax expense from the geographic distribution of earnings, partially offset by lower tax benefits from share-based payments. For additional information, see Note 11 (Income Taxes) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests reflects the income earned or expense incurred attributable to the equity interest that some current and former members of Accenture Leadership and their permitted transferees have in our Accenture Canada Holdings Inc. subsidiary. See “Business—Organizational Structure.” Noncontrolling interests also includes amounts primarily attributable to noncontrolling shareholders in our Avanade Inc. subsidiary. Net income attributable to Accenture plc represents the income attributable to the shareholders of Accenture plc.

[[GREPCENT_TABLE]]
[["Table of Contents"],["ACCENTURE 2023 FORM 10-K","","Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations","42"]]
[[/GREPCENT_TABLE]]

Earnings Per Share

Diluted earnings per share were $10.77 for fiscal 2023, compared with $10.71 for fiscal 2022. The $816 million of business optimization costs, net of related taxes, decreased diluted earnings per share by $1.28 and the $244 million investment gain, net of related taxes, increased diluted earnings per share by $0.38 for fiscal 2023. Excluding these impacts, diluted earnings per share were $11.67 for fiscal 2023. For information regarding our earnings per share calculations, see Note 3 (Earnings Per Share) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

The increase in diluted earnings per share is due to the following factors:

[[GREPCENT_TABLE]]
[["Earnings Per Share","Fiscal 2023"],["FY22 As Reported","$","10.71"],["Higher revenue and operating results","0.60"],["Higher non-operating income (excluding loss on disposition of Russia business)","0.18"],["Loss on disposition of Russia business recorded in fiscal 2022","0.15"],["Lower share count","0.08"],["Higher effective tax rate (excluding loss on disposition of Russia business)","(0.02)"],["Higher net income attributable to noncontrolling interests","(0.03)"],["FY23 As Adjusted","$","11.67"],["Gain on an investment, net of tax","0.38"],["Business optimization costs","(1.28)"],["FY23 As Reported","$","10.77"]]
[[/GREPCENT_TABLE]]

Results of Operations for Fiscal 2022 Compared to Fiscal 2021

Our Annual Report on Form 10-K for the fiscal year ended August 31, 2022 includes a discussion and analysis of our financial condition and results of operations for the year ended August 31, 2021 in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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[["Table of Contents"],["ACCENTURE 2023 FORM 10-K","","Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations","43"]]
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Liquidity and Capital Resources

Our primary sources of liquidity are cash flows from operations, available cash reserves and debt capacity available under various credit facilities. We could raise additional funds through other public or private debt or equity financings. We may use our available or additional funds to, among other things:

•facilitate purchases, redemptions and exchanges of shares and pay dividends;

•acquire complementary businesses or technologies;

•take advantage of opportunities, including more rapid expansion; or

•develop new services and solutions.

As of August 31, 2023, Cash and cash equivalents were $9.0 billion, compared with $7.9 billion as of August 31, 2022.

Cash flows from operating, investing and financing activities, as reflected in our Consolidated Cash Flows Statements, are summarized in the following table:

[[GREPCENT_TABLE]]
[["","Fiscal","Change"],["(in millions of U.S. dollars)","2023","","2022"],["Net cash provided by (used in):"],["Operating activities","$","9,524","","","$","9,541","","","$","(17)"],["Investing activities","(2,622)","","","(4,261)","","","1,638"],["Financing activities","(5,645)","","","(5,311)","","","(334)"],["Effect of exchange rate changes on cash and cash equivalents","(101)","","","(248)","","","147"],["Net increase (decrease) in cash and cash equivalents","$","1,155","","","$","(278)","","","$","1,434"]]
[[/GREPCENT_TABLE]]

Amounts in table may not total due to rounding.

Operating activities: The $17 million decrease in operating cash flows were primarily due to higher spending on certain compensation payments, partially offset by higher collections on net client balances (receivables from clients, contract assets and deferred revenues).

Investing activities: The $1,638 million decrease in cash used was primarily due to lower spending on business acquisitions and higher proceeds from the sale of businesses and investments. For additional information, see Note 6 (Business Combinations and Dispositions) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

Financing activities: The $334 million increase in cash used was primarily due to an increase in cash dividends paid as well as an increase in the net purchase of shares, partially offset by increases in net proceeds from share issuances and net proceeds from borrowings. For additional information, see Note 14 (Shareholders’ Equity) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

We believe that our current and longer-term working capital, investments and other general corporate funding requirements will be satisfied for the next twelve months and thereafter through cash flows from operations and, to the extent necessary, from our borrowing facilities and future financial market activities.

Substantially all of our cash is held in jurisdictions where there are no regulatory restrictions or material tax effects on the free flow of funds. In addition, domestic cash inflows for our Irish parent, principally dividend distributions from lower-tier subsidiaries, have been sufficient to meet our historic cash requirements, and we expect this to continue into the future.

Share Purchases and Redemptions

We intend to continue to use a significant portion of cash generated from operations for share repurchases during fiscal 2024. The number of shares ultimately repurchased under our open-market share purchase program may vary depending on numerous factors, including, without limitation, share price and other market conditions, our ongoing capital allocation planning, the levels of cash and debt balances, other demands for cash, such as acquisition activity, general economic and/or business conditions, and board and management discretion. Additionally, as these factors may change over the course of the year, the amount of share repurchase activity during any particular period cannot be predicted and may fluctuate from time to time. Share repurchases may be made from time to time through open-market purchases, in respect of purchases and redemptions of Accenture Canada Holdings Inc. exchangeable shares, through the use of Rule 10b5-1 plans and/or by other means. The repurchase program may be accelerated, suspended, delayed or discontinued at any time, without notice. For additional information, see Note 14 (Shareholders’ Equity) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

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[["Table of Contents"],["ACCENTURE 2023 FORM 10-K","","Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations","44"]]
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Subsequent Events

See Note 14 (Shareholders’ Equity) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

Obligations and Commitments

As of August 31, 2023, we had commitments of $3.7 billion related to cloud hosting arrangements, software subscriptions, information technology services and other obligations in the ordinary course of business that we cannot cancel or where we would be required to pay a termination fee in the event of cancellation. Payments under these commitments are estimated to be made as follows:

[[GREPCENT_TABLE]]
[["(in millions of U.S. dollars)","","Payments (1)"],["Less than 1 year","","$","973"],["1-3 years","","1,382"],["3-5 years","","1,186"],["More than 5 years","","137"],["Total","","$","3,678"]]
[[/GREPCENT_TABLE]]

(1)Amounts do not include recourse that we may have to recover termination fees or penalties from clients.

For information about borrowing facilities and leases, see Note 10 (Borrowings and Indebtedness) and Note 8 (Leases) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

Off-Balance Sheet Arrangements

In the normal course of business and in conjunction with some client engagements, we have entered into contractual arrangements through which we may be obligated to indemnify clients with respect to certain matters. To date, we have not been required to make any significant payment under any of these arrangements. For further discussion of these transactions, see Note 15 (Commitments and Contingencies) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”