Fitch Affirms Accenture's IDR at 'A+'; Outlook Stable

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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