• Infosys Announces Fiscal Q1 2009 Revenues Up 24.5% to $1,155m

  Jul 11, 2008 | Financial Results by Rachael Stormonth
  

  Infosys has announced fiscal Q1 2009 revenues, for the period ending 30 June 2009, of $1,155m, up 24.6% on fiscal Q1 2008 revenues of $928m. Operating income was c. $308m, giving a margin of 26.6%, up from a 24.7% margin in fiscal Q1 2007.

  Fiscal Q1 2009 revenue (and yr-on-yr revenue growth) by geography was:

  • North America $723m (+24.4%)
  • Europe $316m (+27.4%)
  • India $14m (-17.6%)
  • Rest of World $102m (+24.4%).

  Fiscal Q1 2009 revenue (and yr-on-yr revenue growth) by industry was:

  • Financial services $398m (+18.8%)
  • Manufacturing $213m (+69.0%)
  • Telecom $228m (+11.8%)
  • Retail $140m (+40%)
  • Others $176m (+8%).

  Fiscal Q1 2009 revenue share (with comparable revenue share in the prior year quarter) was:

  • Application Development 21.4% (21.6%)
  • Application maintenance 22.0% (24.4%)
  • BPO 6.3% (5.4%)
  • Consulting Services and Package Implementation 23.7% (23.3%). Infosys Consulting contributed $18m revenues of the c. $274m
  • Infrastructure Management 5.7% (5.1%)
  • Systems Integration 3.1% (2.0%)
  • Testing Services 7.4% (7.5%)
  • Other Services 4.3% (5.1%)
  • Software Products 3.9% (3.3%)

  Revenue mix by propject type (with comparable revenue share in the prior year quarter) was:

  • Fixed price 32.8% (27.5%)
  • T&M 67.2% (72.5%).

  Headcount at end fiscal Q1 2009 was 94,379, a net addition of 3,192 during the quarter, and a gross addition of 7,182.

  Utilization during the quarter was:

  • Including trainees 68.9%, down from 70.5% in the prior year quarter
  • Excluding trainees 72.2%, down from 73.9% in the prior year quarter.

  Infosys added 49 new clients during fiscal Q1 2009.

  Infosys has provided revenue guidance:

  • For fiscal Q2 2009 of $1,115m-$1,125m, representing year-over-year growth of 18.9% t o19.9%
  • For FY 2009 of $4.97Bn to $5.05Bn, representing 19% to 21% growth.

  Analyst comments:

  While the top line may not have grown at the rate of 40%+ that Infosys experienced last year, a deceleration of revenue growth is to be expected given both the market environment and also Infosys' own evolutionary phase as an IT services provider. FY 2009 will be the fourth year in a row that Infosys has crossed another $1Bn in revenues. Meanwhile, the improvement in operating margin is impressive.

  The 69% revenue increase in the manufacturing sector is coming from packaged implementation services and product engineering services.

  The fastest growth this quarter by service line has been in BPO (over 45% to c. $73m revenues), driven by the ramp up of activity within the Philips contract, and also the smaller practice of systems integration services.

• WNS Awarded $1Bn Insurance BPO Contract by Aviva

  Jul 11, 2008 | Contracts by Rachael Stormonth
  industry: Property & Casualty

  WNS Global Services (WNS) has acquired for £115m (c. $228m) Aviva Global Services (AGS), the Singapore-based holding company of insurance group Aviva's offshore BOT (Build-Operate-Transfer) facilities in Banglore, Pune, Chennai and Colombo. The agreement includes a MSA for an 8 year 4 month (100 month) contract with an estimated potential lifetime value of $1Bn.

  The services to be supplied by WNS to Aviva companies in the U.K. and Canada include:

  • Life and general (P&C) insurance processing
  • Policy administration and settlement
  • Finance and accounting
  • Customer care.

  The facilities being acquired have a capacity of 5,800 seats with a current headcount of 4,200. The contract includes:

  • A guarantee of 3,000 billable FTEs
  • An exclusivity clause giving WNS access to other Aviva geographies and businesses.

  As part of the ramp up of activity, WNS has been awarded a contract with Hibernian, Aviva's Irish business, which will involve the offshoring of c. 580 positions, ramping up over the next 3 years.

  Analyst comments:

  Back in 2003 Aviva started a major initiative to offshore a substantial amount of its processing work, forming 3-year BOT agreements in 2004 with:

  • 24/7: in Bangalore and Chennai
  • EXL Services: in Pune
  • WNS: in Pune and Colombo

  Aviva chose three partners initially in order to be able to ramp up faster than would be possible with one partner, also to spread the risk. The insurance company found very different cultures prevailing in 24/7, EXL and WNS

  For the first 3 years, the contracts were priced on a cost plus basis.

  In 2007 Aviva began the "Transfer" phase of the BOT arrangements, for example:

  • The Bangalore facility set up by 24/7 transferred to Aviva in January 2007, along with 1,600 employees
  • The Colombo facility set up by WNS transferred to Aviva in July 2007 along with 300 employees.

  However, instead of having captives, Aviva eventually went for the option to continue with a BPO operation, but partnering primarily with just one service provider. Insurance companies in the U.K. and North America are operating in an unfavorable economic environment and in what is likely to be a volatile period over the next few years Aviva will have been attracted by long-term pricing stability and a move from FTE-based to unit-based pricing where feasible. The £115m purchase price (approximately twice times revenue) is unlikely to have been a deciding factor.

  The relationship with WNS will now change substantially: where before any process change had to be sanctioned by business unit heads in the U.K. WNS can now commence on process standardization and optimization initiatives, including centers of excellence for specific activities.

  For WNS this transaction represents not just a happy ending to a BOT agreement but moves it into the premier league of offshore insurance BPO providers: this is the largest offshore insurance BPO contract to date. It also means that WNS is operating on a level of scale that positions it more strongly for significant scale BPO contracts in other areas.

  EXL Services, who also bid for the AGS operations, has maintained its Noida BPO contract with Aviva but loses a substantial chunk of BPO business from what has been its largest client (24% of revenues).

  (NelsonHall has published a separate NelsonHall Perspective on this deal which provides further details).

• EXL Awarded Contract Extension by Aviva for Noida Facility; Receives Transfer Notice for BOT Facility in Pune

  Jul 10, 2008 | Contracts by Rachael Stormonth
  industry: Property & Casualty

  ExlService has announced that Aviva:

  • Has extended its outsourcing contract with EXL to provide services from EXL's Noida facility, with an annual minimum volume commitment but capped at 600 employees. The existing Noida contract with Aviva will expire in July 2009 after which time the new contract will take effect through January 2012
  • Has provided 30 days' notice to EXL with respect to the exercise of the Build Operate Transfer (BOT) contract currently in place with EXL in Pune.

  EXL will lose 900 billable FTEs out of a total headcount of c. 10,500.

  Analyst comments:

  Back in 2003 Aviva started a major initiative to offshore a substantial amount of its processing work, forming 3-year BOT agreements in 2004 with:

  • 24/7: in Bangalore and Chennai
  • EXL Services: in Pune
  • WNS: in Pune and Colombo

  Aviva chose three partners initially in order to be able to ramp up faster than would be possible with one partner, also to spread the risk.

  In 2007 Aviva started on a the "transfer" phase of its BOT deals, transferring:

  • A Banglore facility from 24/7 (1,600 FTEs) in January
  • A facility in Colombo from WNS (300 FTEs) in July.

  However, instead of keeping these as captive operations, Aviva subsequently went for the option to continue with BPO and conducted a commercial process to sell these operations.

  EXL made a bid to acquire Aviva's consolidated BPO operations but was not successful against WNS (see separate article, also the NelsonHall Perspective on this deal). EXL would have been particularly careful in its approach to this acquisition as it would have made it particularly dependent on Aviva: had it made the acquisition Aviva would have accounted for a third of EXL's revenues.

  In addition to losing over half its business with Aviva, who has been its largest client (accounting for 27% of total revenues, c, $48m in 2007), EXL has also been hit to a lesser extent by IndyMac's exit from the mortgage originitions business (the other offshore vendors impacted by this are Cognizant and Satyam).

  More importantly, EXL's contract with its second largest client Centrica (accounts for 24.7% of total revenues, c. $44m per annum) contract is due to expire in January 2009: a contract extension is likely to be announced soon.

• 24/7 Customer Transfers Chennai Center to Aviva Global Services Completing BOT Deal

  Jul 09, 2008 | Contracts by Suvradeep Bhattacharjee
  industry: Insurance

  24/7 Customer has transferred 750 agents and a facility in Chennai to Aviva Global Services, completing what was set up as a 'Build Operate Transfer' (BOT) contract.

  These agents were providing customer support, sales and F&A services to Aviva's life and motor insurance businesses.

  Analyst comments:

  This marks the completion of the second BOT contract that 24/7 Customer has had with Aviva. The first was the transfer of the Bangalore facility and 1,600 employees in January 2007.

  Aviva is not in fact keeping the centers as captive operations: both are transferring to WNS Global Services, who is acquiring these and other former BOT facilities serving Aviva for £115m as part of a 100 month contract with a potential lifetime value to WNS of $1Bn (see separate article).

• Lockheed Martin Awarded 8.5-year, $1.2Bn HR Outsourcing Contract by TSA

  Jul 08, 2008 | Contracts by Helen Neale
  industry: Federal/Central Government

  Lockheed Martin has been awarded an HR resource outsourcing contract by the Transportation Security Administration (TSA). The contract comprises a six-month transition period, a one-year base period and seven one-year options. If all options are exercised, the total contract value is c. $1.2Bn.

  The contract is for the management of the TSA's Integrated Hiring Operations and Personnel (IHOP) program.

  In addition, the contract also allows for the delivery of HR services to the Department of Homeland Security headquarters. If availed of, this would increase the total possible contract value to $3Bn.

  Services to be provided to the TSA by Lockheed Martin include:

  • Recruitment and hiring
  • Personnel and payroll processing
  • Employee benefits
  • Workforce management
  • Help desk services.

  In addition to managing TSA's human resource services, the contract provides for Lockheed Martin to develop and deploy a new HR system.

  Lockheed Martin has previously provided screener training and checkpoint reconfiguration services to the TSA.

  Analyst comments:

  Despite the recent slowdown in multi-process HRO outsourcing activity within North America, this contract is the largest ever single BPO-process HR outsourcing contract awarded globally.

  Lockheed Martin has historically not been a significant player within HRO due to the company's strong technical / IT background. However, this deal signifies their entry into the marketplace with a bang and also indicates that the Federal HR outsourcing marketplace is likely to have a different profile of competitors from the private sector HR outsourcing marketplace.

  The company is likely to be relying on a number of partners for delivery of services, particularly within areas such as payroll, benefits and recruitment process outsourcing

  Globally, state and local governments have led the way in terms of multi-process HRO within the government market, with Convergys winning large deals with Texas Health and Humans Services and Florida, and companies such as Mouchel and Liberata having success in regional U.K. government.

  This contract is the first example of a federal / central government multi-process contractual arrangement, excluding TSA's initial contract with Accenture in 2003 which was for 1 year plus 4 1-year extension options.

• Groupe Open Makes Unsolicited Offer for Sylis

  Jul 07, 2008 | Mergers and Acquisitions by Dominique Raviart
  

  French IT services vendor Groupe Open has made an unsolicited offer for competitor Sylis. The company offers €4.25 per Sylis share, valuing Sylis to a maximum of €43m. The price represents a premium of 73% over Sylis share price (on July 4, 2008). The offer is conditional to Open receiving a minimum of 50% of Sylis shares.

  Sylis is a French IT services vendor with 2007 revenues of €138m, an operating margin of 3.8% and a headcount of 1,740. The company is an application services specialist mostly active in software development (63% of revenues) and in systems integration (12%). The company is also active in outsourcing (20.5%) and consulting (4.5%). The company is primarily present in France (69% of revenues), in BeLux (15%) and the Netherlands (16%).

  Combined revenues and headcount of Open and Sylis will be €325m and 4,000.

  Analyst comments:

  Sylis is a Northern France IT services vendor that has a strong background in staff augmentation in application services. The company made several ill-timed acquisitions in 2000 in Benelux that increase its debt. After the turn-down of 2002, Sylis focused on decreasing its debt level from €45m in 2000 to €5.1m in 2007. Sylis' financial discipline has meant that the company reduced its investment for several years. It is only recently the company has started to adapt its business model from pure staff augmentation and create structure offerings around application management, software factories and software testing. Nevertheless, T&M pricing still accounts for 76% of revenues of the company, down from 78% in 2006.

  Groupe Open seems quite confident with its unsolicited offer. First, the company has given itself little time to win Sylis' support. The company had approached officially Sylis on June 16, asking for an official reply by June 24. By June 24, Sylis had not responded and Groupe Open proceeded with its unsolicited offer. Second, 35% of the capital still is in the hands of the founders and another 20% is owned by an investor. Groupe Open will therfore need the support from this investor.

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