In another sign of the trend to move offshore call services back on shore (see Tide turning for offshore call centres), Aviva, the largest client of offshore BPO pure play WNS, is bringing ‘certain front end voice services back in house’ according to CEO Keshav Murugesh, on its Q3 results call. Going forwards, WNS is also ‘forecasting lower same service outsourcing volumes’ from its largest client.
Headline revenue in Q3 to 31 December fell 23.2% to $117.2m, and revenue less repair payments (which is the barometer to measure WNS’ underlying business) was up 4.9% to $97.2m, although down 3% on the previous quarter. Margins are coming under increasing pressure too. The adjusted net margin, which excludes amortization and share-based compensation, fell to 12.5% from 19.4% in Q310. WNS blamed this again on wage increases, which took place in the previous quarter, as well as impacts from IFRS hedge accounting, and a higher tax rate.
The Aviva contract has helped fuel WNS’ recent improving performance (see here), and clearly the UK geography has benefited from this – in Q3 UK revenue grew 4% to $54m. Murugesh maintains WNS has a strong relationship with Aviva, which is just as well since it accounts for c$125m in WNS’ annual revenue (see WNS wins mega 8 year $1bn BPO contract with Aviva). And they are looking at future opportunities in new geographies and higher value services. But this is unlikely to stem the anticipated decline in the near term.
This predicament shows how reliant WNS is on a select few large customers. YTD, Aviva accounts for 22% of its revenue less repair, and the top five customers 41%. WNS needs to spread the spoils across a wider share of clients. The good news is that, during the quarter, it actually won an important new ten-year deal with another insurer, which Murugesh hopes to become a top 5 customer in next few years. But this will only 'partially offset' some of the declines from Aviva in 2012.
The other big concern for WNS (and no doubt its customers) is largest shareholder Warburg Pincus’s decision last October to sell its 48% stake in the company (see Warburg looking for orderly exit from WNS). WNS’ market value has dropped c20% since the announcement. Warburg has yet to make its move, but the longer this drags on the longer the uncertainty will continue.