Offshore BPO pure play WNS beat revenue expectations for Q1, and reversed a 2.5% decline in the previous quarter (see WNS finally sees the light). Revenue less repair payments for the quarter ended 30 June grew 9.6% to $97.8m (analysts had expected $94.4m), and up 3.7% sequentially. Adjusted operating profit (excluding amortisation and share-based compensation) grew 23% to $13.7m, pushing up the margin to 14% vs. 12.5%). CEO Keshav Murugesh said the stronger performance was as a result of higher volumes in the insurance, retail, shipping & logistics and healthcare verticals and the benefits of a stronger British pound. The UK currency effect is of course an important factor for WNS since the UK accounts for over half of its revenue. In Q1 the UK accounted for 54.4% of its revenue (or $53.2m) vs. 51.9% in Q110, and up 2.5% qoq.
WNS is also attempting to simplify its accounts relating to its auto claims business, which we are pleased to see. Currently, WNS includes in its accounts revenue received from its auto claims clients, which it then passes through to repair centres. It is renegotiating with customers to remove this liability so that the “significant risk of services and the credit risk are now borne by these clients instead of WNS.” This should make analysis of the company’s true performance clearer. And it is also good news for WNS since it has already reduced the number of days sales outstanding (DSO) from its auto clients to 45 days from 58 in Q4.
It seems recent investments in expanding the sales force and client partner programmes are also beginning to benefit WNS. For instance this appears to be helping to drive incremental growth at largest customer AVIVA, which alongside the strong pound, explains the increase in share of UK revenue in the quarter. Additionally, WNS is now also beginning to gain traction in the US market, where it has been underrepresented to date. Murugesh said that he is now considering opening an on-site centre in the US, as it has already done in the UK.
Following the solid start to the year, WNS also narrowed its guidance for FY11/12 to between $387m to $407m, which would show growth of between 5% and 10%. This is all more promising from WNS. But there is plenty of work still to do if it is to keep up with larger and faster growing competitors like Genpact, which grew Q1 revenue 14.7% and net profits by 28%. Like its peers WNS is now interested in building platform-based BPS capability, and expanding its analytics into customer accounts. We see its progress in developing these strands as key elements in its future success.