Home >>> News >>> NelsonHall Industry Insight: July 25, 2011
NelsonHall Industry Insight: July 25, 2011
The following extracts are commentary and insight from NelsonHall Industry Insight, NelsonHall analysts weekly views on key industry developments that impact your sourcing. Register to receive your copy weekly This newsletter forms part of NelsonHall's Key Vendor Assessments service. For further details, contact Paul Connolly.
•· Capgemini Launches Social Media Feedback Offering
Jul 21, 2011 | New Offerings by Thomas Whittle
Capgemini Consulting has announced the launch of a social media feedback offering.
Services provided under the offering include:
- o Real-time web listening
- o Analysis
- o Customer outreach.
The company says the feedback provided by Capgemini can then used by clients to modify processes, change marketing campaigns and overall influence consumer experience.
Capgemini is partnering with Attensity, a vendor of text analytics software, and delivery will be from Guatemala City, Dallas and Bangalore.
Capgemini has already had pilots and proof-of concepts with 20 clients across the telecom, gaming, manufacturing and consumer goods sectors:
For Brown-Forman, Capgemini has helped monitor and analyze on the launch of a new product, Jack Daniel's Tennessee Honey, across several social media including Facebook and Twitter.
Analyst comments:
Capgemini has been piloting the social-media offerings since Q4 2010. Pilots have included both ad hoc projects such as a singular report based around the sentiment and buzz of a new Jack Daniel's product launch, and longer-term contracts involving on-going monthly reporting, such as a large U.S. card retailer. NelsonHall estimates the revenues from Capgemini's social-media activity to date to be approximately $1.5m.
Capgemini is one of the few vendors who has formed a partnership with Attensity, aiming to develop monitoring and analytics offerings beyond the industry standard of Radian 6. Capgemini's offerings are separated between top level monitoring in the 'market view' and deeper level 'product view'. This separation highlights the beginning of a transition in social-media demand. Up to now, the overwhelming majority of social-media outsourcing has been aimed at gaining insight via top-level monitoring, with pilots being used to determine a social-media strategy based on the data returned on such things as volumes of traffic, sources, major 'buzz', popular issues and categorization of traffic between sales opportunities, customer care, or technical issues. With many companies having contracted for pilots of such services, there is increasing recognition that market and product intelligence via a social-media may be both cost-effective and usable. Companies are now looking at investing in outsourced analytics, beyond mere monitoring.
Relative to other tier one vendors, Capgemini was slightly slow to develop social-media offerings. However, it is now arguable that Capgemini now has one of the more complete packages of offerings in this space, with a clear focus on moving into the growth area of analytics.
Moving forward, Capgemini likely has two aims:
- § Firstly to work with Attensity or other third party software analysis providers to develop the capability to offer root-cause analysis of such things as customer purchase and customer churn.
- § Secondly, developing a multi-channel platform which enables such analytics to be integrated in a cost-effective manner across channels.
- Capita Announces H1 2011 Revenue Up 3% to £1,400m
Jul 21, 2011 | Financial Results by Sarah Burnett
industry: Government
Capita has announced H1 2011 revenues, for the period ending 30 June 2011, of £1,400m, up 3% year-over-year. Acquisitions contributed 10% of the revenue growth. Organic growth excluding acquisition and disposals was -7%.
H1 2011 operating profit was £193m, a margin of 13.8%, up from 13.1% in H1 2010.
H1 2011 revenue (and revenue growth) by market was:
- § Local government £266m (-1%)
- § Central government 126m (no change)
- § Education £168m (-3%)
- § Health £70m (1%)
- § Transport £28m (no change)
- § Police £42m (new 3%)
- § Life & pensions £266m (+1%)
- § Insurance £70 (-2%)
- § Financial services £84 (1%)
- § Other corporations £280 (no change)
Sector split is:
- § Public sector 50%
- § Private sector 50%.
Capita's current pipeline stands at £4.7bn, comprising 30 bids (Feb 2011 £4.7bn, 30 bids). The average contract length in the bid pipeline is 9 years.
During H1 2011, Capita made 11 acquisitions for a total consideration of £194m (H1 2010: 7 acquisitions for £107m). The largest of these was Ventura for £65m.
Capita's Indian workforce has grown to 5,000+ people. Operations in Poland are progressing to plan.
Analyst comments:
Capita announced in May that it expected revenue growth to be modest in 2011 but with several major bids coming to fruition in H2 2011. The outlook is looking brighter with Capita showing strong sales. It has signed £1.1bn worth of contracts so far this year, more than double the H1 2010 figure of £523m. These average at ~£92m per deal compared with £31m each in 2010 and are higher than the average of £81m per deal in 2009.
Three out of the four biggest deals are in the public sector, including a 7 year extension to the Teacher's pension Scheme, the DVLA's Vehicle Excise Duty (VED) and Continuous Insurance Enforcement (CIE) services, and Lambeth Council's multi-tower outsourcing contracts. The other deal is the Zurich Insurance package of new and extended services. All of these contracts (which are covered in separate articles) are in Capita's core business areas and have potential for other opportunities. For example, the terms of the Lambeth contract allows other local authorities to join Lambeth in a shared services arrangement to be delivered by Capita. The Zurich deal strengthens Capita's ambitions to grow its insurance business in Europe and internationally.
Bids where Capita is currently shortlisted include:
- § BBC: TV licensing, a must-win renewal for Capita, being a flagship contract that generates ~£75m annual revenue, but a contract that is being hotly contested
- § My Civil Service Pension (MyCSP) mutual, opens up opportunities for new partnering deals with the U.K. government.
The 7% revenue attrition has been due to lower than anticipated revenues largely from the National Strategies, BECTA Home Access, and Services Birmingham contracts which is unsurprising given the government's austerity measures e.g. existing contracts reviewed and de-scoped and BECTA going in the bonfire of the quangos.
With a strong bid pipeline Capita is optimistic about new outsourcing opportunities coming out of the public sector, across local and central government, health and police. The latter two markets are relatively newer areas of focus for Capita. The government is planning to open up public services to private and not-for-profit organizations. The latest announcement concerns £1bn worth of health services due to go to tender soon. Capita's optimism looks to be well founded.
Within the life & pensions unit, the European aspect of the ZFS win appears to have stimulated significant interest within the nascent European L&P BPO market as other life companies respond to Zurich's move. Capita appear to be achieving particular traction in the Netherlands were they are in active discussions with six life insurers with a combined policy count of 12m. One impact of Capita's European L&P expansion, albeit temporary, is to reduce operating profit within the unit, down to 9.5% compared from 11.8% at H1 2010.
• WNS Global Services Announces Fiscal Q1 Revenues Up 10% To $98m
Jul 21, 2011 | Financial Results by Charles Juniper
WNS Global Services has announced fiscal Q1 2012 net revenues less repair payments, for the period ending June 30, 2011, of $97.8m, up 9.6% year-over-year.
Fiscal Q1 2011 adjusted net income was $10.0m, up 354% year-over-year and giving an operating margin of 10.2%, up 162bps compared to fiscal Q1 2012.
Fiscal Q1 2011 revenue (and year-on-year change) by region was:
- U.K. $53.2m (+14.7%)
- North America $36.2m (3.4%)
- Europe $6.7m (+6.1%)
- Other $1.8m (+22.7%).
Fiscal Q1 2011 revenue (and year-on-year change) by industry sector was:
- Travel $21.5m (+1.3%)
- Insurance $33.0m (+13.5%)
- Healthcare $7.9m (+23.2%)
- Utilities $4.9m (+6.9%)
- B&FS $6.4m (1.8%)
- Consulting & professional services $6.7m (+7.3%)
- Shipping & logistics $2.5m (+4.2%).
Fiscal Q1 2011 revenue (and share of total revenues) by clients was
- Largest client $21.4m (+24.3%)
- Top 5 clients $40.8m (+11.6%)
- Top 10 clients $54.2m (+14.5%)
- Top 20 clients $69.0m (+10.5%).
Fiscal Q1 2012 headcount was 21,808, up 1.9% year-over-year. Staff attrition rate for the quarter was 41%, compared to 42% for fiscal Q1 2011 and 43% for Q4 fiscal Q4 2011.
Guidance for fiscal 2012 ending March 31, 2012 remains as previously stated at:
- Revenue less repair payments in the range $387m and $407m. This assumes an average GBP to USD exchange rate of 1.6 for the fiscal year)
- Adjusted net income (excluding amortization, share based compensation and minority interests) in the range of $43m to $47m. This assumes an average USD to INR exchange rate of 44.5 for the fiscal year.
Analyst comments:
This is a very good set of Q1 results from WNS and appears to show the wholesale restructuring and recruiting within the sales organization is beginning to work. WNS has secured six new clients during the quarter in the travel, insurance, telecom and manufacturing verticals. Service focus within these new contracts is F&A, transaction processing and technology-related.
WNS has also expanded relationships with nine existing clients for services including revenue recovery, insurance claims processing, F&A and retail analytics.
The sales pipeline also appears healthy with at least five significant late-stage opportunities, one of which, for a large insurer, has a decision is expected imminently.
The sales force has seen both considerable expansion in numbers and now stands at 66, but also the mix has changed considerably with 60% having joined in the joined in the last 12 months and almost 40% in the last six months. While the focus has been on hiring experienced 'big hitters' able to make an impact very quickly, with this level of change it will take until Q4 for the full effects to become apparent. The sales force expansion will continue particular in the U.S., Asia Pacific and the Middle East.
The U.K.-based auto claims business has seen a recovery in transaction volumes in the quarter and WNS are rolling out a platform upgrade within the unit that should drive increased efficiency and create opportunities in related insurance niches such as home repair and non-accident and service maintenance. WNS are also looking to leverage its experience to target paralegal services related to auto accidents and personal injury claims. These areas should begin to contribute from Q2 of this fiscal year.
The attrition rate at 41% remains high although down marginally from the preceding quarter. This issue remains a key priority for WNS and some of the employee-related programs implemented last quarter appears to be having a positive impact.
• arvato AG Revises Branding to Strengthen Identity
Jul 20, 2011 | New Offerings by John Willmott
arvato AG has revised its branding and will begin to roll-out a new corporate image.
The company is aiming to give a distinct, shared image across all subsidiaries within arvato.
Analyst comments:
This appears to be a first step in separating the identity of arvato from that of the Bertelsmann group and establishing a strong identity in its own right.
Clearly, should the company wish, this would facilitate the spin-off of the arvato BPO business from Bertelsmann in the next year or so.
• Wipro Announces Fiscal Q1 2012 Revenue Up 16.9% to $1.4bn
Jul 20, 2011 | Financial Results by Rachael Stormonth
Wipro Technologies has announced results under IFRS for fiscal Q1 2012, the period ended June 30, 2012. Dollar realized revenue was $1,407.5m, up 16.9% y-o-y, and up 0.5% sequentially. Operating margin was 22.1%, down 10 bps sequentially and down 270bps from the 24.7% margin achieved in the prior year quarter.
Fiscal Q1 2012 revenue share (with estimated $ revenue and YoY growth) by practice was:
- ADM 23.9% (~$336m, +15.0%)
- Technology Infrastructure Services 21.7% (~$305m, +20.8%)
- Analytics and Information Management 6.4% (~$90m, +33.6%)
- Business Application Services 30.4% (~$428m, +16.9%)
- BPO 9.3% (~$131m, +7.7%)
- Product Engineering & Mobility 8.3% ~($117m, +12.9%).
Fiscal Q1 2012 revenue share (with estimated $ revenue and YoY growth) by vertical was:
- Financial Services 26.7% (~$376m, +16.1%)
- Global Media & Telecom 16.8% (~$236m, +14.9%)
- Manufacturing & Hi-Tech 19.7% (~$277m, +7.1%)
- Healthcare, Life Sciences & Services 10.2% (~$144m, +11.5%)
- Retail & Transportation 15.0% (~$211m, +17.7%)
- Energy & Utilities 11.6% (~$163m, +52.4%).
Fiscal Q1 2012 revenue share by region (with estimated $ revenue and YoY growth) was:
- Americas 53.0% (~$746m, +14.1%)
- Europe 28.6% (~$403m, +31.7%)
- Japan 1.1% (~$15m, -14.3%)
- India & Middle East business 9.0% (~$127m, +16.9%)
- APAC and Other Emerging Markets 8.3% (~$117m, +42.7%).
Wipro now has 12 clients generating annual revenue of $75m or more.
The IT Services business added 49 new clients during the quarter and has a total of 937 active clients (up from 904 at the end of March 2011)
Client distribution by size of annual revenues (trailing 12 months) was:
- $1m+: 438 (end FY 2011: 429)
- $5m+: 195 (end FY 2011: 180)
- $10m+: 118 (end FY 2011: 117)
- $20m+: 69 (end FY 2011: 68)
- $50m+: 24 (end FY 2011: 22)
- $75m+: 12, no change
- $100m+: 4, (end FY 2011: 3)
Client contribution to total revenues was:
- Top 1: 3.3% (FY 2011: 3.0%)
- Top 5: 10.9% (FY 2011: 10.9%)
- Top 10: 19.4% (FY 2011: 19.5%).
Headcount at Wipro Technologies as at end June 2011 was 126,490, a net addition of 4,105 during the quarter and of 13,565 over the year. Voluntary admission on a quarter analyzed basis went up 230 bps to 23.2%.
Attrition by BU (compared with the prior year period) was:
- IT Services (excl. India/Middle East) voluntary TTM 22.6% (15.8%)
- IT Services (excl. India/Middle East) voluntary quarterly 23.2% (23.0%)
- BPO quarterly 15.3% (15.9%).
Excluding Infocrossing, India/Middle East and BPO:
- Revenue contribution from FPP was 47.0% (compared with 44.6% in the prior year quarter)
- The offshore/onsite revenue mix was 47.6%/52.4% (compared with 47.8%/52.2% in the prior year quarter)
Wipro has provided guidance for fiscal Q2 2012 of revenue in the range of $1,436m to $1,464m.
Analyst comments:
Wipro's muted performance this quarter was to be expected given the major restructuring the company has been going through under its new CEO, who himself commented that "reorganization is a painful process to go through".
Wipro has slipped further behind in trailing TCS (34.4% rev growth) and Infosys (23.0% rev growth), Its volume growth of 1.8% (onsite 5.8%, 2.9% organically with new project starts) compares unfavorably with the 4% volume growth reported by Infosys (6.8% onsite; 2.7% offshore) or the 7.8% reported by TCS.
In terms of verticals
- § The bright star for Wipro was energy & utilities: even excluding the $10m contribution this quarter from the acquired SAIC business unit, we estimate organic growth in E&U was over 20%, and Wipro is generating significantly more revenue from this vertical than TCS or Infosys
- § In contrast, Wipro had a muted quarter in BFSI: its 16% revenue growth pales compared with the 30% growth we estimate for TCS. However, management highlighted two deals it has won in that segment which are over $0.5bn in TCV Wipro's lack of software platforms for either retail banking or for insurance and generally relatively little in the way of industry-specific software IP in these verticals is a weakness the company is likely to want to address. Management referred to seeing "a fairly decent pipeline" in the insurance sector.
- § Wipro also appears to have done comparatively well in healthcare and life sciences (where it is still in investment phase), where both TC and Infosys had relatively quiet quarters
- § In its fourth key vertical, retail and consumer products, management refers to having had a bad quarter but to expecting it to recover in the near future.
In terms of geographies, Wipro fared better this quarter than Infosys in Europe, and surpassed $400m. However, in the U.S. overall, Kurien admits to having "ways to go in terms of performance and that's what we are focused on in the quarters to come".
Wipro has changed its service line reporting making it difficult to identify which specific service lines have seen any improvement or deterioration this quarter compared with the quarterly performance through FY 2011. The only two verticals where this is possible are BPO and IT infrastructure services
With IT infrastructure services, Wipro's revenue growth this quarter is in line with what it reported each quarter in FY 2011, and the business continues to be one of the fastest growing service lines for the company (though our estimate of ~21% growth is less than half what was achieved by TCS this quarter)
In contrast, Wipro's BPO business has had its third consecutive quarter of mid-single-digit revenue growth, and is doing far worse than either Infosys or TCS. Wipro is changing its business mix in BPO (as indeed it did some years back after acquiring Spectramind) and the unit has also gone through a change of leadership recently. The business clearly needs attention, and TK Kurien's experience of BPO leadership will be a key factor here.
Having reorganized into a vertical-led structure, Wipro is clearly looking to strengthen its portfolio with cloud-based offerings where it owns the IP and analytics offerings, again where it owns the IP.
Wipro is looking to address a number of areas, which include, to name but four:
- § Strengthening its account management
- § Increasing its onshore presence in the U.S.
- § Developing its portfolio
- § Sorting out the underperforming BPO business.
Early signs of progress in some of these areas may become apparent in H2 FY 2012, but what is being implemented at Wipro is a multi-year strategy, and it is unrealistic to expect any significant improvement in the short term.
• Xerox Awarded Outbound Document Management BPO Contract by Lloyds Banking Group
Jul 19, 2011 | Contracts by Rachael Stormonth
industry: Retail Banks
Xerox has been awarded a customer communications document management BPO contract by U.K.'s Lloyds Banking Group.
Services to be provided by Xerox include design, print and delivery of targeted marketing materials, regulatory notices, and regular monthly mailings. Xerox highlights that it will print much of the bank's marketing documents on demand, minimizing the need to warehouse marketing inventory.
Analyst comments:
In what will be a major U.K. client reference for Xerox Communications and Marketing Services, Xerox, who had a contract with Lloyds, beat Williams Lea, who formerly had a print management contract with HBOS.
Following its acquisition of HBOS, Lloyds Group became U.K.'s largest retail banking group. This contract combines the print spend across the group, a move that was to be expected to enable the bank to streamline and reduce the cost of its developing and producing its customer communications.
