WNS (Holdings) Ltd (WNS) 2012 Q1 法說會逐字稿

Good morning and welcome to the WNS (Holdings) first-quarter fiscal 2012 conference call. At this time all participants are in listen only mode. After management's prepared remarks we will conduct a question-and-answer session and instructions for how to ask a question will follow at that time. Now I would like to turn the call over to [Jed Repko], WNS's Investor Relations consultant.

Thank you, Tonya. Good morning, ladies and gentlemen, and good afternoon or good evening to those of you joining us from Europe and Asia. With me today I have Keshav Murugesh, WNS's Group CEO, and Alok Misra, the Group's CFO.

A press release detailing WNS's quarterly and year-end results was issued earlier today. This release is also available on the Investor Relations website -- Investor Relations section of the website, www.WNS.com. If you have any trouble finding this information, please contact the Company at IR@WNS.com.

Today's remarks will focus on the results for the fiscal first quarter ended June 30, 2011. Some of the matters that will be discussed on today's call are forward-looking and you should keep in mind that these forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

Such risks and uncertainties include, but are not limited to, those factors set forth in the Company's Form 20F which was filed with the SEC in April 2011 and is available on the Company website. During this call management will reference certain non-GAAP financial measures which they believe provide useful information for investors. You can find reconciliations of these non-GAAP measures to GAAP measures in the press release issued earlier today.

Some of the non-GAAP measures management will discuss are defined as follows -- net revenues are defined as revenues less repair payments; adjusted net income, or ANI, is defined as profits excluding amortization of intangible assets and share based compensation. These terms will be used throughout the call. I will now turn the call over to Keshav.

Thank you, Jed. In the first fiscal quarter 2012 WNS delivered solid growth on both the top and bottom line compared to the same quarter last year. We are firmly on track to deliver on our guidance and see several positive growth opportunities which I will discuss shortly.

This journey is about continually moving forward and I believe that our first-quarter results show that our Company is now solidly on a growth trajectory. This progress is a direct result of significant investments we have made and will continue to make in our sales and marketing functions.

As the opportunities we see before us are exciting, and with our investments starting to pay off, this is not the time to under invest; it is the time to focus on further capitalizing on our prospects for profitable growth.

Today I will briefly touch on the three points that I have discussed on our last two earnings calls. Again, we see these as the key ingredients for successfully growing our business in an uncertain business environment. They are -- new business activity, investments in resources and moving up the value chain with clients.

First, let's talk about new business activity. Our focus is on growing top-line revenues through a balanced approach of securing new clients and expanding existing relationships. Much work remains to be done, but today we can point to clear progress in that direction. Our pipeline is robust and our sales team continues to bring new opportunities to the table for evaluation and action.

In terms of revenue expansion, I am pleased to reiterate that we saw traction on both our hunting and farming programs this past quarter. Since the time of our last earnings call we have won six new contracts with companies in the travel, insurance, telecom and manufacturing verticals. We will perform finance and accounting, transaction processing and technology-related work for these clients.

We've also expanded our relationships with nine clients mainly in the travel, insurance and retail spaces. We will now provide support executing revenue recovery, insurance claim processing, finance and accounting and retail analytics work for these companies.

On our last call I mentioned that we were in the final contract stages with a large potential client in the insurance space. This client has now down selected WNS and has also conducted extensive due diligence. A decision is now imminent. Besides this we have another four good-sized potential deals, two of which we consider significant in size. These potential deals are in four separate verticals including telecom, utilities and retail.

The rest of the pipeline, which is in the early and middle stages, looks encouraging. We see opportunities in the US in the travel, banking and media spaces. Finance and accounting opportunities across the board are strong as well, while the pipeline in the UK and Europe has some good sized deals in the insurance, travel and CPG industries. Our pipeline in the Asia Pac and Middle East regions also looks promising with opportunities in insurance, travel and banking spaces.

While macroeconomic headwinds still persist, the differentiators we have focused on are boosting interest from analysts and advisors, accelerating prospective client visits to our campuses and strengthening our existing client relationships.

As a reminder, these differentiators include the, first, verticalized BPO offerings [stocked] by WNS Associates with a strong knowledge of business domains; second, non-linear growth models; third, a very focused client partner approach to customer relationships; fourth, on-site models along with near and offshore strategies; and finally, a stronger technology-based transformation program.

Meanwhile we are starting to see some positive trends in the overall BPO environment that we can leverage for the benefit of our business. Clients are making decisions faster and while it may -- and while it will take some time for us to see the opportunities I just discussed turning to revenues, we are being pushed for shorter ramp times and more diversified engagements across a client's business from the outset.

The second ingredient is the investment in resources to achieve this growth. Our Company is committed to investing in the business and improving the sales organization. The increase to our selling and marketing expenses reflect this investment and speak to our commitment to putting the right team in place.

WNS has traditionally concentrated on building a strong sales presence in Europe, but with a significant part of our sales headcount now being added in North America, Asia Pac and the Middle East, in addition to Europe, we have shifted our focus and the excitement is palpable. We have made great progress attaining a balance between hunting and farming focused sales personnel.

We now have 66 salespeople split almost evenly between hunters and farmers. This total is up 60% from 41 when I joined WNS and 15% from 57 at the time of our last earnings call. We have plans to expand this team further and we expect the number of client facing personnel to increase in this fiscal year as we bring additional talent on board.

The net additions are significant, but what is also important is that the mix has changed with over 60% of the sales force having joined in the last 12 months and almost 40% in the last six months as we inject fresh blood into our sales team.

This investment is starting to pay off with the newer additions bringing in a wealth of experience and deep industry knowledge to the benefit of our verticalized market approach. They've already delivered several opportunities to WNS, a couple of which had even closed in the past few months.

Our joint partners are having meaningful discussions with existing clients and are starting to take end-to-end ownership of a client across vertical and horizontal areas as opposed to handling only specific horizontal processes as in the past. This will result in more opportunities for WNS to achieve profitable growth in new areas and will also lead to increased wallet share over our competitors and other vendors.

In terms of our delivery footprint, we are looking at opportunities to establish an onshore presence in North America so we can serve our clients in close proximity in certain specific service areas. As you know, we already have four centers in the UK from which we serve our clients.

I'm pleased to say that we have expanded into a new facility in Costa Rica and significantly increased our presence there. We're also looking at further opportunities in Latin America, Africa and the Far East in order to present an enhanced global footprint to our clients.

The third ingredient of success is for us to move up the value chain with clients. We have several transformation and technology driven solutions in the pipeline which we plan to roll out this fiscal year. Our client partners and engagement managers are gaining traction with these offerings and are positioning us as strategic partners, particularly when it comes to transformation and technology driven solutions.

Our technology and transformation group is working closely with our sales team, our client partners and our clients themselves to develop the right value add offerings for our markets. We see tremendous opportunity in several of our IT enabled offerings.

You will recall we had issued a joint release a short while ago with Star Alliance, one of the airline industry's premier alliances, where we were to provide sales audit and revenue assurance services to their member airlines. I'm pleased to report that we have already started work with two of these airlines.

Of the six new clients we have added this past quarter, four have technology and transformation competence embedded in the solution we are implementing. Going forward we see technology and transformation as a key component of our differentiated services as we move up the value chain in addition to improving productivity and expanding margins.

Our auto claims business, which has seen some volume pressure in the last couple of quarters, is now actually seeing improved traction in the market with a large sized deal close to closure. As you know, this part of our business runs exclusively on shore in the UK and has been subject to the vagaries of the UK economy and the downturn in the insurance market there.

As we explained at our Investor Day, this business is very interesting from our perspective as it is technology intensive, uses our own technology platform and provides us the ability to leverage this platform and knowledge of claims to enter multiple new business lines. These new lines have the potential to create new revenue streams for WNS.

We will be rolling out a new upgraded technology platform at our auto claims business that will not only give us a competitive advantage in the space, but will enable us to extend our reach into other claims niches, some as early as the current quarter.

We are now looking to expand our services into three key segments, yielding the experience we have in the auto accident, repair and claims management spaces as well as in supply-chain management. These segments are home repair, non-accident or service maintenance and repair and paralegal services related to auto accidents and personal injury claims. All these segments have tremendous potential and we have already started our operations in the home repair segment where revenues should start to accrue from the second quarter of this fiscal year.

While we have turned the corner we are also addressing some immediate challenges. I believe we need to improve execution on -- one, dropping incremental revenue to the bottom line; two, managing our tax strategy; and three, addressing high attrition rates.

As you are aware, we give our annual pay increases in April. This year we gave an average increase of about 9%. This of course has an immediate impact on our margins. While we believe we have enough in the works to mitigate this through productivity improvement and our continuous lean efforts, we expect this mitigation will take a little while to show through in the numbers.

Attrition was down marginally at 41% this past quarter. We have implemented employee-related programs that are aimed at bringing down this number. This remains a top priority for me and my team and I can assure you that WNS is investing the necessary resources to address this issue in the near term.

We strongly believe that growing our business and presenting employees with a great carrier [partner] within WNS are the best means of driving down attrition, so our current growth trajectory will certainly help.

In terms of total headcount, we ended the quarter at 21,808 compared with 21,523 in the previous quarter. This increase in headcount was necessary to address increased client demand as we ramp up with some new clients, particularly in the travel business and in our F&A vertical -- horizontal. We should see this trend in hiring continue through the rest of the fiscal year.

In conclusion, we are pleased with the progress that we have made and the traction we are seeing as a result of our sales efforts. Our focus on client relationships is resulting in increased farming opportunities and our investments in high-level offerings will lead to additional growth opportunities.

We believe that our future growth will be driven by technology-based offerings, analytics and higher end finance and accounting offerings delivered by passionate WNS employees who are focused on providing solutions to our clients' top-line and bottom-line challenges.

As we have indicated, we're updating our fiscal 2012 guidance this morning in our press release; we are committed to profitable growth. That means we have to maintain strong margins while making investments in the business.

We are mindful that there is work still to be done, more to fix and improve, and that the potential for negative macroeconomic surprises is real. However, the course we plotted five quarters ago -- vertical focus, investments in sales and marketing, aligning more closely with our clients, and driving towards technology enabled solutions -- is beginning to bear fruit in ways that will become increasingly visible in our financial statements.

WNS is on track to grow both the top and bottom lines in this fiscal year. Let me now hand the call over to Alok to walk through the financials.

Thank you, Keshav. Before I begin I would like to remind everyone of two things that were discussed in our press release this morning, as well as in the supplementary financial information package issued by us on the 14th of July.

First, starting with this quarter we have moved to reporting our results under IFRS. We have reconciliations to US GAAP results on our website and within the 6-K that we filed on July 14th. As detailed in our above filing, the accounting standard under IFRS on hedge accounting is under revision by the International Accounting Standards Board. The change in standard will effectively remove the difference between US GAAP and IFRS on the accounting treatment for option contracts.

In case the standard gets issued by IASB as proposed by the fourth quarter of calendar 2011, the Company intends to adopt this IFRS in its first IFRS financial statements for the year ended March 31, 2012. And would also have to apply the same accounting for the financials for fiscal 2011.

The impact on earnings under IFRS, because of this difference in accounting treatment, is a gain of $0.3 million and $3.8 million for the first and fourth quarters respectively of fiscal 2011 and a loss of $0.4 million for the fiscal quarter 2012.

On adoption of the revised accounting standard under IFRS, these impacts would be reversed in the financials for the respective periods. Also under IFRS the Company has reclassified and presented the foreign exchange gain or loss as part of operating profits. Under our previous GAAP these transactions were presented under other income and expenses net.

Secondly, we have made changes to several client contracts which result in a low delta between our GAAP or IFRS revenues, that is our revenues including repair payments, and our net revenues or revenues excluding repair payments. The result is that our reported IFRS revenues will include a lower amount of repair payments moving forward.

Our goal is to make this change to as many of our contracts as possible, thereby eliminating the need to report two separate revenue numbers. Again, the change to this number is based on an accounting regulation as to how we have recognized certain pass-through revenues. There is absolutely no change in the net revenues which we believe is a true barometer as a result of the changes to these contracts.

Moving on to this quarter's results, our net revenues increased to $97.8 million from $89.3 million in the same quarter last year, an increase of 9.6%. This improvement was primarily as a result of higher volume in the Healthcare, Insurance and Retail and CPG verticals and a stronger British pound. Sequentially net revenues increased by 3.7%, also as a result of higher volumes in the Healthcare, Insurance, Retail and Shipping & Logistics verticals and a stronger British pound.

We achieved gross margins excluding share-based compensation of 31.3% in Q1. Compared with the same quarter in fiscal 2011, this represented an improvement of 80 basis points as a result of the higher revenue. Gross margins decreased by 480 basis points compared with the last quarter, mainly as a result of wage improvements partially offset by higher revenue.

First-quarter 2012 operating margins, excluding share-based compensation and amortization of intangible assets, was 14%. This compares with 12.5% for Q1 of fiscal 2011. The improvement was due to the same reasons I just mentioned, partially offset by higher sales and marketing expenses as we now have a larger sales force.

Compared with Q4 of fiscal 2011 operating margins decreased by about 550 basis points. This comprises the 480 basis points of gross margin decline and a further reduction of 70 basis points consisting of lower hedging profits resulting in a 310 basis point decline partially offset by a 240 basis points increase due to cost optimization in support functions.

Our interest expense this quarter was $1.2 million as against $7.5 million in the same quarter last year and $1.2 million in the previous quarter. We expect interest cost to come down further from these levels as we continue to pay down our debt.

The total outstanding today on our original term loan is $54 million as we made our scheduled installment payment of $20 million on July 11, 2011. Our next scheduled payment is due on January 10, 2012. We are about 90% hedged for the 2012 fiscal year, about 50% for fiscal 2013 and a small 5% for fiscal 2014 using a combination of options and forwards.

Net FX gains for the quarter were $1.3 million and were primarily due to hedging gains net of option costs. The hedging gain is a net of $0.4 million -- loss due to difference in hedge accounting, as I mentioned earlier. This will reverse once the new standard comes into force which is expected by the end of this calendar year. The hedging gains consisted of profits on our rupee hedges, as well as in some other currencies, and small losses on our British pound hedges.

Excluding the difference in hedging, our ANI for Q1 was $10.4 million compared with $1.9 million for the same quarter last year and $14.5 million last quarter. This is an 850 basis point year-on-year improvement which was the result of higher revenue, cost management initiatives and a one-time cost impact of $5.1 million due to the underwriting costs of interest rate swaps as a charge in the fiscal first quarter of 2011.

The sequential decline of 480 basis points was due to wage increase increments and a higher tax charge as a result of the expiry of the [CPI] tax (inaudible) in India. Our pre-tax ANI, excluding the impact of the difference in hedge accounting, in Q4 2011 was $13.9 million whereas in Q1 of the current fiscal it was $13.1 million, a decline of only 130 basis points.

Our balance sheet remains strong, we have access to capital and as of June 30th our cash balance was approximately $20.3 million. We generated net $2.3 million in cash this quarter from operating activities. As I have mentioned before, cash generation fluctuates on a quarterly basis and our cash generation is traditionally lower in the first quarter as we make the annual bonus payouts and large insurance premium payments in this quarter. Our cash generation will be higher going forward.

For the past two quarters we have discussed that we renegotiated the payment terms with a large clients in the auto claims business that had a higher (inaudible) period. The impact of these new terms has started to take effect over the last two quarters. As a result our DSOs declined to 39 days in Q1 from 44 days in the previous quarter. The DSOs in our auto claims business decreased from 58 in the March quarter to 45 days in the fiscal first quarter while global BPO DSOs increased slightly from 32 to 34 days.

Our CapEx trend for the quarter was $6.8 million. We still see our total capital expenditure for the 2012 fiscal year at approximately $20 million, although the cash flow of this account may be slightly higher as some of the CapEx from fiscal 2011 will fall into this year.

This capital expenditure is being used for the expansion of our infrastructure in SEZ locations in India and in the expansions in our capacity in Costa Rica, the Philippines and Romania. It will also be used for the establishment of onshore centers and to set up smaller lower cost centers for our domestic India BPO business.

In our earnings release today we updated our fiscal 2012 guidance of net revenue of $387 million to $407 million based on an average British pound to US dollar rate of 1.60 for the fiscal year, which implies a growth rate of 5% to 10% over last year even at a slightly lower currency rate compared to our previous guidance.

We currently have over 95% visibility to the midpoint of our guidance range and we expect to tighten this range as we move forward in the year. Our ANI guidance of $43 million to $47 million is based on an exchange rate of 44.5 rupees to the dollar for fiscal 2012. This implies an adjusted EPS of $0.93 to $1.02 on a diluted share count of approximately 46 million shares.

While we have updated our revenue guidance for persistent inflation in the Indian economy, especially in input costs such as electricity and [transit], and also the volatility in the currency markets, prompts us to be a little conservative on the ANI guidance. We hope to refine this as we move forward into the fiscal.

We still expect to have a tax impact on the P&L of about $11 million to $13 million which approximately works out to 21% of pre-tax ANI. However, the cash taxes that we would pay would be lower due to the utilization of tax losses of earlier years.

I'll conclude by noting that we are well-positioned in terms of both growth and financial strength, we have confidence that our pipeline is strong and we are closing deals. We will now take your questions.

(Operator Instructions). Joseph Foresi, Janney Montgomery Scott.

Hi, guys. My first question here is -- I know you've talked about and actually you gave us a pretty detailed layout of just all the changes that are taking place at the Company. I wonder if you could tell us when you think that those -- we'll start to see those in the numbers. And then maybe give us some background as to why you are giving us that type of timeframe?

So, Joe, I think we're actually starting to see these already in the numbers now. I believe the bulk of the changes that we needed to make have now more or less been made. I think the key is now, particularly on the sales side, for the new people that we have brought in to really settle down and get their hunting strategies clearly in place and really start knocking on many more doors.

And to that effect, we believe that towards the latter part of this year, the fourth quarter, is when we should actually see some of the -- a lot of the effort that we've meet actually start crystallizing in terms of new revenues coming in with potential to accelerate in the next year.

But I will say that the biggest impact that we have had is actually creating a very strong sales culture, putting the investments behind these people, enabling them to go out and now tell the WNS story across every one of these geographies. And really my view is that towards the second half of this year we actually should start seeing an acceleration in terms of the deal closures, in terms of the pipeline getting even stronger and then setting us up for an even stronger fiscal '13.

In your commentary around the fourth quarter, is that based on deals that you have now, visibility in those deals now, or is that based on just the general ramp time of salespeople?

No, I think it's sales on -- first of all the deals that we already have in the pipeline, the comfort we have around potential decisions around there. The additional comfort we have around client visits and what these prospects are now telling us, and the icing on the cake is the fact that we also believe that this new sales team will actually push many more deals through the pipeline which will actually start accelerating revenues from the fourth quarter onwards.

Okay. Two more quick questions. Just on the sales front, have you changed compensation or the sales model at all to incentivize projects being -- or revenue being captured quickly?

Yes. So, Joe, it's very simple. At WNS now it is completely incentive-based, it's a fixed compensation which people must -- need to earn in order to maintain a basic lifestyle. And beyond that it is completely reward-based with [such] performance. And potential for our salespeople as well as the key business leaders is to really max out dramatically on performance which is significantly beyond acceptable kind of growth rates.

So the reality is it's a fixed and variable -- and even our stock compensation program that we offer to our leaders is completely based on their performance scheme.

Perfect. And then just lastly, maybe you could just give us a little commentary on any changes in the demand environment and how healthy it's looking these days? Thank you.

Yes, I think the best thing that we're starting to see is that clients have actually started taking decisions. In some verticals we're actually seeing these deals look a little smaller in terms of size, but we're seeing more deals now flow through the pipeline.

I would say that there is a lot more urgency now with clients who realize that the macroeconomic fundamentals are not going to change in a hurry. And therefore they need to come up with these programs to reduce their cost, build efficiency and then work with a partner who really understands their business. And I think that's a key differentiator for us.

I think they have the ability to go to a number of players who focus a lot more on the process side. But when they are now interacting with WNS they see that they have a group of people interacting with them who not just understand their company but understand the vertical and are now coming up with new ideas that are transforming not just their business decisions that are actually now providing them insights into their technology platforms.

Interestingly inside WNS, what I discovered is we actually have a very strong culture of technology already embedded. And for whatever reason we had not actually focused on that in the past. I think there's a lot more focus there. We really don't have to create a culture of technology inside this Company, we just need to make it more market focused.

We are seeing more demand on the finance and accounting side and there is obviously a lot more demand coming in from our existing clients, as well as prospects on the analytic space, because they now realize that we are taking an end-to-end approach as far as their business is concerned.

Specifically for WNS, our client partner program is actually presenting this full face of WNS in sort of just a single offering. We are actually seeing, because of the pressures that some of these economies are facing, more need from our existing clients as well as from prospects on on-site kind of solutions. And that's why I alluded to the fact that we are actually looking at creating an on-site center in North America as well. We've already done that in the UK and we expect to actually benefit from that.

And from our perspective it's no more just Europe. We're seeing North America actually began to discover WNS in a very positive fashion and we're actually seeing the Asia Pac markets as well as the Middle East actually start to spend more with us.

So all I will I would say that the demand environment is actually looking better. From our particular perspective I think in the past we were not knocking on enough doors. I think that has changed. There are many more feet on the street, we're knocking on many more doors. And over a period of time I think we'll break down those doors and get in.

Thanks, Keshav.

Edward Caso, Wells Fargo Securities.

Thanks a lot. It's actually Rick Eskelson on for Ed. Just a clarification question. You guys seem more positive in terms of seeing deals come through and a bit more positive on client decision-making. But are you actually seeing sales cycles and decision-making cycles reduce or are you just seeing more fruits from deals that were already in the pipeline? Can you just clarify that for me?

Actually -- we are actually seeing that -- with the deals that were in the pipeline decisions now coming in. But we're also seeing with new deals entering the pipeline a sense of urgency to take decisions faster as opposed to slower in the past. At least that's the experience of WNS.

Okay. And then another question on attrition. Do you think that this has been the peak or I guess last quarter has been the peak and you're going to see it start to trickle down from here? And what level are you targeting as a more normalized or longer-term target?

Right, so that's a great question. Attrition actually is top of mind for us. This quarter actually it has reduced by 3% against -- sequentially. And from our perspective I think what we realize is that whereas you need to focus on creating a number of interventions to enable our employees to see this as the most exciting place to work in and the company that they are valued and where they learn a lot.

Ultimately it's a question of growth. The fact that they are now beginning to see growth come back to WNS and a lot more excitement being created here, I think that's actually starting to impact attrition in a positive fashion for us. Because in a quarter where normally attrition peaks we actually saw attrition reduce in this quarter for ourselves.

And in terms of what the target should be, the reality is we are taking it a quarter at a time. And though we have numbers internally that I am comfortable with and we're driving our HR and business leaders with significantly lower numbers from where we are, I think the key for us is that we are driving our business based on outcomes not inputs.

And as such, in spite of whatever we saw with attrition in the past, we've not let performance or SLA's get impacted. So I would say that our focus is to get the number down. In terms of what that number should be, we would like to reserve that for a little longer.

Okay, thanks a lot.

Tien-Tsin Huang, JPMorgan.

Thanks. I guess I wanted to clarify a question that Joe asked. Just I'm curious about the tone. It sounds like it's more a function of, when you're talking about demand, that WNS is being -- is having more success in driving demand as opposed to the underlying demand environment getting better. Is there a way to sort of qualitatively talk about the two and how much of it's influencing your tone picking up here?

Yes. You know, I think for us it's essentially a new exciting story for our clients and our prospects. Because a lot of them have experienced them -- experienced us in the past; they are now seeing a completely different company interacting with them.

And so I think the function there is more excitement with what WNS has done over the past five quarters in transforming itself. As a result of which, as opposed to seeing us as just a niche player, they're now seeing us as an end-to-end player across every one of the verticals we are present in.

And so even with clients where we entered with a horizontal offering we're now actually taking end-to-end ownership of the client who now sees us as an insurance player or a banking player or a logistics player as opposed to a finance and accounting area now player alone.

So I would say that a lot of that is coming because of what WNS has done in terms of investment. The second is a lot of the positive momentum we're seeing is because the investments we made in all these new geographies on sales -- again, let's not forget that we've traditionally been very, very strong and focused on Europe. But today with so much of investment being made in North America as well as some of the other markets I spoke about, we actually have many more doors to go to and that again is causing a positive kind of impact for us.

And all (inaudible) from a demand environment, we believe that clients are actually quite clear in their minds now that they have to take decisions, that the macroeconomic fundamentals are not going to change in a hurry. And therefore the best company that is able to put its best foot forward in terms of providing them a partnering solution, I think in the medium term is going to gain. And we want to make sure that we are that company.

Understood. That's all good, that's helpful. I guess the six deals that you announced, did you qualify any -- if any of these are significant in size? And also maybe just the pricing on the new deals including the large one that you've been down-selected for, I'm curious if there's anything unusual on the pricing front as well.

Yes, I would say of those six, one of them is potentially a large deal from our perspective. In terms of pricing, we've actually seen quite stable pricing. And as I mentioned, one of our new focus areas is on moving towards more non-linear models, moving towards more outcome-based kind of pricing. So we're actually coming up with these new models that is quite exciting for our clients.

And finally, as far as the deal that we were down-selected in, we actually think that it can be a transformational deal for WNS in the medium to long term. It is likely to be a large deal for us, pricing will be stable if not good. And more importantly, it is built on very strong partnership kind of (inaudible) as opposed to a principle and vendor kind of relationship.

Because in this particular relationship and with this particular client, the expectation is that WNS will actually come in and help them transform the firm in terms of some of the core areas. So it's a very deep relationship that we are building from day one.

Good. I look forward to learning more about that when you can talk about it. The last one for me, I promise. Just the Aviva business, it grew pretty nicely this quarter. It seems like, Alok, it's more than just pricing and FX. Can you maybe clarify that? And then also, we saw some news articles saying that Aviva might move some staff back to the UK. I didn't know if that was just rumor or if there was some fact to that, thanks.

So the price increase in the Aviva contract actually kicks in in July. It kicked in last week. So the increase last quarter was a combination of volume and a little bit on the FX exchange rate.

As far as moving work back to the UK, these stories keep coming in the press -- more rumor than fact. I don't know about other people, but we did have one [report] I would say six months ago; I think they're referring to the same one again. That was about 20 people or 30 people who moved work back to Norwich and there was some mid-office work that moved from Norwich to India. So net-net, we actually got more people out of it.

And I will just add to that, I think I would give full credit to my leadership team on the insurance business as well as the client partners running some of these accounts. Because the reality is the change that we are seeing is these clients are now seeing, like I said, the full face of WNS.

And again, even with the specific account that you just named, even today, despite the fact that we are protected from a downside with headcount protection and things like that in the contract, the reality is we service only the UK and Ireland even today. And the potential with that account, which is what we are focused on, is how do we grow our footprint across Europe, across North America and get into many more areas which are transformational for Aviva inside the insurance company.

And the quality of our interactions, the quality of the meetings that we are having are completely different. And I think I would give full credit to those changes which are actually now starting to drive the traction as opposed to just pricing or getting one or two small deals here or there.

All right, good stuff. Appreciate it, thanks so much.

Ashwin Shirvaikar, Citi.

Thank you. Good morning, Keshav and Alok. My question, Keshav, is as you've become more global in terms of your client base, do you think that your delivery will be fungible or do you need to create separate workforces? And what does that eventually mean for your costs?

Great question. So, yes, we are a global player and we will continue to invest in global capability, as I spoke about in my prepared remarks. So while we will continue to invest and grow in the countries that we already are in, we're also looking at potential relationships in two or three other locations which really allow us to present the full global footprint from a delivery point of view. And this I said was like in the Far East, in Africa and one more country.

So from our perspective, whereas there will be at some stage seating costs and things like that to create it, it will actually be very exciting for our workforce, for our existing clients who can now actually get delivery from WNS, a trusted partner, from some of these other locations which actually are the fastest growing markets for them as well. So some of them are demanding it.

We are actually in talks with a number of players around this and in some cases, as opposed to creating our own centers or creating our own kind of investments, we'll probably do partnerships where we bring in a strong local partner in that location who actually helps us with creating the stuff that we need to do there. With our capability bringing the transformation, Six Sigma, lean, and the delivery capability for which we are extremely well-known.

Okay, no, that's useful. So one -- a couple of metrics type of questions. One was just going back to the attrition rate. Is it possible to maybe sort of slice it by looking at functions say for example related to customer care versus where you do more F&A BPO or industry specific BPO? I would imagine that in the later cases it's in a lower attrition rate. And I was wondering if that lower attrition rate then might be more comparable with your competitors?

So, Ashwin, you're right on the contact center, the customer care part the attrition rate does tend to be higher. It's also a factor of the kind of work that we do there and the shifts which people have to work. On the F&A and sort of the transaction processing side, our attrition is lower than the average attrition that we report and it would be more comparable to industry averages. But we haven't really disclosed that level of detail in the past.

Okay, got it. My last question is on tax rate. I must have missed it. Can you give us sort of a forward look on the tax rate, how it should trend given all the changes going on?

Yes, so, this year we've indicated an $11 million to $13 million tax charge. So I think we're still pretty much in that range, probably towards the lower end of that range. And that works out to about 21% effective tax rate on [the] ANI. But as we are making more investments in special economic zones and on the new business and the growth we're going to (inaudible) the tax rate next year should start coming down closer to I would say 17% to 18% or maybe even lower.

Okay, great. Thank you.

Dave Koning, Baird.

Yes, hey, guys, you talked a little bit in the earlier prepared remarks about a focus on dropping a little more of the incremental revenue to the bottom line. And I guess I'm wondering is there anything different really about the business today than say three, four or five years ago when margins were I think for a while there 17% or 18% or so and last year they dropped down to 13%. Maybe this year it's 15%, something like that.

But is there any reason that they can't get back to those higher levels? And anything maybe currency wise or mix of business or anything? Or can it back to those higher levels again?

So it can -- there's no reason why it cannot, Dave. And I think the only difference from I would say three or four years ago is that the pound was $2 at that time. Today if we see the pound above $1.6 we count ourselves lucky. So that's really the significant change between three or four years ago and where we are today.

But having said that, I think we've done a pretty good job in terms of eliminating a lot of the waste and being able to see sequentially between last quarter and this one. While we've invested more on the sales and marketing side, and that's particularly the reason why I try to strip out and give you the numbers separately, but while the sales and marketing expenses have gone up the general administrative costs are actually coming down.

So we're investing in the right places, but we're also reducing costs in other places in order to fund that investment. So I see no reason why as our revenues grow we shouldn't have an expansion in margins as well. Also remember that this quarter we had quite a bit in that was still in the ramp-up stage. So in that particular case there will always be a lower margin in the initial stages for new projects. And as those projects stabilize we should see the margins improve on that.

Okay, okay, good. That's helpful. And then the second thing, we often ask on the call about the free cash flow. It was negative this quarter I think for the first time in about three years. And that was despite DSOs coming down a bit. So maybe you can just come in a little bit about how that returns over the rest of the year?

And then as kind of a corollary to that, I think you ended Q1 with $20 million of cash, but mentioned in the press release you made a $20 million payment on the loan in early July. So I'm wondering I guess how you made the payment with cash. Maybe you generated some cash flow early in the quarter, but maybe how you're dealing with that situation?

Yes, so, there are two or three questions in that. We always say that the first quarter is lower because we make our annual variable compensation payments. And this quarter, as you see, we've had pretty high capital expenditure, about $7 million almost of capital expenditure, which is why you're seeing negative free cash. And that capital expenditure is really to build out the facilities for the growth that we're seeing. And I think it's important that we do that.

And we should see that -- the free cash improve as we go into the next quarter and into the year. You will see that there's a working capital decline of around $10 million. Even though DSOs have improved the working capital decline -- or the increase in working capital has been about $10 million.

So if you add that back, we generated operating cash of around $13 million. And the bulk of that working capital increase has been because of the reduction in the payable side where we've paid out the annual variable compensation. So I would still (inaudible) to the average of about $5 million of cash that we've always said we would generate every month.

Okay, and then I guess the last part of my question too was the cash balance about $20 million at the end of the quarter. And then you made the $20 million loan payment in July. Did you have enough cash kind of coming in to leave yourself with enough cushion early in July?

Oh, yes, yes. We are still around here talking aren't we? Yes, so, we had cash flows coming in in the first week of July as well. If you see the BPO DSOs actually went up by two days because of some cash collection. There was a -- it spilled over into the first few days of July mainly because of the holiday weekend that had come up. But we didn't have any issues around repaying our debt or anything like that.

Okay, great. Thank you.

Vincent Lin, Goldman Sachs.

Thanks. I just want to clarify, of the six new clients that you won during the quarter, was any of those kind of winning over existing providers or just purely kind of first-time client outsourcing additional functions?

A combination of both actually.

Okay, great. And then secondly, Keshav, just wanted to check your thoughts here. It sounds like over the last few quarters, or maybe it's longer than that, deals -- there's definitely more activity coming into the pipe. But it sounds like deals have been broken into smaller chunks.

Wondering how does that affect, one, kind of revenue conversion from kind of deal signing into the contribution to the top line? And then secondly, how does that affect your visibility as you plan your fiscal year going forward, if at all?

Right. Actually that's a great question and that's actually top of mind for my entire team. The reality is we have to appreciate and understand that a lot of the horizontal led deals, particularly around F&A and analytics are quite often driven by the advisory kind of network. And out there what happens, what we're seeing happening more is that those are a lot more deals coming in.

An advisor is appointed for one particular area by a potential client or prospect. And that's why I alluded to the fact that some of them are smaller in size because these guys are advising a client on one small area. And so that really covers the gamut of the horizontal kind of deal.

So we really need to focus on ensuring our differentiators are communicated, the investments we're making in every one of those horizontals is clearly articulated and known. And you may have seen yesterday that one of the analysts, Gartner, actually named us as leader in the (inaudible) Quarter survey yesterday or the day before for F&A.

So what's happening is we are constantly investing in those areas and making sure that we are playing in every one of those deals that are being led either directly by the prospect or the client or by the analyst community.

Beyond that is the vertical driven deals where we are now playing much more, which are very much focused on banking, financial services, capital markets, retail, wholesale, cards, things like that, you know. And that is very different because there we interact most often directly with the client, with decision makers there. And potentially those deals actually can be much larger like the large one I spoke about where we've been down selected.

So from our point of view it's -- I think the focus is really making sure that the bread-and-butter of bringing in every deal that is relevant to us and which we want to win even if it's coming in in drips and drabs it's taken in. But more importantly that we are now allowing our salespeople to really knock on the doors of clients and be featured in areas where in the past maybe we were not really invited to the party.

There's a big change now because now we are actually getting invited to the party, WNS salespeople are now being seen all over the globe with clients. We are being seen across all the conferences and industry kind of events. And I think a combination of being successful on both of these will drive revenues for this Company.

And maybe just a housekeeping question for Alok. What was -- on a constant currency basis what was the kind of revenue -- organic revenue growth year over year for this quarter? And if you have the data, what was the comparable metric for the March quarter? Thanks again.

So our year-over-year constant currency growth was 4.2% and quarter over quarter, that is sequentially, it was about 2.8% on a constant currency basis.

Thanks.

March quarter, I don't remember the numbers off hand. I can send that to you separately, but it was definitely lower than this.

We have no additional questions at this time.

Thank you for attending this earnings call. WNS is confident about the progress we are making. We look forward to interacting with you again soon.

Thank you for attending today's conference. This concludes the presentation. You may now disconnect. And have a great day.