Firstsource Solutions Limited August 2011
Firstsource © 2011 | Confidential | August 29, 2011 | 2
Disclaimer
Certain statements in this presentation concerning our future growth prospects are forward-looking
statements, which involve a number of risks, and uncertainties that could cause actual results to differ
materially from those in such forward-looking statements. The risks and uncertainties relating to these
statements include, but are not limited to risks and uncertainties regarding fluctuations in earnings, our
ability to manage growth, intense competition in BPO services including those factors which may affect our
cost advantage, wage increases, our ability to attract and retain highly skilled professional, time and cost
overruns on fixed-price, fixed-time frame contracts, client concentration, our ability to manage ramp-ups and
growth, our ability to manage our international operations, reduced demand in our key focus verticals,
disruptions in telecom infrastructure and technology, our ability to successfully complete and integrate
potential acquisitions, liability for damages on our service contracts, performance of our subsidiaries,
withdrawal of government fiscal incentives, political instability, legal restrictions on raising capital and
acquiring companies outside India, unauthorized use of our intellectual property and general economic
conditions affecting our industry. Firstsource may, from time to time, make additional written and oral
forward-looking statements, including our reports to shareholders. The company does not undertake to
update any forward-looking statements that may be made from time to time by or on behalf of the company.
Firstsource © 2011 | Confidential | August 29, 2011 | 3
Agenda
Overview
Business Units
Financial Summary
Firstsource © 2011 | Confidential | August 29, 2011 | 4
An Overview (1/2)
Leading Scale Player
Founded
Major Shareholders
Focus Verticals and
Business Opportunity
Service Offerings
Clients
Among the top 4 pure play BPO companies in India (NASSCOM 2011 rankings)
In December 2001 by ICICI Ltd.
Healthcare Telecom & Media BFSI Asia BU
Q1 FY12 Revenue (INR Mn) 1,819 1,174 1,563 633
% of Q1 Revenue 35% 23% 30% 12%
Number of employees (June,
2011)3,205 6,120 5,150 14,832
Addressable Market
Opportunity$50-55 Bn $20-25 Bn $155-165 Bn $60-65 Bn
Temasek (18.8%), Metavante (18.2%), ICICI Bank (18.1%), Public and Others (44.8%)
Full range of business process management services across the customer life cycle delivered through transaction
processing, CRM, collections and receivables mgmt.
Our client base includes 21 Fortune 500 and 9 FTSE 100 companies.
Healthcare - 5 of the top 10 Health insurance / managed care companies in the US and over 800
hospitals in the US
Telecom & Media - 2 of the Top 10 U.S. telecom companies, 2 of the top 5 mobile service providers in
the U.K., largest pay TV operator in the U.K., largest pay TV operator in Australia
BFSI - 5 of the top 10 U.S. banks, 8 of the top 10 general-purpose credit card issuers in the
U.S., largest bank and mortgage lender in the U.K., 1 of the Top 3 motor issuers in
the U.K
Asia BU - 3 of the Top 5 mobile service providers in India, India‟s leading private life insurer
Firstsource © 2011 | Confidential | August 29, 2011 | 5
An Overview (2/2)
Client Revenue
Contribution
Employees / Seats
(June2011)
Best in Class Delivery
Financial Snapshot
Largest client - 13%, Top 5 clients – 39%
29,664 / 23,342
Multi-shore delivery model across four countries (India, US, UK and Philippines, Sri Lanka) with 43 delivery locations
Rs. million Q1 FY2011 Q4 FY2011 FY2011 Q1 FY2012 Growth (Y-o-Y)
Operating Revenue ($ mn) $107 $119 $448 $116
Operating Revenue (Rs.) 4,907 5,464 20,553 5,231 6.6%
Operating EBITDA681
13.9%
792
14.5%
2,896
14.1%
429
8.2%-37.0%
Operating EBIT468
9.5%
558
10.2%
2,005
9.8%
209
4.0%-55.3%
PAT321
6.5%
383
7.0%
1,385
6.7%
106
2.0%-66.8%
Firstsource © 2011 | Confidential | August 29, 2011 | 6
Scalable, Global Delivery Platform
USAPhilippines
United Kingdom
India
Enhanced business continuity capability Blended 70% onshore and 30% offshore model Strong Domain Expertise driven business model
Centers:
USA - 14
UK - 2
India - 25
Philippines - 1
14 Centers
3,387 Employees
1 Center
1,089 Employees
2 Centers
2,408 Employees
25 Centers
22,482 Employees
17,755 Seats3,242 Seats
853 Seats
974 Seats
Sri Lanka
Sri Lanka - 1
1 Center
298 Employees
518 Seats
Firstsource © 2011 | Confidential | August 29, 2011 | 7
Agenda
Overview
Business Units
Financial Summary
Firstsource © 2011 | Confidential | August 29, 2011 | 8
Congressional lawmakers continue their
focus on the entitlement programs,
Medicare and Medicaid
U.S. unemployment rose to 9.2% for the
second consecutive month
Provider sector continues to focus on
returning to pre-recession profitability with
increased M&A activity expected
Payer segment remains concentrated on
administrative cost reductions and
implementation of Health Information
Exchanges (HIE)
Healthcare
Headed ByKey Segments
Payer
Provider
Geography
Delivery
Market
Revenue
Employees
35%
Income from
services
(Q1 FY12)
3,205As on
June 30, 2011
Capacity and Utilization
3,221seats
As on
June 30, 2011
73% Seat fill factor
Q1 FY12 Highlights Industry Trends
Continued execution of Provider Sales
strategy, with traction gaining on core
products and services
Payer sales segment remains strong with
new logos being signed, as well as a
deeper penetration into existing client base
being realized
Technology enhancements being
implemented in support of Centers of
Excellence initiatives
Very little pricing volatility; either from
existing clients or in the marketplace;
consistent across both segments of the
healthcare vertical
Insurers continue strong focus on achieving
compliance with Medical Loss Ratio (MLR)
mandates and building capacity for
significant enrollment increases
Hospitals looking beyond traditional back
office structures to address reimbursement
pressure and increases in uninsured
population
Expect stable growth with consistent
financial performance
Business Outlook
Domain Capabilities
1. Data Capture
2. Mailroom Operations
3. Claims Processing
1. Eligibility Determination
2. Revenue Cycle Management
Firstsource © 2011 | Confidential | August 29, 2011 | 9
The UK financial services community are
coming under increasing pressure from
regulatory reform and closer scrutiny
Late 2010 and first half of 2011 have seen
UK mortgages drop. Approved mortgages
have dropped by 6% in April 2011 (y-o-y)
Delinquency rate for cards is the lowest in
recent history
Credit card charge offs also fell in the first
quarter of 2011 to a rate of 7.22 percent,
down from 7.80 percent in the previous
quarter.
BFSI
Key Segments Geography
Delivery
Market
Revenue
Employees
30%
Income from
services
(Q1 FY12)
5.150As on
June 30, 2011
Capacity & Utilization
4,396Seats
As on
June 30, 2011
72% Seat fill factor
Q1 FY12 Highlights Industry Trends
Our Manila operations continue to grow
Introduction to new segments and
increased market share from existing
collections clients on back of strong
operational performance. However,
significant drop in overall collections
volumes has negatively impacted financial
performance
Continued strong SLA performance across
all business units of the vertical
India delivery has seen some pressures on
profitability
Pricing across different parts of business
Business Outlook
Pressure from regulators has resulted in
new opportunities around the complaints
process and compliance in general
Increased interest and traction in onshore
CRM opportunities
Commission rates are expected to continue
on a downward trend as agencies compete
for lower volumes and issuers try to protect
their numbers
Liquidation rates will continue on their
current trajectory and grow at a moderate
pace
Pipeline continues to be healthy
Collections business expected to show a
slow recovery, when new placements are
expected to start moving upwards
Domain CapabilitiesKey Segments
Credit
Cards
Mortgage
Retail
Banking
General
and Life
Insurance
1. Customer service
2. Loans origination &
processing
3. Complaints handling
4. Policy acquisition,
administration & retention
5. Collections and
recoveries
Firstsource © 2011 | Confidential | August 29, 2011 | 10
• Overall UK ISP market is experiencing slower
growth
• Decision cycles among the clients are longer
than expected
• Industry is driven by technology led innovation
like connected homes, touchless payment
technology, etc.
• Consolidation among the top Telecom players in
the industry across the geographies
• Web chat emerging as a major channel for both
sales and service
Telecommunications and Media
Key Segments
z
Geography
Delivery
Market
Revenue
Employees
23%
Income from
services
(Q1 FY12)
6,120As on
June 30, 2011
Capacity & Utilization
5,156Seats
As on
June 30, 2011
66% Seat fill factor
Q1 FY12 Highlights Industry Trends
Overall softness in volume combined with ramp
down in an existing wireless client impacted the
top line
Won additional business from two UK clients for
tech support and customer support
Capacity consolidation initiative has resulted in
parallel capacity and higher costs in the interim
Strong pipeline development across all markets
Strengthened the sales team in the UK and the
US
Little pricing pressure in different parts of
business
• Our volumes in the ISP segment will remain soft
in the near future
• Focus on sharpening competitive advantage
through differentiated offering like Forum
management, social media, management,
enhanced capability on web chat, analytics and
customer insights
• Excess capacity and cost of growth of new wins
may impact bottom line in the short run
• Emerging opportunity in the premium technical
support area and strong growth prospects with
existing clients in web chat service line
• The new wins and some of the pipeline business
expected to yield revenues from H2
• Revenue and profitability to be impacted in H1,
will meaningfully improve by end of H2
Business Outlook
Key Segments
Cable &
Satellite
Television
Wireless &
Mobile
Broadband /
Narrowband
Fixed
Line
1. Customer Care
2. Technical Support (Tier I
& II)
3. Order management &
provisioning
4. Billing & collection
5. Web chat sales &
customer support
Domain Capabilities
Firstsource © 2011 | Confidential | August 29, 2011 | 11
Rural BPO expected to be the next inflection
point in the domestic market
„Do Not Call‟ registry expected to be in place
from August 2011
MNP elicits modest response
IT-BPO market in India expected to grow by
17% in 2012
Next wave of growth in Telecom expected
through 3G and VAS
Flurry of activity in the Govt/PSU segment in
India.
Asia Business Unit (ABU)
Geography
Delivery
Market
Revenue
Employees
12%
Income from
services
(Q1 FY12)
14,832As on
June 30, 2011
Capacity and Utilization
10,275seats
As on
June 30, 2011
79% Seat fill factor
Q1 FY12 Highlights Industry Trends
Entered Sri Lanka through a Joint Venture
with Dialog Axiata (Sri Lanka‟s largest
telecom operator), to address opportunities
in Sri Lanka
Strong growth seen from existing telecom
customers : significant ramps undertaken in
Q1, impacting profitability
Increased footprint with existing customers,
through addition of new lines of business /
geographies
Strong focus on operational improvements
Pricing has been largely stable and
expected to follow the same trend
Strong volumes seen from existing
customers : Ramps undertaken in Q1 will
translate into revenue and improved
profitability in Q2
Q2 will have full quarter impact of
Firstsource Dialog Solutions (Joint Venture
in Sri Lanka) deal
Pursuing opportunities in the Middle East
Continued focus on operational efficiencies
Q2 and FY12 revenues will be significantly
higher
Business Outlook
1. Prepaid and Postpaid
2. Outbound
3. Televerification
4. DTH
5. Collections
6. Managed Services
7. Customer Relationship
Management
Domain CapabilitiesKey Segments
Telecom and
Media
BFSI
Firstsource © 2011 | Confidential | August 29, 2011 | 12
Agenda
Overview
Business Units
Financial Summary
Firstsource © 2011 | Confidential | August 29, 2011 | 13
Financial Performance Highlights (1/2)
Operating Revenues
Operating EBITDA
Firstsource © 2011 | Confidential | August 29, 2011 | 14
Financial Performance Highlights (2/2)
Operating EBIT
Profit After Tax (PAT) – Excluding exchange variation, amortisation and gain on
FCCB
Firstsource © 2011 | Confidential | August 29, 2011 | 15
Financial Performance – Last Five Quarters
(IN INR Million) Q1 FY11 Q2 FY11 Q3 FY11 Q4 FY11 FY 2011 Q1 FY2012
Income from services 4,759 4,900 5,048 5,403 20,110 5,189
Other operating Income 148 136 98 61 443 42
Revenue from operations 4,907 5,036 5,146 5,464 20,553 5,231
Personnel & Operating Expense 4,222 4,328 4,435 4,673 17,657 4,802
Operating EBITDA 685 707 711 792 2,896 429
Operating EBITDA % 14.0% 14.0% 13.8% 14.5% 14.1% 8.2%
Depreciation / amortization 213 213 232 233 891 220
Operating EBIT 472 494 479 559 2005 209
Operating EBIT % 9.6% 9.8% 9.3% 10.2% 9.8% 4.0%
Other Income / (expense) 19 7 112 5 142 15
Interest Income / (expense), net (57) (53) (55) (43) (208) (34)
Gain/(loss) due to exchange var. and amortized (cost ) on fair value of FCCB
(30) (31) (32) (35) (129) (35)
Exchange gain/ (loss) on Foreign currency loan 3 (1) 1 5 7 (1)
Extraordinary (expenses) - - (64) - (64) -
PBT 407 415 441 490 1,753 154
PBT (% of total income) 8.3% 8.2% 8.4% 9.0% 8.5% 2.9%
Taxes and Minority Interest 86 83 92 107 368 47
PAT 321 332 350 383 1385 106
PAT (% of total income) 6.5% 6.6% 6.6% 7.0% 6.7% 2.0%
Reported Basic EPS (Rs.) 0.75 0.77 0.81 0.89 3.22 0.25
Reported Diluted EPS (Rs.) 0.68 0.70 0.73 0.80 2.91 0.25
Firstsource © 2011 | Confidential | August 29, 2011 | 16
Q1 FY2012 Highlights
Q1 FY2012 Performance Analysis
Operating Revenue
– Q1 Revenues at Rs 5,231 million
– Y-o-Y growth of 6.6% in INR terms and 7.3% in constant currency terms
– Q-o-Q decline of 4.3% in INR terms and 4.8% in constant currency terms; largely on account of
More pronounced BFSI collections volume fall than usual seasonal weakness
Impact on account of T&M client ramp down and softness in business volumes
Operating EBIT
– Q1 FY12 operating EBIT margins at 4.0%, lower by 620 bps compared to Q4FY11; largely on
account of
Lower than expected revenue momentum
– Expect momentum to pick up in H2 on the back of strong pipeline
Cost of growth in Asia Business Unit
Capacity consolidation initiative has resulted in parallel capacity and higher costs in the interim
– Capacity consolidation to be financially beneficial H2 onwards
Firstsource © 2011 | Confidential | August 29, 2011 | 17
Debt Refinancing Update
Debt Refinancing
Raised $180 million term loan from the international loan syndication market
– The Company‟s United States subsidiary has raised $180 million from a consortium of six financial
institutions
The lenders include overseas branches of Axis Bank, Canara Bank, ICICI Bank and Indian Overseas
Bank along with GE Capital, USA and DBS Bank
– Key terms
The interest rate of the new term loan is lower than the current interest rate on existing loans and the yield
on the FCCB
Interest will be paid quarterly, while principal repayment on this new facility will commence in June 2013
with final maturity in March 2017
Rationale and use of proceeds
– The company has refinanced $64 million of ECB and term loans using proceeds from this new facility
The company has taken advantage of lower interest rates and further spread its debt maturity profile
– Proactively addresses part of redemption gap for FCCB ahead of term
The remaining proceeds, net of expenses, will be used towards the company‟s FCCB redemption in
December 2012
Cash Position
Cash balance of $87 million as on June 30, 2011 compared to $103 million as of March 31, 2011
– Repaid $10 million of post shipment credit facility during the quarter
Cash balance is in excess of $200 million as on date including the proceeds from debt refinancing
Firstsource © 2011 | Confidential | August 29, 2011 | 18
Consolidated Balance Sheet
Rs. million 31-Mar-11 30-Jun-11
Sources of Funds
Share Capital 4,306 4,307
Reserves & Surplus 9,921 9,834
Loan Funds – FCCB 11,586 11,841
Loan Funds – Other Borrowing 3,347 2,912
Minority Interest and net deferred tax liability 59 83
Total 29,218 28,976
Application of Funds
Net Fixed Assets 2,285 2,153
Goodwill 20,454 20,513
Sundry Debtors 2,389 3,105
Unbilled Revenue 1,037 866
Loans and advances 1,685 1,599
Current Liabilities and Provisions (3,207) (3,166)
Cash and Bank balance 3,246 2,897
Investments 1,329 1,009
Total 29,218 28,976
Firstsource © 2011 | Confidential | August 29, 2011 | 19
Q1 FY2012 Highlights
By Geography By Verticals
By Delivery Location Client Concentration
Firstsource © 2011 | Confidential | August 29, 2011 | 20
Business Outlook
Revenue momentum to improve in H2
Gradual improvement in margins expected from Q1
- Expected changes over next few quarters include
□ Completion of large scale ramps in ABU
□ Conversion of strong pipeline and commencement of revenues from new wins and ramps in T&M
□ Completion of capacity consolidation initiatives
□ Even stronger focus on operational efficiencies and cost rationalization
- However, we do encounter few industry specific uncertainties and headwinds
□ Declining volumes in BFSI Collections segment
□ Prolonged decision making cycles
- Overall, with revenues expected to grow over the next few quarters, margins will improve from Q1 level
Moving into Q2 FY11
- Expect flattish revenues and margin improvement
THANK YOUFirstsource (NSE: FSL, BSE: 532809, Reuters: FISO.BO, Bloomberg: FSOL@IN) is a
global provider of customised BPO (business process outsourcing) services to the
Banking and Financial Services, Telecom and Media and Healthcare sectors. Its
clients include FTSE 100, Fortune 500 and Nifty 50 companies. Firstsource has a
“rightshore” delivery model with operations in India, US, UK, Philippines and Sri Lanka.
(www.firstsource.com)