WNS (Holdings) Limited (CAP) Earnings Call Transcript & Summary

Good morning, and thank you for joining us at such a short notice for this strategic acquisition announcement in the age of Agentic AI. So I'm joined this morning by Keshav Murugesh, the CEO of WNS; and Nive Bhagat, our CFO. This transaction positions the group as the leader in the emerging market of intelligent operation, which is the most significant opportunity for our clients to create value in the area of Gen AI and Agentic AI. The strategic value of this transaction lies in the complementarity of capabilities and expertise between Capgemini and WNS to provide intelligent operations at scale. This is about making the benefits of AI real for our clients. We do expect normalized EPS accretion of 4% in 2026 and 7% in 2027. We target synergies run rate by the end of 2027 of EUR 100 million to EUR 140 million in terms of revenues and EUR 50 million to EUR 70 million in terms of cost. The integration in our Business Services global capabilities is expected to be straightforward based on the cultural fit and complementarity of capabilities. Definitive transaction agreement is based on a cash consideration of USD 76.5 per WNS share, representing a 28% premium to WNS last 90-day VWAP. The transaction has been unanimously approved by the Board of Directors of Capgemini and WNS. Now this transaction represents a total cash consideration of USD 3.3 billion. The closing is subject, of course, to approval by the Royal Court of Jersey and WNS' shareholders as well as all customary regulatory approvals. We do expect the transaction to close by the end of 2025. The group has secured a EUR 4 billion bridge covering the purchase of securities for $3.3 billion as well as the gross debt and similar obligation for around $0.4 billion and the EUR 0.8 billion bond redeemed in June 2025. We plan to refinance the bridge with available cash for around EUR 1 billion and the balance by debt issuance. Now since the advent of ChatGPT and Gen AI, enterprises have focused significant attention and increasing amounts of investment around Gen AI and more broadly AI. Clients today apprehend what the technology can actually deliver. Their focus is shifting from individual productivity to the transformation of end-to-end business processes. Large enterprises want to focus their Gen AI investment to change the way they operate for both efficiency and growth, reshape and invent. It is the realization that end-to-end business processes provide the playground to fully leverage the power of Gen AI and Agentic AI. It is a unique opportunity to make AI real and reap its expected benefits. Capgemini is a recognized leader in Gen AI and Agentic AI. Having positioned data and AI as a core pillar of our strategy more than 5 years ago, we invested early on the Gen AI wave, building 25 strategic partnerships, upskilling our talent and developing a wide portfolio of offerings. With Gen AI bookings exceeding EUR 900 million last year, clients rely on Capgemini as their business and technology partner for the Gen AI transformation journey. Looking at demand in the last 12 months, we saw a significant increase in client interest in the next revolution of business process services driven by Agentic AI. We are convinced that intelligent operations, which is a consulting-led approach to transform and operate business processes, leveraging Gen AI and Agentic AI will be the primary showcase for Agentic AI in terms of value creation. This is about making Gen AI and Agentic AI real for our clients. Business Process Services, or BPS, emerged 20 years ago with a primary focus on cost reduction, driven mainly by labor cost arbitrage and the first attempt at process standardization. Then with the advent of robotic process automation and investment in digital platform, digital BPS players achieved sizable additional efficiency gains. They introduced non-FTE-based pricing and by developing sector expertise, they were able to address not only horizontal processes, but also vertical ones creating increased value for clients. Intelligent operation is the next revolution in the BPS market. It includes a consulting-led business process transformation, leveraging Gen AI and Agentic AI. It provides clients with efficiency, speed and agility through process hyperautomation at scale while significantly improving business outcomes by combining data, AI and digital. The client focus has shifted from cost and efficiency to agility, speed and significantly better business outcomes. This is about value creation. In parallel, the BPS market is shifting away from its labor-based drivers to being consulting-led and tech-driven. This is not just about process hyperautomation, but making people and AI agents coexist on an end-to-end process to deliver the real value expected from AI. This is a paradigm shift. Intelligent operations is a consulting and technology-led transformation requiring breadth of capabilities and industry expertise, leveraging the full power of AI to drive significant value. It requires strategy and transformation, consulting, deep technology expertise and in-depth knowledge of the horizontal and sector processes to deliver an end-to-end process transformation. The build and run of Agentic operation blends advanced Agentic AI agents, custom Gen AI assistants, enterprise data, data platforms and management as well as digital solutions. Capgemini has essentially all the ingredients to answer its clients' need for intelligent operation. This is about scaling digital BPS. This is about industry knowledge to lead intelligent operation. This is the strategic value of this transaction. Now let me spend a few minutes to introduce WNS. WNS is a global leader in digital business process services, operating at scale with deep industry and process expertise. Their offerings are powered by a comprehensive stack of solutions and platforms and fueled by a set of data and analytics solutions. Their vertical industry-specific expertise supports over 40% of their revenue, while their data and analytics contribute 13%, underscoring WNS' commitment to data and insight-led business process transformation. WNS and its 65,000 employees serve a blue-chip client base, including names like United Airlines, Aviva, Centrica, M&T Bank and McCain Foods and are consistently recognized as a market leader by industry analysts. For fiscal year 2025, WNS reported $1.3 billion in revenue with 24% coming from non-FTE-based models, highlighting a shift towards outcome-based delivery. Operating margin as per Capgemini taxonomy stood at 18.7%. The company's revenue is geographically diversified with 92% of revenue generated outside of Continental Europe and with North America representing nearly half of it. Sector-wise, financial services and insurance leads at 37%, followed by travel, health care, logistics and utilities. WNS brings deep industry expertise through outcome-based platforms tailored to key verticals. For every industry it serves, WNS has developed and deployed proprietary platforms that deliver measurable value to its clients. It includes, for example, WNS Malkom. It's an end-to-end AI-powered shipment documentation platform. It automates bills of lading, invoices and consignment notes, turning core manual and error-prone processes into digital workflows. Malkom is differentiated by Gen AI assets, leveraging deep logistics domain knowledge across shipping, trucking, 4PLs and more. Now for WNS clients, Malkom's intelligent architecture is delivering 40% to 60% productivity gains. The ROI is up to 4x and 99% data accuracy. It's also reducing invoice dispute by 20% and cutting documentation cycle times from 24 hours to just 2. Thanks to its industry-specific IP, WNS can unlock client value through its vertical-specific platform. This approach positions WNS as an industry-led AI-enabled partner focused on delivering tangible business outcomes. The acquisition of WNS immediately unlocked value. With a fiscal year 2026 outlook of 7% to 11% of revenue growth and an operating margin in the high teens, WNS is immediately accretive to the group. Digital BPS also comes with long-term recurring contracts that are beneficial to our resilience. In addition, with a complementary set of capabilities offering and clients, the combination immediately unlocks cross-selling opportunities as we fully leverage the extensive portfolio of Capgemini service offerings with WNS clients, mainly U.S. and U.K. driven. We also see a great opportunity to leverage WNS digital BPS offering, notably in platform and sector expertise in our client base. I think about banking and insurance clients, for example, where today we can benefit from their vertical process capabilities. You will have understood by now this acquisition creates the unique combination of capabilities required to become a leading AI-powered business and technology transformation partner. Starting with strategy and transformation to help our clients navigate complex shifts and transformations. Then our strengthened sector expertise built on deep vertical knowledge and platforms across industries will ensure relevance and impact of our solution, while our strong horizontal process expertise will ensure end-to-end transformation coverage. Finally, our data and AI capabilities will be a key differentiator. We have invested in talent, innovation and an ecosystem of strategic partners. Our approach is industry-specific and AI-powered. All these capabilities will be supported by an extended delivery network that brings scale and geographic diversity, enabling global reach. Together, we have a unique set of capabilities that enable end-to-end business process transformation. Now briefly on the financials of the combined entity. This slide shows a combined view for the calendar year 2024. The acquisition adds significant scale to our Business Process Services activities with EUR 1.9 billion of combined revenues. It immediately positions us as a scale player in this business. The combination is also accretive to our operating margin by around 30 basis points on a 2024 basis. Continuing with some illustrative breakdown based on calendar 2024, this acquisition will strengthen Capgemini outside of Continental Europe, notably in North America and the U.K. From a sector perspective, it will increase our scale in financial service that will account for 22% of our revenues. And finally, in terms of headcount with WNS, our footprint in Europe moved from 35% down to 30% and our offshore increased from 58% to 63%. Now coming to value creation. We do expect to achieve an increase in revenues of EUR 100 million to EUR 140 million in annual run rate by the end of 2027. The cross-selling is an immediate lever. We have delivered on its promise in every large acquisition in the last 20 years. And beyond the cross-selling, we also take into account in this revenue accretion, the initial ramp-up of revenue synergies coming from intelligent operational deals. As it relates to cost and operating model synergies, we target EUR 50 million to EUR 70 million in annual run rate by the end of 2027 coming from traditional levers in SG&A and operational consolidation. Accretion to normalized EPS before synergies targeted at 4% in 2026 and at 7% post synergies in 2027. Accretion is expected to continue increasing after that point as Intelligent Operation contracts start to ramp up. From a time line perspective, we expect the transaction to close by the end of the year. As discussed earlier, the transaction is subject to the approval by the Royal Court of Jersey and WNS shareholders. This indicative time line also takes into account the customary regulatory approvals. In summary, this acquisition is strategic to both Capgemini and WNS. We share the same vision of the market and the fast emerging opportunity around intelligent operation driven by Gen AI and Agentic AI. We are convinced that the complementarity of our capabilities and offerings will position Capgemini as a leader in this fast emerging Intelligent Operations market while providing great cross-selling revenues and cost synergies in the short term. This is a friendly transaction with great cultural fit, which leads to a straightforward integration, enabling us to quickly focus on the strategic value creation opportunity resulting from this deal. This is about making Gen AI and Agentic AI real for our clients by delivering significant value creation through the transformation of their end-to-end business process. This will create value for our clients, our employees and our shareholders. Before opening the Q&A, I'd like to remind you that this call is dedicated to this transaction and that we are in the quiet period prior to our H1 2025 results. We will, therefore, not comment on H1 2025 performance beyond what is included in the press release. Let's now open the Q&A and to allow a maximum number of people in the queue to ask questions. I kindly ask you to restrict yourself to one question and a single follow-up. Operator, could you please share the Q&A instructions.

[Operator Instructions] We will now take the first question from the line of Mohammed Moawalla from Goldman Sachs.

So yes, first question, kind of the perception from the outside in is that sort of you're acquiring sort of a BPO business and in a kind of world of Agentic AI, this is perhaps from a kind of structural standpoint harder to digest. But I know you sort of laid out some of the industrial logic, but could you perhaps tell us how much of this was also obviously a strategic push to Agentic AI, but obviously, this clearly also diversifies the group from a kind of end market and obviously increases your exposure to the U.S. And how much of this was kind of driven given the challenges you've had in the past kind of 18 months, particularly from a cyclical standpoint? And then my follow-up question is on WNS. So you talked about a 9% historical growth rate and a forward outlook of 7% to 11%. What's the organic assumption of that sort of 7% to 11% growth rate? And what gives you confidence that this growth rate certainly can be sustained as you drive the integration of the 2 businesses?

Okay. So to answer your first question, this transaction makes sense because of the strategic value. My position is I leverage the balance sheet, which is the case because we're going to raise debt if I consider this strategic value creation. So the reason we did this transaction is because in the age of Gen AI and Agentic AI, the business process end-to-end transformation, leveraging AI and Agentic AI is going to be the showcase of how -- of the value creation for Agentic AI and Gen AI. And I think it's very important because this is the core reason of the transaction. This is why we are doing it. With Keshav, we shared the same vision in terms of where the market was evolving and really the emerging intelligent operation, which is not something we're only betting on the future. We see it in the deal pipeline. We have seen the increase in the last 12 months since Agentic AI became more prominent. And we see the size of these deals and the ambition of clients to drive significant transformation, as I say, not just about cost, which has been more the traditional remit of BPO in the early days, but really around significantly better business outcome. And I did give an example of that, that we have a number of others that exist. So there is secondary benefits, if you want, around resilience, around more exposure to U.S. and U.K., but the primary benefit is really the reason we did the deal is for the strategic value it's creating. Keshav, maybe on the growth?

Sure, Aiman. So first and foremost, thank you for that question. As far as growth is concerned, let me just lay out a little bit in terms of the market penetration rates itself for the traditional business process or what we now call as global business process, Intelligent Operations side of the business. If you look at some of the reports that have come out in the recent past, including, I think Gartner and a few others, they have essentially said that as opposed to traditional IT services, on the business process side, the market penetration rates are in the region of 25% or 30%. And therefore, I think what is really exciting from a WNS point of view is that with Agentic AI as well as investments in AI and the ability to accelerate, our vision of going after that other 70% white space is now enabled with the help of this combination. So from our point of view, while we have, on a regular basis, been very comfortable delivering close to double-digit growth rates, we actually believe that with this combination, the ability to accelerate beyond that is now very, very high. And I can tell you, our Board, our management team supports this combination very, very strongly. And we believe that this combination will allow us the opportunity to accelerate the business to where the market is now headed.

So as you can see, we see the same thing. And I can tell you, we also have significant acceleration of growth in our Business Services business. As a confirmation that contrary to what people believe, this business is not getting eroded by Gen AI and Agentic AI. On the contrary, we have seen a significant increase in opportunities from clients looking to very complex transformations because this is not a simple endeavor that requires breadth of capability and experience to be able to drive this kind of transformation. And the reason they are looking at it is because the value creation goes way beyond just the cost reduction.

We will now take the next question from the line of Frederic Boulan from Bank of America.

Yes, a quick question around the underlying assumption from a synergy perspective. I mean, I get the -- overall, we have businesses which are highly complementary. So I would say, some limited overlap. Can you spend a bit more time around the synergy assumptions from a revenue and cost perspective, in particular, on the revenue side, I guess, that's probably the area where you might get a bit more challenged. I guess the cost is pretty limited in terms of scope. But yes, if you can spend a bit more time on key areas of revenue synergies.

I mean, listen, on the revenue synergies, first, I'd like to remind you that every single large acquisition we have done, the initial cross-selling opportunities have materialized, and we have achieved most of the revenue synergies initially just through the cross-selling. The ability to cross-fertilize our offering across our client base drove a lot of cross-selling opportunities at the beginning, okay? And when I look at iGATE, when I look at Altran, and I look at even Kambi, I look at some of the accounts we inherited, some of them which were small or limited and the size of these accounts today, I'm quite confident on the revenue synergies. And as I say, the revenue synergies is really the initial phase we're talking by the end of 2027, so 2 years through the deal. They don't really factor for the moment significant acceleration we expect on revenue, which would come from the large opportunities, which will come from Intelligent Operations. Some of these deals are pretty long in terms of decision-making cycle. So we're only here taking into account some of the initial phases of ramp-up of some of these deals. And in fact, on the cost one, I mean, this is traditional cost synergies. It's a pretty -- WNS is a pretty well-run company and pretty efficient. There is always integration cost synergies. We feel confident in the range that we have for trade. If there's more to come, we will see. But right now, we consider this as a reasonable target. Again, the focus is really around the acceleration in terms of top line, notably coming from the Intelligent Operation play, but there are cost synergies. And of course, we will achieve them.

[Operator Instructions] Our next question comes from the line of Nicolas David from ODDO BHF.

First question is, could you comment, please, on the potential exposure of WNS Holdings through commercial BPO and customer support services like call centers, if there is any? And what are the trends there, if there is? And my second question is, how do you approach when you decide to do the deal, the people management part of it because we understand the potential of Gen AI and Agentic AI on this area, but there's also a lot of disruptions. And is there some difference you need to implement in the way you manage people? And how will evolve the profile and the nature of headcount of the BPO, BPS businesses in like 5 years?

Keshav, maybe ask you on the customer service and customer experience part.