MANAGEMENT DISCUSSION AND ANALYSIS
As per NASSCOM, the BPO segment grew by 14 per cent to reach USD 14.1 billion inFY2011. The year also witnessed the next phase of BPO sector evolution "BPO3.0" characterized by greater breadth and depth of services, process re-engineeringacross the value chain, increased delivery of analytics and knowledge based servicesthrough platforms, strong domestic market focus and SMB [Small and Medium Business]centric delivery models.
While financial statistics and generous forecasts are encouraging, the IT-BPO market isnot immune to the boom and bust cycles that have affected mature global industries such asconstruction, manufacturing and retail. IT-BPO service providers have traditionallybenefited from such market cycles, acting as a stabilizing agent for their clients, but itis imperative to remain vigilant - current competitive advantages such as cost, educationlevels and management expertise may erode or can be fiscally fatal. Pressure from otherBRICs (Brazil, Russia, India and China) members will continually increase and theimpact of their continued assertiveness is difficult to predict and cannot be ignored.
The industry with basic outsourcing advantages of cost and talent is shifting andevolving from being tactical to being of strategic benefit to clients. Indian companieshave notably invested in the US, while US companies have increased the sale of US productsto India, in effect; creating jobs that many have feared were lost to outsourcing.Secondly, the maturity of the domestic market, product ecosystem of start-ups, growth incore markets and recognition that global sourcing is not just about cost savings (butfundamentally transforming each customers business model) are significant trendsthat will reshape the industry in this decade.
The year saw wide ranging contract restructuring exercises, and deal size reductions asbuyers came to terms with new business models and budgetary constraints. However,multi-sourcing saw higher adoption, precipitated by the increased maturity of Indianproviders. Recent global M&A activity in the sector indicates select acquisitions byestablished service providers to enhance skill and scale. While cost and talent stillremain essential considerations for global sourcing, savvy customers are constantlydemanding more growth markets, flexibility and innovation. With customers demandingmore immediate value from IT and forward-looking strategies that support growth andinnovation, service providers are adopting agile methods focusing on operationalexcellence through ongoing innovation, diversification, renewed partnerships/alliances andnew business models.
Another key area to support this phenomenon is longer decision cycle by the customersslowing down investments in their own core markets - which is key factor for the BPOindustry to continue to enjoy strong future growth. To survive, IT-BPO providers mustdivert more resources to improve environment of business performance measurement &greater risk-reward sharing by focusing the factors like Transformational Business impact;Service Delivery maturity; Scalability; and Sustainability.
Over the past few years due to altered demand landscape, the industry had begun totransform itself by actively diversifying beyond core offerings and markets through newbusiness and pricing, models, specialize to provide end-to-end service offerings withdeeper penetration across verticals that transform process delivery through re-engineeringand enabling technology innovate through research and development. Services such asvirtualization, consolidation, and managed services that focus on ROI in the short termwill drive opportunities in the market. Emerging Asian enterprises across multipleindustries will continue to accelerate services spending in their efforts to challengeexisting global MNCs.
Also, because of developing nations continuing to grow faster than the developedcountries; worldwide IT spending will also benefit from the recovery in emerging markets;the growth will reflect a new demand for IT goods and services in years to come.
HOV Services Limited one of the largest end-to-end BPO Company headquartered atChennai, India provides Finance and Accounting services in the BFSI, Healthcare,Government, Media & Publishing, Retail, Commercial and Industrial Manufacturingindustries. Its clients include over 50% of the FORTUNE 100 and are some of the largestcompanies in the industries served. RightShore delivery centers strategically located inU.S., Mexico, Canada, India, China and the Philippines with 8,357 employees workingtogether to Exceed Expectations of our clients.
Below is a highlight of some of the key services offerings:
|Healthcare Claims Processing || Process ~ 100 million healthcare claims annually- COB, EOB, Medicare and Super Bills |
| || Domain expertise includes Medical, Dental, Vision, Behavioral & Rx claims. |
|Enrollments || Process ~ 2.1 million Members Enrollment Transactions annually |
| || Large / Small Group (Add, Term Changes, COBRA on Image and EDI) |
|Print & Mail || Print & Mail ~ 8 million documents per month as part of end- to- end processes. |
| || Healthcare accounts for ~ 30 million annually. |
| || Customised members welcome packet: Certificate of coverage. |
|E - Presentment || Electronically present ~ 1.8 million annually page of EOB / EOP. |
| || Manage electronic Re-Pricing transactions. |
|CRM & Support || CRM Transaction ~ 6 million annually. |
| || Service Desk, Supporting, Email, Chat & Voice. |
|Adjudication & Adjustments || Process over ~ 8.0 million claims annually with $ 36 million paid / denied. |
| || Support Managed Care / Indemnity & Self Funded groups. |
|Claims Pre-Processing || Front End edits ~ 18.0 million claims annually. |
| || Code / error resolution- Proactive claim resolution. |
| || Automated FE Edits by Komodo FCBTM ready for deployment 2010 |
|Paper Claims Gateway || PCHTM end-to-end platform linking providers and payers for paper to paperless claims launched in 2010. |
|Finance and Accounting || Process ~ 6 million transactions per month including PODs Invoices, Pay Stubs, approvals, and remittances. |
| || Serving ~3.5 million Accounts Receivable transactions per month for healthcare and retail Industry. |
|EContent || Enable ~ 600 million characters per month for most of the major publishing companies into smart data. |
| || E-learning platform for internal processes in deployment and scheduled for customer deployment in 2010. |
|HR AssistTM || Process ~ 5000 employees verification transactions through hosted Screen 360 services for customers and internally. |
| || HR AssistTM is being deployed across all HOVS sites in 2010. |
| || Online Training is deployed across 2 major services Healthcare and ARM. |
|Document Life Cycle || Scan, Index, archive and convert into data to apply business rules as needed ~100 million pages per month. |
|DOC DNATM || Ingests ~ 50.0 million images per month with over 2.5 billion images online. |
| || 50,000 ~ registered users with 700+ customer applications |
|Analytics & Business Intelligence || Duplicate claim reduction. |
| || Member / Provider eligibility matching and COB calculations |
| || Dispute Resolution |
| || Fraud detection |
| || Business Analytics |
The Company offers a diverse range of services which includes Healthcare Payor/Provider services, Presentment Services Strategic Consulting, HR Assist, Finance andAccounting Services, E-Content management Services and Document Lifecycle Services.
Our Strategy and Key Differentiators:
HOVS strategy weaves many items to help us differentiate and position us for successand a sample of some of key differentiators are:
(1) Innovation continuous enhancement of delivery of services by combiningdomain expertise and technology;
(2) Business model by service type to create win-win partnership between our clientsand us. For example, pay per member or by outcome based;
(3) Hosted services combined with delivery from right shore locations;
(4) The best customer experience from initial engagement to deployment;
(5) Continuous improvements and delivering highest end-to-end process quality and
(6) Better overall cost of ownership.
HOVS mission is to create value that benefits Customers, Employees and Shareholders
Provides quality products and services
Delivered reliably and cost effectively
Enhances their ability to operate business
Professional business management
Strategy and execution honed by experience
Higher shareholders value
Better returns on investment
Conduct business ethically
Equal opportunities and career enhancement
Rewards for competence
Performance and dedication to our customers
Higher retention rate
Infusion of high caliber individuals
"We aspire to "Exceed Expectation" through our innovativesolutions, superior customer service and competitive desire to be the best BPO provider toour customers and their industry."
- Mr. Suresh Yannamani, President
Overview of Services Offered and Industry: Percentage of Total Revenue as of March31.
|Services Offered ||2007 ||2008 ||2009 ||2010 ||2011 |
|Finance and Accounting ||3% ||4% ||5% ||6% ||6% |
|AR Management* ||40% ||18% ||17% ||12% ||0 |
|Healthcare Payor / Provider ||11% ||24% ||28% ||31% ||32% |
|HR Assist ||6% ||2% ||1% ||1% ||1% |
|Strategic Consulting ||31% ||4% ||3% ||4% ||6% |
|Document Lifecycle Services ||6% ||30% ||27% ||26% ||30% |
|Presentment Services ||2% ||13% ||14% ||13% ||15% |
|eContent Management ||1% ||5% ||6% ||7% ||10% |
*Impact of ARM business hive off realized in March quarter of FY 2010
|Industry Vertical ||2007 ||2008 ||2009 ||2010 ||2011 |
|BFSI ||50% ||34% ||26% ||24% ||23% |
|Healthcare ||23% ||37% ||40% ||40% ||38% |
|Telecom ||23% ||4% ||7% ||5% ||0 |
|Media / Publishing ||1% ||4% ||6% ||7% ||9% |
|Manufacturing ||1% ||7% ||6% ||6% ||7% |
|Retail ||0% ||1% ||3% ||4% ||5% |
|Government ||3% ||12% ||13% ||13% ||18% |
*Impact of ARM business hive off realized in March quarter of FY 2010. Hencerevenue from telecom is for first 3 quarter of FY 2010.
|Client Mix ||2008 ||2009 ||2010 ||2011 |
|Top Clients ||14% ||15% ||16% ||16% |
|Top 5 Clients ||29% ||35% ||32% ||31% |
|Top 10 Clients ||37% ||44% ||43% ||43% |
|Top 20 Clients ||46% ||55% ||56% ||54% |
|Top 50 Clients ||59% ||69% ||70% ||67% |
|Top 100 Clients ||69% ||77% ||81% ||79% |
|Top 200 Clients ||78% ||87% ||89% ||89% |
|Top 350 Clients ||83% ||93% ||94% ||95% |
|Non Top 350 Clients ||17% ||7% ||6% ||5% |
Product and Service delivery Architecture
HOVS provides complete end-to-end technology based solutions to enhance and integrateits process with the existing setup prevailing at clients place. HOVS combinesvarious best-of-breed technology, leading-edge infrastructure and domain expertise to giveits clients the most streamlined process available benefiting clients to reduce cycle timeand operation cost.
HOVS endeavor to deliver services to clients in the most efficient manner and customizethe engagement based on the specific needs. HOVS recommended approach is geared towardsdelivering significant ROI with functions fully outsourced. An example of various deliverymodels below highlights various steps involved and responsibility of the parties.
Technology deployment is strategic to growth and the company has investedheavily in automation, capture, presentation and analytics to grow its competitiveadvantages, better serve its clients, retain employees and improve productivity andperformance.
Effective use of technology to improve operations efficiency will continue tolead to better, faster, and cheaper solutions for clients.
The Company is leveraging its global footprint to take advantage of shrinkingdistances and blur traditional borders bypassed by global, stable, secure networkinfrastructure all while conforming to international standards including ISO, HIPAA ,HITECH, PCI and SAS70.
HOVS new technologies developed in last 2 years to enable:
Optical character recognition technologies platforms - ACE, TurboScan, O-Coding
Data Capture Platforms - Firefly Platform for Healthcare and F&A.
Enhanced Services in healthcare - Provider Management Portal for convertingpaper claims to EDI claims, PCHTM paper to paperless claims platform.
Komodo business rule engines deployed to enable HOVS rules and Customer Rulesfor very rapid deployment by customer by project
HMS productivity and quality tracking by employee worldwide, utilizationof assets, management of assets, employee communications, secure portal for company andemployees. HMS has been rolled out across all sites US, India and China where healthcareis processed.
HR Assistance onboarding, background checks, learning management,employee portal, HR record management and online induction platform.
HOVS new technology platform has been developed to address the following issues:
To make the company less dependent on offshore and address US business thatcannot be sent offshore, HOVS undertook development of new workflow, business ruleengines, and redesigned processes to launch enhanced services in Healthcare and A/P withwork underway for additional verticals.
Faster deployment of new business
Faster and better change management making us more responsive
Improve productivity to reverse the increasing headcount and utilization
Overview of merger
HOV Services ("HOVS") entered an agreement to combine its indirect subsidiaryHOV Services LLC with SOURCECORP, Inc ("SOURCECORP") a portfolio company ofApollo Management V, L.P. through a formation of new company SourceHOV Inc. The mergerwill bring together two highly recognized companies and create a global business processoutsourcing and professional services consulting entity.
SOURCECORP is Texas-based Company. It provides business process outsourcing solutionsand specialized high value consulting services to clients throughout the U.S.A. SOURCECORPleverages deep horizontal process knowledge into information-intensive industriesincluding commercial, financial, government, healthcare, and legal. Headquartered inDallas, SOURCECORP serves clients throughout the United States through a network oflocations in U.S., Mexico, India and the Philippines.
Subsequent to aforesaid merger the Companys head office is relocated to 3rdFloor, Sharda Arcade, Pune Satara Road, Bibwewadi, Pune-411 037.
Benefits from Synergy:
SourceHOV Inc. expects to realise multiple synergies from this combination
o Complementary horizontal services with demand-side economies of scale position theentity to participate in large BPO/KPO transactions globally.
o Significant Operating Leverage
o Opportunities to expand services to non-overlapping customer pool
o Potential for seamless expansion into foreign markets
o Highly customizable service offerings with extended range of core competencies.
o Strong global management team
o Combined headcount of approximately 14,200 globally on February, 2011
o Marquee Customers more than 50% of the Fortune 100
o High visibility and large recurring revenue stream
o Deep domain expertise in several Industries
o Increased access to global customers with an extensive global footprint
o Significant operating leverage, scalable operating platforms with new revenue growthopportunities
Composition of SourceHOV Inc. board:
The board of SourceHOV Inc will consist of 7 members with 3 members each nominated byshareholders of HOV Services and SOURCECORP and CEO will serve the 7th memberof the board upon election.
Delivery Centers and Employees as at December 31, 2010:
|Company Name ||No of Delivery Centers ||No of Employees ||Locations |
|HOV Services ||46 ||8750 ||North America, China, India, Mexico and Canada. |
|SOURCECORP ||37 ||5500 ||US, Mexico, India & Philippines |
|Combined ||83 ||14,250 || |
Consolidated Financial Performance for the Fiscal Year ended March 31, 2011
Consolidated total Income for the current FY decreased 16.40% to Rs. 7,092.54million from Rs 8,483.94 million for the corresponding last fiscal year 2009-10
EBIDTA decreased by 7.8% for the FY to Rs. 1,110.4 million from Rs. 1,203.9million over the corresponding last fiscal year 2009-10
Net Profit was Rs. 537.3 million versus a Net Loss of Rs. 758.4 million reportedin the prior year.
The basic and diluted Earnings per share (EPS) were Rs 23.40 for the Year endedMarch 31, 2011.
Consolidated Financial Performance for the Fourth Quarter ended March 31, 2011
Total Income for the fourth quarter decreased 10.2% to Rs 1,655.1 million fromRs 1,843.5 million over the fourth quarter FY 2009-10.
EBIDTA decreased by 47.4% for the fourth quarter to Rs 180.0 million from Rs342.41 million over the fourth quarter FY 2009-10
Net Profit for the quarter was Rs. 40.0 million versus a Net Loss of Rs. 1,130.1million reported in the corresponding quarter in the prior year.
The Basic and Diluted Earnings per share (EPS) were Rs. 1.74 for the quarterended March 31, 2011.
During the year the Board of Directors had declared three interim dividends of Rs. 2/-each per fully paid up equity share of Rs. 10/- each on August 27, 2010, on November 18,2010 and February 21, 2011 respectively amounting to Rs. 873.94 lakhs including dividenddistribution tax of Rs. 124.48 lakhs.
Keeping in view the long term interest of the shareholders, the Board of Directors atthe meeting held on May 27, 2011 recommended a final dividend of Rs. 2 per fully paid upequity share of Rs. 10/- each for the financial year 2010-11. This commend yours approvalfor declaration.
"Your companys financial performance in the current fiscal andrestructuring of its subsidiary instigated during the year testify versatility of ourbusiness model that is pedestal on aspiring to "Exceed Expectation" forits clients, shareholders and employees."
Mr. James Reynolds, Global Chief Financial Officer
HOVS employee remunerations, rewards and recognition policies are directly linked toperformance, incentivizing productivity and efficiency throughout. All exceptionalservices are duly recognized and awarded through an employee recognition and rewardprogram. Adequate training is provided both in-house and using external faculties andfacilities at all levels. Facilities solicit and display employee artwork and employees atall levels are exposed to the benefits.
An employee communication portal pushes for regular corporate and managementcommunication. Once a month all employees are addressed by Senior Management and apprisedof the developments taking place during that period. The Company follows open policy toredress the grievances if any.
Career and Career Progress is an open policy drawn up for all levels and there isclarity of growth opportunities within the Company. Employees are encouraged to refertheir friends for any positions to be filled in and also paid adequately if such referredpersons are appointed. The employee relations with the Company remain cordial at alllevels and the Management is actively involved in making sure the Company meets the law ofthe land and set the high standards for all to achieve.
"We aspire to "Exceed Expectation" by being the employer ofchoice in each of our facilities, by attracting and keeping highly skilled individuals whowork as a team to generate profitable results."
- Mr. Kenneth L Shaw, Executive Vice President Human Resources.
HOVS has a well defined internal control systems and well documented procedures.There are adequate checks and balances at all levels. The mandate goes beyond financialtransactions to even review all other functions of various departments, viz Purchase,Sales and Marketing, Operations, Payroll, HR and many others.
The Internal Audit is both outsourced to professional firms and team of internalauditors who reviews all the policies, procedures and also audits most of thetransactions.
The reports submitted every quarter is reviewed by the Management and AuditCommittee and if needed corrective actions are taken.
Additionally, pursuant to the Clause 49, the Corporate Governance of the listingagreement with stock exchanges, the Company is required to comply with additionalstandards. These standards include a certification by Companys Chief ExecutiveOfficer and Chief Financial Officer upon the effectiveness and deficiencies of internalcontrols and the certificate is placed before the Audit Committee meeting every quarter.
Threats & Risks
HOVS challenge is to leverage its domain experience and success in currentmarkets it serves, to other rapidly growing markets where HOVS have significant presencesuch as growing healthcare services market in India and China, two of the worldsfastest growing economies.
The appreciation of the Indian Rupee against the US Dollar can affect margins.
Competition from global companies setting shops in India, China and Mexico aswell as domestic BPO companies pose threat by price and margin erosion.
Competition from other developing Countries is also a threat. However,HOVS root in technology and adherence to existing and emerging standards, deliveringthe highest quality, global delivery platform enable HOVS to compete well against somedeeply entrenched companies.
The rising inflation and salaries along with high attrition among associates isa threat. This is planned to be offset with increased productivity and increased use oftechnology to reduce the dependence on manpower.