Business process outsourcing provider Genpact has reported strong Q4 2007 and full-year results – which had been delayed "by complexities surrounding taxes", according to CFO Vivek Gour – and has claimed immunity from the US credit crunch, despite deriving 44 percent of its revenues from banking, finance and insurance clients.

Genpact president and CEO Pramod Bhasin added some spice to a successful recipe by forecasting the demise of the baby boomer and the rise of new markets in a wide-ranging and entertaining statement about the health of the market.

Revenues for 2007 were $823 million, which represented a 24% increase over 2006. Revenue per employee increased to $28,200 from $26,400 in 2006 and adjusted income from operations was $132 million. This represented a 16% adjusted operating income margin – an increase of 50 basis points from 15.5% in 2006.

Pramod Bhasin said, "Our fourth quarter results capped off an outstanding year for Genpact in which we made company history with the public offering of our common shares and listing on the New York Stock Exchange.

"We exceeded our financial targets for the year," he continued. "Significantly, we accomplished this while continuing to invest for growth and incurring additional expenses as a public company. Our revenue growth with existing clients provided a scale [for] us to enhance management of our operating costs [by] optimising utilisation of our investment in infrastructure, IT and telecoms, controlling wage inflation, moving geography, increasing supervising span [sic]... all to drive efficiency and productivity."

Genpact's organic revenues grew 28% year on year, and accounted for 95% of total 2007 revenues. More than 90% of this growth came from existing clients, said Bhasin.

"This is a clear testament to our ability to build long-term relationships with our clients and broaden our offerings with new services and solutions as well as across multiple geographies and business units," said the CEO. "This allows us to drive profit and technology improvements that drive meaningful impact to our clients."

Bhasin said that Genpact's strategy of growing with existing clients will "play to [the company's] benefit in the current environment... Our global clients revenues had a strong growth rate of 91% and increased in total by $182 million in 2007.

"As of December 31 we had 18 client relationships that generated $5 million or more in annual revenue of which three generated $25 million or more in annual revenue. We believe that a number of these clients as well as several of our new clients can each grow to $25 million or more in annual revenues over the long term," he said.

Approximately 44% of Genpact's 2007 revenues came from banking, financial services and insurance clients, with roughly one quarter of those coming from insurance clients, with the remainder distributed among consumer, commercial and investment bank and asset management clients. A further 22% of 2007 revenues came from manufacturing clients, which include aircraft, infrastructure, automotive, healthcare and pharmaceuticals.

"Business process services continues to be the primary driver of growth accounting for 76% of our revenues in 2007 with a balance of 24% from IT outsourcing engagements," said Bhasin. We see strong growth in our finance and accounting operation in 2007 which translated into roughly 40% of our business profit of services revenue."

Bhasin acknowledged that the economic downturn in the US and elsewhere was a factor for many of the company's customers, but not necessarily for Genpact itself, as the company helps "keeps the lights on" in dark economic times.

"The current environment will have an impact on many companies," he said. "We believe companies generally have three potential reactions. One: some companies would have a headline approach and move tall. Two: others will have large strategic issues that management has to focus on. Finally, three: most companies that are more nimble and seek to emerge stronger from turbulent economic times will want to establish new or accelerate their existing relationship to providers like us in order to benefit from productivity and process reengineering to meet their internal goals and targets."

"We will aggressively help our clients to achieve their business and productivity goals through innovation, Six Sigma, lean and reengineering," he added.

He reserved his most interesting comments for a discussion of the changing face of the global marketplace. "Medium and long-term growth of our industry will be driven in part by changing demographics in the developed world. Baby boomers are beginning to retire in developed markets. Countries like China and India continue to mature and their relatively young population continues to grow at a rapid pace. The need for companies in the developed world to access the growing talent in countries like India and China will help drive growth in our industry.

"Roughly 80% to 85% of our business relates to essential services and solutions that clients need to remain competitive in their markets. Key areas include finance and accounting, IT help desk, remote infrastructure monitoring, supply chain, procurement services, collections, analytics as related to process improvement as well as ongoing ERP implementation.

"In addition, most of our relationships involve multi-year long term contracts in which we are helping clients operate more efficiently. While our pipeline remains robust we continue to watch the environment closely. We are working with clients to focus on opportunities with faster payback and consequently are higher return on investment and identify entry points that clearly minimiae risks. Currently the bulk of our demand for our services continues to come from clients in the US and the UK." Bhasin said that in 2008 Genpact is considering entering the domestic Indian market and Chinese marketplaces."There are a number of Indian and Chinese domestic multinational companies that can benefit from the values we bring to driving profit excellence. These companies have huge domestic markets and are becoming global players, organically and through acquisitions in their own rights. The value proposition for these customers obviously can not made otherwise but rather the end to end business impact we can deliver," he said.

"In addition, in our China delivery venture we will continue our focus on increasing our presence with Japanese customers and to engage clients globally to provide delivery in areas such as IT.

Bhasin then turned his attention to the year ahead for his company. "We submit that our revenues will grow organically by 25% to 27% from $823 million. Roughly 80% to 85% of that growth is expected to come from our existing customers. Adjusted operating income margin is expected to improve slightly by 10 to 30 basis points to 16.1% to 16.3%.

"Longer term over the next three to five years we are still comfortable with a 25% to 27% growth rate and adjusted operating margins that improve by one percent to two percent from where we were in 2006."

CFO Vivek Gour explained how the company hedges against the fluctuations of global currencies. "I want to apologize for the delayed release of our 2007 results. This was driven, in large part by complexities surrounding taxes... I’d like to discuss our foreign exchange strategy, which allows us to mitigate the impact on costs of revenues and SG&A for movement in foreign exchange rates.

"As a multinational organization our revenues are largely in US Dollars while our costs are in a variety of currencies around the world. This impact inception we have been perceiving [sic] hedges on a rolling basis to limit our exposure to foreign exchange fluctuations. We are hedged out for most of estimated costs for 2008 and 2009. We are also executing on our hedging strategy for 2010 and 2011. In addition, many of our contracts do have some form of foreign exchange impact sharing to extent that our hedges don’t protect us against such movement.

"From an accounting standpoint the cost of revenue line and the SG&A line are booked in the P&L at the current foreign exchange rates of that month," he continued.

"These costs on the P&L will move with the FX movement. The hedge gains and losses offset changes in our cost of revenue line and in our SG&A line due to these foreign exchange movements. This ensures that our income from operations is essentially neutral with foreign exchange fluctuations.

"Most importantly our hedges give us time to adjust our operations for longer term shifts in foreign exchange rates whereas otherwise we would be forced to confront every fluctuation and shift if and when it happens," he added.

"Moving back to the income statement our gross profit for 2007 was $307 million representing a 37.3% margin which is a decrease from 41.1% gross profit margin in 2006 due to movement in foreign exchange. Adjusted for the benefits of our hedging strategy our gross profit margin for 2007 has improved slightly from 2006. Continuing down the income statement SG&A expenses for 2007 were $231 million representing 28.1% of revenue and an increase of 45% from $169 million in 2006."