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Living up to the promise - T.V. Mohandas Pai.ppt
- 1. Analyst Meet
August 27, 2002
“Living up to the promise”
© 2002 Infosys Technologies Limited
Living up to the promise
T.V. Mohandas Pai
- 2. Analyst Meet
August 27, 2002
© 2002 Infosys Technologies Limited
Agenda
■ Promises made, promises kept
■ Predictability, sustainability, de-risking
■ Corporate Governance
■ Transparency and reporting
■ Acquisitions
■ Current issues – Infosys’ response and position
■ Crisis of confidence in corporations
■ Stock option accounting
- 3. Analyst Meet
August 27, 2002
© 2002 Infosys Technologies Limited
In a challenging business environment…
■ General reduction in technology spending
■ ROI based IT investments by customers
■ Greater outsourcing of technology and offshore becoming
mainstream
■ Challenging pricing environment
■ Rationalization of vendors and customers preference for
large, end-to-end players
Infosys has continued to execute, flawlessly, without
diluting the corporation’s core values…
- 4. Analyst Meet
August 27, 2002
“Living up to the promise”
© 2002 Infosys Technologies Limited
Promise Vs Performance
- 7. Analyst Meet
August 27, 2002
© 2002 Infosys Technologies Limited
How did we do it?
■ Revenue and cost projections
■ Cost control
■ Re-calibrating Capex
■ Maintaining liquidity
- 8. Analyst Meet
August 27, 2002
© 2002 Infosys Technologies Limited
Revenue and cost projections
■ Relationship model gives us a good insight into our Clients’ plans /
thinking
■ Over 85% repeat business
■ Implemented a state of the art pipeline visibility system – “InPipe”
■ Senior management is in close touch with key decision makers at
important Clients
■ Added several large Fortune 1000 corporations to the Client list
■ De-risked our operations by maintaining a disciplined mix of business
■ Fixed costs budgeted on a conservative revenue assumption –
automatic “stretch” built into the system
■ Closely monitored during the course of the quarter / year, should mid-
course corrections become necessary
■ However, investments critical for long term growth are protected
- 9. Analyst Meet
August 27, 2002
© 2002 Infosys Technologies Limited
Cost management
■ Lowered fixed costs
■ Salary increase linked to attainment of company performance targets
(70% of total increase linked to company performance last fiscal)
■ Percentage variable component paid during last fiscal
Q1 - 100%
Q2 - 68%
Q3 - 0%
Q4 - 0%
■ Reduced costs by closely tying recruitment to business needs
■ Just in time recruitment
■ Recruitment based on business outlook
■ Net addition to employees by quarter
- 10. Analyst Meet
August 27, 2002
© 2002 Infosys Technologies Limited
Cost management (Continued)
■ Tight control on non-revenue related expenses
■ Reduced recruitment for support (ex-sales & marketing) departments
during the year
■ Implemented GDM for non-revenue generating activities in high-cost
economies
■ Others cost control initiatives
■ Continuous rationalization of internal policies
■ Re-negotiations with vendors and service providers
■ Rationalization of employee benefits
■ Reduction in discretionary spending
■ Vacating leased premises, etc.
■ Cost savings
■ Cost cuts during the year aggregated 2.4% of revenues (3.5% excluding
increase in personnel cost in the US)
- 12. Analyst Meet
August 27, 2002
© 2002 Infosys Technologies Limited
...recalibrated Capex spending…
0
20
40
60
80
100
120
140
160
Capex (Rs.cr) 85.84 114.01 125.16 138.34 101.73 129.76 53.05 38.2
Q101 Q2 01 Q3 01 Q4 01 Q102 Q2 02 Q3 02 Q4 02
- 13. Analyst Meet
August 27, 2002
© 2002 Infosys Technologies Limited
…maintained liquidity to de-risk
an uncertain environment…
- 14. Analyst Meet
August 27, 2002
“Living up to the promise”
© 2002 Infosys Technologies Limited
Corporate governance
- 15. Analyst Meet
August 27, 2002
© 2002 Infosys Technologies Limited
Audit committee
■ Entirely comprised of independent directors
■ Have powers to recommend appointment/termination of
auditors to the shareholders
■ Discuss various accounting issues directly with the
auditors
■ Internal and external auditors have independent access
to the committee
■ The financials are discussed in detail and adopted by the
audit committee before being presented to and approved
by the full board
- 16. Analyst Meet
August 27, 2002
© 2002 Infosys Technologies Limited
Executive compensation
■ Promoter directors are excluded from the stock
option plans
■ Statute prohibits providing loans to directors
■ One of the lowest compensation for the senior
management in the industry
■ Leadership by example
- 17. Analyst Meet
August 27, 2002
© 2002 Infosys Technologies Limited
Operations and disclosure policies
■ Operate through branches worldwide – hence only one legal entity /
financials
■ Subsidiaries created only for business and
strategic reasons
■ Where the subsidiary requires a different strategy, culture, skill sets, cost structure,
etc.
■ No material off-balance sheet items
■ Highest disclosure standards
■ The mantra is “In case of doubt, disclose. Go beyond the statute.”
■ Transparent reporting on all operating and financial metrics at the time of
announcing results
■ State of the art website with lots of useful information
■ Easy access to management / frequent investor interactions at conferences,
roadshows, etc.
■ Full compliance with laws in all countries / regimes that we operate in
- 18. Analyst Meet
August 27, 2002
© 2002 Infosys Technologies Limited
Acquisitions Vs. Alliances
■ Infosys has been searching for a strategic
acquisition for 3 years
■ Have not made an acquisition to date because of
valuation issues, lack of acquired management
commitment, lack of revenue visibility, financial
weakness / discipline / viability, etc.
■ Organic growth has remained comfortable, however
acquisition of target competencies important for the
“next orbit” / differentiation
■ Alliances are a possible via-medium
- 20. Analyst Meet
August 27, 2002
© 2002 Infosys Technologies Limited
Crisis of confidence in the market
■ Corporations re-stating their numbers
■ Accounting issues in large corporations
■ Disproportionate executive compensation
■ Questionable off-balance sheet items
■ Lack of basic corporate governance
Infosys’ long history of principled corporate governance,
conservative financial reporting and transparent corporate
structures differentiates us in this environment
- 21. Analyst Meet
August 27, 2002
© 2002 Infosys Technologies Limited
Stock option accounting
Views so far :
■ Unlike US companies, Indian corporates do not get tax
benefits on employees exercising their options
■ Stock option accounting is a non-cash charge which
does not alter the overall cash value of a company
■ Black-Scholes model based on historical volatility does
not provide fair value of an option
■ Technology companies like Microsoft are against
expensing options
We are internally debating this issue
- 22. Analyst Meet
August 27, 2002
© 2002 Infosys Technologies Limited
Sarbanes-Oxley Act
The act requires all CEOs / CFOs to personally
swear to the veracity of their financial statements
■ Infosys fully complies with the act