Infosys announces results for the third quarter ended December 31, 1999
E-commerce revenue continues to drive growth
Bangalore, India – January 11, 2000 – Infosys Technologies Limited ("Infosys” or "the company") today announced a total income of Rs. 233.52 crore for the third quarter ended December 31, 1999, a 66.6% increase over Rs. 140.17 crore for the corresponding quarter in the previous year. Net profit from ordinary activities for the quarter was Rs. 73.79 crore, a 95.50% increase over the corresponding amount of Rs. 37.74 crore for the quarter ended December 31, 1998. The audited financial results according to Indian GAAP were taken on record at the Board meeting held on January 11, 2000.
Rs. in crore
The shareholders of Infosys approved the 2-for-1 split of its equity shares, i.e., a sub-division of every equity share from the current par value of Rs. 10 into 2 equity shares of par value Rs. 5 each, at the Extraordinary General Meeting held on December 29, 1999. The Board of Directors of the company has fixed February 11, 2000 as the Record Date for determining the shareholders/ADSs holders entitled to the split. As the split will be given effect to after the Record Date, the same is not reflected in the financial statements as per Indian GAAP for the quarter and nine month period ended December 31, 1999.
Fluctuations in exchange rate(s) during the quarter, with reference to the exchange rate(s) as on March 31, 1999, led to an increase in income from software development of Rs. 5.59 crore (for the quarter ended December 31, 1998, Rs. 8.88 crore) and profit before tax of Rs. 2.86 crore (Rs. 3.92 crore).
Other income of Rs. 7.11 crore for the quarter (Rs. 0.72 crore) included: Rs. 4.20 crore (Rs. Nil) of interest on deployment of funds raised through the issue of American Depositary Shares (ADS); Rs. 0.72 crore (Rs. Nil) arising from the sale of Special Import Licences; and loss of Rs. 0.61 crore (Rs. Nil) arising from exchange differences on translation of foreign currency deposits kept abroad, which may be non-recurring. Excluding the above, the net profit for the current quarter was Rs. 69.48 crore, an 84.1% increase over the comparable net profit from ordinary activities of Rs. 37.74 crore for the quarter ended December 31, 1998.
"E-commerce initiatives have become an integral part of every business around the world," said Mr. N. R. Narayana Murthy, Chairman and CEO. "Infosys has the experience, people and ability to support its customers in this new paradigm."
Managing the Transition
Infosys has successfully managed to convert the opportunity of providing Year 2000 conversion solutions into long-term relationships with its clients. The company had capped the maximum income from Year 2000 conversion opportunities at 25% of total income and gradually reduced income from Year 2000 conversion opportunities as the Year 2000 approached. The company had envisioned the opportunity from e-commerce early on and is now well positioned to support its clients in this area. The following table provides the percentage of income from Year 2000 conversion opportunities and e-commerce to total income over the past seven quarters.
Fiscal 1999¤Fiscal 2000
Q1 Q2 Q3 Q4 Q1 Q2 Q3
Y2K revenue 24.0 22.9 19.0 15.2 12.1 9.4 5.8
E-commerce revenue 1.3 3.6 4.3 5.0 6.4 10.3 15.6
“Infosys has managed the transition from Y2K opportunities to e-commerce seamlessly,” said Mr. Nandan M. Nilekani, Managing Director, President and Chief Operating Officer. “While Y2K revenue has dropped significantly, new business opportunities in e-commerce have helped the company achieve reasonable top and bottom line growth.”
Expansion of Services and Significant Projects Completed
Infosys continues to strengthen its presence in e-business and voice and data communication technologies, the basic infrastructure of the Internet. The company added 23 new clients this quarter (64, year-to-date), of which 7 (14, year-to-date) are in this area.
One such new client is a leading developer of next-generation optical transport products, for whom Infosys is executing projects in the area of optical networking. Infosys is also working with a leader in carrier-class network solutions in the area of SS7 and ISDN development and testing. A leading datacom company in the US partnered with Infosys to customize a Network Management application for a large service provider. This application extends service level reports to the end customers over the Internet and involved development of a scalable distributed architecture using Java RMI and CORBA. The advantages of offshore development helped the client reduce development costs and time-to-market. A large mobile telephone company in Europe is availing of Infosys' services to create a Customer Loyalty Management program that will allow them to target and tailor their services for corporate clients.
Infosys has developed a platform independent Inventory Management solution for a leading telecom solutions provider. This performs complete asset and inventory management and tracking for telecom service providers in the US and Canada. The introduction of indigenously developed Java controls & tools, and a dedicated team for Research, Reviews & Testing helped this project achieve substantial productivity gains.
Infosys has signed on many new e-business clients this quarter. Work in this area ranges from mass customization-enabling technology for Fitme.com to capturing and analyzing visual information within retail stores for Interval Research. Infosys is working with Medschool.com to create an education portal for medical students. Another new client is Beyond.com, a leading e-tailer of hardware and software.
Leveraging the power of web technology, Infosys recently built an Internet-based pricing tool for a large drug-store chain located in the US. This tool allows field personnel to price items based on market-driven and taxation changes and ensures that the revised prices are applied uniformly at all its stores across the US. Infosys is working with a US-based wholesale distributor of music and video entertainment products to design and implement multi-warehousing capabilities to better exploit the full potential of their distribution facilities. Infosys is involved in requirements gathering, solution design and implementation for an online "pet paradise". This complex project involves various components and systems including an ERP back-end, a custom built Web Store front-end, CRM, supply chain optimization and enterprise application integration.
As part of its "Product Co-development Service", Infosys sets up a dedicated Product Competency Center which becomes a virtual extension of the client's software engineering team, ensuring faster time-to-market and better quality. A new client for this service is Brightmail (www.brightmail.com), a pioneer in developing advanced e-mail services including the most effective anti-spam solution.
Infosys has begun working with a number of progressive banking institutions across the world. First USA Bank (www.firstusa.com), the largest Visa credit card issuer in the world, engaged the services of Infosys this quarter. The Sri Lanka-based Bank of Ceylon chose Bancs2000, Infosys' core banking solution, for their Maldives branch operations. Bank of Ceylon is the largest state-owned bank in Sri Lanka in terms of assets and has a diversified set of products and services in retail banking, corporate banking and treasury.
Infosys has enabled some of the leading banks in Asia to leverage the power of Internet banking and e-commerce services. Sampath Bank (www.sampath.lk), the largest private-sector bank in Sri Lanka, chose BankAway, Infosys' remote-banking product, to launch its e-commerce initiative. The bank had earlier successfully implemented Bancs2000 and was keen to leverage the Internet to offer innovative banking services. In another significant development, Infosys provided an online payment gateway for ICICI Bank. This enhances the existing Internet banking service offered by the bank through BankAway. Global Trust Bank also chose BankAway to jump-start their e-commerce initiatives. ICICI and Global Trust are leading India-based banks.
Statement on Year 2000 Readiness
Infosys had made preparations to support its internal systems and its clients during the transition to the Year 2000. Teams were, and continue to be in place at all development centers and in U.S., Europe and Japan. Further, precautions were taken to monitor the impact on communication infrastructure. As of the date of this release, no material disruption has been reported. However, the company does not expect to arrive at a conclusive picture of the effect of the transition immediately and continues to monitor its systems and is in touch with its clients to address any problems. The full cost of transition support is still being computed, but is estimated to be insignificant. Mr. S. Gopalakrishnan, Deputy Managing Director, said: “I am happy to state that our employees have worked very hard to ensure that our customers pass through the Y2K transition smoothly.”
Liquidity and Capital Expenditure
Cash and cash equivalents as on December 31, 1999 were Rs. 464.43 crore (Rs. 96.39 crore), which formed 61% (37%) of total assets. Excluding ADS proceeds, cash and cash equivalents formed 38.7% (37%) of total assets as on December 31, 1999. Operating cash flows for the quarter ended December 31, 1999 was Rs. 62.52 crore (Rs. 50.91 crore), while the free cash flows was Rs. 11.24 crore (Rs. 32.75 crore).
Capital expenditure of Rs. 46.98 crore (Rs. 19.75 crore) was incurred during the quarter, bringing the capital expenditure incurred year-to-date to Rs. 106.74 crore. Unearned revenue as of December 31, 1999 amounted to Rs. 23.11 crore (Rs. 22.65 crore), primarily arising out of billings for fixed-price, fixed-time-frame contracts for which related costs were not incurred during the quarter.
"The company has been able to maintain its margins and growth despite having a higher bench, which is strategic for its transition towards e-commerce initiatives," said Mr. T. V. Mohandas Pai, Senior Vice President - Finance and Administration, and Chief Financial Officer. “The operating cash flows have remained positive despite significant capital expenditure during this quarter.”
Human Resources
Infosys increased its total employee strength to 4,996 as on December 31, 1999, up from 4,778 as on September 30, 1999. The strength of software personnel as on December 31, 1999 increased to 4,261 from 4,069 as on September 30, 1999. Of these 4,261 software professionals, 192 are still undergoing training and 80 belong to the Banking product group, as against 550 and 124 respectively on September 30, 1999.
Directorship
Mr. Philip Yeo, Executive Chairman of the Singapore Economic Development Board, was inducted into the Board as an external director on October 29, 1999. As chairman of the Economic Development Board, Mr. Yeo redirected its focus from traditional fields to new areas of business such as promoting services, developing high-tech industries like semiconductors, aerospace and specialty chemicals, and nurturing local small and medium enterprises. As the first Chairman of the National Computer Board of Singapore, he played a leading role in formulating and championing Singapore's plan to take the nation into the information age. He has been helping drive Singapore's technopreneurship initiative and research capabilities since June 1999, as Chairman of National Science & Technology Board. With the induction of Mr. Yeo to the board, the composition of external directors in the board has increased to 5 out of the total board strength of 11.
Quality Initiatives
During the quarter, the company achieved Level 5 of the Capability Maturity Model (CMM) of the Software Engineering Institute, Carnegie Mellon University, USA. The CMM identifies levels of maturity for a software organization. Organizations at Level 5 are at a stage when they are optimizing processes. These organizations are highly mature – they systematically use measurement and analysis to improve processes. Mr. K. Dinesh, Director and Head – Quality, Productivity, MIS and HR, said: “It is a significant milestone in our continuous Quality improvement journey so as to benefit our customers.”
Infrastructure Development
The software development facility at Pune Infotech Park, Hinjawadi, Pune, comprising two software blocks (each with a capacity to accommodate 300 employees) and the concomitant support facilities was inaugurated this quarter.
Construction of corporate/customer comfort block of 75,000 sq. ft at the company's headquarters in Electronic City is progressing well. Construction of 2,70,000 sq.ft at Infosys Park, Phase II, is progressing as per schedule.
The company acquired 13.27 acres of land at Chennai for a new software development facility and work began with a ground-breaking ceremony.
A new facility, with a capacity to accommodate 100 employees, was occupied in Mangalore. This facility is part of a larger building that the company is in the process of acquiring.
Recognition
Infosys was again voted as the best managed company in India in a poll conducted by Asiamoney among the international investment community.
Infosys was ranked number 2 among 30 India-based companies in this year's Review 200: Asia's Leading Companies survey. The Review 200 is the Far Eastern Economic Review's annual survey that asks subscribers to look at over 525 companies from the perspective of corporate leadership. The Review 200 are the top achievers, comprised of 110 Asia-based companies and 90 multinational companies that do business in Asia.
Infosys was voted as India's most admired company in The Economic Times survey of India's most admired companies. The Economic Times – ORG MARG opinion poll on India's most admired companies was conducted amongst 1,858 management cadre employees (1,626 junior to middle level managers and 232 senior managers) of 358 companies that were shortlisted for evaluation.
Infosys received the Dataquest IT Pathbreaker Award, 1999 “in recognition of its innovative and pioneering activities over an extended time span and its path-breaking entry into the Nasdaq”.
The Institute of Chartered Accountants of India has adjudged the Annual Report and Accounts of the company for the year ended March 31, 1999 as the best amongst the entries received from Non-Financial Private Sector Companies for the Best Presented Accounts Competition 1998-99. This is the fifth consecutive year that Infosys is winning the Silver Shield.
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