1. Living up to the promise
T.V. Mohandas Pai
© 2002 Infosys Technologies Limited

2. 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
© 2002 Infosys Technologies Limited

3. 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…
© 2002 Infosys Technologies Limited

4. Promise Vs Performance
© 2002 Infosys Technologies Limited

5. Guidance vs Performance - Quarterly
© 2002 Infosys Technologies Limited

6. Guidance vs Performance - Annual
© 2002 Infosys Technologies Limited

7. How did we do it? Revenue and cost projections Cost control
Re-calibrating Capex
Maintaining liquidity
© 2002 Infosys Technologies Limited

8. 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
© 2002 Infosys Technologies Limited

9. 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
Q %
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
© 2002 Infosys Technologies Limited

10. 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)
© 2002 Infosys Technologies Limited

11. Results - the final cost structure
© 2002 Infosys Technologies Limited

12. ...recalibrated Capex spending…
© 2002 Infosys Technologies Limited

13. …maintained liquidity to de-risk an uncertain environment…
© 2002 Infosys Technologies Limited

14. Corporate governance
© 2002 Infosys Technologies Limited

15. 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
© 2002 Infosys Technologies Limited

16. 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
© 2002 Infosys Technologies Limited

17. 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
© 2002 Infosys Technologies Limited

18. 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
© 2002 Infosys Technologies Limited

19. Current issues
© 2002 Infosys Technologies Limited

20. 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
© 2002 Infosys Technologies Limited

21. 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
© 2002 Infosys Technologies Limited

22. 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
© 2002 Infosys Technologies Limited

23. Thank You
© 2002 Infosys Technologies Limited