These excerpts taken from the INFY 6-K filed Apr 20, 2005.
Thanks Sandeep and I welcome all of you to this call to announce the results for the quarter and year ended March 31st, 2005. As you know this quarter on a year-to-year basis, our revenues have grown by 50.2%. We have given the guidance for the year, which show that we expect revenues to cross $2 billion in fiscal 06. Our fourth quarter revenue is at $455m and net earnings per ADS went up to .47 cents. However, this includes a special money received from $11m by sale of investment in the Yantra Corporation.
We have announced a final dividend that will be Rs. 6.50 per ADS which is equivalent to 15 cents per ADS at the current exchange rate. This quarter has been a good quarter in terms of adding new clients. We added 37 new clients. We have had a growth addition of 2,506 employees for the quarter. As of the year ended March 31st our total employee strength was 36,750.
Now we have given guidance for the quarter ended June 30th, 05 and for the fiscal year ended March 31st, 06. For the quarter ended June 30th, 05, we expect revenues consolidated between $459m to $463m and for the year ended March 31st, 06, we expect revenues of between $2.038 billion to $2.07 billion.
The quarterly guidance is essentially on a year-to-year basis a growth of 37% to 38% and the annual guidance is essentially gives us growth of 28% to 30%. So essentially we are looking at 28% to 30% growth in dollar terms for the full year.
We expect consolidated earnings per ADS to be 44 cents, which is essentially for the first quarter and between $1.92 to $1.95 for the fiscal year, which is a growth of between 22% to 24% on earnings.
I think this quarter we are seeing the benefits of various initiatives we have taken. We have as you know we have Infosys Consulting, we have Progeon going great guns. We have Infosys China set up as well as Australia being integrated, as well as our own internal things like verticalization and launching of new services. And we have spoken about all that in the press release. But all in all we are very satisfied with the performance of Infosys for the last year and we look forward to another good year growing at 28% to 30% in the coming year. With that, I hand over the phone to Kris to give some more details.
Thanks Nandan. The number of new clients added as Nandan said is 37. This is compared to the last quarter, which is 38. For the year we have added 136 new clients. If you look at client concentration, the number of $1m relationships have gone from 156 to 166. The number of $5m relationships has gone up from 65 to 71, and going down we have one customer with a relationship of more than $70m and another customer more than $80m. So we have seen across the board increase in our relationship sizes.
Looking at geographies. North America has come down from 66.6% to 63.9% and we have seen growth in Europe as well as in Asia Pacific. India stays the same.
Banking and Financial Services as a percentage total revenue has come down from 35.2% to 33.8%. We have seen actually good growth in the telecom and communications services provider space. It has gone from 18.1% to 19.4%. We have seen actually an improvement in the offshore percentage this quarter. Onsite ratio has come down from 31% to 30.6%. Consequently offshore has gone up from 69.0% to 69.4%. Utilization is in the range. We normally look for high 70s, low 80s. Attrition is 9.7%.
We expect to add about 12,600 employees for the next year gross employees for the next year and we expect to add space for about 16,000 employees. Our recruitment as well as investment in space has to be ahead of the revenue growth and it is planned but it is slightly ahead of revenue growth. Thats why you see us investing about space for 16,000 employees.
With this, I will hand over to Mohandas.
Thank you Kris. Good morning folks. Let me take you through the P&L analysis for this quarter. We had a top line growth of 7.7% at $455.83m. Our gross margin was 42.6% as against 43.2% in the third quarter.
If you look at the cost structure depreciation is up at 5% as against 3.9%. An increase of 1.1% because of capitalization in the last quarter and the fact that some assets were written off due to capitalization. Post sale customer support went from a negative of 0.3% in the third quarter to a positive of 0.9%. Theres about 1.2% shift essentially to make provision for any likely costs that may arise, on account of customer delivery.
These two, at 1.2% for post sale customer support and 1.1% for depreciation make up the difference between the gross margin of 43.2% last quarter and 42.6% in this quarter.
The India salary has come down slightly in actual terms because of the way the variable compensation plan that we have works. Our variable compensation plan creates a kitty for distribution to our employees as variable compensation based upon the earning beyond a set figure. Our SG&A cost was 14.1% as against 14.2% the previous quarter. There has been nothing of significance here. The marginal increases and decreases. Operating income at 28.3% as against 28.9% the previous quarter. We had a gain of $11.36m on the sale of investment in Yantra. You might recall that in the previous years we have provided for investment in Yantra primarily because at that point in time Yantra had run up substantial losses. It has finally been sold for $170m and we have realized a capital gain of about the receipt of $11.36m before tax.
Non-operating income came down to 1.6% from 2.5%, essentially because in the previous quarter we had a positive of 1.1% of exchange difference, which has become a negative of 0.3%, which is a shift of 1.4%. This impacts us every quarter.
Income before income taxes is at 32.4% as against 31.4% bolstered by the gain on sale of investments. The tax rate is slightly lower compared to the previous quarter. So we had an EPS of 47 cents. If we strip out the earnings from the sale of investment our EPS, despite some provisioning has been at 44 cents, as against 42 cents. The effective tax rate has been 13.7% as against 15.8% in the previous quarter. The increase mostly accounted by the decline in exchange differences and the decline in non-operating income in the current quarter.
If you look at the full year we have grown to $1.592 billion as against $1.06 billion, a growth of 49.9%. Our gross margin has been almost the same as the previous year at 43.2% as against 43.3% last year. Thchange SG&A came down to 14.4%, just like we had said that year, that we could have some scale economics on SG&A as against 15% the previous year. So we have an operating income of 28.6% as against 27.6%, but last fiscal we had a charge of 0.7% of revenues on amortization of the IPR. This year of course we have a gain on sale of investments. So we had a pre-tax income of 30.8% as against 30.2%. A tax rate of 14.6% as against 15.8% the previous year and an EPS of $1.57. If you strip out the investment income, the EPS is $1.53. We also land up with a substantial amount of cash on the balance sheet and we have been cash flow positive.
Now let me come to the guidance and take you through some of the specifics of the guidance.
Our guidance for this year is within $2,038 to $2,070, a top line growth of 28% to 30%, an EPS growth an EPS of 1.92 to 1.95. The EPS includes a provision of $8m for stock compensation charge as per FASB123. They have taken that in fiscal 06 based upon the current estimate we have of the charge. This could differ though not substantially, and if you strip out this charge then the EPS on a comparable basis should be between $1.95 to $1.98. A growth of 27.3% to 29.3% as against revenues of 28% to 30%.
In cost of revenues we essentially have taken that pricing will be stable, therefore we are not factoring any increase in per capita revenues for the estimates for this year, that is, fiscal 06. Even though the prices have gone up a bit in the fourth quarter, we have not factored this in because we need to see how the mix works out.
For the entire new business thats come from clients added in fiscal 05, we have seen a 4% increase in the prices compared to the earlier basket, but we are not factoring in the impact of this for fiscal 06, primarily because we need to study how the mix worked out. So we are taking the flat pricing scenario.
We have factored in salary increases of 14% to 15% offshore for employees in the guidance for this year and fiscal 06. An increase in salaries overseas of 3%. We have sought to reduce the impact on margins by a further reduction of 1% of SG&A and 0.6% in discretionary expenditure.
Non-operating income has been taken at 1.5% without factoring any exchange differences. We assume the tax rate of about 14% as compared with the actual tax rate of 14.6% which also had an impact because of gain on sale of investment and otherwise.
Overall, we think well earn after minority interests a net income of $522m and a net income percentage of 25.5% as against 26.3% in the previous year, looking at the cost structure as we see at this point in time.
In the fiscal year 06 we plan to have an expenditure on property, plant and equipment of between $220m to $250m. We intend to hire a growth addition of 12,600 people.
Our attrition in fiscal 05 came down from fiscal 04 from 10.5% to 9.7%. The days of sale outstanding as of 31st March 05, was 69 days as against a traditional range between 53 to 57 days. The reason for the increase has been that one large client underwent a reorganization and did not pay us for quite some time. Between the 4th and 5th April we got a large lump sum payment from this client which was equal in the 12 days of sale outstanding. So if you factor that in our days of sale outstanding should be around 57 days as at the year end, which is within the range which is acceptable to us at this point of time.
I would now leave the floor open for questions and we should be delighted to answer any questions that you might have.
We will now begin the question and answer session. [OPERATOR INSTRUCTIONS] Your first question is from David Grossman with Thomas Weisel.
Thank you Krishnan and I am very sorry that we started a bit late. All of you have heard of the famous Bangalore traffic. Now it seems to have entered our campus also. And I was coming from some other building and I got caught in the internal traffic. Anyway, I just wanted to thank you all once again for being on this call.
This year, we have had a good year, we have had revenue growth in rupee terms of 46.9%, and we are also confident that the next year we will cross $2 billion in revenue. For the quarter, our income was Rs. 1,987 crores, which on a year-to-year basis was 47% growth. The net profit before one exceptional item was 513 crores, which was a year-to-year growth of 53.16%, but as you are aware, we got about Rs. 45 crores from the sale of our shares in Yantra to Sterling Commerce, and after the exceptional item, the net profit was Rs. 558 crores with a year-to-year growth of 67%, and the earnings per share before the exceptional item grew by 50.99%, which was Rs. 19, and after the exceptional item, the earning per share was Rs. 20.68, which was a year-to-year growth of 64.26%.
This quarter, we have added about 37 new clients. Our net addition of employees this quarter is 1,521 and for the year we have added 11,116 employees, and as of March 31, 2005, the total employees in Infosys and all its subsidiaries is 36,750.
We have given our guidance for the year. We expect income in the quarter ended June 30, 2005, to be about Rs. 2002 to 2020 crores. On a year-to-year basis, thats a growth of about 32-33%, and we expect earning to be Rs. 19.30, which on a year-to-year growth is about 33%. But on a quarterly basis, we expect the first quarter to be flat. We are expecting the revenue growth to be 0.7 to 1.6 %, but overall we expect the balance three quarters to pick up and we are confident that for the year our growth of 25-27% or thereabouts will happen. Now we have a couple of reasons for the flat growth in the first quarter. One is that, some of our clients, a handful of them, are having some organization changes at senior levels, and secondly, a lot of our clients, especially our large clients in the financial services area, are increasingly focusing on compliance issues related to stuff like Sarbanes-Oxley, Anti-Money Laundering Act, Patriots Act, and so forth, and therefore we believe this will impact their spending. Some of that impact was felt in the last quarter, which was single digit growth compared to the previous three quarters, and some of this we believe has spilt over into the first quarter of FY 06, which is why we expect the Q1 FY 06 growth to be flat. But otherwise, we dont think this is a secular trend, we think the fundamental trends in our business are fully on board. We are seeing spending moving towards offshore. We are seeing Infosys brand getting stronger. So with all that we are very comfortable with our guidance for the quarter and especially for the year where we have said we will grow at 28-30% in dollar terms, and essentially hit revenue of between $2.038-2.07 billion. With this, I will stop at this point and I will request Kris to speak about some of the operational and other highlights, and then Mohan will talk on the financials, and then we will throw upon the floor for questions. Kris.