Form 6-K Infosys Ltd For: Jun 30
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934
For the quarter ended June 30, 2018
Commission File Number 001-35754
Infosys Limited
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant's name into English)
Electronics City, Hosur Road, Bangalore - 560 100, Karnataka, India. +91-80-2852-0261
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F:
Form 20-F þ Form 40-F o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1) : o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7) : o
TABLE OF CONTENTS
DISCLOSURE OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Infosys Limited (“Infosys” or “the Company” or “we”) hereby furnishes the United States Securities and Exchange Commission with copies of the following information concerning our public disclosures regarding our results of operations and financial condition for the quarter ended June 30, 2018.
The following information shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
On July 13, 2018, we announced our results of operations for the quarter ended June 30, 2018. We issued press releases announcing our results under International Financial Reporting Standards (“IFRS”) in U.S. dollars and Indian rupees, copies of which are attached to this Form 6-K as Exhibits 99.1 and 99.2, respectively.
On July 13, 2018, the leadership team were part of a common television interaction in which they answered questions from the media. The transcript of this interaction is attached to this Form 6-K as Exhibit 99.3.
On July 13, 2018, we held a press conference to announce our results, which was followed by a question and answer session. The transcript of this press conference is attached to this Form 6-K as Exhibit 99.4.
We have also made available to the public on our web site, www.infosys.com, a fact sheet that provides details on our profit and loss account summary for the quarters ended June 30, 2018 and 2017 (as per IFRS); revenue by geographical segment, service offering, project type, and industry classification; information regarding our client concentration; employee information and metrics; infrastructure information; and consolidated IT services information. We have attached this fact sheet to this Form 6-K as Exhibit 99.5.
On July 13, 2018, we also held a teleconference with investors and analysts to discuss our results. The transcript of the teleconference is attached to this Form 6-K as Exhibit 99.6.
We placed form of releases to stock exchanges and advertisements in certain Indian newspapers concerning our results of operations for the quarter ended June 30, 2018, under Ind AS. A copy of the release to the stock exchanges and the advertisement is attached to this Form 6-K as Exhibit 99.7.
We have made available to the public on our web site, www.infosys.com, the following: Audited Condensed Financial Statements in compliance with IFRS in US dollars and the Auditors Report; Audited Condensed Financial Statements in compliance with IFRS in Indian Rupees and the Auditors Report; Ind AS Condensed Standalone Financial Statements and Auditors Report in Indian Rupees; Ind AS Consolidated Financial Statements and Auditors Report in Indian Rupees for the quarter ended June 30, 2018. We have attached these documents to this Form 6-K as Exhibits 99.8, 99.9,99.10 and 99.11 respectively.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized
Infosys Limited /s/ Inderpreet Sawhney | |
Date: July 18, 2018 |
Inderpreet Sawhney General Counsel and Chief Compliance Officer |
Exhibit No. | Description of Document |
99.1 | IFRS USD press release |
99.2 | IFRS INR press release |
99.3 | Transcript of July 13, 2018 4:30 p.m. IST television interaction |
99.4 | Transcript of July 13, 2018 press conference |
99.5 | Fact Sheet regarding Registrant's Profit and Loss Account Summary for the quarters ended June 30, 2018 and 2017 (as per IFRS); Revenue by Geographical Segment, Service Offering, Project Type, and Industry Classification; Information regarding Client Concentration; Employee Information and Metrics; Infrastructure Information; and Consolidated IT Services Information |
99.6 | Transcript of July 13, 2018 06:30 p.m. IST Earnings Call |
99.7 | Form of release to stock exchanges and advertisement placed in Indian newspapers |
99.8 | Audited Condensed Financial Statements in compliance with IFRS in US Dollars and the Auditors Report |
99.9 | Audited Condensed Financial Statements in compliance with IFRS in Indian Rupees and the Auditors Report |
99.10 | Ind AS Condensed Standalone Financial Statements and Auditors Report in Indian Rupees for the quarter ended June 30, 2018 |
99.11 | Ind AS Consolidated Financial Statements and Auditors Report in Indian Rupees for the quarter ended June 30, 2018 |
Exhibit 99.1
IFRS USD Press Release
Infosys (NYSE: INFY) announces results for the Quarter ended June 30, 2018
Bengaluru, India – July 13, 2018
· | Digital revenues at $803 million (28.4% of total revenues), sequential growth of 8.0% and year-on-year growth of 25.6% in constant currency terms |
· | 1:1 bonus issue of equity shares and 1:1 stock dividend of American Depositary Shares |
· | Q1 19 revenues grew year-on-year by 6.8% in USD terms; 6.0% in constant currency terms |
· | Q1 19 revenues grew sequentially by 0.9% in USD terms; 2.3% in constant currency terms |
· | Operating margins at 23.7%, at the upper quartile of the guidance |
· | Large deal wins crossed $1 billion, of which over 40% was from Financial Services |
· | $ 100 mn clients increased sequentially by 4 to 24 |
· | Utilization (excluding trainees) at all-time high of 85.7% |
· | Free Cash Flow up sequentially by 32.1% in USD terms |
· | RoE increases to 25.5% as compared to 24.1% last quarter |
· | EPS grew by 3.9% on a year-on-year basis |
· | FY19 revenue guidance in constant currency retained at 6%-8%; FY 19 operating margin guidance retained at 22%-24% |
1. | Financial Highlights |
Consolidated results under International Financial Reporting Standards (IFRS) for the quarter ended June 30, 2018
· | Revenues were $2,831 million for the quarter ended June 30, 2018 YoY growth of 6.8%; QoQ growth of 0.9% |
· | Net profit was $534 million for the quarter ended June 30, 2018, including impact of $39 million on account of reduction in
the fair value of Assets held for sale YoY decline of 1.2%; QoQ decline of 6.5% |
· | Basic EPS was $0.25 for the quarter ended June 30, 2018, including impact of $0.02 on account of reduction in the fair value
of Assets held for sale YoY growth of 3.9%; QoQ decline of 6.5% |
“The strong revenue and margin performance in this quarter shows that our dual emphasis on Agile Digital and AI-driven Core services is resonating with our clients”, said Salil Parekh, CEO and MD. “With our Agile Digital business growing sequentially at 8% in constant currency and increase in our large deal wins to over US$ 1 billion, we see good traction in the market.”
“Our emphasis on deepening client relationships resulted in strong client metrics including increase in the number of $100 million+ clients to 24”, said U B Pravin Rao, COO. “Utilization excluding trainees reached an all-time high of 85.7%.”
“We had broad-based financial performance on multiple fronts - RoE crossed 25%, Free cash flow was up 32% quarter on quarter and operating margins were at the upper quartile of our margin guidance”, said M.D. Ranganath, CFO. “While we continue to make strategic investments to leverage the opportunities in Digital, our relentless focus on operational efficiencies continued in this quarter.”
2. | Bonus issue of equity shares |
The Board in its meeting held on July 13, 2018 has considered, approved and recommended a bonus issue of one equity share for every equity share held and a stock dividend of one American Depositary Share (ADS) for every ADS held, as on a record date to be determined. Consequently, the ratio of equity shares underlying the ADSs held by an American Depositary Receipt holder would remain unchanged. The Board approved and recommended the issue of bonus shares to celebrate the 25th year of Company’s public listing in India and to further increase the liquidity of its shares. The bonus issue of equity shares and ADSs will be subject to approval by the shareholders, and any other applicable statutory and regulatory approvals.
The bonus shares once allotted shall rank pari passu in all respects and carry the same rights as the existing equity shareholders and shall be entitled to participate in full, in any dividend and other corporate action, recommended and declared after the new equity shares are allotted.
3. | Addition to the Board |
The Board appointed Michael Gibbs as an Independent Director of the Company effective July 13, 2018 for a period of three years, based on the recommendation of the Nomination and Remuneration Committee of the Board.
4. | Assets Held for Sale |
During the three months ended June 30, 2018, on remeasurement, including consideration of progress in negotiations on offers from prospective buyers for Panaya, the Company has recorded a reduction in the fair value of Disposal Group held for sale amounting to $39 million in respect of Panaya. Consequently, profit for the three months ended June 30, 2018 has decreased by $39 million resulting in a decrease in Basic earnings per equity share by $0.02 for the quarter ended June 30, 2018.
5. | Adoption of Ind AS 115 - Revenue from contracts with customers |
Effective April 1, 2018, the Company adopted Ind AS 115 “Revenue from Contracts with Customers” using the cumulative catch-up transition method which is applied to contracts that were not completed as of April 1, 2018. Accordingly, the comparatives have not been retrospectively adjusted. The effect on adoption of Ind AS 115 was insignificant.
6. | Voluntary delisting of American Depositary Shares from Euronext Paris and London |
In line with the announcement made on June 11, 2018, the Company has voluntarily delisted its American Depository Shares (“ADSs”) (ISIN US4567881085) from Euronext Paris and London on July 5, 2018 and its ADS were removed from Euroclear France on July 10, 2018. The primary reason for voluntary delisting from Euronext Paris and London was the low average daily trading volume of Infosys ADSs on these exchanges, which was not commensurate with the related administrative expenses. Infosys ADSs will continue to be listed on the NYSE under the symbol “INFY” and investors can continue to trade their ADSs on the New York Stock Exchange.
About Infosys
Infosys is a global leader in next-generation digital services and consulting. We enable clients in 45 countries to navigate their digital transformation. With over three decades of experience in managing the systems and workings of global enterprises, we expertly steer our clients through their digital journey. We do it by enabling the enterprise with an AI-powered core that helps prioritize the execution of change. We also empower the business with agile digital at scale to deliver unprecedented levels of performance and customer delight. Our always-on learning agenda drives their continuous improvement through building and transferring digital skills, expertise, and ideas from our innovation ecosystem.
Visit www.infosys.com to see how Infosys (NYSE: INFY) can help your enterprise navigate your next.
Safe Harbor
Certain statements mentioned in this release concerning our future growth prospects are forward-looking statements regarding our future business expectations intended to qualify for the 'safe harbor' under the Private Securities Litigation Reform Act of 1995, which involve a number of risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. The risks and uncertainties relating to these statements include, but are not limited to, risks and uncertainties regarding fluctuations in earnings, fluctuations in foreign exchange rates, our ability to manage growth, intense competition in IT services including those factors which may affect our cost advantage, wage increases in India, our ability to attract and retain highly skilled professionals, time and cost overruns on fixed-price, fixed-time frame contracts, client concentration, restrictions on immigration, industry segment concentration, our ability to manage our international operations, reduced demand for technology in our key focus areas, disruptions in telecommunication networks or system failures, our ability to successfully complete and integrate potential acquisitions, liability for damages on our service contracts, the success of the companies in which Infosys has made strategic investments, withdrawal or expiration of governmental fiscal incentives, political instability and regional conflicts, legal restrictions on raising capital or acquiring companies outside India, and unauthorized use of our intellectual property and general economic conditions affecting our industry. Additional risks that could affect our future operating results are more fully described in our United States Securities and Exchange Commission filings including our Annual Report on Form 20-F for the fiscal year ended March 31, 2017. These filings are available at www.sec.gov. Infosys may, from time to time, make additional written and oral forward-looking statements, including statements contained in the company's filings with the Securities and Exchange Commission and our reports to shareholders. The company does not undertake to update any forward-looking statements that may be made from time to time by or on behalf of the company unless it is required by law.
Contact
Investor Relations |
Sandeep Mahindroo +91 80 3980 1018 |
|
Media Relations |
Sarah Vanita Gideon |
Chiku Somaiya |
Infosys Limited and subsidiaries
Audited Condensed Consolidated Balance Sheet as at
(Dollars in millions except equity share data)
June 30, 2018 | March 31, 2018 | |
ASSETS | ||
Current assets | ||
Cash and cash equivalents | 2,411 | 3,041 |
Current investments | 1,004 | 982 |
Trade receivables | 2,001 | 2,016 |
Unbilled revenue | 680 | 654 |
Prepayments and other current assets | 707 | 662 |
Derivative financial instruments | 5 | 2 |
6,808 | 7,357 | |
Assets held for sale(3) | 273 | 316 |
Total current assets | 7,081 | 7,673 |
Non-current assets | ||
Property, plant and equipment | 1,781 | 1,863 |
Goodwill | 349 | 339 |
Intangible assets | 54 | 38 |
Investment in associate | – | – |
Non-current investments | 821 | 883 |
Deferred income tax assets | 190 | 196 |
Income tax assets | 884 | 931 |
Other non-current assets | 246 | 332 |
Total non-current assets | 4,325 | 4,582 |
Total assets | 11,406 | 12,255 |
LIABILITIES AND EQUITY | ||
Current liabilities | ||
Trade payables | 117 | 107 |
Derivative financial instruments | 20 | 6 |
Current income tax liabilities | 297 | 314 |
Client deposits | 27 | 6 |
Unearned revenue | 340 | 352 |
Employee benefit obligations | 219 | 218 |
Provisions | 76 | 75 |
Other current liabilities | 1,269 | 1,036 |
2,365 | 2,114 | |
Liabilities directly associated with assets held for sale(3) | 50 | 50 |
Total current liabilities | 2,415 | 2,164 |
Non-current liabilities | ||
Deferred income tax liabilities | 74 | 82 |
Employee benefit obligations | 6 | 7 |
Other non-current liabilities | 49 | 42 |
Total liabilities | 2,544 | 2,295 |
Equity | ||
Share capital- 5 ($0.16) par value 2,400,000,000 (2,400,000,000) equity shares authorized, issued and outstanding 2,173,336,341 (2,173,312,301), net of 10,790,750 (10,801,956) treasury shares as at June 30, 2018 (March 31, 2018), respectively | 190 | 190 |
Share premium | 253 | 247 |
Retained earnings | 10,907 | 11,587 |
Cash flow hedge reserve | 1 | – |
Other reserves | 294 | 244 |
Capital redemption reserve | 9 | 9 |
Other components of equity | (2,792) | (2,317) |
Total equity attributable to equity holders of the company | 8,862 | 9,960 |
Non-controlling interests | – | – |
Total equity | 8,862 | 9,960 |
Total liabilities and equity | 11,406 | 12,255 |
Infosys Limited and subsidiaries
Audited Condensed Consolidated Statement of Comprehensive Income for the
(Dollars in millions except equity share and per equity share data)
Three months ended June 30, 2018 | Three months ended June 30, 2017 | |
Revenues | 2,831 | 2,651 |
Cost of sales | 1,819 | 1,692 |
Gross profit | 1,012 | 959 |
Operating expenses: | ||
Selling and marketing expenses | 149 | 138 |
Administrative expenses | 193 | 183 |
Total operating expenses | 342 | 321 |
Operating profit | 670 | 638 |
Other income, net | 107 | 127 |
Reduction in the fair value of Disposal Group held for sale(3) | (39) | – |
Share in net profit/(loss) of associate, including impairment(4) | – | (11) |
Profit before income taxes | 738 | 754 |
Income tax expense | 204 | 213 |
Net profit | 534 | 541 |
Other comprehensive income | ||
Items that will not be reclassified subsequently to profit or loss: | ||
Re-measurements of the net defined benefit liability/asset, net |
– |
– |
Equity instruments through other comprehensive income, net | – | – |
Items that will be reclassified subsequently to profit or loss: | ||
Fair valuation of investments, net | (7) | 4 |
Fair value changes on derivatives designated as cash flow hedge, net | 1 | (10) |
Foreign currency translation | (468) | 60 |
Total other comprehensive income/(loss), net of tax | (474) | 54 |
Total comprehensive income | 60 | 595 |
Profit attributable to: | ||
Owners of the Company | 534 | 541 |
Non-controlling interests | – | – |
534 | 541 | |
Total comprehensive income attributable to: | ||
Owners of the Company | 60 | 595 |
Non-controlling interests | – | – |
60 | 595 | |
Earnings per equity share | ||
Basic ($) | 0.25 | 0.24 |
Diluted ($) | 0.25 | 0.24 |
Weighted average equity shares used in computing earnings per equity share | ||
Basic | 2,173,328,621 | 2,285,657,604 |
Diluted | 2,175,355,178 | 2,287,058,148 |
NOTES:
1. | The audited condensed consolidated Balance sheet and Statement of Comprehensive Income for the three months ended June 30, 2018 have been taken on record at the Board meeting held on July 13, 2018 |
2. | A Fact Sheet providing the operating metrics of the Company can be downloaded from www.infosys.com |
3. | During the three months ended June 30, 2018, on remeasurement, including consideration of progress in negotiations on offers from prospective buyers for Panaya, the Company has recorded a reduction in the fair value of Disposal Group held for sale amounting to $39 million in respect of Panaya. |
4. | During the quarter ended June 30, 2017, the Company has written down the entire carrying value of the investment in its associate DWA Nova LLC amounting to $11 million |
Exhibit 99.2
IFRS INR Press Release
Infosys (NYSE: INFY) announces results for the Quarter ended June 30, 2018
Bengaluru, India – July 13, 2018
· | Digital revenues at $803 million (28.4% of total revenues), sequential growth of 8.0% and year-on-year growth of 25.6% in constant currency terms |
· | 1:1 bonus issue of equity shares and 1:1 stock dividend of American Depositary Shares |
· | Q1 19 revenues grew year-on-year by 12.0% in INR terms; 6.0% in constant currency terms |
· | Q1 19 revenues grew sequentially by 5.8% in INR terms; 2.3% in constant currency terms |
· | Operating margins at 23.7%, at the upper quartile of the guidance |
· | Large deal wins crossed $1 billion, of which over 40% was from Financial Services |
· | $100 mn clients increased sequentially by 4 to 24 |
· | Utilization (excluding trainees) at all-time high of 85.7% |
· | Free Cash Flow up sequentially by 32.1% in USD terms |
· | RoE increases to 25.5% as compared to 24.1% last quarter |
· | EPS grew by 9.1% on a year-on-year basis |
· | FY 19 revenue guidance in constant currency retained at 6%-8%; FY 19 operating margin guidance retained at 22%-24% |
1. | Financial Highlights |
Consolidated results under International Financial Reporting Standards (IFRS) for the quarter ended June 30, 2018
· | Revenues were 19,128 crore for the quarter ended
June 30, 2018 YoY growth of 12.0%; QoQ growth of 5.8% |
· | Net profit was 3,612 crore for the quarter ended June 30, 2018, including impact of 270 crore on account of reduction in
the fair value of Assets held for sale YoY growth of 3.7%; QoQ decline of 2.1% |
· | Basic EPS at 16.62 for the quarter ended June 30, 2018, including impact of 1.24 on account of reduction in the fair value
of Assets held for sale YoY growth of 9.1%; QoQ decline of 2.1% |
“The strong revenue and margin performance in this quarter shows that our dual emphasis on Agile Digital and AI-driven Core services is resonating with our clients”, said Salil Parekh, CEO and MD. “With our Agile Digital business growing sequentially at 8% in constant currency and increase in our large deal wins to over US$ 1 billion, we see good traction in the market.”
“Our emphasis on deepening client relationships resulted in strong client metrics including increase in the number of $100 million+ clients to 24”, said U B Pravin Rao, COO. “Utilization excluding trainees reached an all-time high of 85.7%.”
“We had broad-based financial performance on multiple fronts - RoE crossed 25%, Free cash flow was up 32% quarter on quarter and operating margins were at the upper quartile of our margin guidance”, said M.D. Ranganath, CFO. “While we continue to make strategic investments to leverage the opportunities in Digital, our relentless focus on operational efficiencies continued in this quarter.”
2. | Bonus issue of equity shares |
The Board in its meeting held on July 13, 2018 has considered, approved and recommended a bonus issue of one equity share for every equity share held and a stock dividend of one American Depositary Share (ADS) for every ADS held, as on a record date to be determined. Consequently, the ratio of equity shares underlying the ADSs held by an American Depositary Receipt holder would remain unchanged. The Board approved and recommended the issue of bonus shares to celebrate the 25th year of Company’s public listing in India and to further increase the liquidity of its shares. The bonus issue of equity shares and ADSs will be subject to approval by the shareholders, and any other applicable statutory and regulatory approvals.
The bonus shares once allotted shall rank pari passu in all respects and carry the same rights as the existing equity shareholders and shall be entitled to participate in full, in any dividend and other corporate action, recommended and declared after the new equity shares are allotted.
3. | Addition to the Board |
The Board appointed Michael Gibbs as an Independent Director of the Company effective July 13, 2018 for a period of three years, based on the recommendation of the Nomination and Remuneration Committee of the Board.
4. | Assets Held for Sale |
During the three months ended June 30, 2018, on re-measurement, including consideration of progress in negotiations on offers from prospective buyers for Panaya, the Company has recorded a reduction in the fair value of Disposal Group held for sale amounting to 270 crore in respect of Panaya. Consequently, profit for the three months ended June 30, 2018 has decreased by 270 crore resulting in a decrease in Basic earnings per equity share by 1.24 for the quarter ended June 30, 2018.
5. | Adoption of Ind AS 115 - Revenue from contracts with customers |
Effective April 1, 2018, the Company adopted Ind AS 115 “Revenue from Contracts with Customers” using the cumulative catch-up transition method which is applied to contracts that were not completed as of April 1, 2018. Accordingly, the comparatives have not been retrospectively adjusted. The effect on adoption of Ind AS 115 was insignificant.
6. | Voluntary delisting of American Depositary Shares from Euronext Paris and London |
In line with the announcement made on June 11, 2018, the Company has voluntarily delisted its American Depository Shares (“ADSs”) (ISIN US4567881085) from Euronext Paris and London on July 5, 2018 and its ADS were removed from Euroclear France on July 10, 2018. The primary reason for voluntary delisting from Euronext Paris and London was the low average daily trading volume of Infosys ADSs on these exchanges, which was not commensurate with the related administrative expenses. Infosys ADSs will continue to be listed on the NYSE under the symbol “INFY” and investors can continue to trade their ADSs on the New York Stock Exchange.
About Infosys
Infosys is a global leader in next-generation digital services and consulting. We enable clients in 45 countries to navigate their digital transformation. With over three decades of experience in managing the systems and workings of global enterprises, we expertly steer our clients through their digital journey. We do it by enabling the enterprise with an AI-powered core that helps prioritize the execution of change. We also empower the business with agile digital at scale to deliver unprecedented levels of performance and customer delight. Our always-on learning agenda drives their continuous improvement through building and transferring digital skills, expertise, and ideas from our innovation ecosystem.
Visit www.infosys.com to see how Infosys (NYSE: INFY) can help your enterprise navigate your next.
Safe Harbor
Certain statements mentioned in this release concerning our future growth prospects are forward-looking statements regarding our future business expectations intended to qualify for the 'safe harbor' under the Private Securities Litigation Reform Act of 1995, which involve a number of risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. The risks and uncertainties relating to these statements include, but are not limited to, risks and uncertainties regarding fluctuations in earnings, fluctuations in foreign exchange rates, our ability to manage growth, intense competition in IT services including those factors which may affect our cost advantage, wage increases in India, our ability to attract and retain highly skilled professionals, time and cost overruns on fixed-price, fixed-time frame contracts, client concentration, restrictions on immigration, industry segment concentration, our ability to manage our international operations, reduced demand for technology in our key focus areas, disruptions in telecommunication networks or system failures, our ability to successfully complete and integrate potential acquisitions, liability for damages on our service contracts, the success of the companies in which Infosys has made strategic investments, withdrawal or expiration of governmental fiscal incentives, political instability and regional conflicts, legal restrictions on raising capital or acquiring companies outside India, and unauthorized use of our intellectual property and general economic conditions affecting our industry. Additional risks that could affect our future operating results are more fully described in our United States Securities and Exchange Commission filings including our Annual Report on Form 20-F for the fiscal year ended March 31, 2017. These filings are available at www.sec.gov. Infosys may, from time to time, make additional written and oral forward-looking statements, including statements contained in the company's filings with the Securities and Exchange Commission and our reports to shareholders. The company does not undertake to update any forward-looking statements that may be made from time to time by or on behalf of the company unless it is required by law.
Contact
Investor Relations |
Sandeep Mahindroo +91 80 3980 1018 |
|
Media Relations |
Sarah Vanita Gideon |
Chiku Somaiya |
Infosys Limited and subsidiaries
Audited Condensed Consolidated Balance Sheet as at
(In crore except share data)
June 30, 2018 | March 31, 2018 | |
ASSETS | ||
Current assets | ||
Cash and cash equivalents | 16,506 | 19,818 |
Current investments | 6,876 | 6,407 |
Trade receivables | 13,699 | 13,142 |
Unbilled revenue | 4,655 | 4,261 |
Prepayments and other current assets | 4,841 | 4,313 |
Derivative financial instruments | 36 | 16 |
46,613 | 47,957 | |
Assets held for sale(3) | 1,867 | 2,060 |
Total current assets | 48,480 | 50,017 |
Non-current assets | ||
Property, plant and equipment | 12,192 | 12,143 |
Goodwill | 2,394 | 2,211 |
Intangible assets | 370 | 247 |
Investment in associate | – | – |
Non-current investments | 5,623 | 5,756 |
Deferred income tax assets | 1,300 | 1,282 |
Income tax assets | 6,056 | 6,070 |
Other non-current assets | 1,688 | 2,164 |
Total non-current assets | 29,623 | 29,873 |
Total assets | 78,103 | 79,890 |
LIABILITIES AND EQUITY | ||
Current liabilities | ||
Trade payables | 798 | 694 |
Derivative financial instruments | 136 | 42 |
Current income tax liabilities | 2,032 | 2,043 |
Client deposits | 187 | 38 |
Unearned revenue | 2,327 | 2,295 |
Employee benefit obligations | 1,498 | 1,421 |
Provisions | 523 | 492 |
Other current liabilities | 8,688 | 6,756 |
16,189 | 13,781 | |
Liabilities directly associated with assets held for sale(3) | 345 | 324 |
Total current liabilities | 16,534 | 14,105 |
Non-current liabilities | ||
Deferred income tax liabilities | 505 | 541 |
Employee benefit obligations | 43 | 48 |
Other non-current liabilities | 335 | 272 |
Total liabilities | 17,417 | 14,966 |
Equity | ||
Share capital- 5 par value 2,40,00,00,000 (2,40,00,00,000) equity shares authorized, issued and outstanding 2,17,33,36,341 (2,17,33,12,301), net of 1,07,90,750 (1,08,01,956) treasury shares, as at June 30, 2018 (March 31, 2018), respectively | 1,088 | 1,088 |
Share premium | 229 | 186 |
Retained earnings | 56,567 | 61,241 |
Cash flow hedge reserves | 9 | – |
Other reserves | 1,920 | 1,583 |
Capital redemption reserve | 56 | 56 |
Other components of equity | 816 | 769 |
Total equity attributable to equity holders of the company | 60,685 | 64,923 |
Non-controlling interests | 1 | 1 |
Total equity | 60,686 | 64,924 |
Total liabilities and equity | 78,103 | 79,890 |
Infosys Limited and subsidiaries
Audited Condensed Consolidated Statement of Comprehensive Income for the
(In crore except equity share and per equity share data)
Three months ended June 30, 2018 |
Three months ended June 30, 2017 | |
Revenues | 19,128 | 17,078 |
Cost of sales | 12,288 | 10,900 |
Gross profit | 6,840 | 6,178 |
Operating expenses: | ||
Selling and marketing expenses | 1,005 | 888 |
Administrative expenses | 1,298 | 1,179 |
Total operating expenses | 2,303 | 2,067 |
Operating profit | 4,537 | 4,111 |
Other income, net | 726 | 814 |
Reduction in the fair value of Disposal Group held for sale(3) | (270) | – |
Share in net profit/(loss) of associate, including impairment(4) | – | (71) |
Profit before income taxes | 4,993 | 4,854 |
Income tax expense | 1,381 | 1,371 |
Net profit | 3,612 | 3,483 |
Other comprehensive income | ||
Items that will not be reclassified subsequently to profit or loss: | ||
Re-measurement of the net defined benefit liability/asset, net | 1 | (3) |
Equity instruments through other comprehensive income, net | 4 | – |
Items that will be reclassified subsequently to profit or loss: | ||
Fair value changes on derivatives designated as cash flow hedge, net | 9 | (66) |
Exchange differences on translation of foreign operations | 87 | 107 |
Fair value changes on investments, net | (45) | 27 |
Total other comprehensive income/(loss), net of tax | 56 | 65 |
Total comprehensive income | 3,668 | 3,548 |
Profit attributable to: | ||
Owners of the Company | 3,612 | 3,483 |
Non-controlling interests | – | – |
3,612 | 3,483 | |
Total comprehensive income attributable to: | ||
Owners of the Company | 3,668 | 3,548 |
Non-controlling interests | – | – |
3,668 | 3,548 | |
Earnings per equity share | ||
Basic () | 16.62 | 15.24 |
Diluted () | 16.60 | 15.23 |
Weighted average equity shares used in computing earnings per equity share | ||
Basic | 217,33,28,621 | 228,56,57,604 |
Diluted | 217,53,55,178 | 228,70,58,148 |
NOTES:
1. | The audited Consolidated Balance sheet and Statement of Comprehensive Income for the three months ended June 30, 2018 have been taken on record at the Board meeting held on July 13, 2018. |
2. | A Fact Sheet providing the operating metrics of the Company can be downloaded from www.infosys.com |
3. | During the three months ended June 30, 2018, on remeasurement, including consideration of progress in negotiations on offers from prospective buyers for Panaya, the Company has recorded a reduction in the fair value of Disposal Group held for sale amounting to 270 crore in respect of Panaya. |
4. | During the quarter ended June 30, 2017, the Company has written down the entire carrying value of the investment in its associate DWA Nova LLC amounting to 71 crore |
Exhibit 99.3
Common TV call
Infosys-CommonTV-July13-2018
July 13, 2018
CORPORATE PARTICIPANTs
Salil Parekh
Chief Executive Officer and Managing Director
Pravin Rao
Chief Operating Officer
M.D. Ranganath
Chief Financial Officer
Journalists
Fatima Karan
Consulting Editor, Business Television India
Kritika Saxena
CNBC-TV18
Chandra R. Srikanth
ET Now
Sajeet
BloombergQuint
Salil Parekh
Good afternoon, we are pleased to share with you our results for the first quarter of fiscal 2019. We are delighted that our strategic focus on scaling Agile Digital and energizing our core services with automation and AI is resonating strongly with our clients and also our approach to enhance the skills of our employees and our actions on localization in the markets we operate in. Our digital revenue has grown by 25.6% YoY in constant currency to reach US $803 mn for the quarter, which is a QoQ growth of 8% in constant currency. Our total digital revenue is at 28.4% of our business in Q1. Our overall revenue has grown by 6% YoY and 2.3% QoQ in constant currency. Our operating margin was at 23.7%.
We had US $1.1 bn of large deals in Q1 of which 40% were in financial services. Our $100 mn+ clients increased by 4 clients to a total of 24 clients, they are now over US $100 mn revenue in a trailing 12-month basis. Overall, we see a good demand environment across the US, Europe and Asia Pacific. In terms of sector demand, we see strength in energy, utilities, retail, insurance and manufacturing. In our Agile Digital business we see especially strong traction for the work we are doing in Cloud, in Data and Analytics, in IoT and in the area of experience.
Our two recent acquisitions Brilliant Basics in the UK and WongDoody in the US are helping us expand our portfolio in the experience area and are already starting to have an impact across our client base. We see continuing traction of our automation approach and our artificial intelligence platform NIA within our core services business. Our approach to progressively move our employees onto an agile platform is seeing good traction. In our localization program, we have launched a new 75-acre campus in Indiana in the US and now planning four other locations in the US, six in Europe and three in Australia.
With a strong foundation of delivery, the focus on Agile Digital and AI powered core services, we are now expanding our sales and go to market teams. With that, I feel we have a stable start to the year and are executing on our strategy and a three-year transformation program. Let me now hand you over to Ranga, our CFO.
Pravin Rao
Good afternoon. We had a very broad based financial performance on multiple fronts. Let me talk about some keys financial indicators. First of all, the operating margin. I am happy to inform you that it is the 23.7%, pretty much near the higher end of the guidance that we gave in the beginning of the year, which was 22% to 24%. Our return-on-equity expanded and it crossed 25% at 25.5%, it is a high in several years primarily on account of an efficient capital management including the capital allocation policy that the company successfully executed during the year. Third, our free cash flow jumped over 30% sequentially to $552 mn that is very healthy. Fourth of course the EPS grew YoY 3.9%. One of the other key indicators that we watch as we execute our digital journey is per capita revenue that is revenue per employee that further increased for 12 quarters in a row on the back of productivity improvement, automation and also larger share of digital services.
During the quarter as part of the capital allocation policy, we declared the final dividend. It was paid off to investors and it amounted to 70% of the free cash flow as per the capital allocation policy. As you know as per the new policy that was announced in April 2018, special dividend of $400 mn was paid out and an additional $1.6 bn was identified by the board to be distributed for fiscal 2019 in a method and a manner to be decided by the Board. So overall we had on multiple fronts a very broad-based financial performance.
Fatima Karan
Thank you very much for that. My name is Fatima Karan and I from Business Television India. I would like to show off about the about the fact that I have gotten the luckiest first draw in terms of the questions. Thank you for what you have just told us. The key question really I think just really expands on what you have said behind those numbers. You have maintained your guidance and investors and analysts will be looking at the fact that there has not been an upward revision. Your numbers of course are stable, so what exactly are you projecting in terms of your trajectory, if one has to describe it. The question would be is there some kind of uncertainty that you are projecting there or what is that you are telling us? And secondly of course, yours is very much cash generating company, buybacks would be something that would be an obvious choice, bonus is mainly something that is used for the balance sheet. So just give us a little more in terms of what you have announced there and how would like you to explain it?
M.D. Ranganath
Clearly on the revenue and the margin guidance, I hope you are looking at the both. Let me look at the operating margin guidance. We gave at the beginning of the year 22% to 24% and we also said, we will be making certain gradual investments to leverage the digital opportunities and we have been able to make that. So the first quarter we closed at 23.7% pretty much near the higher end of our guidance. During the year we will continue to focus on both the operational efficiencies as well as the investments that we need to make hand-in-hand.
Coming to the revenue guidance, we stated in the beginning of the year 6% to 8% in constant currency. It was based on the visibility and the momentum that we saw both in terms of the pipeline as well as multiple sectoral trajectory that we see. We have delivered 2.3% QoQ and on YoY it is 6% in constant currency and we have continued to reiterate our guidance of 6%-8%. The deal wins after seven quarters, has crossed $1 bn of which again 40% is from Financial Services. We continue to execute our strategy during the course of the year. Let us see one more quarter how it goes and we will continue to focus on that.
Coming back to the capital allocation policy, as you know last year including the buyback of $2 bn we returned $3.7 bn back to the shareholders. This year again the Board has approved up to 70% free cash flow to be returned and additionally $2 bn to be returned to the shareholders over and above 70%. Out of that $2 bn, $400 mn we have already paid back in June by way of a special dividend, balance $1.6 bn we will be looking at returning in a method and mechanism to be decided by the Board.
Kritika Saxena
My first question to Salil. The Financial Services business has been a bit of concern across the industry. This time around, the growth is flattish on a constant currency basis. What is your view in terms of the uptick that you are seeing? Are you expecting a rebound in the Financial Services vertical any time soon, if yes can you give us a timeline. Of the $1 bn large deal when you say 40% is from financial services, so will we see that traction coming in by the second quarter? I will ask the other questions one by one?
Salil Parekh
Our Financial Services business sees a very strong demand today. In the large deals won, 40% of our large deals came from Financial Services. Those naturally will transition into revenue generating businesses for us over the course of the next few quarters. In many of the areas, for example in our core services, in digital, in specialized areas within Financial Services we see good traction. We see good traction again starting to come in the US market place within the banking and the insurance business. Especially in the insurance area we see strong activity. Our outlook on Financial Services remains positive and we see that this is the foundation of the business we are driving.
Kritika Saxena
Okay, but in the coming quarters you are expecting a rebound there?
Salil Parekh
We are seeing a strong demand.
Kritika Saxena
Ranga as far as your margins are concerned, the fact of the matter is that there is weakness in the rupee. Are you confident that you will be able to stay at the higher end of the guidance through the year? Any chance of revision mid quarter and another clarification that I wanted was, the Panaya fair value has reduced by about Rs.270 crores, so last quarter you have taken an impairment charge of Rs.118 crores, could you clarify on that point?
M.D. Ranganath
Sure. Coming to the margin, as I said we indicated the band of 22% to 24%. Yes in the first quarter we had 23.7%. Yes, rupee did benefit. At the same time we also rolled off the compensation hikes and we also had certain investments as we had outlined. I think it takes into account all those factors. The fact is that in the balance three quarters, we will continue to focus on operational efficiency as well as the investments hand-in-hand. If you look at this quarter it was not just the rupee, rupee was of course one element, look at the utilization as well as the onsite mix that itself gave us 40 basis point’s advantage. In addition the rupee helped about 100-basis points and at the same time compensation impact of 100-basis points kind of negated the rupee impact. Overall the operating margin of 23.7% first quarter, it is a reflection of both investments as well as the operational efficiency pieces that we have done. The investments are gradual in nature as we outlined in the beginning and in the balance three quarters we will gradually make those investments to leverage the opportunities there clearly.
Coming to the Panaya, as you know in March 2018 based on the strategic review of our entire portfolio, we had identified that in case of both Panaya and Skava we would explore sale and we started negotiations during this quarter. Based on the progress that we have made at this juncture, based on our judgment at this stage we have taken a reduction in fair value by $39 mn and the negotiations are still in progress. I think we will have to continue that negotiations. Broadly that is it. The impact on net profit was $39 mn on account of Panaya fair value right now, in rupees it was Rs.270 crores.
Kritika Saxena
Okay, last question to Pravin. The attrition has gone up at this time. Utilization is at all time high yes, but what are you doing to bring down attrition? Is the utilization rate maintainable, by how much can you bring down the attrition. Also I believe there has been re-organization in the segmental reporting at this time around what is the reason for that?
Pravin Rao
This quarter attrition is slightly higher at 20.6% as compared to the previous quarter; part of it is seasonal because in Quarter 1, you typically have big percent of people going abroad for higher education. Nevertheless it is probably higher than what we have seen in the past. Big chunk of attrition has come in from people with experience from two to four years. We have identified some specific interventions we will do to bring the attrition down. We are confident that over the next two three quarters we should be able to bring it down to manageable proportions.
M.D. Ranganath
As you know we have adopted IFRS 15, which is a new revenue accounting standard, IND-AS also has a corresponding standard. It is effective from January 2018. Since our financial year began in April, and this is the first quarter we adopted, there are certain additional disclosure requirements required under IFRS 15. So in line with that we have restructured our segment reporting and there are certain additional disclosures that we need to make, which we have disclosed.
Chandra R. Srikanth
Salil my first question to you, you had mentioned a couple of months back. I read that it is time to sacrifice margins and start investing in new technologies. How you are going to do that, when you are maintaining your operating margin guidance within the same 22% to 24% band. When you talk about investments, do you mean acquisitions perhaps in the digital space that is something that Accenture has done quite successfully, will we see moves like that or has the Panaya experience made you a little more cautious when it comes to acquisitions. If you can just clarify on that.
Salil Parekh
I think our approach as we have seen with our clients, there is a huge shift to what they are doing in the digital space. There we have been quite careful to identify areas of growth for example cloud, data and analytics, user experience and we see a lot of traction in that. Our approach is to put focused attention and investment into those areas and scale them up. So it is not a question of sacrificing margin. We have strong operating business and it is more a question of making sure that we build a business for the future. With the guidance that we shared in the start of the year we are well within and actually comfortable in that guidance range and that is the approach we have taken for our business. In terms of acquisitions, we made the acquisition WongDoody just a few months ago and that is an indication that we are actually looking at and quite open to where it makes sense and where it enhances what we do with our clients to look at acquisitions. So that is an ongoing approach for us.
Chandra R. Srikanth
Ranga despite the positive commentary from Salil why have you stop short of raising the guidance number. Is it taking into account risks on the currency front or do you expect some pressure in Q2, Q3 and secondly utilization is at a record high 85.7%. That was your lever for the last many quarters, so what lever is going to make up for this, is there a further headroom?
M.D. Ranganath
We have been consistently saying, there are multiple aspects to the margin guidance. We gave 22% to 24%, first quarter we are very good at 23.7% in the top quartile and we have also said that we will continue to make gradual investments during the quarter. This we had highlighted, whether it is in a US talent model, whether it is in repurposing the talent, third one is on the digital as well as the sales revitalizations, they are gradual investments we will calibrate them and continue to make for leveraging the digital opportunities. Yes, utilization is high I think every time, every quarter we say nearly high very little legroom, again it went up by 1%, but having said that yes the runway is limited. If you look at the onsite mix, which used to be 30% one year ago is almost down to 28.6% that is one. Most importantly we are looking at the productivity led and the automation led improvements in certain service lines, which are more amenable for automation, which has also helped us in increasing the revenue per employee. If you look at the onsite cost as a percentage of revenue has further come down this quarter primarily because in the onsite we looked at a combination of in fixed price projects, optimizing the pyramid structure to some amount of localization and further enhance productivity in onsite. These are the elements, which have really helped us in achieving the margin. At the same time we are comfortable with the guidance and will continue to make investments at the same time leverage all the levers that we have.
Chandra R. Srikanth
Finally Pravin you have been talking about this $1 bn target in terms of deal wins and you have finally crossed that number. Is it sustainable? Is this number that we are going to see in the future quarters as well or was there some one off this quarter that finally helped you crossed the $1 bn mark in terms of deal wins?
Pravin Rao
If you notice our trajectory it has been gradually increasing over the last several quarters and as you have said we are really happy it has crossed that $1 bn mark. The pipeline is very healthy; we still have a very large number of deals. But unfortunately in large deal situations we have no control over when the deal is likely to close. Sometimes some of the closure shift from one quarter to the other. Our hope is that we will continue to maintain this. Almost all the deals that we have won has an element of digital in it, because most of the deals even if it is from legacy it involves modernization and re-platforming and so on, migration to cloud and there is always increasing part of digital in large deal wins as well.
Sajeet
Salil you began your commentary by saying you see a good demand environment and then you came out with a guidance, which is 6% to 8% in constant currency term, which is retaining the same one, which you did at the beginning of the year. What are the factors, which is preventing you from upping your guidance given that you see a robust demand coming in? Secondly I want your commentary on the financial services sector how it has been doing. Do you see American BFSI segment come back into play because we saw that with one of your competitors where BFSI was doing really well, they said it is not green shoots it is really picking up. When I see your financial services numbers on a quarter-to-quarter basis and on constant currency terms it has fallen so what is that divergence, which is coming between you and your competitor and for Ranga I will come back to you?
Salil Parekh
On the demand environment I think my comment is more in the interactions I am having with sales teams, having with clients how we see the activity, whether it is on Agile Digital on cost services overall across geographies and seven other sectors we see a stable to good demand environment. Now the guidance discussion is a different discussion I think we have a good solid start to the first quarter. As Ranga said we will now execute on Q2, Q3 and for the full year and as that progresses and as the demand we see translating into what we can convert we will see how that plays out. So we do not have any real need to make any adjustments. The comment was more about seeing this from a client perspective. On banking what is interesting is I was in a client session two weeks ago. We were looking at a digital bank for a US client. What we have built for them has been so transformational and how they are approaching their market. You start to see that there is spend coming into that area. I was in another client discussion where they are looking at what Pravin mentioned the cloud migration and modernization again with the banking CIO. So when you see that sort of scale activity whether it is a digital bank creation where our platform is really driving it. Finacle is the prime driver for that across the world or you see this sort of change from a cloud modernization perspective that gives us confidence that the environment is solid, our client base is reflecting that and they see that we have the capabilities to drive that. Now we are starting to execute on that. So I have a view that it gives me positive feeling about how that sector is going to evolve.
Sajeet
Ranga to begin with if you can elaborate what was dollar guidance, you have given a constant currency guidance, what is dollar guidance. Then on the operating margins front though you have guided between 22% to 24% and you are nearly at the upper end from quarter-to-quarter basis Q4 to Q1 you have nearly 100 bps decline in your operating margins if you can break it up for us where is it coming from, what is the impact of cross currency headwinds or tailwinds, which you see going forward?
M.D. Ranganath
Sure let me start with the operating margin question. Yes sequentially 100 basis points decline of which let me give the breakup. We had a rupee benefit net of cross currency impact for about 100 basis points positive, which was entirely offset by the compensation that we rolled out effective April to over 85% of our employees. Then, because of the higher utilization and onsite mix moderation we had a benefit of 40 basis points. Then again higher investments into both sales as well as G&A and some of the subcontractor additional expenses that we had to make had a negative impact of 140 basis points, so net is 100 basis points. As I said in the beginning, we guided for 22% to 24%, in the first quarter we are at the top quartile. We will continue to make the investments gradually over the course of Q2, Q3, Q4, at the same time optimizing some of the parameters and levers that I talked about earlier. So that is where we are, we are comfortable in this band. Coming to the constant currency guidance we reiterate at 6% to 8%. For some of the currency parameters it is disclosed in the fact sheet I can walk you through after this telecast.
Sajeet
Final one, on cash and cash utilization, you have been telling us that you have to spend $1.6 bn or give it back to shareholders, when do we see concrete announcements on that and for Pravin what is the kind of guidance you have for employee addition for fiscal 2019 going forward. You saw some bit of increase in attrition, how you are seeing that?
M.D. Ranganath
So coming back to the $1.6 bn. First of all let me assure you we are not going to spend $1.6 bn we are going to return to the shareholders. The capital allocation policy that was approved by the board in April had two components, one is return up to 70% of the free cash flow to investors we have started executing that already. Additionally the board had identified $2 bn to be returned to the shareholders for fiscal 2019 of which $400 bn we have already returned in June by way of special dividend. The balance $1.6 bn we will be returning to the shareholders in a method that would be approved by the board and we will announce that in due course.
Pravin Rao
From a people addition perspective, on an average every quarter we recruit about 1,000 plus people onsite, this quarter also in US we recruited about 1,100 people out of which about 800 were lateral additions and 300 plus were fresh graduates. In India we have recruited about close to 5,000 people this quarter, so that trend will continue and it is a function of demand utilization as well as the productivity.
Sajeet
One clarification is 1,000 that you mentioned in US, this is part of the 10,000 target?
Pravin Rao
Since we announced that we would recruit 10,000 people any local we recruit in US from that date is part of that 10,000 target.
Sajeet
How is India doing if it has not done well?
Pravin Rao
India our focus has been predominantly on government projects, where you have the volatility. So our approach has been to go slow on the government projects and focus more on the private projects. But today it is a very small percentage, so there will always be some degree of volatility given the nature of projects we execute.
Fatima Karan
Just a little bit in terms of the addition to the board, a little bit you can tell us in terms of your appointment as an independent director, a little bit of light on that. What are your clients telling you when it comes to I am talking about the clients in the UK? What are they saying about all this noise that we hearing around Brexit and also what you can tell us in terms of how you are looking at H1B visas as well, so a broad set of questions, but one very close to home and the other one in terms of the overall global scenario?
Salil Parekh
We are delighted to welcome Mike as an independent director onto the board. As Nandan had shared earlier, our plan is to in the right way expand the board. This is a first step in that direction that we have taken in the recent past. Mike comes with a tremendous amount of experience from a client perspective. He has been a CIO for a number of years. He is a seasoned executive. We have had a lot of interactions with him already and in fact he is already starting to help us in how we are positioning ourselves with some client pitches. So really positive to see this and we welcome Mike onto the board. In terms of the UK, I was in the UK a few weeks ago with several of our clients. The demand environment for the right set of capabilities is very strong. So where we have automation AI driven core services, there is a huge ability and interest to absorb it. We are talking about digital services across five parameters, there is a lot of interest with discussion with a large bank CEO where we have an invitation to play with several of their digital initiatives. So, to me yes there is a political situation there. Nonetheless, we have a clear approach to the market and the demand environment is strong for us.
M.D. Ranganath
As we have rolled out the localization plan that Salil talked about, clearly the emphasis is on looking at how do we ensure that without impacting our talent supply chain how do we have a judicious mix of both. The localization centers and the announcement of 10,000 local hiring is part of that. But at the same time it will continue to have H1 folks for certain niche skill sets and certain skill sets. So we will have a mix of both local talent as well as the H1. So Indiana, North Carolina, and Texas, a couple of other announcements are in that direction. As Salil was saying localization is not limited to only United States, we also have Europe and we are also looking at Australia as well to ensure that the talent supply chain is much more broad based.
Exhibit 99.4
Press Conference
Infosys-Press Call
July 13, 2018
CORPORATE PARTICIPANTS:
Salil Parekh
Managing Director
Pravin Rao
Chief Operating Officer
M.D. Ranganath
Chief Financial Officer
Inderpreet Sawhney
Head Legal Counsel
Journalists
Sarita Rai
Bloomberg
Venkat Subramanian
The Hindu Business Line
Ayan Pramanik
Economic Times
Debashish Mohapatra
Business Standard
B Narayankar
PTI
Shalini Nair
Cogenesis
Furquan Moharkan
Deccan Herald
Anirban Sen
Mint
Shilpa Phadnis
The Times of India
Nikkei
Ken
Krishna V Kurup
Reuters
Salil Parekh
Good afternoon everyone. Thank you for being here. I just have a few comments as we start off and then we will quickly get into questions. So first, we are delighted that our strategic approach and focus, which is on scaling Agile Digital and energizing our core services with automation and AI is resonating with our clients as also our approach on skill enhancement and localization. As you probably picked up on the press release, our digital revenue has grown by 25% YoY in constant currency and QoQ at 8% and now represents over 28% of our business. Our overall revenue has grown by 6% YoY and 2.3% QoQ and our operating margin was at 23.7%. Even more exciting, we had over $1 bn in large deals. This was the first quarter we have that in sometime. Over 40% of those deals were in financial services. We increased by 4, the number of clients we had over $100 mn per year to make that number at 24 now and interestingly two of those four clients are in the financial services sectors. With that I will pause and hand over to Ranga and then we will open up for questions.
M.D. Ranganath
Thank you Salil. Good afternoon everyone. We had a very broad based financial performance on multiple fronts. Let me talk about a few key financial indicators. Our operating margin for the quarter was 23.7% near the top end of the guidance given at 22% to 24%. Then if you look at ROE, it crossed 25%. It was at 25.5% primarily on account of the capital allocation policy execution. Then we had the EPS grew 3.9% YoY. Most importantly, the revenue for employee continue to improve for 12 quarters in a row primarily on account of higher productivity, automation and also larger share of digital. We had a very robust free cash flow. The free cash flow sequentially jumped over 32% to $552 mn. During the quarter, in line with the capital allocation policy that was announced in April 2018, we declared special dividend of $400 mn that was returned. Balance $1.6 bn out of the $2 bn would be returned back to shareholders in a manner to be decided by the board. We also had 1:1 bonus share announcement as well as the ADRs. So we will be happy to answer questions.
Sarita Rai
First question to Salil. Your commentary on BFSI is looking really optimistic, your $100 mn+ clients have gone up by 4, large deals are $1.1 bn. Yet the sales outlook and margins guidance remains the same, I just wondered why? Are you seeing your guidance as conservative? The second question is about your announcement in 2017, that though on a higher 10,000 people in the US and so far that number has just touched 4,000 as I saw from your statement at Morgan Stanley. So Salil are you going to fall short of your target because that was a few years including this year and the next. The first question, Salil you said the first year is going to be all about stability and I see that employee attrition is still quite high especially the field employees two to four years and is it a matter of a concern?
Salil Parekh
In terms of the first point on what you see in the markets, I think the demand environment as I have been meeting with clients, leadership is meeting with clients and sales teams are meeting with clients and the sense we have is whether we are talking about what they want to do in Agile Digital. There are new opportunities about what they want to do and how they want to modernize and drive cost services. So the feeling we have across the board is that the demand environment is good. You talked specifically about banking and financial services. A few weeks ago, I was with a client in the US where we built a very exciting digital bank for this client. It has been built on our platform on Finacle and we can see that lot of work has a lot of traction in the way the world is changing in the banking sector. So that gives us a view that with the capability set that we have, we will have traction with our clients. The guidance now is a different discussion. It is something that we built as we built the financial plan at the start of the year and in driving our business, we share that guidance. We are now focused not on that, but much more on clients and execution and we will execute through this year through the quarters and drive the business. In terms of the 10,000 people, the recruitment is moving very strongly. In fact, we had 1100 campus hires so far. We are doing lateral hiring in the US market. We are very confident in terms of achieving the objective of what we had set out and in fact the whole go-forward approach is centered on that being a continuing way of driving our business. On attrition, Pravin will share a couple of points with the employee attrition. On senior leadership in fact what I have noticed and we have observed, we have a tremendous strength of leaders within the company and as we have looked at how we organize a go to market objectives, in fact are many of these leaders have stepped up and are doing more and more things. As the business starts to stabilize, as we start to see a three-year transformation plan executed, which we started in the first quarter, my sense is that those areas will start to address themselves.
Krishna
You said you have seen a good traction in the market and I need a little more clarification as to particularly in the US market, what is the demand environment for Infosys because if you are looking at your rivals and their commentary around their demand environment in the US market especially for the financial services, they sound very optimistic. You sound optimistic enough, but I am just saying there is a stark difference between the signals I am getting out of the commentary? Could you just clarify that?
Salil Parekh
How I sound may not change much to the answer. But what I would say is as we have interacted and as I have met with clients and our leadership has met with clients and our sales team have met with clients, the sense we have collectively is there is an interest specifically in financial services that you referred to where their large programs that have been driven has been moved into the digital world. Whether the programs are on the experience side, on the cloud side, on the digital bank side, and we see that as they look at our capability set, we have an ability to play in that environment. As you saw, our digital business has grown by more than 25% YoY in this quarter. Equally there is a movement in the large core services play, within banks and financial services company where with our platform for example on the insurance space for the McCamish platform, we see traction where the platform can transform various businesses in the insurance space. So that gives us a feeling that there is a good opportunity set out there with our client base and with new clients in the market. So that is the approach we have put in place a few months ago, to scale up our Agile Digital business, but also to equally drive with vigor and energy our core services business through automation and artificial intelligence because both of those are drivers of change in the market.
Venkat
This is Venkat from The Hindu Business Line. I just had a couple of questions. One was of course revenues from your energy, utilities vertical is steadily rising over the last four quarters. Is it to do with the rising crude oil prices and capex returning, clients spending returning in that segment? You have had four additions in $100 mn+ category and so is there any specific segments from these are coming or is it kind of broad based? And if I can squeeze in a third one, operationally you have reached about 85.7% on your utilization levels, is there any scope for further expansion because that level is kind of saturation after which it tapers off.
Pravin Rao
On the performance in the energy and utility space, you are absolutely right, it has been the standout performance in the last few quarters. Even on the YoY basis that sector has grown about 17%, 18%, this quarter itself on a constant currency basis; it grew about 5.5%. On the energy side with the oil prices stabilizing, we are seeing spends coming back both on the upstream and downstream side of the business and that is where we are seeing opportunities. And on the utility side, there is a lot of transformation happening in the utility space. There is a big modernization, there is customer service transformation and so on. We have been able to take advantage of those and have a good winning rate. So we expect this to continue. We are very optimistic about this space in the coming year. On the large clients, you were talking about $100 mn+ clients, 4 additions right. So big percentage of it has been in the financial and services space. By the very nature of that industry, you tend to have lot more larger clients in that space anyway. Utilization every quarter, we claim that we have reached the maximum but we somehow manage to beat it. But jokes apart, I think where we are operating today is very high level and in some sense it is suboptimal and at times it impacts our ability to fulfill, so we are really working on increasing that count. In the last couple of quarters we did not have influx of fresh graduates, now we have this quarter onwards. We will start seeing fresh graduates coming to the pool as well, so things should ease in the coming quarters.
Ken
I think we all know that Accenture is claiming that 60% of the revenues are coming from so-called ‘new’ technology spheres. There is a huge gap between Accenture and your position having 28% of your revenues are coming from digital. Could you share your internal analysis of what is the gap, are you not worried? Is it just a matter of measurement methodologies, classification of methodology? If there is any problem, please give us what is the problem you are having, that is my first question?
Salil Parekh
Thank you. The way we are looking at the digital market and as you rightly said our mix today in Q1 is at 28% is an indication of what we see being of value to our clients. What we have done in digital and this was shared in some of our previous presentations, we have decomposed that into five areas- experience data analytics our insights, innovate or IoT, Accelerate or Cloud and then cyber security or Azure. You will see those charts, it is a pentagon that we have developed and mapped our business service line structure onto that. The way we are approaching digital is we have a long history working with clients on the core foundation tech space. We are in the best position because our delivery organization is the strongest in the business, to take them on the journey of digital. We are playing in the experience space, but we are not making a move to be advertising and digital marketing space. So for us really the tech element of digital starting with the experience space and expanding across the five areas is where the future lies. We share this in the past. This is about $160 bn market that market is growing at about 10% to 15%. So for us this is the place where we should be playing. We feel very comfortable that our strategic approach will give us strong benefits with our existing clients and new clients. For example, it is very early days that more than 25% growth we saw on digital this quarter, but the market is massive so we are not that concerned that this is in some ways the wrong place to be. We feel fortunate in fact that we are in the right place and that we want to play in the tech digital space.
M.D. Ranganath
Just an additional point on that, I think we do believe that when we say that digital is higher percentage of revenues, it has to get reflected. We believe in three principal patronages. One, it should reflect in continuous improvement in per capita revenue, in our case it has consistently been going up for the last 12 quarters. Second we do believe that if indeed the digital is the larger share of revenue it should reflect a better pricing as well as better margin. Our margins had been resilient in the band of 24% to 25% for the last three years. Third, it also has to demonstrate in higher than the industry growth I think these are the three principle pieces that we would look at if indeed the digital as a percent of total revenue share is increasing.
Ken Clare
Just a related question, I noticed that your usage of free cash flow is heavily helping buyers towards shareholder return, I mean shareholder recycling. Do you think it is a right strategy? With regard to keeping up with rapid pace of growth at the total market of the digital space, you do not have any plan to change, your basic strategy of use of free cash flow going forward.
Salil Parekh
I am glad that the tone of the questions are changing. Earlier, barely two quarters ago, people would say why do you need so much of cash, return to shareholders. But I think jokes apart, if you look at today we carry $4.2 bn of cash on the balance sheet even after $400 mn special dividend that we gave. When the board looked at the capital allocation policy in April of this year, we looked at what are our medium-term strategic cash requirements are, it could be M&A or digital investment, capital expenditure and so on. At the same time, we also looked at the future cash generation. For example, in Fiscal 2018 we generated close to $2 bn of free cash. Now after evaluating our strategic and operational requirements, the board announced a predictable and at the same time, comprehensive capital allocation policy. It had to address two elements. One is out of the future cash, up to how much will be returned to the shareholders, that is up to 70% of the free cash flow. The second aspect was out of the cash on the balance sheet how much would be returned to the shareholders and the board identified $2 bn. At that point in time in March, we had $4.8 bn and out of that $2 bn $400 mn by way of dividend and balance $1.6 mn in a way to be decided by the board. So we are comfortable with the capital allocation policy and we do believe that the policy that we have, takes into account all our strategic and operational cash needs and it will in no way hinder our investments that we need to make in the digital.
Furquan
So basically let me talk about the guidance, Infosys is one of the company which is very dynamic when it came to providing guidance for the next year, but this quarter, I have seen there has been no revision in the guidance level despite it being the most turbulent year when it comes to currency exchange rates after 2013. So can you explain more on that going forward it might be more turbulent, rupee is expected to touch Rs.70 level, so can you explain that part. And second, if you see your geographical revenue from India, it has roughly shown degrowth of 7.8% and in constant currency 4.1%, has it got to do anything with GST? Because GST revenues might have stopped coming or something like that? And financial services also has shown a de-growth, where has the hit come from? Moreover when you talked about innovation hub in US and there was a plan to have similar innovation hubs in Australia as well as European countries, is there any progress on that?
M.D. Ranganath
Let me talk about the guidance, we have been very clear that our constant currency guidance has remained unchanged at 6% to 8%. If you recollect in the beginning of the year, we gave 6% to 8% that remains unchanged. Along with that every quarter we also announced what is the constant currency as well as the actual US Dollar. For example, this quarter when we announced the results, we said it is 2.3% in the constant currency, it is 0.9% in reported currency. We also gave a YoY growth number, 6% in constant currency, 6.8% in reported terms. So we will continue to provide for every quarter as we move on. To answer your question, I am also looking at somebody who will predict the currencies, and I would like to hire them today.
Pravin Rao
India is a very small percentage of business. A big percentage of projects we execute in India are government-related projects and these are all complex projects. They have their own lifecycle and there are times when project implementation gets over, there are times when implementation ramps up and so on. I do not think we should read too much into India thing and if you go back and look at it is historically as well there will always be a high degree of volatility in that. Nothing more to read into that. I mean there are some projects, which would have probably ramped down or moved into maintenance space or whatever kind of thing. So we do not get into that level of details. In general it is a very small percentage, the nature of projects are complex, fixed price projects involving implementation and post implementation gets into maintenance, the way we recognize revenues during the implementation, maintenance changes. So combination of things, but given high degree of dependence on those kinds of projects there will always be volatility. But given it is a very small percentage of business we are okay with that.
So BFSI this quarter has been soft for us, we have had impact in couple of clients due to insourcing and slow down in projects, but we expect the momentum to pick up in this quarter and rest of the year. As Salil talked earlier a big percentage of more than 40% of large deal wins have come from BFSI space. After several quarters we have seen uptake in BFSI in US and in the rest of the year we expect after a longtime, our performance in US will perhaps outperform rest of BFSI business in other parts of the world. More importantly we also have a very diversified business in BFSI segments across geographies and subsegments, so we remain optimistic about this space and we expect this uptick to happen in the rest of the year.
Ayan
There are two quick questions. For the two consecutive quarters, we have seen attrition is on the higher side now it is 23%. Is there any challenge there? And the second thing is Ranga you have mentioned that for Panaya fair value reduction. There was a process of negotiation with probably prospected buyers and all. So what is the kind of reason they have said when there was fair value reduction? There could be some reason to it?
Pravin Rao
In this quarter attrition, has increased to 20% plus. Historically quarter 1 is a quarter when because of all the seasonality and people going for higher studies for on, attrition tends to be typically higher. Nevertheless I think what we are seeing is probably higher than what we have seen in the past. And when we breakdown further we noted that a big percentage of attrition is in people with experience between two to four years. In the recent past, our variable pay has been 100% in the last couple of quarters, last year we had deferred compensation increase. We have done some of the interventions this year. We have given compensation increase in time for 85% of the population, which covers this entire segment. We had many, many initiatives on for them. Obviously we need to look at it and see what are other interventions we need to do to bring this down and we remain confident that in the coming quarters, it should come down.
M.D. Ranganath
So coming to the second part of your questions, as you know in March we had said that after the strategic review, we would like to explore sales for selling both Panaya and Skava. So after that we started the process of identifying the potential buyers and the active negotiations are going on. So negotiation is really a process and it is based on multiple elements that we see or the buyers see including the business plan and their own assessments etc. So based on the current progress that we have made at this stage and based on the current available best estimate that we have, we have taken the reduction in the fair value by $39 mn. Well, I think the negotiation is going on and as you know, there are always uncertainties around negotiations.
Shilpa
So if you look at the commentaries from some of your peers TCS and Accenture, the growth numbers, they are more optimistic. Also if you could tell us is it the lack of visibility, lack of deal closures that is providing a longer gestation from your end. Also if you can tell us about the financial services, what is happening, why is there 1.9% slide?
Salil Parekh
So on the market environment in the commentary made earlier and what we said in the press release, from our perspective, in the market we see good traction in many of the sectors we talked about like- energy, utilities, services, manufacturing, insurance. We see a good traction across geographies, and we have a set of businesses that are working well. We are moving towards that dynamic growth. So from our perspective, those are the elements that come into play as we look at how the future outlook for the business is. That is what we shared so far. Whatever the things that we have talked about in the past is, we want to make sure we start to invest in and scale up our digital business and that starts to see growth, which was 25% for us in Q1 for digital. We also want to expand the sales footprint. We see that with that expansion we can have an even larger impact with our existing client base and new client base. So overall that is the state where we see the business in and that is where we are driving the growth from. In financial services again, Pravin shared with you that there were couple of clients where we saw insourcing in Q1. However, 40% of our large deal wins have come from financial services in Q1. I gave examples of the innovative things we are doing, whether it is with digital bank or with Cloud or even on the core services and banking areas and trade settlement. These are the areas that are resonating from our service portfolio with our clients. So we see financial services as a whole from our clientele perspective still looks to us to be good place to be. That is how we look into the market today.
Shilpa
What about the bn dollar large deal pipeline, 40% comes from banking and financial services and the company has had some headwinds, which comes through continuously some insourcing. Now we have seen a little bit of instability there sometimes. So how are you very confident about getting the large deal closures banking and financial services? Is it the core that is driving the large part of momentum or new and this is for Ranga, will you stop calling out the dollar guidance as ideal henceforth, this is only going to be constant currency.
Salil Parekh
On the large deals again, as Pravin shared earlier today, there is lot of services, which are interconnected, so it is not anymore the situation where we have a distinct set of services. What is your question about this continuity and insourcing, the reality is we have very strong financial services franchise. We had very good steady wins in Q1 in Financial Services, 40% coming from Financial Services large deals, two of the four new clients in the $100 mn range are in Financial Services. So we see that the market, the clients appreciate the capabilities we bring in that segment and we will see that go through as the year progresses with how the clients react to it.
M.D. Ranganath
On the constant currency, in the beginning of the year we gave 6%-8% guidance and we continue to reiterate that. Every quarter for example, like this quarter both growth, constant currency as well as reported like we said 2.3% in constant and 0.9% in reported. I think we believe that constant currency is better indicator that we want to continue with and every quarter we will be providing both the reported as well as the constant currency actual growth. For the quarter, we have given 2.3% in constant currency and 0.9% in reported terms. Guidance stays at 6%-8% and we will continue to provide that in constant currency. There is no doing away and I think that is very misnomer. It is not doing away. What is the dollar guidance? Every quarter based on the closing currency it is converted back. That is not correct indicator. For example when we gave in April we converted based on March 31 currencies, right. It is very artificial. It is just conversion based on the respective currency. It is a calculation which is saying that based on March 31 currency rate, if we do, what the growth would be. We have published those rates. Those rates are clearly there. It is very artificial. If we look at the closing rates, we are very comfortable with continuing with the 6% to 8% constant currency guidance. For the quarter, we will give reported as well as constant currency.
Anirban
Salil, if I look at your June quarter typically it is like relatively stronger quarter, but going by your sequential and your annual growth numbers, the numbers are relatively modest. Could you call out two or three challenges that you faced during the quarter and what are some of the challenges that you will look to address over the next few quarter.
Question for Ranga, I am just coming, I am going to continue harping on the guidance. So the last quarter also you called out your annual guidance for the entire year, which is 7%-9% so you are effectively doing away with the annual guidance numbers, so that is correct?
M.D.Ranganath
Annual guidance we are giving 6% to 8% constant currency
Anirban
I am talking about the actual reported.
M.D.Ranganath
There is no actual reported. For example, what we did say in April 6% to 8% and if you use March 31 rate this would have been, 6% to 8% would like. That is what it is.
We stick to only constant currency guidance. We believe that it is an artificial computation, we believe in constant currency guidance. Every quarter of course when we report for the quarter we will see what is the reported growth as well as the constant currency growth, just like this quarter. What did we say this quarter, we said the constant currency grew 2.3%; however, we reported 0.9% QoQ.
Anirban
But you give the full year actual reported dollar number as well.
M.D.Ranganath
This is the first quarter of the year we will continue with the constant currency guidance. There is no reported doing away. I again repeat every quarter we give both constant currency and reported numbers for the quarter. As far as annual guidance is concerned, we will continue with only constant currency.
Salil Parekh
As Ranga said earlier, which I really like is if there is someone who can tell us the currency movement in the future, we would like to hire. This is the real point here. I have nothing to say on that.
What was the question you had? We think we had a solid quarter in the Q1 of fiscal 2019. We had 6% growth overall in constant currency. We had 25%+ growth in terms of our digital business. These are good numbers. We are 23.7% operating margin. So I would not call that modest in anyway. In fact, we have now put in place a very clear strategy. We are starting to execute on a three-year transformation plan. We have the largest level of large deals win that we have had since we started tracking that and a steady increase over the last seven quarters as Pravin shared earlier. 40% of those deals have come from Financial Services. We had 4 new clients added on the base of 20 to the $100 mn +clients and they are for us moving up to 24. So to me it was a solid quarter for us and it is a start of the execution of our strategy and a three year transformation program. From my perspective, I would not call that modest. As I said, I would call it solid quarter.
Debashish
I have a couple of questions. Because you have now embarked on a three-year journey and the first year this fiscal is the year of start of the business? Just want to understand how far you have stabilized? What are the key pain points for you at this point of time whether it is the profitability, whether it is leadership transition, the way you are taking out Panaya and Skava, so what are the key pain points in attaining the sustainability? And secondly on the digital deal we have a growth rate of around 25% YoY. I may not be fair, but just want to have a comparison TCS had 40% YoY and you have seen our fellow colleagues Accenture the growth rate is around 60%, so just want to understand because you have actually come up with announcement saying that you will have four innovation house in US, so when these things will start playing up for you? The Panaya thing, do you feel that the write-offs from Panaya is over this quarter and on what basis you are actually scaling down this? Are you are getting a sense from the clients that the deal value may not be that much or just want to understand. Is the pain from Panaya or the write off from Panaya is over?
Salil Parekh
The first question was stability and where we are in terms of the journey. I think we have gone through one-fourth of the year and we started to see some of those elements start to fall into place. What we have today is a comprehensive strategy that we have laid out. We have laid out a clear brand approach to ‘navigate your Next’. We have intense level of client engagement to start to understand how we can leverage our portfolio. We have a team that is driven and motivated to build that business. So we are starting to put the building blocks in place to drive our strategy and execute upon it and also put in place the first steps. This being the first quarter of that of the three-year transformation program. In terms of the growth rate of digital for us, a few months ago when we launched this approach, it was for the first time we started to call out what was digital within our portfolio. We think 25% is a very healthy strong and robust growth rate. We are confident that if we build and invest in this business we will continue to see the traction in this business. In terms of Panaya, as Ranga explained an ongoing set of discussions with how we want to act upon the disposal and sale of it in keeping in line with those discussions, in keeping in line with the accounting guideline, we have taken the approach to state the numbers that we have stated. As and when that concludes we will share with you the update.
B Narayankar
Sir the questions are quite different from the usual routine questions from company results. Usually Infosys files Form 20F between May and June before AGM. The company has said it will file the form and has sufficient time to do so, that is fine and honorable. But the whistleblower has sort of exact reasons, I repeat, exact reasons for the delay in filing the form. The company has not replied conventionally. This is a very serious issue because form 20F is key document that outlines the key risks to the company. What are the exact reasons? This is my first question. Secondly, there was also another letter by the whistleblowers in May. It clearly stated Nandan Nilekani is a huge disappointment and has failed to uphold highest traditions of corporate governance. Amidst all this, there is a perception that Nandan may handover baton to somebody else. If you say he will continue, then there is another perception the things are not under control as of yet. So how do you react to these two market perceptions?
Salil Parekh
I will start with the first one on the 20F. From my perspective no delays within the timeline that is required for the 20F. I will request Inderpreet who is our Head Legal Counsel to answer it so that a very clear from a legal perspective what we are saying.
Inderpreet Sawhney
I want to clarify again that there is no delay in filing of the 20F. We are well within the timeline that is prescribed by law and we will do within those timelines. There is nothing further to say. There is no violation of law. We are following the letter and the spirit of the law.
Salil Parekh
The second question was about the whistleblower complaint with respect to Mr. Nilekani. All whistleblower complaints are dealt with in the process that we have established within the company and this one is also being addressed in that same process. At this stage, we have not made any other statement about any specific whistleblower complaint. As and when we choose to make a statement, we will make a statement on that.
Shalini
This is Shalini from Cogenesis. I would like to understand how much cross currency headwind has impacted the operations and also any impact of wage hikes, if any, taken during this quarter.
M.D. Ranganath
If you look at the overall currency impact the quarter net of cross currency and the rupee benefit it was about 100-basis points. It was fully offset by the compensation hikes of 100-basis points. We generate about 70% of our revenues from US dollar terms and the rest is between Euro about 11% as well as British pounds and Australian dollars.
Moderator
Thank you ladies and gentlemen we will end with that.
Exhibit 99.5
Fact Sheet
Exhibit 99.6
Earnings call
EARNINGS CALL Q1 FY 2019
July 13, 2018
CORPORATE PARTICIPANTS:
Salil Parekh
Chief Executive Officer and Managing Director
Pravin Rao
Chief Operating Officer
M.D. Ranganath
Chief Financial Officer
Ravi Kumar
President and Deputy COO
Mohit Joshi
President, Head, Banking, Financial Services & Insurance (BFSI), Healthcare and Life Sciences, Head, Infosys Brazil and Infosys Mexico
INVESTORS
Joseph Foresi
Cantor Fitzgerald
Rod Bourgeois
DeepDive Equity Research
Ankur Rudra
CLSA
Yogesh Agarwal
HSBC
Edward Caso
Wells Fargo
Ashish Chopra
Motilal Oswal Securities
Divya Nagarajan
UBS Group
Moshe Katri
Wedbush Securities
Keith Bachman
Bank of Montreal
Viju George
JP Morgan
David Grossman
Stifel
Srinivas Rao
Deutsche Bank
Sandip Agarwal
Edelweiss
Ravi Menon
Elara Securities
Bryan Bergin
Cowen & Company
Apurva Prasad
HDFC Securities
Moderator
Ladies and gentlemen good day and welcome to the Infosys Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing “*” then “0” on your touchtone telephone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sandeep Mahindroo. Thank you and over to you Sir!
Sandeep Mahindroo
Hello, everyone, and welcome to Infosys’ earnings call to discuss Q1 FY’19 release. I am Sandeep from the Investor Relations team in Bengaluru. Joining us today on this call is CEO and MD, Salil Parekh; COO, Pravin Rao, CFO, M.D. Ranganath; Presidents and the other members of the Infosys management team.
We will start the call with some remarks from Mr. Salil Parekh, Mr. Pravin Rao and Mr. Ranganath on the recently concluded quarter, subsequent to which we will open up the call for questions.
Please note that anything which we say, which refers to our outlook for the future is a forward-looking statement, which must be read in conjunction with the risks that the company faces. A full statement and explanation of these risks is available in our filings with the SEC, which can be found on www.sec.gov.
I would now like to pass it on to Mr. Parekh.
Salil Parekh
Good afternoon and good morning to everyone on the call. We are pleased to share with you our results from the first quarter of fiscal 2019. We are delighted that our strategic approach to focus in scaling Agile Digital and Energizing our Core Services with Automation and AI is resonating with our clients as also is our approach to enhance the skills of our employees and the actions on localization in the markets we operate in.
Our digital revenue has grown by over 25% YoY in constant currency to reach $803 mn, which is a QoQ growth of 8% in constant currency again. Our total digital revenue is at 28% of our business. Our overall revenue has grown by 6% YoY and 2.3% QoQ in constant currency. Our operating margin was at 23.7%.
We have $1.1 bn in large deals in Q1, the largest we have had in the last several quarters of which 40% were in Financial Services and we had an increase of four clients to a total of 24 clients now who are over $100 mn per year in revenue and two of these four clients were in Financial Services. Overall, we see a good demand environment in the US, Europe and in Asia Pacific.
In terms of sector demand, we see strength in energy, utilities, retail, insurance and manufacturing. The Agile Digital business, we see an especially strong traction for the work we are doing in the Cloud area, Data and Analytics, IoT and in the area of Experience: user experience, client experience and employee experience. Our two recent acquisitions, Brilliant Basics in the UK and WongDoody in the US are helping us expand our portfolio in these Experience areas and are already starting to have an impact across our clients. We are seeing continuing traction of our automation approach and of artificial intelligence platform Nia in our core services and our approach to progressively move our employees on to an agile platform is seeing good traction.
In our localization program we have launched a new 75-acre campus in Indiana in the US and are now planning four other locations in the US, six in Europe and three in Australia. With a strong foundation of delivery, the focus on Agile Digital and AI powered core services, we are now expanding on our strong sales and go-to market teams.
With that I feel we have to a stable start to the year and are executing on our strategy and our three-year transformation program.
Let me now hand it over to Pravin, our COO.
Pravin Rao
We had a steady quarter from an operations perspective and continue to progress on our digital growth targets.
We had eight large deal wins during the quarter with a TCV of US $1.1 bn. Seven of the eight deals were in America and one in Europe. Three deals were in energy, utility, resources and services, three in retail and two were in financial services business.
The volume grew by 2.6% and realization in constant currency terms remained stable. Utilization excluding trainees increased further to 85.7% which is an all-time high.
Attrition increased to 20.6%, partly a seasonal phenomenon. While there were few senior level exits, our senior level bench strength is quite strong. We continue our strong recruitment drive and added 17,709 professionals during the quarter on a gross basis. During the quarter, we also rolled our compensation increases for about 85% our employees.
Now let met talk about the client sectors. Digital transformation remains the key thing with clients across all the business verticals and more budgetary spends get diverted towards this area from the traditional business. The focus is on using technology to delivering business outcomes or help in strategic differentiation. We are building a strong team of digital specialists to work as a tip of the sphere consulting layer, cutting across all the five pillars of our digital engagements. During the quarter we completed the acquisition of WongDoody and this enhances our offering in ‘creative services’ as well as the entire value chain of “Creative – Production – Campaign -Analytics – Measuring Outcomes”. We have also launched a design and innovation studio at Rhode Island and announced a five-year partnership with Rhode Island School of Designs to accelerate our capabilities in digital space. A large part of our new deal wins during the quarter involves digital and we have a healthy pipeline.
While we saw some softness in the Financial Services in Quarter 1 driven by cost reduction pressures and insourcing in a couple of clients, the momentum continued for second tier and regional banks and some management customers. Many clients in the US are increasing their spending and we expect our US business to outperform the portfolio in the coming quarters. While the European portfolio was soft in Quarter 1, we expected it to improve in the coming quarters. Pipeline for deals is showing a steady increase and over 40% of large deal TVC in Quarter 1 was in this vertical. Overall pricing is stable and deal sizes are higher.
In insurance, discretionary spend is increasing and insurers across the spectrums are modernizing the middle and backend systems to improve experiences for customers. We have a robust pipeline and more focus on core platforms modernization, digital, closed book management and vendor consolidation/rebidding of work. Growth is expected to remain robust with strong deal pipelines and new account openings.
In retail and CPG, we had a standout performance driven by ramp ups in deals won earlier and continued momentum with existing clients. Within the sector, CPG and logistics are showing more growth than the core retail vertical. We are seeing growing interest to embrace Digital, AI, RPA, Analytics, Cloud and Cyber Security. Europe is seeing growing interest in integrated outsourcing deals and new transformation programs. While retail is seeing some early signs of green shoots there are challenges in CPG driven by M&A while logistics sees weak demand due to CAPEX reduction and oil price volatility.
IT budget in the telecom sector continues to face headwinds due to competition in the industry and change in the industry dynamics leading to severe topline and bottomline squeeze. M&A activities, vendor consolidation, cost cutting measures insourcing and competition for legacy services are impacting growth. Spending trends are opening up in ‘innovation’ areas like digital transformation, software design networks, IoT, customer experience and cyber security. Digital deal sizes are seeing an upward movement.
Growth in the energy, utilities, resources and services vertical continues to remain robust with momentum in top accounts and ramp up of previous deal wins. Although the general pressure of cost squeeze for traditional services continue, newer opportunities in the digital space in the form of Analytics, RPA, Cloud Adoption, Cyber Security are opening up.
Stability in oil prices is positive for the energy sector and we are seeing pockets of opportunity where the focus is on building differentiated capabilities. In the utility sector, we see an increase in spend on digital, customer engagement and cloud adoption on the back of changing regulations, especially around solar and other distributed energy resources and the next wave of maturing smart grid. Subdued commodity prices are putting pressure on the resources sector, clients are planning to embrace digital transformation to improve asset efficiencies and are looking to consolidate and upgrade their ERP systems for better business insights.
Manufacturing continues to see pockets of higher
activities in areas like ERP, Cloud, digital transformation, and agile model based sourcing transformation. The demand in Continental
Europe continues to be better as clients look for cost optimization for their run operations and are looking for
transformation ideas for long-term benefits. Increasing focus in manufacturing is on digitalization of end to end processes, with
a strong focus on weaving Mobile, Cloud, IoT and Backend systems seamlessly to provide a superior customer experience. I will now
handover to Ranga.
M. D. Ranganath
In Q1, we had a broad based financial performance on multiple fronts and we continued our trajectory on key financial parameters. Let me start with a few of them.
First – Our operating margin for the quarter was 23.7%, at the higher end of margin guidance of 22-24%. I will provide more color on this shortly.
Second – Free cash flow was robust and was up 32.1% quarter on quarter to $552 Mn.
Third - Our ROE further improved and was healthy at 25.5% and increased from 22.0% from Q1 of last year.
Fourth – EPS growth year on year was 3.9% in $ terms and 9.1% in rupee terms
Fifth – Due to continued productivity improvements, utilization and increase in digital share, revenue per employee increased yoy 5.7% to $ 54,878 which is one of the highest in recent years
Salil and Pravin have already talked about the digital revenues, deal wins, client metrics and business outlook. Now, let me come to revenues, price realization and margins -
Revenues in Q1 19 were $2,831 mn, growth of 2.3% in constant currency terms and 0.9% in dollar terms on quarter on quarter basis. In rupee terms, the revenue for the quarter was Rs. 19,128 crores, this is a sequential growth of 5.8%. As compared to Q1 of last year, revenues grew 6.0% in constant currency terms, 6.8% in dollar terms, and 12.0% in rupee terms.
Price realization remains flat in constant currency terms on a quarter on quarter basis.
Operating efficiency parameters continued to improve. Utilization was at a new high of 85.7% as compared to 84.7% last quarter. Our continued efforts towards improvement of onsite mix resulted in the onsite mix decreasing further to 28.6% this quarter as compared to 30.1% same quarter last year. This is the lowest level in last 14 quarters. Our focus on optimizing onsite employee cost including sharper focus on productivity, onsite pyramid and others, localization and optimization measures, led to a decrease in the onsite employee cost as a percentage of revenue to 37.9% in Q1 as compared to 38.3% in previous quarter
At the beginning of the financial year, we had planned several investments in digital to leverage opportunities, enhance investments in US talent localization and other local markets, revitalize sales for tapping market opportunity and repurpose talent. These investments are being made in a gradual manner to leverage business opportunities.
Operating margin in Q1 was 23.7%, which is near the high end of guidance range of 22%-24%. Operating margins for the quarter declined by 100 bps. During the quarter, benefits of rupee depreciation were partially offset by cross-currency headwinds leading to a net 100 bps benefit. This was fully offset by compensation increases that were effective April 1st for 85% of our employees. Operating parameters including utilization and onsite-offshore mix improved during the quarter which helped operating margins by 40 bps. However, that was offset by investments in building onsite talent supply chain including sub-contractors, higher sales investments, cost of new H-1 visas and increase in other business overheads, all of which impacted margins by 140 bps. So overall, there was a 100 basis points reduction in operating margins sequentially.
We ended the quarter with the total headcount of 209,905 employees, which is an increase of 2.8% from last quarter. Gross head count addition increased to 17,709 from 12,329 last quarter.
The subcontractor expenses this quarter stood at 6.8% of revenue as compared to 6.1% of revenue last quarter. As you know, the subcontractor expenses are driven primarily by utilization level and onsite talent demand
Cash generated from operating activities in Q1 as per IFRS consolidated was $631 mn and we paid $64 mn of taxes as per the APA entered into the United States IRS earlier in 2018. Capital expenditure for the quarter was $79 mn, which is Rs.537 crores. Free cash flow which is operating cash flow less CAPEX for the quarter was $552 mn. Cash and cash equivalents including investments stood at $4,202 mn, which converts to approximately Rs.28,774 crores.
Debtor days outstanding for the quarter stood at 66 days compared to 67 days last quarter, decrease of 1 day led by better collections. Q1 witnessed huge volatility in currency market and we managed to navigate the same effectively. Yield on cash for the quarter was 7.20% as compared to 7.29% last quarter. Hedge position as of June 30th was $1,956 mn
In Q1 19, the EPS declined 6.5% sequentially in dollar terms and by 2.1% in INR terms. As compared to Q1 of last year, EPS growth stood at 3.9% in dollar terms and 9.1% in INR terms. As you would recall that in March 2018, based on a conclusion of a strategic review of the portfolio of businesses, we had initiated identification and evaluation of potential buyers for Panaya and Skava and reclassified their assets and liabilities as ‘held for sale’. During the quarter, we continued negotiations with potential buyers of Panaya. On re-measurement including consideration of progress in negotiations on offers from prospective buyers for Panaya, the Company has recorded a reduction in the value of disposal group held for sale amounting to $39 million in respect of Panaya. This impacted the net profit by $ 39 million and EPS by 2 cents for the quarter.
During the quarter, the company executed its capital allocation policy for FY 2018 by paying out final dividend of Rs. 20.50 per share. With this, the dividend paid to shareholders for FY 18 was 70% of Free Cash Flow, in line with the capital allocation policy.
The company also took steps in executing the capital allocation policy announced in April-2018. As per the policy, out of the $ 2 billion identified to be paid to shareholders, app. $ 400 mn was paid out as special dividend in June-2018. The balance amount of $ 1.6 billion will be paid out to shareholders for financial year 2019 in such manner to be decided by the Board. Further updates on this will be provided in due course
The Board in its meeting held on July 13, 2018 has considered, approved and recommended a bonus issue of one equity share for every equity share held and a stock dividend of one American Depositary Share (ADS) for every ADS held, as on a record date yet to be determined. Consequently, the ratio of equity shares underlying the ADSs held by an American Depositary Receipt holder would remain unchanged. The Board approved and recommended the issue of bonus shares to celebrate the 25th year of Company’s public listing in India and to further increase the liquidity of its shares. The bonus issue of equity shares and ADSs will be subject to approval by the shareholders, and any other applicable statutory and regulatory approvals.
We voluntarily delisted our ADS from Euronext Paris and London. The primary reason for voluntary delisting from Euronext Paris and London was the low average daily trading volume of Infosys ADSs on these exchanges, which was not commensurate with the related administrative expenses. However, our ADS will continue to be listed and traded in NYSE as before
Coming to operating margin guidance for Fiscal ’19, we are retaining our operating margins guidance in the range of 22%-24%. Coming to revenue guidance in constant currency terms, we continue to retain 6% to 8% and based on March 31, 2018 rates, we retain in US dollar terms 7% to 9%. With that we open the floor for questions.
Moderator
Thank you very much Sir. Ladies and gentleman we will now begin the question and answer session. The first question is from the line of Joseph Foresi from Cantor Fitzgerald. Please go ahead.
Joseph Foresi
I was wondering if you could talk about Financial Services, the performance there was obviously below some of your peers and you had some pretty good data points that things were picking up and then you talked about some cost reductions but you thought it was going to reverse, may be if you could delve into those cost reductions on the client part and why you think it would reverse?
Pravin Rao
In Financial Services, we had a soft quarter primarily due to insourcing and reduced spend in couple of accounts. Having said that, we have seen very strong pipeline. About 40% of TCV of large deal wins that we had this quarter was from this sector and after several quarters we have seen good demand and conversion in America and we expect the growth in America in the coming quarters to outperform rest of the other geographies for this sector. While Europe was soft in Q1 we expect the momentum to come back in the coming quarters. Given our competitive position in the space and diversified portfolio that we have across geographies and sub segments we remain optimistic about this space.
Joseph Foresi
I want to get some background on Digital you have given some colour on what percentage of revenue it is. How are you competing for the digital dollars I am curious as to what is Infosys’s competitive advantage there and are these open bids or are you giving digital dollars from existing clients?
Salil Parekh
On Digital as you referenced we have had a strong performance in Q1 with a growth and scale of the business expanding. The way we are seeing our clients move to digital, we see a lot of traction that comes from one of the side areas that we have designed on Experience, Data analytics, IoT, Cloud and Cyber-security assurance. Some of those projects are competitive, many which are in our existing strong client relationships are places where we are proactively seeking and winning those client digital work. We are also introducing to our clients two of our recent acquisitions one Brilliant Basics in the UK and second WongDoody in the US and this is forming the base of our experience within the digital space.
Joseph Foresi
I was wondering about the margins, utilization, I have never seen it higher from say 86% excluding trainees, so I was wondering what is the biggest margin driver at this point and can the utilization go higher from this particular level and have we offset the pricing pressure going forward?
M.D. Ranganath
If you look at the margin it has dropped sequentially by 100 basis points. If we were to break it up currency benefit in the rupee net of the cross currency was 100 basis points of positive impact, which was entirely offset by the compensation hikes that we announced for 85% of our employees effective April 1, 2018. And we gained about 40 basis points on account of utilization improvement as well as the onsite mix. As you know the onsite mix has come down considerably over the last couple of quarters and it is now 12 quarter low. That gave us about 40 basis points. Then we had additional investments that we made including the G&A, as well as increased subcontracts to the expenses amounting to 140 basis points. So, the net decline was 100. As we announced at the beginning of the year, while we continued to make gradual investment in digital, at the same time we also continued to optimize. One of the elements that I would like to highlight here, if you have noticed, is the per capita revenue improvement that has happened on three or four counts. One of course our gross margins for the digital business is higher than the core IT services and as the percentage share of digital increases that gives us some benefit on the gross margin as well as the operating margin. Second is some of the service lines which are more amenable to automation like testing, maintenance and infrastructure. We are able to intensify some of those productivity improvements and of course the utilization itself. So a combination of these factors had been drivers. As I was saying earlier about the utilization, we believe that the runway is limited from here but on other levers that I talked about we continue to focus on them.
Moderator
Thank you. The next question is from the line of Rod Bourgeois from DeepDive Equity Research. Please go ahead.
Rod Bourgeois
So your constant currency revenue growth guidance conveys that you expect some upcoming growth acceleration, I wanted to ask if you can elaborate on the sources of that growth acceleration and if you can specifically share your thoughts on how much of the acceleration outlook is coming from improved trends in the market versus improvement in your competitive performance outlook?
Salil Parekh
In terms of what we see in the demand environment looking ahead we have had an especially strong quarter in retail and the demand environment in that segment remains positive for us. We also saw a good traction in energy, utilities, our services business, manufacturing, insurance. As Pravin mentioned there was demand coming back in the US geography and in Europe we still see good demand and in our Australian market as well.
The question on where we see the distinction between our own and the market view, we are starting to see a strong traction on digital, approved with some of the investments we are starting to make on go-to-market and digital footprint give us some level of confidence and this will be one of the areas where we will see continued growth. Also our core services, which is powered by artificial intelligence, which is giving tremendous productivity improvement to our clients and to us see a good traction in the market and we believe we are competitive in that space in the market. Between those combinations of things, we see the demand environment is quite solid at this stage.
Rod Bourgeois
If you break the demand environment into consulting deals versus outsourcing deals or project based deals versus long-term contract deals, where do you see the most incremental improvement over the last few months, is it on the consulting in projects side or is it on the outsourcing and long-term contract side?
Salil Parekh
One of the things we have seen recently is what we announced in Q1 with the large deals at over a billion dollars. If you look at our last six or seven quarters, you will see an upward trend. We feel confident that the large multiyear deals are something that we are starting to play better. We also see more project activity which is related to specific areas, for example we see some of that in our digital banking space, on our retail segments and some of that in our manufacturing areas. So at this stage there is no one which is more or less, we see a stable traction across both the spaces.
Rod Bourgeois
One final question, so you have now been in place for a few months and I wonder if you could give us your view on what is the biggest bright spot that you found in the organization that you view is a real bright spot that you can build on and as you probably know the employees in the positioning of the company better and then what is the biggest challenge you see going forward that you want to work on.
Salil Parekh
In terms of what I have seen as strength and in meeting with over 70 clients over the past few months, the thing that has really resonated the most is the depth we have in our delivery and the strength of that across both the newer digital areas and our core services with the AI infused in it. So delivery really is the super strength within the company and based on that and based on those relationships of trust, we can build a good future for the company with these clients and new clients. In terms of challenges we have some businesses where we need to do work. We have seen recently our consulting business turn a corner where we have stabilized the revenue QoQ, we still have to work on our margins there. We see for example a business in China which needs some work and focus. So we have a couple of these areas within the company that be need attention and we put in some plans in place to work on those businesses and hopefully bring them to a positive situation in the coming quarters.
Moderator
Thank you. The next question is from the line of Ankur Rudra from CLSA. Please go ahead.
Ankur Rudra
Good evening gentlemen. Your 1Q performance in banking as you said was not very strong, but it does seem to be at odds with the forward-looking commentary. Could you perhaps elaborate how long the pressures from insourcing that you have seen in a few clients will continue to pressure this versus the growth you see in your deal wins, so when do we see the balance turning more positive?
Mohit Joshi
Ankur, as Pravin mentioned we saw the in sourcing challenges last quarter but we see the re-balance coming back, which is why moving forward, Q2 and beyond, we think we are optimistic about the status of the portfolio; which you also see in the large deal wins and in the two additions to our $100 mn client portfolio. Our Insurance business has been strong over the past few quarters and few years and both on the services side and on the platform side the business continues to do well. The Finacle business as Salil alluded to, is being rated as a top performer by Gartner and with the pivot to digital we are seeing a lot of opportunities. About a week ago you would have seen an announcement where we have been selected as the global cash management platform partner by Santander in the UK. So hopefully this gives you more of a colour. In any business which is as large as ours and with a significant degree of client concentration, you always see a set of headwinds either it is insourcing or budget cards especially because of client concentration and you see some tailwinds like the pivot to digital, like the full use of our capabilities on the digital pentagon. So it is always a balance but we are optimistic about the flow and the potential for the balance of the year.
Ankur Rudra
Thanks quickly on the retail as well. Could you elaborate what was the performance of the retail business on a pro-forma basis, I understand there is probably some contribution from WongDoody maybe some headwinds from Skava, so adjusted for those two events how is the business and how has the perception of demand evolved?
Pravin Rao
Ankur, in the CRM space we had perhaps one of the best growth in recent quarters on a constant currency basis close to 6.4%, mostly on the back of large deal wins in the last couple of quarters as well as growth in some of the existing accounts. Within that segment from a consumer technology company’s perspective we continue to see a large demand whereas when you look at it from a CPG or a logistics perspective there remains a challenge and there is a lot of focus on direct to consumer. Even in the core retail side there continues to be continued disruption from the likes of Amazon, Facebook and so on. So we are seeing a lot of increased spent to counter the disruption that they are seeing and that has translated into the kind of growth that we are seeing in this quarter. Having said that, perhaps we are seeing some green shoots but it may be a little bit early to say that this momentum will continue for the rest of the year. We remain cautiously optimistic in this space.
Ankur Rudra
Just a quick question on the margins, Ranga you mentioned that you got a 100 basis point gain from the currency net of cross, may be this was somewhat unexpected. Why are you not changing your margin guidance given where we are on the spot?
M.D. Ranganath
Thanks for that question. At the beginning in the year when we were at 22% to 24% we had said we would also be making certain gradual investments in our digital areas, repurposing sales and US localization, etc.. So we expect gradual uptick in those investments in the balance quarters and we are comfortable with 22% to 24%.
Ankur Rudra
So are you saying that any margin tailwind that comes through which was unexpected would also be invested so your investments may accelerate or are you saying you will see this as it goes through the year?
M.D Ranganath
As I said earlier as well, we clearly know what the investments are that we are planning for in these areas. So any tailwinds for the margins does not necessarily mean that we are going to invest that extra benefit into these investments. We have clearly kind of concretized those investment plans.
Moderator
Thank you. The next question is from the line of Yogesh Agarwal from HSBC. Please go ahead.
Yogesh Agarwal
Just have a couple of questions. Firstly, the attrition in standalone business is now highest in the last 15 to 16 quarters and I get the seasonality part but it still is very high considering the industry growing at 6%, 7%, is this something which bothers you or is it okay in your scheme of things?
Pravin Rao
Yogesh, as you rightly said out of the high attrition is due to seasonality. Having said that it is higher than what we have seen in the past. In the last few quarters we have done multiple things from employee engagement perspectives. This time we had a compensation increase for 85% of the workforce on time starting April, we have had 100% of variable pay in the last couple of quarters and so on. There is lot of focus on reskilling and training. Based on our analysis we find that the problem area in this case is people with two to four years’ of experience. So, we are now looking at maybe two or three interventions to address and bring the attrition level down. We do expect the attrition to come down in the subsequent quarters.
Yogesh Agarwal
Good and then just a follow-up, Ranga may be for you. How should we look at the balance of onsite cost reduction and onsite investments because you have been talking about reduction in onsite cost and I think it is 12 quarters low which you mentioned but the sub-contract cost is all time high. So are you saying all the investments are with locals and the subcontractor, so how should we look at the balance, are they offsetting each other or one is higher than the other. Can you just help a little bit there?
M.D. Ranganath
Thanks for that question. Clearly this quarter if you look at the onsite employee cost as a percentage of revenue this got tagged below 38%. As you rightly said the subcontractor cost has increased to 6.8% of revenue. When you look at the onsite supply chain, especially given some of the short-term visa kind of challenges, we need to really ensure that the supply chain for some of the projects is uninterrupted. That is one aspect but at the same time what we have also done, as I was mentioning earlier in my script, we are looking at the fixed price projects onsite and doing a combination of building a pyramid. The 1000 fresh graduates that we hired have been deployed in these fixed price projects and to some extent even in T&M projects, and they are at a very healthy utilization level. So our ability to build a pyramid onsite is slowly increasing, that is another factor to keep in mind. Second some of the productivity improvements on the onsite fixed price projects without dropping the revenue – all the productivity improvements could kick into us. So the way we are saying is that we do not see the onsite local hiring to significantly change the cost structure as a percentage of revenue. In digital and in a couple of other areas while the localization level could be higher and they are also coming at slightly higher price points, the gross margins for our digital revenue is also higher. Which essentially means that as a percentage of revenue the employee cost could still be at the desired level. So we are looking at a combination of these levers.
Moderator
Thank you. The next question is from the line of Edward Caso from Wells Fargo. Please go ahead.
Edward Caso
Good evening. My question is around fixed price contracting in automation. How much success have you had and convincing your clients to move to a more fixed price or fixed output based pricing so you can then deploy your automation. Where are we in that spectrum and how much more opportunity is there?
M.D. Ranganath
That is a good question. If you look at the last eight or nine quarters, the percentage of revenue from fixed price projects has moved from early to mid 40s to now close to mid 50s. One of the things that have happened is, even from the customer standpoint of view they want the certainty on their cost. For us it also offers opportunity to enhance productivity in those fixed price projects especially onsite and given the revenue is fixed we have an opportunity to keep those productivity improvements. Now when you slice the fixed price project there is onset component, there is offshore component and at this point in time especially over the last three or four quarters our focus has been how to enhance productivity in the onsite fixed price projects, where as you know, the per employee cost is significantly higher than India. So for the same reduction of a project manager or a software engineer in onsite gives us a nonlinear benefit on the margin as compared to the offshore. So that is where our focus has been and the second one is really on the pyramid aspect that I talked about. Barely a few quarters ago the propensity of our clients to accept freshers onsite was quite limited. Now, especially in some of the new niche technologies where they are able to train the fresh hires from colleges which we have hired, about 1000, and they are able to get deployed in these projects and the propensity to accept them has also significantly increased. So a combination of productivity as well as the pyramid building onsite is one approach that we are taking.
Edward Caso
My other question is going back to foreign exchange impacts here. I assume you anticipate a weakening rupee in your guidance, what you thought it would do, did it happen sooner in the year than you thought it would? I am trying to understand that if the rupee had not done what it did this quarter would you still have made the investments that you made?
M.D. Ranganath
As you know we gave a 22% to 24% operating margin guidance at the beginning of the year that took into account the strategic investment that we needed to make. We have pretty much crystallized the investments we need to make in the areas of sales revitalization, localization of talent in US and digital investments and how do we go about investing there. Now in this particular quarter, the tailwind especially on account of currency, rupee dollar, I have 100 basis points. At the same time we also had improvements in operational efficiency that I talked about – 40 basis points came from onsite mix and utilization and slightly higher component of digital in our share, which is also with higher gross margin, gave us some benefits. So to answer your question, I think our plans are pretty much concretized where we want to invest and there will be gradual investments and they have a gradual plan for that. At the same time based on the currency rates we are pretty comfortable with 22% to 24%.
Moderator
Thank you. The next question is from the line of Ashish Chopra from Motilal Oswal Securities. Please go ahead.
Ashish Chopra
Thanks for the opportunity. I just wanted clarification on the guidance and had a question on the margins. Firstly, since WongDoody has now been integrated as on May 22, 2018 would it have a significant impact on the CC revenue growth guidance?
M.D. Ranganath
On the revenue guidance of 6% to 8% we are comfortable with that band and no material change on that.
Ashish Chopra
Okay, last quarter you had clarified that it was not including because the acquisition was not complete then but would this now be including was actually just the clarification?
M.D. Ranganath
Yes.
Ashish Chopra
Secondly Ranga on the margins, so what we have seen is for the past five years, the first quarter is usually the lowest quarter as far as the margins go and then they gradually progress and that is understandable given the wage hikes, etc. But is there anything as far as your budgeting goes, that makes you believe that it would play out differently this time around, but for the vagaries of currencies, etc., because like you mentioned that you have calibrated the investments pretty well and you are sticking to that plan. So any reason why we should expect it to play out differently than a normal year?
M.D. Ranganath
Your assessment of the past is correct saying that initially we start with the lower Q1 and it increases. This year we do not want to give any such trajectory. We have certain investment plans that we have in mind and which we have concertized and we have taken into account all those factors while we have guided to 22% to 24%. At the same time as I responded to earlier questions any additional tailwind if it comes either through currency etc., we are not going to further enhance the investments. We know what investments we need to make.
Moderator
Thank you. The next question is from the line of Divya Nagarajan from UBS Group. Please go ahead.
Divya Nagarajan
Thanks for taking my question. On the banking side you had earlier talked about how banking would see some improvement on YoY basis in fiscal 2019 versus 2018. Given the start that we have had in Q1, do you still expect banking to pick up on YoY basis and secondly if not, then what really picks up the slack as far as the guidance is concerned?
Mohit Joshi
We will decompose the banking piece for you. So the first piece is around Finacle and in Finacle, while there isn’t a gigantic core banking happening, there is a lot of interest in the digital components of Finacle. There is a lot of interest in the blockchain-based components and we feel that that business has a good trajectory for the remainder of the year.
On the services side, there has been an uptick in our US business. And finally on the Europe side this year we had a weakness in one of our clients because of project delays and cancellations. I expect growth to come back to some degree in Q2 but after that we see a strong trajectory for that business. The insurance business has been a strong performer for us both on the services side and increasingly on the platform side with the chemist platform that we have. If you look at the services business, again we had spoken in Q4 about insourcing for one of our large clients but we believe that that rebalancing is pretty much complete and the business has grown faster than the overall portfolio. For the Europe business as Pravin and Salil mentioned, we had a muted performance in this quarter and we see some growth coming back in Q2 but a strong performance for the remainder of the year. The rest of the world business has remained strong and so hopefully this gives you more colour to the business. As I had mentioned in my previous answer to Ankur, the fact is that this business has a very high degree of client concentration just like with our peers. So when you have this client concentration and certain headwinds like sudden budget cuts or a degree of insourcing and you have these tailwinds like the greater move towards digital or a very strong strength in running significant transformational programs like a lending transformation or a trade transformation it does make for a complex business to forecast. Because we have been very successful in this business for the past many years, we had a very strong record over the past 16 to 20 quarters. On balance, we remain optimistic about our potential in this business over the remainder of the year.
Divya Nagarajan
Fair enough, thanks and on the last deals I noticed that your TCV has gone up, could you give us a colour of the renewable versus new components in that mix this quarter? In the past you have given a sense of what percentage of that is 100% new deals versus renewals, if you could help me understand that?
Salil Parekh
We have got for this year over 1.1 bn in large deals of which 47% has come from net new and as mentioned earlier 40% has come from our financial services sector.
Divya Nagarajan
Thank you. I will come back for follow-up. Thanks.
Moderator
Thank you. The next question is from the line of Moshe Katri from Wedbush Securities. Please go ahead.
Moshe Katri
Thanks, congrats on a very strong TCV. Looking at the 40% that you have been talking about in terms of financial services, can we get some colour on what is the mix between North America versus the other part of the business and then are we calling a bottom to the weakness in financial services given the TCV and given the ongoing ramp or the conversion of the existing backlog and bookings into revenues?
Mohit Joshi
Both the large deals that we spoke about are in North America. As far as calling a bottom is concerned, as we have stated in our previous commentary we remain optimistic about our potential in this business over the remainder of the year. It is a complex business, it has its own headwinds and tailwinds but we have had a very strong track record. We are seeing a huge amount of uptick of our digital suite of businesses and we are, on balance, optimistic about the potential of the business for the remainder of the year.
Moshe Katri
Is there are anything in terms of how you quote the quarter on a monthly basis looking at April, May and June in terms of the pickup in the business, have you seen kind of a steady pickup, have you seen that kind of catching up towards the end of the quarter may be some colour on that?
Salil Parekh
Are you talking specifically to Financial Services or across the company?
Moshe Katri
Financial Services and across the company?
Salil Parekh
Overall, we do not see any monthly variation in a quarter if that is the question if I have understood it well. Overall the volume pickup for us in Q1 was quite strong and overall the QoQ growth for the company remains in constant currency at 2.3%. With the large deal wins and some of the traction we are seeing in large accounts both in Financial Services and across the company, we remain positive with respect to what we see in the demand environment. We do not see a monthly distinction in that, at least not in what we have seen so far.
Moshe Katri
Thanks. Good execution.
Moderator
Thank you. The next question is form the line of Keith Bachman from Bank of Montreal. Please go ahead.
Keith Bachman
I want to ask two longer-term questions on margins and I will ask them quicker since they are related. The first is on your onsite-offshore mix, with all the Connecticut, Indiana and Australia, do you anticipate that the mix of delivery will change, I think you have been at roughly 70:30, will that change over the next few years? I understand that you are going to have a pyramid scheme onshore but wouldn’t the cost of onshore labor or the profitability of the onshore labor still be less than what you can get offshore? I am just trying to understand the onshore and offshore mix over the next couple of years and what the margin implications would be?
M.D. Ranganath
Coming to the onsite mix if you look at the last seven to eight quarters, it has come down from the lower 30 to 28 levels. We do not see a significant change from the overall 30:70 kind of a structure that we have had. If the question is because of the digital, which tends to have higher onsite as well as the higher localization, would it change? Our current assessment is that at least in the near term, we do not see a significant change in that. Point number two, on localization, what we are doing is really the composition of the work force onshore is changing. What I really mean by that is the percentage of the client dependent folks or the local hires would keep rising. That is one part. The second part is on the pyramid, it includes the freshers that we hired from universities or other local universities. There we have found that for the concomitant H1 hires with a similar experience, those hires are clearly coming at an attractive cost equation. So we also make them undergo three months of training onsite. We have just announced the Indiana Training Centre, I think the first batch 1000 people have already undergone training. Their utilization level is high and the propensity of the clients to kind of deploy them in the projects are also significantly higher than what we saw, may be a year to two ago.
Coming back to your question there is no significant change on account of the business mix in the onsite offshore ratio. Second, building the pyramid onsite is a gradual process that we will continue to focus on. And third, while some part of the digital, the initial phases will have higher larger onsite component, what we have seen is that, as the scale increases, our flexibility and ability to offshore some of that has also happened. For example, salesforce.com related implementation, barely few quarters ago we used to have a very high onsite component and as they built up scale and as we got a lot of folks trained offshore, the offshore component has been increasing. I think it is all about scale as well as our ability to train. So a combination of these factors, I would say that in the near to medium term, we do not see significant change in the onsite offshore mix structure.
Keith Bachman
Fair enough. Thank you for that answer. My follow-up question is related, this year you anticipate making incremental investments which is why you are guiding margins down for the year, no change from the original guidance. But how do investors understand that this year is not a trend rather than an anomaly. In other words, what gives you the confidence that in subsequent years because the business mix is changing you will not have to make incremental investments thereby pressure the margins, why is this year one time and that is it from me? Thank you.
M.D. Ranganath
As we outlined in April, there are certain areas where we see an opportunity to invest, to leverage on growth. So I think that is what we have made. We have had a detailed plan and have concretized where we want to invest and how much we have to invest. Of course on an ongoing basis, even in our core IT services, we make a lot of investments whether in training people and attracting certain specific niche talent. That we continue to make, that is the normal course of enhancing our capabilities from time to time. That happens. What we outlined this year was essentially revitalizing sales, we had to focus on large deals and certain new geographies and things like that, as well as certain digital competency investments. While there will be an ongoing investment as a normal course of business, I think what we outlined this year is something that we want to do for over the next 12 months.
Moderator
Thank you. The next question is from the line of Viju George from JP Morgan. Please go ahead.
Viju George
Thank you for taking my question. I had a couple of questions on wage hikes. I think you indicated that the wage hike impact is about 100-basis points? Isn’t that a little lower than what the normal impact is?
M.D. Ranganath
I think this year also we gave 6% to 8% in India and 1% to 2% onsite and there is no difference in terms of the impact. As you know for 85% of the employees, we have rolled effective April 1, 2018 and for the balance 15% we will be rolling out from July 2018. So to that extent there will be some catch up in Q2 but not very significant.
Viju George
So are you saying it is pretty much on par with prior years?
M.D. Ranganath
Yes for 85% we have already rolled out effective April 1 and for 15% effective July 1. To that extent, there will be some catch up, but not significant.
Viju George
The other question I had was on the investments you mentioned Ranga. It is a 140 basis points investments you have put it there, that is almost $40 mn? I think increase in subcon is also part of that, which is $20 mn QoQ. That still leaves a fairly large gap of $20 mn of investments to do in a single quarter and I do not think it has taken the form of sales and marketing because your sales and marketing people cost are pretty much flat, even mildly down QoQ, so where is $20 mn investments gone to?
M.D. Ranganath
I think the trajectory of investment as we have said is gradual. Some of these investments are also in terms of hiring. If you look, some of the investments that you talked about are kind of split between three components; one is the US talent model that we had to invest, that will be reflected in the onsite employee cost, that will be part of that. Then we also had certain localization investments, which will be part of the G&A as well. Then also in certain specific digital skills, we also had to invest in sub-con to some extent. Say a combination of all the three is what we are talking about.
Viju George
But Ranga just to take this forward if I may, where does that get reflected because F&M people cost do not seem to have moved QoQ, G&A people cost does not have seemed to have moved QoQ? This is largely single cost of revenues as far as localization cost is concerned?
M.D. Ranganath
Viju, one way to look at it is look at the average quarterly cost over FY’18, that will give you a trend line. Just on a sequential basis it may not totally indicate to you because there is an effect of both currency as well as the other elements. To answer your question, this is split in these three components and if you get into a quarterly average for the last year that will give an indication between G&A, sales and onsite employee cost.
Viju George
One last question was on gross margins. Your gross margins have declined 60 basis points YoY. If I look at on a YoY basis you have had several tailwinds in your favor, you have had utilization that moved up 170-basis points, you have had exchange rates depreciated over 4%, digital usage has gained traction and typically margins in digital are still better, you have been bringing down the component of onsite, yet your gross margins have declined despite all these tailwinds. So what does mean, does this is mean that the legacy business margins are coming down more sharply and is it something that we have to be concerned about?
M.D. Ranganath
That is a good question. I think one point is we may recollect the Q1 of last year. We did not have comps review and it was rolled out effective July. So this quarter we have rolled out effective April 1, while it was in July in the last year and was not in the previous Q1, so this is the combination of the fact.
Viju George
Thanks and last question on attrition, you did talk about interventions there. Is attrition at middle to senior level a matter of concern now because you have lost two business heads very recently, are you seeing attrition at one or two levels below them as well and is that concerning and why this is happening?
Pravin Rao
As explained earlier the attrition impact has been primarily with people with two to four years’ experience. We have not seen different trends at senior level; the attrition is much lower and under control. We did have a couple of exits in the recent past and as we have always maintained, it is sad to see people leave especially who have been with us for a fair amount of time and have contributed. But when people do get opportunities and they want to pursue different things, we have to just wish them well. We have a strong leadership bench and in one sense this gives opportunity for people at the next level to step up and we have already identified replacement for the two people who left and there is no impact.
Viju George
Attrition of high performers, has that also moved up because in the past that was the metric you were concerned with rather than overall attrition rate, has that also moved up to cause concern?
Pravin Rao
This quarter we have seen an increase in high performance attrition as well. In the past you are absolutely right, high performer attrition was on the lower side. This quarter has been an exception. So as I said earlier, we have already identified two interventions to address it and we are confident that we should be able to bring it back under control.
Viju George
Thank you Pravin, and thank you Ranga and all the best for FY’19.
Moderator
Thank you. The next question is from the line of David Grossman from Stifel. Please go ahead.
David Grossman
I am wondering if I could go back to the comments on the revenue productivity per employee, it looks like the productivity is still down yet utilization is up, does that tell us anything about pricing in itself, can you kind of help us or walk us through that?
M.D. Ranganath
If you look at the per capita revenue, that is total revenue by total employees, that has gone up during the quarter, YoY it has gone by 5.7% and has gone up sequentially as well. If you are referring to price realization number, I would not draw too much on a sequential basis, I think YoY is a much more indicative number, there it is pretty much flat.
David Grossman
So you are saying like-for-like pricing on a YoY basis has been relatively flat?
M.D. Ranganath
The price realization, that is the revenue per billed employee in a broad term. So the price realization has been flat, which is some kind of a surrogate indicator of pricing. However, if you look at the revenue per employee which essentially takes into account the productivity improvements, it includes both billed as well as unbilled on the total revenue. That has been going up, which is a reflection of two things, one the rate of growth of revenues being higher than the rate of growth of headcount in certain services essentially infrastructure management, testing and maintenance services which are more amenable for automation, that is where it has happened. It is also to some extent influenced by the utilisation as well. As the percentage of digital revenue grows, as digital is coming at a higher gross margin currently, that will also have a play on that.
David Grossman
A broader question just about how currency floats through over time. One of your competitors said that you really shouldn’t look at the impact short-term on margins from currency fluctuations because it will effect spending levels – could be wage hikes or other spending. So that is one question, is that really how you view it as well? And then secondly I have to assume that eventually currency fluctuations accrue back to your clients. I am just wondering if you walk us through that dynamic?
M.D. Ranganath
Well, the currency is an important element especially the US Dollar and India. Last year for example, it was adverse in the sense that the rupee had appreciated. It does have an impact on the margin primarily because the offshore costs are translated back differently. However, when we plan we are not linking our investment plans or some of the other cost elements that we need to do, on the expectation of a currency movement because it is primarily driven by the business needs. Of course, this quarter a tailwind on the currency helped us to some extent but that is not always the expectation; or that every quarter we expect certain currency and based on that we budget. I think primarily that is why the band that we give for margins as 22% to 24% and in the first quarter it was 23.7%. We have planned certain investments as we had outlined at the beginning of the year and they are gradual investments. At the same time as I was mentioning earlier there are operational efficiencies and cost levers that we have, both productivity based as well as the other factors like onsite pyramid and so on, we will continue to leverage them. As we make those investments concomitantly we will also be optimizing the levers. So we are comfortable with the current band.
David Grossman
Just one last question on the subcontract, as you mentioned it did tick up as a percentage of revenue and obviously you have had two consistent quarters of relatively strong booking. So is the increase in subcontractors just the function of better bookings and ramping capacities or is there something more behind just the mix of business that is mandating that you get different skill sets that you do not currently have in-house?
M.D. Ranganath
As I said, there are three factors in play and subcontractor expense. One, certain digital projects that we undertake, in the initial stages has a higher onsite component and sometimes the current visa environment provides us challenges to start those projects on time. While to some extent we are mitigating through local hiring, we still have some play to go there. So that is one of the reasons for the increased demand for subcontractors. Second, and the most important point is also that we are running at very high utilization levels. That also plays into that. So one point to note is that when we look at our total employee cost we look at both aspects, the onsite employee cost as a percentage revenue as well as the subcontractor’s expenses as a percentage of revenue. The whole idea is, when we engage the subcontractor we need to ensure that the corresponding billing rates reflecting their prices is also there. Typically, as the incremental ones are getting a higher price or a higher billing rate digital projects, that percentage is fine with us.
Moderator
Thank you. The next question is from the line of Srinivas Rao from Deutsche Bank. Please go ahead.
Srinivas Rao
I have two questions. First your share of digital continues to increase but this quarter on a quarterly basis we see fixed price in a project share coming down. If you could give some colour as to the digital projects, are you getting this on a time and material basis or they generally skew towards fixed price, that color would be helpful? Second, within your digital stack, is there any feedback on the type of projects that you are getting whether the share of Cloud migration is more or as you said the share of Experience projects, any such feedback would be helpful? Third, taking the point that you answered in the previous question, as you said the subcontractor expenses also need to be appropriately billed, which means they have a positive impact on revenue but they are not part of the employee stack, at least on a seasonal basis leading to a higher revenue per employee number which we get to see? These are my three questions. Thank you very much.
M.D. Ranganath
Let me answer the third question that is not the case. It is not only because subcontractors are getting billed at higher rate that the per capita revenue has gone up. No, even at a broader pool as well, because of higher productivity and utilization, automation and higher digital component. Now on the other part I request our President, Ravi Kumar to address on the digital piece.
Ravi Kumar
Most of our digital revenue is primarily on all the five pillars but the biggest chunk of it is actually coming from Cloud transformation projects, which primarily come in a fair bit of fixed price. We do see three pointed projects coming up in cyber security, experience tower, which we called out earlier and then there is a big opportunity around modernization, which again comes in big chunk. Modernization in different aspects of digital – open source, migrating workloads to the cloud is also a great opportunity around Agile, DevOps and legacy modernization. So that is where we are seeing the trend of where the digital revenues are evolving. A lot of our existing customers are actually taking small projects and then they are scaling it up while large deals come with opening into digital where we could look at existing landscapes of our clients and transition those landscapes into the digital world.
Moderator
Thank you. The next question is from the line of Sandip Agarwal from Edelweiss. Please go ahead.
Sandip Agarwal
Thanks for giving me the opportunity. My question is regarding the guidance 6% to 8%. I understand it is just the first quarter but this quarter we have come at 8%. Now the thing that I am trying to understand that this 6% to 8% how do you see it? The way you are seeing the demand momentum, the order book growth and relatively the positive commentary versus last quarter, so is the ask going to increase and when you are guiding are you building in that, that is precisely the question?
Salil Parekh
In terms of our business environment we shared over the last few questions and in our press release, what we see in terms of how our clients are reacting to first the Agile Digital capabilities that we have and second the AI and automation infused core services business that we have. Those things show us that we have good traction in the market. The overall demand environment is stable. On the guidance side, we started the year and we built a plan and we shared the constant currency guidance at that time and that is something that we have done. We are now focused fully on our clients and the execution of the business and we are not looking in that sense day-to-day on what is going on with the guidance. The demand environment discussion comes really from all the interactions that our leadership, our sales people and many of our delivery leaders have with our clients and what we see in the markets generally.
Moderator
Thank you. The next question is from the line of Ravi Menon from Elara Securities. Please go ahead.
Ravi Menon
Thank you for the opportunity. Could you give me some colour on the large deal wins – we have seen that your TCV from large deals have improved over the last two quarters. What has really led to this, is it a broader pipeline and if that is the case where it is coming from or if it is better win rate, what is helping you now?
Pravin Rao
Doing multiple things on the large deal side and that was reflected in the increased trajectory over the last few quarters. Right from the deal origination perspective itself we are increasing our engagements with deal advisors and industry analysts who play sometimes influential role in sourcing the large deal. Then we had put together a large deal team dedicated to bring the best solution and tapping the best talent within Infosys. So that is the other thing that we have done and we have also created some incentive structure internally for incentivizing people to go after and convert large deals. It is a combination of things, but primarily the increased focus on specific interventions has resulted in a higher win rate in this large deal space.
Ravi Menon
Thank you for that. I know that you have stopped giving metrics that show service line composition. Does this prelude to a reorganization of your delivery site and if you could also explain how have you organized your services, the people aligned to services versus the verticals?
Pravin Rao
As part of changes in IFRS we tried to reflect the reporting in line with how we are internally organized, there is no real reorganization or anything in that sense.
Ravi Menon
Last followup could you give us the WongDoody contribution and the headwinds from Skava this quarter?
Pravin Rao
It is about 2 mn.
Moderator
Thank you. The next question is from the line of Bryan Bergin from Cowen & Company. Please go ahead.
Bryan Bergin
Thank you. A clarification on the North American improved dialogue, is that all due to an improved pipeline in financial services or are you seeing a broader increase in client budgets across other verticals as well?
Salil Parekh
In North America we have seen strength in what we have done in our retail sector. We see continued strength in energy, utility, resources and services business. We also see a good traction in financial services which is a change from the previous quarters. The overall environment for us remains stable to good in the US geography.
Bryan Bergin
You mentioned earlier how much of your large deals was net new work versus renewals can you do that for the Financial Services piece?
Mohit Joshi
Yes, it is about the same. About 43% of the financial services deals were net new.
Moderator
Thank you. The next question is from the line of Apurva Prasad from HDFC Securities. Please go ahead.
Apurva Prasad
Thanks for taking my question. If you can just talk about the large deal wins margin profile, how different would that be versus the large deals earlier?
Salil Parekh
What we notice in the large deal wins especially the ones we have since this Q1, the competitive margin profile at the start is always very strong. However, there is a lot of automation and AI that we build in and a lot of productivity improvement that comes as we get into these deals over a period of time. So from a start perspective the competitive dynamic is always strong and over a period of time we start to see productivity, AI and automation into these deals.
Moderator
Thank you. Ladies and gentlemen this was the last question for today. I now hand the conference over to Mr. Sandeep Mahindroo for his closing comments. Over to you Sir!
Sandeep Mahindroo
Thanks everyone for joining us on this call. We look forward to talking to you again. I would like Salil to say a few words before closing the call.
Salil Parekh
Thank you everyone for joining us on this call. Just to confirm what we have said earlier. Overall, we started the fiscal year with a solid quarter. We see good momentum within our Agile Digital business. We see our core services, Automation and AI becoming more and more relevant with our clients. We see a strong margin performance in Q1 and we see a demand environment which starts to give us a good level of view into what our clients are spending going ahead. And this marks the start of the execution of our strategy and of our three-year transformation program. Thank you everyone and talk to you on the next quarterly call.
Moderator
Thank you. Ladies and gentlemen, on behalf of Infosys that concludes this conference call. Thank you for joining us and you may now disconnect your lines.
Exhibit 99.7
Form of Release to Stock Exchanges
Infosys Limited Regd. office: Electronics City, Hosur Road, Bengaluru – 560 100, India |
CIN : L85110KA1981PLC013115 Website: www.infosys.com email: [email protected] T: 91 80 2852 0261, F: 91 80 2852 0362 |
Statement of Consolidated Audited Results of Infosys Limited and its subsidiaries for the quarter ended June 30, 2018 prepared in compliance with the Indian Accounting Standards (Ind-AS)
(in crore, except per equity share data)
Particulars | Quarter ended June 30, |
Quarter ended March 31, |
Quarter ended June 30, |
Year ended March 31, |
2018 | 2018 | 2017 | 2018 | |
Audited | Audited | Audited | Audited | |
Revenue from operations | 19,128 | 18,083 | 17,078 | 70,522 |
Other income, net (Refer note c) | 726 | 652 | 814 | 3,311 |
Total Income | 19,854 | 18,735 | 17,892 | 73,833 |
Expenses | ||||
Employee benefit expenses | 10,462 | 10,054 | 9,366 | 38,893 |
Cost of technical sub-contractors | 1,291 | 1,107 | 1,061 | 4,297 |
Travel expenses | 603 | 492 | 527 | 1,995 |
Cost of software packages and others | 545 | 466 | 440 | 1,870 |
Communication expenses | 122 | 113 | 125 | 489 |
Consultancy and professional charges | 305 | 282 | 246 | 1,043 |
Depreciation and amortisation expenses | 436 | 458 | 450 | 1,863 |
Other expenses | 827 | 639 | 752 | 2,924 |
Reduction in the fair value of Disposal Group held for sale ( Refer note a) | 270 | 118 | – | 118 |
Total expenses | 14,861 | 13,729 | 12,967 | 53,492 |
Profit before non-controlling interest / share in net profit / (loss) of associate | 4,993 | 5,006 | 4,925 | 20,341 |
Share in net profit/(loss) of associate, including impairment of associate (Refer Note d) | – | – | (71) | (71) |
Profit before tax | 4,993 | 5,006 | 4,854 | 20,270 |
Tax expense: (Refer Note b) | ||||
Current tax | 1,450 | 1,466 | 1,499 | 4,581 |
Deferred tax | (69) | (150) | (128) | (340) |
Profit for the period | 3,612 | 3,690 | 3,483 | 16,029 |
Other comprehensive income | ||||
Items that will not be reclassified subsequently to profit or loss | ||||
Remeasurement of the net defined benefit liability/asset, net | 1 | 34 | (3) | 55 |
Equity instruments through other comprehensive income, net | 4 | 9 | – | 7 |
Items that will be reclassified subsequently to profit or loss | ||||
Fair value changes on derivatives designated as cash flow hedge, net | 9 | 2 | (66) | (39) |
Exchange differences on translation of foreign operations | 87 | 200 | 107 | 321 |
Fair value changes on investments, net | (45) | (15) | 27 | (1) |
Total other comprehensive income/(loss), net of tax | 56 | 230 | 65 | 343 |
Total comprehensive income for the period | 3,668 | 3,920 | 3,548 | 16,372 |
Paid up share capital (par value 5/- each, fully paid) | 1,088 | 1,088 | 1,144 | 1,088 |
Other equity | 63,835 | 63,835 | 67,838 | 63,835 |
Earnings per equity share (par value 5/- each) (Refer note e) | ||||
Basic () (Refer note a and b) | 16.62 | 16.98 | 15.24 | 71.07 |
Diluted () | 16.60 | 16.97 | 15.23 | 71.00 |
Note
a) | In the quarter ended March 2018, on conclusion of a strategic review of the portfolio businesses, the Company had initiated identification and evaluation of potential buyers for its subsidiaries, Kallidus and Skava (together referred to as "Skava”) and Panaya (collectively referred to as the “Disposal Group”). The Company anticipates completion of the sale by March 2019. On reclassification, assets and liabilities in respect of the Disposal Group had been reclassified as “held for sale" and measured at the lower of carrying amount and fair value less cost to sell. Consequently, a reduction in the fair value of Disposal Group held for sale amounting to 118 crore in respect of Panaya had been recognized in the Consolidated Statement of Profit and Loss for the quarter and year ended March 31, 2018. |
During quarter ended June 30, 2018, on remeasurement, including consideration of progress in negotiations on offers from prospective buyers for Panaya, the Company has recorded a reduction in the fair value of Disposal Group held for sale amounting to 270 crore in respect of Panaya. Consequently, profit for quarter ended June 30, 2018 has decreased by 270 crore resulting in a decrease in Basic earnings per equity share by 1.24 ($0.02) for the quarter ended June 30, 2018. | |
As of June 30, 2018 assets amounting to 1,867 crore and liabilities amounting to 345 crore in respect of the Disposal Group have been classified as “held for sale". | |
b) |
In December 2017, on account of the conclusion of an Advance Pricing Agreement (“APA”) with the U.S. Internal Revenue Service (“IRS”), the Company had, in accordance with the APA, reversed income tax expense provision of $225 million (1,432 crore), which pertained to previous periods which are no longer required. Consequently, profit for the year ended March 31, 2018 had increased resulting in an increase in Basic Earnings Per equity share by 5.88 ($0.09) for the year ended March 31, 2018. |
c) | Other income includes 262 crore towards interest on income tax refund for the year ended March 31, 2018. |
d) | During the quarter ended June 30, 2017,the Company had written down the entire carrying value of the investment in its associate DWA Nova LLC amounting to 71 crore. |
e) | EPS is not annualized for the quarter ended June 30, 2018, quarter ended March 31, 2018 and quarter ended June 30, 2017. |
Notes:
1. | The audited interim consolidated financial statements for the quarter ended June 30, 2018 have been taken on record by the Board of Directors at its meeting held on July 13, 2018. The statutory auditors, Deloitte Haskins & Sells LLP have expressed an unqualified audit opinion. The information presented above is extracted from the audited interim consolidated financial statements. The interim consolidated financial statements are prepared in accordance with the Indian Accounting Standards (Ind-AS) as prescribed under Section 133 of the Companies Act, 2013 read with Rule 3 of the Companies (Indian Accounting Standards) Rules, 2015 and relevant amendment rules thereafter. | |
2. | Board changes | |
a) | The Board appointed Michael Gibbs as an Independent Director of the Company effective July 13, 2018 for a period of three years, based on the recommendation of the Nomination and Remuneration Committee of the Board. | |
b) | Ravi Venkatesan, Independent Director, has resigned from the company effective May 11, 2018. The Board placed on record its appreciation for the services rendered by him during his tenure. | |
3. | Bonus issue | |
The Board in its meeting held on July 13, 2018 has considered, approved and recommended a bonus issue of one equity share for every equity share held and a stock dividend of one American Depositary Share (ADS) for every ADS held, as on a record date to be determined. Consequently, the ratio of equity shares underlying the ADSs held by an American Depositary Receipt holder would remain unchanged. The Board approved and recommended the issue of bonus shares to celebrate the 25th year of the Company's public listing in India and to further increase the liquidity of its shares. The bonus issue of equity shares and ADSs will be subject to approval by the shareholders, and any other applicable statutory and regulatory approvals.
The bonus shares once allotted shall rank pari passu in all respects and carry the same rights as the existing equity shareholders and shall be entitled to participate in full, in any dividend and other corporate action, recommended and declared after the new equity shares are allotted. | ||
4. | Acquisition of WongDoody Holding Company Inc | |
On May 22, 2018, Infosys acquired 100% of the voting interests in WongDoody Holding Company Inc., (WongDoody) an US-based, full-service creative and consumer insights agency. The business acquisition was conducted by entering into a share purchase agreement for a total consideration of up to $75 million (approximately 514 crore at the acquisition date), which includes a cash consideration of $38 million (261 crore), contingent consideration of up to $28 million (approximately 192 crore at the acquisition date) and an additional consideration of up to $9 million (approximately 61 crore at the acquisition date), referred to as retention bonus, payable to the employees of WongDoody over the next three years, subject to their continuous employment with the Group. | ||
5. | Voluntary delisting of American Depositary Shares from Euronext Paris and London | |
In line with the announcement made on June 11, 2018, the Company has voluntarily delisted its American Depository Shares (“ADSs”) (ISIN US4567881085) from Euronext Paris and London on July 5, 2018 and its ADS were removed from Euroclear France on July 10, 2018. The primary reason for voluntary delisting from Euronext Paris and London was the low average daily trading volume of Infosys ADSs on these exchanges, which was not commensurate with the related administrative expenses. Infosys ADSs will continue to be listed on the NYSE under the symbol “INFY” and investors can continue to trade their ADSs on the New York Stock Exchange. | ||
6. | Adoption of Ind AS 115 - Revenue from contracts with customers | |
Effective April 1, 2018, the Company adopted Ind AS 115 “Revenue from Contracts with Customers” using the cumulative catch-up transition method which is applied to contracts that were not completed as of April 1, 2018. Accordingly, the comparatives have not been retrospectively adjusted. The effect on adoption of Ind AS 115 was insignificant on the financial statements. | ||
7. | Information on dividends for the quarter ended June 30, 2018 | |
The Board of Directors declared a final dividend of 20.50/- per equity share for the financial year ended March 31, 2018 and a special dividend of 10/- per equity share and the same were approved by the shareholders at the Annual General Meeting held on June 23, 2018 and was paid on June 26, 2018. |
(in )
Particulars | Quarter ended June 30, |
Quarter ended March 31, |
Quarter ended June 30, |
Year ended March 31, |
2018 | 2018 | 2017 | 2018 | |
Dividend per share (par value 5/- each) | ||||
Interim dividend | – | – | – | 13.00 |
Final dividend | – | 20.50 | – | 20.50 |
Special dividend | – | 10.00 | – | 10.00 |
8. Segment reporting (Consolidated - Audited)
(in crore)
Particulars | Quarter ended June 30, |
Quarter ended March 31, |
Quarter ended June 30, |
Year ended March 31, |
2018 | 2018 | 2017 | 2018 | |
Revenue by business segment | ||||
Financial Services (1) | 6,075 | 5,886 | 5,631 | 23,172 |
Retail (2) | 3,169 | 2,879 | 2,774 | 11,345 |
Communication (3) | 2,429 | 2,334 | 2,151 | 8,883 |
Energy, Utilities , Resources and Services | 2,374 | 2,172 | 1,932 | 8,297 |
Manufacturing | 1,837 | 1,735 | 1,588 | 6,671 |
Hi Tech | 1,422 | 1,335 | 1,250 | 5,131 |
Life Sciences (4) | 1,260 | 1,213 | 1,126 | 4,698 |
All other segments (5) | 562 | 529 | 626 | 2,325 |
Total | 19,128 | 18,083 | 17,078 | 70,522 |
Less: Inter-segment revenue | – | – | – | – |
Net revenue from operations | 19,128 | 18,083 | 17,078 | 70,522 |
Segment profit before tax, depreciation and non-controlling interests: | ||||
Financial Services (1) | 1,562 | 1,638 | 1,541 | 6,370 |
Retail (2) | 946 | 834 | 771 | 3,303 |
Communication (3) | 670 | 697 | 661 | 2,619 |
Energy, Utilities , Resources and Services | 624 | 635 | 549 | 2,411 |
Manufacturing | 411 | 342 | 267 | 1,274 |
Hi Tech | 388 | 392 | 335 | 1,446 |
Life Sciences (4) | 354 | 348 | 354 | 1,391 |
All other segments (5) | 19 | 42 | 84 | 199 |
Total | 4,974 | 4,928 | 4,562 | 19,013 |
Less: Other unallocable expenditure | 437 | 456 | 451 | 1,865 |
Add: Unallocable other income | 726 | 652 | 814 | 3,311 |
Less: Reduction in the fair value of Disposal Group held for sale | 270 | 118 | – | 118 |
Add: Share in net profit/(loss) of associate, including impairment of associate | – | – | (71) | (71) |
Profit before tax and non-controlling interests | 4,993 | 5,006 | 4,854 | 20,270 |
(1) Financial Services include enterprises in Financial Services and Insurance
(2) Retail includes enterprises in Retail, Consumer Packaged Goods and Logistics
(3) Communication includes enterprises in Communication, Telecom OEM and Media
(4) Life Sciences includes enterprises in Life sciences and Health care
(5) | All other segments include operating segments of businesses in India, Japan, China, Infosys Public Services & other enterprises in Public Services |
Notes on segment information
Business segments
During the quarter ended June 30, 2018, the Company internally reorganized some of its business segments to deepen customer relationships, improve focus of sales investments and increase management oversight, consequent to which enterprises in Insurance which was earlier considered under the Life Sciences, Healthcare and Insurance business segment are now considered under the Financial Services business segment and enterprises in Communication, Telecom OEM and Media which was earlier under Energy & Utilities, Communication and Services is now shown as a separate business segment. Consequent to the internal reorganization, there were changes in the reportable business segments based on “Management approach” as defined under Ind AS 108, Operating Segments. Allocated expenses of segments include expenses incurred for rendering services from the Company's offshore software development centres and on-site expenses, which are categorized in relation to the associated efforts of the segment. Segmental operating income has changed in line with the internal reorganization as well as changes in the allocation method. The previous period figures, extracted from the audited consolidated financial statements, have been presented after incorporating necessary reclassification adjustments pursuant to changes in the reportable segments.
Segmental capital employed
Assets and liabilities used in the Group's business are not identified to any of the reportable segments, as these are used interchangeably between segments. The Management believes that it is not practicable to provide segment disclosures relating to total assets and liabilities since a meaningful segregation of the available data is onerous.
9. Audited financial results of Infosys Limited (Standalone Information)
(in crore)
Particulars | Quarter ended June 30, |
Quarter ended March 31, |
Quarter ended June 30, |
Year ended March 31, |
2018 | 2018 | 2017 | 2018 | |
Revenue from operations | 17,056 | 15,984 | 14,971 | 61,941 |
Profit before tax (Refer note (i) below) | 4,782 | 4,390 | 4,716 | 19,908 |
Profit for the period (Refer note (i) below) | 3,503 | 3,157 | 3,415 | 16,155 |
Note: The audited results of Infosys Limited for the above mentioned periods are available on our website, www.infosys.com and on the Stock Exchange website www.nseindia.com and www.bseindia.com. The information above has been extracted from the audited interim condensed financial statements as stated.
i) In the quarter ended March 2018, on conclusion of a strategic review of the portfolio businesses, the company evaluated its portfolio of businesses and had planned for the sale of its investment in subsidiaries, Kallidus and Skava (together herein referred to as 'Skava') and Panaya. The Company anticipates completion of the sale by March, 2019. On reclassification, investments in these subsidiaries had been reclassified as 'Assets held for sale' and measured at the lower of carrying amount and fair value less cost to sell. Consequently, the Company had recognized a reduction in the fair value of investment amounting to 589 crore in the Statement of Profit and Loss during the quarter ended March 31, 2018, in respect of Panaya in the standalone books of Infosys Limited.
During the quarter ended June 30, 2018, on remeasurement, including consideration of progress in negotiations on offers from prospective buyers for Panaya, the Company has recorded a reduction in the fair value of investment of 265 crore in respect of Panaya. Consequently , profit for the quarter ended June 30, 2018 has decreased by 265 crore resulting in a decrease in Basic earnings per equity share by 1.21 for the quarter ended June 30, 2018 in the standalone books of Infosys Limited.
Bengaluru, India July 13, 2018 |
By order of the Board For Infosys Limited |
Salil Parekh Chief executive officer and Managing Director |
The Board has also taken on record the condensed consolidated results of Infosys Limited and its subsidiaries for the quarter ended June 30, 2018, prepared as per International Financial Reporting Standards (IFRS) and reported in US dollars. A summary of the financial statements is as follows:
(in US$ million, except per equity share data)
Particulars | Quarter ended June 30, 2018 |
Quarter ended March 31, 2018 |
Quarter ended June 30, 2017 |
Year ended March 31, 2018 |
Audited | Unaudited | Unaudited | Unaudited | |
Revenues | 2,831 | 2,805 | 2,651 | 10,939 |
Cost of sales | 1,819 | 1,793 | 1,692 | 7,001 |
Gross profit | 1,012 | 1,012 | 959 | 3,938 |
Operating expenses | 342 | 319 | 321 | 1,279 |
Operating profit | 670 | 693 | 638 | 2,659 |
Other income, net | 107 | 100 | 127 | 513 |
Reduction in the fair value of Disposal Group held for sale (Refer note a below) | (39) | (18) | – | (18) |
Share in net profit/(loss) of associate, including impairment | – | – | (11) | (11) |
Profit before income taxes | 738 | 775 | 754 | 3,143 |
Income tax expense | 204 | 204 | 213 | 657 |
Net profit | 534 | 571 | 541 | 2,486 |
Earnings per equity share * | ||||
Basic | 0.25 | 0.26 | 0.24 | 1.10 |
Diluted | 0.25 | 0.26 | 0.24 | 1.10 |
Total assets | 11,406 | 12,255 | 13,178 | 12,255 |
Cash and cash equivalents including current investments | 3,415 | 4,023 | 5,184 | 4,023 |
* EPS is not annualized for the quarter ended June 30, 2018, quarter ended March 31, 2018 and quarter ended June 30, 2017.
a) | In the quarter ended March 2018, on conclusion of a strategic review of the portfolio businesses, the Company had initiated identification and evaluation of potential buyers for its subsidiaries, Kallidus and Skava (together referred to as "Skava”) and Panaya (collectively referred to as the “Disposal Group”). The Company anticipates completion of the sale by March 2019. On reclassification, assets and liabilities in respect of the Disposal Group had been reclassified as “held for sale" and measured at the lower of carrying amount and fair value less cost to sell. Consequently, a reduction in the fair value of Disposal Group amounting to $18 million in respect of Panaya had been recognized in the Consolidated Profit and Loss for the quarter and year ended March 31, 2018. |
During the quarter ended June 30, 2018, on remeasurement, including consideration of progress in negotiations on offers from prospective buyers for Panaya, the Company has recorded a reduction in the fair value of Disposal Group held for sale amounting to $39 million in respect of Panaya. Consequently, profit for the quarter ended June 30, 2018 has decreased by $ 39 million, resulting in a decrease in Basic earnings per equity share by $0.02 for the quarter ended June 30, 2018.
As of June 30, 2018 assets amounting to $273 million and liabilities amounting to $50 million in respect of the disposal group have been classified as “held for sale".
Certain statements mentioned in this release concerning our future growth prospects are forward-looking statements regarding our future business expectations intended to qualify for the 'safe harbor' under the Private Securities Litigation Reform Act of 1995, which involve a number of risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. The risks and uncertainties relating to these statements include, but are not limited to, risks and uncertainties regarding fluctuations in earnings, fluctuations in foreign exchange rates, our ability to manage growth, intense competition in IT services including those factors which may affect our cost advantage, wage increases in India, our ability to attract and retain highly skilled professionals, time and cost overruns on fixed-price, fixed-time frame contracts, client concentration, restrictions on immigration, industry segment concentration, our ability to manage our international operations, reduced demand for technology in our key focus areas, disruptions in telecommunication networks or system failures, our ability to successfully complete and integrate potential acquisitions, liability for damages on our service contracts, the success of the companies in which Infosys has made strategic investments, withdrawal or expiration of governmental fiscal incentives, political instability and regional conflicts, legal restrictions on raising capital or acquiring companies outside India, and unauthorized use of our intellectual property and general economic conditions affecting our industry. Additional risks that could affect our future operating results are more fully described in our United States Securities and Exchange Commission filings including our Annual Report on Form 20-F for the fiscal year ended March 31, 2017. These filings are available at www.sec.gov. Infosys may, from time to time, make additional written and oral forward-looking statements, including statements contained in the company's filings with the Securities and Exchange Commission and our reports to shareholders. The company does not undertake to update any forward-looking statements that may be made from time to time by or on behalf of the company unless it is required by law.
Infosys Limited Regd. office: Electronics City, Hosur Road, Bengaluru – 560 100, India |
CIN : L85110KA1981PLC013115 Website: www.infosys.com email: [email protected] T: 91 80 2852 0261, F: 91 80 2852 0362 |
Statement of Audited Results of Infosys Limited for the quarter ended June 30, 2018 prepared in compliance with the Indian Accounting Standards (Ind-AS)
(in crore, except per equity share data)
Particulars | Quarter ended June 30, |
Quarter ended March 31, |
Quarter ended June 30, |
Year ended March 31, |
2018 | 2018 | 2017 | 2018 | |
Audited | Audited | Audited | Audited | |
Revenue from operations | 17,056 | 15,984 | 14,971 | 61,941 |
Other income, net (Refer note c and d) | 716 | 636 | 723 | 4,019 |
Total income | 17,772 | 16,620 | 15,694 | 65,960 |
Expenses | ||||
Employee benefit expenses | 8,826 | 8,418 | 7,752 | 32,472 |
Cost of technical sub-contractors | 1,666 | 1,434 | 1,334 | 5,494 |
Travel expenses | 467 | 369 | 391 | 1,479 |
Cost of software packages and others | 415 | 320 | 314 | 1,270 |
Communication expenses | 82 | 75 | 83 | 330 |
Consultancy and professional charges | 252 | 233 | 185 | 826 |
Depreciation and amortisation expense | 374 | 363 | 343 | 1,408 |
Other expenses | 643 | 429 | 576 | 2,184 |
Reduction in the fair value of assets held for sale (Refer note a) | 265 | 589 | - | 589 |
Total expenses | 12,990 | 12,230 | 10,978 | 46,052 |
Profit before tax | 4,782 | 4,390 | 4,716 | 19,908 |
Tax expense: (Refer note b) | ||||
Current tax | 1,329 | 1,397 | 1,394 | 4,003 |
Deferred tax | (50) | (164) | (93) | (250) |
Profit for the period | 3,503 | 3,157 | 3,415 | 16,155 |
Other comprehensive income | ||||
Items that will not be reclassified subsequently to profit or loss | ||||
Remeasurement of the net defined benefit liability / asset, net | (1) | 31 | (2) | 52 |
Equity instruments through other comprehensive income, net | 4 | 7 | - | 7 |
Items that will be reclassified subsequently to profit or loss | ||||
Fair value changes on derivatives designated as cash flow hedges, net | 9 | 2 | (66) | (39) |
Fair value changes on investments, net | (41) | (12) | 25 | 1 |
Total other comprehensive income / (loss), net of tax | (29) | 28 | (43) | 21 |
Total comprehensive income for the period | 3,474 | 3,185 | 3,372 | 16,176 |
Paid-up share capital (par value 5/- each fully paid) | 1,092 | 1,092 | 1,148 | 1,092 |
Other Equity | 62,410 | 62,410 | 66,869 | 62,410 |
Earnings per equity share ( par value 5 /- each) (Refer note e) | ||||
Basic () (Refer note b) | 16.04 | 14.45 | 14.87 | 71.28 |
Diluted () | 16.03 | 14.45 | 14.86 | 71.25 |
Note
a) | In the quarter ended March 2018, on conclusion of a strategic review of the portfolio businesses, the company had evaluated its portfolio of businesses and planned for the sale of its investment in subsidiaries, Kallidus and Skava (together herein referred to as 'Skava') and Panaya. The Company anticipates completion of the sale by March, 2019. On reclassification, investments in these subsidiaries had been reclassified as 'Assets held for sale' and measured at the lower of carrying amount and fair value less cost to sell. Consequently, the Company had recognized a reduction in the fair value of investment amounting to 589 crore in the Statement of Profit and Loss during the quarter ended March 31, 2018, in respect of Panaya in the standalone books of Infosys Limited. |
During the quarter ended June 30, 2018, on remeasurement, including consideration of progress in negotiations on offers from prospective buyers for Panaya, the Company has recorded a reduction in the fair value of investment of 265 crore in respect of Panaya. Consequently , profit for the quarter ended June 30, 2018 has decreased by 265 crore resulting in a decrease in Basic earnings per equity share by 1.21 for the quarter ended June 30, 2018 in the standalone financial statements. | |
b) | In December 2017, on account of the conclusion of an Advance Pricing Agreement (“APA”) with the U.S. Internal Revenue Service (“IRS”), the Company had, in accordance with the APA, reversed income tax expense provision of $225 million (1,432 crore), which pertains to previous periods which are no longer required. Consequently, profit for the year ended March 31, 2018 had increased resulting in an increase in Basic Earnings Per equity share by 5.85 ($0.09) for the year ended March 31, 2018. |
c) | Other income includes 257 crore towards interest on income tax refund for the year ended March 31, 2018. |
d) | During the quarter ended June 30, 2017, the Company had written down the entire carrying value of the investment in its subsidiary Infosys Nova Holding LLC, amounting to 94 crore. |
e) | EPS is not annualized for the quarter ended June 30, 2018, quarter ended March 31, 2018 and quarter ended June 30, 2017. |
Notes
1. | The audited interim condensed standalone financial statements for the quarter ended June 30, 2018 have been taken on record by the Board of Directors at its meeting held on July 13, 2018. The statutory auditors, Deloitte Haskins & Sells LLP have expressed an unqualified audit opinion. The information presented above is extracted from the audited interim condensed standalone financial statements. The interim condensed standalone financial statements are prepared in accordance with the Indian Accounting Standards (Ind-AS) as prescribed under Section 133 of the Companies Act, 2013 read with Rule 3 of the Companies (Indian Accounting Standards) Rules, 2015 and relevant amendment rules thereafter. | |
2. | Board changes | |
a) | The Board appointed Michael Gibbs as an Independent Director of the Company effective July 13, 2018 for a period of three years, based on the recommendation of the Nomination and Remuneration Committee of the Board. | |
b) | Ravi Venkatesan, Independent Director, has resigned from the company effective May 11, 2018. The Board placed on record its appreciation for the services rendered by him during his tenure. | |
3. | Bonus issue | |
The Board in its meeting held on July 13, 2018 has considered, approved and recommended a bonus issue of one equity share for every equity share held and a stock dividend of one American Depositary Share (ADS) for every ADS held, as on a record date to be determined. Consequently, the ratio of equity shares underlying the ADSs held by an American Depositary Receipt holder would remain unchanged. The Board approved and recommended the issue of bonus shares to celebrate the 25th year of the Company's public listing in India and to further increase the liquidity of its shares. The bonus issue of equity shares and ADSs will be subject to approval by the shareholders, and any other applicable statutory and regulatory approvals.
The bonus shares once allotted shall rank pari passu in all respects and carry the same rights as the existing equity shareholders and shall be entitled to participate in full, in any dividend and other corporate action, recommended and declared after the new equity shares are allotted. | ||
4. | Acquisition of WongDoody Holding Company Inc | |
On May 22, 2018, Infosys acquired 100% of the voting interests in WongDoody Holding Company Inc., (WongDoody) an US-based, full-service creative and consumer insights agency. The business acquisition was conducted by entering into a share purchase agreement for a total consideration of up to $75 million (approximately 514 crore at the acquisition date), which includes a cash consideration of $38 million (261 crore), contingent consideration of up to $28 million (approximately 192 crore at the acquisition date) and an additional consideration of up to $9 million (approximately 61 crore at the acquisition date), referred to as retention bonus, payable to the employees of WongDoody over the next three years, subject to their continuous employment with the Group. | ||
5. | Voluntary delisting of American Depositary Shares from Euronext Paris and London | |
In line with the announcement made on June 11, 2018, the Company has voluntarily delisted its American Depository Shares (“ADSs”) (ISIN US4567881085) from Euronext Paris and London on July 5, 2018 and its ADS were removed from Euroclear France on July 10, 2018. The primary reason for voluntary delisting from Euronext Paris and London was the low average daily trading volume of Infosys ADSs on these exchanges, which was not commensurate with the related administrative expenses. Infosys ADSs will continue to be listed on the NYSE under the symbol “INFY” and investors can continue to trade their ADSs on the New York Stock Exchange. | ||
6. | Adoption of Ind AS 115 - Revenue from contracts with customers | |
Effective April 1, 2018, the Company adopted Ind AS 115 “Revenue from Contracts with Customers” using the cumulative catch-up transition method which is applied to contracts that were not completed as of April 1, 2018. Accordingly, the comparatives have not been retrospectively adjusted. The effect on adoption of Ind AS 115 was insignificant on the financial statements. | ||
7. | Information on dividends for the quarter ended June 30, 2018 | |
The Board of Directors declared a final dividend of 20.50/- per equity share for the financial year ended March 31, 2018 and a special dividend of 10/- per equity share and the same were approved by the shareholders at the Annual General Meeting held on June 23, 2018 and was paid on June 26, 2018. |
(in )
Particulars | Quarter ended June 30, |
Quarter ended March 31, |
Quarter ended June 30, |
Year ended March 31, |
2018 | 2018 | 2017 | 2018 | |
Dividend per share (par value 5/- each) | ||||
Interim dividend | – | – | – | 13.00 |
Final dividend | – | 20.50 | – | 20.50 |
Special dividend | – | 10.00 | – | 10.00 |
8. Segment reporting
The Company publishes interim condensed standalone financial statements along with the interim consolidated financial statements. In accordance with Ind AS 108, Operating Segments, the Company has disclosed the segment information in the audited interim consolidated financial statements. Accordingly, the Segment information is given in the audited consolidated financial results of Infosys Limited and its subsidiaries for the quarter ended June 30, 2018.
By order of the Board For Infosys Limited | |
Salil Parekh | |
Bengaluru, India July 13, 2018 |
Chief executive officer and Managing Director |
Certain statements mentioned in this release concerning our future growth prospects are forward-looking statements regarding our future business expectations intended to qualify for the 'safe harbor' under the Private Securities Litigation Reform Act of 1995, which involve a number of risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. The risks and uncertainties relating to these statements include, but are not limited to, risks and uncertainties regarding fluctuations in earnings, fluctuations in foreign exchange rates, our ability to manage growth, intense competition in IT services including those factors which may affect our cost advantage, wage increases in India, our ability to attract and retain highly skilled professionals, time and cost overruns on fixed-price, fixed-time frame contracts, client concentration, restrictions on immigration, industry segment concentration, our ability to manage our international operations, reduced demand for technology in our key focus areas, disruptions in telecommunication networks or system failures, our ability to successfully complete and integrate potential acquisitions, liability for damages on our service contracts, the success of the companies in which Infosys has made strategic investments, withdrawal or expiration of governmental fiscal incentives, political instability and regional conflicts, legal restrictions on raising capital or acquiring companies outside India, and unauthorized use of our intellectual property and general economic conditions affecting our industry. Additional risks that could affect our future operating results are more fully described in our United States Securities and Exchange Commission filings including our Annual Report on Form 20-F for the fiscal year ended March 31, 2017. These filings are available at www.sec.gov. Infosys may, from time to time, make additional written and oral forward-looking statements, including statements contained in the company's filings with the Securities and Exchange Commission and our reports to shareholders. The company does not undertake to update any forward-looking statements that may be made from time to time by or on behalf of the company unless it is required by law.
Infosys Limited Regd. office: Electronics City, Hosur Road, Bengaluru – 560 100, India |
CIN : L85110KA1981PLC013115 Website: www.infosys.com email: [email protected] T: 91 80 2852 0261, F: 91 80 2852 0362 |
Extract of audited consolidated financial results of Infosys Limited and its subsidiaries for the quarter ended June 30, 2018, prepared in compliance with the Indian Accounting Standards (Ind-AS)
( in crore except equity share data)
Particulars | Quarter ended June 30, | Year ended March 31, | Quarter ended June 30, |
2018 | 2018 | 2017 | |
Revenue from operations | 19,128 | 70,522 | 17,078 |
Profit before tax (Refer note a, c and d) | 4,993 | 20,270 | 4,854 |
Net profit after tax (Refer note a, b, c and d) | 3,612 | 16,029 | 3,483 |
Total comprehensive income for the period (comprising profit for the period after tax and other comprehensive income after tax) | 3,668 | 16,372 | 3,548 |
Paid-up equity share capital (par value 5/- each, fully paid) | 1,088 | 1,088 | 1,144 |
Other equity | 63,835 | 63,835 | 67,838 |
Earnings per share (par value 5/- each) (Refer note e) | |||
Basic ()(Refer note b) | 16.62 | 71.07 | 15.24 |
Diluted () | 16.60 | 71.00 | 15.23 |
Note:
a) | In the quarter ended March 2018, on conclusion of a strategic review of the portfolio businesses, the Company had initiated identification and evaluation of potential buyers for its subsidiaries, Kallidus and Skava (together referred to as "Skava”) and Panaya (collectively referred to as the “Disposal Group”). The Company anticipates completion of the sale by March 2019. On reclassification, assets and liabilities in respect of the Disposal Group had been reclassified as “held for sale" and measured at the lower of carrying amount and fair value less cost to sell. Consequently, a reduction in the fair value of Disposal Group held for sale amounting to 118 crore in respect of Panaya had been recognized in the Consolidated Statement of Profit and Loss for the quarter and year ended March 31, 2018. |
During the quarter ended June 30, 2018, on remeasurement, including consideration of progress in negotiations on offers from prospective buyers for Panaya, the Company has recorded a reduction in the fair value of Disposal Group held for sale amounting to 270 crore in respect of Panaya. Consequently, profit for the quarter ended June 30, 2018 has decreased by 270 crore resulting in a decrease in Basic earnings per equity share by 1.24 ($0.02) for the quarter ended June 30, 2018.
As of June 30, 2018 assets amounting to 1,867 crore and liabilities amounting to 345 crore in respect of the Disposal Group have been classified as “held for sale". | |
b) | In December 2017, on account of the conclusion of an Advance Pricing Agreement (“APA”) with the U.S. Internal Revenue Service (“IRS”), the Company had, in accordance with the APA, reversed income tax expense provision of $225 million (1,432 crore), which pertained to previous periods which are no longer required. Consequently, profit for the year ended March 31, 2018 had increased resulting in an increase in Basic Earnings Per equity share by 5.88 ($0.09) for the year ended March 31, 2018. |
c) Other income includes 262 crore towards interest on income tax refund for the year ended March 31, 2018. | |
d) During the quarter ended June 30, 2017, the Company had written down the entire carrying value of the investment in its associate DWA Nova LLC amounting to 71 crore. | |
e) EPS is not annualized for the quarter ended June 30, 2018 and quarter ended June 30, 2017. |
Notes
1. | The audited interim consolidated financial statements for the quarter ended June 30, 2018 have been taken on record by the Board of Directors at its meeting held on July 13, 2018. The statutory auditors, Deloitte Haskins & Sells LLP have expressed an unqualified audit opinion. The information presented above is extracted from the audited interim consolidated financial statements. The interim consolidated financial statements are prepared in accordance with the Indian Accounting Standards (Ind-AS) as prescribed under Section 133 of the Companies Act, 2013 read with Rule 3 of the Companies (Indian Accounting Standards) Rules, 2015 and relevant amendment rules thereafter. | |
2. | Board changes | |
a) | The Board appointed Michael Gibbs as an Independent Director of the Company effective July 13, 2018 for a period of three years, based on the recommendation of the Nomination and Remuneration Committee of the Board. | |
b) | Ravi Venkatesan, Independent Director, has resigned from the company effective May 11, 2018. The Board placed on record its appreciation for the services. | |
3. | Bonus issue | |
The Board in its meeting held on July 13, 2018
has considered, approved and recommended a bonus issue of one equity share for every equity share held and a stock dividend of
one American Depositary Share (ADS) for every ADS held, as on a record date to be determined. Consequently, the ratio of equity
shares underlying the ADSs held by an American Depositary Receipt holder would remain unchanged. The Board approved and recommended
the issue of bonus shares to celebrate the 25th year of the Company's public listing in India and to further increase
the liquidity of its shares. The bonus issue of equity shares and ADSs will be subject to approval by the shareholders, and any
other applicable statutory and regulatory approvals. The bonus shares once allotted shall rank pari passu in all respects and carry the same rights as the existing equity shares and shall be entitled to participate in full, in any dividend and other corporate action, recommended and declared after the new equity shares are allotted. | ||
4. | Acquisition of WongDoody Holding Company Inc | |
On May 22, 2018, Infosys acquired 100% of the voting interests in WongDoody Holding Company Inc., (WongDoody) an US-based, full-service creative and consumer insights agency. The business acquisition was conducted by entering into a share purchase agreement for a total consideration of up to $75 million (approximately 514 crore at the acquisition date), which includes a cash consideration of $38 million (261 crore), contingent consideration of up to $28 million (approximately 192 crore at the acquisition date) and an additional consideration of up to $9 million(approximately 61 crore at the acquisition date), referred to as retention bonus, payable to the employees of WongDoody over the next three years, subject to their continuous employment with the Group. | ||
5. | Voluntary delisting of American Depositary Shares from Euronext Paris and London | |
In line with the announcement made on June 11, 2018, the Company has voluntarily delisted its American Depository Shares (“ADSs”) (ISIN US4567881085) from Euronext Paris and London on July 5, 2018 and its ADS were removed from Euroclear France on July 10, 2018. The primary reason for voluntary delisting from Euronext Paris and London was the low average daily trading volume of Infosys ADSs on these exchanges, which was not commensurate with the related administrative expenses. Infosys ADSs will continue to be listed on the NYSE under the symbol “INFY” and investors can continue to trade their ADSs on the New York Stock Exchange. | ||
6. | Adoption of Ind AS 115 - Revenue from contracts with customers | |
Effective April 1, 2018, the Company adopted Ind AS 115 “Revenue from Contracts with Customers” using the cumulative catch-up transition method which is applied to contracts that were not completed as of April 1, 2018. Accordingly, the comparatives have not been retrospectively adjusted. The effect on adoption of Ind AS 115 was insignificant on the financial statements. | ||
7. | Information on dividends for the quarter ended June 30, 2018 | |
The Board of Directors declared a final dividend of 20.50/- per equity share for the financial year ended March 31, 2018 and a special dividend of 10/- per equity share and the same were approved by the shareholders at the Annual General Meeting held on June 23, 2018 and was paid on June 26, 2018. |
(in )
Particulars | Quarter ended June 30, | Year ended March 31, | Quarter ended June 30, |
2018 | 2018 | 2017 | |
Dividend per share (par value 5/- each) | |||
Interim dividend | – | 13.00 | – |
Final dividend | – | 20.50 | – |
Special dividend | – | 10.00 | – |
8. Audited financial results of Infosys Limited (Standalone information)
(in crore)
Particulars | Quarter ended June 30, | Year ended March 31, | Quarter ended June 30, |
2018 | 2018 | 2017 | |
Revenue from operations | 17,056 | 61,941 | 14,971 |
Profit before tax (Refer note (i) below) | 4,782 | 19,908 | 4,716 |
Profit for the period (Refer note (i) below) | 3,503 | 16,155 | 3,415 |
Note:
i) | In the quarter ended March 2018, on conclusion of a strategic review of the portfolio businesses, the company evaluated its portfolio of businesses and had planned for the sale of its investment in subsidiaries, Kallidus and Skava (together herein referred to as 'Skava') and Panaya. The Company anticipates completion of the sale by March, 2019. On reclassification, investments in these subsidiaries had been reclassified as 'Assets held for sale' and measured at the lower of carrying amount and fair value less cost to sell. Consequently, the Company had recognized a reduction in the fair value of investment amounting to 589 crore in the Statement of Profit and Loss during the quarter ended March 31, 2018, in respect of Panaya in the standalone books of Infosys Limited. |
During the quarter ended June 30, 2018, on remeasurement, including consideration of progress in negotiations on offers from prospective buyers for Panaya, the Company has recorded a reduction in the fair value of investment of 265 crore in respect of Panaya. Consequently , profit for the quarter ended June 30, 2018 has decreased by 265 crore resulting in a decrease in Basic earnings per equity share by 1.21 for the quarter ended June 30, 2018 in the standalone books of Infosys Limited.
The above is an extract of the detailed format of Quarterly audited financial results filed with Stock Exchanges under Regulation 33 of the SEBI (Listing and Other Disclosure Requirements) Regulations, 2015. The full format of the Quarterly Financial Results are available on the Stock Exchange websites, www.nseindia.com and www.bseindia.com, and on the Company's website, www.infosys.com.
Certain statements mentioned in this release concerning our future growth prospects are forward-looking statements regarding our future business expectations intended to qualify for the 'safe harbor' under the Private Securities Litigation Reform Act of 1995, which involve a number of risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. The risks and uncertainties relating to these statements include, but are not limited to, risks and uncertainties regarding fluctuations in earnings, fluctuations in foreign exchange rates, our ability to manage growth, intense competition in IT services including those factors which may affect our cost advantage, wage increases in India, our ability to attract and retain highly skilled professionals, time and cost overruns on fixed-price, fixed-time frame contracts, client concentration, restrictions on immigration, industry segment concentration, our ability to manage our international operations, reduced demand for technology in our key focus areas, disruptions in telecommunication networks or system failures, our ability to successfully complete and integrate potential acquisitions, liability for damages on our service contracts, the success of the companies in which Infosys has made strategic investments, withdrawal or expiration of governmental fiscal incentives, political instability and regional conflicts, legal restrictions on raising capital or acquiring companies outside India, and unauthorized use of our intellectual property and general economic conditions affecting our industry. Additional risks that could affect our future operating results are more fully described in our United States Securities and Exchange Commission filings including our Annual Report on Form 20-F for the fiscal year ended March 31, 2017. These filings are available at www.sec.gov. Infosys may, from time to time, make additional written and oral forward-looking statements, including statements contained in the company's filings with the Securities and Exchange Commission and our reports to shareholders. The company does not undertake to update any forward-looking statements that may be made from time to time by or on behalf of the company unless it is required by law.
Exhibit 99.8
IFRS USD Earning Release
INDEPENDENT AUDITOR’S REPORT
TO THE BOARD OF DIRECTORS OF INFOSYS LIMITED
Report on the Audit of Interim Condensed Consolidated Financial Statements
Opinion
We have audited the accompanying interim condensed consolidated financial statements of Infosys Limited (“the Company”) and its subsidiaries (the Company and its subsidiaries together referred to as “the Group”), which comprise the Condensed Consolidated Balance Sheet as at June 30, 2018, the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Changes in Equity and the Condensed Consolidated Statement of Cash Flows for the three months period ended on that date, and a summary of the significant accounting policies and other explanatory information (hereinafter referred to as “the interim condensed consolidated financial statements”).
In our opinion and to the best of our information and according to the explanations given to us, the aforesaid interim condensed consolidated financial statements give a true and fair view in conformity with International Accounting Standard 34 “Interim Financial Reporting” (“IAS 34”) as issued by the International Accounting Standards Board (“IASB”),of the consolidated state of affairs of the Group as at June 30, 2018, the consolidated profit, consolidated total comprehensive income, consolidated changes in equity and its consolidated cash flows for the three months period ended on that date.
Basis for Opinion
We conducted our audit in accordance with the Standards on Auditing (SAs) specified under section 143(10) of the Companies Act, 2013. Our responsibilities under those Standards are further described in the Auditor’s Responsibilities for the Audit of the Interim Condensed Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India, and we have fulfilled our other ethical responsibilities in accordance with the provisions of the Companies Act, 2013. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Responsibilities of the Management and Those Charged with Governance for the Interim Condensed Consolidated Financial Statements
The Company’s Board of Directors is responsible for the preparation and presentation of these interim condensed consolidated financial statements that give a true and fair view of the consolidated financial position, consolidated financial performance, consolidated total comprehensive income, consolidated changes in equity and consolidated cash flows of the Group in accordance with IAS 34 as issued by the IASB. The respective Board of Directors of the companies included in the Group are responsible for maintenance of the adequate accounting records for safeguarding assets of the Group and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the interim condensed consolidated financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error, which have been used for the purpose of preparation of the interim condensed consolidated financial statements by the Board of Directors of the Company, as aforesaid.
In preparing the interim condensed consolidated financial statements, the respective Board of Directors of the companies included in the Group are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
The respective Board of Directors of the companies included in the Group are responsible for overseeing the financial reporting process of the Group.
Auditor’s Responsibilities for the Audit of the Interim Condensed Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the interim condensed consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these interim condensed consolidated financial statements.
As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
· | Identify and assess the risks of material misstatement of the interim condensed consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. |
· | Obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on whether the Company has in place an adequate internal financial controls system over financial reporting and the operating effectiveness of such controls. |
· | Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. |
· | Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the ability of the Group to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the interim condensed consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. |
· | Evaluate the overall presentation, structure and content of the interim condensed consolidated financial statements, including the disclosures, and whether the interim condensed consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. |
· | Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the interim condensed consolidated financial statements. We are responsible for the direction, supervision and performance of the audit of the financial statements of such entities included in the interim condensed consolidated financial statements. |
Materiality is the magnitude of misstatements in the financial statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the financial statements may be influenced. We consider quantitative materiality and qualitative factors in (i) planning the scope of our audit work and in evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatements in the financial statements.
Based on our professional judgment, we determined materiality for the interim condensed consolidated financial statements as a whole at USD 37 Millions. The basis for determining materiality was 5% of profits before tax. Profits before tax was used as a benchmark for materiality because it is one of the main measures used by users of financial statements to monitor the performance of the Group.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
For DELOITTE HASKINS & SELLS LLP
Chartered Accountants
(Firm’s Registration No. 117366W/W-100018)
Bengaluru, July 13, 2018 | P. R. RAMESH Partner (Membership No.70928) |
INFOSYS LIMITED AND SUBSIDIARIES
Condensed Consolidated Financial Statements under International Financial Reporting Standards (IFRS) in US Dollars for the three months ended June 30, 2018
Index
Condensed Consolidated Balance Sheet
Condensed Consolidated Statements of Comprehensive Income
Condensed Consolidated Statements of Changes in Equity
Condensed Consolidated Statements of Cash Flows
Overview and notes to the financial statements
1. Overview
1.1 Company Overview
1.2 Basis of preparation of financial statements
1.3 Basis of consolidation
1.4 Use of estimates and judgments
1.5 Critical accounting estimates
1.6 Recent Accounting pronouncements
2. Notes to the Condensed Consolidated Financial Statements
2.1 Cash and cash equivalents
2.2 Investments
2.3 Financial instruments
2.4 Prepayments and other assets
2.5 Other liabilities
2.6 Provisions
2.7 Property, plant and equipment
2.8 Goodwill
2.9 Business combination and Disposal Group held for sale
2.10 Employees' Stock Option Plans (ESOP)
2.11 Income taxes
2.12 Reconciliation of basic and diluted shares used in computing earnings per share
2.13 Related party transactions
2.14 Segment Reporting
2.15 Revenue from Operations
2.16 Break-up of expenses and other income, net
2.17 Capital allocation policy
2.18 Share capital and share premium
Infosys Limited and Subsidiaries
(Dollars in millions except equity share data)
Condensed Consolidated Balance Sheet as at | Note | June 30, 2018 | March 31, 2018 |
ASSETS | |||
Current assets | |||
Cash and cash equivalents | 2.1 | 2,411 | 3,041 |
Current investments | 2.2 | 1,004 | 982 |
Trade receivables | 2,001 | 2,016 | |
Unbilled revenue | 680 | 654 | |
Prepayments and other current assets | 2.4 | 707 | 662 |
Derivative financial instruments | 2.3 | 5 | 2 |
6,808 | 7,357 | ||
Assets held for sale | 2.9 | 273 | 316 |
Total current assets | 7,081 | 7,673 | |
Non-current assets | |||
Property, plant and equipment | 2.7 | 1,781 | 1,863 |
Goodwill | 2.8 & 2.9 | 349 | 339 |
Intangible assets | 54 | 38 | |
Investment in associate | – | – | |
Non-current investments | 2.2 | 821 | 883 |
Deferred income tax assets | 190 | 196 | |
Income tax assets | 884 | 931 | |
Other non-current assets | 2.4 | 246 | 332 |
Total Non-current assets | 4,325 | 4,582 | |
Total assets | 11,406 | 12,255 | |
LIABILITIES AND EQUITY | |||
Current liabilities | |||
Trade payables | 117 | 107 | |
Derivative financial instruments | 2.3 | 20 | 6 |
Current income tax liabilities | 297 | 314 | |
Client deposits | 27 | 6 | |
Unearned revenue | 340 | 352 | |
Employee benefit obligations | 219 | 218 | |
Provisions | 2.6 | 76 | 75 |
Other current liabilities | 2.5 | 1,269 | 1,036 |
2,365 | 2,114 | ||
Liabilities directly associated with assets held for sale | 2.9 | 50 | 50 |
Total current liabilities | 2,415 | 2,164 | |
Non-current liabilities | |||
Deferred income tax liabilities | 74 | 82 | |
Employee benefit obligations | 6 | 7 | |
Other non-current liabilities | 2.5 | 49 | 42 |
Total liabilities | 2,544 | 2,295 | |
Equity | |||
Share capital - 5 ($0.16) par value 2,400,000,000 (2,400,000,000) equity shares authorized, issued and outstanding 2,173,336,341 (2,173,312,301) net of 10,790,750 (10,801,956) treasury shares, as at June 30, 2018 and (March 31, 2018), respectively | 190 | 190 | |
Share premium | 253 | 247 | |
Retained earnings | 10,907 | 11,587 | |
Cash flow hedge reserve | 1 | – | |
Other reserves | 294 | 244 | |
Capital redemption reserve | 9 | 9 | |
Other components of equity | (2,792) | (2,317) | |
Total equity attributable to equity holders of the company | 8,862 | 9,960 | |
Non-controlling interests | – | – | |
Total equity | 8,862 | 9,960 | |
Total liabilities and equity | 11,406 | 12,255 |
The accompanying notes form an integral part of the interim condensed financial statements.
As per our report of even date attached
for Deloitte Haskins & Sells LLP
|
for and on behalf of the Board of Directors of Infosys Limited | ||
Chartered Accountants
|
|||
Firm's Registration Number: | |||
117366W/W-100018 | |||
P. R. Ramesh Partner |
Nandan M. Nilekani Chairman |
Salil Parekh Chief Executive officer and Managing Director |
U. B. Pravin Rao Chief Operating Officer and Whole-time Director |
Membership No. 70928 | |||
Bengaluru July 13, 2018 |
D. Sundaram Director |
M. D. Ranganath Chief Financial Officer |
A. G. S. Manikantha Company Secretary |
Infosys Limited and Subsidiaries
(Dollars in millions except equity share and per equity share data)
Condensed Consolidated Statements of Comprehensive Income | Note | Three months ended June 30, | |
2018 | 2017 | ||
Revenues | 2.15 | 2,831 | 2,651 |
Cost of sales | 2.16 | 1,819 | 1,692 |
Gross profit | 1,012 | 959 | |
Operating expenses: | |||
Selling and marketing expenses | 2.16 | 149 | 138 |
Administrative expenses | 2.16 | 193 | 183 |
Total operating expenses | 342 | 321 | |
Operating profit | 670 | 638 | |
Other income, net | 2.9 & 2.16 | 107 | 127 |
Reduction in the fair value of Disposal Group held for sale | 2.9 | (39) | – |
Share in net profit/(loss) of associate, including impairment | – | (11) | |
Profit before income taxes | 738 | 754 | |
Income tax expense | 2.11 | 204 | 213 |
Net profit | 534 | 541 | |
Other comprehensive income | |||
Items that will not be reclassified subsequently to profit or loss: | |||
Re-measurements of the net defined benefit liability/asset, net | – | – | |
Equity instruments through other comprehensive income, net | – | – | |
– | – | ||
Items that will be reclassified subsequently to profit or loss: | |||
Fair valuation of investments, net | 2.2 | (7) | 4 |
Fair value changes on derivatives designated as cash flow hedge, net | 1 | (10) | |
Foreign currency translation | (468) | 60 | |
(474) | 54 | ||
Total other comprehensive income/(loss), net of tax | (474) | 54 | |
Total comprehensive income | 60 | 595 | |
Profit attributable to: | |||
Owners of the company | 534 | 541 | |
Non-controlling interests | – | – | |
534 | 541 | ||
Total comprehensive income attributable to: | |||
Owners of the company | 60 | 595 | |
Non-controlling interests | – | – | |
60 | 595 | ||
Earnings per equity share | |||
Basic ($) | 0.25 | 0.24 | |
Diluted ($) | 0.25 | 0.24 | |
Weighted average equity shares used in computing earnings per equity share | 2.12 | ||
Basic | 2,173,328,621 | 2,285,657,604 | |
Diluted | 2,175,355,178 | 2,287,058,148 |
The accompanying notes form an integral part of the interim condensed financial statements.
As per our report of even date attached
for Deloitte Haskins & Sells LLP
|
for and on behalf of the Board of Directors of Infosys Limited | ||
Chartered Accountants
|
|||
Firm's Registration Number: | |||
117366W/W-100018 | |||
P. R. Ramesh Partner |
Nandan M. Nilekani Chairman |
Salil Parekh Chief Executive officer and Managing Director |
U. B. Pravin Rao Chief Operating Officer and Whole-time Director |
Membership No. 70928 | |||
Bengaluru July 13, 2018 |
D. Sundaram Director |
M. D. Ranganath Chief Financial Officer |
A. G. S. Manikantha Company Secretary |
Infosys Limited and Subsidiaries
Condensed Consolidated Statements of Changes in Equity
(Dollars in millions except equity share data)
Shares(1) | Share capital | Share premium | Retained earnings | Other reserves (2) | Capital redemption reserve | Cash flow hedge reserve | Other components of equity | Total equity attributable to equity holders of the company | ||
Balance as at April 1, 2017 | 2,285,655,150 | 199 | 587 | 12,190 | – | – | 6 | (2,345) | 10,637 | |
Changes in equity for the three months ended June 30, 2017 | ||||||||||
Net profit | – | – | – | 541 | – | – | – | – | 541 | |
Fair value changes on investments, net* (Refer to note 2.2) | – | – | – | – | – | – | – | 4 | 4 | |
Fair value changes on derivatives designated as cash flow hedge* (Refer to note 2.3) | - | – | – | – | – | – | (10) | – | (10) | |
Exchange differences on translation of foreign operations | – | – | – | – | – | – | – | 60 | 60 | |
Total comprehensive income for the period | – | – | – | 541 | – | – | (10) | 64 | 595 | |
Shares issued on exercise of employee stock options (Refer to note 2.10) | 24,812 | – | – | – | – | – | – | – | – | |
Transfer to other reserves | – | – | – | (75) | 75 | – | – | – | – | |
Transfer from other reserves on utilization | – | – | – | 24 | (24) | – | – | – | – | |
Employee stock compensation expense (Refer to note 2.10) | – | – | 7 | – | – | – | – | – | 7 | |
Dividends (including dividend distribution tax) | – | – | – | (630) | – | – | – | – | (630) | |
Balance as at June 30, 2017 | 2,285,679,962 | 199 | 594 | 12,050 | 51 | – | (4) | (2,281) | 10,609 | |
Balance as at April 1, 2018 | 2,173,312,301 | 190 | 247 | 11,587 | 244 | 9 | – | (2,317) | 9,960 | |
Changes in equity for the three months ended June 30, 2018 | ||||||||||
Net profit | – | – | – | 534 | – | – | – | – | 534 | |
Fair value changes on investments, net* (Refer to note 2.2) | – | – | – | – | – | – | – | (7) | (7) | |
Fair value changes on derivatives designated as cash flow hedge* (Refer to note 2.3) | – | – | – | – | – | – | 1 | – | 1 | |
Foreign currency translation | – | – | – | – | – | – | – | (468) | (468) | |
Total comprehensive income for the period | – | – | – | 534 | – | – | 1 | (475) | 60 | |
Shares issued on exercise of employee stock options (Refer to note 2.10) | 24,040 | – | – | – | – | – | – | – | – | |
Transfer to other reserves | – | – | – | (82) | 82 | – | – | – | ||
Transfer from other reserves on utilization | – | – | – | 32 | (32) | – | – | – | – | |
Employee stock compensation expense (Refer to note 2.10) | – | – | 6 | – | – | – | – | – | 6 | |
Transfer on account of options not exercised | – | – | – | – | – | – | – | – | – | |
Dividends (including dividend distribution tax) | – | – | – | (1,164) | – | – | – | – | (1,164) | |
Balance as at June 30, 2018 | 2,173,336,341 | 190 | 253 | 10,907 | 294 | 9 | 1 | (2,792) | 8,862 |
* | net of tax |
(1) | excludes treasury shares of 10,790,750 as at June 30, 2018, 10,801,956 as at April 1, 2018, 11,264,702 as at June 30, 2017 and 11,289,514 as at April 1, 2017, held by consolidated trust. |
(2) | Represents the Special Economic Zone Re-investment reserve created out of the profit of the eligible SEZ unit in terms of the provisions of Sec 10AA(1)(ii) of Income Tax Act,1961. The reserve should be utilized by the Company for acquiring new plant and machinery for the purpose of its business in terms of the provisions of the Sec 10AA(2) of the Income Tax Act, 1961. |
The accompanying notes form an integral part of the interim condensed financial statements.
As per our report of even date attached
for Deloitte Haskins & Sells LLP
|
for and on behalf of the Board of Directors of Infosys Limited | ||
Chartered Accountants
|
|||
Firm's Registration Number: | |||
117366W/W-100018 | |||
P. R. Ramesh Partner |
Nandan M. Nilekani Chairman |
Salil Parekh Chief Executive officer and Managing Director |
U. B. Pravin Rao Chief Operating Officer and Whole-time Director |
Membership No. 70928 | |||
Bengaluru July 13, 2018 |
D. Sundaram Director |
M. D. Ranganath Chief Financial Officer |
A. G. S. Manikantha Company Secretary |
Infosys Limited and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Accounting Policy
Cash flows are reported using the indirect method, whereby profit for the period is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments and item of income or expenses associated with investing or financing cash flows. The cash flows from operating, investing and financing activities of the Company are segregated. The company considers all highly liquid investments that are readily convertible to known amounts of cash to be cash equivalents.
(Dollars in millions)
Particulars | Note | Three Months ended June 30, | |
2018 | 2017 | ||
Operating activities: | |||
Net Profit | 534 | 541 | |
Adjustments to reconcile net profit to net cash provided by operating activities : | |||
Depreciation and amortization | 2.16 | 65 | 70 |
Interest and dividend income | (29) | (37) | |
Income tax expense | 2.11 | 204 | 213 |
Effect of exchange rate changes on assets and liabilities | 9 | (1) | |
Impairment loss under expected credit loss model | 10 | (1) | |
Reduction in the fair value of Disposal Group held for sale | 2.9 | 39 | - |
Stock compensation expense | 6 | 7 | |
Other adjustments | (8) | 3 | |
Changes in working capital | |||
Trade receivables and unbilled revenue | (145) | (72) | |
Prepayments and other assets | (12) | (25) | |
Trade payables | 14 | (17) | |
Client deposits | 22 | (3) | |
Unearned revenue | 2 | 35 | |
Other liabilities and provisions | 131 | 118 | |
Cash generated from operations | 842 | 831 | |
Income taxes paid | (211) | (187) | |
Net cash provided by operating activities | 631 | 644 | |
Investing activities: | |||
Expenditure on property, plant and equipment | (79) | (86) | |
Loans to employees | – | 3 | |
Deposits placed with corporation | 3 | (1) | |
Interest and dividend received | 27 | 13 | |
Payment towards acquisition of business, net of cash acquired | 2.9 | (30) | – |
Payment of contingent consideration pertaining to acquisition of business | – | (5) | |
Investment in equity and preference securities | (2) | (2) | |
Investment in others | (1) | (1) | |
Investment in quoted debt securities | (2) | – | |
Redemption of quoted debt securities | 45 | 1 | |
Investment in certificate of deposits | – | (44) | |
Redemption of certificate of deposits | 118 | 23 | |
Investment in commercial papers | – | – | |
Investment in liquid mutual fund units and fixed maturity plan securities | (3,535) | (2,557) | |
Redemption of liquid mutual fund units and fixed maturity plan securities | 3,325 | 2,604 | |
Net cash used in investing activities | (131) | (52) | |
Financing activities: | |||
Payment of dividend | (971) | (522) | |
Net cash used in financing activities | (971) | (522) | |
Effect of exchange rate changes on cash and cash equivalents | (157) | 20 | |
Net increase / (decrease) in cash and cash equivalents | (471) | 70 | |
Cash and cash equivalents at the beginning of the period | 2.1 | 3,049 | 3,489 |
Cash and cash equivalents at the end of the period | 2.1 | 2,421 | 3,579 |
Supplementary information: | |||
Restricted cash balance | 2.1 | 63 | 93 |
The accompanying notes form an integral part of the interim condensed financial statements.
As per our report of even date attached
for Deloitte Haskins & Sells LLP
|
for and on behalf of the Board of Directors of Infosys Limited | ||
Chartered Accountants
|
|||
Firm's Registration Number: | |||
117366W/W-100018 | |||
P. R. Ramesh Partner |
Nandan M. Nilekani Chairman |
Salil Parekh Chief Executive officer and Managing Director |
U. B. Pravin Rao Chief Operating Officer and Whole-time Director |
Membership No. 70928 | |||
Bengaluru July 13, 2018 |
D. Sundaram Director |
M. D. Ranganath Chief Financial Officer |
A. G. S. Manikantha Company Secretary |
Notes to the interim condensed consolidated financial statements
1. Overview
1.1 Company overview
Infosys Limited ('the Company' or Infosys) is a leading provider of consulting, technology, outsourcing and next-generation digital services, enabling clients to execute strategies for their digital transformation. Infosys strategic objective is to build a sustainable organization that remains relevant to the agenda of clients, while creating growth opportunities for employees and generating profitable returns for investors. Infosys strategy is to be a navigator for our clients as they ideate, plan and execute on their journey to a digital future.
Infosys together with its subsidiaries and controlled trusts is herein after referred to as the "Group".
The company is a public limited company incorporated and domiciled in India and has its registered office at Bengaluru, Karnataka, India. The company has its primary listings on the BSE Ltd. and National Stock Exchange in India. The company’s American Depositary Shares (ADS) representing equity shares are listed on the New York Stock Exchange (NYSE).
Further, the company's ADS were also listed on the Euronext London and Euronext Paris. On July 5, 2018, the company voluntarily delisted its ADS from the said exchanges due to low average daily trading volume of its ADS on these exchanges.
The Group's interim condensed consolidated financial statements are authorized for issue by the company's Board of Directors on July 13, 2018.
1.2 Basis of preparation of financial statements
These interim condensed consolidated financial statements have been prepared in compliance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB), under the historical cost convention on the accrual basis except for certain financial instruments which have been measured at fair values. Accordingly, these condensed consolidated financial statements do not include all the information required for a complete set of financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the company’s Annual Report on Form 20-F for the year ended March 31, 2017. Accounting policies have been applied consistently to all periods presented in these interim condensed consolidated financial statements.
1.3 Basis of consolidation
Infosys consolidates entities which it owns or controls. The interim consolidated financial statements comprise the financial statements of the company, its controlled trusts and its subsidiaries. Control exists when the parent has power over the entity, is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns by using its power over the entity. Power is demonstrated through existing rights that give the ability to direct relevant activities, those which significantly affect the entity's returns. Subsidiaries are consolidated from the date control commences until the date control ceases.
The financial statements of the Group companies are consolidated on a line-by-line basis and intra-group balances and transactions including unrealized gain / loss from such transactions are eliminated upon consolidation. These financial statements are prepared by applying uniform accounting policies in use at the Group. Non-controlling interests which represent part of the net profit or loss and net assets of subsidiaries that are not, directly or indirectly, owned or controlled by the company, are excluded.
1.4 Use of estimates and judgments
The preparation of the financial statements in conformity with IFRS requires management to make estimates, judgments and assumptions. These estimates, judgments and assumptions affect the application of accounting policies and the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the period. Application of accounting policies that require critical accounting estimates involving complex and subjective judgments and the use of assumptions in these financial statements have been disclosed in Note 1.5. Accounting estimates could change from period to period. Actual results could differ from those estimates. Appropriate changes in estimates are made as management becomes aware of changes in circumstances surrounding the estimates. Changes in estimates are reflected in the financial statements in the period in which changes are made and, if material, their effects are disclosed in the notes to the condensed consolidated financial statements.
1.5 Critical accounting estimates
a. Revenue recognition
The group uses the percentage-of-completion method in accounting for its fixed-price contracts. Use of the percentage-of-completion method requires the group to estimate the efforts or costs expended to date as a proportion of the total efforts or costs to be expended. Efforts or costs expended have been used to measure progress towards completion as there is a direct relationship between input and productivity.
Further, the company uses significant judgements while determining the transaction price allocated to performance obligations using the expected cost plus margin approach.
Provisions for estimated losses, if any, on uncompleted contracts are recorded in the period in which such losses become probable based on the expected contract estimates at the reporting date.
b. Income taxes
The company's two major tax jurisdictions are India and the U.S., though the company also files tax returns in other overseas jurisdictions. Significant judgments are involved in determining the provision for income taxes, including amount expected to be paid/recovered for uncertain tax positions
In assessing the realizability of deferred income tax assets, management considers whether some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers the scheduled reversals of deferred income tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred income tax assets are deductible, management believes that the group will realize the benefits of those deductible differences. The amount of the deferred income tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced. (also refer to note 2.11).
c. Business combinations and intangible assets
Business combinations are accounted for using IFRS 3 (Revised), Business Combinations. IFRS 3 requires the identifiable intangible assets and contingent consideration to be fair valued in order to ascertain the net fair value of identifiable assets, liabilities and contingent liabilities of the acquiree. Significant estimates are required to be made in determining the value of contingent consideration and intangible assets. These valuations are conducted by independent valuation experts.
d. Property, plant and equipment
Property, plant and equipment represent a significant proportion of the asset base of the Group. The charge in respect of periodic depreciation is derived after determining an estimate of an asset’s expected useful life and the expected residual value at the end of its life. The useful lives and residual values of Group's assets are determined by management at the time the asset is acquired and reviewed periodically, including at each financial year end. The lives are based on historical experience with similar assets as well as anticipation of future events, which may impact their life, such as changes in technology.
e. Impairment of Goodwill
Goodwill is tested for impairment on an annual basis and whenever there is an indication that the recoverable amount of a cash generating unit is less than its carrying amount based on a number of factors including operating results, business plans, future cash flows and economic conditions. The recoverable amount of cash generating units is determined based on higher of value-in-use and fair value less cost to sell. The goodwill impairment test is performed at the level of the cash-generating unit or groups of cash-generating units which are benefitting from the synergies of the acquisition and which represents the lowest level at which goodwill is monitored for internal management purposes.
Market related information and estimates are used to determine the recoverable amount. Key assumptions on which management has based its determination of recoverable amount include estimated long term growth rates, weighted average cost of capital and estimated operating margins. Cash flow projections take into account past experience and represent management’s best estimate about future developments.
f. Non-current assets and Disposal Groups held for sale
Assets and liabilities of Disposal Groups held for sale are measured at the lower of carrying amount and fair value less costs to sell. The determination of fair value less costs to sell includes use of management estimates and assumptions. The fair value of the Disposal Groups have been estimated using valuation techniques including income and market approach which includes unobservable inputs.
1.6 Recent accounting pronouncements
1.6.1 Standards issued but not yet effective
IFRS 16 Leases : On January 13, 2016, the International Accounting Standards Board issued the final version of IFRS 16, Leases. IFRS 16 will replace the existing leases Standard, IAS 17 Leases, and related Interpretations. The Standard sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract i.e., the lessee and the lessor. IFRS 16 introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. Currently, operating lease expenses are charged to the statement of comprehensive income. The Standard also contains enhanced disclosure requirements for lessees. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17.
The effective date for adoption of IFRS 16 is annual periods beginning on or after January 1, 2019, though early adoption is permitted for companies applying IFRS 15 Revenue from Contracts with Customers. The Group is currently evaluating the requirements of IFRS 16 and the impact on the consolidated financial statements.
IFRIC 23, Uncertainty over Income Tax Treatments: In June 2017, the International Accounting Standards Board (IASB) issued IFRS interpretation IFRIC 23 Uncertainty over Income Tax Treatments which is to be applied while performing the determination of taxable profit (or loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. According to IFRIC 23, companies need to determine the probability of the relevant tax authority accepting each tax treatment, or group of tax treatments, that the companies have used or plan to use in their income tax filing which has to be considered to compute the most likely amount or the expected value of the tax treatment when determining taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates.
The standard permits two possible methods of transition:
Full retrospective approach – Under this approach, IFRIC 23 will be applied retrospectively to each prior reporting period presented in accordance with IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors
Retrospectively with cumulative effect of initially applying IFRIC 23 recognized by adjusting equity on initial application, without adjusting comparatives
The effective date for adoption of IFRIC 23 is annual periods beginning on or after January 1, 2019, though early adoption is permitted. The Group is currently evaluating the effect of IFRIC 23 on the consolidated financial statements.
Amendment to IAS 19 – plan amendment, curtailment or settlement- On 7 February 2018, the IASB issued amendments to the guidance in IAS 19, ‘Employee Benefits’, in connection with accounting for plan amendments, curtailments and settlements.
The amendments require an entity:
· | to use updated assumptions to determine current service cost and net interest for the remainder of the period after a plan amendment, curtailment or settlement; and |
· | to recognise in profit or loss as part of past service cost, or a gain or loss on settlement, any reduction in a surplus, even if that surplus was not previously recognised because of the impact of the asset ceiling. |
Effective date for application of this amendment is annual period beginning on or after 1 January 2019, although early application is permitted. The Group is evaluating the effect of this amendment on the consolidated financial statements and the impact is not expected to be material.
2. Notes to the Condensed Consolidated Interim Financial Statements
2.1 Cash and cash equivalents
Cash and cash equivalents consist of the following:
(Dollars in millions)
As at | ||
June 30, 2018 | March 31, 2018 | |
Cash and bank deposits | 1,320 | 2,021 |
Deposits with financial institutions | 1,091 | 1,020 |
Total Cash and cash equivalents | 2,411 | 3,041 |
Cash and cash equivalents included under assets classifed under held for sale (Refer note no 2.9) | 10 | 8 |
2,421 | 3,049 |
Cash and cash equivalents as at June 30, 2018 and March 31, 2018 include restricted cash and bank balances of $63 million and $82 million, respectively. The restrictions are primarily on account of cash and bank balances held by irrevocable trusts controlled by the company, bank balances held as margin money deposits against guarantees and balances held in unpaid dividend bank accounts.
The deposits maintained by the Group with banks and financial institutions comprise of time deposits, which can be withdrawn by the Group at any point without prior notice or penalty on the principal.
The table below provides details of cash and cash equivalents:
(Dollars in millions)
As at | ||
June 30, 2018 | March 31, 2018 | |
Current accounts | ||
ANZ Bank, Taiwan | – | 1 |
Banamex Bank, Mexico (U.S. Dollar account) | 2 | 2 |
Bank of America, Mexico | 4 | 4 |
Bank of America, USA | 83 | 180 |
Bank Zachodni WBK S.A, Poland | 1 | 3 |
Barclays Bank, UK | 6 | 6 |
BNP Paribas Bank, Norway | 8 | 14 |
China Merchants Bank, China | 1 | 1 |
Citibank N.A., Australia | 18 | 34 |
Citibank N.A., Brazil | 2 | 2 |
Citibank N.A., China | 11 | 18 |
Citibank N.A., China (U.S. Dollar account) | 1 | 1 |
Citibank N.A., Costa Rica | 1 | – |
Citibank N.A., Dubai | 1 | 1 |
Citibank N.A., EEFC (U.S. Dollar account) | – | 1 |
Citibank N.A., Hungary | 1 | 1 |
Citibank N.A., Japan | 2 | 3 |
Citibank N.A., New Zealand | 1 | 2 |
Citibank N.A., Portugal | 1 | 1 |
Citibank N.A., Singapore | 1 | 1 |
Citibank N.A., South Africa | 5 | 5 |
Citibank N.A., USA | 1 | 1 |
Citibank N.A., South Korea | 1 | – |
Citibank N.A., Romania | 1 | – |
Deutsche Bank, Belgium | 2 | 4 |
Deutsche Bank, Czech Republic | 1 | 2 |
Deutsche Bank, Czech Republic (Euro account) | 1 | 1 |
Deutsche Bank, Czech Republic (U.S. Dollar account) | 1 | – |
Deutsche Bank, EEFC (Euro account) | 5 | 5 |
Deutsche Bank, EEFC (U.S. Dollar account) | 6 | 5 |
Deutsche Bank, EEFC (United Kingdom Pound Sterling account) | 1 | 1 |
Deutsche Bank, France | 1 | 3 |
Deutsche Bank, Germany | 18 | 16 |
Deutsche Bank, India | 4 | 7 |
Deutsche Bank, Malaysia | – | 1 |
Deutsche Bank, Netherlands | 2 | 2 |
Deutsche Bank, Philippines | 1 | 4 |
Deutsche Bank, Philippines (U.S. Dollar account) | 1 | 1 |
Deutsche Bank, Poland | 1 | 3 |
Deutsche Bank, Poland (Euro account) | 1 | 1 |
Deutsche Bank, Russia | 1 | 1 |
Deutsche Bank, Russia (U.S. Dollar account) | 1 | 1 |
Deutsche Bank, Singapore | 2 | 3 |
Deutsche Bank, Switzerland | 3 | 5 |
Deutsche Bank, United Kingdom | 8 | 12 |
Deutsche Bank, USA | 3 | – |
HSBC Bank, United Kingdom | 1 | 1 |
ICICI Bank, EEFC (U.S. Dollar account) | 8 | 6 |
ICICI Bank, EEFC (United Kingdom Pound Sterling account) | – | 2 |
ICICI Bank, EEFC Euro | 1 | – |
ICICI Bank, India | 8 | 8 |
ICICI Bank - Unpaid dividend account | 3 | 3 |
Nordbanken, Sweden | 5 | 8 |
Punjab National Bank, India | 11 | 2 |
Raiffeisen Bank, Czech Republic | – | 1 |
Royal Bank of Canada, Canada | 29 | 26 |
Splitska Banka D.D., Société Générale Group, Croatia | 1 | 1 |
The Saudi British Bank, Saudi Arabia | 1 | – |
Union Bank of Switzerland AG (Euro account) | – | – |
Washington Trust | 7 | – |
292 | 418 | |
Deposit accounts | ||
Axis Bank | 15 | – |
Bank BGZ BNP Paribas S.A. | 47 | 22 |
Barclays Bank | 29 | 31 |
Canara Bank | 34 | 36 |
Citibank | 18 | 35 |
Deutsche Bank, AG | 3 | 4 |
Deutsche Bank, Poland | 10 | 32 |
HDFC Bank | 76 | 383 |
HSBC Bank | – | – |
ICICI Bank | 493 | 568 |
IDBI Bank | - | 38 |
IDFC Bank | 256 | 230 |
IndusInd Bank | – | 154 |
Kotak Mahindra Bank | – | – |
South Indian Bank | 37 | 69 |
Standard Chartered Bank | – | – |
Syndicate Bank | – | – |
National Bank of Mexico,SA(CITI-Banamex) | 9 | – |
Yes Bank | 1 | 1 |
1,028 | 1,603 | |
Deposits with financial institutions | ||
HDFC Limited | 916 | 836 |
LIC Housing Finance Limited | 175 | 184 |
1,091 | 1,020 | |
Total Cash and cash equivalents | 2,411 | 3,041 |
2.2 Investments
The carrying value of investments are as follows:
(Dollars in millions)
As at | ||
June 30, 2018 | March 31, 2018 | |
(i) Current | ||
Amortized cost | ||
Quoted debt securities: | ||
Cost | 2 | – |
Fair value through profit and loss | ||
Liquid Mutual funds | ||
Fair value | 224 | 12 |
Fair Value through Other comprehensive income | ||
Quoted debt securities | ||
Fair value | 71 | 117 |
Commercial Paper | ||
Fair value | 44 | 45 |
Certificate of deposits | ||
Fair value | 663 | 808 |
Total current investments | 1,004 | 982 |
(ii) Non-current | ||
Amortized cost | ||
Quoted debt securities | ||
Cost | 276 | 291 |
Fair value through Other comprehensive income | ||
Quoted debt securities | ||
Fair value | 448 | 493 |
Unquoted equity and preference securities | ||
Fair value | 22 | 21 |
Fair value through profit and loss | ||
Unquoted convertible promissory note | ||
Fair value | 2 | 2 |
Fixed maturity plan securities | ||
Fair Value | 63 | 66 |
Others | ||
Fair value | 10 | 10 |
Total Non-current investments | 821 | 883 |
Total investments | 1,825 | 1,865 |
Investment carried at amortized cost | 278 | 291 |
Investments carried at fair value through other comprehensive income | 1,248 | 1,484 |
Investments carried at fair value through profit and loss | 299 | 90 |
Uncalled capital commitments outstanding as of June 30, 2018 and March 31, 2018 was $10 million and $12 million, respectively.
Details of amounts recorded in Other comprehensive income:
(Dollars in millions)
Three months ended | ||||||
June 30, 2018 | June 30, 2017 | |||||
Gross | Tax | Net | Gross | Tax | Net | |
Net Gain/(loss) on | ||||||
Quoted debt securities | (5) | 1 | (4) | 5 | (1) | 4 |
Certificate of deposits | (3) | – | (3) | – | – | – |
Unquoted equity and preference securities | – | – | – | – | – | – |
Method of fair valuation:
(Dollars in millions)
Class of investment | Method | Fair value | |
As at June 30, 2018 |
As at March 31, 2018 | ||
Liquid mutual funds | Quoted price | 224 | 12 |
Fixed maturity plan securities | Market observable inputs | 63 | 66 |
Quoted debt securities- carried at amortized cost | Quoted price and market observable inputs | 313 | 330 |
Quoted debt securities- carried at Fair value through other comprehensive income | Quoted price and market observable inputs | 519 | 610 |
Commercial Paper | Market observable inputs | 44 | 45 |
Certificate of deposits | Market observable inputs | 663 | 808 |
Unquoted equity and preference securities | Discounted cash flows method, Market multiples method, Option pricing model, etc. | 22 | 21 |
Unquoted convertible promissory note | Discounted cash flows method, Market multiples method, Option pricing model, etc. | 2 | 2 |
Others | Discounted cash flows method, Market multiples method, Option pricing model, etc. | 10 | 10 |
1,860 | 1,904 |
Certain quoted investments are classified as Level 2 in the absence of active market for such investments.
2.3 Financial instruments
Accounting Policy
Effective April 1, 2016, the Group has early adopted IFRS 9 - Financial Instruments considering April 1, 2015 as the date of initial application of the standard even though the stipulated effective date for adoption is April 1, 2018.
As per IFRS 9, the Group has classified its financial assets into the following categories based on the business model for managing those assets and the contractual cash flow characteristics:
· | Financial assets carried at amortised cost |
· | Financial assets fair valued through other comprehensive income |
· | Financial assets fair valued through profit or loss |
The adoption of IFRS 9 did not have any other material impact on the interim condensed consolidated financial statements.
2.3.1 Initial recognition
The group recognizes financial assets and financial liabilities when it becomes a party to the contractual provisions of the instrument. All financial assets and liabilities are recognized at fair value on initial recognition, except for trade receivables which are initially measured at transaction price. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities, that are not at fair value through profit or loss, are added to the fair value on initial recognition. Regular way purchase and sale of financial assets are accounted for at trade date.
2.3.2 Subsequent measurement
Non-derivative financial instruments
(i) Financial assets carried at amortized cost
A financial asset is subsequently measured at amortized cost if it is held within a business model whose objective is to hold the asset in order to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
(ii) | Financial assets at fair value through other comprehensive income (FVOCI) |
A financial asset is subsequently measured at fair value through other comprehensive income if it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The Company has made an irrevocable election for its investments which are classified as equity instruments to present the subsequent changes in fair value in other comprehensive income based on its business model.
(iii) Financial assets at fair value through profit or loss (FVTPL)
A financial asset which is not classified in any of the above categories are subsequently fair valued through profit or loss.
(iv) Financial liabilities
Financial liabilities are subsequently carried at amortized cost using the effective interest method, except for contingent consideration recognized in a business combination which is subsequently measured at fair value through profit or loss. For trade and other payables maturing within one year from the balance sheet date, the carrying amounts approximate fair value due to the short maturity of these instruments.
b. Derivative financial instruments
The group holds derivative financial instruments such as foreign exchange forward and option contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. The counterparty for these contracts is generally a bank.
(i) Financial assets or financial liabilities, at fair value through profit or loss.
This category has derivative financial assets or liabilities which are not designated as hedges.
Although the group believes that these derivatives constitute hedges from an economic perspective, they may not qualify for hedge accounting under IFRS 9, Financial Instruments. Any derivative that is either not designated as hedge, or is so designated but is ineffective as per IFRS 9, is categorized as a financial asset or financial liability, at fair value through profit or loss.
Derivatives not designated as hedges are recognized initially at fair value and attributable transaction costs are recognized in net profit in the statement of comprehensive income when incurred. Subsequent to initial recognition, these derivatives are measured at fair value through profit or loss and the resulting exchange gains or losses are included in other income. Assets/ liabilities in this category are presented as current assets/current liabilities if they are either held for trading or are expected to be realized within 12 months after the balance sheet date.
(ii) | Cash flow hedge |
The group designates certain foreign exchange forward and options contracts as cash flow hedges to mitigate the risk of foreign exchange exposure on highly probable forecast cash transactions. When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and accumulated in the cash flow hedging reserve. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in the net profit in the statement of comprehensive income. If the hedging instrument no longer meets the criteria for hedge accounting, then hedge accounting is discontinued prospectively. If the hedging instrument expires or is sold, terminated or exercised, the cumulative gain or loss on the hedging instrument recognized in cash flow hedging reserve till the period the hedge was effective remains in cash flow hedging reserve until the forecasted transaction occurs. The cumulative gain or loss previously recognized in the cash flow hedging reserve is transferred to the net profit in the statement of comprehensive income upon the occurrence of the related forecasted transaction. If the forecasted transaction is no longer expected to occur, then the amount accumulated in cash flow hedging reserve is reclassified to net profit in the statement of comprehensive income.
c. Share capital and treasury shares
(i) Ordinary Shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of new ordinary shares and share options and buy back of ordinary shares are recognized as a deduction from equity, net of any tax effects.
(ii) Treasury Shares
When any entity within the Group purchases the company's ordinary shares, the consideration paid including any directly attributable incremental cost is presented as a deduction from total equity, until they are cancelled, sold or reissued. When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to/ from share premium.
2.3.3 Derecognition of financial instruments
The group derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for derecognition under IFRS 9. A financial liability (or a part of a financial liability) is derecognized from the group's balance sheet when the obligation specified in the contract is discharged or cancelled or expires.
2.3.4 Fair value of financial instruments
In determining the fair value of its financial instruments, the group uses a variety of methods and assumptions that are based on market conditions and risks existing at each reporting date. The methods used to determine fair value include discounted cash flow analysis, available quoted market prices and dealer quotes. All methods of assessing fair value result in general approximation of value, and such value may never actually be realized.
Refer ‘Financial instruments by category’ below for the disclosure on carrying value and fair value of financial assets and liabilities. For financial assets and liabilities maturing within one year from the Balance Sheet date and which are not carried at fair value, the carrying amounts approximate fair value due to the short maturity of these instruments.
2.3.5 Impairment
The Group recognizes loss allowances using the expected credit loss (ECL) model for the financial assets and unbilled revenue which are not fair valued through profit or loss. Loss allowance for trade receivables and unbilled revenues with no significant financing component is measured at an amount equal to lifetime ECL. For all other financial assets, expected credit losses are measured at an amount equal to the 12-month ECL, unless there has been a significant increase in credit risk from initial recognition in which case those are measured at lifetime ECL. The amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognized is recognized as an impairment gain or loss in statement of comprehensive income.
Financial instruments by category
The carrying value and fair value of financial instruments by categories as at June 30, 2018 were as follows:
(Dollars in millions)
Amortized cost | Financial assets/ liabilities at fair value through profit or loss | Financial assets/liabilities at fair value through OCI | Total carrying value | Total fair value | |||
Designated upon initial recognition | Mandatory | Equity instruments designated upon initial recognition | Mandatory | ||||
Assets: | |||||||
Cash and cash equivalents (Refer to Note 2.1) | 2,411 | – | – | – | – | 2,411 | 2,411 |
Investments (Refer to Note 2.2) | |||||||
Liquid mutual funds | – | – | 224 | – | – | 224 | 224 |
Fixed maturity plan securities | – | – | 63 | – | – | 63 | 63 |
Quoted debt securities | 278 | – | – | – | 519 | 797 | 832(1) |
Certificate of deposits | – | – | – | – | 663 | 663 | 663 |
Commercial Paper | – | – | – | – | 44 | 44 | 44 |
Unquoted equity and preference securities: | – | – | – | 22 | – | 22 | 22 |
Unquoted investment others | – | – | 10 | – | - | 10 | 10 |
Unquoted convertible promissory note | – | – | 2 | – | – | 2 | 2 |
Trade receivables | 2,001 | – | – | – | – | 2,001 | 2,001 |
Unbilled revenues (3) (Refer to Note 2.15) | 236 | – | – | – | – | 236 | 236 |
Prepayments and other assets (Refer to Note 2.4) | 442 | – | – | – | – | 442 | 429(2) |
Derivative financial instruments | – | – | 2 | - | 3 | 5 | 5 |
Total | 5,368 | – | 301 | 22 | 1,229 | 6,920 | 6,942 |
Liabilities: | |||||||
Trade payables | 117 | – | – | – | – | 117 | 117 |
Derivative financial instruments | – | – | 20 | – | – | 20 | 20 |
Other liabilities including contingent consideration (Refer to note 2.5) | 885 | – | 16 | – | – | 901 | 901 |
Total | 1,002 | – | 36 | – | – | 1,038 | 1,038 |
(1) | On account of fair value changes including interest accrued |
(2) | Excludes interest accrued on quoted debt securities carried at amortized cost |
(3) | Excludes unbilled revenue for fixed price development contracts where right to consideration is conditional on factors other than passage of time |
The carrying value and fair value of financial instruments by categories as at March 31, 2018 were as follows:
(Dollars in millions)
Amortized cost | Financial assets/ liabilities at fair value through profit or loss | Financial assets/liabilities at fair value through OCI | Total carrying value | Total fair value | |||
Designated upon initial recognition | Mandatory | Equity instruments designated upon initial recognition | Mandatory | ||||
Assets: | |||||||
Cash and cash equivalents (Refer to Note 2.1) | 3,041 | – | – | – | – | 3,041 | 3,041 |
Investments (Refer to Note 2.2) | |||||||
Liquid mutual funds | – | – | 12 | – | – | 12 | 12 |
Fixed maturity plan securities | – | – | 66 | – | – | 66 | 66 |
Quoted debt securities | 291 | – | – | – | 610 | 901 | 940(1) |
Certificate of deposits | – | – | – | – | 808 | 808 | 808 |
Commercial papers | – | – | – | – | 45 | 45 | 45 |
Unquoted equity and preference securities | – | – | – | 21 | - | 21 | 21 |
Unquoted investment others | – | – | 10 | – | – | 10 | 10 |
Unquoted convertible promissory note | – | – | 2 | – | – | 2 | 2 |
Trade receivables | 2,016 | – | – | – | – | 2,016 | 2,016 |
Unbilled revenues | 654 | - | - | - | – | 654 | 654 |
Prepayments and other assets (Refer to Note 2.4) | 456 | – | – | – | – | 456 | 443(2) |
Derivative financial instruments | – | – | – | – | 2 | 2 | 2 |
Total | 6,458 | - | 90 | 21 | 1,465 | 8,034 | 8,060 |
Liabilities: | |||||||
Trade payables | 107 | – | – | – | – | 107 | 107 |
Derivative financial instruments | – | – | 6 | – | – | 6 | 6 |
Client deposits | |||||||
Other liabilities including contingent consideration (Refer to note 2.5) | 836 | – | 8 | – | – | 844 | 844 |
Total | 943 | – | 14 | – | – | 957 | 957 |
(1) | On account of fair value changes including interest accrued |
(2) Excludes interest accrued on quoted debt securities carried at amortized cost
Fair value hierarchy
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
The following table presents fair value hierarchy of assets and liabilities as at June 30, 2018:
(Dollars in millions)
As at June 30, 2018 | Fair value measurement at end of the reporting period using | |||
Level 1 | Level 2 | Level 3 | ||
Assets | ||||
Investments in liquid mutual fund units (Refer to Note 2.2) | 224 | 224 | – | – |
Investments in fixed maturity plan securities (Refer to Note 2.2) | 63 | – | 63 | |
Investments in quoted debt securities (Refer to Note 2.2) | 832 | 434 | 398 | – |
Investments in certificate of deposit (Refer to Note 2.2) | 663 | – | 663 | – |
Investments in commercial paper (Refer to Note 2.2) | 44 | – | 44 | – |
Investments in unquoted equity and preference securities (Refer to Note 2.2) | 22 | – | – | 22 |
Investments in unquoted investments others (Refer to Note 2.2) | 10 | – | – | 10 |
Investments in unquoted convertible promissory note (Refer to Note 2.2) | 2 | – | – | 2 |
Derivative financial instruments - gain on outstanding foreign exchange forward and option contracts | 5 | – | 5 | – |
Liabilities | – | |||
Derivative financial instruments - loss on outstanding foreign exchange forward and option contracts | 20 | – | 20 | – |
Liability towards contingent consideration (Refer to note 2.5)* | 16 | – | – | 16 |
* | includes $3 million pertaining to Brilliant Basics discounted at 10% and $17 million pertainning to Wongdoody discounted at 16%. |
During the three months ended June 30, 2018, quoted debt securities of $51 million were transferred from Level 2 to Level 1 of fair value hierarchy, since these were valued based on Quoted price and $250 million were transferred from Level 1 to Level 2 of fair value hierarchy, since these were valued based on market observable inputs.
The following table presents fair value hierarchy of assets and liabilities as at March 31, 2018:
(Dollars in millions)
As at March 31, 2018 | Fair value measurement at end of the reporting period / year using | |||
Level 1 | Level 2 | Level 3 | ||
Assets | ||||
Investments in liquid mutual fund units (Refer to Note 2.2) | 12 | 12 | – | – |
Investments in fixed maturity plan securities (Refer to Note 2.2) | 66 | – | 66 | |
Investments in quoted debt securities (Refer to Note 2.2) | 940 | 701 | 239 | – |
Investments in certificate of deposit (Refer to Note 2.2) | 808 | – | 808 | – |
Investments in commercial paper (Refer to Note 2.2) | 45 | – | 45 | – |
Investments in unquoted equity and preference securities (Refer to Note 2.2) | 21 | – | – | 21 |
Investments in unquoted investments others (Refer to Note 2.2) | 10 | – | – | 10 |
Investments in unquoted convertible promissory note (Refer to Note 2.2) | 2 | – | – | 2 |
Derivative financial instruments- gain on outstanding foreign exchange forward and option contracts | 2 | – | 2 | – |
Liabilities | ||||
Derivative financial instruments- loss on outstanding foreign exchange forward and option contracts | 6 | – | 6 | – |
Liability towards contingent consideration (Refer to Note 2.5)* | 8 | – | – | 8 |
* includes $3 million pertaining to Brilliant Basics discounted at 10%.
A one percentage point change in the unobservable inputs used in Level 3 assets and liabilities does not have a significant impact in its value.
Income from financial assets is as follows:
Dollars in millions)
Three months ended June 30, | ||
2018 | 2017 | |
Interest income on financial assets carried at amortized cost | 57 | 66 |
Interest income on financial assets fair valued through other comprehensive income | 25 | 32 |
Gain / (loss) on investments carried at fair value through profit or loss | 5 | 11 |
87 | 109 |
Financial risk management
Financial risk factors
The Group's activities expose it to a variety of financial risks - market risk, credit risk and liquidity risk. The Group's primary focus is to foresee the unpredictability of financial markets and seek to minimize potential adverse effects on its financial performance. The primary market risk to the Group is foreign exchange risk. The Group uses derivative financial instruments to mitigate foreign exchange related risk exposures. The Group's exposure to credit risk is influenced mainly by the individual characteristic of each customer and the concentration of risk from the top few customers.
Market risk
The Group operates internationally and a major portion of the business is transacted in several currencies and consequently the Group is exposed to foreign exchange risk through its sales and services in the United States and elsewhere, and purchases from overseas suppliers in various foreign currencies. The Group holds derivative financial instruments such as foreign exchange forward and option contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. The exchange rate between the rupee and foreign currencies has changed substantially in recent years and may fluctuate substantially in the future. Consequently, the results of the Group’s operations are adversely affected as the Indian rupee appreciates / depreciates against these currencies.
The following table analyses foreign currency risk from monetary assets and liabilities as at June 30, 2018:
(Dollars in millions)
U.S. dollars | Euro | United Kingdom Pound Sterling | Australian dollars | Other currencies | Total | |
Cash and cash equivalents | 112 | 31 | 17 | 33 | 159 | 352 |
Trade receivables | 1,288 | 266 | 119 | 115 | 115 | 1,903 |
Unbilled revenue | 435 | 114 | 44 | 26 | 54 | 673 |
Other assets | 55 | 6 | 6 | 3 | 17 | 87 |
Trade payables | (43) | (10) | (17) | (8) | (9) | (87) |
Accrued expenses | (193) | (30) | (18) | (10) | (20) | (271) |
Employee benefit obligation | (88) | (15) | (4) | (28) | (20) | (155) |
Other liabilities | (161) | (20) | (11) | (4) | (36) | (232) |
Net assets / (liabilities) | 1,405 | 342 | 136 | 127 | 260 | 2,270 |
The following table analyses foreign currency risk from monetary assets and liabilities as at March 31, 2018:
(Dollars in millions)
U.S. dollars | Euro | United Kingdom Pound Sterling | Australian dollars | Other currencies | Total | |
Cash and cash equivalents | 197 | 33 | 23 | 54 | 183 | 490 |
Trade receivables | 1,276 | 269 | 129 | 121 | 120 | 1,915 |
Unbilled revenue | 356 | 98 | 46 | 24 | 57 | 581 |
Other assets | 49 | 4 | 4 | 2 | 15 | 74 |
Trade payables | (42) | (12) | (17) | (5) | (9) | (85) |
Accrued expenses | (166) | (29) | (17) | (9) | (23) | (244) |
Employee benefit obligation | (88) | (13) | (4) | (28) | (20) | (153) |
Other liabilities | (97) | (21) | (12) | (5) | (49) | (184) |
Net assets / (liabilities) | 1,485 | 329 | 152 | 154 | 274 | 2,394 |
Sensitivity analysis between Indian Rupees and US Dollar
As at | ||
June 30, 2018 | June 30, 2017 | |
Impact on the Group's incremental operating margins | 0.48% | 0.49% |
Sensitivity analysis is computed based on the changes in the income and expenses in foreign currency upon conversion into functional currency, due to exchange rate fluctuations between the previous reporting period and the current reporting period.
Derivative financial instruments
The Group's holds derivative financial instruments such as foreign exchange forward and option contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. The counterparty for these contracts is generally a bank. These derivative financial instruments are valued based on quoted prices for similar assets and liabilities in active markets or inputs that are directly or indirectly observable in the marketplace. The following table gives details in respect of outstanding foreign exchange forward and options contracts:
(In millions)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Derivatives designated as cash flow hedges | ||
Options contracts | ||
In Australian dollars | 150 | 60 |
In Euro | 155 | 100 |
In United Kingdom Pound Sterling | 30 | 20 |
Other derivatives | ||
Forward contracts | ||
In Australian dollars | 79 | 5 |
In Canadian dollars | 20 | 20 |
In Euro | 161 | 91 |
In Japanese Yen | 550 | 550 |
In New Zealand dollars | 16 | 16 |
In Norwegian Krone | 80 | 40 |
In Singapore dollars | 10 | 5 |
In South African Rand | 25 | 25 |
In Swedish Krona | 50 | 50 |
In Swiss Franc | 21 | 21 |
In U.S. Dollars | 834 | 623 |
In United Kingdom Pound Sterling | 78 | 51 |
Options contracts | ||
In Australian dollars | 40 | 20 |
In Canadian dollars | 13 | – |
In Euro | 65 | 45 |
In Swiss Franc | 10 | 5 |
In U.S. Dollars | 240 | 320 |
In United Kingdom Pound Sterling | – | 25 |
The group recognized a net loss of $25 million for the three months ended June 30, 2018 and and net gain of $3 million for the three months ended June 30, 2017 on derivative financial instruments not designated as cash flow hedges, which are included in other income.
The foreign exchange forward and option contracts mature within twelve months. The table below analyses the derivative financial instruments into relevant maturity groupings based on the remaining period as at the balance sheet date:
(Dollars in millions)
As at | ||
June 30, 2018 | March 31, 2018 | |
Not later than one month | 538 | 434 |
Later than one month and not later than three months | 929 | 701 |
Later than three months and not later than one year | 489 | 378 |
Total | 1,956 | 1,513 |
During the three months ended June 30, 2018 the Group has designated certain foreign exchange forward and option contracts as cash flow hedges to mitigate the risk of foreign exchange exposure on highly probable forecast cash transactions. The related hedge transactions for balance in cash flow hedging reserve as of June 30, 2018 are expected to occur and reclassified to profit or loss within 3 months.
Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument, including whether the hedging instrument is expected to offset changes in cash flows of hedged items.
If the hedge ratio for risk management purposes is no longer optimal but the risk management objective remains unchanged and the hedge continues to qualify for hedge accounting, the hedge relationship will be rebalanced by adjusting either the volume of the hedging instrument or the volume of the hedged item so that the hedge ratio aligns with the ratio used for risk management purposes. Any hedge ineffectiveness is calculated and accounted for in profit or loss at the time of the hedge relationship rebalancing.
The following table provides the reconciliation of cash flow hedge reserve for the three months ended June 30, 2018 and June 30, 2017:
(Dollars in millions)
Three months ended | ||
June 30, 2018 | June 30, 2017 | |
Gain / (Loss) | ||
Balance at the beginning of the period | – | 6 |
Gain / (Loss) recognized in other comprehensive income during the period | 4 | (6) |
Amount reclassified to profit and loss during the period | (3) | (7) |
Tax impact on above | – | 3 |
Balance at the end of the period | 1 | (4) |
The group offsets a financial asset and a financial liability when it currently has a legally enforceable right to set off the recognized amounts and the group intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
The following table provides quantitative information about offsetting of derivative financial assets and derivative financial liabilities:
(Dollars in millions)
As at | ||||
June 30, 2018 | March 31, 2018 | |||
Derivative financial asset | Derivative financial liability |
Derivative financial asset |
Derivative financial liability | |
Gross amount of recognized financial asset/liability | 10 | (25) | 3 | (7) |
Amount set off | (5) | 5 | (1) | 1 |
Net amount presented in balance sheet | 5 | (20) | 2 | (6) |
Credit risk
Credit risk refers to the risk of default on its obligation by the counterparty resulting in a financial loss. The maximum exposure to the credit risk at the reporting date is primarily from trade receivables amounting to $2,001 million and $2,016 million as at June 30, 2018 and March 31, 2018, respectively and unbilled revenue amounting to $680 million and $654 million as at June 30, 2018 and March 31, 2018, respectively. Trade receivables and unbilled revenue are typically unsecured and are derived from revenue earned from customers primarily located in the United States. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Group grants credit terms in the normal course of business. On account of adoption of IFRS 9, the Group uses expected credit loss model to assess the impairment loss or gain. The group uses a provision matrix to compute the expected credit loss allowance for trade receivables and unbilled revenues. The provision matrix takes into account available external and internal credit risk factors such as credit default swap quotes, credit ratings from international credit rating agencies and the Group's historical experience for customers.
The following table gives details in respect of percentage of revenues generated from top customer and top ten customers:
(In %)
Three months ended June 30 | ||
2018 | 2017 | |
Revenue from top customer | 3.7 | 3.3 |
Revenue from top ten customers | 19.2 | 20.0 |
Credit risk exposure
The allowance for lifetime expected credit loss on customer balances for the three months ended June 30, 2018 was $10 million and reversal of allowance for lifetime expected credit loss on customer balance for the three months ended June 30, 2017 was $1 million.
Movement in credit loss allowance
(Dollars in millions)
Three months ended June 30, | ||
2018 | 2017 | |
Balance at the beginning | 69 | 63 |
Translation differences | (2) | 1 |
Impairment loss recognized/(reversed) | 10 | (1) |
Write offs | – | – |
Balance at the end | 77 | 63 |
The Company’s credit period generally ranges from 30-60 days.
Credit exposure
(Dollars in millions)
As at | ||
June 30, 2018 | March 31, 2018 | |
Trade receivables | 2,001 | 2,016 |
Unbilled revenues | 680 | 654 |
Days Sales Outstanding (DSO) as of June 30, 2018 and March 31, 2018 was 66 days and 67 days respectively.
Credit risk on cash and cash equivalents is limited as we generally invest in deposits with banks and financial institutions with high credit ratings assigned by international and domestic credit rating agencies. Investments primarily include investment in liquid mutual fund units, fixed maturity plan securities, quoted bonds issued by government and quasi government organizations, non convertible debentures, certificates of deposits and commercial paper.
Liquidity risk
The Group's principal sources of liquidity are cash and cash equivalents and the cash flow that is generated from operations. The Group has no outstanding borrowings. The Group believes that the working capital is sufficient to meet its current requirements.
As at June 30, 2018, the Group had a working capital of $4,443 million including cash and cash equivalents of $2,411 million and current investments of $1,004 million. As at March 31, 2018, the Group had a working capital of $5,243 million including cash and cash equivalents of $3,041 million and current investments of $982 million.
As at June 30, 2018 and March 31, 2018, the outstanding employee benefit obligations were each $225 million, which have been substantially funded. Accordingly, no liquidity risk is perceived.
The table below provides details regarding the contractual maturities of significant financial liabilities as at June 30, 2018:
(Dollars in millions)
Particulars | Less than 1 year | 1-2 years | 2-4 years | 4-7 years | Total |
Trade payables | 117 | – | – | – | 117 |
Other liabilities (excluding liability towards contingent consideration - Refer to Note 2.5) | 885 | – | – | – | 885 |
Liability towards contingent consideration on an undiscounted basis (Refer to Note 2.5) | 4 | 9 | 7 | – | 20 |
The table below provides details regarding the contractual maturities of significant financial liabilities as at March 31, 2018:
(Dollars in millions)
Particulars | Less than 1 year | 1-2 years | 2-4 years | 4-7 years | Total |
Trade payables | 107 | – | – | – | 107 |
Other liabilities (excluding liability towards acquisition -Refer to Note 2.5) | 836 | – | – | – | 836 |
Liability towards contingent consideration on an undiscounted basis (Refer to Note 2.5) | 6 | 1 | 1 | – | 8 |
2.4 Prepayments and other assets
Prepayments and other assets consist of the following:
(Dollars in millions)
|
As at | |
June 30, 2018 | March 31, 2018 | |
Current | ||
Rental deposits | 4 | 2 |
Security deposits | 1 | 1 |
Loans to employees | 36 | 37 |
Prepaid expenses (1) | 83 | 72 |
Interest accrued and not due | 110 | 117 |
Withholding taxes and others(1) | 201 | 158 |
Advance payments to vendors for supply of goods (1) | 15 | 18 |
Deposit with corporations | 225 | 236 |
Deferred contract cost(1) | 6 | 7 |
Other assets | 26 | 14 |
Total Current other assets | 707 | 662 |
Non-current | ||
Loans to employees | 4 | 6 |
Security deposits | 8 | 8 |
Deposit with corporations | 4 | 9 |
Prepaid gratuity (1) | 5 | 7 |
Prepaid expenses (1) | 15 | 17 |
Deferred contract cost (1) | 38 | 40 |
Withholding taxes and others(1) | 148 | 219 |
Rental Deposits | 24 | 26 |
Total Non- current other assets | 246 | 332 |
Total other assets | 953 | 994 |
Financial assets in prepayments and other assets | 442 | 456 |
(1) Non financial assets
Withholding taxes and others primarily consist of input tax credits. Security deposits relate principally to leased telephone lines and electricity supplies. Deferred contract costs are upfront costs incurred for the contract and are amortized over the term of the contract.
Deposit with corporation represents amounts deposited to settle certain employee-related obligations as and when they arise during the normal course of business.
2.5 Other liabilities
Other liabilities comprise the following:
(Dollars in millions)
As at | ||
June 30, 2018 | March 31, 2018 | |
Current | ||
Accrued compensation to employees | 385 | 385 |
Accrued expenses | 424 | 376 |
Withholding taxes and others (1) | 183 | 190 |
Retention money | 16 | 20 |
Liabilities of controlled trusts | 25 | 21 |
Liability towards contingent consideration (Refer to note 2.9) | 4 | 6 |
Tax on dividend (1) | 193 | – |
Accrued gratuity(1) | – | – |
Deferred rent (1) | 4 | 4 |
Others | 35 | 34 |
Total Current other liabilities | 1,269 | 1,036 |
Non-Current | ||
Liability towards contingent consideration (Refer to note 2.9) | 12 | 2 |
Accrued gratuity(1) | 4 | 4 |
Deferred income - government grant on land use rights (1) | 7 | 7 |
Deferred income (1) | 5 | 5 |
Deferred rent (1) | 21 | 24 |
Total Non-current other liabilities | 49 | 42 |
1,318 | 1,078 | |
Financial liabilities included in other liabilities | 901 | 844 |
Financial liability towards contingent consideration on an undiscounted basis (Refer to Note 2.9) | 20 | 8 |
(1) Non financial liabilities
Accrued expenses primarily relate to cost of technical sub-contractors, telecommunication charges, legal and professional charges, brand building expenses, overseas travel expenses and office maintenance. Others include unpaid dividend balances and capital creditors.
2.6 Provisions
Accounting Policy
Provisions
A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that is reasonably estimable, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
Post sales client support
The Group provides its clients with a fixed-period post sales support for corrections of errors and support on all its fixed-price, fixed-timeframe contracts. Costs associated with such support services are accrued at the time related revenues are recorded and included in cost of sales. The Group estimates such costs based on historical experience and estimates are reviewed on a periodic basis for any material changes in assumptions and likelihood of occurrence.
Onerous contracts
Provisions for onerous contracts are recognized when the expected benefits to be derived by the Group from a contract are lower than the unavoidable costs of meeting the future obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established the Group recognizes any impairment loss on the assets associated with that contract.
Provisions comprise the following:
(Dollars in millions)
As at | ||
June 30, 2018 | March 31, 2018 | |
Provision for post sales client support and other provisions | 76 | 75 |
76 | 75 |
Provision for post sales client support and other provisions represents costs associated with providing sales support services which are accrued at the time of recognition of revenues and are expected to be utilized over a period of 6 months to 1 year.
The movement in the provision for post sales client support and other provisions is as follows:
(Dollars in millions)
|
Three months ended June 30, 2018 |
Balance at the beginning | 75 |
Translation differences | – |
Provision recognized/(reversed) | 7 |
Provision utilized | (6) |
Balance at the end | 76 |
Provision for post sales client support and other provisions is included in cost of sales in the condensed consolidated statement of comprehensive income.
As at June 30, 2018 and March 31, 2018, claims against the company, not acknowledged as debts, (excluding demands from income tax authorities- Refer to Note 2.11) amounted to 260 crore ($38 million) and 260 crore ($40 million), respectively.
The company is subject to legal proceedings and claims, which have arisen in the ordinary course of business. The company’s management does not reasonably expect that these legal actions, when ultimately concluded and determined, will have a material and adverse effect on the company’s results of operations or financial condition.
2.7 Property, plant and equipment
Accounting Policy
Property, plant and equipment are stated at cost, less accumulated depreciation and impairment, if any. Costs directly attributable to acquisition are capitalized until the property, plant and equipment are ready for use, as intended by management. The group depreciates property, plant and equipment over their estimated useful lives using the straight-line method. The estimated useful lives of assets are as follows:
Building | 22–25 years |
Plant and machinery | 5 years |
Computer equipment | 3–5 years |
Furniture and fixtures | 5 years |
Vehicles | 5 years |
Leasehold improvements | Over lease term |
Leasehold improvements Over lease term
Depreciation methods, useful lives and residual values are reviewed periodically, including at each financial year end.
Advances paid towards the acquisition of property, plant and equipment outstanding at each balance sheet date and the cost of assets not put to use before such date are disclosed under ‘Capital work-in-progress’. Subsequent expenditures relating to property, plant and equipment is capitalized only when it is probable that future economic benefits associated with these will flow to the Group and the cost of the item can be measured reliably. Repairs and maintenance costs are recognized in the statement of comprehensive income when incurred. The cost and related accumulated depreciation are eliminated from the financial statements upon sale or retirement of the asset and the resultant gains or losses are recognized in net profit in the statement of comprehensive income.
(ii) Impairment
Property, plant and equipment are evaluated for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. For the purpose of impairment testing, the recoverable amount (i.e. the higher of the fair value less cost to sell and the value-in-use) is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. In such cases, the recoverable amount is determined for the Cash Generating Unit (CGU) to which the asset belongs.
If such assets are considered to be impaired, the impairment to be recognized in net profit in the statement of comprehensive income is measured by the amount by which the carrying value of the assets exceeds the estimated recoverable amount of the asset. An impairment loss is reversed in net profit in the statement of comprehensive income if there has been a change in the estimates used to determine the recoverable amount. The carrying amount of the asset is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined (net of any accumulated amortization or depreciation) had no impairment loss been recognized for the asset in prior years.
Following are the changes in the carrying value of property, plant and equipment for the three months ended June 30, 2018:
(Dollars in millions)
Land | Buildings | Plant and machinery | Computer equipment | Furniture and fixtures | Vehicles | Total | |
Gross carrying value as at April 1, 2018 | 292 | 1,247 | 518 | 749 | 285 | 5 | 3,096 |
Additions | 10 | 13 | 5 | 34 | 6 | – | 68 |
Additions- Business Combinations (Refer note 2.9) | – | – | – | – | 1 | – | 1 |
Deletions | (3) | – | (1) | (2) | (1) | – | (7) |
Translation difference | (15) | (59) | (25) | (36) | (14) | – | (149) |
Gross carrying value as at June 30, 2018 | 284 | 1,201 | 497 | 745 | 277 | 5 | 3,009 |
Accumulated depreciation as at April 1, 2018 | (5) | (417) | (359) | (557) | (203) | (3) | (1,544) |
Depreciation | – | (12) | (15) | (26) | (9) | – | (62) |
Accumulated depreciation on deletions | – | – | 1 | 2 | 1 | – | 4 |
Translation difference | – | 21 | 16 | 28 | 10 | – | 75 |
Accumulated depreciation as at June 30, 2018 | (5) | (408) | (357) | (553) | (201) | (3) | (1,527) |
Capital work-in progress as at June 30, 2018 | 299 | ||||||
Carrying value as at June 30, 2018 | 279 | 793 | 140 | 192 | 76 | 2 | 1,781 |
Capital work-in progress as at April 1, 2018 | 311 | ||||||
Carrying value as at April 1, 2018 | 287 | 830 | 159 | 192 | 82 | 2 | 1,863 |
Following are the changes in the carrying value of property, plant and equipment for the three months ended June 30, 2017:
(Dollars in millions)
Land | Buildings | Plant and machinery | Computer equipment | Furniture and fixtures | Vehicles | Total | |
Gross carrying value as at April 1, 2017 | 272 | 1,123 | 466 | 700 | 261 | 5 | 2,827 |
Additions | – | 8 | 9 | 25 | 6 | – | 48 |
Deletions | – | – | – | (5) | – | – | (5) |
Translation difference | 1 | 5 | 2 | 4 | 2 | – | 14 |
Gross carrying value as at June 30, 2017 | 273 | 1,136 | 477 | 724 | 269 | 5 | 2,884 |
Accumulated depreciation as at April 1, 2017 | (4) | (376) | (301) | (471) | (168) | (3) | (1,323) |
Depreciation | – | (10) | (16) | (26) | (10) | – | (62) |
Accumulated depreciation on deletions | – | – | – | 5 | – | – | 5 |
Translation difference | – | (2) | (1) | (3) | (1) | – | (7) |
Accumulated depreciation as at June 30, 2017 | (4) | (388) | (318) | (495) | (179) | (3) | (1,387) |
Capital work-in progress as at June 30, 2017 | 337 | ||||||
Carrying value as at June 30, 2017 | 269 | 748 | 159 | 229 | 90 | 2 | 1,834 |
Capital work-in progress as at April 1, 2017 | 303 | ||||||
Carrying value as at April 1, 2017 | 268 | 747 | 165 | 229 | 93 | 2 | 1,807 |
Following are the changes in the carrying value of property, plant and equipment for the year ended March 31, 2018:
(Dollars in millions)
Land | Buildings | Plant and machinery | Computer equipment | Furniture and fixtures | Vehicles | Total | |
Gross carrying value as at April 1, 2017 | 272 | 1,123 | 466 | 700 | 261 | 5 | 2,827 |
Additions | 21 | 122 | 56 | 73 | 29 | 1 | 302 |
Deletions | – | – | (3) | (17) | (3) | (1) | (24) |
Reclassified as held for sale (Refer note 2.9) | – | – | – | (6) | (4) | – | (10) |
Translation difference | (1) | 2 | (1) | (1) | 2 | – | 1 |
Gross carrying value as at March 31, 2018 | 292 | 1,247 | 518 | 749 | 285 | 5 | 3,096 |
Accumulated depreciation as at April 1, 2017 | (4) | (376) | (301) | (471) | (168) | (3) | (1,323) |
Depreciation | (1) | (43) | (62) | (107) | (40) | (1) | (254) |
Accumulated depreciation on deletions | – | – | 2 | 17 | 3 | 1 | 23 |
Reclassified as held for sale (Refer note 2.9) | – | – | – | 4 | 3 | – | 7 |
Translation difference | – | 2 | 2 | – | (1) | – | 3 |
Accumulated depreciation as at March 31, 2018 | (5) | (417) | (359) | (557) | (203) | (3) | (1,544) |
Capital work-in progress as at March 31, 2018 | 311 | ||||||
Carrying value as at March 31, 2018 | 287 | 830 | 159 | 192 | 82 | 2 | 1,863 |
Capital work-in progress as at April 1, 2017 | 303 | ||||||
Carrying value as at April 1, 2017 | 268 | 747 | 165 | 229 | 93 | 2 | 1,807 |
The aggregate depreciation expense is included in cost of sales in the statement of comprehensive income.
Carrying value of land includes $90 million and $98 million as at June 30, 2018 and March 31, 2018, respectively, towards amounts paid under certain lease-cum-sale agreements to acquire land, including agreements where the company has an option to purchase or renew the properties on expiry of the lease period.
The contractual commitments for capital expenditure were $202 million and $223 million as at June 30, 2018 and March 31, 2018, respectively.
2.8 Goodwill
Accounting Policy
Goodwill represents the cost of business acquisition in excess of the Group's interest in the net fair value of identifiable assets, liabilities and contingent liabilities of the acquiree. When the net fair value of the identifiable assets, liabilities and contingent liabilities acquired exceeds the cost of business acquisition, a gain is recognized immediately in net profit in the Statement of Profit and Loss. Goodwill is measured at cost less accumulated impairment losses.
Impairment
Goodwill is tested for impairment on an annual basis and whenever there is an indication that goodwill may be impaired, relying on a number of factors including operating results, business plans and future cash flows. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to the Group's cash generating units (CGU) or groups of CGU’s expected to benefit from the synergies arising from the business combination. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets. Impairment occurs when the carrying amount of a CGU including the goodwill, exceeds the estimated recoverable amount of the CGU. The recoverable amount of a CGU is the higher of its fair value less cost to sell and its value-in-use. Value-in-use is the present value of future cash flows expected to be derived from the CGU.
Total impairment loss of a CGU is allocated first to reduce the carrying amount of goodwill allocated to the CGU and then to the other assets of the CGU pro-rata on the basis of the carrying amount of each asset in the CGU. An impairment loss on goodwill is recognized in net profit in the statement of comprehensive income and is not reversed in the subsequent period.
Following is a summary of changes in the carrying amount of goodwill:
(Dollars in millions)
As at | ||
June 30, 2018 | March 31, 2018 | |
Carrying value at the beginning | 339 | 563 |
Goodwill on Wongdoody acquisition (Refer to note 2.9) | 25 | – |
Goodwill on Brilliant Basics acquisition (Refer to note 2.9) | – | 5 |
Goodwill reclassified as assets held for sale (Refer note no 2.9) | – | (247) |
Translation differences | (15) | 18 |
Carrying value at the end | 349 | 339 |
For the purpose of impairment testing, goodwill acquired in a business combination is allocated to the cash generating units (CGU) or groups of CGU’s, which benefit from the synergies of the acquisition. The chief operating decision maker reviews the goodwill for any impairment at the operating segment level, which is represented through groups of CGU’s.
2.9 Business combination and Disposal Group held for sale
a. Business Combination
Accounting Policy
Business combinations have been accounted for using the acquisition method under the provisions of IFRS 3 (Revised), Business Combinations.
The cost of an acquisition is measured at the fair value of the assets transferred, equity instruments issued and liabilities incurred or assumed at the date of acquisition, which is the date on which control is transferred to the Group. The cost of acquisition also includes the fair value of any contingent consideration. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value on the date of acquisition.
Business combinations between entities under common control is outside the scope of IFRS 3 (Revised), Business Combinations and is accounted for at carrying value.
Transaction costs that the Group incurs in connection with a business combination such as finders’ fees, legal fees, due diligence fees, and other professional and consulting fees are expensed as incurred.
Brilliant Basics Holdings Limited.
On September 8, 2017, Infosys acquired 100% of the voting interests in Brilliant Basics Holdings Limited., UK, (Brilliant Basics) a product design and customer experience innovator with experience in executing global programs. The business acquisition was conducted by entering into a share purchase agreement for cash consideration of $4 million, contingent consideration of up to $3 million and an additional consideration of $2 million, referred to as retention bonus, payable to the employees of Brilliant Basics at each anniversary year over the next two years, subject to their continuous employment with the group at each anniversary.
The payment of contingent consideration to sellers of Brilliant Basics is dependent upon the achievement of certain financial targets by Brilliant Basics over a period of 3 years ending on March, 2020.
The fair value of contingent consideration is determined by discounting the estimated amount payable to the sellers of Brilliant Basics on achievement of certain financial targets. The key inputs used in determination of the fair value of contingent consideration are the discount rate of 10% and the probabilities of achievement of the financial targets.
The excess of the purchase consideration paid over the fair value of assets acquired has been attributed to goodwill.
The purchase price has been allocated based on management’s estimates and independent appraisal of fair values as follows:
(Dollars in millions)
Component | Acquiree's carrying amount | Fair value adjustments | Purchase price allocated |
Net assets(*) | – | – | – |
Intangible assets - Customer Relationships | – | 2 | 2 |
Deferred tax liabilities on intangible assets | – | – | – |
– | 2 | 2 | |
Goodwill | 5 | ||
Total purchase price | 7 |
*Includes cash and cash equivalents acquired of less than $1 million
The goodwill is not tax deductible.
The gross amount of trade receivables acquired and its fair value is less than $1 million and the amounts have been largely collected.
The fair value of each major class of consideration as of the acquisition date is as follows:
(Dollars in millions)
Component | Consideration settled |
Cash paid | 4 |
Fair value of contingent consideration | 3 |
Total purchase price | 7 |
The transaction costs of less than $1 million related to the acquisition have been included under administrative expenses in the statement of comprehensive income.
Wongdoody Holding Company Inc.
On May 22, 2018, Infosys acquired 100% of the voting interests in WongDoody Holding Company Inc., (WongDoody) an US-based, full-service creative and consumer insights agency. The business acquisition was conducted by entering into a share purchase agreement for a total consideration of up to $75 million, which includes a cash consideration of $38 million, contingent consideration of up to $28 million and an additional consideration of up to $9 million, referred to as retention bonus, payable to the employees of WongDoody over the next three years, subject to their continuous employment with the group.
WongDoody, brings to Infosys the creative talent and marketing and brand engagement expertise. Further the acquisition is expected to strengthen Infosys’ creative, branding and customer experience capabilities to bring innovative thinking, talent and creativity to clients.
The purchase price has been allocated based on management’s estimates and independent appraisal of fair values as follows:
(Dollars in millions)
Component | Acquiree's carrying amount | Fair value adjustments | Purchase price allocated |
Net assets(*) | 5 | – | 5 |
Intangible assets - Customer contracts and relationships | – | 20 | 20 |
Intangible assets - Trade name | – | 1 | 1 |
5 | 21 | 26 | |
Goodwill | 25 | ||
Total purchase price | 51 |
* Includes cash and cash equivalents acquired of $8 million.
Goodwill is tax deductible
The fair value of each major class of consideration as of the acquisition date is as follows:
(Dollars in millions)
Component | Consideration settled |
Cash consideration | 38 |
Fair value of contingent consideration | 13 |
Total purchase price | 51 |
The gross amount of trade receivables acquired and its fair value is $2 million and the amount are substiantally collected.
The payment of contingent consideration to sellers of WongDoody is dependent upon the achievement of certain financial targets by WongDoody. At the acquisition date, the key inputs used in determination of the fair value of contingent consideration are the discount rate of 16% and the probabilities of achievement of the financial targets. The undiscounted value of contingent consideration as of June 30, 2018 is $17 million.
The transaction costs of less than $1 million related to the acquisition have been included under administrative expenses in the statement of comprehensive income for the three months ended June 30, 2018.
b. Disposal Group held for sale
Accounting policy
Non current assets and Disposal Groups are classified as held for sale if their carrying amount is intended to be recovered principally through sale rather than through continuing use. The condition for classification of held for sale is met when the non current asset or the Disposal Group is available for immediate sale and the same is highly probable of being completed within one year from the date of classification as held for sale. Non current assets and Disposal Groups held for sale are measured at the lower of carrying amount and fair value less cost to sell.
In the quarter ended March 2018, on conclusion of a strategic review of the portfolio businesses, the Company initiated identification and evaluation of potential buyers for its subsidiaries, Kallidus and Skava (together referred to as "Skava”) and Panaya (collectively referred to as the “Disposal Group”). The Company anticipates completion of the sale by March 2019. On reclassification, assets and liabilities in respect of the Disposal Group have been reclassified as “held for sale"and measured at the lower of carrying amount and fair value less cost to sell. Consequently, a reduction in the fair value of Disposal Group held for sale amounting to $18 million in respect of Panaya has been recognized in the consolidated statement of comprehensive income for the quarter and year ended March 31, 2018.
During the three months ended June 30, 2018, on remeasurement, including consideration of progress in negotiations on offers from prospective buyers for Panaya, the Company has recorded a reduction in the fair value of Disposal Group held for sale amounting to $39 million in respect of Panaya.
As of June 30, 2018 assets amounting to $273 million and liabilities amounting to $50 million in respect of the Disposal Group have been classified as “held for sale" as of June 30, 2018
The Disposal Group does not constitute a separate major component of the company and therefore has not been classified as discontinued operations.
2.10 Employees' Stock Option Plans (ESOP)
Accounting Policy
The Group recognizes compensation expense relating to share-based payments in net profit using fair-value in accordance with IFRS 2, Share-Based Payment. The estimated fair value of awards is charged to income on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was in-substance, multiple awards with a corresponding increase to share premium.
2015 Stock Incentive Compensation Plan (the 2015 Plan) (formerly 2011 RSU Plan):
On March 31, 2016, pursuant to the approval by the shareholders through postal ballot, the Board has been authorized to introduce, offer, issue and allot share-based incentives to eligible employees of the Company and its subsidiaries under the 2015 Stock Incentive Compensation Plan (the 2015 Plan). The maximum number of shares under the 2015 plan shall not exceed 24,038,883 equity shares (this includes 11,223,576 equity shares which are held by the trust towards the 2011 Plan as at March 31, 2016). Out of this 17,038,883 equity shares will be issued as RSUs at par value and 7,000,000 equity shares will be issued as stock options at market price on the date of the grant. These instruments will generally vest over a period of 4 years and the Company expects to grant the instruments under the 2015 Plan over the period of 4 to 7 years.
Controlled trust holds 10,790,750 and 10,801,956 shares as at June 30, 2018 and March 31, 2018, respectively under the 2015 plan, out of which 1,00,000 equity shares have been earmarked for welfare activities of the employees.
The following is the summary of grants during the three months ended June 30, 2018 and June 30, 2017 under the 2015 Plan:
Three months ended | ||
June 30, 2018 | June 30, 2017 | |
RSU | ||
Salil Parekh, CEO and MD - Refer Note 1 below | 108,600 | – |
U.B. Pravin Rao, COO and WTD | – | 27,250 |
Dr. Vishal Sikka* | – | 270,224 |
Employees other than KMP | – | 37,090 |
108,600 | 334,564 | |
ESOP | ||
U.B. Pravin Rao, COO and WTD | – | 43,000 |
Dr. Vishal Sikka* | – | 330,525 |
Employees other than KMP | – | 73,600 |
– | 447,125 | |
Total grants | 108,600 | 781,689 |
* | Upon Dr. Vishal Sikka's resignation from the roles of the company, the unvested RSUs and ESOPs have been forfeited |
1. Stock incentives granted to Salil Parekh, CEO & MD
Pursuant to the approval of the shareholders through a postal ballot on February 20 , 2018, Salil Parekh (CEO & MD) is eligible to receive under the 2015 Plan :
a) | an annual grant of RSUs of fair value 3.25 crore (approximately $0.5 million) which will vest over time in 3 equal annual installments upon completion of each year of service from the respective grant date |
b) | a one-time grant of RSUs of fair value 9.75 crore (approximately $1.5 million) which will vest over time in 2 equal annual installments upon completion of each year of service from the grant date and |
c) | annual grant of performance based RSUs of fair value 13 crore (approximately $2 million) which will vest after completion of three years the first of which concludes on March 31, 2021, subject to achievement of performance targets set by the Board or its committee. |
The Board based on the recommendations of the Nomination and Remuneration committee approved on February 27, 2018, the annual time based grant for FY18 of 28,256 RSUs and the one-time time based grant of 84,768 RSUs. The grants were made effective February 27, 2018.
Further, the Board, based on the recommendations of the Nomination and Remuneration Committee, granted 108,600 performance based RSUs to Salil Parekh with an effective date of May 2, 2018. The grants would vest upon successful completion of three full fiscal years with the Company concluding on March 31, 2021 and will be determined based on achievement of certain performance targets for the said three-year period.
Though the annual time based grants for the remaining employment term ending on March 31, 2023 have not been granted as of June 30, 2018, since the service commencement date precedes the grant date, the company has recorded employment stock compensation expense in accordance with IFRS 2, Share based payments.
The RSUs and stock options would vest generally over a period of 4 years and shall be exercisable within the period as approved by the Committee. The exercise price of the RSUs will be equal to the par value of the shares and the exercise price of the stock options would be the market price as on the date of grant.
As at June 30, 2018 and March 31, 2018, incentive units outstanding (net of forfeitures) were 96,538 and 1,11,757, respectively .
Break-up of employee stock compensation expense
(Dollars in millions)
Three months ended June 30, | ||
2018 | 2017 | |
Granted to: | ||
KMP(2) | 1 | 2 |
Employees other than KMP | 5 | 5 |
Total (1) | 6 | 7 |
(1) Cash settled stock compensation expense included in the above | – | – |
The carrying value of liability towards cash settled share based payments was $1 million each as at June 30, 2018 and March 31, 2018.
The activity in the 2015 Plan (formerly 2011 RSU Plan) for equity-settled share based payment transactions during the three months ended June 30, 2018 and June 30, 2017 is set out below:
Particulars |
Three Months ended June 30, 2018 |
Three Months ended June 30, 2017 | ||
Shares arising out of options | Weighted average exercise price ($) | Shares arising out of options | Weighted average exercise price ($) | |
2015 Plan: RSU | ||||
Outstanding at the beginning | 3,750,409 | 0.07 | 2,961,373 | 0.07 |
Granted | 108,600 | 0.07 | 334,564 | 0.07 |
Exercised | 23,078 | 0.07 | 24,812 | 0.07 |
Forfeited and expired | 55,453 | 0.07 | 45,120 | 0.07 |
Outstanding at the end | 3,780,478 | 0.07 | 3,226,005 | 0.07 |
Exercisable at the end | 9,062 | 0.07 | – | – |
2015 Plan: Employee Stock Options (ESOPs) | ||||
Outstanding at the beginning | 966,913 | 15.23 | 1,197,650 | 15.39 |
Granted | – | – | 447,125 | 14.27 |
Exercised | 962 | 14.78 | – | – |
Forfeited and expired | 9,600 | 15.25 | – | – |
Outstanding at the end | 956,351 | 14.97 | 1,644,775 | 15.28 |
Exercisable at the end | 206,100 | 14.90 | – | – |
During the three month ended June 30, 2018, the weighted average share price of options exercised under the 2015 Plan on the date of exercise was $17.50.
During the three month ended June 30, 2017, the weighted average share price of options exercised under the 2015 Plan on the date of exercise was $14.60.
The following table summarizes information about equity settled RSUs and ESOPs outstanding as at June 30, 2018:
Options outstanding | |||
Range of exercise prices per share ($) | No. of shares arising out of options | Weighted average remaining contractual life | Weighted average exercise price ($) |
2015 Plan: | |||
0 - 0.08 (RSU) | 3,780,478 | 1.68 | 0.07 |
13 - 17 (ESOP) | 956,351 | 5.95 | 14.97 |
4,736,829 | 2.54 | 3.08 |
The following table summarizes information about equity settled RSUs and ESOPs outstanding as at March 31, 2018:
Options outstanding | |||
Range of exercise prices per share ($) | No. of shares arising out of options | Weighted average remaining contractual life | Weighted average exercise price ($) |
2015 Plan: | |||
0 - 0.08 (RSU) | 3,750,409 | 1.89 | 0.07 |
13 - 17 (ESOP) | 966,913 | 6.60 | 15.23 |
4,717,322 | 2.57 | 3.18 |
The fair value of each equity settled award is estimated on the date of grant using the Black-Scholes-Merton model with the following assumptions:
Particulars | For options granted in |
Fiscal 2019- Equity Shares-RSU | |
Weighted average share price () / ($- ADS) | 1,197 |
Exercise price ()/ ($- ADS) | 5 |
Expected volatility (%) | 24 |
Expected life of the option (years) | 3 |
Expected dividends (%) | 2.82 |
Risk-free interest rate (%) | 7 |
Weighted average fair value as on grant date () / ($- ADS) | 1,096 |
Particulars | For options granted in | |||
Fiscal 2018- Equity Shares-RSU |
Fiscal 2018- Equity shares ESOP |
Fiscal 2018- ADS-RSU |
Fiscal 2018- ADS- ESOP | |
Weighted average share price () / ($- ADS) | 1,144 | 923 | 16.61 | 14.65 |
Exercise price ()/ ($- ADS) | 5.00 | 919 | 0.08 | 14.67 |
Expected volatility (%) | 20–25 | 25–28 | 21–26 | 25–31 |
Expected life of the option (years) | 1 – 4 | 3 – 7 | 1 – 4 | 3 – 7 |
Expected dividends (%) | 2.78 | 2.78 | 2.74 | 2.74 |
Risk-free interest rate (%) | 6 – 7 | 6 – 7 | 1 – 2 | 1 – 2 |
Weighted average fair value as on grant date () / ($- ADS) | 1,066 | 254 | 15.47 | 2.93 |
The expected life of the RSU / ESOP is estimated based on the vesting term and contractual term of the RSU / ESOP, as well as expected exercise behavior of the employee who receives the RSU / ESOP. Expected volatility during the expected term of the RSU / ESOP is based on historical volatility of the observed market prices of the Company's publicly traded equity shares during a period equivalent to the expected term of the RSU / ESOP.
2.11 Income taxes
Accounting policy
Income tax expense comprises current and deferred income tax. Income tax expense is recognized in net profit in the consolidated statement of comprehensive income except to the extent that it relates to items recognized directly in equity, in which case it is recognized in other comprehensive income. Current income tax for current and prior periods is recognized at the amount expected to be paid to or recovered from the tax authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred income tax assets and liabilities are recognized for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements except when the deferred income tax arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and affects neither accounting nor taxable profit or loss at the time of the transaction. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Deferred income tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date and are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of changes in tax rates on deferred income tax assets and liabilities is recognized as income or expense in the period that includes the enactment or the substantive enactment date. A deferred income tax asset is recognized to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences and tax losses can be utilized. Deferred income taxes are not provided on the undistributed earnings of subsidiaries and branches where it is expected that the earnings of the subsidiary or branch will not be distributed in the foreseeable future. The Group offsets current tax assets and current tax liabilities, where it has a legally enforceable right to set off the recognized amounts and where it intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. The income tax provision for the interim period is made based on the best estimate of the annual average tax rate expected to be applicable for the full financial year. Tax benefits of deductions earned on exercise of employee share options in excess of compensation charged to income are credited to share premium.
Income tax expense in the consolidated statement of comprehensive income comprises:
(Dollars in millions)
Three months ended June 30, | ||
2018 | 2017 | |
Current taxes | ||
Domestic taxes | 166 | 167 |
Foreign taxes | 48 | 66 |
214 | 233 | |
Deferred taxes | ||
Domestic taxes | 1 | (14) |
Foreign taxes | (11) | (6) |
(10) | (20) | |
Income tax expense | 204 | 213 |
In December 2017, the Company had concluded an Advance Pricing Agreement (“APA”) with the US Internal Revenue Service ("IRS") for the US branch covering the years ending March 2011 to March 2021. Under the APA, the Company and the IRS have agreed on the methodology to allocate revenues and compute the taxable income of the Company’s US Branch operations.
In accordance with the APA, the company had reversed income tax expense provision of $225 million which pertained to previous periods which are no longer required. The Company had to pay an amount of approximately $233 million due to the difference between the taxes payable for prior periods as per the APA and the actual taxes paid for such periods. The Company has paid $138 million till June 30, 2018.
Further, the “Tax Cuts and Jobs Act (H.R. 1)” was signed into law on December 22, 2017 (“US Tax Reforms”). The US tax reforms has reduced federal tax rates from 35% to 21% effective January 1, 2018 amongst other measures.
Income tax expense for the three months ended June 30, 2018 and June 30, 2017 includes reversal (net of provisions) of $9 million and $2 million pertaining to prior periods on account of adjudication of certain disputed matters in favor of the company across various jurisdictions.
A reconciliation of the income tax provision to the amount computed by applying the statutory income tax rate to the income before income taxes is summarized below:
(Dollars in millions)
Three months ended June 30, | ||
2018 | 2017 | |
Profit before income taxes | 738 | 754 |
Enacted tax rates in India | 34.94% | 34.61% |
Computed expected tax expense | 258 | 261 |
Tax effect due to non-taxable income for Indian tax purposes | (90) | (93) |
Overseas taxes | 30 | 35 |
Tax provision (reversals) | (9) | (2) |
Effect of differential overseas tax rates | (2) | 2 |
Effect of exempt non operating income | (4) | (3) |
Effect of unrecognized deferred tax assets | 5 | 11 |
Effect of non-deductible expenses | 19 | 5 |
Branch profit tax (net of credits) | (4) | – |
Others | 1 | (3) |
Income tax expense | 204 | 213 |
The foreign tax expense is due to income taxes payable overseas, principally in the United States. In India, the Company has benefited from certain income tax incentives that the Government of India had provided for export of software from the units registered under the Special Economic Zones Act (SEZs), 2005. SEZ units which began the provision of services on or after April 1, 2005 are eligible for a deduction of 100% of profits or gains derived from the export of services for the first five years from the financial year in which the unit commenced the provision of services and 50% of such profits or gains for further five years. Up to 50% of such profits or gains is also available for a further five years subject to creation of a Special Economic Zone re-investment Reserve out of the profit for the eligible SEZ units and utilization of such reserve by the Company for acquiring new plant and machinery for the purpose of its business as per the provisions of the Income Tax Act, 1961.
Infosys is subject to a 15% Branch Profit Tax (BPT) in the U.S. to the extent its U.S. branch's net profit during the year is greater than the increase in the net assets of the U.S. branch during the year, computed in accordance with the Internal Revenue Code. As of March 31, 2018, Infosys' U.S. branch net assets amounted to approximately $772 million. As of June 30, 2018, the Company has a deferred tax liability for branch profit tax of $21 million (net of credits), as the Company estimates that these branch profits are expected to be distributed in the foreseeable future.
Entire deferred income tax for the three months ended June 30, 2018 and June 30, 2017, relates to origination and reversal of temporary differences.
As at March 31, 2018, claims against the Group not acknowledged as debts from the Indian Income tax authorities amounted to 4,542 crore ($697 million). Amount paid to statutory authorities against this amounted to 6,540 crore ($1,003 million).
As at June 30, 2018, claims against the Group not acknowledged as debts from the Income tax authorities amounted to 3,043 crore ($444 million). These matters are pending before various Appellate Authorities and the management including its tax advisors expect that its position will likely be upheld on ultimate resolution and will not have a material adverse effect on the Group's financial position and results of operations.
Amount paid to statutory authorities against the above tax claims amounted to 6,540 crore ($955 million).
Subsequent to March 31, 2018, the Supreme Court of India ruled favorably in respect of certain income tax claims which have been given effect in the above disclosure of claims as of June 30, 2018.
2.12 Reconciliation of basic and diluted shares used in computing earnings per share
Accounting Policy
Basic earnings per equity share is computed by dividing the net profit attributable to the equity holders of the company by the weighted average number of equity shares outstanding during the period. Diluted earnings per equity share is computed by dividing the net profit attributable to the equity holders of the company by the weighted average number of equity shares considered for deriving basic earnings per equity share and also the weighted average number of equity shares that could have been issued upon conversion of all dilutive potential equity shares. The dilutive potential equity shares are adjusted for the proceeds receivable had the equity shares been actually issued at fair value (i.e. the average market value of the outstanding equity shares). Dilutive potential equity shares are deemed converted as of the beginning of the period, unless issued at a later date. Dilutive potential equity shares are determined independently for each period presented.
The number of equity shares and potentially dilutive equity shares are adjusted retrospectively for all periods presented for any share splits and bonus shares issues including for changes effected prior to the approval of the financial statements by the Board of Directors.
The following is a reconciliation of the equity shares used in the computation of basic and diluted earnings per equity share:
Three months ended June 30, | ||
2018 | 2017 | |
Basic earnings per equity share - weighted average number of equity shares outstanding(1) | 2,173,328,621 | 2,285,657,604 |
Effect of dilutive common equivalent shares - share options outstanding | 2,026,557 | 1,400,544 |
Diluted earnings per equity share - weighted average number of equity shares and common equivalent shares outstanding | 2,175,355,178 | 2,287,058,148 |
(1) excludes treasury shares
For the three months ended June 30, 2018, no options to purchase equity shares had an anti-dilutive effect.
For the three months ended June 30, 2017, 264,886 number of options to purchase equity shares had an anti-dilutive effect.
2.13 Related party transactions
Infosys has provided guarantee for performance of certain contracts entered into by its subsidiaries.
Changes in Subsidiaries
During the three months ended June 30, 2018, the following are the changes in the subsidiaries and associates:
- Lodestone Management Consultants Inc has been liquidated effective May 17, 2018
- | On May 22, 2018, Infosys acquired 100% voting rights in WongDoody Holding Company Inc., along with its two subsidiaries, WDW Communications, Inc and WongDoody, Inc |
Changes in Key management personnel
The following were the changes in key management personnel:-
• | Ravi Venkatesan, resigned from his position as Co-Chairman effective August 24, 2017 and resigned as member of the Board effective May 11, 2018 |
Transactions with key management personnel
The table below describes the compensation to key management personnel which comprise directors and executive officers:
(Dollars in millions)
Three months ended June 30, | ||
2018 | 2017 | |
Salaries and other employee benefits to whole-time directors and executive officers(1) | 4 | 4 |
Commission and other benefits to non-executive/ independent directors | – | 1 |
Total | 4 | 5 |
(1) | Total employee stock compensation expense for the three months ended June 30, 2018 and June 30, 2017 includes $1 million and $2 million, respectively towards key management personnel. (Refer to note 2.10) |
Investment in Associate
During the three months ended June 30, 2017, the Company has written down the entire carrying value of the investment in its associate DWA Nova LLC amounting to $11 million.
2.14 Segment Reporting
IFRS 8 establishes standards for the way that public business enterprises report information about operating segments and related disclosures about products and services, geographic areas, and major customers. The Group's operations predominantly relate to providing end-to-end business solutions to enable clients to enhance business performance.
During the three months ended June 30, 2018, the Company internally reorganized some of its business segments to deepen customer relationships, improve focus of sales investments and increase management oversight. Consequent to the internal reorganization, there were changes in the reportable business segments based on “Management approach” as defined under IFRS 8, Operating Segments. Therefore, enterprises in Insurance which was earlier considered under the Life Sciences, Healthcare and Insurance business segment are now considered under the Financial Services business segment and enterprises in Communication, Telecom OEM and Media which was earlier under Energy & Utilities, Communication and Services is now shown as a separate business segment. Segmental operating income has changed in line with these as well as changes in the allocation method. The CODM evaluates the Group's performance and allocates resources based on an analysis of various performance indicators by business segments. Accordingly, information has been presented along business segments. The accounting principles used in the preparation of the financial statements are consistently applied to record revenue and expenditure in individual segments, and are as set out in the accounting policies.
Business segments of the Group are primarily enterprises in Financial Services and Insurance, enterprises in Manufacturing, enterprises in Retail, Consumer Packaged Goods and Logistics, enterprises in the Energy, Utilities, Resources and Services, enterprises in Communications, Telecom OEM and Media, enterprises in Hi-Tech, enterprises in Life Sciences and Healthcare and all other segments. The Financial services reportable segments has been aggregated to include the Financial Services operating segment and Finacle operating segment because of the similarity of the economic characteristics. All other segments represent the operating segments of businesses in India, Japan, China, Infosys Public Services & other enterprises in Public Services. Consequent to the above change in the composition of reportable business segments, the prior year comparatives for the three months ended June 30, 2017 have been restated.
Revenue and identifiable operating expenses in relation to segments are categorized based on items that are individually identifiable to that segment. Revenue for 'all other segments' represents revenue generated by Infosys Public Services and revenue generated from customers located in India, Japan and China and other enterprises in public service. Allocated expenses of segments include expenses incurred for rendering services from the Company's offshore software development centres and on-site expenses, which are categorized in relation to the associated efforts of the segment. Certain expenses such as depreciation, which form a significant component of total expenses, are not specifically allocable to specific segments as the underlying assets are used interchangeably. The management believes that it is not practical to provide segment disclosures relating to those costs and expenses, and accordingly these expenses are separately disclosed as "unallocated" and adjusted against the total income of the Group.
Assets and liabilities used in the Group's business are not identified to any of the reportable segments, as these are used interchangeably between segments. Management believes that it is currently not practicable to provide segment disclosures relating to total assets and liabilities since a meaningful segregation of the available data is onerous.
Business segment revenue information is collated based on individual customers invoiced or in relation to which the revenue is otherwise recognized.
Disclosure of Revenue by geographic locations has been given in note 2.15 Revenue from operations.
2.14.1 Business Segments
Three months ended June 30, 2018 and June 30, 2017
(Dollars in millions)
Financial Services | Retail | Communication | Energy, Utilities, Resources and Services | Manufacturing | Hi Tech | Life Sciences | All Other segments | Total | |
Revenues | 899 | 469 | 360 | 351 | 272 | 211 | 186 | 83 | 2,831 |
874 | 431 | 334 | 300 | 246 | 194 | 175 | 97 | 2,651 | |
Identifiable operating expenses | 483 | 237 | 187 | 187 | 152 | 116 | 99 | 50 | 1,511 |
450 | 217 | 166 | 151 | 144 | 107 | 88 | 54 | 1,377 | |
Allocated expenses | 186 | 92 | 73 | 72 | 59 | 38 | 35 | 30 | 585 |
185 | 94 | 65 | 64 | 61 | 35 | 32 | 30 | 566 | |
Segment profit | 230 | 140 | 100 | 92 | 61 | 57 | 52 | 3 | 735 |
239 | 120 | 103 | 85 | 41 | 52 | 55 | 13 | 708 | |
Unallocable expenses | 65 | ||||||||
70 | |||||||||
Operating profit | 670 | ||||||||
638 | |||||||||
Other income, net (Refer Note 2.16) | 107 | ||||||||
127 | |||||||||
Reduction in the fair value of Disposal Group held for sale (Refer Note 2.9) | (39) | ||||||||
– | |||||||||
Share in net profit/(loss) of associate, including impairment | – | ||||||||
(11) | |||||||||
Profit before Income taxes | 738 | ||||||||
754 | |||||||||
Income tax expense | 204 | ||||||||
213 | |||||||||
Net profit | 534 | ||||||||
541 | |||||||||
Depreciation and amortization | 65 | ||||||||
70 | |||||||||
Non-cash expenses other than depreciation and amortization | 39 |
2.14.2 Significant clients
No client individually accounted for more than 10% of the revenues for the three months ended June 30, 2018 and June 30, 2017, respectively.
2.15 Revenue from Operations
Accounting Policy:
The company derives revenues primarily from business IT services comprising of software development and related services, consulting and package implementation and from the licensing of software products and platforms across our core and digital offerings (“together called as software related services”)
Effective April 1, 2018, the Company adopted IFRS 15 “Revenue from Contracts with Customers” using the cumulative catch-up transition method, applied to contracts that were not completed as of April 1, 2018. In accordance with the cumulative catch-up transition method, the comparitives have not been retrospectively adjusted. The following is a summary of new and/or revised significant accounting policies related to revenue recognition. Refer "Significant Accounting Policies" in the Company’s 2017 Consolidated Financial statements under IFRS for the policies in effect for revenue prior to April 1, 2018. The effect on adoption of IFRS 15 was insignificant.
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services.
Arrangements with customers for software related services are either on a fixed-price, fixed-timeframe or on a time-and-material basis.
Revenue on time-and-material contracts are recognized as the related services are performed and revenue from the end of the last invoicing to the reporting date is recognized as unbilled revenue. Revenue from fixed-price, fixed-timeframe contracts, where the performance obligations are satisfied over time and where there is no uncertainty as to measurement or collectability of consideration, is recognized as per the percentage-of-completion method. When there is uncertainty as to measurement or ultimate collectability, revenue recognition is postponed until such uncertainty is resolved. Efforts or costs expended have been used to measure progress towards completion as there is a direct relationship between input and productivity.Maintenance revenue is recognized ratably over the term of the underlying maintenance arrangement.
Revenues in excess of invoicing are classified as contract assets (which we refer as unbilled revenue) while invoicing in excess of revenues are classified as contract liabilities (which we refer to as unearned revenues).
In arrangements for software development and related services and maintenance services, the company has applied the guidance in IFRS 15, Revenue from contract with customer, by applying the revenue recognition criteria for each distinct performance obligation. The arrangements with customers generally meet the criteria for considering software development and related services as distinct performance obligations. For allocating the transaction price, the company has measured the revenue in respect of each performance obligation of a contract at its relative standalone selling price. The price that is regularly charged for an item when sold separately is the best evidence of its standalone selling price. In cases where the company is unable to determine the standalone selling price, the company uses the expected cost plus margin approach in estimating the standalone selling price. For software development and related services, the performance obligations are satisfied as and when the services are rendered since the customer generally obtains control of the work as it progresses.
Revenue from licenses where the customer obtains a “right to use” the licenses is recognized at the time the license is made available to the customer. Revenue from licenses where the customer obtains a “right to access” is recognized over the access period. Arrangements to deliver software products generally have three elements: license, implementation and Annual Technical Services (ATS). The company has applied the principles under IFRS 15 to account for revenues from these performance obligations. When implementation services are provided in conjunction with the licensing arrangement and the license and implementation have been identified as two separate performance obligations, the transaction price for such contracts are allocated to each performance obligation of the contract based on their relative standalone selling prices. In the absence of standalone selling price for implementation, the performance obligation is estimated using the expected cost plus margin approach. Where the license is required to be substantially customized as part of the implementation service the entire arrangement fee for license and implementation is considered to be a single performance obligation and the revenue is recognized using the percentage-of-completion method as the implementation is performed. Revenue from client training, support and other services arising due to the sale of software products is recognized as the performance obligations are satisfied. ATS revenue is recognized ratably over the period in which the services are rendered.
The company accounts for volume discounts and pricing incentives to customers as a reduction of revenue based on the ratable allocation of the discounts/ incentives amount to each of the underlying performance obligation that corresponds to the progress by the customer towards earning the discount/ incentive. Also, when the level of discount varies with increases in levels of revenue transactions, the company recognizes the liability based on its estimate of the customer's future purchases. If it is probable that the criteria for the discount will not be met, or if the amount thereof cannot be estimated reliably, then discount is not recognized until the payment is probable and the amount can be estimated reliably. The company recognizes changes in the estimated amount of obligations for discounts in the period in which the change occurs.
Deferred contract costs are incremental costs of obtaining a contract which are recognied as assets and amortized over the term of the contract.
Contract modifications are accounted for when additions, deletions or changes are approved either to the contract scope or contract price. The accounting for modifications of contracts involves assessing whether the services added to an existing contract are distinct and whether the pricing is at the standalone selling price. Services added that are not distinct are accounted for on a cumulative catch up basis, while those that are distinct are accounted for prospectively, either as a separate contract, if the additional services are priced at the standalone selling price, or as a termination of the existing contract and creation of a new contract if not priced at the standalone selling price.
The Group presents revenues net of indirect taxes in its consolidated statement of comprehensive income.
Revenues for the three months ended June 30, 2018 and June 30, 2017 is as follows:
(Dollars in millions)
Particulars | Three monthe ended June 30, | |
2018 | 2017 | |
Revenue from software services | 2,695 | 2,509 |
Revenue from products and platforms | 136 | 142 |
2,831 | 2,651 |
Disaggregate revenue information
The table below presents disaggregated revenues from contracts with customers for the three months ended June 30, 2018 by geography, offerings and contract-type for each of our business segments. The Company believes this disaggregation best depicts how the nature, amount, timing and uncertainty of revenues and cash flows are affected by industry, market and other economic factors.
(Dollars in millions)
Particulars | Financial Services (1) | Retail(2) | Communication (3) | Energy , Utilities, resources and Services | Manufacturing | Hi Tech | Life Sciences(4) | Others (5) | Total |
Revenues by Geography | |||||||||
North America | 542 | 307 | 177 | 203 | 145 | 203 | 110 | 12 | 1,699 |
Europe | 172 | 132 | 71 | 117 | 118 | 2 | 72 | 5 | 689 |
India | 41 | 1 | 2 | – | 3 | 5 | - | 21 | 73 |
Rest of the world | 144 | 29 | 110 | 31 | 6 | 1 | 4 | 45 | 370 |
Total | 899 | 469 | 360 | 351 | 272 | 211 | 186 | 83 | 2,831 |
Revenue by offerings | |||||||||
Services | |||||||||
Digital | 236 | 137 | 106 | 93 | 67 | 67 | 39 | 9 | 754 |
Core | 574 | 320 | 248 | 251 | 196 | 143 | 137 | 72 | 1,941 |
Subtotal | 810 | 457 | 354 | 344 | 263 | 210 | 176 | 81 | 2,695 |
Products and platforms | |||||||||
Digital | 17 | 10 | 6 | 2 | 6 | 1 | 6 | 1 | 49 |
Core | 72 | 2 | – | 5 | 3 | – | 4 | 1 | 87 |
Subtotal | 89 | 12 | 6 | 7 | 9 | 1 | 10 | 2 | 136 |
Total | 899 | 469 | 360 | 351 | 272 | 211 | 186 | 83 | 2,831 |
Digital | 253 | 147 | 112 | 95 | 73 | 68 | 45 | 10 | 803 |
Core | 646 | 322 | 248 | 256 | 199 | 143 | 141 | 73 | 2,028 |
Revenues by contract type | |||||||||
Fixed Price | 383 | 296 | 200 | 212 | 136 | 114 | 86 | 39 | 1,466 |
Time & Materials | 516 | 173 | 160 | 139 | 136 | 97 | 100 | 44 | 1,365 |
Total | 899 | 469 | 360 | 351 | 272 | 211 | 186 | 83 | 2,831 |
(1) | Financial Services include enterprises in Financial Services and Insurance |
(2) | Retail includes enterprises in Retail, Consumer Packaged Goods and Logistics |
(3) | Communication includes enterprises in Communication, Telecom OEM and Media |
(4) | Life Sciences includes enterprises in Life sciences and Health care |
(5) | Others include operating segments of businesses in India, Japan, China, Infosys Public Services & other enterprises in Public Services |
Digital Services
Digital Services comprise of service and solution offerings of the company that enable our clients to transform their businesses. These include offerings that enhance customer experience, leverage AI-based analytics and big data, engineer digital products and IoT, modernize legacy technology systems, migrate to cloud applications and implement advanced cyber security systems.
Core Services
Core Services comprise traditional offerings of the company that have scaled and industrialized over a number of years. These primarily include application management services, proprietary application development services, independent validation solutions, product engineering and management, infrastructure management services, traditional enterprise application implementation, support and integration services.
Products & platforms
The Group also derives revenues from the sale of products and platforms including Finacle – core banking solution, Edge Suite of products, Infosys Nia - Artificial Intelligence (AI) platform which applies next-generation AI and machine learning and Infosys McCamish- insurance platform
Trade Receivables and Contract Balances
The company classifies the right to consideration in exchange for deliverables as either a receivable or as unbilled revenue.
A receivable is a right to consideration that is unconditional upon passage of time. Revenue for time and material contracts are recognised as related service are performed. Revenue for fixed price maintenance contracts is recognized on a straight line basis over the period of the contract. Revenues in excess of billings is recorded as unbilled revenue and is classified as a financial asset for these cases as right to consideration is unconditional upon passage of time .
Revenue recognition for fixed price development contracts is based on percentage of completion method. Invoicing to the clients is based on milestones as defined in the contract. This would result in the timing of revenue recognition being different from the timing of billing the customers. Unbilled revenue for fixed price development contracts is classifed as non financial asset as the contractual right to consideration is dependent on completion of contractual milestones.
Invoicing in excess of earnings are classified as unearned revenue.
Trade receivable and unbilled revenues are presented net of impairment in the consolidated statements of financial position.
The following table discloses the movement in unbilled revenue on fixed price development contracts during the three months ended June 30, 2018
(Dollars in millions)
Particulars | For the three months ended June 30, 2018 |
Balance as of April 1, 2018 | 431 |
Add : Revenue recognized during the period | 280 |
Less : Invoiced during the period | 268 |
Less : Impairment / (reversal) during the period | (1) |
Add : Translation gain/(Loss) | – |
Balance as of June 30, 2018 | 444 |
The following table discloses the movement in unearned revenue balances during the three months ended June 30, 2018
(Dollars in millions)
Particulars | For the three months ended June 30, 2018 |
Balance as of April 1, 2018 | 352 |
Less: Revenue recognized during the period | 148 |
Add: Invoiced during the period but not recognized as revenues | 135 |
Add: Translation loss / (gain) | 1 |
Balance as of June 30, 2018 | 340 |
Performance obligations and remaining performance obligations
The remaining performance obligation disclosure provides the aggregate amount of the transaction price yet to be recognized as of the end of the reporting period and an explanation as to when the company expects to recognize these amounts in revenue. Applying the practical expedient as given in IFRS 15, the company has not disclosed the remaining performance obligation related disclosures for contracts where the revenue recognized corresponds directly with the value to the customer of the entity's performance completed to date, typically those contracts where invoicing is on time and material basis. Remaining performance obligation estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidations, adjustment for revenue that has not materialized and adjustments for currency.
The aggregate value of performance obligations that are completely or partially unsatisfied as of June 30, 2018, other than those meeting the exclusion criteria mentioned above, is $5,979 million. Out of this, the company expects to recognize revenue of around 50% within the next one year and the remaining thereafter. This includes contracts that can be terminated for convenience without a substantive penalty since, based on current assessment, the occurrence of the same is expected to be remote.
The impact on account of applying the erstwhile IAS 18 - Revenue instead of IFRS 15- Revenue from contract with customers on the financials results of the company for the three months ended and as of June 30, 2018 is insignificant. On account of adoption of IFRS 15, unbilled revenues of $444 million as of June 30, 2018 has been considered as Non financial asset.
2.16 Break-up of expenses and other income, net
Accounting Policy
2.16.1 Gratuity
The Group provides for gratuity, a defined benefit retirement plan ('the Gratuity Plan') covering eligible employees of Infosys and its Indian subsidiaries. The Gratuity Plan provides a lump-sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employee's salary and the tenure of employment with the group.
Liabilities with regard to the Gratuity Plan are determined by actuarial valuation, performed by an independent actuary, at each balance sheet date using the projected unit credit method. The company fully contributes all ascertained liabilities to the Infosys Limited Employees' Gratuity Fund Trust (the Trust). In case of Infosys BPM (formerly Infosys BPO) and EdgeVerve, contributions are made to the Infosys BPM Employees' Gratuity Fund Trust and EdgeVerve Systems Limited Employees' Gratuity Fund Trust, respectively. Trustees administer contributions made to the Trusts and contributions are invested in a scheme with Life Insurance Corporation of India as permitted by law of India.
The Group recognizes the net obligation of a defined benefit plan in its balance sheet as an asset or liability. Gains and losses through re-measurements of the net defined benefit liability / asset are recognized in other comprehensive income and not reclassified to profit and loss in subsequent period. The actual return of the portfolio of plan assets, in excess of the yields computed by applying the discount rate used to measure the defined benefit obligation is recognized in other comprehensive income. The effect of any plan amendments are recognized in net profits in the statement of comprehensive income.
2.16.2 Superannuation
Certain employees of Infosys, Infosys BPM (formerly Infosys BPO) and EdgeVerve are participants in a defined contribution plan. The Group has no further obligations to the Plan beyond its monthly contributions which are periodically contributed to a trust fund, the corpus of which is invested with the Life Insurance Corporation of India.
2.16.3 Provident fund
Eligible employees of Infosys receive benefits from a provident fund, which is a defined benefit plan. Both the eligible employee and the company make monthly contributions to the provident fund plan equal to a specified percentage of the covered employee's salary. The company contributes a portion of the contributions to the Infosys Limited Employees' Provident Fund Trust. The trust invests in specific designated instruments as permitted by Indian law. The remaining portion is contributed to the government administered pension fund. The rate at which the annual interest is payable to the beneficiaries by the trust is being administered by the government. The company has an obligation to make good the shortfall, if any, between the return from the investments of the Trust and the notified interest rate.
In respect of Indian subsidiaries, eligible employees receive benefits from a provident fund, which is a defined contribution plan. Both the eligible employee and the respective companies make monthly contributions to this provident fund plan equal to a specified percentage of the covered employee's salary. Amounts collected under the provident fund plan are deposited in a government administered provident fund. The companies have no further obligation to the plan beyond its monthly contributions.
2.16.4 Compensated absences
The Group has a policy on compensated absences which are both accumulating and non-accumulating in nature. The expected cost of accumulating compensated absences is determined by actuarial valuation performed by an independent actuary at each balance sheet date using projected unit credit method on the additional amount expected to be paid/availed as a result of the unused entitlement that has accumulated at the balance sheet date. Expense on non-accumulating compensated absences is recognized in the period in which the absences occur.
2.16.5 Other income
Other income is comprised primarily of interest income, dividend income, gain/loss on investment and exchange gain/loss on forward and options contracts and on translation of other assets and liabilities. Interest income is recognized using the effective interest method. Dividend income is recognized when the right to receive payment is established.
During the three months ended June 30, 2018, the company has adopted IFRS interpretation IFRIC 22- Foreign Currency Transactions and Advance Consideration which clarifies the date of transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income when an entity has received or paid advance consideration in a foreign currency. The effect on account of adoption of this amendment was insignificant.
2.16.6 Operating Profits
Operating profit of the Group is computed considering the revenues, net of cost of sales, selling and marketing expenses and administrative expenses.
Cost of sales
(Dollars in millions)
Three months ended June 30, | ||
2018 | 2017 | |
Employee benefit costs | 1,384 | 1,293 |
Depreciation and amortization | 65 | 70 |
Travelling costs | 65 | 61 |
Cost of technical sub-contractors | 191 | 165 |
Cost of software packages for own use | 31 | 34 |
Third party items bought for service delivery to clients | 49 | 34 |
Operating lease payments | 12 | 12 |
Consultancy and professional charges | 2 | 2 |
Communication costs | 8 | 8 |
Repairs and maintenance | 12 | 11 |
Provision for post-sales client support | – | 2 |
Others | – | – |
Total | 1,819 | 1,692 |
Sales and marketing expenses
(Dollars in millions)
Three months ended June 30, | ||
2018 | 2017 | |
Employee benefit costs | 111 | 104 |
Travelling costs | 15 | 12 |
Branding and marketing | 14 | 14 |
Operating lease payments | 3 | 3 |
Consultancy and professional charges | 3 | 2 |
Communication costs | 1 | 1 |
Others | 2 | 2 |
Total | 149 | 138 |
Administrative expenses
(Dollars in millions)
Three months ended June 30, | ||
2018 | 2017 | |
Employee benefit costs | 54 | 57 |
Consultancy and professional charges | 40 | 34 |
Repairs and maintenance | 30 | 35 |
Power and fuel | 9 | 8 |
Communication costs | 9 | 10 |
Travelling costs | 9 | 9 |
Rates and taxes | 5 | 8 |
Operating lease payments | 4 | 5 |
Insurance charges | 3 | 2 |
Impairment loss recognized/(reversed) under expected credit loss model | 10 | 1 |
Contributions towards Corporate Social Responsibility | 11 | 7 |
Others | 9 | 7 |
Total | 193 | 183 |
Other income, net
(Dollars in millions)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Interest income on financial assets carried at amortized cost | 57 | 66 |
Interest income on financial assets fair valued through other comprehensive income | 25 | 32 |
Gain/(loss) on investments carried at fair value through profit or loss | 5 | 11 |
Exchange gains / (losses) on forward and options contracts | (27) | 3 |
Exchange gains / (losses) on translation of other assets and liabilities | 33 | 8 |
Others | 14 | 7 |
107 | 127 |
2.17 Capital allocation policy
2.17.1 Dividend
The Company declares and pays dividends in Indian rupees. The remittance of dividends outside India is governed by Indian law on foreign exchange and is subject to applicable distribution taxes. Dividend distribution tax paid by subsidiaries may be reduced / available as credit against dividend distribution tax payable by Infosys Limited.
Amount of per share dividend recognised as distribution to equity shareholders:
Particulars | Three Months ended June 30, 2018 | Three Months ended June 30, 2017 | ||
in | in US Dollars | in | in US Dollars | |
Final dividend for fiscal 2017 | – | – | 14.75 | 0.23 |
Final dividend for fiscal 2018 | 20.50 | 0.31 | ||
Special dividend for fiscal 2018 | 10.00 | 0.15 | – | – |
Effective from Financial Year 2018, the Company's policy is to payout up to 70% of the free cash flow of the corresponding Financial Year in such manner (including by way of dividend and / or share buyback) as may be decided by the Board from time to time, subject to applicable laws and requisite approvals, if any. Free cash flow is defined as net cash provided by operating activities less capital expenditure as per the consolidated statement of cash flows prepared under IFRS. Dividend payout includes dividend distribution tax.
2.17.2 Buyback
The Board, at its meeting on August 19, 2017, approved a proposal for the Company to buyback its fully paid-up equity shares of face value of 5/- each from the eligible equity shareholders of the Company for an amount not exceeding 13,000 crore ($2 billion). The shareholders approved the said proposal of Buyback of Equity Shares through the postal ballot that concluded on October 7, 2017. The Buyback offer comprised a purchase of 113,043,478 Equity Shares aggregating 4.92% of the paid-up equity share capital of the Company at a price of 1,150 per Equity share. The buyback was offered to all eligible equity shareholders (including those who became equity shareholders as on the Record date by cancelling American Depository Shares and withdrawing underlying Equity shares) of the Company as on the Record Date (i.e. November 1, 2017) on a proportionate basis through the "Tender offer" route. The Company concluded the buyback procedures on December 27, 2017 and 113,043,478 shares were extinguished. The company utilized its securities premium and general reserve for the buyback of its shares. In accordance with section 69 of the Companies Act, 2013, the company created ‘Capital Redemption Reserve’ of $9 million equal to the nominal value of the shares bought back as an appropriation from general reserve during the year ended March 31, 2018.
The Company’s objective when managing capital is to safeguard its ability to continue as a going concern and to maintain an optimal capital structure so as to maximize shareholder value. In order to maintain or achieve an optimal capital structure, the Company may adjust the amount of dividend payment, return capital to shareholders, issue new shares or buy back issued shares. As of June 30, 2018, the Company has only one class of equity shares and has no debt. Consequent to the above capital structure there are no externally imposed capital requirements
2.17.3 Bonus issue
The Board in its meeting held on July 13, 2018 has considered, approved and recommended a bonus issue of one equity share for every equity share held and a stock dividend of one American Depositary Share (ADS) for every ADS held, as on a record date to be determined. Consequently, the ratio of equity shares underlying the ADSs held by an American Depositary Receipt holder would remain unchanged. The Board approved and recommended the issue to celebrate 25th year of public listing in India and to further increase the liquidity of its shares. The bonus issue of equity shares and ADSs will be subject to approval by the shareholders, and any other applicable statutory and regulatory approvals.
The bonus shares once allotted shall rank pari passu in all respects and carry the same rights as the existing equity shareholders and shall be entitled to participate in full, in any dividend and other corporate action, recommended and declared after the new equity shares are allotted.
2.18 Share capital and share premium
The Company has only one class of shares referred to as equity shares having a par value of 5/- each. 10,790,750 shares and 10,801,956 shares were held by controlled trust, as at June 30, 2018 and March 31, 2018, respectively.
The amount received in excess of the par value has been classified as share premium. Additionally, share-based compensation recognized in net profit in the consolidated statement of comprehensive income is credited to share premium. Amounts have been utilized for bonus issue from share premium account.
for and on behalf of the Board of Directors of Infosys Limited | ||
Nandan M. Nilekani Chairman |
Salil Parekh Chief Executive officer and Managing Director |
U. B. Pravin Rao Chief Operating Officer and Whole-time Director |
D. Sundaram Director |
M. D. Ranganath Chief Financial Officer |
A. G. S. Manikantha Company Secretary |
Bengaluru, July 13, 2018 |
Exhibit 99.9
IFRS INR Earning Release
INDEPENDENT AUDITOR’S REPORT
TO THE BOARD OF DIRECTORS OF INFOSYS LIMITED
Report on the Audit of Interim Condensed Consolidated Financial Statements
Opinion
We have audited the accompanying interim condensed consolidated financial statements of Infosys Limited (“the Company”) and its subsidiaries (the Company and its subsidiaries together referred to as “the Group”), which comprise the Condensed Consolidated Balance Sheet as at June 30, 2018, the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Changes in Equity and the Condensed Consolidated Statement of Cash Flows for the three months period ended on that date, and a summary of the significant accounting policies and other explanatory information (hereinafter referred to as “the interim condensed consolidated financial statements”).
In our opinion and to the best of our information and according to the explanations given to us, the aforesaid interim condensed consolidated financial statements give a true and fair view in conformity with International Accounting Standard 34 “Interim Financial Reporting” (“IAS 34”) as issued by the International Accounting Standards Board (“IASB”),of the consolidated state of affairs of the Group as at June 30, 2018, the consolidated profit, consolidated total comprehensive income, consolidated changes in equity and its consolidated cash flows for the three months period ended on that date.
Basis for Opinion
We conducted our audit in accordance with the Standards on Auditing (SAs) specified under section 143(10) of the Companies Act, 2013. Our responsibilities under those Standards are further described in the Auditor’s Responsibilities for the Audit of the Interim Condensed Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India, and we have fulfilled our other ethical responsibilities in accordance with the provisions of the Companies Act, 2013. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Responsibilities of the Management and Those Charged with Governance for the Interim Condensed Consolidated Financial Statements
The Company’s Board of Directors is responsible for the preparation and presentation of these interim condensed consolidated financial statements that give a true and fair view of the consolidated financial position, consolidated financial performance, consolidated total comprehensive income, consolidated changes in equity and consolidated cash flows of the Group in accordance with IAS 34 as issued by the IASB. The respective Board of Directors of the companies included in the Group are responsible for maintenance of the adequate accounting records for safeguarding assets of the Group and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the interim condensed consolidated financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error, which have been used for the purpose of preparation of the interim condensed consolidated financial statements by the Board of Directors of the Company, as aforesaid.
In preparing the interim condensed consolidated financial statements, the respective Board of Directors of the companies included in the Group are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
The respective Board of Directors of the companies included in the Group are responsible for overseeing the financial reporting process of the Group.
Auditor’s Responsibilities for the Audit of the Interim Condensed Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the interim condensed consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these interim condensed consolidated financial statements.
As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
o | Identify and assess the risks of material misstatement of the interim condensed consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. |
o | Obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on whether the Company has in place an adequate internal financial controls system over financial reporting and the operating effectiveness of such controls. |
o | Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. |
o | Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the ability of the Group to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the interim condensed consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. |
o | Evaluate the overall presentation, structure and content of the interim condensed consolidated financial statements, including the disclosures, and whether the interim condensed consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. |
o | Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the interim condensed consolidated financial statements. We are responsible for the direction, supervision and performance of the audit of the financial statements of such entities included in the interim condensed consolidated financial statements. |
Materiality is the magnitude of misstatements in the financial statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the financial statements may be influenced. We consider quantitative materiality and qualitative factors in (i) planning the scope of our audit work and in evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatements in the financial statements.
Based on our professional judgment, we determined materiality for the interim condensed consolidated financial statements as a whole at Rs. 250 crores. The basis for determining materiality was 5% of profits before tax. Profits before tax was used as a benchmark for materiality because it is one of the main measures used by users of financial statements to monitor the performance of the Group.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
For DELOITTE HASKINS & SELLS LLP
Chartered Accountants
(Firm’s Registration No. 117366W/W-100018)
Bengaluru, July 13, 2018 | P. R. RAMESH Partner (Membership No.70928) |
INFOSYS LIMITED AND SUBSIDIARIES
Condensed Consolidated Financial Statements under International Financial Reporting Standards (IFRS) in Indian Rupee for the three months ended June 30, 2018
Index |
Consolidated Balance Sheet |
Consolidated Statement of Comprehensive Income |
Consolidated Statement of Changes in Equity |
Consolidated Statement of Cash Flows |
Overview and notes to the financial statements |
1. Overview |
1.1 Company overview |
1.2 Basis of preparation of financial statements |
1.3 Basis of consolidation |
1.4 Use of estimates and judgements |
1.5 Critical accounting estimates |
1.6 Recent accounting pronouncements |
2. Notes to the Condensed Consolidated Financial Statements |
2.1 Cash and cash equivalents |
2.2 Investments |
2.3 Financial instruments |
2.4 Prepayments and other assets |
2.5 Other liabilities |
2.6 Provisions |
2.7 Property, plant and equipment |
2.8 Goodwill |
2.9 Business combinations and Disposal Group held for sale |
2.10 Employees' Stock Option Plans (ESOP) |
2.11 Income taxes |
2.12 Reconciliation of basic and diluted shares used in computing earnings per share |
2.13 Related party transactions |
2.14 Segment reporting |
2.15 Revenue from Operations |
2.16 Break-up of expenses and other income, net |
2.17 Capital allocation policy |
2.18 Share capital and share premium |
Infosys Limited and subsidiaries
(In crore except equity share data)
Condensed Consolidated Balance Sheet as at | Note | June 30, 2018 | March 31, 2018 |
ASSETS | |||
Current assets | |||
Cash and cash equivalents | 2.1 | 16,506 | 19,818 |
Current investments | 2.2 | 6,876 | 6,407 |
Trade receivables | 13,699 | 13,142 | |
Unbilled revenue | 4,655 | 4,261 | |
Prepayments and other current assets | 2.4 | 4,841 | 4,313 |
Derivative financial instruments | 2.3 | 36 | 16 |
46,613 | 47,957 | ||
Assets held for sale | 2.9 | 1,867 | 2,060 |
Total current assets | 48,480 | 50,017 | |
Non-current assets | |||
Property, plant and equipment | 2.7 | 12,192 | 12,143 |
Goodwill | 2.8 | 2,394 | 2,211 |
Intangible assets | 370 | 247 | |
Investment in associate | 2.13 | – | – |
Non-current investments | 2.2 | 5,623 | 5,756 |
Deferred income tax assets | 1,300 | 1,282 | |
Income tax assets | 6,056 | 6,070 | |
Other non-current assets | 2.4 | 1,688 | 2,164 |
Total non-current assets | 29,623 | 29,873 | |
Total assets | 78,103 | 79,890 | |
LIABILITIES AND EQUITY | |||
Current liabilities | |||
Trade payables | 798 | 694 | |
Derivative financial instruments | 2.3 | 136 | 42 |
Current income tax liabilities | 2,032 | 2,043 | |
Client deposits | 187 | 38 | |
Unearned revenue | 2,327 | 2,295 | |
Employee benefit obligations | 1,498 | 1,421 | |
Provisions | 2.6 | 523 | 492 |
Other current liabilities | 2.5 | 8,688 | 6,756 |
16,189 | 13,781 | ||
Liabilities directly associated with assets held for sale | 2.9 | 345 | 324 |
Total current liabilities | 16,534 | 14,105 | |
Non-current liabilities | |||
Deferred income tax liabilities | 505 | 541 | |
Employee benefit obligations | 43 | 48 | |
Other non-current liabilities | 2.5 | 335 | 272 |
Total liabilities | 17,417 | 14,966 | |
Equity | |||
Share capital - 5 par value 2,40,00,00,000 (2,40,00,00,000) equity shares authorized, issued and outstanding 2,17,33,36,341 (2,17,33,12,301), net of 1,07,90,750 (1,08,01,956) treasury shares as at June 30, 2018 and (March 31, 2018), respectively | 1,088 | 1,088 | |
Share premium | 229 | 186 | |
Retained earnings | 56,567 | 61,241 | |
Cash flow hedge reserves | 9 | – | |
Other reserves | 1,920 | 1,583 | |
Capital redemption reserve | 56 | 56 | |
Other components of equity | 816 | 769 | |
Total equity attributable to equity holders of the Company | 60,685 | 64,923 | |
Non-controlling interests | 1 | 1 | |
Total equity | 60,686 | 64,924 | |
Total liabilities and equity | 78,103 | 79,890 |
The accompanying notes form an integral part of the interim condensed consolidated financial statements.
As per our report of even date attached
for Deloitte Haskins & Sells LLP
|
for and on behalf of the Board of Directors of Infosys Limited | ||
Chartered Accountants
|
|||
Firm's Registration Number: | |||
117366W/W-100018 | |||
P. R. Ramesh Partner |
Nandan M. Nilekani Chairman |
Salil Parekh Chief Executive officer and Managing Director |
U. B. Pravin Rao Chief Operating Officer and Whole-time Director |
Membership No. 70928 | |||
Bengaluru July 13, 2018 |
D. Sundaram Director |
M. D. Ranganath Chief Financial Officer |
A. G. S. Manikantha Company Secretary |
Infosys Limited and subsidiaries
(In crore except equity share and per equity share data)
Condensed Consolidated Statement of Comprehensive Income for the | Note | Three months ended June 30, | |
2018 | 2017 | ||
Revenues | 2.15 | 19,128 | 17,078 |
Cost of sales | 2.16 | 12,288 | 10,900 |
Gross profit | 6,840 | 6,178 | |
Operating expenses | |||
Selling and marketing expenses | 2.16 | 1,005 | 888 |
Administrative expenses | 2.16 | 1,298 | 1,179 |
Total operating expenses | 2,303 | 2,067 | |
Operating profit | 4,537 | 4,111 | |
Other income, net | 2.16 | 726 | 814 |
Reduction in the fair value of Disposal Group held for sale | 2.9 | (270) | – |
Share in net profit/(loss) of associate, including impairment | – | (71) | |
Profit before income taxes | 4,993 | 4,854 | |
Income tax expense | 2.11 | 1,381 | 1,371 |
Net profit | 3,612 | 3,483 | |
Other comprehensive income | |||
Items that will not be reclassified subsequently to profit or loss | |||
Remeasurement of the net defined benefit liability/asset, net | 1 | (3) | |
Equity instruments through other comprehensive income, net | 4 | – | |
5 | (3) | ||
Items that will be reclassified subsequently to profit or loss | |||
Fair value changes on derivatives designated as cash flow hedge, net | 9 | (66) | |
Exchange differences on translation of foreign operations | 87 | 107 | |
Fair value changes on investments, net | 2.2 | (45) | 27 |
51 | 68 | ||
Total other comprehensive income/(loss), net of tax | 56 | 65 | |
Total comprehensive income | 3,668 | 3,548 | |
Profit attributable to: | |||
Owners of the Company | 3,612 | 3,483 | |
Non-controlling interests | – | – | |
3,612 | 3,483 | ||
Total comprehensive income attributable to: | |||
Owners of the Company | 3,668 | 3,548 | |
Non–controlling interests | – | – | |
3,668 | 3,548 | ||
Earnings per equity share | |||
Basic () | 16.62 | 15.24 | |
Diluted () | 16.60 | 15.23 | |
Weighted average equity shares used in computing earnings per equity share | 2.12 | ||
Basic | 217,33,28,621 | 228,56,57,604 | |
Diluted | 217,53,55,178 | 228,70,58,148 |
The accompanying notes form an integral part of the interim condensed consolidated financial statements.
As per our report of even date attached
for Deloitte Haskins & Sells LLP
|
for and on behalf of the Board of Directors of Infosys Limited | ||
Chartered Accountants
|
|||
Firm's Registration Number: | |||
117366W/W-100018 | |||
P. R. Ramesh Partner |
Nandan M. Nilekani Chairman |
Salil Parekh Chief Executive officer and Managing Director |
U. B. Pravin Rao Chief Operating Officer and Whole-time Director |
Membership No. 70928 | |||
Bengaluru July 13, 2018 |
D. Sundaram Director |
M. D. Ranganath Chief Financial Officer |
A. G. S. Manikantha Company Secretary |
Infosys Limited and subsidiaries
Condensed Consolidated Statement of Changes in Equity
(In crore except equity share data)
Shares(1) | Share capital | Share premium | Retained earnings | Other reserves(2) | Capital redemption reserve | Other components of equity | Cash flow hedge reserve | Total equity attributable to equity holders of the Company | |
Balance as at April 1, 2017 | 228,56,55,150 | 1,144 | 2,356 | 65,056 | – | – | 387 | 39 | 68,982 |
Changes in equity for the three months June 30, 2017 | |||||||||
Net profit | – | – | – | 3,483 | – | – | – | – | 3,483 |
Remeasurement of the net defined benefit liability/asset* | – | – | – | – | – | – | (3) | – | (3) |
Fair value changes on Cash flow hedge reserve* (Refer to note 2.3) | – | – | – | – | – | – | – | (66) | (66) |
Exchange differences on translation of foreign operations | – | – | – | – | – | – | 107 | – | 107 |
Fair value changes on investments, net* (Refer to note 2.2) | – | – | – | – | – | – | 27 | – | 27 |
Total comprehensive income for the period | – | – | – | 3,483 | – | – | 131 | (66) | 3,548 |
Shares issued on exercise of employee stock options (Refer to note 2.10) | 24,812 | – | – | – | – | – | – | – | – |
Employee stock compensation expense (refer to note 2.10) | – | – | 45 | – | – | – | – | – | 45 |
Transferred to other reserves | – | – | – | (483) | 483 | – | – | – | – |
Transferred from other reserves on utilisation | – | – | – | 154 | (154) | – | – | – | – |
Dividends (including dividend distribution tax) | – | – | – | (4,061) | – | – | – | – | (4,061) |
Balance as at June 30, 2017 | 228,56,79,962 | 1,144 | 2,401 | 64,149 | 329 | – | 518 | (27) | 68,514 |
Balance as at April 1, 2018 |
217,33,12,301 | 1,088 | 186 | 61,241 | 1,583 | 56 | 769 | – | 64,923 |
Changes in equity for the three months June 30, 2018 | |||||||||
Net profit | – | – | – | 3,612 | – | – | – | – | 3,612 |
Remeasurement of the net defined benefit liability/asset* | – | – | – | – | – | – | 1 | – | 1 |
Equity instruments through other comprehensive income* (Refer to note 2.2) | – | – | – | – | – | – | 4 | – | 4 |
Fair value changes on derivatives designated as cash flow hedge* (Refer to note 2.3) | – | – | – | – | – | – | – | 9 | 9 |
Exchange differences on translation of foreign operations | – | – | – | – | – | – | 87 | – | 87 |
Fair value changes on investments, net* (Refer to note 2.2) | – | – | – | – | – | – | (45) | – | (45) |
Total comprehensive income for the period | – | – | – | 3,612 | – | – | 47 | 9 | 3,668 |
Shares issued on exercise of employee stock options (Refer to note 2.10) |
24,040 | – | – | – | – | – | – | – | – |
Employee stock compensation expense (refer to note 2.10) | – | – | 43 | – | – | – | – | – | 43 |
Transferred to other reserves | – | – | – | (553) | 553 | – | – | – | – |
Transferred from other reserves on utilisation | – | – | – | 216 | (216) | – | – | – | – |
Dividends (including dividend distribution tax) | – | – | – | (7,949) | – | – | – | – | (7,949) |
Balance as at June 30, 2018 | 217,33,36,341 | 1,088 | 229 | 56,567 | 1,920 | 56 | 816 | 9 | 60,685 |
* net of tax
(1) | excludes treasury shares of 1,07,90,750 as at June 30, 2018, 10,801,956 as at April 1, 2018, 1,12,64,702 as at June 30,2017 and 1,12,89,514 as at April 1, 2017, held by consolidated trust. |
(2) | Represents the Special Economic Zone Re-investment reserve created out of the profit of the eligible SEZ unit in terms of the provisions of Sec 10AA(1)(ii) of Income Tax Act,1961. The reserve should be utilized by the Company for acquiring new plant and machinery for the purpose of its business in terms of the provisions of the Sec 10AA(2) of the Income Tax Act, 1961. |
The accompanying notes form an integral part of the interim condensed consolidated financial statements.
As per our report of even date attached
for Deloitte Haskins & Sells LLP
|
for and on behalf of the Board of Directors of Infosys Limited | ||
Chartered Accountants
|
|||
Firm's Registration Number: | |||
117366W/W-100018 | |||
P. R. Ramesh Partner |
Nandan M. Nilekani Chairman |
Salil Parekh Chief Executive officer and Managing Director |
U. B. Pravin Rao Chief Operating Officer and Whole-time Director |
Membership No. 70928 | |||
Bengaluru July 13, 2018 |
D. Sundaram Director |
M. D. Ranganath Chief Financial Officer |
A. G. S. Manikantha Company Secretary |
Infosys Limited and subsidiaries
Condensed Consolidated Statement of Cash Flows
Accounting Policy
Cash flows are reported using the indirect method, whereby profit for the period is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments and item of income or expenses associated with investing or financing cash flows. The cash flows from operating, investing and financing activities of the Company are segregated. The company considers all highly liquid investments that are readily convertible to known amounts of cash to be cash equivalents.
(In crore)
Condensed Consolidated Statement of cash flows for the | Note | Three months ended June 30, | |
2018 | 2017 | ||
Operating activities: | |||
Net Profit | 3,612 | 3,483 | |
Adjustments to reconcile net profit to net cash provided by operating activities: | |||
Depreciation and amortization | 2.7 & 2.8 | 436 | 450 |
Income tax expense | 2.11 | 1,381 | 1,371 |
Interest and dividend income | (202) | (240) | |
Effect of exchange rate changes on assets and liabilities | 62 | (3) | |
Impairment loss under expected credit loss model | 69 | (4) | |
Share in net profit/(loss) of associate, including impairment | – | 71 | |
Reduction in the fair value of Disposal Group held for sale | 2.9 | 270 | – |
Stock compensation expense | 44 | 46 | |
Other adjustments | (56) | (52) | |
Changes in working capital | |||
Trade receivables and unbilled revenue | (984) | (459) | |
Prepayments and other assets | (83) | (164) | |
Trade payables | 96 | (107) | |
Client deposits | 149 | (16) | |
Unearned revenue | 14 | 221 | |
Other liabilities and provisions | 886 | 759 | |
Cash generated from operations | 5,694 | 5,356 | |
Income taxes paid | (1,428) | (1,205) | |
Net cash provided by operating activities | 4,266 | 4,151 | |
Investing activities: | |||
Expenditure on property, plant and equipment | 2.7 & 2.8 | (537) | (553) |
Loans to employees | – | 23 | |
Deposits placed with corporation | 22 | (9) | |
Interest and dividend received | 186 | 86 | |
Payment of contingent consideration pertaining to acquisition of business | 2.9 | – | (33) |
Payment towards acquisition of business, net of cash acquired | 2.9 | (206) | – |
Investment in equity and preference securities | (10) | (13) | |
Investment in others | (5) | (9) | |
Investment in certificates of deposit | – | (281) | |
Redemption of certificates of deposit | 800 | 150 | |
Investment in quoted debt securities | (17) | (1) | |
Redemption of quoted debt securities | 303 | 4 | |
Investment in liquid mutual fund units and fixed maturity plan securities | (23,922) | (16,472) | |
Redemption of liquid mutual fund units and fixed maturity plan securities | 22,499 | 16,774 | |
Net cash used in investing activities | (887) | (334) | |
Financing activities: | |||
Payment of dividends | (6,629) | (3,363) | |
Net cash used in financing activities | (6,629) | (3,363) | |
Effect of exchange rate changes on cash and cash equivalents | (41) | 38 | |
Net increase/(decrease) in cash and cash equivalents | (3,250) | 454 | |
Cash and cash equivalents at the beginning of the period | 2.1 | 19,871 | 22,625 |
Cash and cash equivalents at the end of the period | 2.1 | 16,580 | 23,117 |
Supplementary information: | |||
Restricted cash balance | 2.1 | 433 | 601 |
The accompanying notes form an integral part of the interim condensed consolidated financial statements.
As per our report of even date attached
for Deloitte Haskins & Sells LLP
|
for and on behalf of the Board of Directors of Infosys Limited | ||
Chartered Accountants
|
|||
Firm's Registration Number: | |||
117366W/W-100018 | |||
P. R. Ramesh Partner |
Nandan M. Nilekani Chairman |
Salil Parekh Chief Executive officer and Managing Director |
U. B. Pravin Rao Chief Operating Officer and Whole-time Director |
Membership No. 70928 | |||
Bengaluru July 13, 2018 |
D. Sundaram Director |
M. D. Ranganath Chief Financial Officer |
A. G. S. Manikantha Company Secretary |
Notes to the interim condensed consolidated financial statements
1. Overview
1.1 Company overview
Infosys Limited ('the Company' or Infosys) is a leading provider of consulting, technology, outsourcing and next-generation digital services, enabling clients to execute strategies for their digital transformation. Infosys strategic objective is to build a sustainable organization that remains relevant to the agenda of clients, while creating growth opportunities for employees and generating profitable returns for investors. Infosys strategy is to be a navigator for our clients as they ideate, plan and execute on their journey to a digital future.
Infosys together with its subsidiaries and controlled trusts is herein after referred to as the "Group".
The Company is a public limited company incorporated and domiciled in India and has its registered office at Bengaluru, Karnataka, India. The Company has its primary listings on the BSE Ltd. and National Stock Exchange in India. The Company’s American Depositary Shares (ADS) representing equity shares is listed on the New York Stock Exchange (NYSE).
Further, the Company's ADS were also listed on the Euronext London and Euronext Paris. On July 5, 2018, the Company voluntarily delisted its ADS from the said exchanges due to low average daily trading volume of its ADS on these exchanges.
The Group's interim condensed consolidated financial statements are authorized for issue by the Company's Board of Directors on July 13, 2018.
1.2 Basis of preparation of financial statements
These interim condensed consolidated financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting as issued by the International Accounting Standards Board (IFRS), under the historical cost convention on the accrual basis except for certain financial instruments which have been measured at fair values. Accordingly, these consolidated financial statements do not include all the information required for a complete set of financial statements. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s annual consolidated financial statements for the year ended March 31, 2018. Accounting policies have been applied consistently to all periods presented in these interim condensed consolidated financial statements.
1.3 Basis of consolidation
Infosys consolidates entities which it owns or controls. The interim condensed consolidated financial statements comprise the financial statements of the Company, its controlled trusts and its subsidiaries. Control exists when the parent has power over the entity, is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns by using its power over the entity. Power is demonstrated through existing rights that give the ability to direct relevant activities, those which significantly affect the entity's returns. Subsidiaries are consolidated from the date control commences until the date control ceases.
The financial statements of the Group Companies are consolidated on a line-by-line basis and intra-group balances and transactions including unrealized gain / loss from such transactions are eliminated upon consolidation. These financial statements are prepared by applying uniform accounting policies in use at the Group. Non-controlling interests which represent part of the net profit or loss and net assets of subsidiaries that are not, directly or indirectly, owned or controlled by the Company, are excluded.
1.4 Use of estimates and judgements
The preparation of the financial statements in conformity with IFRS requires management to make estimates, judgments and assumptions. These estimates, judgments and assumptions affect the application of accounting policies and the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the period. Application of accounting policies that require critical accounting estimates involving complex and subjective judgments and the use of assumptions in these financial statements have been disclosed in Note 1.5. Accounting estimates could change from period to period. Actual results could differ from those estimates. Appropriate changes in estimates are made as management becomes aware of changes in circumstances surrounding the estimates. Changes in estimates are reflected in the financial statements in the period in which changes are made and, if material, their effects are disclosed in the notes to the consolidated financial statements.
1.5 Critical accounting estimates
a. Revenue recognition
The group uses the percentage-of-completion method in accounting for its fixed-price contracts. Use of the percentage-of-completion method requires the group to estimate the efforts or costs expended to date as a proportion of the total efforts or costs to be expended. Efforts or costs expended have been used to measure progress towards completion as there is a direct relationship between input and productivity.
Further, the company uses significant judgements while determining the transaction price allocated to performance obligations using the expected cost plus margin approach.
Provisions for estimated losses, if any, on uncompleted contracts are recorded in the period in which such losses become probable based on the expected contract estimates at the reporting date.
b. Income taxes
The Company's two major tax jurisdictions are India and the U.S., though the Company also files tax returns in other overseas jurisdictions. Significant judgments are involved in determining the provision for income taxes, including amount expected to be paid/recovered for uncertain tax positions.
In assessing the realizability of deferred income tax assets, management considers whether some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers the scheduled reversals of deferred income tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred income tax assets are deductible, management believes that the group will realize the benefits of those deductible differences. The amount of the deferred income tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced. Also refer to Note 2.11.
c. Business combinations and intangible assets
Business combinations are accounted for using IFRS 3 (Revised), Business Combinations. IFRS 3 requires the identifiable intangible assets and contingent consideration to be fair valued in order to ascertain the net fair value of identifiable assets, liabilities and contingent liabilities of the acquiree. Significant estimates are required to be made in determining the value of contingent consideration and intangible assets. These valuations are conducted by independent valuation experts.
d. Property, plant and equipment
Property, plant and equipment represent a significant proportion of the asset base of the Group. The charge in respect of periodic depreciation is derived after determining an estimate of an asset’s expected useful life and the expected residual value at the end of its life. The useful lives and residual values of Group's assets are determined by management at the time the asset is acquired and reviewed periodically, including at each financial year end. The lives are based on historical experience with similar assets as well as anticipation of future events, which may impact their life, such as changes in technology.
e. Impairment of Goodwill
Goodwill is tested for impairment on an annual basis and whenever there is an indication that the recoverable amount of a cash generating unit is less than its carrying amount based on a number of factors including operating results, business plans, future cash flows and economic conditions. The recoverable amount of cash generating units is determined based on higher of value-in-use and fair value less cost to sell. The goodwill impairment test is performed at the level of the cash-generating unit or groups of cash-generating units which are benefitting from the synergies of the acquisition and which represents the lowest level at which goodwill is monitored for internal management purposes.
Market related information and estimates are used to determine the recoverable amount. Key assumptions on which management has based its determination of recoverable amount include estimated long term growth rates, weighted average cost of capital and estimated operating margins. Cash flow projections take into account past experience and represent management’s best estimate about future developments.
f. Non-current assets and Disposal Groups held for sale
Assets and liabilities of Disposal Groups held for sale are measured at the lower of carrying amount and fair value less costs to sell. The determination of fair value less costs to sell includes use of management estimates and assumptions. The fair value of the Disposal Groups have been estimated using valuation techniques (including income and market approach) which includes unobservable inputs.
1.6 Recent accounting pronouncements
IFRS 16 Leases : On January 13, 2016, the International Accounting Standards Board issued the final version of IFRS 16, Leases. IFRS 16 will replace the existing leases Standard, IAS 17 Leases, and related Interpretations. The Standard sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract i.e., the lessee and the lessor. IFRS 16 introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. Currently, operating lease expenses are charged to the statement of comprehensive income. The Standard also contains enhanced disclosure requirements for lessees. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17.
The effective date for adoption of IFRS 16 is annual periods beginning on or after January 1, 2019, though early adoption is permitted for companies applying IFRS 15 Revenue from Contracts with Customers. The Group is currently evaluating the requirements of IFRS 16 and the impact on the consolidated financial statements.
IFRIC 23, Uncertainty over Income Tax Treatments : In June 2017, the International Accounting Standards Board (IASB) issued IFRS interpretation IFRIC 23 Uncertainty over Income Tax Treatments which is to be applied while performing the determination of taxable profit (or loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. According to IFRIC 23, companies need to determine the probability of the relevant tax authority accepting each tax treatment, or group of tax treatments, that the companies have used or plan to use in their income tax filing which has to be considered to compute the most likely amount or the expected value of the tax treatment when determining taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates.
The standard permits two possible methods of transition:
Full retrospective approach – Under this approach, IFRIC 23 will be applied retrospectively to each prior reporting period presented in accordance with IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors.
Retrospectively with cumulative effect of initially applying IFRIC 23 recognized by adjusting equity on initial application, without adjusting comparatives
The effective date for adoption of IFRIC 23 is annual periods beginning on or after January 1, 2019, though early adoption is permitted. The Group is currently evaluating the effect of IFRIC 23 on the consolidated financial statements.
Amendment to IAS 19 – plan amendment, curtailment or settlement : On 7 February 2018, the IASB issued amendments to the guidance in IAS 19, ‘Employee Benefits’, in connection with accounting for plan amendments, curtailments and settlements.
The amendments require an entity:
• | to use updated assumptions to determine current service cost and net interest for the remainder of the period after a plan amendment, curtailment or settlement; and |
• | to recognize in profit or loss as part of past service cost, or a gain or loss on settlement, any reduction in a surplus, even if that surplus was not previously recognized because of the impact of the asset ceiling. |
Effective date for application of this amendment is annual period beginning on or after 1 January 2019, although early application is permitted. The Group is currently evaluating the effect of this amendment on the consolidated financial statements and the impact is not expected to be material.
2. Notes to the condensed consolidated financial statements
2.1 Cash and cash equivalents
Cash and cash equivalents consist of the following:
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Cash and bank deposits | 9,034 | 13,168 |
Deposits with financial institutions | 7,472 | 6,650 |
16,506 | 19,818 | |
Cash and cash equivalents included under assets classified under held for sale (Refer note no 2.9) | 74 | 53 |
16,580 | 19,871 |
Cash and cash equivalents as at June 30, 2018 and March 31, 2018 include restricted cash and bank balances of 433 crore and 533 crore, respectively. The restrictions are primarily on account of cash and bank balances held by irrevocable trusts controlled by the Company, bank balances held as margin money deposits against guarantees and balances held in unpaid dividend bank accounts.
The deposits maintained by the Group with banks and financial institutions comprise of time deposits, which can be withdrawn by the Group at any point without prior notice or penalty on the principal.
The table below provides details of cash and cash equivalents:
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Current Accounts | ||
ANZ Bank, Taiwan | 1 | 9 |
Axis Bank - Unpaid Dividend Account | 1 | 1 |
Banamex Bank, Mexico | 2 | 2 |
Banamex Bank, Mexico (U.S. Dollar account) | 14 | 13 |
Bank of America, Mexico | 27 | 25 |
Bank of America, USA | 569 | 1,172 |
Bank of Baroda, Mauritius | – | 1 |
Bank of Tokyo-Mitsubishi UFJ Ltd., Japan | 1 | 1 |
Bank Zachodni WBK S.A, Poland | 8 | 17 |
Bank of Phillipines, Manila Island | 1 | – |
Barclays Bank, United Kingdom | 42 | 40 |
BNP Paribas Bank, Norway | 52 | 88 |
China Merchants Bank, China | 8 | 6 |
Citibank N.A., Australia | 124 | 223 |
Citibank N.A., Brazil | 16 | 14 |
Citibank N.A., China | 75 | 116 |
Citibank N.A., China (U.S. Dollar account) | 8 | 9 |
Citibank N.A., Costa Rica | 3 | 1 |
Citibank N.A., Dubai | 6 | 6 |
Citibank N.A., EEFC (U.S. Dollar account) | 1 | 4 |
Citibank N.A., Hungary | 8 | 6 |
Citibank N.A., India | 3 | 3 |
Citibank N.A., Japan | 15 | 18 |
Citibank N.A., New Zealand | 6 | 11 |
Citibank N.A., Portugal | 8 | 8 |
Citibank N.A., Romania | 4 | 2 |
Citibank N.A., Singapore | 7 | 4 |
Citibank N.A., South Africa | 36 | 33 |
CitiBank N.A., South Africa (Euro account) | 1 | 1 |
Citibank N.A., South Korea | 5 | 2 |
CitiBank N.A., USA | 4 | 3 |
Danske Bank, Sweden | 1 | 1 |
Deutsche Bank, Belgium | 17 | 27 |
Deutsche Bank, Czech Republic | 5 | 16 |
Deutsche Bank, Czech Republic (Euro account) | 3 | 3 |
Deutsche Bank, Czech Republic (U.S. Dollar account) | 8 | 2 |
Deutsche Bank, EEFC (Australian Dollar account) | 1 | 2 |
Deutsche Bank, EEFC (Euro account) | 36 | 34 |
Deutsche Bank, EEFC (Swiss Franc account) | 2 | 2 |
Deutsche Bank, EEFC (U.S. Dollar account) | 42 | 32 |
Deutsche Bank, EEFC (United Kingdom Pound Sterling account) | 8 | 9 |
Deutsche Bank, France | 6 | 19 |
Deutsche Bank, Germany | 121 | 100 |
Deutsche Bank, Hong Kong | 2 | 1 |
Deutsche Bank, India | 30 | 44 |
Deutsche Bank, Malaysia | 1 | 5 |
Deutsche Bank, Netherlands | 12 | 15 |
Deutsche Bank, Philippines | 6 | 25 |
Deutsche Bank, Philippines (U.S. Dollar account) | 3 | 3 |
Deutsche Bank, Poland | 7 | 18 |
Deutsche Bank, Poland (Euro account) | 6 | 8 |
Deutsche Bank, Russia | 3 | 3 |
Deutsche Bank, Russia (U.S. Dollar account) | 4 | 5 |
Deutsche Bank, Singapore | 14 | 17 |
Deutsche Bank, Spain | 1 | 1 |
Deutsche Bank, Switzerland | 21 | 29 |
Deutsche Bank, United Kingdom | 54 | 79 |
Deutsche Bank, USA | 20 | 2 |
HDFC Bank - Unpaid dividend account | 1 | 1 |
HSBC Bank, (U.S. Dollar account) | 2 | – |
HSBC Bank, Dubai | – | 2 |
HSBC Bank, Hong Kong | 2 | 2 |
HSBC Bank, United Kingdom | 8 | 6 |
ICICI Bank, EEFC (Euro account) | 5 | 1 |
ICICI Bank, EEFC (U.S. Dollar account) | 51 | 40 |
ICICI Bank, EEFC (United Kingdom Pound Sterling account) | 2 | 11 |
ICICI Bank, India | 54 | 52 |
ICICI Bank - Unpaid dividend account | 20 | 20 |
Nordbanken, Sweden | 32 | 50 |
Punjab National Bank, India | 76 | 12 |
Raiffeisen Bank, Czech Republic | 1 | 5 |
Raiffeisen Bank, Romania | – | 3 |
Royal Bank of Canada, Canada | 195 | 166 |
Santander Bank, Argentina | – | 1 |
Splitska Banka D.D., Société Générale Group, Croatia | 9 | 8 |
State Bank of India, India | 2 | 1 |
The Saudi British Bank, Saudi Arabia | 3 | 3 |
Washington Trust | 45 | – |
1,998 | 2,725 | |
Deposit Accounts | ||
Axis Bank | 100 | – |
Bank BGZ BNP Paribas S.A. | 320 | 144 |
Barclays Bank | 200 | 200 |
Canara Bank | 233 | 235 |
Citibank | 126 | 227 |
Deutsche Bank, AG | 23 | 24 |
Deutsche Bank, Poland | 66 | 211 |
HDFC Bank | 523 | 2,498 |
ICICI Bank | 3,376 | 3,699 |
IDBI Bank | – | 250 |
IDFC Bank | 1,750 | 1,500 |
IndusInd Bank | – | 1,000 |
National Bank of Mexico, SA (CITI - Banamex) | 64 | – |
South Indian Bank | 250 | 450 |
Yes Bank | 5 | 5 |
7,036 | 10,443 | |
Deposits with financial institutions | ||
HDFC Limited | 6,272 | 5,450 |
LIC Housing Finance Limited | 1,200 | 1,200 |
7,472 | 6,650 | |
Total Cash and cash equivalents | 16,506 | 19,818 |
2.2 Investments
The carrying value of the investments are as follows:
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
(i) Current | ||
Amortised Cost | ||
Quoted debt securities | ||
Cost | 17 | 1 |
Fair Value through profit and loss | ||
Liquid mutual fund units | ||
Fair value | 1,535 | 81 |
Fair Value through other comprehensive income | ||
Quoted Debt Securities | ||
Fair value | 486 | 763 |
Commercial papers | ||
Fair value | 299 | 293 |
Certificates of deposit | ||
Fair value | 4,539 | 5,269 |
Total current investments | 6,876 | 6,407 |
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
(ii) Non-current | ||
Amortised Cost | ||
Quoted debt securities | ||
Cost | 1,895 | 1,896 |
Fair Value through other comprehensive income | ||
Quoted debt securities | ||
Fair value | 3,066 | 3,215 |
Unquoted equity and preference securities | ||
Fair value | 154 | 138 |
Fair Value through profit and loss | ||
Unquoted convertible promissory note | ||
Fair value | 11 | 12 |
Fixed Maturity Plan Securities | ||
Fair value | 431 | 429 |
Others | ||
Fair value | 66 | 66 |
Total non-current investments | 5,623 | 5,756 |
Total investments | 12,499 | 12,163 |
Investments carried at amortised cost | 1,912 | 1,897 |
Investments carried at fair value through other comprehensive income | 8,544 | 9,678 |
Investments carried at fair value through profit or loss | 2,043 | 588 |
Uncalled capital commitments outstanding as at June 30, 2018 and March 31, 2018 was 67 crore and 81 crore, respectively.
Details of amounts recorded in Other comprehensive income:
(In crore)
Net Gain/(loss) on | Three months ended | |||||
June 30, 2018 | June 30, 2017 | |||||
Gross | Tax | Net | Gross | Tax | Net | |
Quoted debt securities | (36) | 4 | (32) | 30 | (2) | 28 |
Certificate of deposits | (20) | 7 | (13) | (1) | - | (1) |
Unquoted equity and preference securities | 5 | (1) | 4 | - | - | - |
Method of fair valuation:
(In crore)
Class of investment | Method | Fair value | |
As at | |||
June 30, 2018 | March 31, 2018 | ||
Liquid mutual fund units | Quoted price | 1,535 | 81 |
Fixed maturity plan securities | Market observable inputs | 431 | 429 |
Quoted debt securities- carried at amortized cost | Quoted price and market observable inputs | 2,144 | 2,151 |
Quoted debt securities- carried at fair value through other comprehensive income | Quoted price and market observable inputs | 3,552 | 3,978 |
Certificate of deposits | Market observable inputs | 4,539 | 5,269 |
Commercial papers | Market observable inputs | 299 | 293 |
Unquoted equity and preference securities | Discounted cash flows method, Market multiples method, Option pricing model, etc. | 154 | 138 |
Unquoted convertible promissory note | Discounted cash flows method, Market multiples method, Option pricing model, etc. | 11 | 12 |
Others | Discounted cash flows method, Market multiples method, Option pricing model, etc. | 66 | 66 |
12,731 | 12,417 |
Certain quoted investments are classified as Level 2 in the absence of active market for such investments.
2.3 Financial instruments
Accounting Policy
Effective April 1, 2016, the Group has early adopted IFRS 9 - Financial Instruments considering April 1, 2015 as the date of initial application of the standard even though the stipulated effective date for adoption is April 1, 2018.
As per IFRS 9, the Group has classified its financial assets into the following categories based on the business model for managing those assets and the contractual cash flow characteristics:
-Financial assets carried at amortised cost
-Financial assets fair valued through other comprehensive income
- Financial assets fair valued through profit and loss
The adoption of IFRS 9 did not have any other material impact on the interim condensed consolidated financial statements.
2.3.1 Initial recognition
The Group recognizes financial assets and financial liabilities when it becomes a party to the contractual provisions of the instrument. All financial assets and liabilities are recognized at fair value on initial recognition, except for trade receivables which are initially measured at transaction price. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities, that are not at fair value through profit or loss, are added to the fair value on initial recognition. Regular way purchase and sale of financial assets are accounted for at trade date.
2.3.2 Subsequent measurement
a. Non-derivative financial instruments
(i) Financial assets carried at amortised cost
A financial asset is subsequently measured at amortised cost if it is held within a business model whose objective is to hold the asset in order to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
(ii) Financial assets at fair value through other comprehensive income (FVOCI)
A financial asset is subsequently measured at fair value through other comprehensive income if it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The Company has made an irrevocable election for its investments which are classified as equity instruments to present the subsequent changes in fair value in other comprehensive income based on its business model.
(iii) Financial assets at fair value through profit or loss (FVTPL)
A financial asset which is not classified in any of the above categories is subsequently fair valued through profit or loss.
(iv) Financial liabilities
Financial liabilities are subsequently carried at amortized cost using the effective interest method, except for contingent consideration recognized in a business combination which is subsequently measured at fair value through profit and loss. For trade and other payables maturing within one year from the balance sheet date, the carrying amounts approximate fair value due to the short maturity of these instruments.
b. Derivative financial instruments
The Group holds derivative financial instruments such as foreign exchange forward and option contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. The counterparty for these contracts is generally a bank.
(i) Financial assets or financial liabilities, at fair value through profit or loss
This category has derivative financial assets or liabilities which are not designated as hedges.
Although the Group believes that these derivatives constitute hedges from an economic perspective, they may not qualify for hedge accounting under IFRS 9, Financial Instruments. Any derivative that is either not designated as hedge, or is so designated but is ineffective as per IFRS 9, is categorized as a financial asset or financial liability, at fair value through profit or loss.
Derivatives not designated as hedges are recognized initially at fair value and attributable transaction costs are recognized in net profit in the statement of comprehensive income when incurred. Subsequent to initial recognition, these derivatives are measured at fair value through profit or loss and the resulting exchange gains or losses are included in other income. Assets/ liabilities in this category are presented as current assets/current liabilities if they are either held for trading or are expected to be realized within 12 months after the Balance Sheet date.
(ii) Cash flow hedge
The Group designates certain foreign exchange forward and options contracts as cash flow hedges to mitigate the risk of foreign exchange exposure on highly probable forecast cash transactions.
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and accumulated in the cash flow hedging reserve. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in the net profit in the statement of comprehensive income. If the hedging instrument no longer meets the criteria for hedge accounting, then hedge accounting is discontinued prospectively. If the hedging instrument expires or is sold, terminated or exercised, the cumulative gain or loss on the hedging instrument recognized in cash flow hedging reserve till the period the hedge was effective remains in cash flow hedging reserve until the forecasted transaction occurs. The cumulative gain or loss previously recognized in the cash flow hedging reserve is transferred to the net profit in the statement of comprehensive income upon the occurrence of the related forecasted transaction. If the forecasted transaction is no longer expected to occur, then the amount accumulated in cash flow hedging reserve is reclassified to net profit in the statement of comprehensive income.
c. Share capital and treasury shares
(i) Ordinary Shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of new ordinary shares and share options and buy back of ordinary shares are recognized as a deduction from equity, net of any tax effects.
(ii) Treasury Shares
When any entity within the Group purchases the Company's ordinary shares, the consideration paid including any directly attributable incremental cost is presented as a deduction from total equity, until they are cancelled, sold or reissued. When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to/ from share premium.
2.3.3 Derecognition of financial instruments
The Group derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for derecognition under IFRS 9. A financial liability (or a part of a financial liability) is derecognized from the Group's Balance Sheet when the obligation specified in the contract is discharged or cancelled or expires.
2.3.4 Fair value of financial instruments
In determining the fair value of its financial instruments, the Group uses a variety of methods and assumptions that are based on market conditions and risks existing at each reporting date. The methods used to determine fair value include discounted cash flow analysis, available quoted market prices and dealer quotes. All methods of assessing fair value result in general approximation of value, and such value may never actually be realized.
Refer to table 'Financial instruments by category' below for the disclosure on carrying value and fair value of financial assets and liabilities. For financial assets and liabilities maturing within one year from the balance sheet date and which are not carried at fair value, the carrying amounts approximate fair value due to the short maturity of those instruments.
2.3.5 Impairment
a. Financial assets
The Group recognizes loss allowances using the expected credit loss (ECL) model for the financial assets and unbilled revenue which are not fair valued through profit or loss. Loss allowance for trade receivables and unbilled revenues with no significant financing component is measured at an amount equal to lifetime ECL. For all other financial assets, expected credit losses are measured at an amount equal to the 12-month ECL, unless there has been a significant increase in credit risk from initial recognition in which case those are measured at lifetime ECL. The amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognized is recognized as an impairment gain or loss in statement of comprehensive income.
Financial instruments by category
The carrying value and fair value of financial instruments by categories as at June 30, 2018 were as follows:
(In crore)
Amortised cost | Financial assets / liabilities at fair value through profit or loss | Financial assets / liabilities at fair value through OCI | Total carrying value | Total fair value | |||
Designated upon initial recognition | Mandatory | Equity instruments designated upon initial recognition | Mandatory | ||||
Assets: | |||||||
Cash and cash equivalents (Refer to Note 2.1) | 16,506 | – | – | – | – | 16,506 | 16,506 |
Investments (Refer to Note 2.2) | |||||||
Liquid mutual funds | – | – | 1,535 | – | – | 1,535 | 1,535 |
Fixed maturity plan securities | – | – | 431 | – | – | 431 | 431 |
Quoted debt securities | 1,912 | – | – | – | 3,552 | 5,464 | 5,696(1) |
Certificates of deposit | – | – | – | – | 4,539 | 4,539 | 4,539 |
Commercial papers | – | – | – | – | 299 | 299 | 299 |
Unquoted equity and preference securities | – | – | – | 154 | – | 154 | 154 |
Unquoted investment others | – | – | 66 | – | – | 66 | 66 |
Unquoted convertible promissory notes | – | – | 11 | – | – | 11 | 11 |
Trade receivables | 13,699 | – | – | – | – | 13,699 | 13,699 |
Unbilled revenues (3) (Refer to Note 2.15) | 1,615 | – | – | – | – | 1,615 | 1,615 |
Prepayments and other assets (Refer to Note 2.4) | 3,033 | – | – | – | – | 3,033 | 2,941 (2) |
Derivative financial instruments | – | – | 13 | – | 23 | 36 | 36 |
Total | 36,765 | – | 2,056 | 154 | 8,413 | 47,388 | 47,528 |
Liabilities: | |||||||
Trade payables | 798 | – | – | – | – | 798 | 798 |
Derivative financial instruments | – | – | 133 | – | 3 | 136 | 136 |
Other liabilities including contingent consideration (Refer to Note 2.5) | 6,059 | – | 110 | – | – | 6,169 | 6,169 |
Total | 6,857 | – | 243 | – | 3 | 7,103 | 7,103 |
(1) On account of fair value changes including interest accrued
(2) Excludes interest accrued on quoted debt securities carried at amortized cost
(3) | Excludes unbilled revenue for fixed price development contracts where right to consideration is conditional on factors other than passage of time |
The carrying value and fair value of financial instruments by categories as at March 31, 2018 were as follows:
(In crore)
Amortised cost | Financial assets/ liabilities at fair value through profit or loss | Financial assets/liabilities at fair value through OCI | Total carrying value | Total fair value | |||
Designated upon initial recognition | Mandatory | Equity instruments designated upon initial recognition | Mandatory | ||||
Assets: | |||||||
Cash and cash equivalents (Refer to Note 2.1) | 19,818 | – | – | – | – | 19,818 | 19,818 |
Investments (Refer to Note 2.2) | |||||||
Liquid mutual funds | – | – | 81 | – | – | 81 | 81 |
Fixed maturity plan securities | – | – | 429 | – | – | 429 | 429 |
Quoted debt securities | 1,897 | – | – | – | 3,978 | 5,875 | 6,129(1) |
Certificates of deposit | – | – | – | – | 5,269 | 5,269 | 5,269 |
Commercial papers | – | – | – | – | 293 | 293 | 293 |
Unquoted equity and preference securities | – | – | – | 138 | – | 138 | 138 |
Unquoted investments others | – | – | 66 | – | – | 66 | 66 |
Unquoted convertible promissory note | – | – | 12 | – | – | 12 | 12 |
Trade receivables | 13,142 | – | – | – | – | 13,142 | 13,142 |
Unbilled revenue | 4,261 | – | – | – | – | 4,261 | 4,261 |
Prepayments and other assets (Refer to Note 2.4) | 2,966 | – | – | – | – | 2,966 | 2,882(2) |
Derivative financial instruments | – | – | 4 | – | 12 | 16 | 16 |
Total | 42,084 | – | 592 | 138 | 9,552 | 52,366 | 52,536 |
Liabilities: | |||||||
Trade payables | 694 | – | – | – | – | 694 | 694 |
Derivative financial instruments | – | – | 39 | – | 3 | 42 | 42 |
Other liabilities including contingent consideration (Refer to Note 2.5) | 5,442 | – | 54 | – | – | 5,496 | 5,496 |
Total | 6,136 | – | 93 | – | 3 | 6,232 | 6,232 |
(1) On account of fair value changes including interest accrued
(2) Excludes interest accrued on quoted debt securities carried at amortized cost
Fair value hierarchy
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
The following table presents fair value hierarchy of assets and liabilities as at June 30, 2018:
(In crore)
Particulars | As at June 30, 2018 | Fair value measurement at end of the reporting period using | ||
Level 1 | Level 2 | Level 3 | ||
Assets | ||||
Investments in liquid mutual fund units (Refer to Note 2.2) | 1,535 | 1,535 | – | – |
Investments in fixed maturity plan securities (Refer to Note 2.2) | 431 | – | 431 | – |
Investments in quoted debt securities (Refer to Note 2.2) | 5,696 | 2,969 | 2,727 | – |
Investments in certificates of deposit (Refer to Note 2.2) | 4,539 | – | 4,539 | – |
Investments in commercial papers (Refer to Note 2.2) | 299 | – | 299 | – |
Investments in unquoted equity and preference securities (Refer to Note 2.2) | 154 | – | – | 154 |
Investments in unquoted investments others (Refer to Note 2.2) | 66 | – | – | 66 |
Investments in unquoted convertible promissory note (Refer to Note 2.2) | 11 | – | – | 11 |
Derivative financial instruments - gain on outstanding foreign exchange forward and option contracts | 36 | – | 36 | – |
Liabilities | ||||
Derivative financial instruments - loss on outstanding foreign exchange forward and option contracts | 136 | – | 136 | – |
Liability towards contingent consideration (Refer to Note 2.5)* | 110 | – | – | 110 |
*Discounted contingent consideration of 21 crore pertaining to Brilliant Basics at 10% and 119 crore pertaining to Wongdoody at 16%.
During the three months ended June 30, 2018, quoted debt securities of 351 crore were transferred from Level 2 to Level 1 of fair value hierarchy, since these were valued based on quoted price and 1,711 crore were transferred from Level 1 to Level 2 of fair value hierarchy, since these were valued based on market observable inputs.
The following table presents fair value hierarchy of assets and liabilities as at March 31, 2018:
(In crore)
Particulars | As at March 31, 2018 | Fair value measurement at end of the reporting year using | ||
Level 1 | Level 2 | Level 3 | ||
Assets | ||||
Investments in liquid mutual fund units (Refer to Note 2.2) | 81 | 81 | – | – |
Investments in fixed maturity plan securities (Refer to Note 2.2) | 429 | – | 429 | – |
Investments in quoted debt securities (Refer to Note 2.2) | 6,129 | 4,574 | 1,555 | – |
Investments in certificates of deposit (Refer to Note 2.2) | 5,269 | – | 5,269 | – |
Investments in commercial papers (Refer to Note 2.2) | 293 | – | 293 | – |
Investments in unquoted equity and preference securities(Refer to Note 2.2) | 138 | – | – | 138 |
Investments in unquoted investments others (Refer to Note 2.2) | 66 | – | – | 66 |
Investments in unquoted convertible promissory note (Refer to Note 2.2) | 12 | – | – | 12 |
Derivative financial instruments- gain on outstanding foreign exchange forward and option contracts | 16 | – | 16 | – |
Liabilities | ||||
Derivative financial instruments- loss on outstanding foreign exchange forward and option contracts | 42 | – | 42 | – |
Liability towards contingent consideration (Refer to Note 2.5)* | 54 | – | – | 54 |
*Discounted contingent consideration of 21 crore pertaining to Brilliant Basics at 10%
A one percentage point change in the unobservable inputs used in fair valuation of Level 3 assets and liabilities does not have a significant impact in its value.
Income from financial assets is as follows :
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Interest income from financial assets carried at amortised cost |
383 | 427 |
Interest income on financial assets fair valued through other comprehensive income | 167 | 203 |
Dividend income from investments carried at fair value through profit or loss | – | 1 |
Gain / (loss) on investments carried at fair value through profit or loss | 32 | 69 |
582 | 700 |
Financial risk management
Financial risk factors
The Group's activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Group's primary focus is to foresee the unpredictability of financial markets and seek to minimize potential adverse effects on its financial performance. The primary market risk to the Group is foreign exchange risk. The Group uses derivative financial instruments to mitigate foreign exchange related risk exposures. The Group's exposure to credit risk is influenced mainly by the individual characteristic of each customer and the concentration of risk from the top few customers.
Market risk
The Group operates internationally and a major portion of the business is transacted in several currencies and consequently the Group is exposed to foreign exchange risk through its sales and services in the United States and elsewhere, and purchases from overseas suppliers in various foreign currencies. The Group holds derivative financial instruments such as foreign exchange forward and option contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. The exchange rate between the Indian rupee and foreign currencies has changed substantially in recent years and may fluctuate substantially in the future. Consequently, the results of the Group’s operations are adversely affected as the rupee appreciates/ depreciates against these currencies.
The following table analyses foreign currency risk from monetary assets and liabilities as at June 30, 2018:
(In crore)
Particulars | U.S. dollars | Euro | United Kingdom Pound Sterling | Australian dollars | Other currencies | Total |
Cash and cash equivalents | 766 | 215 | 117 | 227 | 1,087 | 2,412 |
Trade receivables | 8,821 | 1,823 | 811 | 788 | 788 | 13,031 |
Unbilled revenue | 2,981 | 781 | 300 | 176 | 367 | 4,605 |
Other assets | 377 | 40 | 43 | 20 | 121 | 601 |
Trade payables | (296) | (67) | (115) | (58) | (63) | (599) |
Accrued Expenses | (1,324) | (208) | (127) | (68) | (129) | (1,856) |
Employee benefit obligations | (604) | (104) | (26) | (189) | (138) | (1,061) |
Other liabilities | (1,101) | (136) | (73) | (27) | (255) | (1,592) |
Net assets / (liabilities) | 9,620 | 2,344 | 930 | 869 | 1,778 | 15,541 |
The following table analyses foreign currency risk from monetary assets and liabilities as at March 31, 2018:
(In crore)
Particulars | U.S. dollars | Euro | United Kingdom Pound Sterling | Australian dollars | Other currencies | Total |
Cash and cash equivalents | 1,287 | 218 | 147 | 353 | 1,192 | 3,197 |
Trade receivables | 8,317 | 1,751 | 845 | 788 | 781 | 12,482 |
Unbilled revenue | 2,318 | 637 | 304 | 159 | 371 | 3,789 |
Other assets | 318 | 26 | 26 | 14 | 99 | 483 |
Trade payables | (273) | (81) | (114) | (30) | (58) | (556) |
Accrued Expenses | (1,082) | (188) | (111) | (61) | (149) | (1,591) |
Employee benefit obligations | (572) | (91) | (25) | (181) | (129) | (998) |
Other liabilities | (635) | (138) | (79) | (31) | (318) | (1,201) |
Net assets / (liabilities) | 9,678 | 2,134 | 993 | 1,011 | 1,789 | 15,605 |
Sensitivity analysis between Indian rupee and U.S. Dollar
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Impact on Group's incremental operating margins | 0.48% | 0.49% |
Sensitivity analysis is computed based on the changes in the income and expenses in foreign currency upon conversion into functional currency, due to exchange rate fluctuations between the previous reporting period and the current reporting period.
Derivative financial instruments
The Group holds derivative financial instruments such as foreign exchange forward and option contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. The counterparty for these contracts is generally a bank. These derivative financial instruments are valued based on quoted prices for similar assets and liabilities in active markets or inputs that are directly or indirectly observable in the marketplace.
The following table gives details in respect of outstanding foreign exchange forward and option contracts:
Particulars | As at | As at | ||
June 30, 2018 | March 31, 2018 | |||
In million | In crore | In million | In crore | |
Derivatives designated as cash flow hedges | ||||
Option Contracts | ||||
In Australian dollars | 150 | 758 | 60 | 300 |
In Euro | 155 | 1,236 | 100 | 808 |
In United Kingdom Pound Sterling | 30 | 270 | 20 | 184 |
Other derivatives | ||||
Forward contracts | ||||
In Australian dollars | 79 | 398 | 5 | 25 |
In Canadian dollars | 20 | 102 | 20 | 99 |
In Euro | 161 | 1,285 | 91 | 735 |
In Japanese Yen | 550 | 34 | 550 | 34 |
In New Zealand dollars | 16 | 74 | 16 | 76 |
In Norwegian Krone | 80 | 67 | 40 | 34 |
In South African Rand | 25 | 13 | 25 | 14 |
In Singapore dollars | 10 | 50 | 5 | 25 |
In Swedish Krona | 50 | 38 | 50 | 40 |
In Swiss Franc | 21 | 146 | 21 | 146 |
In U.S. dollars | 834 | 5,715 | 623 | 4,061 |
In United Kingdom Pound Sterling | 78 | 702 | 51 | 466 |
Option Contracts | ||||
In Australian dollars | 40 | 202 | 20 | 100 |
In Canadian dollars | 13 | 69 | – | – |
In Euro | 65 | 519 | 45 | 363 |
In Swiss Franc | 10 | 68 | 5 | 33 |
In U.S. dollars | 240 | 1,643 | 320 | 2,086 |
In United Kingdom Pound Sterling | – | – | 25 | 231 |
Total forwards & options | 13,389 | 9,860 |
The group recognized a net loss of 170 crore and net gain of 21 crore on derivative financial instruments not designated as cash flow hedges for three months ended June 30, 2018 and June 30, 2017 respectively.
The foreign exchange forward and option contracts mature within twelve months. The table below analyses the derivative financial instruments into relevant maturity groupings based on the remaining period as at the balance sheet date:
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Not later than one month | 3,680 | 2,828 |
Later than one month and not later than three months | 6,361 | 4,568 |
Later than three months and not later than one year | 3,348 | 2,464 |
Total | 13,389 | 9,860 |
During the three months ended June 30, 2018 and June 30, 2017, the Group has designated certain foreign exchange forward and option contracts as cash flow hedges to mitigate the risk of foreign exchange exposure on highly probable forecast cash transactions. The related hedge transactions for balance in cash flow hedging reserve as at June 30, 2018 are expected to occur and reclassified to profit or loss within 3 months.
Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument, including whether the hedging instrument is expected to offset changes in cash flows of hedged items.
If the hedge ratio for risk management purposes is no longer optimal but the risk management objective remains unchanged and the hedge continues to qualify for hedge accounting, the hedge relationship will be rebalanced by adjusting either the volume of the hedging instrument or the volume of the hedged item so that the hedge ratio aligns with the ratio used for risk management purposes. Any hedge ineffectiveness is calculated and accounted for in profit or loss at the time of the hedge relationship rebalancing.
The following table provides the reconciliation of cash flow hedge reserve for the three months ended June 30, 2018 and June 30, 2017:
(In crore)
Particulars | Three months ended June 30 | |
2018 | 2017 | |
Balance at the beginning of the period | – | 39 |
Gain / (loss) recognised in other comprehensive income during the period | 30 | (41) |
Amount reclassified to profit and loss during the period | (18) | (47) |
Tax impact on above | (3) | 22 |
Balance at the end of the period | 9 | (27) |
The group offsets a financial asset and a financial liability when it currently has a legally enforceable right to set off the recognized amounts and the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
The following table provides quantitative information about offsetting of derivative financial assets and derivative financial liabilities:
(In crore)
Particulars | As at | |||
June 30, 2018 | March 31, 2018 | |||
Derivative financial asset | Derivative financial liability | Derivative financial asset |
Derivative financial liability | |
Gross amount of recognized financial asset/liability | 67 | (167) | 20 | (46) |
Amount set off | (31) | 31 | (4) | 4 |
Net amount presented in balance sheet | 36 | (136) | 16 | (42) |
Credit risk
Credit risk refers to the risk of default on its obligation by the counterparty resulting in a financial loss. The maximum exposure to the credit risk at the reporting date is primarily from trade receivables amounting to 13,699 crore and 13,142 crore as at June 30, 2018 and March 31, 2018, respectively and unbilled revenue amounting to 4,655 crore and 4,261 crore as at June 30, 2018 and March 31, 2018, respectively. Trade receivables and unbilled revenue are typically unsecured and are derived from revenue earned from customers primarily located in the United States. Credit risk has always been managed by the Group through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Group grants credit terms in the normal course of business. On account of adoption of IFRS 9, the Group uses expected credit loss model to assess the impairment loss or gain. The Group uses a provision matrix to compute the expected credit loss allowance for trade receivables and unbilled revenues. The provision matrix takes into account available external and internal credit risk factors such as credit default swap quotes, credit ratings from international credit rating agencies and the Group's historical experience for customers.
The following table gives details in respect of percentage of revenues generated from top customer and top ten customers:
(In %)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Revenue from top customer | 3.7 | 3.3 |
Revenue from top ten customers | 19.2 | 20.0 |
Credit risk exposure
The allowance of lifetime expected credit loss on customer balances for the three months ended June 30, 2018 was 69 crore and the reversal of lifetime expected credit loss on customer balances for the three months ended June 30, 2017 was 4 crore.
Movement in credit loss allowance:
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Balance at the beginning | 449 | 411 |
Translation differences | 11 | 1 |
Impairment loss recognised / (reversed) | 69 | (4) |
Reclassified as held for sale (refer note no 2.9) | – | – |
Write-offs | – | (3) |
Balance at the end | 529 | 405 |
The Company’s credit period generally ranges from 30-60 days.
Credit exposure
(In crore except otherwise stated)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Trade receivables | 13,699 | 13,142 |
Unbilled revenues | 4,655 | 4,261 |
Days Sales Outstanding (DSO) as of June 30, 2018 and March 31, 2018 was 66 days and 67 days respectively.
Credit risk on cash and cash equivalents is limited as we generally invest in deposits with banks and financial institutions with high credit ratings assigned by international and domestic credit rating agencies. Investments primarily include investment in liquid mutual fund units, fixed maturity plan securities, quoted bonds issued by government and quasi government organizations, non convertible debentures, certificates of deposit and commercial paper.
Liquidity risk
The Group's principal sources of liquidity are cash and cash equivalents and the cash flow that is generated from operations. The Group has no outstanding borrowings. The Group believes that the working capital is sufficient to meet its current requirements.
As at June 30, 2018, the Group had a working capital of 30,424 crore including cash and cash equivalents of 16,506 crore and current investments of 6,876 crore. As at March 31, 2018, the Group had a working capital of 34,176 crore including cash and cash equivalents of 19,818 crore and current investments of 6,407 crore.
As at June 30, 2018 and March 31, 2018, the outstanding employee benefit obligations were 1,541 crore and 1,469 crore, respectively, which have been substantially funded. Accordingly, no liquidity risk is perceived.
The table below provides details regarding the contractual maturities of significant financial liabilities as at June 30, 2018:
(In crore)
Particulars | Less than 1 year | 1-2 years | 2-4 years | 4-7 years | Total |
Trade payables | 798 | – | – | – | 798 |
Other liabilities (excluding liability towards contingent consideration) (Refer to Note 2.5) | 6,057 | 2 | – | – | 6,059 |
Liability towards contingent consideration on an undiscounted basis (Refer to Note 2.5) | 29 | 66 | 45 | – | 140 |
The table below provides details regarding the contractual maturities of significant financial liabilities as at March 31, 2018:
(In crore)
Particulars | Less than 1 year | 1-2 years | 2-4 years | 4-7 years | Total |
Trade payables | 694 | – | – | – | 694 |
Other liabilities (excluding liability towards contingent consideration) (Refer to Note 2.5) | 5,442 | – | – | – | 5,442 |
Liability towards contingent consideration on an undiscounted basis (Refer to Note 2.5) | 41 | 7 | 7 | – | 55 |
2.4 Prepayments and other assets
Prepayments and other assets consist of the following:
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Current | ||
Rental deposits | 30 | 13 |
Security deposits | 7 | 9 |
Loans to employees | 247 | 239 |
Prepaid expenses(1) | 567 | 472 |
Interest accrued and not due | 751 | 766 |
Withholding taxes and others(1) | 1,374 | 1,032 |
Advance payments to vendors for supply of goods(1) | 104 | 119 |
Deposit with corporations | 1,543 | 1,535 |
Deferred contract cost(1) | 44 | 44 |
Other assets | 174 | 84 |
4,841 | 4,313 | |
Non-current | ||
Loans to employees | 28 | 36 |
Deposit with corporations | 30 | 60 |
Rental deposits | 169 | 171 |
Security deposits | 54 | 53 |
Withholding taxes and others(1) | 1,011 | 1,428 |
Deferred contract cost(1) | 258 | 262 |
Prepaid expenses(1) | 106 | 111 |
Prepaid gratuity(1) | 32 | 43 |
1,688 | 2,164 | |
6,529 | 6,477 | |
Financial assets in prepayments and other assets | 3,033 | 2,966 |
(1) Non financial assets
Withholding taxes and others primarily consist of input tax credits. Security deposits relate principally to leased telephone lines and electricity supplies. Deferred contract costs are upfront cost incurred for the contract and are amortised over the term of the contract.
Deposit with corporations represents amounts deposited to settle certain employee-related obligations as and when they arise during the normal course of business.
2.5 Other liabilities
Other liabilities comprise the following :
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Current | ||
Accrued compensation to employees | 2,634 | 2,509 |
Accrued expenses | 2,902 | 2,452 |
Withholding taxes and others(1) | 1,255 | 1,240 |
Retention money | 109 | 132 |
Liabilities of controlled trusts | 176 | 139 |
Deferred income - government grant on land use rights(1) | 1 | 1 |
Liability towards contingent consideration (Refer to Note 2.9) | 27 | 41 |
Tax on dividend(1) | 1,320 | – |
Deferred rent (1) | 28 | 32 |
Others | 236 | 210 |
Total current other liabilities | 8,688 | 6,756 |
Non-current | ||
Liability towards contingent consideration (Refer to Note 2.9) | 83 | 13 |
Accrued gratuity (1) | 28 | 28 |
Accrued compensation to employees | 2 | – |
Deferred income - government grant on land use rights(1) | 44 | 44 |
Deferred rent (1) | 143 | 151 |
Deferred income(1) | 35 | 36 |
Total non-current other liabilities | 335 | 272 |
Total other liabilities | 9,023 | 7,028 |
Financial liabilities included in other liabilities | 6,169 | 5,496 |
Financial liability towards contingent consideration on an undiscounted basis (Refer to Note 2.9) | 140 | 55 |
(1) Non financial liabilities
Accrued expenses primarily relates to cost of technical sub-contractors, telecommunication charges, legal and professional charges, brand building expenses, overseas travel expenses and office maintenance. Others include unpaid dividend balances and capital creditors.
2.6 Provisions
Accounting Policy
Provisions
A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that is reasonably estimable, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
Post sales client support
The Group provides its clients with a fixed-period post sales support for corrections of errors and support on all its fixed-price, fixed-timeframe contracts. Costs associated with such support services are accrued at the time related revenues are recorded and included in cost of sales. The Group estimates such costs based on historical experience and estimates are reviewed on a periodic basis for any material changes in assumptions and likelihood of occurrence.
Onerous contracts
Provisions for onerous contracts are recognized when the expected benefits to be derived by the Group from a contract are lower than the unavoidable costs of meeting the future obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established the Group recognizes any impairment loss on the assets associated with that contract.
Provisions comprise the following:
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Provision for post sales client support and other provisions | 523 | 492 |
523 | 492 |
Provision for post sales client support and other provisions represents cost associated with providing post sales support services which are accrued at the time of recognition of revenues and are expected to be utilized over a period of 6 months to 1 year.
The movement in the provision for post sales client support and other provisions is as follows:
(In crore)
Particulars | Three months ended June 30, 2018 |
Balance at the beginning | 492 |
Provision recognized / (reversed) | 47 |
Provision utilized | (41) |
Translation difference | 25 |
Balance at the end | 523 |
Provision for post sales client support and other provisions is included in cost of sales in the statement of comprehensive income.
As at June 30, 2018 and March 31, 2018, claims against the company, not acknowledged as debts, (excluding demands from income tax authorities- Refer to Note 2.11) amounted to 260 crore each.
The Company is subject to legal proceedings and claims, which have arisen in the ordinary course of business. The Company’s management does not reasonably expect that these legal actions, when ultimately concluded and determined, will have a material and adverse effect on the Company’s results of operations or financial condition.
2.7 Property, plant and equipment
Accounting Policy
Property, plant and equipment are stated at cost, less accumulated depreciation and impairment, if any. Costs directly attributable to acquisition are capitalized until the property, plant and equipment are ready for use, as intended by management. The Group depreciates property, plant and equipment over their estimated useful lives using the straight-line method. The estimated useful lives of assets are as follows:
Building | 22–25 years |
Plant and machinery | 5 years |
Computer equipment | 3–5 years |
Furniture and fixtures | 5 years |
Vehicles | 5 years |
Leasehold improvements | Over lease term |
Depreciation methods, useful lives and residual values are reviewed periodically, including at each financial year end.
Advances paid towards the acquisition of property, plant and equipment outstanding at each balance sheet date and the cost of assets not put to use before such date are disclosed under ‘Capital work-in-progress’. Subsequent expenditures relating to property, plant and equipment is capitalized only when it is probable that future economic benefits associated with these will flow to the Group and the cost of the item can be measured reliably. Repairs and maintenance costs are recognized in the consolidated statement of comprehensive income when incurred. The cost and related accumulated depreciation are eliminated from the financial statements upon sale or retirement of the asset and the resultant gains or losses are recognized in net profit in the statement of comprehensive income.
Impairment
Property, plant and equipment are evaluated for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. For the purpose of impairment testing, the recoverable amount (i.e. the higher of the fair value less cost to sell and the value-in-use) is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. In such cases, the recoverable amount is determined for the CGU to which the asset belongs.
If such assets are considered to be impaired, the impairment to be recognized in net profit in the statement of comprehensive income is measured by the amount by which the carrying value of the assets exceeds the estimated recoverable amount of the asset. An impairment loss is reversed in net profit in the statement of comprehensive income if there has been a change in the estimates used to determine the recoverable amount. The carrying amount of the asset is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined (net of any accumulated depreciation) had no impairment loss been recognized for the asset in prior years.
Following are the changes in the carrying value of property, plant and equipment for the three months ended June 30, 2018:
(In crore)
Particulars | Land | Buildings | Plant and machinery | Computer equipment | Furniture and fixtures | Vehicles | Total |
Gross carrying value as at April 1, 2018 | 1,900 | 8,130 | 3,373 | 4,884 | 1,861 | 31 | 20,179 |
Additions | 67 | 89 | 36 | 232 | 36 | 2 | 462 |
Additions- Business Combinations | – | – | 2 | 1 | 4 | – | 7 |
Deletions | (21) | – | (6) | (13) | (7) | – | (47) |
Translation difference | – | 1 | – | (2) | (1) | – | (2) |
Gross carrying value as at June 30, 2018 | 1,946 | 8,220 | 3,405 | 5,102 | 1,893 | 33 | 20,599 |
Accumulated depreciation as at April 1, 2018 | (31) | (2,719) | (2,342) | (3,630) | (1,323) | (18) | (10,063) |
Depreciation | (1) | (75) | (107) | (174) | (59) | (1) | (417) |
Accumulated depreciation on deletions | – | – | 6 | 13 | 6 | – | 25 |
Translation difference | – | – | – | 2 | 2 | – | 4 |
Accumulated depreciation as at June 30, 2018 | (32) | (2,794) | (2,443) | (3,789) | (1,374) | (19) | (10,451) |
Capital work–in progress as at April 1, 2018 | 2,027 | ||||||
Carrying value as at April 1, 2018 | 1,869 | 5,411 | 1,031 | 1,254 | 538 | 13 | 12,143 |
Capital work-in progress as at June 30, 2018 | 2,044 | ||||||
Carrying value as at June 30, 2018 | 1,914 | 5,426 | 962 | 1,313 | 519 | 14 | 12,192 |
Following are the changes in the carrying value of property, plant and equipment for the three months ended June 30, 2017:
(In crore)
Particulars | Land | Buildings | Plant and machinery | Computer equipment | Furniture and fixtures | Vehicles | Total |
Gross carrying value as at April 1, 2017 | 1,764 | 7,279 | 3,023 | 4,541 | 1,694 | 31 | 18,332 |
Additions | – | 52 | 56 | 159 | 41 | 2 | 310 |
Deletions | – | – | (2) | (31) | (2) | (2) | (37) |
Translation difference | – | 10 | 2 | 5 | 5 | – | 22 |
Gross carrying value as at June 30, 2017 | 1,764 | 7,341 | 3,079 | 4,674 | 1,738 | 31 | 18,627 |
Accumulated depreciation as at April 1, 2017 | (27) | (2,440) | (1,952) | (3,052) | (1,093) | (17) | (8,581) |
Depreciation | (1) | (67) | (100) | (170) | (62) | (1) | (401) |
Accumulated depreciation on deletions | – | – | 1 | 31 | 2 | 1 | 35 |
Translation difference | – | – | (1) | (5) | (3) | – | (9) |
Accumulated depreciation as at June 30, 2017 | (28) | (2,507) | (2,052) | (3,196) | (1,156) | (17) | (8,956) |
Capital work-in progress as at April 1, 2017 | 1,965 | ||||||
Carrying value as at April 1, 2017 | 1,737 | 4,839 | 1,071 | 1,489 | 601 | 14 | 11,716 |
Capital work-in progress as at June 30, 2017 | 2,177 | ||||||
Carrying value as at June 30, 2017 | 1,736 | 4,834 | 1,027 | 1,478 | 582 | 14 | 11,848 |
Following are the changes in the carrying value of property, plant and equipment for the year ended March 31, 2018:
(In crore)
Particulars | Land | Buildings | Plant and machinery | Computer equipment | Furniture and fixtures | Vehicles | Total |
Gross carrying value as at April 1, 2017 | 1,764 | 7,279 | 3,023 | 4,541 | 1,694 | 31 | 18,332 |
Additions | 136 | 789 | 364 | 471 | 190 | 5 | 1,955 |
Deletions | – | (1) | (18) | (110) | (19) | (5) | (153) |
Reclassified as held for sale (refer note no 2.9) | – | – | (3) | (40) | (25) | – | (68) |
Translation difference | – | 63 | 7 | 22 | 21 | – | 113 |
Gross carrying value as at March 31, 2018 | 1,900 | 8,130 | 3,373 | 4,884 | 1,861 | 31 | 20,179 |
Accumulated depreciation as at April 1, 2017 | (27) | (2,440) | (1,952) | (3,052) | (1,093) | (17) | (8,581) |
Depreciation | (4) | (276) | (402) | (693) | (254) | (5) | (1,634) |
Accumulated depreciation on deletions | – | – | 15 | 107 | 18 | 4 | 144 |
Reclassified as held for sale (refer note no 2.9) | – | – | 2 | 25 | 20 | – | 47 |
Translation difference | – | (3) | (5) | (17) | (14) | – | (39) |
Accumulated depreciation as at March 31, 2018 | (31) | (2,719) | (2,342) | (3,630) | (1,323) | (18) | (10,063) |
Capital work-in progress as at April 1, 2017 | 1,965 | ||||||
Carrying value as at April 1, 2017 | 1,737 | 4,839 | 1,071 | 1,489 | 601 | 14 | 11,716 |
Capital work-in progress as at March 31, 2018 | 2,027 | ||||||
Carrying value as at March 31, 2018 | 1,869 | 5,411 | 1,031 | 1,254 | 538 | 13 | 12,143 |
The depreciation expense is included in cost of sales in the consolidated statement of comprehensive income.
Carrying value of land includes 620 crore and 642 crore as at June 30, 2018 and March 31, 2018, respectively, towards amounts paid under certain lease-cum-sale agreements to acquire land including agreements where the Company has an option to either purchase or renew the properties on expiry of the lease period. The contractual commitments for capital expenditure were 1,382 crore and 1,452 crore, as at June 30, 2018 and March 31, 2018, respectively.
2.8 Goodwill
Accounting Policy
Goodwill represents the cost of business acquisition in excess of the Group's interest in the net fair value of identifiable assets, liabilities and contingent liabilities of the acquiree. When the net fair value of the identifiable assets, liabilities and contingent liabilities acquired exceeds the cost of business acquisition, a gain is recognized immediately in net profit in the Statement of comprehensive income. Goodwill is measured at cost less accumulated impairment losses.
Impairment
Goodwill is tested for impairment on an annual basis and whenever there is an indication that goodwill may be impaired, relying on a number of factors including operating results, business plans and future cash flows. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to the Group's cash generating units (CGU) or groups of CGU’s expected to benefit from the synergies arising from the business combination. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets. Impairment occurs when the carrying amount of a CGU including the goodwill, exceeds the estimated recoverable amount of the CGU. The recoverable amount of a CGU is the higher of its fair value less cost to sell and its value-in-use. Value-in-use is the present value of future cash flows expected to be derived from the CGU.
Total impairment loss of a CGU is allocated first to reduce the carrying amount of goodwill allocated to the CGU and then to the other assets of the CGU pro-rata on the basis of the carrying amount of each asset in the CGU. An impairment loss on goodwill is recognized in net profit in the statement of comprehensive income and is not reversed in the subsequent period.
Following is a summary of changes in the carrying amount of goodwill:
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Carrying value at the beginning | 2,211 | 3,652 |
Goodwill on Wongdoody acquisition (Refer to note 2.9.1) | 173 | – |
Goodwill on Brilliant Basics acquisition (Refer to note 2.9.1) | – | 35 |
Goodwill reclassified under assets held for sale (refer note no 2.9.2) | – | (1,609) |
Translation differences | 10 | 133 |
Carrying value at the end | 2,394 | 2,211 |
For the purpose of impairment testing, goodwill acquired in a business combination is allocated to the cash generating units (CGU) or groups of CGU’s, which benefit from the synergies of the acquisition. The chief operating decision maker reviews the goodwill for any impairment at the operating segment level, which is represented through groups of CGU’s.
2.9 Business combinations and Disposal Group held for sale
2.9.1 Business combinations
Accounting Policy
Business combinations have been accounted for using the acquisition method under the provisions of IFRS 3 (Revised), Business Combinations.
The cost of an acquisition is measured at the fair value of the assets transferred, equity instruments issued and liabilities incurred or assumed at the date of acquisition, which is the date on which control is transferred to the Group. The cost of acquisition also includes the fair value of any contingent consideration. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value on the date of acquisition.
Business combinations between entities under common control is outside the scope of IFRS 3 (Revised), Business Combinations and is accounted for at carrying value.
Transaction costs that the Group incurs in connection with a business combination such as finders’ fees, legal fees, due diligence fees, and other professional and consulting fees are expensed as incurred.
Brilliant Basics Holdings Limited.
On September 8, 2017, Infosys acquired 100% of the voting interests in Brilliant Basics Holdings Limited., UK, (Brilliant Basics) a product design and customer experience innovator with experience in executing global programs. The business acquisition was conducted by entering into a share purchase agreement for cash consideration of 29 crore, a contingent consideration of up to 20 crore and an additional consideration of upto 13 crore, referred to as retention bonus, payable to the employees of Brilliant Basics at each anniversary year over the next two years, subject to their continuous employment with the group at each anniversary.
The payment of contingent consideration to sellers of Brilliant Basics is dependent upon the achievement of certain financial targets by Brilliant Basics over a period of 3 years ending on March 2020.
The fair value of contingent consideration is determined by discounting the estimated amount payable to the sellers of Brilliant Basics on achievement of certain financial targets. The key inputs used in determination of the fair value of contingent consideration are the discount rate of 10% and the probabilities of achievement of the financial targets.
The excess of the purchase consideration paid over the fair value of assets acquired has been attributed to goodwill.
The purchase price has been allocated based on management’s estimates and independent appraisal of fair values as follows:
(in crore)
Component | Acquiree's carrying amount | Fair value adjustments |
Purchase price allocated |
Net assets(*) | 1 | – | 1 |
Intangible assets - customer relationships | – | 12 | 12 |
Deferred tax liabilities on intangible assets | – | (2) | (2) |
1 | 10 | 11 | |
Goodwill | 35 | ||
Total purchase price | 46 |
*Includes cash and cash equivalents acquired of 2 crore
The goodwill is not tax deductible.
The gross amount of trade receivables acquired and its fair value is 3 crore and the amount has been largely recovered.
The fair value of each major class of consideration as at the acquisition date is as follows:
(in crore)
Component | Consideration settled |
Cash paid | 29 |
Fair value of contingent consideration | 17 |
Total purchase price | 46 |
The transaction costs of 2 crore related to the acquisition have been included under administrative expenses in the statement of comprehensive income for the year ended March 31, 2018.
WongDoody Holding Company Inc.
On May 22, 2018, Infosys acquired 100% of the voting interests in WongDoody Holding Company Inc., (WongDoody) an US-based, full-service creative and consumer insights agency. The business acquisition was conducted by entering into a share purchase agreement for a total consideration of up to $75 million (approximately 514 crore on acquisition date), which includes a cash consideration of $38 million (approximately 261 crore), contingent consideration of up to $28 million(approximately 192 crore on acquisition date) and an additional consideration of up to $9 million (approximately 61 crore on acquisition date), referred to as retention bonus, payable to the employees of WongDoody over the next three years, subject to their continuous employment with the group.
WongDoody, brings to Infosys the creative talent and marketing and brand engagement expertise. Further the acquisition is expected to strengthen Infosys’ creative, branding and customer experience capabilities to bring innovative thinking, talent and creativity to clients.
The purchase price has been allocated based on management’s estimates and independent appraisal of fair values as follows:
(in crore)
Component | Acquiree's carrying amount | Fair value adjustments | Purchase price allocated |
Net assets(*) | 37 | – | 37 |
Intangible assets - customer contracts and relationships | – | 132 | 132 |
Intangible assets - trade name | – | 8 | 8 |
37 | 140 | 177 | |
Goodwill | 173 | ||
Total purchase price | 350 |
* Includes cash and cash equivalents acquired of 51 crore.
Goodwill is tax deductible
The fair value of each major class of consideration as of the acquisition date is as follows:
(in crore)
Component | Consideration settled |
Cash consideration | 261 |
Fair value of contingent consideration | 89 |
Total purchase price | 350 |
The gross amount of trade receivables acquired and its fair value is 12 crore and the amounts are substantially collected.
The payment of contingent consideration to sellers of WongDoody is dependent upon the achievement of certain financial targets by WongDoody. At the acquisition date, the key inputs used in determination of the fair value of contingent consideration are the discount rate of 16% and the probabilities of achievement of the financial targets. The undiscounted value of contingent consideration as of June 30, 2018 is 119 crore ($17 million).
The transaction costs of 3 crore related to the acquisition have been included under administrative expenses in the statement of comprehensive income for the three months ended June 30, 2018.
2.9.2 Disposal Group held for sale
Accounting policy
Non current assets and Disposal Groups are classified as held for sale if their carrying amount is intended to be recovered principally through sale rather than through continuing use. The condition for classification of held for sale is met when the non current asset or the Disposal Group is available for immediate sale and the same is highly probable of being completed within one year from the date of classification as held for sale. Non current assets and Disposal Groups held for sale are measured at the lower of carrying amount and fair value less cost to sell.
In the quarter ended March 2018, on conclusion of a strategic review of the portfolio businesses, the Company initiated identification and evaluation of potential buyers for its subsidiaries, Kallidus and Skava (together referred to as "Skava”) and Panaya (collectively referred to as the “Disposal Group”). The Company anticipates completion of the sale by March 2019. On reclassification, assets and liabilities in respect of the Disposal Group have been reclassified as “held for sale" and measured at the lower of carrying amount and fair value less cost to sell. Consequently, a reduction in the fair value of Disposal Group held for sale amounting to 118 crore in respect of Panaya has been recognized in the consolidated profit and loss for the quarter and year ended March 31, 2018.
During the three months ended June 30, 2018, on remeasurement, including consideration of progress in negotiations on offers from prospective buyers for Panaya, the Company has recorded a reduction in the fair value of Disposal Group held for sale amounting to 270 crore in respect of Panaya.
As of June 30, 2018, assets amounting to 1,867 crore and liabilities amounting to 345 crore in respect of the Disposal Group have been classified as “held for sale".
The Disposal Group does not constitute a separate major component of the company and therefore has not been classified as discontinued operations.
2.10 Employees' Stock Option Plans (ESOP)
Accounting Policy
The Group recognizes compensation expense relating to share-based payments in net profit using fair-value in accordance with IFRS 2, Share-Based Payment. The estimated fair value of awards is charged to income on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was in-substance, multiple awards with a corresponding increase to share premium.
2015 Stock Incentive Compensation Plan (the 2015 Plan) (formerly 2011 RSU Plan): On March 31, 2016, pursuant to the approval by the shareholders through postal ballot, the Board has been authorized to introduce, offer, issue and allot share-based incentives to eligible employees of the Company and its subsidiaries under the 2015 Stock Incentive Compensation Plan (the 2015 Plan). The maximum number of shares under the 2015 plan shall not exceed 2,40,38,883 equity shares (this includes 1,12,23,576 equity shares which are held by the trust towards the 2011 Plan as at March 31, 2016). Out of this 1,70,38,883 equity shares will be issued as RSUs at par value and 70,00,000 equity shares will be issued as stock options at market price on the date of the grant. These instruments will vest over a period of 4 years and the Company expects to grant the instruments under the 2015 Plan over the period of 4 to 7 years.
Controlled trust holds 1,07,90,750 and 1,08,01,956 shares as at June 30, 2018 and March 31, 2018, respectively under the 2015 plan, out of which 1,00,000 equity shares have been earmarked for welfare activities of the employees.
The following is the summary of grants during the three months ended June 30, 2018 and June 30, 2017 under the 2015 Plan:
Particulars | Three months ended | |
June 30, 2018 | June 30, 2017 | |
RSU | ||
Salil Parekh, CEO and MD - Refer note 1 below | 108,600 | – |
U.B. Pravin Rao, COO | – | 27,250 |
Dr. Vishal Sikka* | – | 270,224 |
Employees other than KMP | – | 37,090 |
108,600 | 334,564 | |
ESOP | ||
U.B. Pravin Rao, COO | – | 43,000 |
Dr. Vishal Sikka* | – | 330,525 |
Employees other than KMP | – | 73,600 |
– | 447,125 | |
Total grants | 108,600 | 781,689 |
* | Upon Dr. Vishal Sikka's resignation from the roles of the company, the unvested RSUs and ESOPs have been forfeited |
1. Stock incentives granted to Salil Parekh, CEO and MD
Pursuant to the approval of the shareholders through a postal ballot on February 20, 2018, Salil Parekh (CEO & MD) is eligible to receive under the 2015 Plan:
a) | an annual grant of RSUs of fair value 3.25 crore which will vest over time in 3 equal annual installments upon completion of each year of service from the respective grant date | |
b) | a one-time grant of RSUs of fair value 9.75 crore which will vest over time in 2 equal annual installments upon completion of each year of service from the grant date and | |
c) | annual grant of performance based RSUs of fair value 13 crore which will vest after completion of three years the first of which concludes on March 31, 2021, subject to achievement of performance targets set by the Board or its committee. |
The Board based on the recommendations of the Nomination and Remuneration committee approved on February 27, 2018, the annual time based grant for fiscal 2018 of 28,256 RSUs and the one-time time based grant of 84,768 RSUs. The grants were made effective February 27, 2018.
Further, the Board, based on the recommendations of the Nomination and Remuneration Committee, granted 108,600 performance based RSUs to Salil Parekh with an effective date of May 2, 2018. The grants would vest upon successful completion of three full fiscal years with the Company concluding on March 31, 2021 and will be determined based on achievement of certain performance targets for the said three-year period.
Though the annual time based grants for the remaining employment term ending on March 31, 2023 have not been granted as of June 30, 2018, since the service commencement date precedes the grant date, the company has recorded employment stock compensation expense in accordance with IFRS 2, Share based payments.
The RSUs and stock options would vest generally over a period of 4 years and shall be exercisable within the period as approved by the Committee. The exercise price of the RSUs will be equal to the par value of the shares and the exercise price of the stock options would be the market price as on the date of grant.
As at June 30, 2018 and March 31, 2018, 96,538 and 1,11,757 incentive units were outstanding (net of forfeitures).
Break-up of employee stock compensation expense
(in crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Granted to: | ||
KMP | 9 | 12 |
Employees other than KMP | 35 | 34 |
Total (1) | 44 | 46 |
(1) Cash settled stock compensation expense included in the above | 1 | 1 |
The carrying value of liability towards cash settled share based payments was 8 crore and 6 crore as at June 30, 2018 and March 31, 2018, respectively.
The activity in the 2015 Plan (formerly 2011 RSU Plan) for equity-settled share based payment transactions during the three months June 30, 2018 and June 30, 2017 is set out below:
Particulars |
Three months ended June 30, 2018 |
Three months ended June 30, 2017 | ||
Shares arising out of options | Weighted average exercise price () | Shares arising out of options | Weighted average exercise price () | |
2015 Plan: RSU | ||||
Outstanding at the beginning | 3,750,409 | 5 | 2,961,373 | 5 |
Granted | 108,600 | 5 | 334,564 | 5 |
Exercised | 23,078 | 5 | 24,812 | 5 |
Forfeited and expired | 55,453 | 5 | 45,120 | 5 |
Outstanding at the end | 3,780,478 | 5 | 3,226,005 | 5 |
Exercisable at the end | 9,062 | 5 | – | – |
2015 Plan: Employee Stock Options (ESOPs) | ||||
Outstanding at the beginning | 966,913 | 986 | 1,197,650 | 998 |
Granted | – | – | 447,125 | 919 |
Exercised | 962 | 998 | – | – |
Forfeited and expired | 9,600 | 1,030 | – | – |
Outstanding at the end | 956,351 | 1,025 | 1,644,775 | 987 |
Exercisable at the end | 206,100 | 1,020 | – | – |
During the three months ended June 30, 2018 and June 30, 2017 the weighted average share price of options exercised under the 2015 Plan on the date of exercise was 1,174 and 943 respectively.
The following table summarizes information about equity settled RSUs and ESOPs outstanding as at June 30, 2018
Options outstanding | |||
Range of exercise prices per share () | No. of shares arising out of options | Weighted average remaining contractual life | Weighted average exercise price () |
2015 Plan: | |||
0 - 5 (RSU) | 3,780,478 | 1.68 | 5 |
900 - 1100 (ESOP) | 956,351 | 5.95 | 1,025 |
4,736,829 | 2.54 | 211 |
The following table summarizes information about equity settled RSUs and ESOPs outstanding as at March 31, 2018:
Options outstanding | |||
Range of exercise prices per share () | No. of shares arising out of options | Weighted average remaining contractual life | Weighted average exercise price () |
2015 Plan: | |||
0 - 5 (RSU) | 3,750,409 | 1.89 | 5 |
900 - 1100 (ESOP) | 966,913 | 6.60 | 993 |
4,717,322 | 2.57 | 207 |
The fair value of each equity settled award is estimated on the date of grant using the Black-Scholes-Merton model with the following assumptions:
Particulars | For options granted in | ||||
Fiscal 2019- Equity Shares-RSU |
Fiscal 2018- Equity Shares-RSU |
Fiscal 2018- Equity shares ESOP |
Fiscal 2018- ADS-RSU |
Fiscal 2018- ADS- ESOP | |
Weighted average share price () / ($- ADS) | 1,197 | 1,144 | 923 | 16.61 | 14.65 |
Exercise price ()/ ($- ADS) | 5 | 5.00 | 919 | 0.08 | 14.67 |
Expected volatility (%) | 24 | 20–25 | 25–28 | 21–26 | 25–31 |
Expected life of the option (years) | 3 | 1 – 4 | 3 – 7 | 1 – 4 | 3 – 7 |
Expected dividends (%) | 2.82 | 2.78 | 2.78 | 2.74 | 2.74 |
Risk-free interest rate (%) | 7 | 6 – 7 | 6 – 7 | 1 – 2 | 1 – 2 |
Weighted average fair value as on grant date () / ($- ADS) | 1,096 | 1,066 | 254 | 15.47 | 2.93 |
The expected life of the RSU / ESOP is estimated based on the vesting term and contractual term of the RSU / ESOP, as well as expected exercise behaviour of the employee who receives the RSU / ESOP. Expected volatility during the expected term of the RSU / ESOP is based on historical volatility of the observed market prices of the Company's publicly traded equity shares during a period equivalent to the expected term of the RSU / ESOP.
2.11 Income taxes
Accounting Policy
Income tax expense comprises current and deferred income tax. Income tax expense is recognized in net profit in the consolidated statement of comprehensive income except to the extent that it relates to items recognized directly in equity, in which case it is recognized in other comprehensive income. Current income tax for current and prior periods is recognized at the amount expected to be paid to or recovered from the tax authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred income tax assets and liabilities are recognized for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements except when the deferred income tax arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and affects neither accounting nor taxable profit or loss at the time of the transaction. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Deferred income tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date and are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of changes in tax rates on deferred income tax assets and liabilities is recognized as income or expense in the period that includes the enactment or the substantive enactment date. A deferred income tax asset is recognized to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences and tax losses can be utilized. Deferred income taxes are not provided on the undistributed earnings of subsidiaries and branches where it is expected that the earnings of the subsidiary or branch will not be distributed in the foreseeable future. The Group offsets current tax assets and current tax liabilities, where it has a legally enforceable right to set off the recognized amounts and where it intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. The income tax provision for the interim period is made based on the best estimate of the annual average tax rate expected to be applicable for the full financial year. Tax benefits of deductions earned on exercise of employee share options in excess of compensation charged to income are credited to share premium.
Income tax expense in the consolidated statement of comprehensive income comprises:
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Current taxes | ||
Domestic taxes | 1,124 | 1,076 |
Foreign taxes | 326 | 423 |
1,450 | 1,499 | |
Deferred taxes | ||
Domestic taxes | 6 | (89) |
Foreign taxes | (75) | (39) |
(69) | (128) | |
Income tax expense | 1,381 | 1,371 |
In December 2017, the Company had concluded an Advance Pricing Agreement (“APA”) with the US Internal Revenue Service ("IRS") for the US branch covering the years ending March 2011 to March 2021. Under the APA, the Company and the IRS have agreed on the methodology to allocate revenues and compute the taxable income of the Company’s US Branch operations.
In accordance with the APA, the company had reversed income tax expense provision of $225 million (1,432 crore) which pertained to previous periods which are no longer required. The Company had to pay an amount of approximately 1,488 crore due to the difference between the taxes payable for prior periods as per the APA and the actual taxes paid for such periods. The company has paid 912 crore till June 30, 2018.
Further, the “Tax Cuts and Jobs Act (H.R. 1)” was signed into law on December 22, 2017 (“US Tax Reforms”). The US tax reforms has reduced federal tax rates from 35% to 21% effective January 1, 2018 amongst other measures.
Income tax expense for the three months ended June 30, 2018 and June 30, 2017 includes reversal (net of provisions) of 59 crore and 15 crore, respectively, pertaining to prior periods on account of adjudication of certain disputed matters in favor of the company across various jurisdictions.
A reconciliation of the income tax provision to the amount computed by applying the statutory income tax rate to the income before income taxes is summarized below:
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Profit before income taxes | 4,993 | 4,854 |
Enacted tax rates in India | 34.94% | 34.61% |
Computed expected tax expense | 1,745 | 1,680 |
Tax effect due to non-taxable income for Indian tax purposes | (609) | (597) |
Overseas taxes | 202 | 223 |
Tax provision (reversals) | (59) | (15) |
Effect of exempt non-operating income | (25) | (17) |
Effect of unrecognized deferred tax assets | 38 | 72 |
Effect of differential overseas tax rates | (12) | 9 |
Effect of non-deductible expenses | 126 | 33 |
Branch profit tax (net of credits) | (29) | – |
Others | 4 | (17) |
Income tax expense | 1,381 | 1,371 |
Infosys is subject to a 15% Branch Profit Tax (BPT) in the U.S. to the extent its U.S. branch's net profit during the period is greater than the increase in the net assets of the U.S. branch during the period, computed in accordance with the Internal Revenue Code. As at March 31, 2018, Infosys' U.S. branch net assets amounted to approximately 5,030 crore. As at June 30, 2018, the Company has a deferred tax liability for branch profit tax of 144 crore (net of credits) , as the Company estimates that these branch profits are expected to be distributed in the foreseeable future.
The foreign tax expense is due to income taxes payable overseas, principally in the United States. In India, the Company has benefited from certain income tax incentives that the Government of India had provided for export of software from the units registered under the Special Economic Zones Act (SEZs), 2005. SEZ units which began the provision of services on or after April 1, 2005 are eligible for a deduction of 100% of profits or gains derived from the export of services for the first five years from the financial year in which the unit commenced the provision of services and 50% of such profits or gains for further five years. Up to 50% of such profits or gains is also available for a further five years subject to creation of a Special Economic Zone re-investment Reserve out of the profit for the eligible SEZ units and utilization of such reserve by the Company for acquiring new plant and machinery for the purpose of its business as per the provisions of the Income Tax Act, 1961.
Entire deferred income tax for the three months ended June 30, 2018 and June 30, 2017, relates to origination and reversal of temporary differences.
As at March 31, 2018, claims against the Group not acknowledged as debts from the Indian Income tax authorities amounted to 4,542 crore. Amount paid to statutory authorities against this amounted to 6,540 crore.
As at June 30, 2018, claims against the Group not acknowledged as debts from the Income tax authorities amounted to 3,043 crore. These matters are pending before various Appellate Authorities and the management including its tax advisors expect that its position will likely be upheld on ultimate resolution and will not have a material adverse effect on the Group's financial position and results of operations.
Amount paid to statutory authorities against the above tax claims amounted to 6,540 crore.
Subsequent to March 31, 2018, the Supreme Court of India ruled favorably in respect of certain income tax claims which have been given effect in the above disclosure of claims as of June 30, 2018.
2.12 Reconciliation of basic and diluted shares used in computing earnings per share
Accounting Policy
Basic earnings per equity share is computed by dividing the net profit attributable to the equity holders of the Company by the weighted average number of equity shares outstanding during the period. Diluted earnings per equity share is computed by dividing the net profit attributable to the equity holders of the Company by the weighted average number of equity shares considered for deriving basic earnings per equity share and also the weighted average number of equity shares that could have been issued upon conversion of all dilutive potential equity shares. The dilutive potential equity shares are adjusted for the proceeds receivable had the equity shares been actually issued at fair value (i.e. the average market value of the outstanding equity shares). Dilutive potential equity shares are deemed converted as of the beginning of the period, unless issued at a later date. Dilutive potential equity shares are determined independently for each period presented.
The number of equity shares and potentially dilutive equity shares are adjusted retrospectively for all periods presented for any share splits and bonus shares issues including for changes effected prior to the approval of the financial statements by the Board of Directors.
The following is a reconciliation of the equity shares used in the computation of basic and diluted earnings per equity share:
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Basic earnings per equity share - weighted average number of equity shares outstanding(1) | 2,173,328,621 | 2,285,657,604 |
Effect of dilutive common equivalent shares - share options outstanding | 2,026,557 | 1,400,544 |
Diluted earnings per equity share - weighted average number of equity shares and common equivalent shares outstanding | 2,175,355,178 | 2,287,058,148 |
(1)excludes treasury shares
For the three months ended June 30, 2018, no options to purchase equity shares had an anti-dilutive effect.
For the three months ended June 30, 2017, 2,64,886 number of options to purchase equity shares had an anti-dilutive effect.
2.13 Related party transactions
Refer to the Company's Annual Report for the year ended March 31, 2018 for the full names and other details of the Company's subsidiaries, associate and controlled trusts.
Changes in Subsidiaries
During the three months ended June 30, 2018, the following are the changes in the subsidiaries and associates:
- | Lodestone Management Consultants Inc has been liquidated effective May 17, 2018 |
- | On May 22, 2018, Infosys acquired 100% voting rights in WongDoody Holding Company Inc., along with its two subsidiaries, WDW Communications, Inc and WongDoody, Inc |
Changes in Key management personnel
The following were the changes in key management personnel:-
• Ravi Venkatesan resigned from his position as Co-Chairman effective August 24, 2017 and resigned as member of the Board effective May 11, 2018
Transaction with key management personnel:
The table below describes the compensation to key managerial personnel which comprise directors and executive officers:
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Salaries and other employee benefits to whole-time directors and executive officers (1) | 24 | 26 |
Commission and other benefits to non-executive/independent directors | 2 | 3 |
Total | 26 | 29 |
(1) | Total employee stock compensation expense for the three months ended June 30, 2018 and June 30, 2017 includes a charge of 9 crore and 12 crore, respectively towards key managerial personnel (Refer to note 2.10). |
2.14 Segment reporting
IFRS 8 establishes standards for the way that public business enterprises report information about operating segments and related disclosures about products and services, geographic areas, and major customers. The Group's operations predominantly relate to providing end-to-end business solutions to enable clients to enhance business performance
During the three months ended June 30, 2018, the Company internally reorganized some of its business segments to deepen customer relationships, improve focus of sales investments and increase management oversight. Consequent to the internal reorganization, there were changes in the reportable business segments based on “Management approach” as defined under IFRS 8, Operating Segments. Therefore, enterprises in Insurance which was earlier considered under the Life Sciences, Healthcare and Insurance business segment are now considered under the Financial Services business segment and enterprises in Communication, Telecom OEM and Media which was earlier under Energy & Utilities, Communication and Services is now shown as a separate business segment. Segmental operating income has changed in line with these as well as changes in the allocation method. The CODM evaluates the Group's performance and allocates resources based on an analysis of various performance indicators by business segments. Accordingly, information has been presented along business segments. The accounting principles used in the preparation of the financial statements are consistently applied to record revenue and expenditure in individual segments, and are as set out in the accounting policies.
Business segments of the Group are primarily enterprises in Financial Services and Insurance, enterprises in Manufacturing, enterprises in Retail, Consumer Packaged Goods and Logistics, enterprises in the Energy, Utilities, Resources and Services, enterprises in Communications, Telecom OEM and Media, enterprises in Hi-Tech, enterprises in Life Sciences and Healthcare and all other segments. The Financial services reportable segments has been aggregated to include the Financial Services operating segment and Finacle operating segment because of the similarity of the economic characteristics. All other segments represents the operating segments of businesses in India, Japan, China, Infosys Public Services & other enterprises in Public Services. Consequent to the above change in the composition of reportable business segments, the prior year comparatives for three months ended June 30, 2017 have been restated.
Revenue and identifiable operating expenses in relation to segments are categorized based on items that are individually identifiable to that segment. Revenue for 'all other segments' represents revenue generated by Infosys Public services and revenue generated from customers located in India, Japan and China and other enterprises in Public services. Allocated expenses of segments include expenses incurred for rendering services from the Company's offshore software development centres and on-site expenses, which are categorized in relation to the associated efforts of the segment. Certain expenses such as depreciation, which form a significant component of total expenses, are not specifically allocable to specific segments as the underlying assets are used interchangeably. The management believes that it is not practical to provide segment disclosures relating to those costs and expenses, and accordingly these expenses are separately disclosed as "unallocated" and adjusted against the total income of the Group.
Assets and liabilities used in the Group's business are not identified to any of the reportable segments, as these are used interchangeably between segments. Management believes that it is currently not practicable to provide segment disclosures relating to total assets and liabilities since a meaningful segregation of the available data is onerous.
Business segment revenue information is collated based on individual customers invoiced or in relation to which the revenue is otherwise recognized.
Disclosure of Revenue by geographic locations has been given in note 2.15 Revenue from operations.
2.14.1 Business segments
Three months ended June 30, 2018 and June 30, 2017
(In crore)
Particulars | Financial Services | Retail | Communication | Energy, Utilities, Resources and Services | Manufacturing | Hi Tech | Life Sciences | All other segments | Total |
Revenues | 6,075 | 3,169 | 2,429 | 2,374 | 1,837 | 1,422 | 1,260 | 562 | 19,128 |
5,631 | 2,774 | 2,151 | 1,932 | 1,588 | 1,250 | 1,126 | 626 | 17,078 | |
Identifiable operating expenses | 3,259 | 1,601 | 1,265 | 1,261 | 1,026 | 786 | 666 | 337 | 10,201 |
2,902 | 1,399 | 1,068 | 971 | 925 | 689 | 567 | 349 | 8,870 | |
Allocated expenses | 1,254 | 622 | 494 | 489 | 400 | 248 | 240 | 206 | 3,953 |
1,188 | 604 | 422 | 412 | 396 | 226 | 205 | 193 | 3,646 | |
Segment profit | 1,562 | 946 | 670 | 624 | 411 | 388 | 354 | 19 | 4,974 |
1,541 | 771 | 661 | 549 | 267 | 335 | 354 | 84 | 4,562 | |
Unallocable expenses | 437 | ||||||||
451 | |||||||||
Operating profit | 4,537 | ||||||||
4,111 | |||||||||
Other income, net (Refer to note 2.16 and 2.9) | 726 | ||||||||
814 | |||||||||
Reduction in the fair value of Disposal Group held for sale (Refer to note 2.9.2) | (270) | ||||||||
– | |||||||||
Share in net profit/(loss) of associate, including impairment | – | ||||||||
(71) | |||||||||
Profit before income taxes | 4,993 | ||||||||
4,854 | |||||||||
Income tax expense | 1,381 | ||||||||
1,371 | |||||||||
Net profit | 3,612 | ||||||||
3,483 | |||||||||
Depreciation and amortization | 436 | ||||||||
450 | |||||||||
Non-cash expenses other than depreciation and amortization | 271 | ||||||||
1 |
2.14.2 Significant clients
No client individually accounted for more than 10% of the revenues in the three months ended June 30, 2018 and June 30, 2017.
2.15 Revenue from Operations
Accounting Policy:
The company derives revenues primarily from business IT services comprising of software development and related services, consulting and package implementation and from the licensing of software products and platforms across our core and digital offerings (“together called as software related services”)
Effective April 1, 2018, the Company adopted IFRS 15 “Revenue from Contracts with Customers” using the cumulative catch-up transition method, applied to contracts that were not completed as of April 1, 2018. In accordance with the cumulative catch-up transition method , the comparatives have not been retrospectively adjusted. The following is a summary of new and/or revised significant accounting policies related to revenue recognition. Refer Note 2.10 "Revenue from operations” in the Company’s 2018 Consolidated Financial statements under IFRS for the policies in effect for revenue prior to April 1, 2018. The effect on adoption of IFRS 15 was insignificant.
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services.
Arrangements with customers for software related services are either on a fixed-price, fixed-timeframe or on a time-and-material basis.
Revenue on time-and-material contracts are recognized as the related services are performed and revenue from the end of the last invoicing to the reporting date is recognized as unbilled revenue. Revenue from fixed-price, fixed-timeframe contracts, where the performance obligations are satisfied over time and where there is no uncertainty as to measurement or collectability of consideration, is recognized as per the percentage-of-completion method. When there is uncertainty as to measurement or ultimate collectability, revenue recognition is postponed until such uncertainty is resolved. Efforts or costs expended have been used to measure progress towards completion as there is a direct relationship between input and productivity. Maintenance revenue is recognized ratably over the term of the underlying maintenance arrangement.
Revenues in excess of invoicing are classified as contract assets (which we refer as unbilled revenue) while invoicing in excess of revenues are classified as contract liabilities (which we refer to as unearned revenues).
In arrangements for software development and related services and maintenance services, the company has applied the guidance in IFRS 15, Revenue from contract with customer, by applying the revenue recognition criteria for each distinct performance obligation. The arrangements with customers generally meet the criteria for considering software development and related services as distinct performance obligations. For allocating the transaction price, the company has measured the revenue in respect of each performance obligation of a contract at its relative standalone selling price. The price that is regularly charged for an item when sold separately is the best evidence of its standalone selling price. In cases where the company is unable to determine the standalone selling price, the company uses the expected cost plus margin approach in estimating the standalone selling price. For software development and related services, the performance obligations are satisfied as and when the services are rendered since the customer generally obtains control of the work as it progresses.
Revenue from licenses where the customer obtains a “right to use” the licenses is recognized at the time the license is made available to the customer. Revenue from licenses where the customer obtains a “right to access” is recognized over the access period. Arrangements to deliver software products generally have three elements: license, implementation and Annual Technical Services (ATS). The company has applied the principles under IFRS 15 to account for revenues from these performance obligations. When implementation services are provided in conjunction with the licensing arrangement and the license and implementation have been identified as two separate performance obligations, the transaction price for such contracts are allocated to each performance obligation of the contract based on their relative standalone selling prices. In the absence of standalone selling price for implementation, the performance obligation is estimated using the expected cost plus margin approach. Where the license is required to be substantially customized as part of the implementation service the entire arrangement fee for license and implementation is considered to be a single performance obligation and the revenue is recognized using the percentage-of-completion method as the implementation is performed. Revenue from client training, support and other services arising due to the sale of software products is recognized as the performance obligations are satisfied. ATS revenue is recognized ratably over the period in which the services are rendered.
The company accounts for volume discounts and pricing incentives to customers as a reduction of revenue based on the ratable allocation of the discounts/ incentives amount to each of the underlying performance obligation that corresponds to the progress by the customer towards earning the discount/ incentive. Also, when the level of discount varies with increases in levels of revenue transactions, the company recognizes the liability based on its estimate of the customer's future purchases. If it is probable that the criteria for the discount will not be met, or if the amount thereof cannot be estimated reliably, then discount is not recognized until the payment is probable and the amount can be estimated reliably. The company recognizes changes in the estimated amount of obligations for discounts in the period in which the change occurs.
Deferred contract costs are incremental costs of obtaining a contract which are recognized as assets and amortized over the term of the contract.
Contract modifications are accounted for when additions, deletions or changes are approved either to the contract scope or contract price. The accounting for modifications of contracts involves assessing whether the services added to an existing contract are distinct and whether the pricing is at the standalone selling price. Services added that are not distinct are accounted for on a cumulative catch up basis, while those that are distinct are accounted for prospectively, either as a separate contract, if the additional services are priced at the standalone selling price, or as a termination of the existing contract and creation of a new contract if not priced at the standalone selling price.
The Group presents revenues net of indirect taxes in its consolidated statement of comprehensive income.
Revenues for the three months ended June 30, 2018 and June 30, 2017 are as follows:
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Revenue from software services | 18,203 | 16,161 |
Revenue from products and platforms | 925 | 917 |
Total revenue from operations | 19,128 | 17,078 |
Disaggregate revenue information
The table below presents disaggregated revenues from contracts with customers for the three months ended June 30, 2018 by geography, offerings and contract-type for each of our business segments. The Company believes that this disaggregation best depicts how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by industry, market and other economic factors.
(In crore)
Particulars | Financial Services (1) | Retail(2) | Communication (3) | Energy , Utilities, Resources and Services | Manufacturing | Hi Tech | Life Sciences(4) | Others (5) | Total |
Revenues by Geography | |||||||||
North America | 3,664 | 2,072 | 1,195 | 1,369 | 982 | 1,370 | 742 | 81 | 11,475 |
Europe | 1,162 | 892 | 482 | 793 | 791 | 17 | 486 | 34 | 4,657 |
India | 276 | 7 | 12 | 1 | 21 | 35 | 2 | 142 | 496 |
Rest of the world | 973 | 198 | 740 | 211 | 43 | – | 30 | 305 | 2,500 |
Total | 6,075 | 3,169 | 2,429 | 2,374 | 1,837 | 1,422 | 1,260 | 562 | 19,128 |
Revenue by offerings | |||||||||
Services | |||||||||
Digital | 1,598 | 925 | 715 | 628 | 451 | 454 | 261 | 61 | 5,093 |
Core | 3,874 | 2,159 | 1,677 | 1,697 | 1,326 | 963 | 929 | 485 | 13,110 |
Subtotal | 5,472 | 3,084 | 2,392 | 2,325 | 1,777 | 1,417 | 1,190 | 546 | 18,203 |
Products and platforms | |||||||||
Digital | 116 | 72 | 35 | 13 | 39 | 4 | 42 | 10 | 331 |
Core | 487 | 13 | 2 | 36 | 21 | 1 | 28 | 6 | 594 |
Subtotal | 603 | 85 | 37 | 49 | 60 | 5 | 70 | 16 | 925 |
Total | 6,075 | 3,169 | 2,429 | 2,374 | 1,837 | 1,422 | 1,260 | 562 | 19,128 |
Digital | 1,714 | 997 | 750 | 641 | 490 | 458 | 303 | 71 | 5,424 |
Core | 4,361 | 2,172 | 1,679 | 1,733 | 1,347 | 964 | 957 | 491 | 13,704 |
Revenues by contract type | |||||||||
Fixed Price | 2,590 | 1,997 | 1,350 | 1,430 | 920 | 769 | 580 | 266 | 9,902 |
Time & Materials | 3,485 | 1,172 | 1,079 | 944 | 917 | 653 | 680 | 296 | 9,226 |
Total | 6,075 | 3,169 | 2,429 | 2,374 | 1,837 | 1,422 | 1,260 | 562 | 19,128 |
(1) | Financial Services include enterprises in Financial Services and Insurance |
(2) | Retail includes enterprises in Retail, Consumer Packaged Goods and Logistics |
(3) | Communication includes enterprises in Communication, Telecom OEM and Media |
(4) | Life Sciences includes enterprises in Life sciences and Health care |
(5) | Others include operating segments of businesses in India, Japan, China, Infosys Public Services & other enterprises in Public Services |
Digital Services
Digital Services comprise of service and solution offerings of the company that enable our clients to transform their businesses. These include offerings that enhance customer experience, leverage AI-based analytics and big data, engineer digital products and IoT, modernize legacy technology systems, migrate to cloud applications and implement advanced cyber security systems.
Core Services
Core Services comprise traditional offerings of the company that have scaled and industrialized over a number of years. These primarily include application management services, proprietary application development services, independent validation solutions, product engineering and management, infrastructure management services, traditional enterprise application implementation, support and integration services.
Products & platforms
The Group also derives revenues from the sale of products and platforms including Finacle – core banking solution, Edge Suite of products, Infosys Nia - Artificial Intelligence (AI) platform which applies next-generation AI and machine learning and Infosys McCamish- insurance platform
Trade Receivables and Contract Balances
The company classifies the right to consideration in exchange for deliverables as either a receivable or as unbilled revenue.
A receivable is a right to consideration that is unconditional upon passage of time. Revenue for time and material contracts are recognised as related service are performed. Revenue for fixed price maintenance contracts is recognized on a straight line basis over the period of the contract. Revenues in excess of billings is recorded as unbilled revenue and is classified as a financial asset for these cases as right to consideration is unconditional upon passage of time .
Revenue recognition for fixed price development contracts is based on percentage of completion method. Invoicing to the clients is based on milestones as defined in the contract. This would result in the timing of revenue recognition being different from the timing of billing the customers. Unbilled revenue for fixed price development contracts is classifed as non financial asset as the contractual right to consideration is dependent on completion of contractual milestones.
Invoicing in excess of earnings are classified as unearned revenue.
Trade receivable and unbilled revenues are presented net of impairment in the consolidated statements of financial position.
The following table discloses the movement in unbilled revenue on fixed price development contracts during the three months ended June 30, 2018
(In crore)
Particulars | For the three months ended June 30, 2018 |
Balance as of April 1, 2018 | 2,798 |
Add : Revenue recognized during the period | 1,891 |
Less : Invoiced during the period | 1,807 |
Less : Impairment / (reversal) during the period | (8) |
Add : Translation gain/(loss) | 150 |
Balance as of June 30, 2018 | 3,040 |
The following table discloses the movement in unearned revenue balances during the three months ended June 30, 2018
(In crore)
Particulars | For the three months ended June 30, 2018 |
Balance as of April 1, 2018 | 2,295 |
Less: Revenue recognized during the period | 997 |
Add: Invoiced during the period but not recognized as revenues | 914 |
Add: Translation loss / (gain) | 115 |
Balance as of June 30, 2018 | 2,327 |
Performance obligations and remaining performance obligations
The remaining performance obligation disclosure provides the aggregate amount of the transaction price yet to be recognized as of the end of the reporting period and an explanation as to when the company expects to recognize these amounts in revenue. Applying the practical expedient as given in IFRS 15, the company has not disclosed the remaining performance obligation related disclosures for contracts where the revenue recognized corresponds directly with the value to the customer of the entity's performance completed to date, typically those contracts where invoicing is on time and material basis. Remaining performance obligation estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidations, adjustment for revenue that has not materialized and adjustments for currency.
The aggregate value of performance obligations that are completely or partially unsatisfied as of June 30, 2018, other than those meeting the exclusion criteria mentioned above, is 40,936 crore. Out of this, the company expects to recognize revenue of around 50% within the next one year and the remaining thereafter. This includes contracts that can be terminated for convenience without a substantive penalty since, based on current assessment, the occurrence of the same is expected to be remote.
The impact on account of applying the erstwhile IAS 18 - Revenue instead of IFRS 15- Revenue from contract with customers on the financials results of the company for the three months ended and as of June 30, 2018 is insignificant. On account of adoption of IFRS 15, unbilled revenues of 3,040 crore as of June 30, 2018 has been considered as Non financial asset.
2.16 Break-up of expenses and other income, net
a. Accounting Policy
Gratuity
The Group provides for gratuity, a defined benefit retirement plan ('the Gratuity Plan') covering eligible employees of Infosys and its Indian subsidiaries. The Gratuity Plan provides a lump-sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employee's salary and the tenure of employment with the Group.
Liabilities with regard to the Gratuity Plan are determined by actuarial valuation, performed by an independent actuary, at each balance sheet date using the projected unit credit method. The Company fully contributes all ascertained liabilities to the Infosys Limited Employees' Gratuity Fund Trust (the Trust). In case of Infosys BPM (formerly Infosys BPO) and EdgeVerve, contributions are made to the Infosys BPM Employees' Gratuity Fund Trust and EdgeVerve Systems Limited Employees' Gratuity Fund Trust, respectively. Trustees administer contributions made to the Trusts and contributions are invested in a scheme with Life Insurance Corporation of India as permitted by Indian law.
The Group recognizes the net obligation of a defined benefit plan in its Balance Sheet as an asset or liability. Gains and losses through re-measurements of the net defined benefit liability/(asset) are recognized in other comprehensive income and not reclassified to profit and loss in subsequent period. The actual return of the portfolio of plan assets, in excess of the yields computed by applying the discount rate used to measure the defined benefit obligation is recognized in other comprehensive income. The effect of any plan amendments are recognized in net profits in the statement of comprehensive income.
Provident Fund
Eligible employees of Infosys receive benefits from a provident fund, which is a defined benefit plan. Both the eligible employee and the Company make monthly contributions to the provident fund plan equal to a specified percentage of the covered employee's salary. The Company contributes a portion to the Infosys Limited Employees' Provident Fund Trust. The trust invests in specific designated instruments as permitted by Indian law. The remaining portion is contributed to the government administered pension fund. The rate at which the annual interest is payable to the beneficiaries by the trust is being administered by the government. The Company has an obligation to make good the shortfall, if any, between the return from the investments of the Trust and the notified interest rate.
In respect of Indian subsidiaries, eligible employees receive benefits from a provident fund, which is a defined contribution plan. Both the eligible employee and the respective companies make monthly contributions to this provident fund plan equal to a specified percentage of the covered employee's salary. Amounts collected under the provident fund plan are deposited in a government administered provident fund. The Companies have no further obligation to the plan beyond its monthly contributions.
Superannuation
Certain employees of Infosys, Infosys BPM (formerly Infosys BPO) and EdgeVerve are participants in a defined contribution plan. The Group has no further obligations to the Plan beyond its monthly contributions which are periodically contributed to a trust fund, the corpus of which is invested with the Life Insurance Corporation of India.
Compensated absences
The Group has a policy on compensated absences which are both accumulating and non-accumulating in nature. The expected cost of accumulating compensated absences is determined by actuarial valuation performed by an independent actuary at each Balance Sheet date using projected unit credit method on the additional amount expected to be paid/availed as a result of the unused entitlement that has accumulated at the Balance Sheet date. Expense on non-accumulating compensated absences is recognized in the period in which the absences occur.
Other income, net
Other income is comprised primarily of interest income, dividend income, gain/loss on investment and exchange gain/loss on forward and options contracts and on translation of other assets and liabilities. Interest income is recognized using the effective interest method. Dividend income is recognized when the right to receive payment is established.
During the three months ended June 30, 2018, the company has adopted IFRS interpretation IFRIC 22- Foreign Currency Transactions and Advance Consideration which clarifies the date of transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income when an entity has received or paid advance consideration in a foreign currency. The effect on account of adoption of this amendment was insignificant.
Operating Profits
Operating profit of the Group is computed considering the revenues, net of cost of sales, selling and marketing expenses and administrative expenses.
b. The table below provides details of break-up of expenses:
Cost of sales
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Employee benefit costs | 9,348 | 8,329 |
Depreciation and amortization | 436 | 450 |
Travelling costs | 443 | 390 |
Cost of Software packages for own use | 208 | 218 |
Consultancy and professional charges | 11 | 13 |
Third party items bought for service delivery to clients | 333 | 221 |
Cost of technical sub-contractors | 1,291 | 1,061 |
Operating lease payments | 81 | 77 |
Communication costs | 56 | 54 |
Repairs and maintenance | 78 | 74 |
Provision for post-sales client support | 1 | 10 |
Others | 2 | 3 |
Total | 12,288 | 10,900 |
Selling and marketing expenses
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Employee benefit costs | 750 | 668 |
Travelling costs | 101 | 80 |
Branding and marketing | 95 | 92 |
Operating lease payments | 17 | 19 |
Communication costs | 4 | 5 |
Consultancy and professional charges | 24 | 14 |
Others | 14 | 10 |
Total | 1,005 | 888 |
Administrative expenses
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Employee benefit costs | 364 | 369 |
Consultancy and professional charges | 270 | 219 |
Repairs and maintenance | 202 | 228 |
Power and fuel | 60 | 49 |
Communication costs | 62 | 67 |
Travelling costs | 59 | 57 |
Impairment loss recognised/(reversed) under expected credit loss model | 71 | (2) |
Rates and taxes | 36 | 49 |
Insurance charges | 16 | 13 |
Operating lease payments | 28 | 33 |
Commission to non-whole time directors | 2 | 3 |
Contribution towards Corporate Social Responsibility | 74 | 47 |
Others | 54 | 47 |
Total | 1,298 | 1,179 |
Other income, net
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Interest income on financial assets carried at amortized cost | 383 | 427 |
Interest income on financial assets fair valued through other comprehensive income | 167 | 203 |
Dividend income on investments carried at fair value through profit or loss | – | 1 |
Gain/(loss) on investments carried at fair value through profit or loss | 32 | 69 |
Exchange gains / (losses) on forward and options contracts | (185) | 21 |
Exchange gains / (losses) on translation of other assets and liabilities | 225 | 51 |
Others | 104 | 42 |
726 | 814 |
2.17 Capital allocation policy
Dividends
The final dividend on shares is recorded as a liability on the date of approval by the shareholders and interim dividends are recorded as a liability on the date of declaration by the Company's Board of Directors.
The Company declares and pays dividends in Indian rupees. The remittance of dividends outside India is governed by Indian law on foreign exchange and is subject to applicable distribution taxes. Dividend distribution tax paid by subsidiaries may be reduced / available as credit against dividend distribution tax payable by Infosys Limited.
Amount of per share dividend recognised as distribution to equity shareholders:-
(In )
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Final dividend for fiscal 2017 | – | 14.75 |
Final dividend for fiscal 2018 | 20.50 | – |
Special dividend for fiscal 2018 | 10.00 | – |
Effective from Financial Year 2018, the Company's policy is to payout up to 70% of the free cash flow of the corresponding Financial Year in such manner (including by way of dividend and / or share buyback) as may be decided by the Board from time to time, subject to applicable laws and requisite approvals, if any. Free cash flow is defined as net cash provided by operating activities less capital expenditure as per the consolidated statement of cash flows prepared under IFRS. Dividend payout includes dividend distribution tax.
Buyback
The Board, at its meeting on August 19, 2017, approved a proposal for the Company to buyback its fully paid-up equity shares of face value of 5 each from the eligible equity shareholders of the Company for an amount not exceeding 13,000 crore. The shareholders approved the said proposal of buyback of Equity Shares through the postal ballot that concluded on October 7, 2017. The Buyback offer comprised a purchase of 11,30,43,478 Equity Shares aggregating 4.92% of the paid-up equity share capital of the Company at a price of 1,150 per Equity share. The buyback was offered to all eligible equity shareholders (including those who became equity shareholders as on the Record date by cancelling American Depository Shares and withdrawing underlying Equity shares) of the Company as on the Record Date (i.e November 1, 2017) on a proportionate basis through the "Tender offer" route. The Company concluded the buyback procedures on December 27, 2017 and 11,30,43,478 equity shares were extinguished. The company utilized its securities premium and general reserve for the buyback of its shares. In accordance with section 69 of the Companies Act, 2013, the company has created ‘Capital Redemption Reserve’ of 56 crore equal to the nominal value of the shares bought back as an appropriation from general reserve during the year ended March 31, 2018.
The Company’s objective when managing capital is to safeguard its ability to continue as a going concern and to maintain an optimal capital structure so as to maximize shareholder value. In order to maintain or achieve an optimal capital structure, the Company may adjust the amount of dividend payment, return capital to shareholders, issue new shares or buy back issued shares. As of March 31, 2018, the Company has only one class of equity shares and has no debt. Consequent to the above capital structure there are no externally imposed capital requirements
Bonus issue
The Board in its meeting held on July 13, 2018 has considered, approved and recommended a bonus issue of one equity share for every equity share held and a stock dividend of one American Depositary Share (ADS) for every ADS held, as on a record date to be determined. Consequently, the ratio of equity shares underlying the ADSs held by an American Depositary Receipt holder would remain unchanged. The Board approved and recommended the issue to celebrate 25th year of public listing in India and to further increase the liquidity of its shares. The bonus issue of equity shares and ADSs will be subject to approval by the shareholders, and any other applicable statutory and regulatory approvals.
The bonus shares once allotted shall rank pari passu in all respects and carry the same rights as the existing equity shareholders and shall be entitled to participate in full, in any dividend and other corporate action, recommended and declared after the new equity shares are allotted.
2.18 Share capital and share premium
The Company has only one class of shares referred to as equity shares having a par value of 5/- each. 10,790,750 and 10,801,956 shares were held by controlled trust, as at June 30, 2018 and March 31, 2018, respectively.
The amount received in excess of the par value has been classified as share premium. Additionally, share-based compensation recognized in net profit in the consolidated statement of comprehensive income is credited to share premium. Amounts have been utilized for bonus issue from share premium account.
for and on behalf of the Board of Directors of Infosys Limited | ||
Nandan M. Nilekani Chairman |
Salil Parekh Chief Executive officer and Managing Director |
U. B. Pravin Rao Chief Operating Officer and Whole-time Director |
D. Sundaram Director |
M. D. Ranganath Chief Financial Officer |
A. G. S. Manikantha Company Secretary |
Bengaluru, July 13, 2018 |
Exhibit 99.10
Ind AS Standalone
INDEPENDENT AUDITOR’S REPORT
TO THE BOARD OF DIRECTORS OF INFOSYS LIMITED
Report on the Interim Condensed Standalone Financial Statements
Opinion
We have audited the accompanying interim condensed standalone financial statements of Infosys Limited (“the Company”), which comprise the Condensed Balance Sheet as at June 30, 2018, the Condensed Statement of Profit and Loss (including Other Comprehensive Income), the Condensed Statement of Changes in Equity and the Condensed Statement of Cash Flows for the three months period ended on that date, and a summary of the significant accounting policies and other explanatory information (hereinafter referred to as “the interim condensed standalone financial statements”).
In our opinion and to the best of our information and according to the explanations given to us, the aforesaid interim condensed standalone financial statements give a true and fair view in conformity with Indian Accounting Standard 34” Interim Financial Reporting (“Ind AS 34’) and other accounting principles generally accepted in India, of the state of affairs of the Company as at June 30, 2018, the profit, total comprehensive income, changes in equity and its cash flows for the three months period ended on that date.
Basis for Opinion
We conducted our audit in accordance with the Standards on Auditing (SAs) specified under section 143(10) of the Companies Act, 2013. Our responsibilities under those Standards are further described in the Auditor’s Responsibilities for the Audit of the Interim Condensed Standalone Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India, and we have fulfilled our other ethical responsibilities in accordance with the provisions of the Companies Act, 2013. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Responsibilities of the Management and Those Charged with Governance for the Interim Condensed Standalone Financial Statements
The Company’s Board of Directors is responsible for the preparation and presentation of these interim condensed standalone financial statements that give a true and fair view of the financial position, financial performance, total comprehensive income, changes in equity and cash flows of the Company in accordance with Ind AS 34 prescribed under Section 133 of the Companies Act, 2013 (“the Act”), read with relevant rules issued thereunder and other accounting principles generally accepted in India. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the interim condensed standalone financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
In preparing the interim condensed standalone financial statements, management is responsible for assessing the ability of the Company to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those Board of Directors are responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Interim Condensed Standalone Financial Statements
Our objectives are to obtain reasonable assurance about whether the interim condensed standalone financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these interim condensed standalone financial statements.
As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
o | Identify and assess the risks of material misstatement of the interim condensed standalone financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. |
o | Obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on whether the Company has in place an adequate internal financial controls system over financial reporting and the operating effectiveness of such controls. |
o | Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. |
o | Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the ability of the Company to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the interim condensed standalone financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. |
o | Evaluate the overall presentation, structure and content of the interim condensed standalone financial statements, including the disclosures, and whether the interim condensed standalone financial statements represent the underlying transactions and events in a manner that achieves fair presentation. |
Materiality is the magnitude of misstatements in the interim condensed standalone financial statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the financial statements may be influenced. We consider quantitative materiality and qualitative factors in (i) planning the scope of our audit work and in evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatements in the financial statements.
Based on our professional judgment, we determined materiality for the financial statements as a whole at Rs. 239 crores. The basis for determining materiality was 5% of profits before tax. Profits before tax was used as a benchmark for materiality because it is one of the main measures used by users of financial statements to monitor the performance of the Company.
We also communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
For DELOITTE HASKINS & SELLS LLP
Chartered Accountants
(Firm’s Registration No. 117366W/W-100018)
Bengaluru, July 13, 2018 | P. R. RAMESH Partner (Membership No.70928) |
INFOSYS LIMITED |
Condensed Standalone Financial Statements under Indian Accounting Standards (Ind AS) for the three months ended June 30, 2018 |
Index |
Condensed Balance Sheet |
Condensed Statement of Profit and Loss |
Condensed Statement of Changes in Equity |
Condensed Statement of Cash Flows |
Overview and notes to the financial statements |
1. Overview |
1.1 Company overview |
1.2 Basis of preparation of financial statements |
1.3 Use of estimates and judgments |
1.4 Critical accounting estimates |
2. Notes to financial statements |
2.1 Property, plant and equipment |
2.2 Investments and assets held for sale |
2.3 Loans |
2.4 Other financial assets |
2.5 Trade Receivables |
2.6 Cash and cash equivalents |
2.7 Other assets |
2.8 Financial instruments |
2.9 Equity |
2.10 Other financial liabilities |
2.11 Trade payables |
2.12 Other liabilities |
2.13 Provisions |
2.14 Income taxes |
2.15 Revenue from operations |
2.16 Other income, net |
2.17 Expenses |
2.18 Reconciliation of basic and diluted shares used in computing earning per share |
2.19 Contingent liabilities and commitments |
2.20 Related Party Transactions |
2.21 Segment Reporting |
2.22 Function-wise classification of statement of profit and loss |
INFOSYS LIMITED
(In crore)
Condensed Balance Sheet as at | Note No. | June 30, 2018 | March 31, 2018 |
ASSETS | |||
Non-current assets | |||
Property, plant and equipment | 2.1 | 9,025 | 9,027 |
Capital work-in-progress | 1,464 | 1,442 | |
Goodwill | 29 | 29 | |
Other intangible assets | 94 | 101 | |
Financial assets | |||
Investments | 2.2 | 12,218 | 11,993 |
Loans | 2.3 | 17 | 19 |
Other financial assets | 2.4 | 175 | 177 |
Deferred tax assets (net) | 1,140 | 1,128 | |
Income tax assets (net) | 5,688 | 5,710 | |
Other non-current assets | 2.7 | 1,726 | 2,161 |
Total non - current Assets | 31,576 | 31,787 | |
Current assets | |||
Financial assets | |||
Investments | 2.2 | 6,315 | 5,906 |
Trade receivables | 2.5 | 12,607 | 12,151 |
Cash and cash equivalents | 2.6 | 13,391 | 16,770 |
Loans | 2.3 | 405 | 393 |
Other financial assets | 2.4 | 3,655 | 5,906 |
Other current assets | 2.7 | 4,525 | 1,439 |
40,898 | 42,565 | ||
Assets held for sale | 2.2.4 | 1,260 | 1,525 |
Total current assets | 42,158 | 44,090 | |
Total Assets | 73,734 | 75,877 | |
EQUITY AND LIABILITIES | |||
Equity | |||
Equity share capital | 2.9 | 1,092 | 1,092 |
Other equity | 57,945 | 62,410 | |
Total equity | 59,037 | 63,502 | |
LIABILITIES | |||
Non-current liabilities | |||
Financial liabilities | |||
Other financial liabilities | 2.10 | 120 | 55 |
Deferred tax liabilities (net) | 469 | 505 | |
Other non-current liabilities | 2.12 | 144 | 153 |
Total non - current liabilities | 733 | 713 | |
Current liabilities | |||
Financial liabilities | |||
Trade payables | 2.11 | 887 | 738 |
Other financial liabilities | 2.10 | 6,228 | 5,540 |
Other current liabilities | 2.12 | 4,442 | 2,972 |
Provisions | 2.13 | 458 | 436 |
Income tax liabilities (net) | 1,949 | 1,976 | |
Total current liabilities | 13,964 | 11,662 | |
Total equity and liabilities | 73,734 | 75,877 |
The accompanying notes form an integral part of the interim condensed financial statements.
As per our report of even date attached
for Deloitte Haskins & Sells LLP
|
for and on behalf of the Board of Directors of Infosys Limited | ||
Chartered Accountants
|
|||
Firm's Registration Number: | |||
117366W/W-100018 | |||
P. R. Ramesh Partner |
Nandan M. Nilekani Chairman |
Salil Parekh Chief Executive officer and Managing Director |
U. B. Pravin Rao Chief Operating Officer and Whole-time Director |
Membership No. 70928 | |||
Bengaluru July 13, 2018 |
D. Sundaram Director |
M. D. Ranganath Chief Financial Officer |
A. G. S. Manikantha Company Secretary |
INFOSYS LIMITED
(In crore except equity share and per equity share data)
Condensed Statement of Profit and Loss for the | Note No. | Three months ended June 30, | |
2018 | 2017 | ||
Revenue from operations | 2.15 | 17,056 | 14,971 |
Other income, net | 2.16 | 716 | 723 |
Total income | 17,772 | 15,694 | |
Expenses | |||
Employee benefit expenses | 2.17 | 8,826 | 7,752 |
Cost of technical sub-contractors | 1,666 | 1,334 | |
Travel expenses | 467 | 391 | |
Cost of software packages and others | 2.17 | 415 | 314 |
Communication expenses | 82 | 83 | |
Consultancy and professional charges | 252 | 185 | |
Depreciation and amortization expense | 374 | 343 | |
Other expenses | 2.17 | 643 | 576 |
Reduction in the fair value of assets held for sale | 2.2.4 | 265 | – |
Total expenses | 12,990 | 10,978 | |
Profit before tax | 4,782 | 4,716 | |
Tax expense: | |||
Current tax | 2.14 | 1,329 | 1,394 |
Deferred tax | 2.14 | (50) | (93) |
Profit for the period | 3,503 | 3,415 | |
Other comprehensive income | |||
Items that will not be reclassified subsequently to profit or loss | |||
Remeasurement of the net defined benefit liability/asset, net | (1) | (2) | |
Equity instruments through other comprehensive income, net | 4 | – | |
Items that will be reclassified subsequently to profit or loss | |||
Fair value changes on derivatives designated as cash flow hedge, net | 9 | (66) | |
Fair value changes on investments, net | 2.2 | (41) | 25 |
Total other comprehensive income/ (loss), net of tax | (29) | (43) | |
Total comprehensive income for the period | 3,474 | 3,372 | |
Earnings per equity share | |||
Equity shares of par value 5/- each | |||
Basic () | 16.04 | 14.87 | |
Diluted () | 16.03 | 14.86 | |
Weighted average equity shares used in computing earnings per equity share | |||
Basic | 2.18 | 2,18,41,25,117 | 2,29,69,44,664 |
Diluted | 2.18 | 2,18,48,47,151 | 2,29,74,91,678 |
The accompanying notes form an integral part of the interim condensed financial statements.
As per our report of even date attached
for Deloitte Haskins & Sells LLP
|
for and on behalf of the Board of Directors of Infosys Limited | ||
Chartered Accountants
|
|||
Firm's Registration Number: | |||
117366W/W-100018 | |||
P. R. Ramesh Partner |
Nandan M. Nilekani Chairman |
Salil Parekh Chief Executive officer and Managing Director |
U. B. Pravin Rao Chief Operating Officer and Whole-time Director |
Membership No. 70928 | |||
Bengaluru July 13, 2018 |
D. Sundaram Director |
M. D. Ranganath Chief Financial Officer |
A. G. S. Manikantha Company Secretary |
INFOSYS LIMITED
Condensed Statement of Changes in Equity
(In crore)
Particulars | Equity Share Capital | Other Equity | Total equity attributable to equity holders of the Company | ||||||||||
Reserves & Surplus | Other comprehensive income | ||||||||||||
Securities Premium reserve |
Retained earnings | General reserve | Share Options Outstanding Account | Special Economic Zone Re-investment reserve (1) | Capital reserve | Capital redemption reserve | Equity Instruments through other comprehensive income | Effective portion of Cash flow hedges | Other items of other comprehensive income | ||||
Capital reserve | Business transfer adjustment reserve(2) | ||||||||||||
Balance as at April 1, 2017 | 1,148 | 2,208 | 49,957 | 11,087 | 120 | – | 54 | 3,448 | – | (5) | 39 | (39) | 68,017 |
Changes in equity for the three months ended June 30, 2017 | |||||||||||||
Profit for the period | – | – | 3,415 | – | – | – | – | – | – | – | – | – | 3,415 |
Remeasurement of the net defined benefit liability/asset* | – | – | – | – | – | – | – | – | – | – | – | (2) | (2) |
Fair value changes on derivatives designated as cash flow hedge* (Refer note no. 2.8) | – | – | – | – | – | – | – | – | – | – | (66) | – | (66) |
Fair value changes on investments, net* (refer note no. 2.2) | – | – | – | – | – | – | – | – | – | – | – | 25 | 25 |
Total comprehensive income for the period | – | – | 3,415 | – | – | – | – | – | – | – | (66) | 23 | 3,372 |
Transfer to general reserve | – | – | (1,382) | 1,382 | – | – | – | – | – | – | – | – | – |
Transferred to Special Economic Zone Re-investment reserve | – | – | (468) | – | – | 468 | – | – | – | – | – | – | – |
Transferred from Special Economic Zone Re-investment reserve on utilization | – | – | 146 | – | – | (146) | – | – | – | – | – | – | – |
Exercise of stock options (refer note no. 2.9) | – | 2 | – | – | (2) | – | – | – | – | – | – | – | – |
Share based payment to employees of the group (refer note no. 2.9) | – | – | – | – | 45 | – | – | – | – | – | – | – | 45 |
Dividends (including dividend distribution tax) | – | – | (4,078) | – | – | – | – | – | – | – | – | – | (4,078) |
Balance as at June 30, 2017 | 1,148 | 2,210 | 47,590 | 12,469 | 163 | 322 | 54 | 3,448 | – | (5) | (27) | (16) | 67,356 |
INFOSYS LIMITED
Condensed Statement of Changes in Equity
(In crore)
Particulars | Equity Share Capital | Other Equity | Total equity attributable to equity holders of the Company | ||||||||||
Reserves & Surplus | Other comprehensive income | ||||||||||||
Securities Premium reserve |
Retained earnings | General reserve | Share Options Outstanding Account | Special Economic Zone Re-investment reserve (1) | Capital reserve | Capital redemption reserve | Equity Instruments through other comprehensive income | Effective portion of Cash flow hedges | Other items of other comprehensive income | ||||
Capital reserve | Business transfer adjustment reserve(2) | ||||||||||||
Balance as at April 1, 2018 | 1,092 | 28 | 55,671 | 1,677 | 130 | 1,559 | 54 | 3,219 | 56 | 2 | – | 14 | 63,502 |
Changes in equity for the three months ended June 30, 2018 | |||||||||||||
Profit for the period | – | – | 3,503 | – | – | – | – | – | – | – | – | – | 3,503 |
Remeasurement of the net defined benefit liability/asset* | – | – | – | – | – | – | – | – | – | – | – | (1) | (1) |
Equity instruments through other comprehensive income* (refer note no. 2.2) | – | – | – | – | – | – | – | – | – | 4 | – | – | 4 |
Fair value changes on derivatives designated as cash flow hedge* (refer note no. 2.8) | – | – | – | – | – | – | – | – | – | – | 9 | – | 9 |
Fair value changes on investments, net* (refer note no.2.2) | – | – | – | – | – | – | – | – | – | – | – | (41) | (41) |
Total comprehensive income for the period | – | – | 3,503 | – | – | – | – | – | – | 4 | 9 | (42) | 3,474 |
Transfer to general reserve | – | – | (1,615) | 1,615 | – | – | – | – | – | – | – | – | – |
Transferred to Special Economic Zone Re-investment reserve | – | – | (534) | – | – | 534 | – | – | – | – | – | – | – |
Transferred from Special Economic Zone Re-investment reserve on utilization | – | – | 198 | – | – | (198) | – | – | – | – | – | – | – |
Shares issued on exercise of employee stock options | – | – | – | – | – | – | – | – | – | – | – | – | – |
Share based payment to employees of the group (refer note no. 2.9) | – | – | – | – | 43 | – | – | – | – | – | – | – | 43 |
Dividends (including dividend distribution tax) | – | – | (7,982) | – | – | – | – | – | – | – | – | – | (7,982) |
Balance as at June 30, 2018 | 1,092 | 28 | 49,241 | 3,292 | 173 | 1,895 | 54 | 3,219 | 56 | 6 | 9 | (28) | 59,037 |
*net of tax
(1) | The Special Economic Zone Re-investment Reserve has been created out of the profit of eligible SEZ units in terms of the provisions of Sec 10AA(1)(ii) of Income Tax Act,1961. The reserve should be utilized by the Company for acquiring new plant and machinery for the purpose of its business in the terms of the Sec 10AA(2) of the Income Tax Act, 1961. | |
(2) | Profit on transfer of business between entities under common control taken to reserve. |
The accompanying notes form an integral part of the interim condensed financial statements.
As per our report of even date attached
for Deloitte Haskins & Sells LLP
|
for and on behalf of the Board of Directors of Infosys Limited | ||
Chartered Accountants | |||
Firm's Registration Number: |
|||
117366W/W-100018 | |||
P. R. Ramesh Partner |
Nandan M. Nilekani Chairman |
Salil Parekh Chief Executive officer and Managing Director |
U. B. Pravin Rao Chief Operating Officer and Whole-time Director |
Membership No. 70928 | |||
Bengaluru July 13, 2018 |
D. Sundaram Director |
M. D. Ranganath Chief Financial Officer |
A. G. S. Manikantha Company Secretary |
INFOSYS LIMITED
Condensed Statement of Cash Flows
Accounting Policy
Cash flows are reported using the indirect method, whereby profit for the period is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments and item of income or expenses associated with investing or financing cash flows. The cash flows from operating, investing and financing activities of the Company are segregated. The company considers all highly liquid investments that are readily convertible to known amounts of cash to be cash equivalents.
(In crore)
Particulars | Note No. |
Three months ended June 30, | |
2018 | 2017 | ||
Cash flow from operating activities: | |||
Profit for the period | 3,503 | 3,415 | |
Adjustments to reconcile net profit to net cash provided by operating activities: | |||
Depreciation and amortization | 374 | 343 | |
Income tax expense | 2.14 | 1,279 | 1,301 |
Impairment loss recognized / (reversed) under expected credit loss model | 66 | (8) | |
Interest and dividend income | (541) | (615) | |
Other adjustments | (26) | 71 | |
Reduction in the fair value of assets held for sale | 2.2.4 | 265 | – |
Exchange differences on translation of assets and liabilities | 45 | (4) | |
Changes in assets and liabilities | |||
Trade receivables and unbilled revenue | (874) | (424) | |
Other financial assets and other assets | (67) | 49 | |
Trade payables | 149 | 216 | |
Other financial liabilities, other liabilities and provisions | 929 | 396 | |
Cash generated from operations | 5,102 | 4,740 | |
Income taxes paid | (1,334) | (1,049) | |
Net cash generated by operating activities | 3,768 | 3,691 | |
Cash flow from investing activities: | |||
Expenditure on property, plant and equipment | (448) | (489) | |
Deposits placed with corporations | 2.4 | (7) | (7) |
Loans to employees | 2.3 | (4) | 18 |
Investment in subsidiaries | 2.2 | (7) | (209) |
Payment towards acquisition of business | 2.2.3 | (257) | – |
Payment of contingent consideration pertaining to acquisition | – | (33) | |
Payments to acquire investments | |||
Preference and equity securities | (10) | – | |
Liquid mutual fund units and fixed maturity plan securities | (22,655) | (15,539) | |
Tax free bonds | (11) | – | |
Government bonds | – | (1) | |
Certificates of deposit | – | (281) | |
Proceeds on sale of investments | |||
Liquid mutual fund units and fixed maturity plan securities | 21,277 | 16,078 | |
Tax free bonds | 1 | – | |
Non-convertible debentures | 304 | – | |
Certificates of deposit | 800 | 150 | |
Interest and dividend received | 570 | 206 | |
Net cash used in investing activities | (447) | (107) | |
Cash flow from financing activities: | |||
Payment of dividends | (6,662) | (3,380) | |
Net cash used in financing activities | (6,662) | (3,380) | |
Effect of exchange differences on translation of foreign currency cash and cash equivalents | (38) | 3 | |
Net increase / (decrease) in cash and cash equivalents | (3,341) | 204 | |
Cash and cash equivalents at the beginning of the period | 16,770 | 19,153 | |
Cash and cash equivalents at the end of the period | 13,391 | 19,360 | |
Supplementary information: | |||
Restricted cash balance | 242 | 435 |
The accompanying notes form an integral part of the interim condensed financial statements.
As per our report of even date attached
for Deloitte Haskins & Sells LLP
|
for and on behalf of the Board of Directors of Infosys Limited | ||
Chartered Accountants
|
|||
Firm's Registration Number: | |||
117366W/W-100018 | |||
P. R. Ramesh Partner |
Nandan M. Nilekani Chairman |
Salil Parekh Chief Executive officer and Managing Director |
U. B. Pravin Rao Chief Operating Officer and Whole-time Director |
Membership No. 70928 | |||
Bengaluru July 13, 2018 |
D. Sundaram Director |
M. D. Ranganath Chief Financial Officer |
A. G. S. Manikantha Company Secretary |
INFOSYS LIMITED
Notes to the interim condensed financial statements
1. Overview
1.1 Company overview
Infosys Limited ('the Company' or Infosys) is a leading provider of consulting, technology, outsourcing and next-generation digital services, enabling clients to execute strategies for their digital transformation. Infosys strategic objective is to build a sustainable organization that remains relevant to the agenda of clients, while creating growth opportunities for employees and generating profitable returns for investors. Infosys strategy is to be a navigator for our clients as they ideate, plan and execute on their journey to a digital future.
The company is a public limited company incorporated and domiciled in India and has its registered office at Bengaluru, Karnataka, India. The company has its primary listings on the BSE Ltd. and National Stock Exchange in India. The company’s American Depositary Shares (ADS) representing equity shares are listed on the New York Stock Exchange (NYSE).
Further, the company's ADS were also listed on the Euronext London and Euronext Paris. On July 5, 2018, the company voluntarily delisted its ADS from the said exchanges due to low average daily trading volume of its ADS on these exchanges.
The interim condensed financial statements are approved for issue by the Company's Board of Directors on July 13, 2018.
1.2 Basis of preparation of financial statements
These interim condensed financial statements are prepared in accordance with Indian Accounting Standard 34 (Ind AS 34), under the historical cost convention on the accrual basis except for certain financial instruments which are measured at fair values, the provisions of the Companies Act, 2013 ('the Act') (to the extent notified) and guidelines issued by the Securities and Exchange Board of India (SEBI). The Ind AS are prescribed under Section 133 of the Act read with Rule 3 of the Companies (Indian Accounting Standards) Rules, 2015 and relevant amendment rules issued there after.
Accounting policies have been consistently applied except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy hitherto in use.
1.3 Use of estimates and judgments
The preparation of the financial statements in conformity with Ind AS requires the management to make estimates, judgments and assumptions. These estimates, judgments and assumptions affect the application of accounting policies and the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the period. The application of accounting policies that require critical accounting estimates involving complex and subjective judgments and the use of assumptions in these financial statements have been disclosed in Note no. 1.4. Accounting estimates could change from period to period. Actual results could differ from those estimates. Appropriate changes in estimates are made as management becomes aware of changes in circumstances surrounding the estimates. Changes in estimates are reflected in the financial statements in the period in which changes are made and, if material, their effects are disclosed in the notes to the financial statements.
1.4 Critical accounting estimates
a. Revenue recognition
The Company uses the percentage-of-completion method in accounting for its fixed-price contracts. Use of the percentage-of-completion method requires the Company to estimate the efforts or costs expended to date as a proportion of the total efforts or costs to be expended. Efforts or costs expended have been used to measure progress towards completion as there is a direct relationship between input and productivity.
Further, the company uses significant judgments while determining the transaction price allocated to performance obligations using the expected cost plus margin approach.
Provisions for estimated losses, if any, on uncompleted contracts are recorded in the period in which such losses become probable based on the expected contract estimates at the reporting date.
b. Income taxes
The Company's two major tax jurisdictions are India and the U.S., though the Company also files tax returns in other overseas jurisdictions. Significant judgments are involved in determining the provision for income taxes, including amount expected to be paid/recovered for uncertain tax positions. Also refer to note no.2.14 and note no. 2.19.
In assessing the realizability of deferred income tax assets, management considers whether some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers the scheduled reversals of deferred income tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred income tax assets are deductible, management believes that the group will realize the benefits of those deductible differences. The amount of the deferred income tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced.
c. Property, plant and equipment
Property, plant and equipment represent a significant proportion of the asset base of the Company. The charge in respect of periodic depreciation is derived after determining an estimate of an asset’s expected useful life and the expected residual value at the end of its life. The useful lives and residual values of Company's assets are determined by the management at the time the asset is acquired and reviewed periodically, including at each financial year end. The lives are based on historical experience with similar assets as well as anticipation of future events, which may impact their life, such as changes in technology. Refer to note no. 2.1
d. Non-current assets held for sale
Assets held for sale are measured at the lower of carrying amount or fair value less costs to sell. The determination of fair value less costs to sell includes use of management estimates and assumptions. The fair value of the assets held for sale has been estimated using valuation techniques (mainly income and market approach) which includes unobservable inputs. Refer to note no. 2.2.4
2.1 PROPERTY, PLANT AND EQUIPMENT
Accounting Policy
Property, plant and equipment are stated at cost, less accumulated depreciation and impairment, if any. Costs directly attributable to acquisition are capitalized until the property, plant and equipment are ready for use, as intended by the management. The Company depreciates property, plant and equipment over their estimated useful lives using the straight-line method. The estimated useful lives of assets are as follows:
Building(1) | 22-25 years |
Plant and machinery(1) | 5 years |
Office equipment | 5 years |
Computer equipment(1) | 3-5 years |
Furniture and fixtures(1) | 5 years |
Vehicles(1) | 5 years |
Leasehold improvements | Over lease term |
(1) | Based on technical evaluation, the management believes that the useful lives as given above best represent the period over which management expects to use these assets. Hence, the useful lives for these assets is different from the useful lives as prescribed under Part C of Schedule II of the Companies Act 2013. |
Depreciation methods, useful lives and residual values are reviewed periodically, including at each financial year end.
Advances paid towards the acquisition of property, plant and equipment outstanding at each Balance Sheet date is classified as capital advances under other non-current assets and the cost of assets not ready to use before such date are disclosed under ‘Capital work-in-progress’. Subsequent expenditures relating to property, plant and equipment is capitalized only when it is probable that future economic benefits associated with these will flow to the Company and the cost of the item can be measured reliably. Repairs and maintenance costs are recognized in the Statement of Profit and Loss when incurred. The cost and related accumulated depreciation are eliminated from the financial statements upon sale or retirement of the asset and the resultant gains or losses are recognized in the Statement of Profit and Loss.
Impairment
Property, plant and equipment are evaluated for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. For the purpose of impairment testing, the recoverable amount (i.e. the higher of the fair value less cost to sell and the value-in-use) is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. In such cases, the recoverable amount is determined for the Cash Generating Unit (CGU) to which the asset belongs.
If such assets are considered to be impaired, the impairment to be recognized in the Statement of Profit and Loss is measured by the amount by which the carrying value of the assets exceeds the estimated recoverable amount of the asset. An impairment loss is reversed in the statement of profit and loss if there has been a change in the estimates used to determine the recoverable amount. The carrying amount of the asset is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined (net of any accumulated depreciation) had no impairment loss been recognized for the asset in prior years.
The changes in the carrying value of property, plant and equipment for the three months ended June 30, 2018 are as follows:
(In crore)
Particulars | Land- Freehold | Land- Leasehold | Buildings(1)(2) | Plant and machinery(2) | Office Equipment(2) | Computer equipment(2) | Furniture and fixtures(2) | Leasehold Improvements | Vehicles | Total |
Gross carrying value as at April 1, 2018 | 1,227 | 661 | 7,271 | 2,209 | 841 | 4,229 | 1,247 | 235 | 29 | 17,949 |
Additions | 31 | – | 89 | 22 | 11 | 201 | 28 | 2 | 2 | 386 |
Deletions | – | (21) | – | (1) | (1) | (8) | (1) | – | – | (32) |
Gross carrying value as at June 30, 2018 | 1,258 | 640 | 7,360 | 2,230 | 851 | 4,422 | 1,274 | 237 | 31 | 18,303 |
Accumulated depreciation as at April 1, 2018 | – | (30) | (2,621) | (1,526) | (582) | (3,143) | (896) | (107) | (17) | (8,922) |
Depreciation | – | (1) | (66) | (71) | (29) | (150) | (39) | (10) | (1) | (367) |
Accumulated depreciation on deletions | – | – | – | 1 | 1 | 8 | 1 | – | – | 11 |
Accumulated depreciation as at June 30, 2018 | – | (31) | (2,687) | (1,596) | (610) | (3,285) | (934) | (117) | (18) | (9,278) |
Carrying value as at June 30, 2018 | 1,258 | 609 | 4,673 | 634 | 241 | 1,137 | 340 | 120 | 13 | 9,025 |
Carrying value as at April 1, 2018 | 1,227 | 631 | 4,650 | 683 | 259 | 1,086 | 351 | 128 | 12 | 9,027 |
The changes in the carrying value of property, plant and equipment for the three months ended June 30, 2017 were as follows:
(In crore)
Particulars | Land- Freehold | Land- Leasehold | Buildings(1)(2) | Plant and machinery(2) | Office Equipment(2) | Computer equipment(2) | Furniture and fixtures(2) | Leasehold Improvements | Vehicles | Total |
Gross carrying value as at April 1, 2017 | 1,093 | 659 | 6,483 | 1,966 | 769 | 3,886 | 1,132 | 198 | 24 | 16,210 |
Additions | – | – | 52 | 30 | 22 | 121 | 21 | 10 | 2 | 258 |
Deletions | – | – | – | – | (1) | (5) | (1) | – | – | (7) |
Gross carrying value as at June 30, 2017 | 1,093 | 659 | 6,535 | 1,996 | 790 | 4,002 | 1,152 | 208 | 26 | 16,461 |
Accumulated depreciation as at April 1, 2017 | – | (26) | (2,377) | (1,274) | (472) | (2,603) | (757) | (82) | (14) | (7,605) |
Depreciation | – | (1) | (60) | (64) | (30) | (143) | (36) | (8) | (1) | (343) |
Accumulated depreciation on deletions | – | – | – | – | 1 | 4 | 1 | – | – | 6 |
Accumulated depreciation as at June 30, 2017 | – | (27) | (2,437) | (1,338) | (501) | (2,742) | (792) | (90) | (15) | (7,942) |
Carrying value as at June 30, 2017 | 1,093 | 632 | 4,098 | 658 | 289 | 1,260 | 360 | 118 | 11 | 8,519 |
Carrying value as at April 1, 2017 | 1,093 | 633 | 4,106 | 692 | 297 | 1,283 | 375 | 116 | 10 | 8,605 |
The changes in the carrying value of property, plant and equipment for the year ended March 31, 2018 were as follows:
(In crore)
Particulars | Land- Freehold | Land- Leasehold | Buildings(1)(2) | Plant and machinery(2) | Office Equipment(2) | Computer equipment(2) | Furniture and fixtures(2) | Leasehold Improvements | Vehicles | Total |
Gross carrying value as at April 1, 2017 | 1,093 | 659 | 6,483 | 1,966 | 769 | 3,886 | 1,132 | 198 | 24 | 16,210 |
Additions | 134 | 2 | 789 | 250 | 78 | 396 | 121 | 48 | 5 | 1,823 |
Deletions | – | – | (1) | (7) | (6) | (53) | (6) | (11) | – | (84) |
Gross carrying value as at March 31, 2018 | 1,227 | 661 | 7,271 | 2,209 | 841 | 4,229 | 1,247 | 235 | 29 | 17,949 |
Accumulated depreciation as at April 1, 2017 | – | (26) | (2,377) | (1,274) | (472) | (2,603) | (757) | (82) | (14) | (7,605) |
Depreciation | – | (4) | (244) | (258) | (115) | (592) | (145) | (36) | (3) | (1,397) |
Accumulated depreciation on deletions | – | – | – | 6 | 5 | 52 | 6 | 11 | – | 80 |
Accumulated depreciation as at March 31, 2018 | – | (30) | (2,621) | (1,526) | (582) | (3,143) | (896) | (107) | (17) | (8,922) |
Carrying value as at March 31, 2018 | 1,227 | 631 | 4,650 | 683 | 259 | 1,086 | 351 | 128 | 12 | 9,027 |
Carrying value as at April 1, 2017 | 1,093 | 633 | 4,106 | 692 | 297 | 1,283 | 375 | 116 | 10 | 8,605 |
(1) | Buildings include 250/- being the value of five shares of 50/- each in Mittal Towers Premises Co-operative Society Limited. | |
(2) | Includes certain assets provided on cancellable operating lease to subsidiaries. |
Gross carrying value of leasehold land represents amounts paid under certain lease-cum-sale agreements to acquire land including agreements where the Company has an option to purchase or renew the properties on expiry of the lease period.
The aggregate depreciation has been included under depreciation and amortization expense in the statement of Profit and Loss.
Tangible assets provided on operating lease to subsidiaries as at June 30, 2018 and March 31, 2018 are as follows:
(In crore)
Particulars | Cost | Accumulated depreciation | Net book value |
Buildings | 190 | 83 | 107 |
190 | 82 | 108 | |
Plant and machinery | 33 | 27 | 6 |
33 | 25 | 8 | |
Furniture and fixtures | 25 | 21 | 4 |
25 | 20 | 5 | |
Computer Equipment | 3 | 3 | – |
3 | 2 | 1 | |
Office equipment | 18 | 13 | 5 |
18 | 13 | 5 |
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Aggregate depreciation charged on above assets | 5 | 5 |
Rental income from subsidiaries | 16 | 17 |
2.2 INVESTMENTS AND ASSETS HELD FOR SALE
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Non-current investments | ||
Equity instruments of subsidiaries | 5,370 | 5,013 |
Debentures of subsidiary | 1,780 | 1,780 |
Preference securities and equity instruments | 133 | 117 |
Others | 7 | 7 |
Tax free bonds | 1,830 | 1,831 |
Fixed maturity plans securities | 377 | 376 |
Non-convertible debentures | 2,721 | 2,869 |
Total non-current investments | 12,218 | 11,993 |
Current investments | ||
Liquid mutual fund units | 1,405 | – |
Certificates of deposit | 4,166 | 4,901 |
Government bonds | 11 | 1 |
Non-convertible debentures | 434 | 711 |
Commercial paper | 299 | 293 |
Total current investments | 6,315 | 5,906 |
Total carrying value | 18,533 | 17,899 |
(In crore, except as otherwise stated)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Non-current investments | ||
Unquoted | ||
Investment carried at cost | ||
Investments in equity instruments of subsidiaries | ||
Infosys BPM Limited (formerly Infosys BPO Limited) | 659 | 659 |
3,38,22,319 (3,38,22,319) equity shares of 10/- each, fully paid | ||
Infosys Technologies (China) Co. Limited | 333 | 333 |
Infosys Technologies (Australia) Pty Limited (1) | 38 | 38 |
1,01,08,869 (1,01,08,869) equity shares of AUD 0.11 par value, fully paid | ||
Infosys Technologies, S. de R.L. de C.V., Mexico | 65 | 65 |
17,49,99,990 (17,49,99,990) equity shares of MXN 1 par value, fully paid up | ||
Infosys Technologies (Sweden) AB | 76 | 76 |
1,000 (1,000) equity shares of SEK 100 par value, fully paid | ||
Infosys Technologia do Brazil Ltda | 149 | 149 |
5,91,24,348 (5,91,24,348) shares of BRL 1.00 par value, fully paid | ||
Infosys Technologies (Shanghai) Company Limited | 900 | 900 |
Infosys Public Services, Inc. | 99 | 99 |
3,50,00,000 (3,50,00,000) shares of USD 0.50 par value, fully paid | ||
Infosys Consulting Holding AG | 1,323 | 1,323 |
23,350 (23,350) - Class A shares of CHF 1,000 each and 29,400 | ||
(29,400) - Class B Shares of CHF 100 each, fully paid up | ||
Infosys Americas Inc. | 1 | 1 |
10,000 (10,000) shares of USD 10 per share, fully paid up | ||
EdgeVerve Systems Limited | 1,312 | 1,312 |
1,31,18,40,000 (1,31,18,40,000) equity shares of 10/- each, fully paid | ||
Infosys Nova Holdings LLC * (1) | – | – |
Noah Consulting LLC (refer note 2.2.1) | – | – |
Infosys Consulting Pte Ltd (formerly Lodestone Management Consultants | 10 | 10 |
Pte Ltd) 1,09,90,000 (1,09,90,000) shares of SGD 1.00 par value, fully paid | ||
Brilliant Basics Holding Limited (refer note 2.2.2) | 46 | 46 |
1,170 (Nil) shares of GBP 0.005 each, fully paid up | ||
Infosys Arabia Limited | 2 | 2 |
70 (Nil) shares | ||
Kallidus Inc. (refer note no. 2.2.4) | – | – |
10,21,35,416 (10,21,35,416) shares | ||
Skava Systems Private Limited (refer note no. 2.2.4) | – | – |
25,000 (25,000) shares of 10/- per share, fully paid up | ||
Panaya Inc. ( refer note no. 2.2.4) | – | – |
2 (2) shares of USD 0.01 per share, fully paid up | ||
Infosys Chile SpA | 7 | – |
100 (Nil) shares | ||
Wongdoody Holding Company Inc ( refer note no. 2.2.3) | 350 | – |
2,000 (Nil) shares | ||
5,370 | 5,013 | |
Investment carried at amortized cost | ||
Investment in debentures of subsidiary | ||
EdgeVerve Systems Limited | ||
17,80,00,000 (17,80,00,000) Unsecured redeemable, non-convertible debentures of 100/- each fully paid up | 1,780 | 1,780 |
1,780 | 1,780 | |
Investments carried at fair value through profit or loss | ||
Others | 7 | 7 |
7 | 7 | |
Investment carried at fair value through other comprehensive income (FVOCI) | ||
Preference securities | 132 | 116 |
Equity instruments | 1 | 1 |
133 | 117 |
(In crore, except as otherwise stated)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Quoted | ||
Investments carried at amortized cost | ||
Tax free bonds | 1,830 | 1,831 |
1,830 | 1,831 | |
Investments carried at fair value through profit or loss | ||
Fixed maturity plans securities | 377 | 376 |
377 | 376 | |
Investments carried at fair value through other comprehensive income | ||
Non-convertible debentures | 2,721 | 2,869 |
2,721 | 2,869 | |
Total non-current investments | 12,218 | 11,993 |
Current investments | ||
Unquoted | ||
Investments carried at fair value through profit or loss | ||
Liquid mutual fund units | 1,405 | – |
1,405 | – | |
Investments carried at fair value through other comprehensive income | ||
Commercial paper | 299 | 293 |
Certificates of deposit | 4,166 | 4,901 |
4,465 | 5,194 | |
Quoted | ||
Investments carried at amortized cost | ||
Government bonds | 11 | 1 |
11 | 1 | |
Investments carried at fair value through other comprehensive income | ||
Non-convertible debentures | 434 | 711 |
434 | 711 | |
Total current investments | 6,315 | 5,906 |
Total investments | 18,533 | 17,899 |
Aggregate amount of quoted investments | 5,373 | 5,788 |
Market value of quoted investments (including interest accrued) | 5,638 | 6,045 |
Aggregate amount of unquoted investments | 13,160 | 12,111 |
(1) Aggregate amount of impairment in value of investments | 122 | 122 |
Aggregate amount of reduction in fair value of investments held for sale (refer note no 2.2.4) | 854 | 589 |
Investments carried at cost | 5,370 | 5,013 |
Investments carried at amortized cost | 3,621 | 3,612 |
Investments carried at fair value through other comprehensive income | 7,753 | 8,891 |
Investments carried at fair value through profit or loss | 1,789 | 383 |
Note: Uncalled capital commitments outstanding as of June 30, 2018 and March 31, 2018 was 25 crore and 36 crore, respectively.
* | During the three months ended June 30, 2017, Infosys Nova Holding LLC, a wholly-owned subsidiary, has written down the entire carrying value of its investment in its associate DWA Nova LLC. Consequently, the Company has written down the entire carrying value of the investment in its subsidiary Infosys Nova Holdings LLC, amounting to 94 crore. |
Refer to note no. 2.8 for accounting policies on financial instruments.
Details of amounts recorded in Other comprehensive income:
(In crore)
Three months ended | ||||||
June 30, 2018 | June 30, 2017 | |||||
Gross | Tax | Net | Gross | Tax | Net | |
Net Gain/(loss) on | ||||||
Non-convertible debentures | (33) | 4 | (29) | 28 | (2) | 26 |
Certificate of deposits | (18) | 6 | (12) | (1) | – | (1) |
Equity and preference securities | 5 | (1) | 4 | – | – | – |
Method of fair valuation:
(In crore)
Class of investment | Method | Fair value as at | |
June 30, 2018 | March 31, 2018 | ||
Liquid mutual fund units | Quoted price | 1,405 | – |
Fixed maturity plan securities | Market observable inputs | 377 | 376 |
Tax free bonds and government bonds | Quoted price and market observable inputs | 2,066 | 2,079 |
Non-convertible debentures | Quoted price and market observable inputs | 3,155 | 3,580 |
Certificate of deposits | Market observable inputs | 4,166 | 4,901 |
Commercial paper | Market observable inputs | 299 | 293 |
Unquoted equity and preference securities | Discounted cash flows method, Market multiples method, Option pricing model, etc. | 133 | 117 |
Others | Discounted cash flows method, Market multiples method, Option pricing model, etc. | 7 | 7 |
Certain quoted investments are classified as Level 2 in the absence of active market for such investments.
2.2.1 Business transfer- Noah
On July 14, 2017, the Board of Directors of Infosys authorized the Company to execute a Business Transfer Agreement and related documents with Noah Consulting LLC, a wholly owned subsidiary, to transfer the business of Noah Consulting LLC to Infosys Limited, subject to securing the requisite regulatory approvals for a consideration based on an independent valuation. Subsequently on October 17, 2017 , the company entered into a business transfer agreement to transfer the business for a consideration of $41 million (266 crore) and the transfer was with effect from October 25, 2017.
The transaction was between a holding company and a wholly owned subsidiary, the resultant impact on account of business transfer was recorded in 'Business Transfer Adjustment Reserve' during the year ended March 31, 2018. The table below details out the assets and liabilities taken over upon business transfer:
(In crore)
Particulars | Amount |
Goodwill | 29 |
Trade name | 16 |
Customer contracts | 80 |
Other intangibles | 16 |
Deferred tax assets | 13 |
Net assets / (liabilities), others | (117) |
Total | 37 |
Less: Consideration paid | 266 |
Business transfer reserve | (229) |
Subsequently, in November 2017, Noah Consulting LLC has been liquidated and the Company received 316 crore as proceeds on liquidation.
2.2.2 Brilliant Basics Holdings Limited.
On September 8, 2017, Infosys acquired 100% of the voting interests in Brilliant Basics Holdings Limited., UK, (Brilliant Basics) a product design and customer experience innovator with experience in executing global programs. The business acquisition was conducted by entering into a share purchase agreement for cash consideration of 29 crore, contingent consideration of up to 20 crore and an additional consideration of upto 13 crore, referred to as retention bonus, payable to the employees of Brilliant Basics at each anniversary year over the next two years, subject to their continuous employment with the group at each anniversary. The fair value of contingent consideration on the date of acquisition is 17 crore.
2.2.3 Wongdoody Holding Company Inc
On May 22, 2018, Infosys acquired 100% of the voting interests in WongDoody Holding Company Inc., (WongDoody) an US-based, full-service creative and consumer insights agency. The business acquisition was conducted by entering into a share purchase agreement for a total consideration of up to $75 million (approximately 514 crore on acquisition date), which includes a cash consideration of $38 million (approximately 261 crore), contingent consideration of up to $28 million (approximately 192 crore on acquisition date) and an additional consideration of up to $9 million (approximately 61 crore on acquisition date), referred to as retention bonus, payable to the employees of WongDoody over the next three years, subject to their continuous employment with the group. The fair value of contingent consideration on the date of acquisition is 89 crore.
2.2.4 Assets held for sale
Accounting policy
Non current assets and Disposal Groups are classified as held for sale if their carrying amount is intended to be recovered principally through sale rather than through continuing use. The condition for classification of held for sale is met when the non current asset or the Disposal Group is available for immediate sale and the same is highly probable of being completed within one year from the date of classification as held for sale. Non current assets and Disposal Groups held for sale are measured at the lower of carrying amount and fair value less cost to sell.
In the quarter ended March 2018, on conclusion of a strategic review of the portfolio businesses, the company had evaluated its portfolio of businesses and had planned for the sale of its investment in subsidiaries, Kallidus and Skava (together herein referred to as 'Skava') and Panaya. The Company anticipates completion of the sale by March, 2019. On reclassification, investments in these subsidiaries had been reclassified as 'Assets held for sale' and measured at the lower of carrying amount and fair value less cost to sell. Consequently, the Company had recognized a reduction in the fair value of investment of 589 crore during the three months ended March 31, 2018, in respect of Panaya in the standalone books of Infosys Limited.
During the three months ended June 30, 2018, on remeasurement, including consideration of progress in negotiations on offers from prospective buyers for Panaya, the Company has recorded a reduction in the fair value of investment of 265 crore in respect of Panaya.
2.3 LOANS
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Non- Current | ||
Unsecured, considered good | ||
Other Loans | ||
Loans to employees | 17 | 19 |
17 | 19 | |
Unsecured, considered doubtful | ||
Other Loans | ||
Loans to employees | 14 | 12 |
31 | 31 | |
Less: Allowance for doubtful loans to employees | 14 | 12 |
Total non - current loans | 17 | 19 |
Current | ||
Unsecured, considered good | ||
Loans to subsidiaries (Refer note no.2.20) | 191 | 185 |
Other Loans | ||
Loans to employees | 214 | 208 |
Total current loans | 405 | 393 |
Total Loans | 422 | 412 |
2.4 OTHER FINANCIAL ASSETS
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Non-current | ||
Security deposits (1) | 49 | 48 |
Rental deposits (1) | 126 | 129 |
Total non-current other financial assets | 175 | 177 |
Current | ||
Security deposits (1) | 2 | 2 |
Rental deposits (1) | 24 | 6 |
Restricted deposits (1) | 1,422 | 1,415 |
Unbilled revenues (1)(5)# | 1,245 | 3,573 |
Interest accrued but not due (1) | 710 | 739 |
Foreign currency forward and options contracts (2)(3) | 35 | 16 |
Others (1)(4) | 217 | 155 |
Total current other financial assets | 3,655 | 5,906 |
Total other financial assets | 3,830 | 6,083 |
(1) Financial assets carried at amortized cost | 3,795 | 6,067 |
(2) Financial assets carried at fair value through other comprehensive income | 23 | 12 |
(3) Financial assets carried at fair value through Profit or Loss | 12 | 4 |
(4) Includes dues from subsidiaries (Refer note no. 2.20) | 37 | 40 |
(5) Includes dues from subsidiaries (Refer note no. 2.20) | – | 32 |
Restricted deposits represent deposit with financial institutions to settle employee related obligations as and when they arise during the normal course of business.
# Classified as financial asset as right to consideration is unconditional upon passage of time.
2.5 TRADE RECEIVABLES
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Current | ||
Unsecured | ||
Considered good(2) | 12,607 | 12,151 |
Considered doubtful | 388 | 315 |
12,995 | 12,466 | |
Less: Allowances for credit losses | 388 | 315 |
Total trade receivables(1) | 12,607 | 12,151 |
(1) Includes dues from companies where directors are interested | – | – |
(2) Includes dues from subsidiaries (refer note no. 2.20) | 291 | 335 |
2.6 CASH AND CASH EQUIVALENTS
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Balances with banks | ||
In current and deposit accounts | 6,606 | 10,789 |
Cash on hand | – | – |
Others | ||
Deposits with financial institutions | 6,785 | 5,981 |
Total Cash and cash equivalents | 13,391 | 16,770 |
Balances with banks in unpaid dividend accounts | 22 | 22 |
Deposit with more than 12 months maturity | 4,828 | 6,187 |
Balances with banks held as margin money deposits against guarantees | 220 | 353 |
Cash and cash equivalents as at June 30, 2018 and March 31, 2018 include restricted cash and bank balances of 242 crore and 375 crore, respectively. The restrictions are primarily on account of bank balances held as margin money deposits against guarantees and balances held in unpaid dividend bank accounts.
The deposits maintained by the Company with banks and financial institutions comprise of time deposits, which can be withdrawn by the Company at any point without prior notice or penalty on the principal.
The table below provides details of cash and cash equivalents:
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
In current accounts | ||
ANZ Bank, Taiwan | 1 | 9 |
Bank of America, USA | 305 | 814 |
Bank of Baroda, Mauritius | – | 1 |
Bank of tokyo, Japan | 1 | – |
BNP Paribas Bank, Norway | 52 | 88 |
Citibank N.A., Australia | 66 | 184 |
Citibank N.A., Dubai | 2 | 5 |
Citibank N.A., EEFC (U.S. Dollar account) | 1 | 4 |
Citibank N.A., Hungary | 8 | 6 |
Citibank N.A., India | 3 | 3 |
Citibank N.A., Japan | 15 | 18 |
Citibank N.A., New Zealand | 6 | 8 |
Citibank N.A., South Africa | 36 | 33 |
Citibank N.A., South Korea | 5 | 2 |
Deutsche Bank, Belgium | 17 | 27 |
Deutsche Bank, EEFC (Australian Dollar account) | 1 | 2 |
Deutsche Bank, EEFC (Euro account) | 6 | 14 |
Deutsche Bank, EEFC (Swiss Franc account) | 2 | 2 |
Deutsche Bank, EEFC (U.S. Dollar account) | 33 | 27 |
Deutsche Bank, EEFC (United Kingdom Pound Sterling account) | 4 | 8 |
Deutsche Bank, France | 6 | 19 |
Deutsche Bank, Germany | 75 | 70 |
Deutsche Bank, India | 28 | 40 |
Deutsche Bank, Malaysia | 1 | 5 |
Deutsche Bank, Netherlands | 8 | 8 |
Deutsche Bank, Philippines | 3 | 14 |
Deutsche Bank, Russia | 3 | 3 |
Deutsche Bank, Russia (U.S. Dollar account) | 4 | 5 |
Deutsche Bank, Singapore | 14 | 17 |
Deutsche Bank, Spain | 1 | 1 |
Deutsche Bank, Switzerland | 8 | 18 |
Deutsche Bank, United Kingdom | 51 | 74 |
HSBC Bank, Hong Kong | 2 | 2 |
ICICI Bank, EEFC (U.S. Dollar account) | 28 | 5 |
ICICI Bank, India | 10 | 33 |
Nordbanken, Sweden | 12 | 26 |
Punjab National Bank, India | 76 | 12 |
Royal Bank of Canada, Canada | 14 | 9 |
Splitska Banka D.D., Société Générale Group, Croatia | 9 | 8 |
917 | 1,624 |
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
In deposit accounts | ||
Barclays Bank | 200 | 200 |
HDFC Bank | 473 | 2,423 |
ICICI Bank | 3,274 | 3,467 |
IDFC Bank | 1,500 | 1,500 |
IndusInd Bank | – | 1,000 |
South Indian Bank | – | 200 |
5,447 | 8,790 | |
In unpaid dividend accounts | ||
Axis Bank - Unpaid dividend account | 1 | 1 |
HDFC Bank - Unpaid dividend account | 1 | 1 |
ICICI Bank - Unpaid dividend account | 20 | 20 |
22 | 22 | |
In margin money deposits against guarantees | ||
Canara Bank | 148 | 151 |
ICICI Bank | 72 | 202 |
220 | 353 | |
Deposits with financial institution | ||
HDFC Limited | 5,585 | 4,781 |
LIC Housing Finance Limited | 1,200 | 1,200 |
6,785 | 5,981 | |
Total cash and cash equivalents | 13,391 | 16,770 |
2.7 OTHER ASSETS
(In crore)
Particulars |
As at | |
June 30, 2018 | March 31, 2018 | |
Non-current | ||
Capital advances | 419 | 420 |
Advances other than capital advance | ||
Prepaid gratuity | 8 | 23 |
Others | ||
Prepaid expenses | 51 | 49 |
Deferred contract cost | 258 | 262 |
Withholding taxes and others | 990 | 1,407 |
Total non-current other assets | 1,726 | 2,161 |
Current | ||
Advances other than capital advance | ||
Payment to vendors for supply of goods | 83 | 103 |
Others | ||
Unbilled revenues (1)# | 2,680 | – |
Prepaid expenses (2) | 522 | 449 |
Deferred contract cost | 44 | 44 |
Withholding taxes and others | 1,196 | 843 |
Total current other assets | 4,525 | 1,439 |
Total other assets | 6,251 | 3,600 |
(1) Includes dues from subsidiaries (Refer note no. 2.20) | 31 | – |
(2) Includes dues from subsidiaries (Refer note no. 2.20) | 148 | 115 |
Deferred contract costs are upfront costs incurred for the contract and are amortized over the term of the contract. Withholding taxes and others primarily consist of input tax credits.
# | Classified as non financial asset as the contractual right to consideration is dependent on completion of contractual milestones. |
2.8 FINANCIAL INSTRUMENTS
Accounting Policy
2.8.1 Initial recognition
The Company recognizes financial assets and financial liabilities when it becomes a party to the contractual provisions of the instrument. All financial assets and liabilities are recognized at fair value on initial recognition, except for trade receivables which are initially measured at transaction price. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities, which are not at fair value through profit or loss, are added to the fair value on initial recognition. Regular way purchase and sale of financial assets are accounted for at trade date.
2.8.2 Subsequent measurement
a. Non-derivative financial instruments
(i) Financial assets carried at amortized cost
A financial asset is subsequently measured at amortized cost if it is held within a business model whose objective is to hold the asset in order to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
(ii) Financial assets at fair value through other comprehensive income
A financial asset is subsequently measured at fair value through other comprehensive income if it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The Company has made an irrevocable election for its investments which are classified as equity instruments to present the subsequent changes in fair value in other comprehensive income based on its business model.
(iii) Financial assets at fair value through profit or loss
A financial asset which is not classified in any of the above categories are subsequently fair valued through profit or loss.
(iv) Financial liabilities
Financial liabilities are subsequently carried at amortized cost using the effective interest method, except for contingent consideration recognized in a business combination which is subsequently measured at fair value through profit or loss. For trade and other payables maturing within one year from the Balance Sheet date, the carrying amounts approximate fair value due to the short maturity of these instruments.
(v) Investment in subsidiaries
Investment in subsidiaries is carried at cost in the separate financial statements.
b. Derivative financial instruments
The Company holds derivative financial instruments such as foreign exchange forward and option contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. The counterparty for these contracts is generally a bank.
(i) Financial assets or financial liabilities, at fair value through profit or loss.
This category includes derivative financial assets or liabilities which are not designated as hedges.
Although the Company believes that these derivatives constitute hedges from an economic perspective, they may not qualify for hedge accounting under Ind AS 109, Financial Instruments. Any derivative that is either not designated as hedge, or is so designated but is ineffective as per Ind AS 109, is categorized as a financial asset or financial liability, at fair value through profit or loss.
Derivatives not designated as hedges are recognized initially at fair value and attributable transaction costs are recognized in net profit in the Statement of Profit and Loss when incurred. Subsequent to initial recognition, these derivatives are measured at fair value through profit or loss and the resulting exchange gains or losses are included in other income. Assets/ liabilities in this category are presented as current assets/current liabilities if they are either held for trading or are expected to be realized within 12 months after the Balance Sheet date.
(ii) Cash flow hedge
The Company designates certain foreign exchange forward and options contracts as cash flow hedges to mitigate the risk of foreign exchange exposure on highly probable forecast cash transactions. When a derivative is designated as a cash flow hedge instrument, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and accumulated in the cash flow hedge reserve. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in the net profit in the Statement of Profit and Loss. If the hedging instrument no longer meets the criteria for hedge accounting, then hedge accounting is discontinued prospectively. If the hedging instrument expires or is sold, terminated or exercised, the cumulative gain or loss on the hedging instrument recognized in cash flow hedge reserve till the period the hedge was effective remains in cash flow hedge reserve until the forecasted transaction occurs. The cumulative gain or loss previously recognized in the cash flow hedge reserve is transferred to the net profit in the Statement of Profit and Loss upon the occurrence of the related forecasted transaction. If the forecasted transaction is no longer expected to occur, then the amount accumulated in cash flow hedge reserve is reclassified to net profit in the Statement of Profit and Loss.
c. Share capital
Ordinary Shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of new ordinary shares and share options and buy back of ordinary shares are recognized as a deduction from equity, net of any tax effects.
2.8.3 Derecognition of financial instruments
The Company derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for derecognition under Ind AS 109. A financial liability (or a part of a financial liability) is derecognized from the Company's Balance Sheet when the obligation specified in the contract is discharged or cancelled or expires.
2.8.4 Fair value of financial instruments
In determining the fair value of its financial instruments, the Company uses a variety of methods and assumptions that are based on market conditions and risks existing at each reporting date. The methods used to determine fair value include discounted cash flow analysis, available quoted market prices and dealer quotes. All methods of assessing fair value result in general approximation of value, and such value may never actually be realized.
Refer to financial instruments by category table below for the disclosure on carrying value and fair value of financial assets and liabilities. For financial assets and liabilities maturing within one year from the Balance Sheet date and which are not carried at fair value, the carrying amounts approximate fair value due to the short maturity of these instruments.
2.8.5 Impairment
The Company recognizes loss allowances using the expected credit loss (ECL) model for the financial assets and unbilled revenues which are not fair valued through profit or loss. Loss allowance for trade receivables and unbilled revenues with no significant financing component is measured at an amount equal to lifetime ECL. For all other financial assets, expected credit losses are measured at an amount equal to the 12-month ECL, unless there has been a significant increase in credit risk from initial recognition in which case those are measured at lifetime ECL. The amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognized is recognized as an impairment gain or loss in statement of profit or loss.
Financial instruments by category
The carrying value and fair value of financial instruments by categories as at June 30, 2018 are as follows:
(In crore)
Particulars | Amortized cost | Financial assets/ liabilities at fair value through profit or loss | Financial assets/liabilities at fair value through OCI | Total carrying value | Total fair value | ||
Designated upon initial recognition | Mandatory | Equity instruments designated upon initial recognition | Mandatory | ||||
Assets: | |||||||
Cash and cash equivalents (Refer Note no. 2.6) | 13,391 | – | – | – | – | 13,391 | 13,391 |
Investments (Refer note no.2.2) | |||||||
Preference securities, Equity instruments and others | – | – | 7 | 133 | – | 140 | 140 |
Tax free bonds and government bonds | 1,841 | – | – | – | – | 1,841 | 2,066* |
Liquid mutual fund units | – | – | 1,405 | – | – | 1,405 | 1,405 |
Redeemable, non-convertible debentures (1) | 1,780 | – | – | – | – | 1,780 | 1,780 |
Fixed maturity plan securities | – | – | 377 | – | – | 377 | 377 |
Certificates of deposit | – | – | – | – | 4,166 | 4,166 | 4,166 |
Non convertible debentures | – | – | – | – | 3,155 | 3,155 | 3,155 |
Commercial paper | – | – | – | – | 299 | 299 | 299 |
Trade receivables (Refer Note no. 2.5) | 12,607 | – | – | – | – | 12,607 | 12,607 |
Loans (Refer note no. 2.3) | 422 | – | – | – | – | 422 | 422 |
Other financial assets (Refer Note no. 2.4) | 3,795 | – | 12 | – | 23 | 3,830 | 3,742** |
Total | 33,836 | – | 1,801 | 133 | 7,643 | 43,413 | 43,550 |
Liabilities: | |||||||
Trade payables (Refer Note no. 2.11) | 887 | – | – | – | – | 887 | 887 |
Other financial liabilities (Refer Note no. 2.10) | 4,785 | – | 234 | – | 3 | 5,022 | 5,022 |
Total | 5,672 | – | 234 | – | 3 | 5,909 | 5,909 |
(1) | The carrying value of debentures approximates fair value as the instruments are at prevailing market rates | |
* | On account of fair value changes including interest accrued | |
** | Excludes interest accrued on tax free bonds |
The carrying value and fair value of financial instruments by categories as at March 31, 2018 were as follows:
(In crore)
Particulars | Amortized cost | Financial assets/ liabilities at fair value through profit or loss | Financial assets/liabilities at fair value through OCI | Total carrying value | Total fair value | ||
Designated upon initial recognition | Mandatory | Equity instruments designated upon initial recognition | Mandatory | ||||
Assets: | |||||||
Cash and cash equivalents (Refer Note no. 2.6) | 16,770 | – | – | – | – | 16,770 | 16,770 |
Investments (Refer Note no. 2.2) | |||||||
Preference securities, Equity instruments and others | – | – | 7 | 117 | – | 124 | 124 |
Tax free bonds and government bonds | 1,832 | – | – | – | – | 1,832 | 2,079* |
Redeemable, non-convertible debentures (1) | 1,780 | – | – | – | – | 1,780 | 1,780 |
Fixed maturity plan securities | – | – | 376 | – | – | 376 | 376 |
Certificates of deposit | – | – | – | – | 4,901 | 4,901 | 4,901 |
Non convertible debentures | – | – | – | – | 3,580 | 3,580 | 3,580 |
Commercial paper | – | – | – | – | 293 | 293 | 293 |
Trade receivables (Refer Note no. 2.5) | 12,151 | – | – | – | – | 12,151 | 12,151 |
Loans (Refer note no. 2.3) | 412 | – | – | – | – | 412 | 412 |
Other financial assets (Refer Note no. 2.4) | 6,067 | – | 4 | – | 12 | 6,083 | 6,001** |
Total | 39,012 | – | 387 | 117 | 8,786 | 48,302 | 48,467 |
Liabilities: | |||||||
Trade payables (Refer note no. 2.11) | 738 | – | – | – | – | 738 | 738 |
Other financial liabilities (Refer Note no. 2.10) | 4,241 | – | 91 | – | 3 | 4,335 | 4,335 |
Total | 4,979 | – | 91 | – | 3 | 5,073 | 5,073 |
(1) | The carrying value of debentures approximates fair value as the instruments are at prevailing market rates |
* | On account of fair value changes including interest accrued |
** | Excludes interest accrued on tax free bonds |
Fair value hierarchy
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
The fair value hierarchy of assets and liabilities as at June 30, 2018 is as follows:
(In crore)
Particulars
|
June 30, 2018 | Fair value measurement at end of the reporting period using | ||
Level 1 | Level 2 | Level 3 | ||
Assets | ||||
Investments in tax free bonds (Refer note no. 2.2) | 2,054 | 1,117 | 937 | – |
Investments in government bonds (Refer note no. 2.2) | 12 | 12 | – | – |
Investments in liquid mutual fund units (Refer note no. 2.2) | 1,405 | 1,405 | – | – |
Investments in equity instruments (Refer note no. 2.2) | 1 | – | – | 1 |
Investments in preference securities (Refer note no. 2.2) | 132 | – | – | 132 |
Investments in fixed maturity plan securities (Refer note no. 2.2) | 377 | – | 377 | – |
Investments in certificates of deposit (Refer note no. 2.2) | 4,166 | – | 4,166 | – |
Investments in non convertible debentures (Refer note no. 2.2) | 3,155 | 1,595 | 1,560 | – |
Investments in commercial paper (Refer note no. 2.2) | 299 | – | 299 | – |
Other investments (Refer note no. 2.2) | 7 | – | – | 7 |
Derivative financial instruments - gain on outstanding foreign currency forward and option contracts (Refer note no. 2.4) | 35 | – | 35 | – |
Liabilities | ||||
Derivative financial instruments - loss on outstanding foreign currency forward and option contracts (Refer note no. 2.10) | 127 | – | 127 | – |
Liability towards contingent consideration (Refer note no. 2.10)(1)(2)(3) | 110 | – | – | 110 |
(1) | Pertains to contingent consideration payable to selling shareholders of Wongdoody and Brilliant Basics Holding Limited as per the share purchase agreement. | |
(2) | Discounted 21 crore at 10%, pertaining to Brilliant Basics | |
(3) | Discounted 119 crore at 16%, pertaining to Wongdoody |
During the three months ended June 30, 2018, tax free bonds and non-convertible debentures of 313 crore were transferred from Level 2 to Level 1 of fair value hierarchy, since these were valued based on Quoted price, and 1,642 crore were transferred from Level 1 to Level 2 of fair value hierarchy, since these were valued based on market observable inputs.
The fair value hierarchy of assets and liabilities as at March 31, 2018 was as follows:
(In crore)
Particulars
|
March 31, 2018 | Fair value measurement at end of the reporting year using | ||
Level 1 | Level 2 | Level 3 | ||
Assets | ||||
Investments in tax free bonds (Refer Note no. 2.2) | 2,078 | 1,806 | 272 | – |
Investments in government bonds (Refer Note no. 2.2) | 1 | 1 | – | – |
Investments in equity instruments (Refer Note no. 2.2) | 1 | – | – | 1 |
Investments in preference securities (Refer Note no. 2.2) | 116 | – | – | 116 |
Investments in fixed maturity plan securities (Refer Note no. 2.2) | 376 | – | 376 | – |
Investments in certificates of deposit (Refer Note no. 2.2) | 4,901 | – | 4,901 | – |
Investments in non convertible debentures (Refer Note no. 2.2) | 3,580 | 2,493 | 1,087 | – |
Investments in commercial paper (Refer Note no. 2.2) | 293 | – | 293 | – |
Other investments (Refer Note no. 2.2) | 7 | – | – | 7 |
Derivative financial instruments - gain on outstanding foreign currency forward and option contracts (Refer Note no. 2.4) | 16 | – | 16 | – |
Liabilities | ||||
Derivative financial instruments - loss on outstanding foreign currency forward and option contracts (Refer note 2.10) | 40 | – | 40 | – |
Liability towards contingent consideration (Refer note no. 2.10)(1)(2) | 54 | – | – | 54 |
(1) | Pertains to contingent consideration payable to selling shareholders of Kallidus and Brilliant Basics Holding Limited as per the share purchase agreement. |
(2) | Discounted 21 crore at 10%, pertaining to Brilliant Basics. |
A one percentage point change in the unobservable inputs used in fair valuation of Level 3 assets and liabilities does not have a significant impact in its value.
Financial risk management
Financial risk factors
The Company's activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Company's primary focus is to foresee the unpredictability of financial markets and seek to minimize potential adverse effects on its financial performance. The primary market risk to the Company is foreign exchange risk. The Company uses derivative financial instruments to mitigate foreign exchange related risk exposures. The Company's exposure to credit risk is influenced mainly by the individual characteristic of each customer and the concentration of risk from the top few customers.
Market risk
The Company operates internationally and a major portion of the business is transacted in several currencies and consequently the Company is exposed to foreign exchange risk through its sales and services in the United States and elsewhere, and purchases from overseas suppliers in various foreign currencies. The Company holds derivative financial instruments such as foreign exchange forward and option contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. The exchange rate between the Indian rupee and foreign currencies has changed substantially in recent years and may fluctuate substantially in the future. Consequently, the results of the Company’s operations are adversely affected as the rupee appreciates/ depreciates against these currencies.
The following table analyses the foreign currency risk from monetary assets and liabilities as at June 30, 2018:
(In crore)
Particulars | U.S. dollars | Euro | United Kingdom Pound Sterling | Australian dollars | Other currencies | Total |
Cash and cash equivalents | 374 | 112 | 56 | 66 | 193 | 801 |
Trade receivables | 8,190 | 1,636 | 847 | 725 | 591 | 11,989 |
Other financials assets, loans and other current assets | 2,814 | 768 | 348 | 190 | 327 | 4,447 |
Trade payables | (366) | (64) | (174) | (66) | (23) | (693) |
Other financial liabilities | (2,604) | (280) | (160) | (229) | (178) | (3,451) |
Net assets / (liabilities) | 8,408 | 2,172 | 917 | 686 | 910 | 13,093 |
The following table analyses the foreign currency risk from monetary assets and liabilities as at March 31, 2018:
(In crore)
Particulars | U.S. dollars | Euro | United Kingdom Pound Sterling | Australian dollars | Other currencies | Total |
Cash and cash equivalents | 858 | 139 | 82 | 186 | 271 | 1,536 |
Trade Receivables | 7,776 | 1,522 | 871 | 743 | 550 | 11,462 |
Other financials assets ( including loans) | 2,196 | 597 | 335 | 159 | 305 | 3,592 |
Trade payables | (312) | (60) | (168) | (36) | (22) | (598) |
Other financial liabilities | (1,962) | (252) | (148) | (220) | (162) | (2,744) |
Net assets / (liabilities) | 8,556 | 1,946 | 972 | 832 | 942 | 13,248 |
Sensitivity analysis between Indian Rupee and USD
Particular | Three months ended June 30, | |
2018 | 2017 | |
Impact on the Company's incremental Operating Margins | 0.49% | 0.52% |
Sensitivity analysis is computed based on the changes in the income and expenses in foreign currency upon conversion into functional currency, due to exchange rate fluctuations between the previous reporting period and the current reporting period.
Derivative financial instruments
The Company holds derivative financial instruments such as foreign currency forward and option contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. The counterparty for these contracts is generally a bank. These derivative financial instruments are valued based on quoted prices for similar assets and liabilities in active markets or inputs that are directly or indirectly observable in the marketplace.
The details in respect of outstanding foreign currency forward and option contracts are as follows :
Particulars | As at | As at | ||
June 30, 2018 | March 31, 2018 | |||
In million | In crore | In million | In crore | |
Derivatives designated as cash flow hedges | ||||
Option Contracts | ||||
In Australian dollars | 150 | 758 | 60 | 300 |
In Euro | 155 | 1,236 | 100 | 808 |
In United Kingdom Pound Sterling | 30 | 270 | 20 | 184 |
Other derivatives | ||||
Forward contracts | ||||
In Australian dollars | 71 | 361 | – | – |
In Canadian dollars | 20 | 102 | 20 | 99 |
In Euro | 151 | 1,205 | 86 | 695 |
In Japanese Yen | 550 | 34 | 550 | 34 |
In New Zealand dollars | 16 | 74 | 16 | 76 |
In Norwegian Krone | 80 | 67 | 40 | 34 |
In South African Rand | 25 | 13 | 25 | 14 |
In Singapore dollars | 10 | 50 | 5 | 25 |
In Swedish Krona | 50 | 38 | 50 | 40 |
In Swiss Franc | 21 | 146 | 21 | 146 |
In U.S. dollars | 769 | 5,262 | 556 | 3,624 |
In United Kingdom Pound Sterling | 70 | 630 | 45 | 415 |
Option Contracts | ||||
In Australian dollars | 40 | 202 | 20 | 100 |
In Canadian dollars | 13 | 69 | – | – |
In Euro | 65 | 519 | 45 | 363 |
In Swiss Franc | 10 | 68 | 5 | 33 |
In U.S. dollars | 240 | 1,643 | 320 | 2,086 |
In United Kingdom Pound Sterling | – | – | 25 | 231 |
Total forwards and option contracts | 12,747 | 9,307 |
The foreign exchange forward and option contracts mature within twelve months. The table below analyzes the derivative financial instruments into relevant maturity groupings based on the remaining period as at the balance sheet date:
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Not later than one month | 3,543 | 2,693 |
Later than one month and not later than three months | 6,020 | 4,274 |
Later than three months and not later than one year | 3,184 | 2,340 |
12,747 | 9,307 |
During the three months ended June 30, 2018, the Company has designated certain foreign exchange forward and option contracts as cash flow hedges to mitigate the risk of foreign exchange exposure on highly probable forecast cash transactions. The related hedge transactions for balance in cash flow hedge reserve as at June 30, 2018 are expected to occur and reclassified to statement of profit or loss within 3 months.
Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument, including whether the hedging instrument is expected to offset changes in cash flows of hedged items.
If the hedge ratio for risk management purposes is no longer optimal but the risk management objective remains unchanged and the hedge continues to qualify for hedge accounting, the hedge relationship will be rebalanced by adjusting either the volume of the hedging instrument or the volume of the hedged item so that the hedge ratio aligns with the ratio used for risk management purposes. Any hedge ineffectiveness is calculated and accounted for in the Statement of Profit or Loss at the time of the hedge relationship rebalancing.
The reconciliation of effective portion of cash flow hedges for the three months ended June 30, 2018 and June 30, 2017 is as follows :
(In crore)
Particulars | Three months ended June 30, 2018 | Three months ended June 30, 2017 |
Gain / (Loss) | ||
Balance at the beginning of the period | – | 39 |
Gain / (Loss) recognized in other comprehensive income during the period | 30 | (41) |
Amount reclassified to profit and loss during the period | (18) | (47) |
Tax impact on above | (3) | 22 |
Balance at the end of the period | 9 | (27) |
The Company offsets a financial asset and a financial liability when it currently has a legally enforceable right to set off the recognized amounts and the Company intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
The quantitative information about offsetting of derivative financial assets and derivative financial liabilities is as follows:
(In crore)
Particulars | As at | As at | ||
June 30, 2018 | March 31, 2018 | |||
Derivative financial asset | Derivative financial liability | Derivative financial asset |
Derivative financial liability | |
Gross amount of recognized financial asset / liability | 66 | (158) | 20 | (44) |
Amount set off | (31) | 31 | (4) | 4 |
Net amount presented in Balance Sheet | 35 | (127) | 16 | (40) |
Credit risk
Credit risk refers to the risk of default on its obligation by the counterparty resulting in a financial loss. The maximum exposure to the credit risk at the reporting date is primarily from trade receivables amounting to 12,607 crore and 12,151 crore as at June 30, 2018 and March 31, 2018, respectively and unbilled revenue amounting to 3,925 crore and 3,573 crore as at June 30, 2018 and March 31, 2018, respectively. Trade receivables and unbilled revenue are typically unsecured and are derived from revenue earned from customers primarily located in the United States. Credit risk has always been managed by the Company through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business. As per Ind AS 109, the Company uses expected credit loss model to assess the impairment loss or gain. The Company uses a provision matrix to compute the expected credit loss allowance for trade receivables and unbilled revenues. The provision matrix takes into account available external and internal credit risk factors such as credit default swap quotes, credit ratings from international credit rating agencies and the Company's historical experience for customers.
The details in respect of percentage of revenues generated from top customer and top 10 customers are as follows:
(In %)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Revenue from top customer | 4.2 | 3.8 |
Revenue from top 10 customers | 20.7 | 21.8 |
Credit risk exposure
The allowance for lifetime expected credit loss on customer balances for the three months ended June 30, 2018 is 66 crore and the reversal for the three months ended June 30, 2017 was 8 crore.
Movement in credit loss allowance:
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Balance at the beginning | 401 | 379 |
Impairment loss recognized/ (reversed) | 66 | (8) |
Amounts written off | – | (3) |
Translation differences | 8 | 1 |
Balance at the end | 475 | 369 |
Credit risk on cash and cash equivalents is limited as we generally invest in deposits with banks and financial institutions with high credit ratings assigned by international and domestic credit rating agencies. Investments primarily include investment in liquid mutual fund units, fixed maturity plan securities, quoted bonds issued by government and quasi government organizations, non convertible debentures issued by government aided institutions, certificates of deposit and commercial paper.
Liquidity risk
The Company's principal sources of liquidity are cash and cash equivalents and the cash flow that is generated from operations. The Company has no outstanding borrowings. The Company believes that the working capital is sufficient to meet its current requirements.
As at June 30, 2018, the Company had a working capital of 26,934 crore including cash and cash equivalents of 13,391 crore and current investments of 6,315 crore. As at March 31, 2018, the Company had a working capital of 30,903 crore including cash and cash equivalents of 16,770 crore and current investments of 5,906 crore.
As at June 30, 2018 and March 31, 2018, the outstanding compensated absences were 1,326 crore and 1,260 crore, respectively, which have been substantially funded. Accordingly, no liquidity risk is perceived.
The details regarding the contractual maturities of significant financial liabilities as at June 30, 2018 are as follows:
(In crore)
Particulars | Less than 1 year | 1-2 years | 2-4 years | 4-7 years | Total |
Trade payables | 887 | – | – | – | 887 |
Other financial liabilities (excluding liability towards acquisition) (Refer Note no. 2.10) | 4,785 | – | – | – | 4,785 |
Liability towards acquisitions on an undiscounted basis (including contingent consideration) | 29 | 66 | 45 | – | 140 |
The details regarding the contractual maturities of significant financial liabilities as at March 31, 2018 were as follows:
(In crore)
Particulars | Less than 1 year | 1-2 years | 2-4 years | 4-7 years | Total |
Trade payables | 738 | – | – | – | 738 |
Other financial liabilities (excluding liability towards acquisition) (Refer Note no. 2.10) | 4,241 | – | – | – | 4,241 |
Liability towards acquisitions on an undiscounted basis (including contingent consideration) | 41 | 7 | 7 | – | 55 |
2.9 EQUITY
EQUITY SHARE CAPITAL
(In crore, except as otherwise stated)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Authorized | ||
Equity shares, 5/- par value | ||
2,40,00,00,000 (2,40,00,00,000) equity shares | 1,200 | 1,200 |
Issued, Subscribed and Paid-Up | ||
Equity shares, 5/- par value (1) | 1,092 | 1,092 |
2,18,41,27,091 (2,18,41,14,257) equity shares fully paid-up | ||
1,092 | 1,092 |
(1) Refer note no. 2.18 for details of basic and diluted shares
Forfeited shares amounted to 1,500/- (1,500/-)
The Company has only one class of shares referred to as equity shares having a par value of 5/-. Each holder of equity shares is entitled to one vote per share. The equity shares represented by American Depository Shares (ADS) carry similar rights to voting and dividends as the other equity shares. Each ADS represents one underlying equity share
In the event of liquidation of the company, the holders of equity shares will be entitled to receive any of the remaining assets of the company in proportion to the number of equity shares held by the shareholders, after distribution of all preferential amounts.
Buyback
The Board, at its meeting on August 19, 2017, approved a proposal for the Company to buyback its fully paid-up equity shares of face value of 5/- each from the eligible equity shareholders of the Company for an amount not exceeding 13,000 crore. The shareholders approved the said proposal of buyback of Equity Shares through the postal ballot that concluded on October 7, 2017. The Buyback offer comprised a purchase of 11,30,43,478 Equity Shares aggregating 4.92% of the paid-up equity share capital of the Company at a price of 1,150/- per Equity share. The buyback was offered to all eligible equity shareholders (including those who became equity shareholders as on the Record date by cancelling American Depository Shares and withdrawing underlying Equity shares) of the Company as on the Record Date (i.e November 1, 2017) on a proportionate basis through the "Tender offer" route. The Company concluded the buyback procedures on December 27, 2017 and 11,30,43,478 equity shares were extinguished. The company has utilized its securities premium and general reserve for the buyback of its equity shares. In accordance with section 69 of the Companies Act, 2013, the company has created ‘Capital Redemption Reserve’ of 56 crore equal to the nominal value of the shares bought back as an appropriation from general reserve during the year ended March 31, 2018.
Dividends
Final dividends on shares are recorded as a liability on the date of approval by the shareholders and interim dividends are recorded as a liability on the date of declaration by the Company's Board of Directors.
The Company declares and pays dividends in Indian rupees. The remittance of dividends outside India is governed by Indian law on foreign exchange and is subject to applicable distribution taxes. Dividend distribution tax paid by subsidiaries may be reduced / available as a credit against dividend distribution tax payable by Infosys Limited.
The amount of per share dividend recognized as distribution to equity shareholders is as follows:
(in )
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Final Dividend for fiscal 2018 | 20.50 | – |
Special dividend for fiscal 2018 | 10.00 | – |
Final Dividend for fiscal 2017 | – | 14.75 |
Effective from Fiscal 2018, the Company's policy is to payout up to 70% of the free cash flow of the corresponding Financial Year in such manner (including by way of dividend and / or share buyback) as may be decided by the Board from time to time, subject to applicable laws and requisite approvals, if any. Free cash flow is defined as net cash provided by operating activities less capital expenditure as per the consolidated statement of cash flows prepared under International Financial Reporting standards(IFRS). Dividend payout includes dividend distribution tax.
The Board of Directors recommended a final dividend of 20.50/- per equity share for the financial year ended March 31, 2018 and a special dividend of 10/- per equity share and the same was approved by the shareholders in the Annual General Meeting of the Company held on June 23, 2018. This results in a cash outflow of 7,982 crore, including dividend distribution tax.
Bonus issue
The Board in its meeting held on July 13, 2018 has considered, approved and recommended a bonus issue of one equity share for every equity share held and a stock dividend of one American Depositary Share (ADS) for every ADS held, as on a record date to be determined. Consequently, the ratio of equity shares underlying the ADSs held by an American Depositary Receipt holder would remain unchanged. The Board approved and recommended the issue to celebrate 25th year of public listing in India and to further increase the liquidity of its shares. The bonus issue of equity shares and ADSs will be subject to approval by the shareholders, and any other applicable statutory and regulatory approvals.
The bonus shares once allotted shall rank pari passu in all respects and carry the same rights as the existing equity shareholders and shall be entitled to participate in full, in any dividend and other corporate action, recommended and declared after the new equity shares are allotted.
The Company’s objective when managing capital is to safeguard its ability to continue as a going concern and to maintain an optimal capital structure so as to maximize shareholder value. In order to maintain or achieve an optimal capital structure, the Company may adjust the amount of dividend payment, return capital to shareholders, issue new shares or buy back issued shares. As of June 30, 2018, the Company has only one class of equity shares and has no debt. Consequent to the above capital structure there are no externally imposed capital requirements.
The reconciliation of the number of shares outstanding and the amount of share capital as at June 30, 2018 and March 31, 2018 is set out below:
in crore, except as stated otherwise
Particulars | As at June 30, 2018 | As at March 31, 2018 | ||
Number of shares | Amount | Number of shares | Amount | |
Number of shares at the beginning of the period | 2,18,41,14,257 | 1,092 | 2,29,69,44,664 | 1,148 |
Add: Shares issued on exercise of employee stock options | 12,834 | – | 213,071 | – |
Less: Shares bought back | – | – | 113,043,478 | 56 |
Number of shares at the end of the period | 2,18,41,27,091 | 1,092 | 2,18,41,14,257 | 1,092 |
Employee Stock Option Plan (ESOP):
Accounting Policy
The Company recognizes compensation expense relating to share-based payments in net profit using fair-value in accordance with Ind AS 102, Share-Based Payment. The estimated fair value of awards is charged to income on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was in-substance, multiple awards with a corresponding increase to share options outstanding account.
2015 Stock Incentive Compensation Plan (the 2015 Plan) (formerly 2011 RSU Plan):
On March 31, 2016, pursuant to the approval by the shareholders through postal ballot, the Board has been authorized to introduce, offer, issue and allot share-based incentives to eligible employees of the Company and its subsidiaries under the 2015 Stock Incentive Compensation Plan (the 2015 Plan). The maximum number of shares under the 2015 plan shall not exceed 2,40,38,883 equity shares (this includes 1,12,23,576 equity shares which are held by the trust towards the 2011 Plan as at March 31, 2016). Out of this 1,70,38,883 equity shares will be issued as RSUs at par value and 70,00,000 equity shares will be issued as stock options at market price on the date of the grant. These instruments will generally vest over a period of 4 years and the Company expects to grant the instruments under the 2015 Plan over the period of 4 to 7 years.
Controlled trust holds 1,07,90,750 and 1,08,01,956 shares as at June 30, 2018 and March 31, 2018, respectively under the 2015 plan, out of which 1,00,000 equity shares have been earmarked for welfare activities of the employees.
The following is the summary of grants during the three months ended June 30, 2018 and June 30, 2017 under the 2015 Plan:
Particulars | Three months ended | |
June 30, 2018 | June 30, 2017 | |
RSU | ||
Salil Parekh, CEO and MD - Refer note 1 below | 108,600 | – |
U.B. Pravin Rao, COO | – | 27,250 |
Dr. Vishal Sikka* | – | 270,224 |
Employees other than KMP | – | 37,090 |
108,600 | 334,564 | |
ESOP | ||
U.B. Pravin Rao, COO | – | 43,000 |
Dr. Vishal Sikka* | – | 330,525 |
Employees other than KMP | – | 73,600 |
– | 447,125 | |
Total grants | 108,600 | 781,689 |
* | Upon Dr. Vishal Sikka's resignation from the roles of the company, the unvested RSUs and ESOPs have been forfeited |
1. Stock incentives granted to Salil Parekh, CEO and MD
Pursuant to the approval of the shareholders through a postal ballot on February 20, 2018, Salil Parekh (CEO & MD) is eligible to receive under the 2015 Plan:
a) | an annual grant of RSUs of fair value 3.25 crore which will vest over time in 3 equal annual installments upon completion of each year of service from the respective grant date | |
b) | a one-time grant of RSUs of fair value 9.75 crore which will vest over time in 2 equal annual installments upon completion of each year of service from the grant date and | |
c) | annual grant of performance based RSUs of fair value 13 crore which will vest after completion of three years the first of which concludes on March 31, 2021, subject to achievement of performance targets set by the Board or its committee. |
The Board based on the recommendations of the Nomination and Remuneration committee approved on February 27, 2018, the annual time based grant for fiscal 2018 of 28,256 RSUs and the one-time time based grant of 84,768 RSUs. The grants were made effective February 27, 2018.
Further, the Board, based on the recommendations of the Nomination and Remuneration Committee, granted 108,600 performance based RSUs to Salil Parekh with an effective date of May 2, 2018. The grants would vest upon successful completion of three full fiscal years with the Company concluding on March 31, 2021 and will be determined based on achievement of certain performance targets for the said three-year period.
Though the annual time based grants for the remaining employment term ending on March 31, 2023 have not been granted as of June 30, 2018, since the service commencement date precedes the grant date, the company has recorded employment stock compensation expense in accordance with Ind AS 102, Share based payments.
The RSUs and stock options would vest generally over a period of 4 years and shall be exercisable within the period as approved by the Committee. The exercise price of the RSUs will be equal to the par value of the shares and the exercise price of the stock options would be the market price as on the date of grant.
As at June 30, 2018 and March 31, 2018, incentive units outstanding (net of forfeitures) were 96,538 and 1,11,757, respectively.
Break-up of employee stock compensation expense
(in crore)
Three months ended June 30, | ||
2018 | 2017 | |
Granted to: | ||
KMP | 9 | 12 |
Employees other than KMP | 30 | 31 |
Total (1) | 39 | 43 |
(1)Cash settled stock compensation expense included in the above | – | – |
The carrying value of liability towards cash settled share based payments was 8 crore and 6 crore as at June 30, 2018 and March 31, 2018, respectively.
The activity in the 2015 Plan (formerly 2011 RSU Plan) for equity-settled share based payment transactions during the three months June 30, 2018 and June 30, 2017 is set out below:
Particulars | Three months ended June 30, 2018 |
Three months ended June 30, 2017 | ||
Shares arising out of options | Weighted average exercise price () | Shares arising out of options | Weighted average exercise price () | |
2015 Plan: RSU | ||||
Outstanding at the beginning | 3,750,409 | 5 | 2,961,373 | 5 |
Granted | 108,600 | 5 | 334,564 | 5 |
Exercised | 23,078 | 5 | 24,812 | 5 |
Forfeited and expired | 55,453 | 5 | 45,120 | 5 |
Outstanding at the end | 3,780,478 | 5 | 3,226,005 | 5 |
Exercisable at the end | 9,062 | 5 | – | – |
2015 Plan: Employee Stock Options (ESOPs) | ||||
Outstanding at the beginning | 966,913 | 986 | 1,197,650 | 998 |
Granted | – | – | 447,125 | 919 |
Exercised | 962 | 998 | – | – |
Forfeited and expired | 9,600 | 1,030 | – | – |
Outstanding at the end | 956,351 | 1,025 | 1,644,775 | 987 |
Exercisable at the end | 206,100 | 1,020 | – | – |
During the three months ended June 30, 2018 and June 30, 2017 the weighted average share price of options exercised under the 2015 Plan on the date of exercise was 1,174 and 943 respectively.
The following table summarizes information about equity settled RSUs and ESOPs outstanding as at June 30, 2018
Options outstanding
Range of exercise prices per share () | No. of shares arising out of options | Weighted average remaining contractual life | Weighted average exercise price () |
2015 Plan: | |||
0 - 5 (RSU) | 3,780,478 | 1.68 | 5 |
900 - 1100 (ESOP) | 956,351 | 5.95 | 1,025 |
4,736,829 | 2.54 | 211 |
The following table summarizes information about equity settled RSUs and ESOPs outstanding as at March 31, 2018:
Options outstanding | |||
Range of exercise prices per share () | No. of shares arising out of options | Weighted average remaining contractual life | Weighted average exercise price () |
2015 Plan: | |||
0 - 5 (RSU) | 3,750,409 | 1.89 | 5 |
900 - 1100 (ESOP) | 966,913 | 6.60 | 993 |
4,717,322 | 2.57 | 207 |
The fair value of each equity settled award is estimated on the date of grant using the Black-Scholes-Merton model with the following assumptions:
Particulars | For options granted in |
Fiscal 2019- Equity Shares-RSU | |
Weighted average share price () / ($- ADS) | 1,197 |
Exercise price ()/ ($- ADS) | 5 |
Expected volatility (%) | 24 |
Expected life of the option (years) | 3 |
Expected dividends (%) | 2.82 |
Risk-free interest rate (%) | 7 |
Weighted average fair value as on grant date () / ($- ADS) | 1,096 |
Particulars | For options granted in | |||
Fiscal 2018- Equity Shares-RSU |
Fiscal 2018- Equity shares ESOP |
Fiscal 2018- ADS-RSU |
Fiscal 2018- ADS- ESOP | |
Weighted average share price () / ($- ADS) | 1,144 | 923 | 16.61 | 14.65 |
Exercise price ()/ ($- ADS) | 5 | 919 | 0.08 | 14.67 |
Expected volatility (%) | 20-25 | 25-28 | 21-26 | 25-31 |
Expected life of the option (years) | 1 - 4 | 3 - 7 | 1 - 4 | 3 - 7 |
Expected dividends (%) | 2.78 | 2.78 | 2.74 | 2.74 |
Risk-free interest rate (%) | 6 - 7 | 6 - 7 | 1 - 2 | 1 - 2 |
Weighted average fair value as on grant date () / ($- ADS) | 1,066 | 254 | 15.47 | 2.93 |
The expected life of the RSU / ESOP is estimated based on the vesting term and contractual term of the RSU / ESOP, as well as expected exercise behaviour of the employee who receives the RSU / ESOP. Expected volatility during the expected term of the RSU / ESOP is based on historical volatility of the observed market prices of the Company's publicly traded equity shares during a period equivalent to the expected term of the RSU / ESOP.
2.10 OTHER FINANCIAL LIABILITIES
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Non-current | ||
Others | ||
Compensated absences | 37 | 42 |
Payable for acquisition of business- Contingent consideration | 83 | 13 |
Total non-current other financial liabilities | 120 | 55 |
Current | ||
Unpaid dividends | 22 | 22 |
Others | ||
Accrued compensation to employees | 2,192 | 2,048 |
Accrued expenses (1) | 2,129 | 1,776 |
Retention monies | 56 | 63 |
Payable for acquisition of business - Contingent consideration | 27 | 41 |
Capital creditors | 93 | 148 |
Compensated absences | 1,289 | 1,218 |
Other payables (2) | 293 | 184 |
Foreign currency forward and options contracts | 127 | 40 |
Total current other financial liabilities | 6,228 | 5,540 |
Total other financial liabilities | 6,348 | 5,595 |
Financial liability carried at amortized cost | 4,785 | 4,241 |
Financial liability carried at fair value through profit or loss | 234 | 91 |
Financial liability carried at fair value through other comprehensive income | 3 | 3 |
Liability towards acquisition of business on undiscounted basis | 140 | 55 |
(1) Includes dues to subsidiaries (Refer note no. 2.20) | – | 9 |
(2) Includes dues to subsidiaries (Refer note no. 2.20) | 21 | 19 |
2.11 TRADE PAYABLES
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Trade payables(1) | 887 | 738 |
Total trade payables | 887 | 738 |
(1)Includes dues to subsidiaries (refer note no. 2.20) | 236 | 178 |
2.12 OTHER LIABILITIES
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Non current | ||
Others | ||
Deferred income | 35 | 36 |
Deferred rent | 109 | 117 |
Total non - current other liabilities | 144 | 153 |
Current | ||
Unearned revenue | 1,909 | 1,887 |
Client deposits | 183 | 32 |
Others | ||
Tax on dividend | 1,320 | – |
Withholding taxes and others | 1,009 | 1,029 |
Deferred rent | 21 | 24 |
Total current other liabilities | 4,442 | 2,972 |
Total other liabilities | 4,586 | 3,125 |
2.13 PROVISIONS
Accounting Policy
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that is reasonably estimable, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
a. Post sales client support
The Company provides its clients with a fixed-period post sales support for corrections of errors and support on all its fixed-price, fixed-timeframe contracts. Costs associated with such support services are accrued at the time related revenues are recorded in the Statement of Profit and Loss. The Company estimates such costs based on historical experience and estimates are reviewed on a periodic basis for any material changes in assumptions and likelihood of occurrence.
b. Onerous contracts
Provisions for onerous contracts are recognized when the expected benefits to be derived by the Company from a contract are lower than the unavoidable costs of meeting the future obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognizes any impairment loss on the assets associated with that contract.
Provision for post-sales client support and others
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Current | ||
Others | ||
Post-sales client support and others | 458 | 436 |
Total provisions | 458 | 436 |
The movement in the provision for post-sales client support and others is as follows
(In crore)
Particulars | Three months ended June 30, 2018 |
Balance at the beginning | 436 |
Provision recognized/(reversed) | 38 |
Provision utilized | (38) |
Exchange difference | 22 |
Balance at the end | 458 |
Provision for post-sales client support and others are expected to be utilized over a period of 6 months to 1 year.
2.14 INCOME TAXES
Accounting Policy
Income tax expense comprises current and deferred income tax. Income tax expense is recognized in net profit in the Statement of Profit and Loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in other comprehensive income. Current income tax for current and prior periods is recognized at the amount expected to be paid to or recovered from the tax authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred income tax assets and liabilities are recognized for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Deferred income tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date and are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of changes in tax rates on deferred income tax assets and liabilities is recognized as income or expense in the period that includes the enactment or the substantive enactment date. A deferred income tax asset is recognized to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences and tax losses can be utilized. Deferred income taxes are not provided on the undistributed earnings of subsidiaries and branches where it is expected that the earnings of the subsidiary or branch will not be distributed in the foreseeable future. The Company offsets current tax assets and current tax liabilities, where it has a legally enforceable right to set off the recognized amounts and where it intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. The income tax provision for the interim period is made based on the best estimate of the annual average tax rate expected to be applicable for the full financial year. Tax benefits of deductions earned on exercise of employee share options in excess of compensation charged to income are credited to securities premium.
Income tax expense in the statement of profit and loss comprises:
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Current taxes | 1,329 | 1,394 |
Deferred taxes | (50) | (93) |
Income tax expense | 1,279 | 1,301 |
In December 2017, the Company had concluded an Advance Pricing Agreement (“APA”) with the US Internal Revenue Service ("IRS") for the US branch covering the years ending March 2011 to March 2021. Under the APA, the Company and the IRS have agreed on the methodology to allocate revenues and compute the taxable income of the Company’s US Branch operations.
In accordance with the APA, the company had reversed income tax expense provision of $225 million (1,432 crore) which pertained to previous periods which are no longer required. The Company had to pay an amount of approximately 1,488 crore due to the difference between the taxes payable for prior periods as per the APA and the actual taxes paid for such periods. The company has paid 912 crore till June 30, 2018.
Further, the “Tax Cuts and Jobs Act (H.R. 1)” was signed into law on December 22, 2017 (“US Tax Reforms”). The US tax reforms has reduced federal tax rates from 35% to 21% effective January 1, 2018 amongst other measures.
Income tax expense for the three months ended June 30, 2018 and June 30, 2017 includes reversal (net of provisions) of 56 crore and 15 crore, respectively, pertaining to prior periods on account of adjudication of certain disputed matters in favor of the company across various jurisdictions.
The foreign tax expense is due to income taxes payable overseas, principally in the United States. In India, the Company has benefited from certain income tax incentives that the Government of India had provided for export of software from the units registered under the Special Economic Zones Act (SEZs), 2005. SEZ units which began the provision of services on or after April 1, 2005 are eligible for a deduction of 100% of profits or gains derived from the export of services for the first five years from the financial year in which the unit commenced the provision of services and 50% of such profits or gains for further five years. Up to 50% of such profits or gains is also available for a further five years subject to creation of a Special Economic Zone re-investment Reserve out of the profit for the eligible SEZ units and utilization of such reserve by the Company for acquiring new plant and machinery for the purpose of its business as per the provisions of the Income Tax Act, 1961.
Infosys is subject to a 15% Branch Profit Tax (BPT) in the U.S. to the extent its U.S. branch's net profit during the year is greater than the increase in the net assets of the U.S. branch during the year, computed in accordance with the Internal Revenue Code. As at March 31, 2018, Infosys' U.S. branch net assets amounted to approximately 5,030 crore. As at June 30, 2018, the Company has a deferred tax liability for branch profit tax of 144 crore (net of credits), as the Company estimates that these branch profits are expected to be distributed in the foreseeable future.
Entire deferred income tax for the three months ended June 30, 2018 and June 30, 2017, relates to origination and reversal of temporary differences.
2.15 REVENUE FROM OPERATIONS
Accounting Policy
The company derives revenues primarily from business IT services comprising of software development and related services, consulting and package implementation and from the licensing of software products and platforms across our core and digital offerings (“together called as software related services”).
Effective April 1, 2018, the Company adopted Ind AS 115 “Revenue from Contracts with Customers” using the cumulative catch-up transition method, applied to contracts that were not completed as of April 1, 2018. In accordance with the cumulative catch-up transition method , the comparatives have not been retrospectively adjusted. The following is a summary of new and/or revised significant accounting policies related to revenue recognition. Refer Note 1 “Significant Accounting Policies,” in the Company’s 2018 Annual Report for the policies in effect for revenue prior to April 1, 2018. The effect on adoption of Ind AS 115 was insignificant.
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services.
Arrangements with customers for software related services are either on a fixed-price, fixed-timeframe or on a time-and-material basis.
Revenue on time-and-material contracts are recognized as the related services are performed and revenue from the end of the last invoicing to the reporting date is recognized as unbilled revenue. Revenue from fixed-price, fixed-timeframe contracts, where the performance obligations are satisfied over time and where there is no uncertainty as to measurement or collectability of consideration, is recognized as per the percentage-of-completion method. When there is uncertainty as to measurement or ultimate collectability, revenue recognition is postponed until such uncertainty is resolved. Efforts or costs expended have been used to measure progress towards completion as there is a direct relationship between input and productivity. Maintenance revenue is recognized ratably over the term of the underlying maintenance arrangement.
Revenues in excess of invoicing are classified as contract assets (which we refer as unbilled revenue) while invoicing in excess of revenues are classified as contract liabilities (which we refer to as unearned revenues).
In arrangements for software development and related services and maintenance services, the company has applied the guidance in Ind AS 115, Revenue from contract with customer, by applying the revenue recognition criteria for each distinct performance obligation. The arrangements with customers generally meet the criteria for considering software development and related services as distinct performance obligations. For allocating the transaction price, the company has measured the revenue in respect of each performance obligation of a contract at its relative standalone selling price. The price that is regularly charged for an item when sold separately is the best evidence of its standalone selling price. In cases where the company is unable to determine the standalone selling price, the company uses the expected cost plus margin approach in estimating the standalone selling price. For software development and related services, the performance obligations are satisfied as and when the services are rendered since the customer generally obtains control of the work as it progresses.
Revenue from licenses where the customer obtains a “right to use” the licenses is recognized at the time the license is made available to the customer. Revenue from licenses where the customer obtains a “right to access” is recognized over the access period. Arrangements to deliver software products generally have three elements: license, implementation and Annual Technical Services (ATS). The company has applied the principles under Ind AS 115 to account for revenues from these performance obligations. When implementation services are provided in conjunction with the licensing arrangement and the license and implementation have been identified as two separate performance obligations, the transaction price for such contracts are allocated to each performance obligation of the contract based on their relative standalone selling prices. In the absence of standalone selling price for implementation, the performance obligation is estimated using the expected cost plus margin approach. Where the license is required to be substantially customized as part of the implementation service the entire arrangement fee for license and implementation is considered to be a single performance obligation and the revenue is recognized using the percentage-of-completion method as the implementation is performed. Revenue from client training, support and other services arising due to the sale of software products is recognized as the performance obligations are satisfied. ATS revenue is recognized ratably over the period in which the services are rendered.
The company accounts for volume discounts and pricing incentives to customers as a reduction of revenue based on the ratable allocation of the discounts/ incentives amount to each of the underlying performance obligation that corresponds to the progress by the customer towards earning the discount/ incentive. Also, when the level of discount varies with increases in levels of revenue transactions, the company recognizes the liability based on its estimate of the customer's future purchases. If it is probable that the criteria for the discount will not be met, or if the amount thereof cannot be estimated reliably, then discount is not recognized until the payment is probable and the amount can be estimated reliably. The company recognizes changes in the estimated amount of obligations for discounts in the period in which the change occurs.
Deferred contract costs are incremental costs of obtaining a contract which are recognized as assets and amortized over the term of the contract.
Contract modifications are accounted for when additions, deletions or changes are approved either to the contract scope or contract price. The accounting for modifications of contracts involves assessing whether the services added to an existing contract are distinct and whether the pricing is at the standalone selling price. Services added that are not distinct are accounted for on a cumulative catch up basis, while those that are distinct are accounted for prospectively, either as a separate contract, if the additional services are priced at the standalone selling price, or as a termination of the existing contract and creation of a new contract if not priced at the standalone selling price.
The Company presents revenues net of indirect taxes in its condensed statement of Profit and loss.
Revenue from operations for the three months ended June 30, 2018 and June 30, 2017 is as follows:
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Revenue from software services | 16,999 | 14,909 |
Revenue from products and platforms | 57 | 62 |
Total revenue from operations | 17,056 | 14,971 |
Disaggregate revenue information
The table below presents disaggregated revenues from contracts with customers for the three months ended June 30, 2018 by geography, offerings and contract-type. The Company believe that this disaggregation best depicts how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by industry, market and other economic factors.
(In crore)
Particulars | Total |
Revenues by Geography | |
North America | 10,563 |
Europe | 4,088 |
India | 439 |
Rest of the world | 1,966 |
Total | 17,056 |
Revenue by offerings | |
Digital | 5,093 |
Core | 11,963 |
Total | 17,056 |
Revenues by contract type | |
Fixed Price | 8,896 |
Time & Materials | 8,160 |
Total | 17,056 |
Digital Services
Digital Services comprise of service and solution offerings of the company that enable our clients to transform their businesses. These include offerings that enhance customer experience, leverage AI-based analytics and big data, engineer digital products and IoT, modernize legacy technology systems, migrate to cloud applications and implement advanced cyber security systems.
Core Services
Core Services comprise traditional offerings of the company that have scaled and industrialized over a number of years. These primarily include application management services, proprietary application development services, independent validation solutions, product engineering and management, infrastructure management services, traditional enterprise application implementation, support and integration services.
Products & platforms
The Company also derives revenues from the sale of products and platforms including Finacle – core banking solution and Infosys Nia - Artificial Intelligence (AI) platform which applies next-generation AI and machine learning.
Trade receivables and Contract Balances
The company classifies the right to consideration in exchange for deliverables as either a receivable or as unbilled revenue.
A receivable is a right to consideration that is unconditional upon passage of time. Revenue for time and material contracts are recognized as related service are performed. Revenue for fixed price maintenance contracts is recognized on a straight line basis over the period of the contract. Revenues in excess of billings is recorded as unbilled revenue and is classified as a financial asset for these cases as right to consideration is unconditional upon passage of time .
Revenue recognition for fixed price development contracts is based on percentage of completion method. Invoicing to the clients is based on milestones as defined in the contract. This would result in the timing of revenue recognition being different from the timing of billing the customers. Unbilled revenue for fixed price development contracts is classifed as non financial asset as the contractual right to consideration is dependent on completion of contractual milestones.
Invoicing in excess of earnings are classified as unearned revenue.
Trade receivable and unbilled revenues are presented net of impairment in the statement of financial position.
The impact on account of applying the erstwhile Ind AS 18 Revenue instead of Ind AS 115 Revenue from contract with customers on the financials results of the company for the three months ended and as of June 30, 2018 is insignificant. On account of adoption of Ind AS 115, unbilled revenues of 2,680 crore as of June 30, 2018 has been considered as a non financial asset.
2.16 OTHER INCOME, NET
2.16.1 Other income - Accounting Policy
Other income is comprised primarily of interest income, dividend income, gain / loss on investments and exchange gain/loss on forward and options contracts and on translation of other assets and liabilities. Interest income is recognized using the effective interest method. Dividend income is recognized when the right to receive payment is established.
2.16.2 Foreign currency - Accounting Policy
Functional currency
The functional currency of the Company is the Indian rupee. These financial statements are presented in Indian rupees (rounded off to crore; one crore equals ten million).
Transactions and translations
Foreign-currency denominated monetary assets and liabilities are translated into the relevant functional currency at exchange rates in effect at the Balance Sheet date. The gains or losses resulting from such translations are included in net profit in the Statement of Profit and Loss. Non-monetary assets and non-monetary liabilities denominated in a foreign currency and measured at fair value are translated at the exchange rate prevalent at the date when the fair value was determined. Non-monetary assets and non-monetary liabilities denominated in a foreign currency and measured at historical cost are translated at the exchange rate prevalent at the date of the transaction.
Transaction gains or losses realized upon settlement of foreign currency transactions are included in determining net profit for the period in which the transaction is settled. Revenue, expense and cash-flow items denominated in foreign currencies are translated into the relevant functional currencies using the exchange rate in effect on the date of the transaction.
During the three months ended June 30, 2018, the company has adopted Appendix B to Ind AS 21- Foreign Currency Transactions and Advance Consideration which clarifies the date of transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income when an entity has received or paid advance consideration in a foreign currency. The effect on account of adoption of this amendment was insignificant.
Other income for the three months ended June 30, 2018 and June 30, 2017 is as follows:
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Interest income on financial assets carried at amortized cost | ||
Tax free bonds and government bonds | 34 | 34 |
Deposit with Bank and others | 354 | 386 |
Interest income on financial assets fair valued through other comprehensive income | ||
Non-convertible debentures, commercial paper and certificates of deposit | 153 | 194 |
Income on investments carried at fair value through profit or loss | ||
Dividend income on liquid mutual funds | – | 1 |
Gain / (loss) on liquid mutual funds | 28 | 63 |
Write down of investment in subsidiary (refer note no 2.2) | – | (94) |
Exchange gains/(losses) on foreign currency forward and options contracts | (167) | 18 |
Exchange gains/(losses) on translation of assets and liabilities | 210 | 65 |
Miscellaneous income, net | 104 | 56 |
Total other income | 716 | 723 |
2.17 EXPENSES
Accounting Policy
2.17.1 Gratuity
The Company provides for gratuity, a defined benefit retirement plan ('the Gratuity Plan') covering eligible employees. The Gratuity Plan provides a lump-sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employee's salary and the tenure of employment with the Company.
Liabilities with regard to the Gratuity Plan are determined by actuarial valuation, performed by an independent actuary, at each Balance Sheet date using the projected unit credit method. The Company fully contributes all ascertained liabilities to the Infosys Limited Employees' Gratuity Fund Trust (the Trust). Trustees administer contributions made to the Trusts and contributions are invested in a scheme with Life Insurance Corporation of India as permitted by Indian law.
The Company recognizes the net obligation of a defined benefit plan in its Balance Sheet as an asset or liability. Gains and losses through re-measurements of the net defined benefit liability/(asset) are recognized in other comprehensive income and are not reclassified to profit or loss in subsequent periods. The actual return of the portfolio of plan assets, in excess of the yields computed by applying the discount rate used to measure the defined benefit obligation is recognized in other comprehensive income. The effect of any plan amendments are recognized in net profit in the statement of Profit and Loss.
2.17.2 Provident fund
Eligible employees of Infosys receive benefits from a provident fund, which is a defined benefit plan. Both the eligible employee and the Company make monthly contributions to the provident fund plan equal to a specified percentage of the covered employee's salary. The Company contributes a portion to the Infosys Limited Employees' Provident Fund Trust. The trust invests in specific designated instruments as permitted by Indian law. The remaining portion is contributed to the government administered pension fund. The rate at which the annual interest is payable to the beneficiaries by the trust is being administered by the Government. The Company has an obligation to make good the shortfall, if any, between the return from the investments of the Trust and the notified interest rate.
2.17.3 Superannuation
Certain employees of Infosys are participants in a defined contribution plan. The Company has no further obligations to the Plan beyond its monthly contributions which are periodically contributed to a trust fund, the corpus of which is invested with the Life Insurance Corporation of India.
2.17.4 Compensated absences
The Company has a policy on compensated absences which are both accumulating and non-accumulating in nature. The expected cost of accumulating compensated absences is determined by actuarial valuation performed by an independent actuary at each Balance Sheet date using projected unit credit method on the additional amount expected to be paid/availed as a result of the unused entitlement that has accumulated at the Balance Sheet date. Expense on non-accumulating compensated absences is recognized in the period in which the absences occur.
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Employee benefit expenses | ||
Salaries including bonus | 8,571 | 7,527 |
Contribution to provident and other funds | 188 | 168 |
Share based payments to employees (Refer note no. 2.9) | 39 | 43 |
Staff welfare | 28 | 14 |
8,826 | 7,752 | |
Cost of software packages and others | ||
For own use | 188 | 190 |
Third party items bought for service delivery to clients | 227 | 124 |
415 | 314 | |
Other expenses | ||
Power and fuel | 48 | 39 |
Brand and Marketing | 80 | 78 |
Operating lease payments | 71 | 81 |
Rates and taxes | 24 | 36 |
Repairs and Maintenance | 224 | 247 |
Consumables | 7 | 6 |
Insurance | 14 | 12 |
Provision for post-sales client support and others | (1) | 6 |
Commission to non-whole time directors | 2 | 3 |
Impairment loss recognized / (reversed) under expected credit loss model | 67 | (7) |
Auditor's remuneration | ||
Statutory audit fees | – | 1 |
Tax matters | – | – |
Other services | – | – |
Contributions towards Corporate Social Responsibility | 69 | 43 |
Others | 38 | 31 |
643 | 576 |
2.18 RECONCILIATION OF BASIC AND DILUTED SHARES USED IN COMPUTING EARNING PER SHARE
Accounting Policy
Basic earnings per equity share is computed by dividing the net profit attributable to the equity holders of the Company by the weighted average number of equity shares outstanding during the period. Diluted earnings per equity share is computed by dividing the net profit attributable to the equity holders of the Company by the weighted average number of equity shares considered for deriving basic earnings per equity share and also the weighted average number of equity shares that could have been issued upon conversion of all dilutive potential equity shares. The dilutive potential equity shares are adjusted for the proceeds receivable had the equity shares been actually issued at fair value (i.e. the average market value of the outstanding equity shares). Dilutive potential equity shares are deemed converted as at the beginning of the period, unless issued at a later date. Dilutive potential equity shares are determined independently for each period presented.
The number of equity shares and potentially dilutive equity shares are adjusted retrospectively for all periods presented for any share splits and bonus shares issues including for changes effected prior to the approval of the financial statements by the Board of Directors.
The following is a reconciliation of the equity shares used in the computation of basic and diluted earnings per equity share:
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Basic earnings per equity share - weighted average number of equity shares outstanding | 2,18,41,25,117 | 2,29,69,44,664 |
Effect of dilutive common equivalent shares - share options outstanding | 7,22,034 | 5,47,014 |
Diluted earnings per equity share - weighted average number of equity shares and common equivalent shares outstanding | 2,18,48,47,151 | 2,29,74,91,678 |
For the three months ended June 30, 2018, no options to purchase equity shares that had an anti-dilutive effect.
For the three months ended June 30, 2017, 169,984 number of options to purchase equity shares that had an anti-dilutive effect.
2.19 CONTINGENT LIABILITIES AND COMMITMENTS
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Contingent liabilities : | ||
Claims against the Company, not acknowledged as debts(1) | 3,169 | 4,627 |
[Amount paid to statutory authorities 6,486 crore (6,486 crore)] | ||
Commitments : | ||
Estimated amount of contracts remaining to be executed on capital contracts and not provided for | 1,357 | 1,405 |
(net of advances and deposits) | ||
Other Commitments* | 25 | 36 |
*Uncalled capital pertaining to investments
(1) | As at June 30, 2018, claims against the company not acknowledged as debts in respect of income tax matters amounted to 3,003 crore. These matters are pending before various Appellate Authorities and the management including its tax advisors expect that its position will likely be upheld on ultimate resolution and will not have a material adverse effect on the Company's financial position and results of operations. |
Amount paid to statutory authorities against the above tax claims amounted to 6,475 crore.
Subsequent to March 31, 2018, the Supreme Court of India ruled favorably in respect of certain income tax claims which have been given effect in the above disclosure of claims as of June 30, 2018.
The Company is subject to legal proceedings and claims, which have arisen in the ordinary course of business. The Company’s management does not reasonably expect that these legal actions, when ultimately concluded and determined, will have a material and adverse effect on the Company’s results of operations or financial condition.
2.20 RELATED PARTY TRANSACTIONS
Refer to the Company's Annual Report for the year ended March 31, 2018 for the full names and other details of the Company's subsidiaries, associate and controlled trusts.
Changes in Subsidiaries
During the three months ended June 30, 2018, the following are the changes in the subsidiaries:
- | Lodestone Management Consultants Inc has been liquidated effective May 17, 2018 |
- | On May 22, 2018, Infosys acquired 100% voting rights in WongDoody Holding Company Inc., along with its two subsidiaries, WDW Communications, Inc and WongDoody, Inc. (Refer note 2.2.3) |
The details of amounts due to or due from related parties as at June 30, 2018 and March 31, 2018 are as follows:
(In crore)
Particulars | As at | ||
June 30, 2018 | March 31, 2018 | ||
Investment in debentures | |||
EdgeVerve(1) | 1,780 | 1,780 | |
1,780 | 1,780 | ||
Trade receivables | |||
Infosys China | 15 | 29 | |
Infosys Mexico | 2 | 4 | |
Infosys Brasil | – | 1 | |
Infosys BPM | 7 | 5 | |
Infy Consulting Company Ltd. | 75 | 77 | |
Infosys Public Services | 60 | 53 | |
Infosys Shanghai | 4 | 7 | |
Infosys Sweden | – | 1 | |
Kallidus | 10 | 13 | |
Infosys McCamish Systems LLC | 33 | 70 | |
Panaya Ltd | 85 | 75 | |
291 | 335 | ||
Loans | |||
Infosys China (2) | 78 | 73 | |
Infosys Consulting Holding AG(3) | 106 | 104 | |
Brilliant Basics Holdings Limited (4) | 7 | 8 | |
191 | 185 | ||
Prepaid expense and other assets | |||
Panaya Ltd. | 148 | 114 | |
Brilliant Basics Limited | – | 1 | |
148 | 115 | ||
Other financial assets | |||
Infosys BPM | 7 | 10 | |
Panaya Ltd. | 3 | 2 | |
Infosys Consulting GmbH | 2 | 1 | |
Infosys China | 2 | 2 | |
Infy Consulting Company Ltd. | 10 | 9 | |
Infosys Consulting AG | 1 | 1 | |
Infosys Public Services | 2 | 6 | |
Infosys Consulting Pte Ltd. | 2 | 1 | |
Kallidus | 1 | 1 | |
Infosys Consulting Ltda. | 1 | 1 | |
Skava Systems Pvt. Ltd. | 1 | 1 | |
Lodestone Management Consultants Co., Ltd | – | 1 | |
Infosys Brasil | 1 | – | |
Edgeverve | 3 | 3 | |
Infosys Mexico | 1 | 1 | |
37 | 40 | ||
Unbilled revenues | |||
EdgeVerve | 31 | 32 | |
31 | 32 | ||
Trade payables | |||
Infosys China | 7 | 7 | |
Infosys BPM | 54 | 54 | |
Infosys (Czech Republic) Limited s.r.o. | 4 | 3 | |
Infosys Mexico | 5 | 6 | |
Infosys Sweden | 4 | 5 | |
Infosys Shanghai | 5 | 6 | |
Infosys Management Consulting Pty Limited | 8 | 8 | |
Infosys Consulting Pte Ltd. | 3 | 2 | |
Infy Consulting Company Ltd. | 63 | 67 | |
Infosys Brasil | 1 | 2 | |
Brilliant Basics Limited | 7 | 7 | |
McCamish Systems Limited | 1 | – | |
Panaya Ltd. | 53 | 6 | |
Infosys Public Services | 7 | 2 | |
Kallidus | 10 | – | |
Portland Group Pty Ltd | 2 | – | |
Infosys Poland Sp Z.o.o | 2 | 3 | |
236 | 178 | ||
Other financial liabilities | |||
Infosys BPM | – | 2 | |
EdgeVerve | 10 | – | |
Infosys Mexico | 1 | 1 | |
Infosys Public Services | – | 5 | |
Infosys China | 1 | 1 | |
Infosys Consulting GmbH | 1 | 1 | |
Infosys Middle East FZ-LLC | 7 | 8 | |
Infosys Consulting AG | 1 | 1 | |
21 | 19 | ||
Accrued expenses | |||
Infosys BPM | – | 9 | |
– | 9 |
(1) | At an interest rate of 8.39% per annum. |
(2) | The above loan carries an interest of 6% per annum and shall be repayable on demand |
(3) | The above loan carries an interest of 2.5% per annum and shall be repayable on demand. |
(4) | The above loan carries an interest rate of 3.5% per annum repayable in full no later than 12 months or such later date as the parties may agree |
The details of the related parties transactions entered into by the Company for the three months ended June 30, 2018 and June 30, 2017 are as follows:
(In crore)
Particulars | Three months ended June 30, | ||
2018 | 2017 | ||
Capital transactions: | |||
Financing transactions | |||
Equity | |||
Panaya Ltd. | – | 38 | |
Infosys China | – | 97 | |
Infosys Shanghai | – | 74 | |
Infosys Chile SpA | 7 | – | |
Wongdoody Holding Company Inc(1) | 257 | – | |
264 | 209 | ||
Loans (net of repayment) | |||
Infosys China | – | 1 | |
– | 1 | ||
Revenue transactions: | |||
Purchase of services | |||
Infosys China | 20 | 25 | |
Infosys Management Consulting Pty Limited | 24 | 26 | |
Infy Consulting Company Limited | 186 | 169 | |
Infosys Consulting Pte Ltd. | 7 | 14 | |
Portland Group Pty Ltd | 3 | 1 | |
Infosys (Czech Republic) Limited s.r.o. | 11 | 10 | |
Infosys BPM | 149 | 108 | |
Infosys Sweden | 11 | 15 | |
Infosys Shanghai | 19 | 10 | |
Infosys Mexico | 12 | 6 | |
Infosys Public Services | 7 | 8 | |
Panaya Ltd. | 21 | 21 | |
Infosys Brasil | 3 | 3 | |
Infosys Poland Sp Z.o.o | 6 | 2 | |
Kallidus | 14 | 13 | |
Noah Consulting, LLC(2) | – | 47 | |
McCamish Systems LLC | 2 | – | |
Brilliant Basics Limited | 20 | – | |
Noah Information Management Consulting Inc | – | 1 | |
Infosys Middle East FZ-LLC | 22 | – | |
537 | 479 | ||
Purchase of shared services including facilities and personnel | |||
Infosys BPM | 4 | 3 | |
Kallidus | 1 | – | |
Infosys Mexico | – | 1 | |
Infosys Consulting AG | 1 | – | |
6 | 4 | ||
Interest income | |||
Infosys China | 1 | 1 | |
Infosys Consulting Holding AG | 1 | – | |
EdgeVerve | 37 | 41 | |
39 | 42 | ||
Sale of services | |||
Infosys China | 7 | 5 | |
Infosys Mexico | 6 | 5 | |
Infy Consulting Company Limited | 11 | 10 | |
Infosys Brasil | 1 | 2 | |
Infosys BPM | 19 | 17 | |
McCamish Systems LLC | 48 | 7 | |
Infosys Sweden | 2 | 4 | |
Infosys Shanghai | 2 | 1 | |
EdgeVerve | 107 | 96 | |
Infosys Public Services | 181 | 169 | |
384 | 316 | ||
Sale of shared services including facilities and personnel | |||
EdgeVerve | 9 | 10 | |
Panaya Ltd. | 13 | 12 | |
Infy Consulting Company Limited | 1 | 1 | |
Infy Consulting B.V | – | 1 | |
Infosys BPM | 18 | 16 | |
Infosys Public Services | – | 2 | |
41 | 42 |
(1) Excludes contingent consideration
(2) Refer Note 2.2
Changes in Key Management personnel
The following were the changes in key management personnel:-
• Ravi Venkatesan resigned from his position as Co-Chairman effective August 24, 2017 and resigned as member of the Board effective May 11, 2018
Transactions with key management personnel
The table below describes the compensation to key managerial personnel which comprise directors and executive officers:
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Salaries and other employee benefits to whole-time directors and executive officers (1) | 24 | 27 |
Commission and other benefits to non-executive/independent directors | 2 | 3 |
Total | 26 | 30 |
(1) | Total employee stock compensation expense for the three months ended June 30, 2018 and June 30, 2017 includes a charge of 9 crore and 12 crore, respectively towards key managerial personnel.(Refer to note 2.9) |
2.21 SEGMENT REPORTING
The Company publishes this financial statement along with the interim consolidated financial statements. In accordance with Ind AS 108, Operating Segments, the Company has disclosed the segment information in the interim consolidated financial statements.
2.22 FUNCTION-WISE CLASSIFICATION OF STATEMENT OF PROFIT AND LOSS
(In crore)
Particulars | Note No. | Three months ended June 30, | |
2018 | 2017 | ||
Revenue from operations | 2.15 | 17,056 | 14,971 |
Cost of sales | 10,892 | 9,389 | |
Gross Profit | 6,164 | 5,582 | |
Operating expenses | |||
Selling and marketing expenses | 802 | 684 | |
General and administration expenses | 1,031 | 905 | |
Total operating expenses | 1,833 | 1,589 | |
Operating profit | 4,331 | 3,993 | |
Reduction in the fair value of assets held for sale | 2.2.4 | (265) | – |
Other income, net | 2.16 | 716 | 723 |
Profit before tax | 4,782 | 4,716 | |
Tax expense: | |||
Current tax | 2.14 | 1,329 | 1,394 |
Deferred tax | 2.14 | (50) | (93) |
Profit for the period | 3,503 | 3,415 | |
Other comprehensive income | |||
Items that will not be reclassified subsequently to profit or loss | |||
Remeasurement of the net defined benefit liability/asset, net | (1) | (2) | |
Equity instruments through other comprehensive income, net | 4 | – | |
Items that will be reclassified subsequently to profit or loss | |||
Fair value changes on derivatives designated as cash flow hedge, net | 9 | (66) | |
Fair value changes on investments, net | 2.2 | (41) | 25 |
Total other comprehensive income, net of tax | (29) | (43) | |
Total comprehensive income for the period | 3,474 | 3,372 |
for and on behalf of the Board of Directors of Infosys Limited
Nandan M. Nilekani Chairman |
Salil Parekh Chief Executive officer and Managing Director |
U. B. Pravin Rao Chief Operating Officer and Whole-time Director |
D. Sundaram Director |
M. D. Ranganath Chief Financial Officer |
A. G. S. Manikantha Company Secretary |
Bengaluru, July 13, 2018 |
INDEPENDENT Auditor’s Report on audit of interim STANDALONE financial results
To The Board of Directors of Infosys Limited
1. | We have audited the accompanying Statement of Standalone Financial Results of INFOSYS Limited (“the Company”), for the quarter ended June 30, 2018 (“the Statement”), being submitted by the Company pursuant to the requirement of Regulation 33 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, as modified by Circular No. CIR/CFD/FAC/62/2016 dated July 5, 2016. |
This Statement, which is the responsibility of the Company’s Management and approved by the Board of Directors, has been compiled from the related interim condensed standalone financial statements which has been prepared in accordance with Indian Accounting Standard 34 “Interim Financial Reporting” (“Ind AS 34”), prescribed under Section 133 of the Companies Act, 2013 read with relevant rules issued thereunder and other accounting principles generally accepted in India. Our responsibility is to express an opinion on the Statement based on our audit of such interim condensed standalone financial statements.
2. | We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the Statement is free from material misstatement. |
An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the Statement. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the Statement, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial controls relevant to the Company’s preparation and fair presentation of the Statement in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal financial control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Management, as well as evaluating the overall presentation of the Statement.
We believe that the audit evidence obtained by us, is sufficient and appropriate to provide a basis for our audit opinion.
3. | In our opinion and to the best of our information and according to the explanations given to us, the Statement: |
(i) | is presented in accordance with the requirements of Regulation 33 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, as modified by Circular No. CIR/CFD/FAC/62/2016 dated July 5, 2016; and |
(ii) | gives a true and fair view in conformity with the aforesaid Indian Accounting Standards and other accounting principles generally accepted in India of the profit, total comprehensive income and other financial information of the Company for the quarter ended June 30, 2018. |
For DELOITTE HASKINS & SELLS LLP
Chartered Accountants
(Firm’s Registration No. 117366W/W-100018)
Bengaluru, July 13, 2018 | P. R. RAMESH Partner (Membership No.70928) |
Exhibit 99.11
Ind AS Consolidated
INDEPENDENT AUDITOR’S REPORT
TO THE BOARD OF DIRECTORS OF INFOSYS LIMITED
Report on the Audit of Interim Consolidated Financial Statements
Opinion
We have audited the accompanying interim consolidated financial statements of Infosys Limited (“the Company”) and its subsidiaries (the Company and its subsidiaries together referred to as “the Group”), which comprise the Consolidated Balance Sheet as at June 30, 2018, the Consolidated Statement of Profit and Loss (including Other Comprehensive Income),the Consolidated Statement of Changes in Equity and the Consolidated Statement of Cash Flows for the three months period ended on that date, and a summary of the significant accounting policies and other explanatory information (hereinafter referred to as “the interim consolidated financial statements”).
In our opinion and to the best of our information and according to the explanations given to us, the aforesaid interim consolidated financial statements give a true and fair view in conformity with Indian Accounting Standard 34 “Interim Financial Reporting” (“Ind AS 34”) and other accounting principles generally accepted in India, of the consolidated state of affairs of the Group as at June 30, 2018, the consolidated profit, consolidated total comprehensive income, consolidated changes in equity and its consolidated cash flows for the three months period ended on that date.
Basis for Opinion
We conducted our audit in accordance with the Standards on Auditing (SAs) specified under section 143(10) of the Companies Act, 2013. Our responsibilities under those Standards are further described in the Auditor’s Responsibilities for the Audit of the Interim Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India, and we have fulfilled our other ethical responsibilities in accordance with the provisions of the Companies Act, 2013. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the interim consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
KEY AUDIT MATTER | RESPONSE TO KEY AUDIT MATTER |
Accuracy of recognition, measurement, presentation and disclosures of revenues and other related balances in view of adoption of Ind AS 115 “Revenue from Contracts with Customers” (new revenue accounting standard)
The application of the new revenue accounting standard involves certain key judgements relating to identification of distinct performance obligations, determination of transaction price of the identified performance obligations, the appropriateness of the basis used to measure revenue recognized over a period. Additionally, new revenue accounting standard contains disclosures which involves collation of information in respect of disaggregated revenue and periods over which the remaining performance obligations will be satisfied subsequent to the balance sheet date.
Refer Notes 1.5a and 2.16 to the Interim Consolidated Financial Statements. |
Principal Audit Procedures
We assessed the Group’s process to identify the impact of adoption of the new revenue accounting standard.
Our audit approach consisted testing of the design and operating effectiveness of the internal controls and substantive testing as follows:
· Evaluated the design of internal controls relating to implementation of the new revenue accounting standard. · Selected a sample of continuing and new contracts, and tested the operating effectiveness of the internal control, relating to identification of the distinct performance obligations and determination of transaction price. We carried out a combination of procedures involving enquiry and observation, reperformance and inspection of evidence in respect of operation of these controls. · Tested the relevant information technology systems’ access and change management controls relating to contracts and related information used in recording and disclosing revenue in accordance with the new revenue accounting standard. · Selected a sample of continuing and new contracts and performed the following procedures: • Read, analysed and identified the distinct performance obligations in these contracts. • Compared these performance obligations with that identified and recorded by the Group. • Considered the terms of the contracts to determine the transaction price including any variable consideration to verify the transaction price used to compute revenue and to test the basis of estimation of the variable consideration. • Samples in respect of revenue recorded for time and material contracts were tested using a combination of approved time sheets including customer acceptances, subsequent invoicing and historical trend of collections and disputes. • In respect of samples relating to fixed price contracts, progress towards satisfaction of performance obligation used to compute recorded revenue was verified with actual and estimated efforts from the time recording and budgeting systems. We also tested the access and change management controls relating to these systems. · Sample of revenues disaggregated by type and service offerings was tested with the performance obligations specified in the underlying contracts. · Performed analytical procedures for reasonableness of revenues disclosed by type and service offerings. · We reviewed the collation of information and the logic of the report generated from the budgeting system used to prepare the disclosure relating to the periods over which the remaining performance obligations will be satisfied subsequent to the balance sheet date. Conclusion Our procedures did not identify any material exceptions. |
KEY AUDIT MATTER | RESPONSE TO KEY AUDIT MATTER |
Accuracy of revenues and onerous obligations in respect of fixed price contracts involves critical estimates
Estimated effort is a critical estimate to determine revenues and liability for onerous obligations. This estimate has a high inherent uncertainty as it requires consideration of progress of the contract, efforts incurred till date, efforts required to complete the remaining contract performance obligations.
Refer Notes 1.5a and 2.16 to the Interim Consolidated Financial Statements. |
Principal Audit Procedures
Our audit approach was a combination of test of internal controls and substantive procedures which included the following: · Evaluated the design of internal controls relating to recording of efforts incurred and estimation of efforts required to complete the performance obligations. · Tested the access and application controls pertaining to time recording, allocation and budgeting systems which prevents unauthorised changes to recording of efforts incurred. · Selected a sample of contracts and tested the operating effectiveness of the internal controls relating to efforts incurred and estimated through inspection of evidence of performance of these controls. · Selected a sample of contracts and performed a retrospective review of efforts incurred with estimated efforts to identify significant variations and verify whether those variations have been considered in estimating the remaining efforts to complete the contract. · Reviewed a sample of contracts with unbilled revenues to identify possible delays in achieving milestones, which require change in estimated efforts to complete the remaining performance obligations. · Performed analytical procedures and test of details for reasonableness of incurred and estimated efforts.
Conclusion Our procedures did not identify any material exceptions.
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Evaluation of uncertain tax positions
The Group has material uncertain tax positions including matters under dispute which involves significant judgment to determine the possible outcome of these disputes.
Refer Notes 1.5b and 2.22 to the Interim Consolidated Financial Statements. |
Principal Audit Procedures
We performed the following substantive procedures: · Obtained details of completed tax assessments and demands for the quarter ended June 30, 2018 from management. We involved our internal experts to challenge the management’s underlying assumptions in estimating the tax provision and the possible outcome of the disputes. Our internal experts also considered legal precedence and other rulings in evaluating management’s position on these uncertain tax positions. Additionally, we considered the effect of new information in respect of uncertain tax positions as at April 1, 2018 to evaluate whether any change was required to management’s position on these uncertainties.
Conclusion We agree with management’s evaluation.
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KEY AUDIT MATTER | RESPONSE TO KEY AUDIT MATTER |
Reasonableness of carrying amount of assets held for sale
Assets held for sale carried at fair value have been estimated using significant unobservable inputs including non-binding offers from and negotiations held with prospective buyers as a result of which fair value is sensitive to changes in input assumptions.
Refer Notes 1.5f and 2.1.2 to the Interim Consolidated Financial Statements. |
Principal Audit Procedures
Our audit procedures consisted of challenging management’s assumptions relating to business projections and expectation of outcome of negotiations with prospective buyers. We have also considered the valuation performed by an external valuer.
Conclusion The assumptions and inputs have been appropriately considered in estimating the fair value.
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Responsibilities of the Management and Those Charged with Governance for the Interim Consolidated Financial Statements
The Company’s Board of Directors is responsible for the preparation and presentation of these interim consolidated financial statements that give a true and fair view of the consolidated financial position, consolidated financial performance, consolidated total comprehensive income, consolidated changes in equity and consolidated cash flows of the Group in accordance with Ind AS 34 prescribed under Section 133 of the Companies Act, 2013 (“the Act”), read with relevant rules issued thereunder and other accounting principles generally accepted in India. The respective Board of Directors of the companies included in the Group are responsible for maintenance of the adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Group and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the interim consolidated financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error, which have been used for the purpose of preparation of the interim consolidated financial statements by the Board of Directors of the Company, as aforesaid.
In preparing the interim consolidated financial statements, the respective Board of Directors of the companies included in the Group are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
The respective Board of Directors of the companies included in the Group are also responsible for overseeing the financial reporting process of the Group.
Auditor’s Responsibilities for the Audit of the Interim Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the interim consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these interim consolidated financial statements.
As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
· | Identify and assess the risks of material misstatement of the interim consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. |
· | Obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on whether the Company has in place an adequate internal financial controls system over financial reporting and the operating effectiveness of such controls. |
· | Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. |
· | Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the ability of the Group to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the interim consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. |
· | Evaluate the overall presentation, structure and content of the interim consolidated financial statements, including the disclosures, and whether the interim consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. |
· | Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the interim consolidated financial statements. We are responsible for the direction, supervision and performance of the audit of the financial statements of such entities included in the interim consolidated financial statements. |
Materiality is the magnitude of misstatements in the interim consolidated financial statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the financial statements may be influenced. We consider quantitative materiality and qualitative factors in (i) planning the scope of our audit work and in evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatements in the financial statements.
Based on our professional judgment, we determined materiality for the financial statements as a whole at Rs. 250 crores. The basis for determining materiality was 5% of profits before tax. Profits before tax was used as a benchmark for materiality because it is one of the main measures used by users of financial statements to monitor the performance of the Group.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the interim consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
For Deloitte Haskins & Sells LLP
Chartered Accountants
(Firm’s Registration No. 117366W/W-100018)
Bengaluru, July 13, 2018 | P. R. RAMESH (Membership No. 70928) |
INFOSYS LIMITED AND SUBSIDIARIES
Consolidated Financial Statements under Indian Accounting Standards (Ind AS) for the three months ended June 30, 2018
Index
Consolidated Balance Sheet
Consolidated Statement of Profit and Loss
Consolidated Statement of changes in Equity
Consolidated Statement of Cash Flows
Overview and notes to the consolidated financial statements
1. Overview
1.1 Company overview
1.2 Basis of preparation of financial statements
1.3 Basis of consolidation
1.4 Use of estimates and judgements
1.5 Critical accounting estimates
2. Notes to the consolidated financial statements
2.1 Business combinations and disposal group held for sale
2.2 Property, plant and equipment
2.3 Goodwill and other intangible assets
2.4 Investments
2.5 Loans
2.6 Other financial assets
2.7 Trade receivables
2.8 Cash and cash equivalents
2.9 Other assets
2.10 Financial instruments
2.11 Equity
2.12 Other financial liabilities
2.13 Other liabilities
2.14 Provisions
2.15 Income taxes
2.16 Revenue from operations
2.17 Other income, net
2.18 Expenses
2.19 Leases
2.20 Employee benefits
2.21 Reconciliation of basic and diluted shares used in computing earnings per share
2.22 Contingent liabilities and commitments
2.23 Related party transactions
2.24 Segment reporting
2.25 Function wise classification of Consolidated Statement Of Profit and Loss
INFOSYS LIMITED AND SUBSIDIARIES
(In crore )
Consolidated Balance Sheet as at | Note No. | June 30, 2018 | March 31, 2018 |
ASSETS | |||
Non-current assets | |||
Property, plant and equipment | 2.2 | 10,148 | 10,116 |
Capital work-in-progress | 1,625 | 1,606 | |
Goodwill | 2.3.1 and 2.1 | 2,394 | 2,211 |
Other intangible assets | 2.3.2 | 370 | 247 |
Investment in associate | 2.23 | – | – |
Financial assets: | |||
Investments | 2.4 | 5,623 | 5,756 |
Loans | 2.5 | 28 | 36 |
Other financial assets | 2.6 | 253 | 284 |
Deferred tax assets (net) | 2.15 | 1,300 | 1,282 |
Income tax assets (net) | 2.15 | 6,056 | 6,070 |
Other non-current assets | 2.9 | 1,826 | 2,265 |
Total non-current assets | 29,623 | 29,873 | |
Current assets | |||
Financial assets: | |||
Investments | 2.4 | 6,876 | 6,407 |
Trade receivables | 2.7 | 13,699 | 13,142 |
Cash and cash equivalents | 2.8 | 16,506 | 19,818 |
Loans | 2.5 | 247 | 239 |
Other financial assets | 2.6 | 4,156 | 6,684 |
Other current assets | 2.9 | 5,129 | 1,667 |
46,613 | 47,957 | ||
Assets held for sale | 2.1 | 1,867 | 2,060 |
Total current assets | 48,480 | 50,017 | |
Total assets | 78,103 | 79,890 | |
EQUITY AND LIABILITIES | |||
Equity | |||
Equity share capital | 2.11 | 1,088 | 1,088 |
Other equity | 59,597 | 63,835 | |
Total equity attributable to equity holders of the Company | 60,685 | 64,923 | |
Non-controlling interests | 1 | 1 | |
Total equity | 60,686 | 64,924 | |
Liabilities | |||
Non-current liabilities | |||
Financial Liabilities | |||
Other financial liabilities | 2.12 | 128 | 61 |
Deferred tax liabilities (net) | 2.15 | 505 | 541 |
Other non-current liabilities | 2.13 | 250 | 259 |
Total non-current liabilities | 883 | 861 | |
Current liabilities | |||
Financial Liabilities | |||
Trade payables | 798 | 694 | |
Other financial liabilities | 2.12 | 7,718 | 6,946 |
Other current liabilities | 2.13 | 5,118 | 3,606 |
Provisions | 2.14 | 523 | 492 |
Income tax liabilities (net) | 2.15 | 2,032 | 2,043 |
16,189 | 13,781 | ||
Liabilities directly associated with assets held for sale | 2.1 | 345 | 324 |
Total current liabilities | 16,534 | 14,105 | |
Total equity and liabilities | 78,103 | 79,890 |
The accompanying notes form an integral part of the interim consolidated financial statements
As per our report of even date attached
for Deloitte Haskins & Sells LLP
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for and on behalf of the Board of Directors of Infosys Limited | ||
Chartered Accountants
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|||
Firm's Registration Number: | |||
117366W/W-100018 | |||
P. R. Ramesh Partner |
Nandan M. Nilekani Chairman |
Salil Parekh Chief Executive officer and Managing Director |
U. B. Pravin Rao Chief Operating Officer and Whole-time Director |
Membership No. 70928 | |||
Bengaluru July 13, 2018 |
D. Sundaram Director |
M. D. Ranganath Chief Financial Officer |
A. G. S. Manikantha Company Secretary |
INFOSYS LIMITED AND SUBSIDIARIES
(in crore, except equity share and per equity share data)
Consolidated Statement of Profit and Loss for the | Note No | Three months ended June 30, | |
. | 2018 | 2017 | |
Revenue from operations | 2.16 | 19,128 | 17,078 |
Other income, net | 2.1 and 2.17 | 726 | 814 |
Total income | 19,854 | 17,892 | |
Expenses | |||
Employee benefit expenses | 2.18 | 10,462 | 9,366 |
Cost of technical sub-contractors | 1,291 | 1,061 | |
Travel expenses | 603 | 527 | |
Cost of software packages and others | 2.18 | 545 | 440 |
Communication expenses | 122 | 125 | |
Consultancy and professional charges | 305 | 246 | |
Depreciation and amortisation expenses | 2.2 and 2.3.2 | 436 | 450 |
Other expenses | 2.18 | 827 | 752 |
Reduction in the fair value of Disposal Group held for sale | 2.1 | 270 | – |
Total expenses | 14,861 | 12,967 | |
Profit before non-controlling interests/share in net profit/(loss) of associate | 4,993 | 4,925 | |
Share in net profit/(loss) of associate, including impairment | 2.23 | – | (71) |
Profit before tax | 4,993 | 4,854 | |
Tax expense: | |||
Current tax | 2.15 | 1,450 | 1,499 |
Deferred tax | 2.15 | (69) | (128) |
Profit for the period | 3,612 | 3,483 | |
Other comprehensive income | |||
Items that will not be reclassified subsequently to profit or loss | |||
Remeasurement of the net defined benefit liability/asset, net | 2.20 and 2.15 | 1 | (3) |
Equity instruments through other comprehensive income, net | 2.4 and 2.15 | 4 | – |
5 | (3) | ||
Items that will be reclassified subsequently to profit or loss | |||
Fair value changes on derivatives designated as cash flow hedge, net | 2.10 and 2.15 | 9 | (66) |
Exchange differences on translation of foreign operations | 87 | 107 | |
Fair value changes on investments, net | 2.4 and 2.15 | (45) | 27 |
51 | 68 | ||
Total other comprehensive income/ (loss), net of tax | 56 | 65 | |
Total comprehensive income for the period | 3,668 | 3,548 | |
Profit attributable to: | |||
Owners of the Company | 3,612 | 3,483 | |
Non-controlling interests | – | – | |
3,612 | 3,483 | ||
Total comprehensive income attributable to: | |||
Owners of the Company | 3,668 | 3,548 | |
Non-controlling interests | – | – | |
3,668 | 3,548 | ||
Earnings per Equity share | |||
Equity shares of par value 5/- each | |||
Basic () | 16.62 | 15.24 | |
Diluted () | 16.60 | 15.23 | |
Weighted average equity shares used in computing earnings per equity share | 2.21 | ||
Basic | 217,33,28,621 | 228,56,57,604 | |
Diluted | 217,53,55,178 | 228,70,58,148 |
The accompanying notes form an integral part of the interim consolidated financial statements
As per our report of even date attached
for Deloitte Haskins & Sells LLP
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for and on behalf of the Board of Directors of Infosys Limited | ||
Chartered Accountants
|
|||
Firm's Registration Number: | |||
117366W/W-100018 | |||
P. R. Ramesh Partner |
Nandan M. Nilekani Chairman |
Salil Parekh Chief Executive officer and Managing Director |
U. B. Pravin Rao Chief Operating Officer and Whole-time Director |
Membership No. 70928 | |||
Bengaluru July 13, 2018 |
D. Sundaram Director |
M. D. Ranganath Chief Financial Officer |
A. G. S. Manikantha Company Secretary |
INFOSYS LIMITED AND SUBSIDIARIES
Consolidated Statement of Changes in Equity
(In crore )
Particulars | Equity Share capital (1) | OTHER EQUITY | Total equity attributable to equity holders of the Company | |||||||||||
RESERVES & SURPLUS | Other comprehensive income | |||||||||||||
Securities Premium reserve |
Retained earnings | Capital reserve | General reserve | Share Options Outstanding Account | Special Economic Zone Re-investment reserve (2) | Other reserves(3) | Capital redemption reserve | Equity instruments through other comprehensive income | Exchange differences on translating the financial statements of a foreign operation | Effective portion of Cash Flow Hedges | Other items of other comprehensive income / (loss) | |||
Balance as at April 1, 2017 | 1,144 | 2,216 | 52,882 | 54 | 12,135 | 120 | – | 5 | – | (5) | 458 | 39 | (66) | 68,982 |
Changes in equity for the three months ended June 30, 2017 | ||||||||||||||
Profit for the period | – | – | 3,483 | – | – | – | – | – | – | – | – | – | – | 3,483 |
Remeasurement of the net defined benefit liability/asset* (refer note no. 2.20.1 and 2.15) | – | – | – | – | – | – | – | – | – | – | – | – | (3) | (3) |
Equity instruments through other comprehensive income* (refer to note no.2.4) | – | – | – | – | – | – | – | – | – | – | – | – | – | – |
Fair value changes on derivatives designated as cash flow hedge*(refer note no. 2.10) | – | – | – | – | – | – | – | – | – | – | – | (66) | – | (66) |
Exchange differences on translation of foreign operations | – | – | – | – | – | – | – | – | – | – | 107 | – | – | 107 |
Fair value changes on investments, net* (refer to note no.2.4) | – | – | – | – | – | – | – | – | – | – | – | – | 27 | 27 |
Total Comprehensive income for the period | – | – | 3,483 | – | – | – | – | – | – | – | 107 | (66) | 24 | 3,548 |
Exercise of stock options (refer note no. 2.11) | – | 2 | – | – | – | (2) | – | – | – | – | – | – | – | – |
Dividends (including dividend distribution tax) | – | – | (4,061) | – | – | – | – | – | – | – | – | – | – | (4,061) |
Transfer to general reserve | – | – | (1,382) | – | 1,382 | – | – | – | – | – | – | – | – | – |
Transferred to Special Economic Zone Re-investment reserve | – | – | (483) | – | – | – | 483 | – | – | – | – | – | – | – |
Transferred from Special Economic Zone Re-investment reserve on utilization | – | – | 154 | – | – | – | (154) | – | – | – | – | – | – | – |
Share based payments to employees (refer note no. 2.11) | – | – | – | – | – | 45 | – | – | – | – | – | – | – | 45 |
Balance as at June 30, 2017 | 1,144 | 2,218 | 50,593 | 54 | 13,517 | 163 | 329 | 5 | – | (5) | 565 | (27) | (42) | 68,514 |
Consolidated Statement of Changes in Equity (contd.)
(In crore)
Particulars | Equity Share capital (1) | OTHER EQUITY | Total equity attributable to equity holders of the Company | |||||||||||
RESERVES & SURPLUS | Other comprehensive income | |||||||||||||
Securities Premium reserve |
Retained earnings | Capital reserve | General reserve | Share Options Outstanding Account | Special Economic Zone Re-investment reserve (2) | Other reserves(3) | Capital redemption reserve | Equity instruments through Other comprehensive income | Exchange differences on translating the financial statements of a foreign operation | Effective portion of Cash Flow Hedges | Other items of other comprehensive income / (loss) | |||
Balance as at April 1, 2018 | 1,088 | 36 | 58,477 | 54 | 2,725 | 130 | 1,583 | 5 | 56 | 2 | 779 | – | (12) | 64,923 |
Changes in equity for the three months ended June 30, 2018 | ||||||||||||||
Profit for the period | – | – | 3,612 | – | – | – | – | – | – | – | – | – | – | 3,612 |
Remeasurement of the net defined benefit liability/asset* (refer note no. 2.20.1 and 2.15) | – | – | – | – | – | – | – | – | – | – | – | – | 1 | 1 |
Equity instruments through other comprehensive income* (refer to note no.2.4) | – | – | – | – | – | – | – | – | – | 4 | – | – | – | 4 |
Fair value changes on derivatives designated as cash flow hedge* (refer note no. 2.10) | – | – | – | – | – | – | – | – | – | – | – | 9 | – | 9 |
Exchange differences on translation of foreign operations | – | – | – | – | – | – | – | – | – | – | 87 | – | – | 87 |
Fair value changes on investments, net* (refer to note no.2.4) | – | – | – | – | – | – | – | – | – | – | – | – | (45) | (45) |
Total Comprehensive income for the period | – | – | 3,612 | – | – | – | – | – | – | 4 | 87 | 9 | (44) | 3,668 |
Share based payments to employees (refer to note no. 2.11) | – | – | – | – | – | 43 | – | – | – | – | – | – | – | 43 |
Dividends (including dividend distribution tax) | – | – | (7,949) | – | – | – | – | – | – | – | – | – | – | (7,949) |
Transfer to general reserve | – | – | (1,615) | – | 1,615 | – | – | – | – | – | – | – | – | – |
Transferred to Special Economic Zone Re-investment reserve | – | – | (553) | – | – | – | 553 | – | – | – | – | – | – | – |
Transferred from Special Economic Zone Re-investment reserve on utilization | – | – | 216 | – | – | – | (216) | – | – | – | – | – | – | – |
Balance as at June 30, 2018 | 1,088 | 36 | 52,188 | 54 | 4,340 | 173 | 1,920 | 5 | 56 | 6 | 866 | 9 | (56) | 60,685 |
* Net of tax
(1) | Net of treasury shares |
(2) | The Special Economic Zone Re-investment Reserve has been created out of the profit of eligible SEZ units in terms of the provisions of Sec 10AA(1)(ii) of Income Tax Act,1961. The reserve should be utilized by the Company for acquiring new plant and machinery for the purpose of its business in the terms of the Sec 10AA(2) of the Income Tax Act, 1961. |
(3) |
Under the Swiss Code of Obligation, few subsidiaries of Infosys Lodestone are required to appropriate a certain percentage of the annual profit to legal reserve which may be used only to cover losses or for measures designed to sustain the Company through difficult times, to prevent unemployment or to mitigate its consequences. |
The accompanying notes form an integral part of the interim consolidated financial statements
As per our report of even date attached
for Deloitte Haskins & Sells LLP
|
for and on behalf of the Board of Directors of Infosys Limited | ||
Chartered Accountants
|
|||
Firm's Registration Number: | |||
117366W/W-100018 | |||
P. R. Ramesh Partner |
Nandan M. Nilekani Chairman |
Salil Parekh Chief Executive officer and Managing Director |
U. B. Pravin Rao Chief Operating Officer and Whole-time Director |
Membership No. 70928 | |||
Bengaluru July 13, 2018 |
D. Sundaram Director |
M. D. Ranganath Chief Financial Officer |
A. G. S. Manikantha Company Secretary |
INFOSYS LIMITED AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Accounting policy
Cash flows are reported using the indirect method, whereby profit for the period is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments and item of income or expenses associated with investing or financing cash flows. The cash flows from operating, investing and financing activities of the Company are segregated. The company considers all highly liquid investments that are readily convertible to known amounts of cash to be cash equivalents.
(In crore)
Particulars | Note No. | Three months ended June 30, | |
2018 | 2017 | ||
Cash flow from operating activities | |||
Profit for the period | 3,612 | 3,483 | |
Adjustments to reconcile net profit to net cash provided by operating activities: | |||
Income tax expense | 2.15 | 1,381 | 1,371 |
Depreciation and amortization | 2.2 and 2.3.2 | 436 | 450 |
Interest and dividend income | (549) | (631) | |
Impairment loss recognized / (reversed) under expected credit loss model | 69 | (4) | |
Exchange differences on translation of assets and liabilities | 62 | (3) | |
Reduction in the fair value of Disposal Group held for sale | 2.1 | 270 | – |
Share in net profit/(loss) of associate, including impairment | – | 71 | |
Stock compensation expense | 2.11 | 44 | 46 |
Other adjustments | (56) | (52) | |
Changes in assets and liabilities | |||
Trade receivables and unbilled revenue | (984) | (459) | |
Loans, other financial assets and other assets | (106) | 103 | |
Trade payables | 96 | (107) | |
Other financial liabilities, other liabilities and provisions | 1,049 | 964 | |
Cash generated from operations | 5,324 | 5,232 | |
Income taxes paid | (1,428) | (1,205) | |
Net cash generated by operating activities | 3,896 | 4,027 | |
Cash flows from investing activities | |||
Expenditure on property, plant and equipment | (537) | (553) | |
Loans to employees | – | 23 | |
Deposits placed with corporation | 22 | (9) | |
Interest and dividend received | 556 | 210 | |
Payment towards acquisition of business, net of cash acquired | (206) | – | |
Payment of contingent consideration for acquisition of business | – | (33) | |
Payments to acquire Investments | |||
Preference and equity securities | (10) | (13) | |
Tax free bonds and government bonds | (17) | (1) | |
Liquid mutual fund units and fixed maturity plan securities | (23,922) | (16,472) | |
Non convertible debentures | – | – | |
Certificates of deposit | – | (281) | |
Commercial paper | – | – | |
Others | (5) | (9) | |
Proceeds on sale of Investments | |||
Tax free bonds and government bonds | 1 | 4 | |
Non-convertible debentures | 302 | – | |
Certificates of deposit | 800 | 150 | |
Liquid mutual fund units and fixed maturity plan securities | 22,499 | 16,774 | |
Preference and equity securities | – | – | |
Net cash from/(used) in investing activities | (517) | (210) | |
Cash flows from financing activities: | |||
Payment of dividends | (6,629) | (3,363) | |
Net cash used in financing activities | (6,629) | (3,363) | |
Net increase / (decrease) in cash and cash equivalents | (3,250) | 454 | |
Cash and cash equivalents at the beginning of the period | 2.8 | 19,871 | 22,625 |
Effect of exchange rate changes on cash and cash equivalents | (41) | 38 | |
Cash and cash equivalents at the end of the period | 2.8 | 16,580 | 23,117 |
Supplementary information: | |||
Restricted cash balance | 2.8 | 433 | 601 |
The accompanying notes form an integral part of the interim consolidated financial statements
As per our report of even date attached
for Deloitte Haskins & Sells LLP
|
for and on behalf of the Board of Directors of Infosys Limited | ||
Chartered Accountants
|
|||
Firm's Registration Number: | |||
117366W/W-100018 | |||
P. R. Ramesh Partner |
Nandan M. Nilekani Chairman |
Salil Parekh Chief Executive officer and Managing Director |
U. B. Pravin Rao Chief Operating Officer and Whole-time Director |
Membership No. 70928 | |||
Bengaluru July 13, 2018 |
D. Sundaram Director |
M. D. Ranganath Chief Financial Officer |
A. G. S. Manikantha Company Secretary |
INFOSYS LIMITED AND SUBSIDIARIES
Notes to the interim consolidated financial statements
1. Overview
1.1 Company overview
Infosys Limited ('the Company' or Infosys) is a leading provider of consulting, technology, outsourcing and next-generation digital services, enabling clients to execute strategies for their digital transformation. Infosys strategic objective is to build a sustainable organization that remains relevant to the agenda of clients, while creating growth opportunities for employees and generating profitable returns for investors. Infosys strategy is to be a navigator for our clients as they ideate, plan and execute on their journey to a digital future.
Infosys together with its subsidiaries and controlled trusts is herein after referred to as 'the Group'.
The company is a public limited company incorporated and domiciled in India and has its registered office at Bengaluru, Karnataka, India. The company has its primary listings on the BSE Ltd. and National Stock Exchange in India. The company’s American Depositary Shares (ADS) representing equity shares are listed on the New York Stock Exchange (NYSE).
Further, the company's ADS were also listed on the Euronext London and Euronext Paris. On July 5, 2018, the company voluntarily delisted its ADS from the said exchanges due to low average daily trading volume of its ADS on these exchanges.
The Group's interim consolidated financial statements are approved for issue by the Company's Board of Directors on July 13, 2018.
1.2 Basis of preparation of financial statements
These interim consolidated financial statements are prepared in accordance with Indian Accounting Standards (Ind AS), under the historical cost convention on the accrual basis except for certain financial instruments which are measured at fair values, the provisions of the Companies Act, 2013 ('the Act') (to the extent notified) and guidelines issued by the Securities and Exchange Board of India (SEBI). The Ind AS are prescribed under Section 133 of the Act read with Rule 3 of the Companies (Indian Accounting Standards) Rules, 2015 and relevant amendment rules issued thereafter.
Accounting policies have been consistently applied except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy hitherto in use.
1.3 Basis of consolidation
Infosys consolidates entities which it owns or controls. The interim consolidated financial statements comprise the financial statements of the Company, its controlled trusts and its subsidiaries, as disclosed in Note no. 2.23. Control exists when the parent has power over the entity, is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns by using its power over the entity. Power is demonstrated through existing rights that give the ability to direct relevant activities, those which significantly affect the entity's returns. Subsidiaries are consolidated from the date control commences until the date control ceases.
The financial statements of the Group Companies are consolidated on a line-by-line basis and intra-group balances and transactions including unrealized gain / loss from such transactions are eliminated upon consolidation. These financial statements are prepared by applying uniform accounting policies in use at the Group. Non-controlling interests which represent part of the net profit or loss and net assets of subsidiaries that are not, directly or indirectly, owned or controlled by the Company, are excluded.
1.4 Use of estimates and judgements
The preparation of the financial statements in conformity with Ind AS requires the management to make estimates, judgements and assumptions. These estimates, judgements and assumptions affect the application of accounting policies and the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the period. Application of accounting policies that require critical accounting estimates involving complex and subjective judgements and the use of assumptions in these financial statements have been disclosed in Note no. 1.5. Accounting estimates could change from period to period. Actual results could differ from those estimates. Appropriate changes in estimates are made as management becomes aware of changes in circumstances surrounding the estimates. Changes in estimates are reflected in the financial statements in the period in which changes are made and, if material, their effects are disclosed in the notes to the consolidated financial statements.
1.5 Critical accounting estimates
a. Revenue recognition
The group uses the percentage-of-completion method in accounting for its fixed-price contracts. Use of the percentage-of-completion method requires the group to estimate the efforts or costs expended to date as a proportion of the total efforts or costs to be expended. Efforts or costs expended have been used to measure progress towards completion as there is a direct relationship between input and productivity.
Further, the company uses significant judgements while determining the transaction price allocated to performance obligations using the expected cost plus margin approach.
Provisions for estimated losses, if any, on uncompleted contracts are recorded in the period in which such losses become probable based on the expected contract estimates at the reporting date.
b. Income taxes
The Company's two major tax jurisdictions are India and the U.S., though the Company also files tax returns in other overseas jurisdictions. Significant judgements are involved in determining the provision for income taxes, including amount expected to be paid/recovered for uncertain tax positions. Also refer to Note no. 2.15 and 2.22
In assessing the realizability of deferred income tax assets, management considers whether some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers the scheduled reversals of deferred income tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred income tax assets are deductible, management believes that the group will realize the benefits of those deductible differences. The amount of the deferred income tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced.
c. Business combinations and intangible assets
Business combinations are accounted for using Ind AS 103, Business Combinations. Ind AS 103 requires the identifiable intangible assets and contingent consideration to be fair valued in order to ascertain the net fair value of identifiable assets, liabilities and contingent liabilities of the acquiree. Significant estimates are required to be made in determining the value of contingent consideration and intangible assets. These valuations are conducted by independent valuation experts (Refer to Note no 2.1 and 2.3).
d. Property, plant and equipment
Property, plant and equipment represent a significant proportion of the asset base of the Group. The charge in respect of periodic depreciation is derived after determining an estimate of an asset’s expected useful life and the expected residual value at the end of its life. The useful lives and residual values of Group's assets are determined by management at the time the asset is acquired and reviewed periodically, including at each financial year end. The lives are based on historical experience with similar assets as well as anticipation of future events, which may impact their life, such as changes in technology (Refer to Note no 2.2).
e. Impairment of Goodwill
Goodwill is tested for impairment on an annual basis and whenever there is an indication that the recoverable amount of a cash generating unit (CGUs) is less than its carrying amount based on a number of factors including operating results, business plans, future cash flows and economic conditions. The recoverable amount of CGUs is determined based on higher of value-in-use and fair value less cost to sell. The goodwill impairment test is performed at the level of the CGU or groups of cash-generating units which are benefiting from the synergies of the acquisition and which represents the lowest level at which goodwill is monitored for internal management purposes.
Market related information and estimates are used to determine the recoverable amount. Key assumptions on which management has based its determination of recoverable amount include estimated long term growth rates, weighted average cost of capital and estimated operating margins. Cash flow projections take into account past experience and represent management’s best estimate about future developments (Refer to Note no 2.3).
f. Non-current assets and Disposal Group held for sale
Assets and liabilities of Disposal Groups held for sale are measured at the lower of carrying amount and fair value less costs to sell. The determination of fair value less costs to sell includes use of management estimates and assumptions. The fair value of the Disposal Groups have been estimated using valuation techniques (including income and market approach) which includes unobservable inputs (Refer to Note no 2.1).
2.1 BUSINESS COMBINATIONS AND DISPOSAL GROUP HELD FOR SALE
2.1.1 Business combinations
Accounting policy
Business combinations have been accounted for using the acquisition method under the provisions of Ind AS 103, Business Combinations.
The cost of an acquisition is measured at the fair value of the assets transferred, equity instruments issued and liabilities incurred or assumed at the date of acquisition, which is the date on which control is transferred to the Group. The cost of acquisition also includes the fair value of any contingent consideration. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value on the date of acquisition.
Business combinations between entities under common control is accounted for at carrying value.
Transaction costs that the Group incurs in connection with a business combination such as finder’s fees, legal fees, due diligence fees, and other professional and consulting fees are expensed as incurred.
Brilliant Basics Holdings Limited.
On September 8, 2017, Infosys acquired 100% of the voting interests in Brilliant Basics Holdings Limited., UK, (Brilliant Basics) a product design and customer experience innovator with experience in executing global programs. The business acquisition was conducted by entering into a share purchase agreement for cash consideration of 29 crore, a contingent consideration of up to 20 crore and an additional consideration of upto 13 crore, referred to as retention bonus, payable to the employees of Brilliant Basics at each anniversary year over the next two years, subject to their continuous employment with the group at each anniversary.
The payment of contingent consideration to sellers of Brilliant Basics is dependent upon the achievement of certain financial targets by Brilliant Basics over a period of 3 years ending on March 2020.
The fair value of contingent consideration is determined by discounting the estimated amount payable to the sellers of Brilliant Basics on achievement of certain financial targets. The key inputs used in determination of the fair value of contingent consideration are the discount rate of 10% and the probabilities of achievement of the financial targets.
The excess of the purchase consideration paid over the fair value of assets acquired has been attributed to goodwill.
The purchase price has been allocated based on the management’s estimates and independent appraisal of fair values as follows:
(In crore)
Component | Acquiree's carrying amount | Fair value adjustments | Purchase price allocated |
Net assets(*) | 1 | – | 1 |
Intangible assets - customer relationships | – | 12 | 12 |
Deferred tax liabilities on intangible assets | – | (2) | (2) |
1 | 10 | 11 | |
Goodwill | 35 | ||
Total purchase price | 46 |
*Includes cash and cash equivalents acquired of 2 crore
The goodwill is not tax deductible.
The gross amount of trade receivables acquired and its fair value is 3 crore and the amount has been largely recovered.
The fair value of each major class of consideration as at the acquisition date is as follows:
(In crore)
Component | Consideration settled |
Cash paid | 29 |
Fair value of contingent consideration | 17 |
Total purchase price | 46 |
The transaction costs of 2 crore related to the acquisition have been included under administrative expenses in the statement of profit and loss for the year ended March 31, 2018.
Wongdoody Holding Company Inc
On May 22, 2018, Infosys acquired 100% of the voting interests in WongDoody Holding Company Inc., (WongDoody) an US-based, full-service creative and consumer insights agency. The business acquisition was conducted by entering into a share purchase agreement for a total consideration of up to $75 million (approximately 514 crore on acquisition date), which includes a cash consideration of $38 million (approximately 261 crore), contingent consideration of up to $28 million(approximately 192 crore on acquisition date) and an additional consideration of up to $9 million (approximately 61 crore on acquisition date), referred to as retention bonus, payable to the employees of WongDoody over the next three years, subject to their continuous employment with the group.
WongDoody, brings to Infosys the creative talent and marketing and brand engagement expertise. Further the acquisition is expected to strengthen Infosys’ creative, branding and customer experience capabilities to bring innovative thinking, talent and creativity to clients.
The purchase price has been allocated based on management’s estimates and independent appraisal of fair values as follows:
(in crore)
Component | Acquiree's carrying amount | Fair value adjustments | Purchase price allocated |
Net assets(*) | 37 | – | 37 |
Intangible assets - customer relationships | – | 132 | 132 |
Intangible assets - trade name | – | 8 | 8 |
37 | 140 | 177 | |
Goodwill | 173 | ||
Total purchase price | 350 |
* Includes cash and cash equivalents acquired of 51 crore.
Goodwill is tax deductible
The fair value of each major class of consideration as of the acquisition date is as follows:
(in crore)
Component | Consideration settled |
Cash consideration | 261 |
Fair value of contingent consideration | 89 |
Total purchase price | 350 |
The gross amount of trade receivables acquired and its fair value is 12 crore and the amounts are substantially collected.
The payment of contingent consideration to sellers of WondDoody is dependent upon the achievement of certain financial targets by WongDoody. At the acquisition date, the key inputs used in determination of the fair value of contingent consideration are the discount rate of 16% and the probabilities of achievement of the financial targets. The undiscounted value of contingent consideration as of June 30, 2018 is 119 crore ($17 million).
The transaction costs of 3 crore related to the acquisition have been included under administrative expenses in the statement of profit and loss for the three months ended June 30, 2018.
2.1.2. Disposal group held for sale
Accounting policy
Non current assets and Disposal Groups are classified as held for sale if their carrying amount is intended to be recovered principally through sale rather than through continuing use. The condition for classification of held for sale is met when the non current asset or the Disposal Group is available for immediate sale and the same is highly probable of being completed within one year from the date of classification as held for sale. Non current assets and Disposal Groups held for sale are measured at the lower of carrying amount and fair value less cost to sell.
"In the quarter ended March 2018, on conclusion of a strategic review of the portfolio businesses, the Company had initiated identification and evaluation of potential buyers for its subsidiaries, Kallidus and Skava (together referred to as ""Skava”) and Panaya (collectively referred to as the “Disposal Group”). The Company anticipates completion of the sale by March 2019. On reclassification, assets and liabilities in respect of the Disposal Group had been reclassified as “held for sale"" and measured at the lower of carrying amount and fair value less cost to sell. Consequently, a reduction in the fair value of Disposal Group held for sale amounting to 118 crore in respect of Panaya had been recognized in the Consolidated Profit and Loss for the year ended March 31, 2018.
During the three months ended June 30, 2018, on remeasurement, including consideration of progress in negotiations on offers from prospective buyers for Panaya, the Company has recorded a reduction in the fair value of Disposal Group held for sale amounting to 270 crore in respect of Panaya.
As of June 30, 2018 assets amounting to 1,867 crore and liabilities amounting to 345 crore in respect of the Disposal Group have been classified as “held for sale"".
The Disposal Group does not constitute a separate major component of the Company and therefore has not been classified as discontinued operations."
2.2 PROPERTY, PLANT AND EQUIPMENT
Accounting policy
Property, plant and equipment are stated at cost, less accumulated depreciation and impairment, if any. Costs directly attributable to acquisition are capitalized until the property, plant and equipment are ready for use, as intended by management. The Group depreciates property, plant and equipment over their estimated useful lives using the straight-line method. The estimated useful lives of assets are as follows:
Buildings (1) | 22-25 years |
Plant and machinery (1) | 5 years |
Office equipment | 5 years |
Computer equipment (1) | 3-5 years |
Furniture and fixtures (1) | 5 years |
Vehicles(1) | 5 years |
Leasehold improvements | Over lease term |
(1) | Based on technical evaluation, the management believes that the useful lives as given above best represent the period over which management expects to use these assets. Hence, the useful lives for these assets is different from the useful lives as prescribed under Part C of Schedule II of the Companies Act 2013. |
Depreciation methods, useful lives and residual values are reviewed periodically, including at each financial year end.
Advances paid towards the acquisition of property, plant and equipment outstanding at each Balance Sheet date is classified as capital advances under other non-current assets and the cost of assets not ready to use before such date are disclosed under ‘Capital work-in-progress’. Subsequent expenditures relating to property, plant and equipment is capitalized only when it is probable that future economic benefits associated with these will flow to the Group and the cost of the item can be measured reliably. Repairs and maintenance costs are recognized in the Consolidated Statement of Profit and Loss when incurred. The cost and related accumulated depreciation are eliminated from the financial statements upon sale or retirement of the asset and the resultant gains or losses are recognized in the Consolidated Statement of Profit and Loss.
Impairment
Property, plant and equipment are evaluated for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. For the purpose of impairment testing, the recoverable amount (i.e. the higher of the fair value less cost to sell and the value-in-use) is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. In such cases, the recoverable amount is determined for the Cash Generating Unit (CGU) to which the asset belongs.
If such assets are considered to be impaired, the impairment to be recognized in the Consolidated Statement of Profit and Loss is measured by the amount by which the carrying value of the assets exceeds the estimated recoverable amount of the asset. An impairment loss is reversed in the Consolidated Statement of Profit and Loss if there has been a change in the estimates used to determine the recoverable amount. The carrying amount of the asset is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined (net of any accumulated depreciation) had no impairment loss been recognized for the asset in prior years.
The changes in the carrying value of property, plant and equipment for the three months ended June 30, 2018 are as follows:
(In crore)
Particulars | Land- Freehold | Land- Leasehold | Buildings (1) | Plant and machinery | Office Equipment | Computer equipment | Furniture and fixtures | Leasehold Improvements | Vehicles | Total |
Gross carrying value as at April 1, 2018 | 1,229 | 673 | 8,130 | 2,306 | 1,002 | 4,884 | 1,393 | 531 | 31 | 20,179 |
Additions | 67 | – | 89 | 22 | 12 | 232 | 29 | 9 | 2 | 462 |
Additions - Business Combination | – | – | – | – | 2 | 1 | 2 | 2 | – | 7 |
Deletions | – | (21) | – | (1) | (5) | (13) | (5) | (2) | – | (47) |
Translation difference | – | – | 1 | – | – | (2) | (2) | 1 | – | (2) |
Gross carrying value as at June 30, 2018 | 1,296 | 652 | 8,220 | 2,327 | 1,011 | 5,102 | 1,417 | 541 | 33 | 20,599 |
Accumulated depreciation as at April 1, 2018 | – | (31) | (2,719) | (1,597) | (719) | (3,632) | (1,017) | (330) | (18) | (10,063) |
Depreciation | – | (1) | (75) | (73) | (31) | (174) | (43) | (19) | (1) | (417) |
Accumulated depreciation on deletions | – | – | – | 1 | 5 | 13 | 5 | 1 | – | 25 |
Translation difference | – | – | – | – | – | 2 | 2 | – | – | 4 |
Accumulated depreciation as at June 30, 2018 | – | (32) | (2,794) | (1,669) | (745) | (3,791) | (1,053) | (348) | (19) | (10,451) |
Carrying value as at June 30, 2018 | 1,296 | 620 | 5,426 | 658 | 266 | 1,311 | 364 | 193 | 14 | 10,148 |
Carrying value as at April 1, 2018 | 1,229 | 642 | 5,411 | 709 | 283 | 1,252 | 376 | 201 | 13 | 10,116 |
The changes in the carrying value of property, plant and equipment for the three months ended June 30, 2017 were as follows:
(In crore)
Particulars | Land- Freehold | Land- Leasehold | Buildings (1) | Plant and machinery | Office Equipment | Computer equipment | Furniture and fixtures | Leasehold Improvements | Vehicles | Total |
Gross carrying value as at April 1, 2017 | 1,095 | 671 | 7,279 | 2,048 | 922 | 4,540 | 1,277 | 469 | 31 | 18,332 |
Additions | – | – | 52 | 31 | 24 | 159 | 24 | 19 | 1 | 310 |
Deletions | – | – | – | (1) | (1) | (31) | (1) | (1) | (2) | (37) |
Translation difference | – | – | 10 | 1 | 1 | 5 | 1 | 4 | – | 22 |
Gross carrying value as of June 30, 2017 | 1,095 | 671 | 7,341 | 2,079 | 946 | 4,673 | 1,301 | 491 | 30 | 18,627 |
Accumulated depreciation as at April 1, 2017 | – | (27) | (2,440) | (1,337) | (599) | (3,053) | (869) | (239) | (17) | (8,581) |
Depreciation | – | (1) | (67) | (66) | (33) | (169) | (40) | (24) | (1) | (401) |
Accumulated depreciation on deletions | – | – | – | – | 1 | 31 | 1 | 1 | 1 | 35 |
Translation difference | – | – | – | – | (1) | (4) | (1) | (3) | – | (9) |
Accumulated depreciation as of June 30, 2017 | – | (28) | (2,507) | (1,403) | (632) | (3,195) | (909) | (265) | (17) | (8,956) |
Carrying value as of June 30, 2017 | 1,095 | 643 | 4,834 | 676 | 314 | 1,478 | 392 | 226 | 13 | 9,671 |
Carrying value as of April 1, 2017 | 1,095 | 644 | 4,839 | 711 | 323 | 1,487 | 408 | 230 | 14 | 9,751 |
The changes in the carrying value of property, plant and equipment for the year ended March 31, 2018 were as follows:
(In crore)
Particulars | Land- Freehold | Land- Leasehold | Buildings (1) | Plant and machinery | Office Equipment | Computer equipment | Furniture and fixtures | Leasehold Improvements | Vehicles | Total |
Gross carrying value as at April 1, 2017 | 1,095 | 671 | 7,279 | 2,048 | 922 | 4,540 | 1,277 | 469 | 31 | 18,332 |
Additions | 134 | 2 | 789 | 264 | 86 | 471 | 130 | 74 | 5 | 1,955 |
Deletions | – | – | (1) | (8) | (8) | (109) | (10) | (12) | (5) | (153) |
Reclassified as assets held for sale (refer note no 2.1.2) | – | – | – | (1) | (2) | (40) | (8) | (17) | – | (68) |
Translation difference | – | – | 63 | 3 | 4 | 22 | 4 | 17 | – | 113 |
Gross carrying value as at March 31, 2018 | 1,229 | 673 | 8,130 | 2,306 | 1,002 | 4,884 | 1,393 | 531 | 31 | 20,179 |
Accumulated depreciation as at April 1, 2017 | – | (27) | (2,440) | (1,337) | (599) | (3,053) | (869) | (239) | (17) | (8,581) |
Depreciation | – | (4) | (276) | (266) | (125) | (693) | (160) | (105) | (5) | (1,634) |
Accumulated depreciation on deletions | – | – | – | 7 | 6 | 107 | 9 | 11 | 4 | 144 |
Reclassified as assets held for sale (refer note no 2.1.2) | – | – | – | 1 | 1 | 25 | 5 | 15 | – | 47 |
Translation difference | – | – | (3) | (2) | (2) | (18) | (2) | (12) | – | (39) |
Accumulated depreciation as at March 31, 2018 | – | (31) | (2,719) | (1,597) | (719) | (3,632) | (1,017) | (330) | (18) | (10,063) |
Carrying value as at March 31, 2018 | 1,229 | 642 | 5,411 | 709 | 283 | 1,252 | 376 | 201 | 13 | 10,116 |
Carrying value as at April 1, 2017 | 1,095 | 644 | 4,839 | 711 | 323 | 1,487 | 408 | 230 | 14 | 9,751 |
Notes: | (1) | Buildings include 250/- being the value of 5 shares of 50/- each in Mittal Towers Premises Co-operative Society Limited. |
Gross carrying value of lease hold land represents amounts paid under certain lease-cum-sale agreements to acquire land including agreements where the Company has an option to purchase or renew the properties on expiry of the lease period.
The aggregate depreciation has been included under depreciation and amortisation expense in the consolidated Statement of Profit and Loss.
2.3 GOODWILL AND OTHER INTANGIBLE ASSETS
2.3.1 Goodwill
Accounting policy
Goodwill represents the cost of business acquisition in excess of the Group's interest in the net fair value of identifiable assets, liabilities and contingent liabilities of the acquiree. When the net fair value of the identifiable assets, liabilities and contingent liabilities acquired exceeds the cost of business acquisition, the bargain purchase excess is recognized after reassessing the fair value of net assets acquired in the capital reserve. Goodwill is measured at cost less accumulated impairment losses.
Impairment
Goodwill is tested for impairment on an annual basis and whenever there is an indication that goodwill may be impaired, relying on a number of factors including operating results, business plans and future cash flows. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to the Group's cash generating units (CGU) or groups of CGU’s expected to benefit from the synergies arising from the business combination. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets. Impairment occurs when the carrying amount of a CGU including the goodwill, exceeds the estimated recoverable amount of the CGU. The recoverable amount of a CGU is the higher of its fair value less cost to sell and its value-in-use. Value-in-use is the present value of future cash flows expected to be derived from the CGU.
Total impairment loss of a CGU is allocated first to reduce the carrying amount of goodwill allocated to the CGU and then to the other assets of the CGU pro-rata on the basis of the carrying amount of each asset in the CGU. An impairment loss on goodwill is recognized in net profit in the Consolidated Statement of Profit and Loss and is not reversed in the subsequent period.
A summary of changes in the carrying amount of goodwill is as follows:
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Carrying value at the beginning | 2,211 | 3,652 |
Goodwill on Brilliant Basics acquisition (refer note no. 2.1) | – | 35 |
Goodwill on WongDoody acquisition (refer note no. 2.1) | 173 | – |
Goodwill reclassified under assets held for sale (refer note no 2.1.2) | – | (1,609) |
Translation differences | 10 | 133 |
Carrying value at the end | 2,394 | 2,211 |
For the purpose of impairment testing, goodwill acquired in a business combination is allocated to the CGU or groups of CGUs, which benefit from the synergies of the acquisition. The chief operating decision maker reviews the goodwill for any impairment at the operating segment level, which is represented through groups of CGUs.
2.3.2 Other intangible assets
Accounting policy
Intangible assets are stated at cost less accumulated amortization and impairment. Intangible assets are amortized over their respective individual estimated useful lives on a straight-line basis, from the date that they are available for use. The estimated useful life of an identifiable intangible asset is based on a number of factors including the effects of obsolescence, demand, competition, and other economic factors (such as the stability of the industry, and known technological advances). Amortization methods and useful lives are reviewed periodically including at each financial year end.
Research costs are expensed as incurred. Software product development costs are expensed as incurred unless technical and commercial feasibility of the project is demonstrated, future economic benefits are probable, the Company has an intention and ability to complete and use or sell the software and the costs can be measured reliably. The costs which can be capitalized include the cost of material, direct labour, overhead costs that are directly attributable to preparing the asset for its intended use.
Impairment
Intangible assets are evaluated for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. For the purpose of impairment testing, the recoverable amount (i.e. the higher of the fair value less cost to sell and the value-in-use) is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. In such cases, the recoverable amount is determined for the CGU to which the asset belongs.
If such assets are considered to be impaired, the impairment to be recognized in the Consolidated Statement of Profit and Loss is measured by the amount by which the carrying value of the assets exceeds the estimated recoverable amount of the asset. An impairment loss is reversed in the Consolidated Statement of Profit and Loss if there has been a change in the estimates used to determine the recoverable amount. The carrying amount of the asset is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined (net of any accumulated amortization) had no impairment loss been recognized for the asset in prior years. 4
The changes in the carrying value of acquired intangible assets for the three months ended June 30, 2018 are as follows:
(In crore)
Particulars | Customer related | Software related | Sub-contracting rights related | Intellectual property rights related | Land use- rights related | Brand or Trademark Related | Others | Total |
Gross carrying value as at April 1, 2018 | 445 | 19 | – | – | 73 | 26 | 27 | 590 |
Additions through business combination (refer note no 2.1) | 132 | – | – | – | – | 8 | – | 140 |
Deletions / retirals during the period | – | – | – | – | – | – | – | – |
Translation differences | 6 | 1 | – | – | – | – | – | 7 |
Gross carrying value as at June 30, 2018 | 583 | 20 | – | – | 73 | 34 | 27 | 737 |
Accumulated amortization as at April 1, 2018 | (289) | (19) | – | – | (10) | (12) | (13) | (343) |
Amortization expense | (16) | – | – | – | – | (2) | (1) | (19) |
Deletions / retirals during the period | – | – | – | – | – | – | – | – |
Translation differences | (4) | (1) | – | – | – | – | – | (5) |
Accumulated amortization as at June 30, 2018 | (309) | (20) | – | – | (10) | (14) | (14) | (367) |
Carrying value as at April 1, 2018 | 156 | – | – | – | 63 | 14 | 14 | 247 |
Carrying value as at June 30, 2018 | 274 | – | – | – | 63 | 20 | 13 | 370 |
Estimated Useful Life (in years) | 1–10 | – | – | – | 50 | 5–6 | 5 | |
Estimated Remaining Useful Life (in years) | 0–5 | – | – | – | 43 | 2–6 | 2 |
The changes in the carrying value of acquired intangible assets for the three months ended June 30, 2017 were as follows:
In crore
Particulars | Customer related | Software related | Sub-contracting rights related | Intellectual property rights related | Land use- rights related | Brand or Trademark Related | Others | Total |
Gross carrying value as of April 1, 2017 | 750 | 405 | 21 | 1 | 66 | 90 | 62 | 1,395 |
Additions during the period | – | – | – | – | – | – | – | – |
Deletions during the period | – | – | – | – | – | – | – | – |
Translation difference | 7 | (1) | – | – | 1 | – | – | 7 |
Gross carrying value as of June 30, 2017 | 757 | 404 | 21 | 1 | 67 | 90 | 62 | 1,402 |
Accumulated amortization as of April 1, 2017 | (382) | (121) | (21) | (1) | (7) | (49) | (38) | (619) |
Amortization expense | (22) | (20) | – | – | – | (3) | (4) | (49) |
Deletion during the period | – | – | – | – | – | – | – | – |
Translation differences | (3) | 1 | – | – | – | (2) | – | (4) |
Accumulated amortization as of June 30, 2017 | (407) | (140) | (21) | (1) | (7) | (54) | (42) | (672) |
Carrying value as of April 1, 2017 | 368 | 284 | – | – | 59 | 41 | 24 | 776 |
Carrying value as of June 30, 2017 | 350 | 264 | – | – | 60 | 36 | 20 | 730 |
Estimated Useful Life (in years) | 3–10 | 5–8 | – | – | 50 | 3–10 | 3–5 | |
Estimated Remaining Useful Life (in years) | 1–6 | 3–6 | – | – | 44 | 1–8 | 1–3 |
The changes in the carrying value of acquired intangible assets for the year ended March 31, 2018 were as follows:
(In crore)
Particulars | Customer related | Software related | Sub-contracting rights related | Intellectual property rights related | Land use- rights related | Brand or Trademark Related | Others | Total |
Gross carrying value as at April 1, 2017 | 750 | 405 | 21 | 1 | 66 | 90 | 62 | 1,395 |
Additions through business combination (refer note no 2.1) | 12 | – | – | – | – | – | – | 12 |
Deletions / retirals during the period | (172) | – | (21) | – | – | (29) | (35) | (257) |
Reclassified under assets held for sale (refer note no 2.1.2) | (157) | (388) | – | (1) | – | (37) | – | (583) |
Translation differences | 12 | 2 | – | – | 7 | 2 | – | 23 |
Gross carrying value as at March 31, 2018 | 445 | 19 | – | – | 73 | 26 | 27 | 590 |
Accumulated amortization as at April 1, 2017 | (382) | (121) | (21) | (1) | (7) | (49) | (38) | (619) |
Amortization expense | (127) | (79) | – | – | (1) | (12) | (10) | (229) |
Deletions / retirals during the period | 172 | – | 21 | – | – | 29 | 35 | 257 |
Reclassified under assets held for sale (refer note no 2.1.2) | 56 | 182 | – | 1 | – | 21 | – | 260 |
Translation differences | (8) | (1) | – | – | (2) | (1) | – | (12) |
Accumulated amortization as at March 31, 2018 | (289) | (19) | – | – | (10) | (12) | (13) | (343) |
Carrying value as at April 1, 2017 | 368 | 284 | – | – | 59 | 41 | 24 | 776 |
Carrying value as at March 31, 2018 | 156 | – | – | – | 63 | 14 | 14 | 247 |
Estimated Useful Life (in years) | 2–10 | – | – | – | 50 | 5 | 5 | |
Estimated Remaining Useful Life (in years) | 1–5 | – | – | – | 43 | 3 | 3 |
The amortization expense has been included under depreciation and amortization expense in the consolidated Statement of Profit and Loss.
Research and Development Expenditure
Research and development expense recognized in net profit in the consolidated Statement of Profit and Loss for the three months ended June 30, 2018 and June 30, 2017 was 187 crore and 198 crore respectively.
2.4 INVESTMENTS
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Non-current | ||
Unquoted | ||
Investments carried at fair value through other comprehensive income (refer note no. 2.4.1) | ||
Preference securities | 132 | 116 |
Equity instruments | 22 | 22 |
154 | 138 | |
Investments carried at fair value through profit or loss (refer note no. 2.4.1) | ||
Convertible promissory note | 11 | 12 |
Others | 66 | 66 |
77 | 78 | |
Quoted | ||
Investments carried at amortized cost (refer note no. 2.4.2) | ||
Tax free bonds | 1,895 | 1,896 |
1,895 | 1,896 | |
Investments carried at fair value through profit or loss (refer note no. 2.4.3) | ||
Fixed maturity plan securities | 431 | 429 |
431 | 429 | |
Investments carried at fair value through other comprehensive income (refer note no. 2.4.4) | ||
Non convertible debentures | 3,066 | 3,215 |
3,066 | 3,215 | |
Total non-current investments | 5,623 | 5,756 |
Current | ||
Unquoted | ||
Investments carried at fair value through profit or loss (refer note no. 2.4.3) | ||
Liquid mutual fund units | 1,535 | 81 |
1,535 | 81 | |
Investments carried at fair value through other comprehensive income | ||
Commercial Paper (refer note no. 2.4.4) | 299 | 293 |
Certificates of deposit (refer note no. 2.4.4) | 4,539 | 5,269 |
4,838 | 5,562 | |
Quoted | ||
Investment carried at amortized cost (refer note no.2.4.2) | ||
Government Bonds | 17 | 1 |
17 | 1 | |
Investments carried at fair value through other comprehensive income (refer note no. 2.4.4) | ||
Non-convertible debentures | 486 | 763 |
486 | 763 | |
Total current investments | 6,876 | 6,407 |
Total investments | 12,499 | 12,163 |
Aggregate amount of quoted investments | 5,895 | 6,304 |
Market value of quoted investments (including interest accrued) | 6,170 | 6,568 |
Aggregate amount of unquoted investments | 6,604 | 5,859 |
Aggregate amount of impairment made for non-current unquoted investments (including investment in associate) | – | 89 |
Investments carried at amortized cost | 1,912 | 1,897 |
Investments carried at fair value through other comprehensive income | 8,544 | 9,678 |
Investments carried at fair value through profit or loss | 2,043 | 588 |
Uncalled capital commitments outstanding as at June 30, 2018 and March 31, 2018 was 67 crore and 81 crore, respectively.
Refer to Note no 2.10 for Accounting policies on Financial Instruments.
Details of amounts recorded in Other comprehensive income:
(In crore)
Three months ended June 30, 2018 | Three months ended June 30, 2017 | |||||
Gross | Tax | Net | Gross | Tax | Net | |
Net Gain/(loss) on | ||||||
Non-convertible debentures | (36) | 4 | (32) | 30 | (2) | 28 |
Certificates of deposit | (20) | 7 | (13) | (1) | – | (1) |
Equity and preference securities | 5 | (1) | 4 | – | – | – |
Method of fair valuation:
(In crore)
Class of investment | Method | Fair value as at | |
June 30, 2018 | March 31, 2018 | ||
Liquid mutual fund units | Quoted price | 1,535 | 81 |
Fixed maturity plan securities | Market observable inputs | 431 | 429 |
Tax free bonds and government bonds | Quoted price and market observable inputs | 2,144 | 2,151 |
Non-convertible debentures | Quoted price and market observable inputs | 3,552 | 3,978 |
Commercial Papers | Market observable inputs | 299 | 293 |
Certificate of deposits | Market observable inputs | 4,539 | 5,269 |
Unquoted equity and preference securities | Discounted cash flows method, Market multiples method, Option pricing model, etc. | 154 | 138 |
Unquoted convertible promissory note | Discounted cash flows method, Market multiples method, Option pricing model, etc. | 11 | 12 |
Others | Discounted cash flows method, Market multiples method, Option pricing model, etc. | 66 | 66 |
Note: Certain quoted investments are classified as Level 2 in the absence of active market for such investments.
2.4.1 Details of investments
The details of investments in preference securities, equity instruments and others as at June 30, 2018 and March 31, 2018 are as follows:
(In crore, except otherwise stated)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Preference securities | ||
Airviz Inc. | 6 | 6 |
2,82,279 (2,82,279) Series A Preferred Stock, fully paid up, par value USD 0.001 each | ||
Whoop Inc | 21 | 20 |
16,48,352 (16,48,352) Series B Preferred Stock, fully paid up, par value USD 0.0001 each | ||
CloudEndure Ltd. | 28 | 26 |
25,59,290 (25,59,290) Series B Preferred Shares, fully paid up, par value ILS 0.01 each | ||
Nivetti Systems Private Limited | 10 | 10 |
2,28,501 (2,28,501) Preferred Stock, fully paid up, par value 1/- each | ||
Waterline Data Science, Inc | 35 | 23 |
39,33,910 (39,33,910) Series B Preferred Shares, fully paid up, par value USD 0.00001 each | ||
13,35,707 (Nil) Series C Preferred Shares, fully paid up, par value USD 0.00001 each | ||
Trifacta Inc. | 22 | 21 |
11,80,358 (11,80,358) Series C-1 Preferred Stock | ||
Ideaforge | ||
5,402 (5,402) Series A compulsorily convertible cumulative Preference shares of 10 each, fully paid up | 10 | 10 |
Total investment in preference securities | 132 | 116 |
Equity Instruments | ||
Merasport Technologies Private Limited | – | – |
2,420 (2,420) equity shares at 8,052 each, fully paid up, par value 10/- each | ||
Global Innovation and Technology Alliance | 1 | 1 |
15,000 (15,000) equity shares at 1,000 each, fully paid up, par value 1,000/- each | ||
Unsilo A/S | 21 | 21 |
69,894 (69,894) Equity Shares, fully paid up, par value DKK 1 each | ||
Ideaforge | ||
100 (100) equity shares at 10/-, fully paid up | – | – |
Total investment in equity instruments | 22 | 22 |
Others | ||
Stellaris Venture Partners India | 7 | 7 |
Vertex Ventures US Fund L.L.P | 59 | 59 |
Total investment in others | 66 | 66 |
Convertible promissory note | ||
Tidalscale | 11 | 12 |
Total investment in convertible promissory note | 11 | 12 |
Total | 231 | 216 |
2.4.2 Details of investments in tax free bonds and government bonds
The balances held in tax free bonds as at June 30, 2018 and March 31, 2018 are as follows:
(In crore, except as otherwise stated)
Particulars | Face Value | As at June 30, 2018 | As at March 31, 2018 | ||
Units | Amount | Units | Amount | ||
7.04% Indian Railway Finance Corporation Limited Bonds 03MAR2026 | 10,00,000/– | 470 | 50 | 470 | 50 |
7.16% Power Finance Corporation Limited Bonds 17JUL2025 | 10,00,000/– | 1,000 | 106 | 1,000 | 106 |
7.18% Indian Railway Finance Corporation Limited Bonds 19FEB2023 | 1,000/– | 20,00,000 | 201 | 20,00,000 | 201 |
7.28% Indian Railway Finance Corporation Limited Bonds 21DEC2030 | 1,000/– | 4,22,800 | 42 | 4,22,800 | 42 |
7.28% National Highways Authority of India Limited Bonds 18SEP2030 | 10,00,000/– | 3,300 | 343 | 3,300 | 343 |
7.34% Indian Railway Finance Corporation Limited Bonds 19FEB2028 | 1,000/– | 21,00,000 | 211 | 21,00,000 | 211 |
7.35% National Highways Authority of India Limited Bonds 11JAN2031 | 1,000/– | 5,71,396 | 57 | 5,71,396 | 57 |
7.93% Rural Electrification Corporation Limited Bonds 27MAR2022 | 1,000/– | 2,00,000 | 20 | 2,00,000 | 21 |
8.00% Indian Railway Finance Corporation Limited Bonds 23FEB2022 | 1,000/– | 1,50,000 | 15 | 1,50,000 | 15 |
8.10% Indian Railway Finance Corporation Limited Bonds 23FEB2027 | 1,000/– | 5,00,000 | 52 | 5,00,000 | 52 |
8.20% Power Finance Corporation Limited Bonds 01FEB2022 | 1,000/– | 5,00,000 | 50 | 5,00,000 | 50 |
8.26% India Infrastructure Finance Company Limited Bonds 23AUG2028 | 10,00,000/– | 1,000 | 100 | 1,000 | 100 |
8.30% National Highways Authority of India Limited 'Bonds 25JAN2027 | 1,000/– | 5,00,000 | 53 | 5,00,000 | 53 |
8.35% National Highways Authority of India Limited Bonds 22NOV2023 | 10,00,000/– | 1,500 | 150 | 1,500 | 150 |
8.46% India Infrastructure Finance Company Limited Bonds 30AUG2028 | 10,00,000/– | 2,000 | 200 | 2,000 | 200 |
8.46% Power Finance Corporation Limited Bonds 30AUG2028 | 10,00,000/– | 1,500 | 150 | 1,500 | 150 |
8.48% India Infrastructure Finance Company Limited Bonds 05SEP2028 | 10,00,000/– | 450 | 45 | 450 | 45 |
8.54% Power Finance Corporation Limited Bonds 16NOV2028 | 1,000/– | 5,00,000 | 50 | 5,00,000 | 50 |
Total investments in tax-free bonds | 1,895 | 1,896 |
The balances held in government bonds as at June 30, 2018 and March 31, 2018 are as follows:
(In crore, except as otherwise stated)
Particulars | Face Value PHP | As at June 30, 2018 | As at March 31, 2018 | ||
Units | Amount | Units | Amount | ||
Treasury Notes Phillippines Govt. 29MAY2019 | 100 | 45,000 | 6 | – | – |
Treasury Notes PIBL1217E082 MAT DATE 09 May 2018 | 100 | – | – | 1,00,000 | 1 |
Treasury Notes Phillippines Govt. 17APRIL2019 | 100 | 95,000 | 11 | – | – |
Total investments in government bonds | 17 | 1 |
2.4.3 Details of investments in liquid mutual fund units and fixed maturity plan securities
The balances held in liquid mutual fund units as at June 30, 2018 and March 31, 2018 are as follows:
(In crore, except as otherwise stated)
Particulars | As at June 30, 2018 | As at March 31, 2018 | ||
Units | Amount | Units | Amount | |
Aditya Birla Sun liquid fund - Growth-Direct Plan | 1,30,21,104 | 305 | 16,31,554 | 45 |
HDFC Liquid Fund- Direc Plan- Growth Option | 8,90,226 | 310 | – | – |
ICICI Prudential Liquid- Direct Plan- Growth | 1,08,96,241 | 285 | 13,65,687 | 36 |
Kotak Low Duration Fund- Direct Plan- Growth (Ultra Short Term) | 9,07,213 | 325 | – | – |
Reliance Liquid Fund Direct Plan- Growth Option | 7,18,689 | 310 | – | – |
Total investments in liquid mutual fund units | 1,535 | 81 |
The balances held in fixed maturity plan securities as at June 30, 2018 and March 31, 2018 are as follows:
(In crore, except as otherwise stated)
Particulars | As at June 30, 2018 | As at March 31, 2018 | ||
Units | Amount | Units | Amount | |
Aditya Birla Sun Life Fixed Term Plan- Series OD 1145 Days- GR Direct | 6,00,00,000 | 65 | 6,00,00,000 | 65 |
Aditya Birla Sun Life Fixed Term Plan- Series OE 1153 Days- GR Direct | 2,50,00,000 | 27 | 2,50,00,000 | 27 |
HDFC FMP 1155D Feb 2017- Direct Growth- Series 37 | 3,80,00,000 | 41 | 3,80,00,000 | 41 |
HDFC FMP 1169D Feb 2017- Direct- Quarterly Dividend- Series 37 | 4,50,00,000 | 45 | 4,50,00,000 | 45 |
ICICI FMP Series 80-1194 D Plan F Div | 5,50,00,000 | 59 | 5,50,00,000 | 59 |
ICICI Prudential Fixed Maturity Plan Series 80- 1187 Days Plan G Direct Plan | 4,20,00,000 | 45 | 4,20,00,000 | 45 |
ICICI Prudential Fixed Maturity Plan Series 80- 1253 Days Plan J Direct Plan | 3,00,00,000 | 32 | 3,00,00,000 | 32 |
IDFC Fixed Term Plan Series 129 Direct Plan- Growth 1147 Days | 1,00,00,000 | 11 | 1,00,00,000 | 11 |
IDFC Fixed Term Plan Series 131 Direct Plan- Growth 1139 Days | 1,50,00,000 | 16 | 1,50,00,000 | 16 |
Kotak FMP Series 199 Direct- Growth | 3,50,00,000 | 38 | 3,50,00,000 | 37 |
Reliance Fixed Horizon Fund- XXXII Series 8- Dividend Plan | 5,00,00,000 | 52 | 5,00,00,000 | 51 |
Total investments in fixed maturity plan securities | 431 | 429 |
2.4.4 Details of investments in non-convertible debentures, certificates of deposit and commercial paper
The balances held in non-convertible debenture units as at June 30, 2018 and March 31, 2018 is as follows:
(In crore, except as otherwise stated)
Particulars | As at June 30, 2018 | As at March 31, 2018 | |||
Face Value | Units | Amount | Units | Amount | |
7.48% Housing Development Finance Corporation Ltd 18NOV2019 | 1,00,00,000/– | 50 | 52 | 50 | 51 |
7.58% LIC Housing Finance Ltd 28FEB2020 | 10,00,000/– | 1,000 | 101 | 1,000 | 101 |
7.58% LIC Housing Finance Ltd 11JUN2020 | 10,00,000/– | 500 | 52 | 500 | 52 |
7.59% LIC Housing Finance Ltd 14OCT2021 | 10,00,000/– | 3,000 | 306 | 3,000 | 306 |
7.75% LIC Housing Finance Ltd 27AUG2021 | 10,00,000/– | 1,250 | 129 | 1,250 | 129 |
7.78% Housing Development Finance Corporation Ltd 24MAR2020 | 1,00,00,000/– | 100 | 101 | 100 | 99 |
7.79% LIC Housing Finance Ltd 19JUN2020 | 10,00,000/– | 500 | 49 | 500 | 53 |
7.80% Housing Development Finance Corporation Ltd 11NOV2019 | 1,00,00,000/– | 150 | 156 | 150 | 153 |
7.81% LIC Housing Finance Ltd 27APR2020 | 10,00,000/– | 2,000 | 200 | 2,000 | 214 |
7.95% Housing Development Finance Corporation Ltd 23SEP2019 | 1,00,00,000/– | 50 | 53 | 50 | 53 |
8.02% LIC Housing Finance Ltd 18FEB2020 | 10,00,000/– | 500 | 51 | 500 | 50 |
8.26% Housing Development Finance Corporation Ltd 12AUG2019 | 1,00,00,000/– | 100 | 107 | 100 | 105 |
8.34% Housing Development Finance Corporation Ltd 06MAR2019 | 1,00,00,000/– | 200 | 202 | 200 | 215 |
8.37% LIC Housing Finance Ltd 03OCT2019 | 10,00,000/– | 2,000 | 202 | 2,000 | 216 |
8.37% LIC Housing Finance Ltd 10MAY2021 | 10,00,000/– | 500 | 50 | 500 | 54 |
8.43% IDFC Bank Ltd 30JAN2018 | 10,00,000/– | – | – | – | – |
8.46% Housing Development Finance Corporation Ltd 11MAR2019 | 1,00,00,000/– | 50 | 50 | 50 | 54 |
8.47% LIC Housing Finance Ltd 21JAN2020 | 10,00,000/– | 500 | 52 | 500 | 51 |
8.49% Housing Development Finance Corporation Ltd 27APR2020 | 5,00,000/– | 900 | 45 | 900 | 49 |
8.50% Housing Development Finance Corporation Ltd 31AUG2020 | 1,00,00,000/– | 100 | 106 | 100 | 108 |
8.54% IDFC Bank Ltd 30MAY2018 | 10,00,000/– | – | – | 1,500 | 194 |
8.59% Housing Development Finance Corporation Ltd 14JUN2019 | 1,00,00,000/– | 50 | 52 | 50 | 51 |
8.60% LIC Housing Finance Ltd 22JUL2020 | 10,00,000/– | 1,000 | 107 | 1,000 | 107 |
8.60% LIC Housing Finance Ltd 29JUL2020 | 10,00,000/– | 1,750 | 189 | 1,750 | 188 |
8.61% LIC Housing Finance Ltd 11DEC2019 | 10,00,000/– | 1,000 | 105 | 1,000 | 104 |
8.66% IDFC Bank Ltd 25JUN2018 | 10,00,000/– | – | – | 1520 | 196 |
8.66% IDFC Bank Ltd 27DEC2018 | 10,00,000/– | 400 | 53 | 400 | 52 |
8.72% Housing Development Finance Corporation Ltd 15APR2019 | 1,00,00,000/– | 75 | 77 | 75 | 76 |
8.75% Housing Development Finance Corporation Ltd 13JAN2020 | 5,00,000/– | 5,000 | 260 | 5,000 | 256 |
8.75% LIC Housing Finance Ltd 14JAN2020 | 10,00,000/– | 1,070 | 111 | 1,070 | 112 |
8.75% LIC Housing Finance Ltd 21DEC2020 | 10,00,000/– | 1,000 | 102 | 1,000 | 102 |
8.97% LIC Housing Finance Ltd 29OCT2019 | 10,00,000/– | 500 | 53 | 500 | 52 |
9.45% Housing Development Finance Corporation Ltd 21AUG2019 | 10,00,000/– | 3,000 | 327 | 3,000 | 323 |
9.65% Housing Development Finance Corporation Ltd 19JAN2019 | 10,00,000/– | 500 | 52 | 500 | 52 |
Total investments in non-convertible debentures | 3,552 | 3,978 |
The balances held in certificates of deposit as at June 30, 2018 and March 31, 2018 are as follows:
(In crore, except as otherwise stated)
Particulars | As at June 30, 2018 | As at March 31, 2018 | |||
Face Value | Units | Amount | Units | Amount | |
Axis Bank | 1,00,000/– | 1,58,000 | 1,511 | 2,08,000 | 1,985 |
HDFC Bank | 1,00,000/– | 15,000 | 150 | 15,000 | 147 |
ICICI Bank | 1,00,000/– | 1,26,000 | 1,202 | 1,26,000 | 1,186 |
IndusInd Bank | 1,00,000/– | 1,35,000 | 1,289 | 1,35,000 | 1,271 |
Kotak Bank | 1,00,000/– | 40,000 | 387 | 70,000 | 680 |
Total investments in certificates of deposit | 4,539 | 5,269 |
The balances held in commercial paper as at June 30, 2018 and March 31, 2018 are as follows:
(In crore, except as otherwise stated)
Particulars | As at June 30, 2018 | As at March 31, 2018 | |||
Face Value | Units | Amount | Units | Amount | |
LIC | 5,00,000/– | 6,000 | 299 | 6,000 | 293 |
Total investments in commercial paper | 299 | 293 |
2.5 LOANS
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Non Current | ||
Unsecured, considered good | ||
Other loans | ||
Loans to employees | 28 | 36 |
28 | 36 | |
Unsecured, considered doubtful | ||
Other loans | ||
Loans to employees | 19 | 17 |
47 | 53 | |
Less: Allowance for doubtful loans to employees | 19 | 17 |
Total non-current loans | 28 | 36 |
Current | ||
Unsecured, considered good | ||
Other loans | ||
Loans to employees | 247 | 239 |
Total current loans | 247 | 239 |
Total loans | 275 | 275 |
2.6 OTHER FINANCIAL ASSETS
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Non Current | ||
Security deposits (1) | 54 | 53 |
Rental deposits (1) | 169 | 171 |
Restricted deposits(1) | 30 | 60 |
Total non-current other financial assets | 253 | 284 |
Current | ||
Security deposits (1) | 7 | 9 |
Rental deposits (1) | 30 | 13 |
Restricted deposits (1) | 1,543 | 1,535 |
Unbilled revenues (1)# | 1,615 | 4,261 |
Interest accrued but not due (1) | 751 | 766 |
Foreign currency forward and options contracts (2) (3) | 36 | 16 |
Others (1) | 174 | 84 |
Total current other financial assets | 4,156 | 6,684 |
Total other financial assets | 4,409 | 6,968 |
(1) Financial assets carried at amortized cost | 4,373 | 6,952 |
(2) Financial assets carried at fair value through other comprehensive income | 23 | 12 |
(3) Financial assets carried at fair value through profit or loss | 13 | 4 |
Restricted deposits represent deposits with financial institutions to settle employee-related obligations as and when they arise during the normal course of business.
# Classified as financial asset as right to consideration is unconditional upon passage of time .
2.7 TRADE RECEIVABLES
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Current | ||
Unsecured | ||
Considered good | 13,699 | 13,142 |
Considered doubtful | 434 | 354 |
14,133 | 13,496 | |
Less: Allowances for credit loss | 434 | 354 |
Total trade receivables (1) | 13,699 | 13,142 |
(1) Includes dues from Companies where directors are interested | – | – |
2.8 CASH AND CASH EQUIVALENTS
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Balances with banks | ||
In current and deposit accounts | 9,034 | 13,168 |
Cash on hand | – | – |
Others | ||
Deposits with financial institutions | 7,472 | 6,650 |
Total cash and cash equivalents | 16,506 | 19,818 |
Cash and cash equivalents included under assets classified under held for sale (refer note no 2.1.2) | 74 | 53 |
16,580 | 19,871 | |
Balances with banks in unpaid dividend accounts | 22 | 22 |
Deposit with more than 12 months maturity | 4,974 | 6,332 |
Balances with banks held as margin money deposits against guarantees | 222 | 356 |
Cash and cash equivalents as at June 30, 2018 and March 31, 2018 include restricted cash and bank balances of 433 crore and 533 crore, respectively. The restrictions are primarily on account of cash and bank balances held by irrevocable trusts controlled by the Company, bank balances held as margin money deposits against guarantees and balances held in unpaid dividend bank accounts.
The deposits maintained by the Group with banks and financial institutions comprise of time deposits, which can be withdrawn by the Group at any point without prior notice or penalty on the principal.
The table below provides details of cash and cash equivalents:
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Current accounts | ||
ANZ Bank, Taiwan | 1 | 9 |
Banamex Bank, Mexico | 2 | 2 |
Banamex Bank, Mexico (U.S. Dollar account) | 14 | 13 |
Bank of America, Mexico | 27 | 25 |
Bank of America, USA | 569 | 1,172 |
Bank of Baroda, Mauritius | - | 1 |
Bank of Tokyo-Mitsubishi UFJ Ltd., Japan | 1 | 1 |
Bank Zachodni WBK S.A, Poland | 8 | 17 |
Bank of Phillipines, Manila Island | 1 | - |
Barclays Bank, UK | 42 | 40 |
BNP Paribas Bank, Norway | 52 | 88 |
China Merchants Bank, China | 8 | 6 |
Citibank N.A., Australia | 124 | 223 |
Citibank N.A., Brazil | 16 | 14 |
Citibank N.A., China | 75 | 116 |
Citibank N.A., China (U.S. Dollar account) | 8 | 9 |
Citibank N.A., Costa Rica | 3 | 1 |
Citibank N.A., Dubai | 6 | 6 |
Citibank N.A., EEFC (U.S. Dollar account) | 1 | 4 |
Citibank N.A., Hungary | 8 | 6 |
Citibank N.A., India | 3 | 3 |
Citibank N.A., Japan | 15 | 18 |
Citibank N.A., New Zealand | 6 | 11 |
Citibank N.A., Philippines (U.S. Dollar account) | – | – |
Citibank N.A., Portugal | 8 | 8 |
Citibank N.A., Romania | 4 | 2 |
Citibank N.A., Singapore | 7 | 4 |
Citibank N.A., South Africa | 36 | 33 |
Citibank N.A., South Africa (Euro account) | 1 | 1 |
Citibank N.A., South Korea | 5 | 2 |
Citibank N.A., USA | 4 | 3 |
Danske Bank, Sweden | 1 | 1 |
Deutsche Bank, Belgium | 17 | 27 |
Deutsche Bank, Czech Republic | 5 | 16 |
Deutsche Bank, Czech Republic (Euro account) | 3 | 3 |
Deutsche Bank, Czech Republic (U.S. Dollar account) | 8 | 2 |
Deutsche Bank, EEFC (Australian Dollar account) | 1 | 2 |
Deutsche Bank, EEFC (Euro account) | 36 | 34 |
Deutsche Bank, EEFC (Swiss Franc account) | 2 | 2 |
Deutsche Bank, EEFC (U.S. Dollar account) | 42 | 32 |
Deutsche Bank, EEFC (United Kingdom Pound Sterling account) | 8 | 9 |
Deutsche Bank, France | 6 | 19 |
Deutsche Bank, Germany | 121 | 100 |
Deutsche Bank, Hong Kong | 2 | 1 |
Deutsche Bank, India | 30 | 44 |
Deutsche Bank, Malaysia | 1 | 5 |
Deutsche Bank, Netherlands | 12 | 15 |
Deutsche Bank, Philippines | 6 | 25 |
Deutsche Bank, Philippines (U.S. Dollar account) | 3 | 3 |
Deutsche Bank, Poland | 7 | 18 |
Deutsche Bank, Poland (Euro account) | 6 | 8 |
Deutsche Bank, Russia | 3 | 3 |
Deutsche Bank, Russia (U.S. Dollar account) | 4 | 5 |
Deutsche Bank, Singapore | 14 | 17 |
Deutsche Bank, Spain | 1 | 1 |
Deutsche Bank, Switzerland | 21 | 29 |
Deutsche Bank, United Kingdom | 54 | 79 |
Deutsche Bank, USA | 20 | 2 |
HSBC Bank, (U.S. Dollar account) | 2 | - |
HSBC Bank, Dubai | – | 2 |
HSBC Bank, Hong Kong | 2 | 2 |
HSBC Bank, United Kingdom | 8 | 6 |
ICICI Bank, EEFC (Euro account) | 5 | 1 |
ICICI Bank, EEFC (U.S. Dollar account) | 51 | 40 |
ICICI Bank, EEFC (United Kingdom Pound Sterling account) | 2 | 11 |
ICICI Bank, India | 54 | 52 |
Nordbanken, Sweden | 32 | 50 |
Punjab National Bank, India | 76 | 12 |
Raiffeisen Bank, Czech Republic | 1 | 5 |
Raiffeisen Bank, Romania | – | 3 |
Royal Bank of Canada, Canada | 195 | 166 |
Santander Bank, Argentina | – | 1 |
Splitska Banka D.D., Société Générale Group, Croatia | 9 | 8 |
State Bank of India, India | 2 | 1 |
The Saudi British Bank, Saudi Arabia | 3 | 3 |
Washington Trust | 45 | – |
1,976 | 2,703 |
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Deposit accounts | ||
Axis Bank | 100 | – |
Bank BGZ BNP Paribas S.A. | 320 | 144 |
Barclays Bank | 200 | 200 |
Canara Bank | 85 | 84 |
Citibank | 124 | 224 |
Deutsche Bank, AG | 23 | 24 |
Deutsche Bank, Poland | 66 | 211 |
HDFC Bank | 523 | 2,498 |
ICICI Bank | 3,304 | 3,497 |
IDBI Bank | – | 250 |
IDFC Bank | 1,750 | 1,500 |
IndusInd Bank | – | 1,000 |
South Indian Bank | 250 | 450 |
National Bank of Mexico,SA(CITI-Banamex) | 64 | – |
Yes Bank | 5 | 5 |
6,814 | 10,087 | |
Unpaid dividend accounts | ||
Axis Bank - Unpaid dividend account | 1 | 1 |
HDFC Bank - Unpaid dividend account | 1 | 1 |
ICICI Bank - Unpaid dividend account | 20 | 20 |
22 | 22 | |
Margin money deposits against guarantees | ||
Canara Bank | 148 | 151 |
Citibank | 2 | 3 |
ICICI Bank | 72 | 202 |
222 | 356 | |
Deposits with financial institutions | ||
HDFC Limited | 6,272 | 5,450 |
LIC Housing Finance Limited | 1,200 | 1,200 |
7,472 | 6,650 | |
Total cash and cash equivalents | 16,506 | 19,818 |
2.9 OTHER ASSETS
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Non Current | ||
Capital advances | 419 | 421 |
Advances other than capital advances | ||
Prepaid gratuity (refer note no. 2.20.1) | 32 | 43 |
Others | ||
Withholding taxes and others | 1,011 | 1,428 |
Prepaid expenses | 106 | 111 |
Deferred Contract Cost | 258 | 262 |
Total non-current other assets | 1,826 | 2,265 |
Current | ||
Advances other than capital advances | ||
Payment to vendors for supply of goods | 104 | 119 |
Others | ||
Unbilled revenues # | 3,040 | – |
Withholding taxes and others | 1,374 | 1,032 |
Prepaid expenses | 567 | 472 |
Deferred Contract Cost | 44 | 44 |
Total current other assets | 5,129 | 1,667 |
Total other assets | 6,955 | 3,932 |
Deferred contract costs are upfront costs incurred for the contract and are amortized over the term of the contract. Withholding taxes and others primarily consist of input tax credits.
# | Classified as non financial asset as the contractual right to consideration is dependent on completion of contractual milestones. |
2.10 FINANCIAL INSTRUMENTS
Accounting policy
2.10.1 Initial recognition
The Group recognizes financial assets and financial liabilities when it becomes a party to the contractual provisions of the instrument. All financial assets and liabilities are recognized at fair value on initial recognition, except for trade receivables which are initially measured at transaction price. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities, that are not at fair value through profit or loss, are added to the fair value on initial recognition. Regular way purchase and sale of financial assets are accounted for at trade date.
2.10.2 Subsequent measurement
a. Non-derivative financial instruments
(i) Financial assets carried at amortized cost
A financial asset is subsequently measured at amortized cost if it is held within a business model whose objective is to hold the asset in order to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
(ii) Financial assets at fair value through other comprehensive income (FVOCI)
A financial asset is subsequently measured at fair value through other comprehensive income if it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The Company has made an irrevocable election for its investments which are classified as equity instruments to present the subsequent changes in fair value in other comprehensive income based on its business model.
(iii) Financial assets at fair value through profit or loss
A financial asset which is not classified in any of the above categories is subsequently fair valued through profit or loss.
(iv) Financial liabilities
Financial liabilities are subsequently carried at amortized cost using the effective interest method, except for contingent consideration recognized in a business combination which is subsequently measured at fair value through profit or loss. For trade and other payables maturing within one year from the Balance Sheet date, the carrying amounts approximate the fair value due to the short maturity of these instruments.
b. Derivative financial instruments
The Group holds derivative financial instruments such as foreign exchange forward and option contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. The counterparty for these contracts is generally a bank.
(i) Financial assets or financial liabilities, at fair value through profit or loss.
This category has derivative financial assets or liabilities which are not designated as hedges.
Although the Group believes that these derivatives constitute hedges from an economic perspective, they may not qualify for hedge accounting under Ind AS 109, Financial Instruments. Any derivative that is either not designated as hedge, or is so designated but is ineffective as per Ind AS 109, is categorized as a financial asset or financial liability, at fair value through profit or loss.
Derivatives not designated as hedges are recognized initially at fair value and attributable transaction costs are recognized in net profit in the consolidated Statement of Profit and Loss when incurred. Subsequent to initial recognition, these derivatives are measured at fair value through profit or loss and the resulting exchange gains or losses are included in other income. Assets/ liabilities in this category are presented as current assets/current liabilities if they are either held for trading or are expected to be realized within 12 months after the Balance Sheet date.
(ii) Cash flow hedge
The Group designates certain foreign exchange forward and options contracts as cash flow hedges to mitigate the risk of foreign exchange exposure on highly probable forecast cash transactions.
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and accumulated in the cash flow hedging reserve. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in the net profit in the consolidated Statement of Profit and Loss. If the hedging instrument no longer meets the criteria for hedge accounting, then hedge accounting is discontinued prospectively. If the hedging instrument expires or is sold, terminated or exercised, the cumulative gain or loss on the hedging instrument recognized in cash flow hedging reserve till the period the hedge was effective remains in cash flow hedging reserve until the forecasted transaction occurs. The cumulative gain or loss previously recognized in the cash flow hedging reserve is transferred to the net profit in the Consolidated Statement of Profit and Loss upon the occurrence of the related forecasted transaction. If the forecasted transaction is no longer expected to occur, then the amount accumulated in cash flow hedging reserve is reclassified to net profit in the Consolidated Statement of Profit and Loss.
c. Share capital and treasury shares
(i) Ordinary Shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of new ordinary shares and share options and buyback of ordinary shares are recognized as a deduction from equity, net of any tax effects.
(ii) Treasury Shares
When any entity within the Group purchases the Company's ordinary shares, the consideration paid including any directly attributable incremental cost, is presented as a deduction from total equity, until they are cancelled, sold or reissued. When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to / from share premium.
2.10.3 Derecognition of financial instruments
The Group derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for derecognition under Ind AS 109. A financial liability (or a part of a financial liability) is derecognized from the Group's Balance Sheet when the obligation specified in the contract is discharged or cancelled or expires.
2.10.4 Fair value of financial instruments
In determining the fair value of its financial instruments, the Group uses a variety of methods and assumptions that are based on market conditions and risks existing at each reporting date. The methods used to determine fair value include discounted cash flow analysis, available quoted market prices and dealer quotes. All methods of assessing fair value result in general approximation of value, and such value may never actually be realized.
Refer to table 'Financial instruments by category' below for the disclosure on carrying value and fair value of financial assets and liabilities. For financial assets and liabilities maturing within one year from the Balance Sheet date and which are not carried at fair value, the carrying amounts approximates fair value due to the short maturity of those instruments.
2.10.5 Impairment
The Group recognizes loss allowances using the expected credit loss (ECL) model for the financial assets and unbilled revenue which are not fair valued through profit or loss. Loss allowance for trade receivables and unbilled revenues with no significant financing component is measured at an amount equal to lifetime ECL. For all other financial assets, ECLs are measured at an amount equal to the 12-month ECL, unless there has been a significant increase in credit risk from initial recognition in which case those are measured at lifetime ECL. The amount of ECLs (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognised is recognized as an impairment gain or loss in Consolidated Statement of Profit and Loss.
Financial instruments by category
The carrying value and fair value of financial instruments by categories as at June 30, 2018 are as follows:
(In crore)
Particulars | Amortized cost | Financial assets/ liabilities at fair value through profit or loss | Financial assets/liabilities at fair value through OCI | Total carrying value | Total fair value | ||
Designated upon initial recognition | Mandatory | Equity instruments designated upon initial recognition | Mandatory | ||||
Assets: | |||||||
Cash and cash equivalents (Refer Note no. 2.8) | 16,506 | – | – | – | – | 16,506 | 16,506 |
Investments (Refer Note no. 2.4) | |||||||
Equity and preference securities | – | – | – | 154 | – | 154 | 154 |
Tax-free bonds and government bonds | 1,912 | – | – | – | – | 1,912 | 2,144* |
Liquid mutual fund units | – | – | 1,535 | – | – | 1,535 | 1,535 |
Non convertible debentures | – | – | – | – | 3,552 | 3,552 | 3,552 |
Certificates of deposit | – | – | – | – | 4,539 | 4,539 | 4,539 |
Commercial Paper | – | – | – | – | 299 | 299 | 299 |
Convertible promissory note | – | – | 11 | – | – | 11 | 11 |
Other investments | – | – | 66 | – | – | 66 | 66 |
Fixed maturity plan securities | – | – | 431 | – | – | 431 | 431 |
Trade receivables (Refer Note no. 2.7) | 13,699 | – | – | – | – | 13,699 | 13,699 |
Loans (Refer Note no. 2.5) | 275 | – | – | – | – | 275 | 275 |
Other financials assets (Refer Note no. 2.6) | 4,373 | – | 13 | – | 23 | 4,409 | 4,317** |
Total | 36,765 | – | 2,056 | 154 | 8,413 | 47,388 | 47,528 |
Liabilities: | |||||||
Trade payables | 798 | – | – | – | – | 798 | 798 |
Other financial liabilities (Refer Note no. 2.12) | 6,059 | – | 243 | – | 3 | 6,305 | 6,305 |
Total | 6,857 | – | 243 | – | 3 | 7,103 | 7,103 |
* On account of fair value changes including interest accrued
** Excludes interest accrued on tax free bonds and government bonds
The carrying value and fair value of financial instruments by categories as at March 31, 2018 were as follows:
(In crore)
Amortised cost | Financial assets/ liabilities at fair value through profit or loss | Financial assets/liabilities at fair value through OCI | Total carrying value | Total fair value | |||
Designated upon initial recognition | Mandatory | Equity instruments designated upon initial recognition | Mandatory | ||||
Assets: | |||||||
Cash and cash equivalents (Refer Note no. 2.8) | 19,818 | – | – | – | – | 19,818 | 19,818 |
Investments (Refer Note no. 2.4) | |||||||
Equity and preference securities | – | – | – | 138 | – | 138 | 138 |
Tax-free bonds and government bonds | 1,897 | – | – | – | – | 1,897 | 2,151* |
Liquid mutual fund units | – | – | 81 | – | – | 81 | 81 |
Non convertible debentures | – | – | – | – | 3,978 | 3,978 | 3,978 |
Certificates of deposit | – | – | – | – | 5,269 | 5,269 | 5,269 |
Commercial Paper | – | – | – | – | 293 | 293 | 293 |
Convertible promissory note | – | – | 12 | – | – | 12 | 12 |
Other investments | – | – | 66 | – | – | 66 | 66 |
Fixed maturity plan securities | – | – | 429 | – | – | 429 | 429 |
Trade receivables (Refer Note no. 2.7) | 13,142 | – | – | – | – | 13,142 | 13,142 |
Loans (Refer Note no. 2.5) | 275 | – | – | – | – | 275 | 275 |
Other financials assets (Refer Note no. 2.6) | 6,952 | – | 4 | – | 12 | 6,968 | 6,884** |
Total | 42,084 | – | 592 | 138 | 9,552 | 52,366 | 52,536 |
Liabilities: | |||||||
Trade payables | 694 | – | – | – | – | 694 | 694 |
Other financial liabilities (Refer Note no. 2.12) | 5,442 | – | 93 | – | 3 | 5,538 | 5,538 |
Total | 6,136 | – | 93 | – | 3 | 6,232 | 6,232 |
* On account of fair value changes including interest accrued
** Excludes interest accrued on tax free bonds and government bonds
Fair value hierarchy
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
The fair value hierarchy of assets and liabilities as at June 30, 2018 is as follows:
(In crore)
As at June 30, 2018 | Fair value measurement at end of the reporting period/year using | |||
Level 1 | Level 2 | Level 3 | ||
Assets | ||||
Investments in liquid mutual funds units (Refer Note no. 2.4) | 1,535 | 1,535 | – | – |
Investments in tax-free bonds (Refer Note no. 2.4) | 2,127 | 1,173 | 954 | – |
Investments in government bonds (Refer Note no. 2.4) | 17 | 17 | – | – |
Investments in equity instruments (Refer Note no. 2.4) | 22 | – | – | 22 |
Investments in preference securities (Refer Note no. 2.4) | 132 | – | – | 132 |
Investments in non convertible debentures (Refer Note no. 2.4) | 3,552 | 1,779 | 1,773 | – |
Investments in certificates of deposit (Refer Note no. 2.4) | 4,539 | – | 4,539 | – |
Investments in commercial paper (Refer Note no. 2.4) | 299 | – | 299 | – |
Investments in fixed maturity plan securities (Refer Note no. 2.4) | 431 | – | 431 | – |
Investments in convertible promissory note (Refer Note no. 2.4) | 11 | – | – | 11 |
Other investments (Refer Note no. 2.4) | 66 | – | – | 66 |
Derivative financial instruments - gain on outstanding foreign currency forward and option contracts (Refer Note no. 2.6) | 36 | – | 36 | – |
Liabilities | ||||
Derivative financial instruments - loss on outstanding foreign currency forward and option contracts (Refer Note no. 2.12) | 136 | – | 136 | – |
Liability towards contingent consideration (Refer note no. 2.12)(1)(2)(3) | 110 | – | – | 110 |
(1) | Pertains to contingent consideration payable to selling shareholders of WongDoody and Brilliant Basics Holdings Limited as per the share purchase agreement | |
(2) | Discounted 21 crore at 10% pertaining to Brilliant Basics | |
(3) | Discounted 119 crore at 16% pertaining to WongDoody |
During the three months ended June 30, 2018, tax-free bonds and non-convertible debentures of 351 crore were transferred from Level 2 to Level 1 of fair value hierarchy, since these were valued based on quoted price and 1,711 crore were transferred from Level 1 to Level 2 of fair value hierarchy, since these were valued based on market observable inputs.
The fair value hierarchy of assets and liabilities as at March 31, 2018 was as follows:
(In crore)
As at March 31, 2018 | Fair value measurement at end of the reporting period/year using | |||
Level 1 | Level 2 | Level 3 | ||
Assets | ||||
Investments in liquid mutual funds units (Refer Note no. 2.4) | 81 | 81 | – | – |
Investments in tax free bonds (Refer Note no. 2.4) | 2,150 | 1,878 | 272 | – |
Investments in government bonds (Refer Note no. 2.4) | 1 | 1 | – | – |
Investments in equity instruments (Refer Note no. 2.4) | 22 | – | – | 22 |
Investments in preference securities (Refer Note no. 2.4) | 116 | – | – | 116 |
Investments in non convertible debentures (Refer Note no. 2.4) | 3,978 | 2,695 | 1,283 | – |
Investments in certificates of deposit (Refer Note no. 2.4) | 5,269 | – | 5,269 | – |
Investments in commercial paper (Refer Note no. 2.4) | 293 | – | 293 | – |
Investments in fixed maturity plan securities (Refer Note no. 2.4) | 429 | – | 429 | – |
Investments in convertible promissory note (Refer Note no. 2.4) | 12 | – | – | 12 |
Other investments (Refer Note no. 2.4) | 66 | – | – | 66 |
Derivative financial instruments - gain on outstanding foreign currency forward and option contracts (Refer Note no. 2.6) | 16 | – | 16 | – |
Liabilities | ||||
Derivative financial instruments - loss on outstanding foreign currency forward and option contracts (Refer Note no. 2.12) | 42 | – | 42 | – |
Liability towards contingent consideration (Refer note no. 2.12)(1)(2) | 54 | – | – | 54 |
(1) | Pertains to contingent consideration payable to selling shareholders of Kallidus and Brilliant Basics Holdings Limited as per the share purchase agreement | |
(2) | Discounted 21 crore at 10% pertaining to Brilliant Basics |
A one percentage point change in the unobservable inputs used in fair valuation of Level 3 assets and liabilities does not have a significant impact in its value.
Financial risk management
Financial risk factors
The Group's activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Group's primary focus is to foresee the unpredictability of financial markets and seek to minimize potential adverse effects on its financial performance. The primary market risk to the Group is foreign exchange risk. The Group uses derivative financial instruments to mitigate foreign exchange related risk exposures. The Group's exposure to credit risk is influenced mainly by the individual characteristic of each customer and the concentration of risk from the top few customers.
Market risk
The Group operates internationally and a major portion of the business is transacted in several currencies and consequently the Group is exposed to foreign exchange risk through its sales and services in the United States and elsewhere, and purchases from overseas suppliers in various foreign currencies. The Group holds derivative financial instruments such as foreign exchange forward and option contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. The exchange rate between the Indian rupee and foreign currencies has changed substantially in recent years and may fluctuate substantially in the future. Consequently, the results of the Group’s operations are adversely affected as the rupee appreciates/ depreciates against these currencies.
The following table analyses the foreign currency risk from monetary assets and liabilities as at June 30, 2018:
(In crore)
Particulars | U.S. dollars | Euro | United Kingdom Pound Sterling | Australian dollars | Other currencies | Total |
Cash and cash equivalents | 766 | 215 | 117 | 227 | 1,087 | 2,412 |
Trade receivables | 8,821 | 1,823 | 811 | 788 | 788 | 13,031 |
Other financial assets , loans and other current assets | 3,358 | 821 | 343 | 196 | 488 | 5,206 |
Trade payables | (296) | (67) | (115) | (58) | (63) | (599) |
Other financial liabilities | (3,029) | (448) | (226) | (284) | (522) | (4,509) |
Net assets / (liabilities) | 9,620 | 2,344 | 930 | 869 | 1,778 | 15,541 |
The following table analyses the foreign currency risk from monetary assets and liabilities as at March 31, 2018:
(In crore)
Particulars | U.S. dollars | Euro | United Kingdom Pound Sterling | Australian dollars | Other currencies | Total |
Cash and cash equivalents | 1,287 | 218 | 147 | 353 | 1,192 | 3,197 |
Trade receivables | 8,317 | 1,751 | 845 | 788 | 781 | 12,482 |
Other financial assets (including loans) | 2,636 | 663 | 330 | 173 | 470 | 4,272 |
Trade payables | (273) | (81) | (114) | (30) | (58) | (556) |
Other financial liabilities | (2,289) | (417) | (215) | (273) | (596) | (3,790) |
Net assets / (liabilities) | 9,678 | 2,134 | 993 | 1,011 | 1,789 | 15,605 |
Sensitivity analysis between Indian rupee and U.S. Dollar
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Impact on the Group's incremental operating margins | 0.48% | 0.49% |
Sensitivity analysis is computed based on the changes in the income and expenses in foreign currency upon conversion into functional currency, due to exchange rate fluctuations between the previous reporting period and the current reporting period.
Derivative financial instruments
The Group holds derivative financial instruments such as foreign currency forward and option contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. The counterparty for these contracts is generally a bank. These derivative financial instruments are valued based on quoted prices for similar assets and liabilities in active markets or inputs that are directly or indirectly observable in the marketplace.
The details in respect of outstanding foreign currency forward and option contracts are as follows:
Particulars | As at | As at | ||
June 30, 2018 | March 31, 2018 | |||
In million | In crore | In million | In crore | |
Derivatives designated as cash flow hedges | ||||
Option Contracts | ||||
In Australian dollars | 150 | 758 | 60 | 300 |
In Euro | 155 | 1,236 | 100 | 808 |
In United Kingdom Pound Sterling | 30 | 270 | 20 | 184 |
Other derivatives | ||||
Forward contracts | ||||
In Australian dollars | 79 | 398 | 5 | 25 |
In Canadian dollars | 20 | 102 | 20 | 99 |
In Euro | 161 | 1,285 | 91 | 735 |
In Japanese Yen | 550 | 34 | 550 | 34 |
In New Zealand dollars | 16 | 74 | 16 | 76 |
In Norwegian Krone | 80 | 67 | 40 | 34 |
In Singapore dollars | 10 | 50 | 5 | 25 |
In South African Rand | 25 | 13 | 25 | 14 |
In Swedish Krona | 50 | 38 | 50 | 40 |
In Swiss Franc | 21 | 146 | 21 | 146 |
In U.S. dollars | 834 | 5,715 | 623 | 4,061 |
In United Kingdom Pound Sterling | 78 | 702 | 51 | 466 |
Option Contracts | ||||
In Australian dollars | 40 | 202 | 20 | 100 |
In Canadian dollars | 13 | 69 | – | – |
In Euro | 65 | 519 | 45 | 363 |
In Swiss Franc | 10 | 68 | 5 | 33 |
In U.S. dollars | 240 | 1,643 | 320 | 2,086 |
In United Kingdom Pound Sterling | – | – | 25 | 231 |
Total forwards and options contracts | 13,389 | 9,860 |
The foreign exchange forward and option contracts mature within twelve months. The table below analyzes the derivative financial instruments into relevant maturity groupings based on the remaining period as at the Balance Sheet date:
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Not later than one month | 3,680 | 2,828 |
Later than one month and not later than three months | 6,361 | 4,568 |
Later than three months and not later than one year | 3,348 | 2,464 |
Total | 13,389 | 9,860 |
During the three months ended June 30, 2018 and June 30, 2017, the Group has designated certain foreign exchange forward and option contracts as cash flow hedges to mitigate the risk of foreign exchange exposure on highly probable forecast cash transactions. The related hedge transactions for balance in cash flow hedges as of June 30, 2018 are expected to occur and reclassified to the consolidated statement of profit and loss within 3 months.
Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument, including whether the hedging instrument is expected to offset changes in cash flows of hedged items.
If the hedge ratio for risk management purposes is no longer optimal but the risk management objective remains unchanged and the hedge continues to qualify for hedge accounting, the hedge relationship will be rebalanced by adjusting either the volume of the hedging instrument or the volume of the hedged item so that the hedge ratio aligns with the ratio used for risk management purposes. Any hedge ineffectiveness is calculated and accounted for in Consolidated statement of profit and loss at the time of the hedge relationship rebalancing.
The reconciliation of cash flow hedge reserve for the three months ended June 30, 2018 and June 30, 2017 is as follows:
(In crore)
Particulars | Three months ended | |
June 30, 2018 | June 30, 2017 | |
Gain/(loss) | ||
Balance at the beginning of the period | – | 39 |
Gain / (Loss) recognised in other comprehensive income during the period | 30 | (41) |
Amount reclassified to profit and loss during the period | (18) | (47) |
Tax impact on above | (3) | 22 |
Balance at the end of the period | 9 | (27) |
The Group offsets a financial asset and a financial liability when it currently has a legally enforceable right to set off the recognized amounts and the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
The quantitative information about offsetting of derivative financial assets and derivative financial liabilities is as follows:
(In crore)
Particulars | As at June 30, 2018 | As at March 31, 2018 | ||
Derivative financial asset | Derivative financial liability | Derivative financial asset |
Derivative financial liability | |
Gross amount of recognized financial asset/liability | 67 | (167) | 20 | (46) |
Amount set off | (31) | 31 | (4) | 4 |
Net amount presented in Balance Sheet | 36 | (136) | 16 | (42) |
Credit risk
Credit risk refers to the risk of default on its obligation by the counterparty resulting in a financial loss. The maximum exposure to the credit risk at the reporting date is primarily from trade receivables amounting to 13,699 crore and 13,142 crore as at June 30, 2018 and March 31, 2018, respectively and unbilled revenues amounting to 4,655 crore and 4,261 crore as at June 30, 2018 and March 31, 2018, respectively. Trade receivables and unbilled revenues are typically unsecured and are derived from revenue earned from customers primarily located in the United States. Credit risk has always been managed by the Group through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Group grants credit terms in the normal course of business. As per Ind AS 109, the Group uses expected credit loss model to assess the impairment loss or gain. The Group uses a provision matrix to compute the expected credit loss allowance for trade receivables and unbilled revenues. The provision matrix takes into account available external and internal credit risk factors such as credit default swap quotes, credit ratings from international credit rating agencies and the Group's historical experience for customers.
The details in respect of percentage of revenues generated from top customer and top ten customers are as follows:
(In %)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Revenue from top customer | 3.7 | 3.3 |
Revenue from top 10 customers | 19.2 | 20.0 |
Credit risk exposure
The provision of lifetime ECL on customer balances for the three months ended June 30, 2018 was 69 crore and the reversal of provision on lifetime ECL for the three months ended June 30, 2017 was 4 crore.
The movement in credit loss allowance on customer balance is as follows:
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Balance at the beginning | 449 | 411 |
Impairment loss recognized / (reversed) | 69 | (4) |
Write-offs | – | (3) |
Translation differences | 11 | 1 |
Balance at the end | 529 | 405 |
Credit exposure
The Company’s credit period generally ranges from 30-60 days.
(In crore )
As at | ||
June 30, 2018 | March 31, 2018 | |
Trade receivables | 13,699 | 13,142 |
Unbilled revenues | 4,655 | 4,261 |
Days sales outstanding was 66 days and 67 days as of June 30, 2018 and March 31, 2018, respectively
Credit risk on cash and cash equivalents is limited as we generally invest in deposits with banks and financial institutions with high credit ratings assigned by international and domestic credit rating agencies. Investments primarily include investment in liquid mutual fund units, fixed maturity plan securities, certificates of deposit, commercial paper, quoted bonds issued by government and quasi-government organizations and non convertible debentures.
Liquidity risk
The Group's principal sources of liquidity are cash and cash equivalents and the cash flow that is generated from operations. The Group has no outstanding borrowings. The Group believes that the working capital is sufficient to meet its current requirements.
As at June 30, 2018, the Group had a working capital of 30,424 crore including cash and cash equivalents of 16,506 crore and current investments of 6,876 crore. As at March 31, 2018, the Group had a working capital of 34,176 crore including cash and cash equivalents of 19,818 crore and current investments of 6,407 crore.
As at June 30, 2018 and March 31, 2018, the outstanding compensated absences were 1,541 crore and 1,469 crore, respectively, which have been substantially funded. Accordingly no liquidity risk is perceived.
The details regarding the contractual maturities of significant financial liabilities as at June 30, 2018 are as follows:
(In crore)
Particulars | Less than 1 year | 1-2 years | 2-4 years | 4-7 years | Total |
Trade payables | 798 | – | – | – | 798 |
Other financial liabilities (excluding liability towards acquisition) (Refer Note no. 2.12) |
6,057 | 2 | – | – | 6,059 |
Liability towards acquisitions on an undiscounted basis (including contingent consideration) (Refer Note no. 2.12) | 29 | 66 | 45 | – | 140 |
The details regarding the contractual maturities of significant financial liabilities as at March 31, 2018 were as follows:
(In crore)
Particulars | Less than 1 year | 1-2 years | 2-4 years | 4-7 years | Total |
Trade payables | 694 | – | – | – | 694 |
Other financial liabilities (excluding liability towards acquisition) (Refer Note no. 2.12) | 5,442 | – | – | – | 5,442 |
Liability towards acquisitions on an undiscounted basis (including contingent consideration) (Refer Note no. 2.12) | 41 | 7 | 7 | – | 55 |
2.11 EQUITY
SHARE CAPITAL
(In crore, except as otherwise stated)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Authorized | ||
Equity shares, 5 par value | ||
2,40,00,00,000 (2,40,00,00,000) equity shares | 1,200 | 1,200 |
Issued, Subscribed and Paid-Up | ||
Equity shares, 5 par value (1) | 1,088 | 1,088 |
2,17,33,36,341 (2,17,33,12,301) equity shares fully paid-up(2) | ||
1,088 | 1,088 |
Note: Forfeited shares amounted to 1,500 ( 1,500)
(1) Refer note no. 2.21 for details of basic and diluted shares
(2) Net of treasury shares 1,07,90,750 (1,08,01,956)
The Company has only one class of shares referred to as equity shares having a par value of 5/-. Each holder of equity shares is entitled to one vote per share. The equity shares represented by American Depositary Shares (ADS) carry similar rights to voting and dividends as the other equity shares. Each ADS represents one underlying equity share.
In the event of liquidation of the Company, the holders of equity shares will be entitled to receive any of the remaining assets of the Company in proportion to the number of equity shares held by the shareholders, after distribution of all preferential amounts. However, no such preferential amounts exist currently, other than the amounts held by irrevocable controlled trusts. For irrevocable controlled trusts, the corpus would be settled in favour of the beneficiaries.
In the period of five years immediately preceding June 30, 2018:
Bonus Issue
The Company has allotted 1,14,84,72,332 and 57,42,36,166 fully paid-up shares of face value 5/- each during the quarter ended June 30, 2015 and December 31, 2014, pursuant to bonus issue approved by the shareholders through postal ballot. For both the bonus issues, bonus share of one equity share for every equity share held, and a stock dividend of one ADS for every ADS held, respectively, has been allotted. Consequently, the ratio of equity shares underlying the ADSs held by an American Depositary Receipt holder remains unchanged. Options granted under the restricted stock unit plan (RSU) have been adjusted for bonus shares.
The Board in its meeting held on July 13, 2018 has considered, approved and recommended a bonus issue of one equity share for every equity share held and a stock dividend of one American Depositary Share (ADS) for every ADS held, as on a record date to be determined. Consequently, the ratio of equity shares underlying the ADSs held by an American Depositary Receipt holder would remain unchanged. The Board approved and recommended the issue to celebrate 25th year of public listing in India and to further increase the liquidity of its shares. The bonus issue of equity shares and ADSs will be subject to approval by the shareholders, and any other applicable statutory and regulatory approvals.
The bonus shares once allotted shall rank pari passu in all respects and carry the same rights as the existing equity shareholders and shall be entitled to participate in full, in any dividend and other corporate action, recommended and declared after the new equity shares are allotted.
Buyback
The Board, at its meeting on August 19, 2017, approved a proposal for the Company to buyback its fully paid-up equity shares of face value of 5 each from the eligible equity shareholders of the Company for an amount not exceeding 13,000 crore. The shareholders approved the said proposal of buyback of Equity Shares through the postal ballot that concluded on October 7, 2017. The Buyback offer comprised a purchase of 11,30,43,478 Equity Shares aggregating 4.92% of the paid-up equity share capital of the Company at a price of 1,150 per Equity share. The buyback was offered to all eligible equity shareholders (including those who became equity shareholders as on the Record date by cancelling American Depository Shares and withdrawing underlying Equity shares) of the Company as on the Record Date (i.e November 1, 2017) on a proportionate basis through the "Tender offer" route. The Company concluded the buyback procedures on December 27, 2017 and 11,30,43,478 equity shares were extinguished. The Company has utilized securities premium and general reserve for the buyback of its shares. In accordance with Section 69 of the Companies Act, 2013, the Company has created a Capital Redemption Reserve of 56 crore equal to the nominal value of the shares bought back as an appropriation from the general reserve during the year ended March 31, 2018.
The Company’s objective when managing capital is to safeguard its ability to continue as a going concern and to maintain an optimal capital structure so as to maximize shareholder value. In order to maintain or achieve an optimal capital structure, the Company may adjust the amount of dividend payment, return capital to shareholders, issue new shares or buy back issued shares. As of June 30, 2018, the Company has only one class of equity shares and has no debt. Consequent to the above capital structure there are no externally imposed capital requirements.
Dividend
The final dividend on shares is recorded as a liability on the date of approval by the shareholders and interim dividends are recorded as a liability on the date of declaration by the Company's Board of Directors.
The Company declares and pays dividends in Indian rupees. The remittance of dividends outside India is governed by Indian law on foreign exchange and is subject to applicable distribution taxes. Dividend distribution tax paid by subsidiaries may be reduced / available as credit against dividend distribution tax payable by Infosys Limited.
Amount of per share dividend recognized as distribution to equity shareholders:
(in )
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Final dividend for fiscal 2018 | 20.50 | – |
Special dividend for fiscal 2018 | 10.00 | |
Final dividend for fiscal 2017 | – | 14.75 |
Effective from Financial Year 2018, the Company's policy is to payout up to 70% of the free cash flow of the corresponding Financial Year in such manner (including by way of dividend and / or share buyback) as may be decided by the Board from time to time, subject to applicable laws and requisite approvals, if any. Free cash flow is defined as net cash provided by operating activities less capital expenditure as per the consolidated statement of cash flows prepared under IFRS. Dividend payout includes dividend distribution tax.
The Board of Directors recommended a final dividend of 20.50/- per equity share for the financial year ended March 31, 2018 and a special dividend of 10/- per equity share and the same was approved by the Shareholders at the Annual General Meeting held on June 23, 2018. It results in a cash outflow of approximately 7,949 crore, (excluding dividend paid on treasury shares) including dividend distribution tax.
The details of shareholder holding more than 5% shares as at June 30, 2018 and March 31, 2018 are as follows :
Name of the shareholder | As at June 30, 2018 | As at March 31, 2018 | ||
Number of shares | % held | Number of shares | % held | |
Deutsche Bank Trust Company Americas (Depository of ADR's - legal ownership) | 37,27,88,693 | 17.07 | 37,99,05,859 | 17.39 |
Life Insurance Corporation of India | 14,95,12,017 | 6.85 | 14,95,14,017 | 6.85 |
The reconciliation of the number of shares outstanding and the amount of share capital as at June 30, 2018 and March 31, 2018 are as follows:
(In crore, except as stated otherwise)
Particulars | As at June 30, 2018 | As at March 31, 2018 | ||
Number of shares | Amount | Number of shares | Amount | |
At the beginning of the period | 217,33,12,301 | 1,088 | 228,56,55,150 | 1,144 |
Add: Shares issued on exercise of employee stock options | 24,040 | – | 7,00,629 | – |
Less: Shares bought back | – | – | 11,30,43,478 | 56 |
At the end of the period | 217,33,36,341 | 1,088 | 217,33,12,301 | 1,088 |
Employee Stock Option Plan (ESOP):
Accounting policy
The Group recognizes compensation expense relating to share-based payments in net profit using fair value in accordance with Ind AS 102, Share-Based Payment. The estimated fair value of awards is charged to income on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was in-substance, multiple awards with a corresponding increase to share options outstanding account.
2015 Stock Incentive Compensation Plan (the 2015 Plan) (Formerly 2011 RSU Plan):
On March 31, 2016, pursuant to the approval by the shareholders through postal ballot, the Board has been authorized to introduce, offer, issue and allot share-based incentives to eligible employees of the Company and its subsidiaries under the 2015 Stock Incentive Compensation Plan (the 2015 Plan). The maximum number of shares under the 2015 plan shall not exceed 2,40,38,883 equity shares (this includes 1,12,23,576 equity shares which are held by the trust towards the 2011 Plan as at March 31, 2016). Out of this 1,70,38,883 equity shares will be issued as RSUs at par value and 70,00,000 equity shares will be issued as stock options at market price on the date of the grant. These instruments will vest over a period of 4 years and the Company expects to grant the instruments under the 2015 Plan over the period of 4 to 7 years.
Controlled trust holds 1,07,90,750 and 1,08,01,956 shares as at June 30, 2018 and March 31, 2018, respectively under the 2015 plan, out of which 1,00,000 equity shares have been earmarked for welfare activities of the employees.
The following is the summary of grants during the three months ended June 30, 2018 and June 30, 2017 under the 2015 Plan:
Particulars | Three months ended | |
June 30, 2018 | June 30, 2017 | |
RSU | ||
Salil Parekh, CEO and MD - Refer note 1 below | 1,08,600 | – |
U.B. Pravin Rao, COO | – | 27,250 |
Dr. Vishal Sikka* | – | 2,70,224 |
Employees other than KMP | – | 37,090 |
1,08,600 | 3,34,564 | |
ESOP | ||
U.B. Pravin Rao, COO | – | 43,000 |
Dr. Vishal Sikka* | – | 3,30,525 |
Employees other than KMP | – | 73,600 |
– | 4,47,125 | |
Total grants | 1,08,600 | 7,81,689 |
* Upon Dr. Vishal Sikka's resignation from the roles of the company, the unvested RSUs and ESOPs have been forfeited
1. Stock incentives granted to Salil Parekh, CEO and MD
Pursuant to the approval of the shareholders through a postal ballot on February 20, 2018, Salil Parekh (CEO & MD) is eligible to receive under the 2015 Plan:
a) | an annual grant of RSUs of fair value 3.25 crore which will vest over time in 3 equal annual installments upon completion of each year of service from the respective grant date |
b) | a one-time grant of RSUs of fair value 9.75 crore which will vest over time in 2 equal annual installments upon completion of each year of service from the grant date and |
c) | annual grant of performance based RSUs of fair value 13 crore which will vest after completion of three years the first of which concludes on March 31, 2021, subject to achievement of performance targets set by the Board or its committee. |
The Board based on the recommendations of the Nomination and Remuneration committee approved on February 27, 2018, the annual time based grant for fiscal 2018 of 28,256 RSUs and the one-time time based grant of 84,768 RSUs. The grants were made effective February 27, 2018.
Further, the Board, based on the recommendations of the Nomination and Remuneration Committee, granted 108,600 performance based RSUs to Salil Parekh with an effective date of May 2, 2018. The grants would vest upon successful completion of three full fiscal years with the Company concluding on March 31, 2021 and will be determined based on achievement of certain performance targets for the said three-year period.
Though the annual time based grants for the remaining employment term ending on March 31, 2023 have not been granted as of June 30, 2018, since the service commencement date precedes the grant date, the company has recorded employment stock compensation expense in accordance with Ind AS 102, Share based payments.
The RSUs and stock options would vest generally over a period of 4 years and shall be exercisable within the period as approved by the Committee. The exercise price of the RSUs will be equal to the par value of the shares and the exercise price of the stock options would be the market price as on the date of grant.
As at June 30, 2018 and March 31, 2018, 96,538 and 1,11,757 incentive units were outstanding (net of forfeitures).
Break-up of employee stock compensation expense:
(in crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Granted to: | ||
KMP | 9 | 12 |
Employees other than KMP | 35 | 34 |
Total (1) | 44 | 46 |
(1) | Cash-settled stock compensation expense included above is 1 crore in each of the three months ended June 30, 2018 and June 30, 2017, respectively. |
The carrying value of liability towards cash settled share based payments was 8 crore and 6 crore as at June 30, 2018 and March 31, 2018 respectively.
The activity in the 2015 Plan (formerly 2011 RSU Plan) for equity-settled share based payment transactions during the three months ended June 30, 2018 and June 30, 2017 is as follows:
Particulars | Three months ended June 30, 2018 | Three months ended June 30, 2017 | ||
Shares arising out of options | Weighted average exercise price () | Shares arising out of options | Weighted average exercise price () | |
2015 Plan: RSU | ||||
Outstanding at the beginning | 37,50,409 | 5 | 29,61,373 | 5 |
Granted | 1,08,600 | 5 | 3,34,564 | 5 |
Exercised | 23,078 | 5 | 24,812 | 5 |
Forfeited and expired | 55,453 | 5 | 45,120 | 5 |
Outstanding at the end | 37,80,478 | 5 | 32,26,005 | 5 |
Exercisable at the end | 9,062 | 5 | – | – |
2015 Plan: Employee Stock Options (ESOPs) | ||||
Outstanding at the beginning | 9,66,913 | 986 | 11,97,650 | 998 |
Granted | – | – | 4,47,125 | 919 |
Exercised | 962 | 998 | – | – |
Forfeited and expired | 9,600 | 1,030 | – | – |
Outstanding at the end | 9,56,351 | 1,025 | 16,44,775 | 987 |
Exercisable at the end | 2,06,100 | 1,020 | – | – |
During the three months ended June 30, 2018, and June 30, 2017, the weighted average share price of options exercised under the 2015 Plan on the date of exercise was 1,174 and 943, respectively.
The summary of information about equity settled RSUs and ESOPs outstanding as at June 30, 2018 is as follows:
Range of exercise prices per share () | Options outstanding | ||
No. of shares arising out of options | Weighted average remaining contractual life | Weighted average exercise price () | |
2015 Plan: | |||
0 - 5 (RSU) | 37,80,478 | 1.68 | 5 |
900 - 1100 (ESOP) | 9,56,351 | 5.95 | 1,025 |
47,36,829 | 2.54 | 211 |
The summary of information about equity settled RSUs and ESOPs outstanding as at March 31, 2018 was as follows:
Range of exercise prices per share () | Options outstanding | ||
No. of shares arising out of options | Weighted average remaining contractual life | Weighted average exercise price () | |
2015 Plan: | |||
0 - 5 (RSU) | 37,50,409 | 1.89 | 5 |
900 - 1100 (ESOP) | 9,66,913 | 6.60 | 993 |
47,17,322 | 2.57 | 207 |
The fair value of each equity settled award is estimated on the date of grant using the Black-Scholes-Merton model with the following assumptions:
Particulars | For options granted in |
Fiscal 2019- Equity Shares-RSU | |
Weighted average share price () / ($- ADS) | 1,197 |
Exercise price ()/ ($- ADS) | 5 |
Expected volatility (%) | 24 |
Expected life of the option (years) | 3 |
Expected dividends (%) | 2.82 |
Risk-free interest rate (%) | 7 |
Weighted average fair value as on grant date () / ($- ADS) | 1,096 |
Particulars | For options granted in | |||
Fiscal 2018- Equity Shares-RSU |
Fiscal 2018- Equity shares ESOP |
Fiscal 2018- ADS-RSU |
Fiscal 2018- ADS- ESOP | |
Weighted average share price () / ($- ADS) | 1,144 | 923 | 16.61 | 14.65 |
Exercise price ()/ ($- ADS) | 5 | 919 | 0.08 | 14.67 |
Expected volatility (%) | 20–25 | 25–28 | 21–26 | 25–31 |
Expected life of the option (years) | 1 – 4 | 3 – 7 | 1 – 4 | 3 – 7 |
Expected dividends (%) | 2.78 | 2.78 | 2.74 | 2.74 |
Risk-free interest rate (%) | 6 – 7 | 6 – 7 | 1 – 2 | 1 – 2 |
Weighted average fair value as on grant date () / ($- ADS) | 1,066 | 254 | 15.47 | 2.93 |
The expected life of the RSU / ESOP is estimated based on the vesting term and contractual term of the RSU / ESOP, as well as expected exercise behaviour of the employee who receives the RSU / ESOP. Expected volatility during the expected term of the RSU / ESOP is based on historical volatility of the observed market prices of the Company's publicly traded equity shares during a period equivalent to the expected term of the RSU / ESOP.
2.12 OTHER FINANCIAL LIABILITIES
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Non-current | ||
Others | ||
Accrued compensation to employees (1) | 2 | – |
Compensated absences | 43 | 48 |
Payable for acquisition of business (refer note no. 2.1) (2) | ||
Contingent consideration | 83 | 13 |
Total non-current other financial liabilities | 128 | 61 |
Current | ||
Unpaid dividends (1) | 22 | 22 |
Others | ||
Accrued compensation to employees (1) | 2,634 | 2,509 |
Accrued expenses (1) | 2,902 | 2,452 |
Retention monies (1) | 109 | 132 |
Payable for acquisition of business | ||
Contingent consideration (refer note no. 2.1) (2) | 27 | 41 |
Payable by controlled trusts (1) | 176 | 139 |
Compensated absences | 1,498 | 1,421 |
Foreign currency forward and options contracts (2)(3) | 136 | 42 |
Capital creditors (1) | 99 | 155 |
Other payables (1) | 115 | 33 |
Total current other financial liabilities | 7,718 | 6,946 |
Total other financial liabilities | 7,846 | 7,007 |
(1) Financial liability carried at amortized cost | 6,059 | 5,442 |
(2) Financial liability carried at fair value through profit or loss | 243 | 93 |
(3) Financial liability carried at fair value through other comprehensive income | 3 | 3 |
Contingent consideration on undiscounted basis | 140 | 55 |
2.13 OTHER LIABILITIES
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Non-current | ||
Others | ||
Deferred income - government grant on land use rights | 44 | 44 |
Accrued gratuity (refer note no. 2.20.1) | 28 | 28 |
Deferred rent | 143 | 151 |
Deferred income | 35 | 36 |
Total non-current other liabilities | 250 | 259 |
Current | ||
Unearned revenue | 2,327 | 2,295 |
Client deposit | 187 | 38 |
Others | ||
Withholding taxes and others | 1,255 | 1,240 |
Tax on dividend | 1,320 | – |
Deferred rent | 28 | 32 |
Deferred income - government grant on land use rights | 1 | 1 |
Total current other liabilities | 5,118 | 3,606 |
Total other liabilities | 5,368 | 3,865 |
2.14 PROVISIONS
Accounting policy
A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that is reasonably estimable, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
a. Post sales client support
The Group provides its clients with a fixed-period post sales support for corrections of errors and support on all its fixed-price, fixed-timeframe contracts. Costs associated with such support services are accrued at the time related revenues are recorded and included in Consolidated Statement of Profit and Loss. The Group estimates such costs based on historical experience and estimates are reviewed on a periodic basis for any material changes in assumptions and likelihood of occurrence.
b. Onerous contracts
Provisions for onerous contracts are recognized when the expected benefits to be derived by the Group from a contract are lower than the unavoidable costs of meeting the future obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established the Group recognizes any impairment loss on the assets associated with that contract.
Provision for post-sales client support and others
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Current | ||
Others | ||
Post-sales client support and others | 523 | 492 |
Total provisions | 523 | 492 |
The movement in the provision for post-sales client support and others is as follows :
(In crore)
Particulars | Three months ended |
June 30, 2018 | |
Balance at the beginning | 492 |
Provision recognized | 47 |
Provision utilized | (41) |
Exchange difference | 25 |
Balance at the end | 523 |
Provision for post-sales client support and other provisions are expected to be utilized over a period of 6 months to 1 year.
2.15 INCOME TAXES
Accounting policy
Income tax expense comprises current and deferred income tax. Income tax expense is recognized in net profit in the Consolidated Statement of Profit and Loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in other comprehensive income. Current income tax for current and prior periods is recognized at the amount expected to be paid to or recovered from the tax authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred income tax assets and liabilities are recognized for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements except when the deferred income tax arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and affects neither accounting nor taxable profit or loss at the time of the transaction. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Deferred income tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date and are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of changes in tax rates on deferred income tax assets and liabilities is recognized as income or expense in the period that includes the enactment or the substantive enactment date. A deferred income tax asset is recognized to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences and tax losses can be utilized. Deferred income taxes are not provided on the undistributed earnings of subsidiaries and branches where it is expected that the earnings of the subsidiary or branch will not be distributed in the foreseeable future. The Group offsets current tax assets and current tax liabilities, where it has a legally enforceable right to set off the recognized amounts and where it intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. The income tax provision for the interim period is made based on the best estimate of the annual average tax rate expected to be applicable for the full financial year. Tax benefits of deductions earned on exercise of employee share options in excess of compensation charged to income are credited to securities premium.
Income tax expense in the consolidated Statement of Profit and Loss comprises:
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Current taxes | 1,450 | 1,499 |
Deferred taxes | (69) | (128) |
Income tax expense | 1,381 | 1,371 |
In December 2017, the Company had concluded an Advance Pricing Agreement (“APA”) with the US Internal Revenue Service (""IRS"") for the US branch covering the years ending March 2011 to March 2021. Under the APA, the Company and the IRS have agreed on the methodology to allocate revenues and compute the taxable income of the Company’s US Branch operations.
In accordance with the APA, the company had reversed income tax expense provision of $225 million (1,432 crore) which pertained to previous periods which are no longer required. The Company had to pay an amount of approximately 1,488 crore due to the difference between the taxes payable for prior periods as per the APA and the actual taxes paid for such periods. The company has paid 912 crore till June 30, 2018.
Further, the “Tax Cuts and Jobs Act (H.R. 1)” was signed into law on December 22, 2017 (“US Tax Reforms”). The US tax reforms has reduced federal tax rates from 35% to 21% effective January 1, 2018 amongst other measures.
Income tax expense for the three months ended June 30, 2018 and June 30, 2017 includes reversal (net of provisions) of 59 crore and 15 crore, respectively, pertaining to prior periods on account of adjudication of certain disputed matters in favor of the Company across various jurisdictions.
During the three months ended June 30, 2018 and June 30, 2017, a current tax charge of 1 crore and current tax credit 1 crore respectively have been recorded in other comprehensive income pertaining to remeasurement of defined benefit plan asset.
During the three months ended June 30, 2018, a deferred tax charge of 3 crore and a deferred tax credit of 10 crore has been recorded in other comprehensive income pertaining to unrealized gains on derivatives designated as cash flow hedges and unrealized gain on investment in non-convertible debentures, certificates of deposit and equity & preference securities.
During the three months ended June 30, 2017, a deferred tax credit of 22 crore and a deferred tax charge of 2 crore has been recorded in other comprehensive income pertaining to unrealized gains on derivatives designated as cashflow hedges and unrealized gain on investment in quoted debt securities.
A reconciliation of the income tax provision to the amount computed by applying the statutory income tax rate to the income before income taxes is summarized below:
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Profit before income taxes | 4,993 | 4,854 |
Enacted tax rates in India | 34.94% | 34.61% |
Computed expected tax expense | 1,745 | 1,680 |
Tax effect due to non-taxable income for Indian tax purposes | (609) | (597) |
Overseas taxes | 202 | 223 |
Tax provision (reversals) | (59) | (15) |
Effect of exempt non-operating income | (25) | (17) |
Effect of unrecognized deferred tax assets | 38 | 72 |
Effect of differential overseas tax rates | (12) | 9 |
Effect of non-deductible expenses | 126 | 33 |
Branch profit tax (net of credits) | (29) | – |
Others | 4 | (17) |
Income tax expense | 1,381 | 1,371 |
The foreign tax expense is due to income taxes payable overseas, principally in the United States. In India, the Company has benefited from certain income tax incentives that the Government of India had provided for export of software from the units registered under the Special Economic Zones Act (SEZs), 2005. SEZ units which began the provision of services on or after April 1, 2005 are eligible for a deduction of 100% of profits or gains derived from the export of services for the first five years from the financial year in which the unit commenced the provision of services and 50% of such profits or gains for further five years. Up to 50% of such profits or gains is also available for a further five years subject to creation of a Special Economic Zone re-investment Reserve out of the profit for the eligible SEZ units and utilization of such reserve by the Company for acquiring new plant and machinery for the purpose of its business as per the provisions of the Income Tax Act, 1961.
Entire deferred income tax for the three months ended June 30, 2018 and June 30, 2017, relates to origination and reversal of temporary differences.
Infosys is subject to a 15% BPT in the U.S. to the extent its U.S. branch's net profit during the year is greater than the increase in the net assets of the U.S. branch during the year, computed in accordance with the Internal Revenue Code. As at March 31, 2018, Infosys' U.S. branch net assets amounted to approximately 5,030 crore. As at June 30, 2018, the Company has a deferred tax liability for branch profit tax of 144 crore (net of credits), as the Company estimates that these branch profits are expected to be distributed in the foreseeable future.
Deferred income tax liabilities have not been recognized on temporary differences amounting to 5,158 crore and 5,045 crore as at June 30, 2018 and March 31, 2018, respectively, associated with investments in subsidiaries and branches as it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred income tax assets have not been recognized on accumulated losses of 1,906 crore and 1,936 crore as of June 30, 2018 and March 31, 2018, respectively, as it is probable that future taxable profit will be not available against which the unused tax losses can be utilized in the foreseeable future. The balances as of June 30, 2018 and March 31, 2018 excludes the accumulated losses of Disposal Groups classified as held for sale. (Refer note 2.9)
The following table provides details of expiration of unused tax losses:
(In crore)
Year | As at |
June 30, 2018 | |
2019 | 91 |
2020 | 240 |
2021 | 81 |
2022 | 140 |
2023 | 200 |
Thereafter | 1,154 |
Total | 1,906 |
The following table provides the details of income tax assets and income tax liabilities as at June 30, 2018 and March 31, 2018:
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Income tax assets | 6,056 | 6,070 |
Current income tax liabilities | 2,032 | 2,043 |
Net current income tax asset/ (liability) at the end | 4,024 | 4,027 |
The gross movement in the current income tax asset/ (liability) for the three months ended June 30, 2018 and June 30, 2017 is as follows:
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Net current income tax asset/ (liability) at the beginning | 4,027 | 1,831 |
Translation differences | (2) | (1) |
Income tax paid | 1,428 | 1,205 |
Current income tax expense | (1,450) | (1,499) |
Income tax on other comprehensive income | (1) | 1 |
Reclassified under assets held for sale (refer note no 2.1.2) | 22 | – |
Net current income tax asset/ (liability) at the end | 4,024 | 1,537 |
The movement in gross deferred income tax assets and liabilities (before set off) for the three months ended June 30, 2018 is as follows:
(In crore)
Particulars | Carrying value as of April 1, 2018 | Changes through profit and loss | Changes through OCI | Reclassified as Held for Sale | Translation difference | Carrying value as of June 30, 2018 |
Deferred income tax assets | ||||||
Property, plant and equipment | 215 | 4 | – | – | – | 219 |
Accrued compensation to employees | 12 | 10 | – | (3) | 1 | 20 |
Trade receivables | 141 | 6 | – | – | – | 147 |
Compensated absences | 366 | 5 | – | – | (1) | 370 |
Post sales client support | 98 | 2 | – | – | – | 100 |
Derivative financial instruments | 13 | 8 | – | – | – | 21 |
Intangibles | 9 | – | – | – | 1 | 10 |
Credits related to branch profits | 341 | (33) | – | – | 17 | 325 |
Others | 117 | 9 | 11 | (5) | (9) | 123 |
Total Deferred income tax assets | 1,312 | 11 | 11 | (8) | 9 | 1,335 |
Deferred income tax liabilities | ||||||
Intangible assets | (38) | – | – | – | (1) | (39) |
Branch profit tax | (505) | 62 | – | – | (26) | (469) |
Derivative financial instruments | (2) | (1) | – | – | – | (3) |
Others | (26) | (3) | (4) | (1) | 5 | (29) |
Total Deferred income tax liabilities | (571) | 58 | (4) | (1) | (22) | (540) |
The movement in gross deferred income tax assets and liabilities (before set off) for the three months ended June 30, 2017 is as follows:
(In crore)
Particulars | Carrying value as of April 1, 2017 | Changes through profit and loss | Changes through OCI | Reclassified as Held for Sale | Translation difference | Carrying value as of June 30, 2017 |
Deferred income tax assets | ||||||
Property, plant and equipment | 138 | 9 | – | – | – | 147 |
Computer software | 40 | 1 | – | – | – | 41 |
Accrued compensation to employees | 57 | 21 | – | – | (2) | 76 |
Trade receivables | 136 | (4) | – | – | – | 132 |
Compensated absences | 374 | 11 | – | – | 3 | 388 |
Post sales client support | 97 | (3) | – | – | – | 94 |
Intangibles | 22 | 1 | – | – | 1 | 24 |
Others | 143 | (5) | 9 | – | (1) | 146 |
Total Deferred income tax assets | 1,007 | 31 | 9 | – | 1 | 1,048 |
Deferred income tax liabilities | ||||||
Intangible assets | (206) | 12 | – | – | (2) | (196) |
Branch profit tax | (327) | – | – | – | 1 | (326) |
Others | (141) | 85 | 11 | – | 1 | (44) |
Total Deferred income tax liabilities | (674) | 97 | 11 | – | – | (566) |
The tax effects of significant temporary differences that resulted in deferred income tax assets and liabilities are as follows:
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Deferred income tax assets after set off | 1,300 | 1,282 |
Deferred income tax liabilities after set off | (505) | (541) |
Deferred tax assets and deferred tax liabilities have been offset wherever the Group has a legally enforceable right to set off current tax assets against current tax liabilities and where the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority.
In assessing the reliability of deferred income tax assets, the management considers whether some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. The management considers the scheduled reversals of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred income tax assets are deductible, management believes that the Group will realize the benefits of those deductible differences. The amount of the deferred income tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced.
2.16 REVENUE FROM OPERATIONS
Accounting policy
The company derives revenues primarily from business IT services comprising of software development and related services, consulting and package implementation and from the licensing of software products and platforms across our core and digital offerings (“together called as software related services”).
Effective April 1, 2018, the Company adopted Ind AS 115 “Revenue from Contracts with Customers” using the cumulative catch-up transition method, applied to contracts that were not completed as of April 1, 2018. In accordance with the cumulative catch-up transition method , the comparitives have not been retrospectively adjusted. The following is a summary of new and/or revised significant accounting policies related to revenue recognition. Refer Note 1 “Significant Accounting Policies,” in the Company’s 2018 Annual Report for the policies in effect for revenue prior to April 1, 2018. The effect on adoption of Ind AS 115 was insignificant.
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services.
Arrangements with customers for software related services are either on a fixed-price, fixed-timeframe or on a time-and-material basis.
Revenue on time-and-material contracts are recognized as the related services are performed and revenue from the end of the last invoicing to the reporting date is recognized as unbilled revenue. Revenue from fixed-price, fixed-timeframe contracts, where the performance obligations are satisfied over time and where there is no uncertainty as to measurement or collectability of consideration, is recognized as per the percentage-of-completion method. When there is uncertainty as to measurement or ultimate collectability, revenue recognition is postponed until such uncertainty is resolved. Efforts or costs expended have been used to measure progress towards completion as there is a direct relationship between input and productivity.Maintenance revenue is recognized ratably over the term of the underlying maintenance arrangement.
Revenues in excess of invoicing are classified as contract assets (which we refer as unbilled revenue) while invoicing in excess of revenues are classified as contract liabilities (which we refer to as unearned revenues).
In arrangements for software development and related services and maintenance services, the company has applied the guidance in Ind AS 115, Revenue from contract with customer, by applying the revenue recognition criteria for each distinct performance obligation. The arrangements with customers generally meet the criteria for considering software development and related services as distinct performance obligations. For allocating the transaction price, the company has measured the revenue in respect of each performance obligation of a contract at its relative standalone selling price. The price that is regularly charged for an item when sold separately is the best evidence of its standalone selling price. In cases where the company is unable to determine the standalone selling price, the company uses the expected cost plus margin approach in estimating the standalone selling price. For software development and related services, the performance obligations are satisfied as and when the services are rendered since the customer generally obtains control of the work as it progresses.
Revenue from licenses where the customer obtains a “right to use” the licenses is recognized at the time the license is made available to the customer. Revenue from licenses where the customer obtains a “right to access” is recognized over the access period. Arrangements to deliver software products generally have three elements: license, implementation and Annual Technical Services (ATS). The company has applied the principles under Ind AS 115 to account for revenues from these performance obligations. When implementation services are provided in conjunction with the licensing arrangement and the license and implementation have been identified as two separate performance obligations, the transaction price for such contracts are allocated to each performance obligation of the contract based on their relative standalone selling prices. In the absence of standalone selling price for implementation, the performance obligation is estimated using the expected cost plus margin approach. Where the license is required to be substantially customized as part of the implementation service the entire arrangement fee for license and implementation is considered to be a single performance obligation and the revenue is recognized using the percentage-of-completion method as the implementation is performed. Revenue from client training, support and other services arising due to the sale of software products is recognized as the performance obligations are satisfied. ATS revenue is recognized ratably over the period in which the services are rendered.
The company accounts for volume discounts and pricing incentives to customers as a reduction of revenue based on the ratable allocation of the discounts/ incentives amount to each of the underlying performance obligation that results corresponds to the progress by the customer towards earning the discount/ incentive. Also, when the level of discount varies with increases in levels of revenue transactions, the company recognizes the liability based on its estimate of the customer's future purchases. If it is probable that the criteria for the discount will not be met, or if the amount thereof cannot be estimated reliably, then discount is not recognized until the payment is probable and the amount can be estimated reliably. The company recognizes changes in the estimated amount of obligations for discounts in the period in which the change occurs.
Deferred contract costs are incremental costs of obtaining a contract which are recognied as assets and amortized over the term of the contract.
Contract modifications are accounted for when additions, deletions or changes are approved either to the contract scope or contract price. The accounting for modifications of contracts involves assessing whether the services added to an existing contract are distinct and whether the pricing is at the standalone selling price. Services added that are not distinct are accounted for on a cumulative catch up basis, while those that are distinct are accounted for prospectively, either as a separate contract, if the additional services are priced at the standalone selling price, or as a termination of the existing contract and creation of a new contract if not priced at the standalone selling price.
The Group presents revenues net of indirect taxes in its statement of Profit and loss.
Revenues for the three months ended June 30, 2018 and June 30, 2017 are as follows:
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Revenue from software services | 18,203 | 16,161 |
Revenue from products and platforms | 925 | 917 |
Total revenue from operations | 19,128 | 17,078 |
Disaggregate revenue information
The table below presents disaggregated revenues from contracts with customers for the three months ended June 30, 2018 by geography, offerings and contract-type for each of our business segments. The Company believes that this disaggregation best depicts how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by industry, market and other economic factors.
(In crore)
Particulars | Financial Services (1) | Retail (2) | Communication (3) | Energy , Utilities, Resources and Services | Manufacturing | Hi Tech | Life Sciences (4) | Others (5) | Total |
Revenues by Geography | |||||||||
North America | 3,664 | 2,072 | 1,195 | 1,369 | 982 | 1,370 | 742 | 81 | 11,475 |
Europe | 1,162 | 892 | 482 | 793 | 791 | 17 | 486 | 34 | 4,657 |
India | 276 | 7 | 12 | 1 | 21 | 35 | 2 | 142 | 496 |
Rest of the world | 973 | 198 | 740 | 211 | 43 | – | 30 | 305 | 2,500 |
Total | 6,075 | 3,169 | 2,429 | 2,374 | 1,837 | 1,422 | 1,260 | 562 | 19,128 |
Revenue by offerings | |||||||||
Services | |||||||||
Digital | 1,598 | 925 | 715 | 628 | 451 | 454 | 261 | 61 | 5,093 |
Core | 3,874 | 2,159 | 1,677 | 1,697 | 1,326 | 963 | 929 | 485 | 13,110 |
Subtotal | 5,472 | 3,084 | 2,392 | 2,325 | 1,777 | 1,417 | 1,190 | 546 | 18,203 |
Products and platforms | |||||||||
Digital | 116 | 72 | 35 | 13 | 39 | 4 | 42 | 10 | 331 |
Core | 487 | 13 | 2 | 36 | 21 | 1 | 28 | 6 | 594 |
Subtotal | 603 | 85 | 37 | 49 | 60 | 5 | 70 | 16 | 925 |
Total | 6,075 | 3,169 | 2,429 | 2,374 | 1,837 | 1,422 | 1,260 | 562 | 19,128 |
Digital | 1,714 | 997 | 750 | 641 | 490 | 458 | 303 | 71 | 5,424 |
Core | 4,361 | 2,172 | 1,679 | 1,733 | 1,347 | 964 | 957 | 491 | 13,704 |
Revenues by contract type | |||||||||
Fixed Price | 2,590 | 1,997 | 1,350 | 1,430 | 920 | 769 | 580 | 266 | 9,902 |
Time & Materials | 3,485 | 1,172 | 1,079 | 944 | 917 | 653 | 680 | 296 | 9,226 |
Total | 6,075 | 3,169 | 2,429 | 2,374 | 1,837 | 1,422 | 1,260 | 562 | 19,128 |
(1) | Financial Services include enterprises in Financial Services and Insurance |
(2) | Retail includes enterprises in Retail, Consumer Packaged Goods and Logistics |
(3) | Communication includes enterprises in Communication, Telecom OEM and Media |
(4) | Life Sciences includes enterprises in Life sciences and Health care |
(5) | Others include operating segments of businesses in India, Japan, China, Infosys Public Services & other enterprises in Public Services |
Digital Services
Digital Services comprise of service and solution offerings of the company that enable our clients to transform their businesses. These include offerings that enhance customer experience, leverage AI–based analytics and big data, engineer digital products and IoT, modernize legacy technology systems, migrate to cloud applications and implement advanced cyber security systems.
Core Services
Core Services comprise traditional offerings of the company that have scaled and industrialized over a number of years. These primarily include application management services, proprietary application development services, independent validation solutions, product engineering and management, infrastructure management services, traditional enterprise application implementation, support and integration services.
Products & platforms
The Group also derives revenues from the sale of products and platforms including Finacle – core banking solution, Edge Suite of products, Infosys Nia - Artificial Intelligence (AI) platform which applies next-generation AI and machine learning and Infosys McCamish- insurance platform
Trade Receivables and Contract Balances
The company classifies the right to consideration in exchange for deliverables as either a receivable or as unbilled revenue.
A receivable is a right to consideration that is unconditional upon passage of time. Revenue for time and material contracts are recognised as related service are performed. Revenue for fixed price maintenance contracts is recognized on a straight line basis over the period of the contract. Revenues in excess of billings is recorded as unbilled revenue and is classified as a financial asset for these cases as right to consideration is unconditional upon passage of time .
Revenue recognition for fixed price development contracts is based on percentage of completion method. Invoicing to the clients is based on milestones as defined in the contract. This would result in the timing of revenue recognition being different from the timing of billing the customers. Unbilled revenue for fixed price development contracts is classifed as non financial asset as the contractual right to consideration is dependent on completion of contractual milestones.
Invoicing in excess of earnings are classified as unearned revenue.
Trade receivable and unbilled revenues are presented net of impairment in the consolidated statements of financial position.
The following table discloses the movement in unbilled revenue on fixed price development contracts during the three months ended June 30, 2018
(In crore)
Particulars | For the three months ended June 30, 2018 |
Balance as of April 1, 2018 | 2,798 |
Add : Revenue recognized during the period | 1,891 |
Less : Invoiced during the period | 1,807 |
Less : Impairment / (reversal) during the period | (8) |
Add : Translation gain/(Loss) | 150 |
Balance as of June 30, 2018 | 3,040 |
The following table discloses the movement in unearned revenue balances during the three months ended June 30, 2018
(In crore)
Particulars | For the three months ended June 30, 2018 |
Balance as of April 1, 2018 | 2,295 |
Less: Revenue recognized during the period | 997 |
Add: Invoiced during the period but not recognized as revenues | 914 |
Add: Translation loss / (gain) | 115 |
Balance as of June 30, 2018 | 2,327 |
Performance obligations and remaining performance obligations
The remaining performance obligation disclosure provides the aggregate amount of the transaction price yet to be recognized as of the end of the reporting period and an explanation as to when the company expects to recognize these amounts in revenue. Applying the practical expedient as given in Ind AS 115, the company has not disclosed the remaining performance obligation related disclosures for contracts where the revenue recognized corresponds directly with the value to the customer of the entity's performance completed to date, typically those contracts where invoicing is on time and material basis. Remaining performance obligation estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidations, adjustment for revenue that has not materialized and adjustments for currency.
The aggregate value of performance obligations that are completely or partially unsatisfied as of June 30, 2018, other than those meeting the exclusion criteria mentioned above, is 40,936 crore. Out of this, the company expects to recognize revenue of around 50% within the next one year and the remaining thereafter. This includes contracts that can be terminated for convenience without a substantive penalty since, based on current assessment, the occurrence of the same is expected to be remote.
The impact on account of applying the erstwhile Ind AS 18 Revenue standard instead of Ind AS 115 Revenue from contract with customers on the financials results of the company for the three months ended and as of June 30, 2018 is insignificant. On account of adoption of Ind AS 115, unbilled revenues of 3,040 crore as of June 30, 2018 has been considered as a non financial asset.
2.17 OTHER INCOME, NET
Accounting policy
Other income is comprised primarily of interest income, dividend income, gain/loss on investment and exchange gain/loss on forward and options contracts and on translation of other assets and liabilities. Interest income is recognized using the effective interest method. Dividend income is recognized when the right to receive payment is established.
Foreign currency
Accounting policy
Functional currency
The functional currency of Infosys, Infosys BPM, controlled trusts, EdgeVerve and Skava is the Indian rupee. The functional currencies for other subsidiaries are their respective local currencies. These financial statements are presented in Indian rupees (rounded off to crore; one crore equals ten million).
Transactions and translations
Foreign-currency denominated monetary assets and liabilities are translated into the relevant functional currency at exchange rates in effect at the Balance Sheet date. The gains or losses resulting from such translations are included in net profit in the Consolidated Statement of Profit and Loss. Non-monetary assets and non-monetary liabilities denominated in a foreign currency and measured at fair value are translated at the exchange rate prevalent at the date when the fair value was determined. Non-monetary assets and non-monetary liabilities denominated in a foreign currency and measured at historical cost are translated at the exchange rate prevalent at the date of transaction.
Transaction gains or losses realized upon settlement of foreign currency transactions are included in determining net profit for the period in which the transaction is settled. Revenue, expense and cash-flow items denominated in foreign currencies are translated into the relevant functional currencies using the exchange rate in effect on the date of the transaction.
The translation of financial statements of the foreign subsidiaries to the presentation currency is performed for assets and liabilities using the exchange rate in effect at the Balance Sheet date and for revenue, expense and cash-flow items using the average exchange rate for the respective periods. The gains or losses resulting from such translation are included in currency translation reserves under other components of equity. When a subsidiary is disposed off, in full, the relevant amount is transferred to net profit in the Consolidated Statement of Profit and Loss. However when a change in the parent's ownership does not result in loss of control of a subsidiary, such changes are recorded through equity.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the exchange rate in effect at the Balance Sheet date.
During the three months ended June 30, 2018, the company has adopted Appendix B to Ind AS 21- Foreign Currency Transactions and Advance Consideration which clarifies the date of transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income when an entity has received or paid advance consideration in a foreign currency. The effect on account of adoption of this amendment was insignificant.
Government grant
The Group recognizes government grants only when there is reasonable assurance that the conditions attached to them shall be complied with, and the grants will be received. Government grants related to assets are treated as deferred income and are recognized in net profit in the Consolidated Statement of Profit and Loss on a systematic and rational basis over the useful life of the asset. Government grants related to revenue are recognized on a systematic basis in net profit in the Consolidated Statement of Profit and Loss over the periods necessary to match them with the related costs which they are intended to compensate.
Other income for the three months ended June 30, 2018 and June 30, 2017 is as follows:
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Interest income on financial assets carried at amortized cost: | ||
Tax free bonds and government bonds | 36 | 36 |
Deposit with Bank and others | 347 | 391 |
Interest income on financial assets carried at fair value through other comprehensive income: | ||
Non-convertible debentures, certificates of deposit and commercial paper | 167 | 203 |
Income on investments carried at fair value through profit or loss | ||
Dividend income on liquid mutual fund units | – | 1 |
Gain / (loss) on liquid mutual fund units | 32 | 69 |
Exchange gains/ (losses) on foreign currency forward and options contracts | (185) | 21 |
Exchange gains/ (losses) on translation of assets and liabilities | 225 | 51 |
Miscellaneous Income, net | 104 | 42 |
Total other income | 726 | 814 |
2.18 EXPENSES
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Employee benefit expenses | ||
Salaries including bonus | 10,133 | 9,074 |
Contribution to provident and other funds | 226 | 201 |
Share based payments to employees (Refer note no. 2.11) | 44 | 46 |
Staff welfare | 59 | 45 |
10,462 | 9,366 | |
Cost of software packages and others | ||
For own use | 212 | 219 |
Third party items bought for service delivery to clients | 333 | 221 |
545 | 440 | |
Other expenses | ||
Repairs and maintenance | 272 | 295 |
Power and fuel | 60 | 49 |
Brand and marketing | 96 | 93 |
Operating lease payments (refer to note 2.19) | 126 | 129 |
Rates and taxes | 36 | 49 |
Consumables | 10 | 8 |
Insurance | 17 | 15 |
Provision for post-sales client support | 1 | 10 |
Commission to non-whole time directors | 2 | 3 |
Impairment loss recognized / (reversed) under expected credit loss model | 71 | (2) |
Contributions towards Corporate Social responsibility | 74 | 47 |
Others | 62 | 56 |
827 | 752 |
2.19 LEASES
Accounting policy
Leases under which the group assumes substantially all the risks and rewards of ownership are classified as finance leases. When acquired, such assets are capitalized at fair value or present value of the minimum lease payments at the inception of the lease, whichever is lower. Lease payments under operating leases are recognized as an expense on a straight line basis in net profit in the Consolidated Statement of Profit and Loss over the lease term.
The lease rentals charged during the period is as follows:
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Lease rentals recognized during the period | 126 | 129 |
The obligations on long-term, non-cancellable operating leases payable as per the rentals stated in the respective agreements are as follows:"
(In crore)
Future minimum lease payable | As at | |
June 30, 2018 | March 31, 2018 | |
Not later than 1 year | 477 | 456 |
Later than 1 year and not later than 5 years | 1,426 | 1,388 |
Later than 5 years | 904 | 874 |
The operating lease arrangements, are renewable on a periodic basis and for most of the leases extend upto a maximum of ten years from their respective dates of inception and relates to rented premises. Some of these lease agreements have price escalation clauses.
2.20 EMPLOYEE BENEFITS
Accounting policy
Gratuity
The Group provides for gratuity, a defined benefit retirement plan ('the Gratuity Plan') covering eligible employees of Infosys and its Indian subsidiaries. The Gratuity Plan provides a lump-sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employee's salary and the tenure of employment with the Group.
Liabilities with regard to the Gratuity Plan are determined by actuarial valuation, performed by an independent actuary, at each Balance Sheet date using the projected unit credit method. The Company fully contributes all ascertained liabilities to the Infosys Limited Employees' Gratuity Fund Trust (the Trust). In case of Infosys BPM and EdgeVerve, contributions are made to the Infosys BPM Employees' Gratuity Fund Trust and EdgeVerve Systems Limited Employees' Gratuity Fund Trust, respectively. Trustees administer contributions made to the Trusts and contributions are invested in a scheme with the Life Insurance Corporation of India as permitted by Indian law.
The Group recognizes the net obligation of a defined benefit plan in its Balance Sheet as an asset or liability. Gains and losses through re-measurements of the net defined benefit liability/(asset) are recognized in other comprehensive income and are not reclassified to Consolidated Statement of Profit or Loss in subsequent periods. The actual return of the portfolio of plan assets, in excess of the yields computed by applying the discount rate used to measure the defined benefit obligation is recognized in other comprehensive income. The effect of any plan amendments is recognized in the Consolidated Statement of Profit and Loss.
Provident fund
Eligible employees of Infosys receive benefits from a provident fund, which is a defined benefit plan. Both the eligible employee and the Company make monthly contributions to the provident fund plan equal to a specified percentage of the covered employee's salary. The Company contributes a portion to the Infosys Limited Employees' Provident Fund Trust. The trust invests in specific designated instruments as permitted by Indian law. The remaining portion is contributed to the government administered pension fund. The rate at which the annual interest is payable to the beneficiaries by the trust is being administered by the government. The Company has an obligation to make good the shortfall, if any, between the return from the investments of the trust and the notified interest rate.
In respect of Indian subsidiaries, eligible employees receive benefits from a provident fund, which is a defined contribution plan. Both the eligible employee and the respective companies make monthly contributions to this provident fund plan equal to a specified percentage of the covered employee's salary. Amounts collected under the provident fund plan are deposited in a government administered provident fund. The Companies have no further obligation to the plan beyond its monthly contributions.
Superannuation
Certain employees of Infosys, Infosys BPM and EdgeVerve are participants in a defined contribution plan. The Group has no further obligations to the plan beyond its monthly contributions which are periodically contributed to a trust fund, the corpus of which is invested with the Life Insurance Corporation of India.
Compensated absences
The Group has a policy on compensated absences which are both accumulating and non-accumulating in nature. The expected cost of accumulating compensated absences is determined by actuarial valuation performed by an independent actuary at each Balance Sheet date using projected unit credit method on the additional amount expected to be paid/availed as a result of the unused entitlement that has accumulated at the Balance Sheet date. Expense on non-accumulating compensated absences is recognized in the period in which the absences occur.
2.20.1 Gratuity
The following tables set out the funded status of the gratuity plans and the amounts recognized in the Group's financial statements as at June 30, 2018 and March 31, 2018:
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Change in benefit obligations | ||
Benefit obligations at the beginning | 1,201 | 1,117 |
Service cost | 39 | 150 |
Interest expense | 22 | 73 |
Remeasurements - Actuarial (gains)/ losses | (1) | (59) |
Transfer in | – | 28 |
Benefits paid | (31) | (107) |
Reclassified under held for sale (refer note no 2.1.2) | – | (1) |
Benefit obligations at the end | 1,230 | 1,201 |
Change in plan assets | ||
Fair value of plan assets at the beginning | 1,216 | 1,195 |
Interest income | 23 | 80 |
Remeasurements- Return on plan assets excluding amounts included in interest income | 1 | 13 |
Contributions | 23 | 35 |
Benefits paid | (29) | (107) |
Fair value of plan assets at the end | 1,234 | 1,216 |
Funded status | 4 | 15 |
Prepaid gratuity benefit | 32 | 43 |
Accrued gratuity | (28) | (28) |
Amount for the three months ended June 30, 2018 and June 30, 2017 recognized in the consolidated statement of Profit and Loss under employee benefit expense:
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Service cost | 39 | 38 |
Net interest on the net defined benefit liability/asset | (1) | (2) |
Curtailment gain | – | – |
Net gratuity cost | 38 | 36 |
Amount for the three months ended June 30, 2018 and June 30, 2017 recognized in the consolidated statement of other comprehensive income:
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Remeasurements of the net defined benefit liability/ (asset) | ||
Actuarial (gains) / losses | (1) | 7 |
(Return) / loss on plan assets excluding amounts included in the net interest on the net defined benefit liability/(asset) | (1) | (3) |
(2) | 4 |
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
(Gain)/loss from change in demographic assumptions | (4) | – |
(Gain)/loss from change in financial assumptions | (27) | 20 |
(Gain)/loss from experience adjustment | 30 | (13) |
(1) | 7 |
The weighted-average assumptions used to determine benefit obligations as at June 30, 2018 and March 31, 2018 are set out below:
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Discount rate | 7.9% | 7.5% |
Weighted average rate of increase in compensation levels | 8.0% | 8.0% |
The weighted-average assumptions used to determine net periodic benefit cost for the three months ended June 30, 2018 and June 30, 2017 are set out below:
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Discount rate | 7.5% | 6.9% |
Weighted average rate of increase in compensation levels | 8.0% | 8.0% |
Weighted average duration of defined benefit obligation | 6.1 years | 6.1 years |
Assumptions regarding future mortality experience are set in accordance with the published statistics by the Life Insurance Corporation of India.
The Company assesses these assumptions with its projected long-term plans of growth and prevalent industry standards. The discount rate is based on the government securities yield.
Sensitivity of significant assumptions used for valuation of defined benefit obligation:
(in crore)
Impact from percentage point increase / decrease in | As at June 30, 2018 |
Discount rate | 59 |
Weighted average rate of increase in compensation levels | 51 |
Sensitivity to significant actuarial assumptions is computed by varying one actuarial assumption used for the valuation of the defined benefit obligation by one percentage, keeping all other actuarial assumptions constant. In practice, this is not probable, and changes in some of the assumptions may be correlated.
Gratuity is applicable only to employees drawing a salary in Indian rupees and there are no other significant foreign defined benefit gratuity plans.
The Company contributes all ascertained liabilities towards gratuity to the Infosys Limited Employees' Gratuity Fund Trust. In case of Infosys BPM and EdgeVerve, contributions are made to the Infosys BPM Employees' Gratuity Fund Trust and EdgeVerve Systems Limited Employees Gratuity Fund Trust, respectively. Trustees administer contributions made to the trust. As at June 30, 2018 and March 31, 2018, the plan assets have been primarily invested in insurer managed funds.
Actual return on assets for the three months ended June 30, 2018 and June 30, 2017 were 24 crore and 24 crore, respectively.
The Group expects to contribute 141 crore to the gratuity trusts during the remainder of fiscal 2019.
Maturity profile of defined benefit obligation:
(In crore)
Within 1 year | 187 |
1-2 year | 193 |
2-3 year | 207 |
3-4 year | 218 |
4-5 year | 225 |
5-10 years | 1,101 |
2.20.2 Provident fund
Infosys has an obligation to fund any shortfall on the yield of the trust’s investments over the administered interest rates on an annual basis. These administered rates are determined annually predominantly considering the social rather than economic factors and in most cases the actual return earned by the Company has been higher in the past years. The actuary has provided a valuation for provident fund liabilities on the basis of guidance issued by Actuarial Society of India and based on the assumptions provided below there is no shortfall as at June 30, 2018 and March 31, 2018, respectively.
The details of fund and plan asset position are as follows:
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Plan assets at period end, at fair value | 5,265 | 5,160 |
Present value of benefit obligation at period end | 5,265 | 5,160 |
Asset recognized in Balance Sheet | – | – |
The plan assets have been primarily invested in government securities.
Assumptions used in determining the present value obligation of the interest rate guarantee under the Deterministic Approach:
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Government of India (GOI) bond yield | 7.90% | 7.50% |
Remaining term to maturity of portfolio | 6.2 years | 5.9 years |
Expected guaranteed interest rate | 8.55% | 8.55% |
The Group contributed 129 crore and 116 crore during the three months ended June 30, 2018 and June 30, 2017, respectively. The same has been recognized in the Consolidated Statement of Profit and Loss under the head employee benefit expense.
2.20.3 Superannuation
The Group contributed 49 crore and 42 crore during the three months ended June 30, 2018 and June 30, 2017, respectively and the same has been recognized in the Consolidated Statement of Profit and Loss under the head employee benefit expense.
The provident plans are applicable only to employees drawing a salary in Indian rupees and there are no other significant foreign defined benefit plans.
2.20.4 Employee benefit costs include:
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Salaries and bonus(1) | 10,284 | 9,172 |
Defined contribution plans | 71 | 63 |
Defined benefit plans | 107 | 131 |
10,462 | 9,366 |
(1) | Includes a employee stock compensation expense of 44 crore and 46 crore for the three months ended June 30, 2018 and June 30, 2017, respectively. |
2.21 RECONCILIATION OF BASIC AND DILUTED SHARES USED IN COMPUTING EARNINGS PER SHARE
Accounting policy
Basic earnings per equity share is computed by dividing the net profit attributable to the equity holders of the Company by the weighted average number of equity shares outstanding during the period. Diluted earnings per equity share is computed by dividing the net profit attributable to the equity holders of the Company by the weighted average number of equity shares considered for deriving basic earnings per equity share and also the weighted average number of equity shares that could have been issued upon conversion of all dilutive potential equity shares. The dilutive potential equity shares are adjusted for the proceeds receivable had the equity shares been actually issued at fair value (i.e. the average market value of the outstanding equity shares). Dilutive potential equity shares are deemed converted as of the beginning of the period, unless issued at a later date. Dilutive potential equity shares are determined independently for each period presented.
The number of equity shares and potentially dilutive equity shares are adjusted retrospectively for all periods presented for any share splits and bonus shares issues including for changes effected prior to the approval of the financial statements by the Board of Directors.
The following is a reconciliation of the equity shares used in the computation of basic and diluted earnings per equity share:
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Basic earnings per equity share - weighted average number of equity shares outstanding(1) | 2,17,33,28,621 | 2,28,56,57,604 |
Effect of dilutive common equivalent shares - share options outstanding | 20,26,557 | 14,00,544 |
Diluted earnings per equity share - weighted average number of equity shares and common equivalent shares outstanding | 217,53,55,178 | 228,70,58,148 |
(1) Excludes treasury shares
For the three months ended June 30, 2018, no options to purchase equity shares had an anti-dilutive effect.
For the three months ended June 30, 2017, 2,64,886 number of options to purchase equity shares had an anti-dilutive effect.
2.22 CONTINGENT LIABILITIES AND COMMITMENTS
(In crore)
Particulars | As at | |
June 30, 2018 | March 31, 2018 | |
Contingent liabilities : | ||
Claims against the Company, not acknowledged as debts(1) | 3,303 | 4,802 |
[Amount paid to statutory authorities 6,551 crore (6,551 crore)] | ||
Commitments : | ||
Estimated amount of contracts remaining to be executed on capital contracts and not provided for (net of advances and deposits) | 1,382 | 1,452 |
Other commitments* | 67 | 81 |
*Uncalled capital pertaining to investments
(1) | As at June 30, 2018, claims against the Group not acknowledged as debts in respect of income tax matters amounted to 3,043 crore. These matters are pending before various Appellate Authorities and the management including its tax advisors expect that its position will likely be upheld on ultimate resolution and will not have a material adverse effect on the Group's financial position and results of operations. |
Amount paid to statutory authorities against the above tax claims amounted to 6,540 crore.
Subsequent to March 31, 2018, the Supreme Court of India ruled favorably in respect of certain income tax claims which have been given effect in the above disclosure of claims as of June 30, 2018.
The Company is subject to legal proceedings and claims, which have arisen in the ordinary course of business. The Company’s management does not reasonably expect that these legal actions, when ultimately concluded and determined, will have a material and adverse effect on the Company’s results of operations or financial condition.
2.23 RELATED PARTY TRANSACTIONS
List of related parties:
Name of subsidiaries | Country | Holdings as at | |
June 30, 2018 | March 31, 2018 | ||
Infosys Technologies (China) Co. Limited (Infosys China) | China | 100% | 100% |
Infosys Technologies S. de R. L. de C. V. (Infosys Mexico) | Mexico | 100% | 100% |
Infosys Technologies (Sweden) AB. (Infosys Sweden) | Sweden | 100% | 100% |
Infosys Technologies (Shanghai) Company Limited (Infosys Shanghai) | China | 100% | 100% |
Infosys Tecnologia DO Brasil LTDA. (Infosys Brasil) | Brazil | 100% | 100% |
Infosys Nova Holdings LLC. (Infosys Nova) | U.S. | 100% | 100% |
EdgeVerve Systems Limited (EdgeVerve) | India | 100% | 100% |
Lodestone Management Consultants GmbH(1) | Austria | 100% | 100% |
Skava Systems Pvt. Ltd. (Skava Systems) | India | 100% | 100% |
Kallidus Inc. (Kallidus) | U.S. | 100% | 100% |
Infosys Chile SpA(2) | Chile | 100% | 100% |
Infosys Arabia Limited(3) | Saudi Arabia | 70% | 70% |
Infosys Americas Inc., (Infosys Americas) | U.S. | 100% | 100% |
Infosys Technologies (Australia) Pty. Limited (Infosys Australia)(4) | Australia | 100% | 100% |
Infosys Public Services, Inc. USA (Infosys Public Services) | U.S. | 100% | 100% |
Infosys Canada Public Services Ltd.(5)(6) | Canada | – | – |
Infosys BPM Limited (formerly Infosys BPO Limited) | India | 99.98% | 99.98% |
Infosys (Czech Republic) Limited s.r.o.(7) | Czech Republic | 99.98% | 99.98% |
Infosys Poland, Sp z.o.o(7) | Poland | 99.98% | 99.98% |
Infosys McCamish Systems LLC (7) | U.S. | 99.98% | 99.98% |
Portland Group Pty Ltd(7) | Australia | 99.98% | 99.98% |
Infosys BPO Americas LLC.(7) | U.S. | 99.98% | 99.98% |
Infosys Consulting Holding AG (Infosys Lodestone) | Switzerland | 100% | 100% |
Lodestone Management Consultants Inc.(8)(17) | U.S. | – | 100% |
Infosys Management Consulting Pty Limited(8) | Australia | 100% | 100% |
Infosys Consulting AG(8) | Switzerland | 100% | 100% |
Infosys Consulting GmbH(8) | Germany | 100% | 100% |
Infosys Consulting SAS(8) | France | 100% | 100% |
Infosys Consulting s.r.o.(8) | Czech Republic | 100% | 100% |
Lodestone Management Consultants Co., Ltd.(8) | China | 100% | 100% |
Infy Consulting Company Ltd(8) | U.K. | 100% | 100% |
Infy Consulting B.V.(8) | The Netherlands | 100% | 100% |
Infosys Consulting Sp. z.o.o(8) | Poland | 100% | 100% |
Lodestone Management Consultants Portugal, Unipessoal, Lda. (8) | Portugal | 100% | 100% |
S.C. Infosys Consulting S.R.L.(8) | Romania | 100% | 100% |
Infosys Consulting S.R.L.(8) | Argentina | 100% | 100% |
Infosys Consulting (Belgium) NV (formerly Lodestone Management Consultants (Belgium) S.A.)(9) | Belgium | 99.90% | 99.90% |
Infosys Consulting Ltda.(9) | Brazil | 99.99% | 99.99% |
Panaya Inc. (Panaya) | U.S. | 100% | 100% |
Panaya Ltd.(10) | Israel | 100% | 100% |
Panaya GmbH(10) | Germany | 100% | 100% |
Panaya Japan Co. Ltd(4)(10) | Japan | 100% | 100% |
Noah Consulting LLC (Noah)(11) | U.S. | – | – |
Noah Information Management Consulting Inc. (Noah Canada)(12) | Canada | – | – |
Brilliant Basics Holdings Limited (Brilliant Basics)(13) | U.K. | 100% | 100% |
Brilliant Basics Limited(14) | U.K. | 100% | 100% |
Brilliant Basics (MENA) DMCC(14) | Dubai | 100% | 100% |
Infosys Consulting Pte Limited (Infosys Singapore)(1) | Singapore | 100% | 100% |
Infosys Middle East FZ LLC(15) | Dubai | 100% | 100% |
WongDoody Holding Company Inc. (WongDoody) (16) | U.S. | 100% | – |
WDW Communications, Inc(18) | U.S. | 100% | – |
WongDoody, Inc(18) | U.S. | 100% | – |
(1) | Wholly-owned subsidiary of Infosys Limited |
(2) | Incorporated effective November 20, 2017 |
(3) | Majority owned and controlled subsidiary of Infosys Limited |
(4) | Under liquidation |
(5) | Wholly owned subsidiary of Infosys Public Services, Inc. |
(6) | Liquidated effective May 9, 2017 |
(7) | Wholly owned subsidiary of Infosys BPM |
(8) | Wholly owned subsidiaries of Infosys Consulting Holding AG (formerly Lodestone Holding AG) |
(9) | Majority owned and controlled subsidiaries of Infosys Consulting Holding AG (formerly Lodestone Holding AG) |
(10) | Wholly owned subsidiary of Panaya Inc. |
(11) | Liquidated effective November 9, 2017 |
(12) | Wholly owned subsidiary of Noah. Liquidated effective December 20, 2017 |
(13) | On September 8, 2017, Infosys acquired 100% of the voting interests in Brilliant Basics Holding Limited |
(14) | Wholly-owned subsidiary of Brilliant Basics Holding Limited. |
(15) | Wholly-owned subsidiary of Infosys Consulting Pte Ltd |
(16) | On May 22, 2018, Infosys acquired 100% of the voting interest in WongDoody |
(17) | Liquidated effective May 17, 2018 |
(18) | Wholly-owned subsidiary of WongDoody |
Infosys has provided guarantee for performance of certain contracts entered into by its subsidiaries.
Associate
During the year ended March 31, 2018, the Company has written down the entire carrying value of the investment in its associate DWA Nova LLC amounting to 71 crore. DWA Nova LLC has been liquidated w.e.f November 17, 2017
List of other related party
Particulars | Country | Nature of relationship |
Infosys Limited Employees' Gratuity Fund Trust | India | Post-employment benefit plan of Infosys |
Infosys Limited Employees' Provident Fund Trust | India | Post-employment benefit plan of Infosys |
Infosys Limited Employees' Superannuation Fund Trust | India | Post-employment benefit plan of Infosys |
Infosys BPM Limited Employees' Superannuation Fund Trust (formerly Infosys BPO Limited Employees Superannuation Fund Trust) | India | Post-employment benefit plan of Infosys BPM |
Infosys BPM Limited Employees' Gratuity Fund Trust (formerly Infosys BPO Limited Employees' Gratuity Fund Trust) | India | Post-employment benefit plan of Infosys BPM |
EdgeVerve Systems Limited Employees' Gratuity Fund Trust | India | Post-employment benefit plan of EdgeVerve |
EdgeVerve Systems Limited Employees' Superannuation Fund Trust | India | Post-employment benefit plan of EdgeVerve |
Infosys Employees Welfare Trust | India | Controlled trust |
Infosys Employee Benefits Trust | India | Controlled trust |
Infosys Science Foundation | India | Controlled trust |
Refer note no. 2.20 for information on transactions with post-employment benefit plans mentioned above.
List of key management personnel
Whole-time directors
Salil Parekh appointed as Chief Executive Officer and Managing Director effective January 2, 2018. The appointment is for a term of 5 years with effect from January 2, 2018 to January 1, 2023 and the remuneration is approved by shareholders through postal ballot dated February 20, 2018.
U. B. Pravin Rao, Chief Operating officer appointed as Interim-Chief Executive Officer and Managing Director effective August 18, 2017. Subsequently he stepped down as the interim CEO and Managing Director effective January 2, 2018 and will continue as Chief Operating Officer and a whole-time director of the Company.
Dr. Vishal Sikka resigned as Chief Executive Officer and Managing Director effective August 18, 2017 and as Executive Vice Chairman effective August 24, 2017
Non-whole-time directors
Nandan M. Nilekani (appointed as Non-Executive, Non-Independent Chairman effective August 24, 2017)
Ravi Venkatesan (resigned from his position as Co-Chairman effective August 24, 2017 and resigned as member of the Board effective May 11, 2018)
Kiran Mazumdar-Shaw
Roopa Kudva
Dr. Punita Kumar-Sinha
D. N. Prahlad
D. Sundaram (appointed effective July 14, 2017)
Prof. Jeffrey Lehman, (resigned effective August 24, 2017)
R. Seshasayee (resigned effective August 24, 2017)
Prof. John Etchemendy (resigned effective August 24, 2017)
Executive Officers
M. D. Ranganath, Chief Financial Officer
Mohit Joshi, President
Rajesh K. Murthy, President (appointed effective October 13, 2016 and resigned effective January 31, 2018)
Ravi Kumar S, President and Deputy Chief Operating Officer
Sandeep Dadlani, President (resigned effective July 14, 2017)
Krishnamurthy Shankar, Group Head - Human Resources
Gopi Krishnan Radhakrishnan - Acting General Counsel (resigned effective June 24, 2017)
Inderpreet Sawhney, Group General Counsel and Chief Compliance Officer (appointed as executive officer effective July 14, 2017)
Company Secretary
A. G. S. Manikantha
Transaction with key management personnel:
The table below describes the compensation to key managerial personnel which comprise directors and executive officers:
(In crore)
Particulars | Three months ended June 30, | |
2018 | 2017 | |
Salaries and other employee benefits to whole-time directors and executive officers (1) | 24 | 26 |
Commission and other benefits to non-executive/independent directors | 2 | 3 |
Total | 26 | 29 |
(1) | Total employee stock compensation expense for the three months ended June 30, 2018 and June 30, 2017 includes a charge of 9 crore and 12 crore, respectively towards key managerial personnel.(Refer to note 2.11) |
2.24 SEGMENT REPORTING
Ind AS 108 establishes standards for the way that public business enterprises report information about operating segments and related disclosures about products and services, geographic areas, and major customers. The Group's operations predominantly relate to providing end-to-end business solutions to enable clients to enhance business performance.
During the three months ended June 30, 2018, the Company internally reorganized some of its business segments to deepen customer relationships, improve focus of sales investments and increase management oversight. Consequent to the internal reorganization, there were changes in the reportable business segments based on “Management approach” as defined under Ind AS 108, Operating Segments. Therefore, enterprises in Insurance which was earlier considered under the Life Sciences, Healthcare and Insurance business segment are now considered under the Financial Services business segment and enterprises in Communication, Telecom OEM and Media which was earlier under Energy & Utilities, Communication and Services is now shown as a separate business segment. Segmental operating income has changed in line with these as well as changes in the allocation method. The CODM evaluates the Group's performance and allocates resources based on an analysis of various performance indicators by business segments. Accordingly, information has been presented along business segments. The accounting principles used in the preparation of the financial statements are consistently applied to record revenue and expenditure in individual segments, and are as set out in the accounting policies.
Business segments of the Group are primarily enterprises in Financial Services and Insurance, enterprises in Manufacturing, enterprises in Retail, Consumer Packaged Goods and Logistics, enterprises in the Energy, Utilities, Resources and Services, enterprises in Communications, Telecom OEM and Media, enterprises in Hi-Tech, enterprises in Life Sciences and Healthcare and all other segments. The Financial services reportable segments has been aggregated to include the Financial Services operating segment and Finacle operating segment because of the similarity of the economic characteristics. All other segments represent the operating segments of businesses in India, Japan, China, Infosys Public Services & other enterprises in Public Services. Consequent to the above change in the composition of reportable business segments, the prior year comparatives for three months ended June 30, 2017 have been restated.
Revenue and identifiable operating expenses in relation to segments are categorized based on items that are individually identifiable to that segment. Revenue for 'all other segments' represents revenue generated by Infosys Public services and revenue generated from customers located in India, Japan and China and other enterprises in Public services. Allocated expenses of segments include expenses incurred for rendering services from the Company's offshore software development centres and on-site expenses, which are categorized in relation to the associated efforts of the segment. Certain expenses such as depreciation, which form a significant component of total expenses, are not specifically allocable to specific segments as the underlying assets are used interchangeably. The management believes that it is not practical to provide segment disclosures relating to those costs and expenses, and accordingly these expenses are separately disclosed as "unallocated" and adjusted against the total income of the Group.
Assets and liabilities used in the Group's business are not identified to any of the reportable segments, as these are used interchangeably between segments. The management believes that it is currently not practicable to provide segment disclosures relating to total assets and liabilities since a meaningful segregation of the available data is onerous.
Business segment revenue information is collated based on individual customers invoiced or in relation to which the revenue is otherwise recognized.
Disclosure of Revenue by geographic locations has been given in note 2.16 Revenue from operations.
Business Segments
Three months ended June 30, 2018 and June 30, 2017:
(In crore)
Particulars | Financial Services | Retail | Communication | Energy, Utilities, Resources and Services | Manufacturing | Hi Tech | Life Sciences | All other segments | Total |
Revenue from operations | 6,075 | 3,169 | 2,429 | 2,374 | 1,837 | 1,422 | 1,260 | 562 | 19,128 |
5,631 | 2,774 | 2,151 | 1,932 | 1,588 | 1,250 | 1,126 | 626 | 17,078 | |
Identifiable operating expenses | 3,259 | 1,601 | 1,265 | 1,261 | 1,026 | 786 | 666 | 337 | 10,201 |
2,902 | 1,399 | 1,068 | 971 | 925 | 689 | 567 | 349 | 8,870 | |
Allocated expenses | 1,254 | 622 | 494 | 489 | 400 | 248 | 240 | 206 | 3,953 |
1,188 | 604 | 422 | 412 | 396 | 226 | 205 | 193 | 3,646 | |
Segmental operating income | 1,562 | 946 | 670 | 624 | 411 | 388 | 354 | 19 | 4,974 |
1,541 | 771 | 661 | 549 | 267 | 335 | 354 | 84 | 4,562 | |
Unallocable expenses | 437 | ||||||||
451 | |||||||||
Other income, net (Refer to note 2.17) | 726 | ||||||||
814 | |||||||||
Share in net profit/(loss) of associate, including impairment |
– | ||||||||
(71) | |||||||||
Reduction in the fair value of Disposal Group held for sale (Refer to note 2.1.2) | 270 | ||||||||
– | |||||||||
Profit before tax | 4,993 | ||||||||
4,854 | |||||||||
Tax expense | 1,381 | ||||||||
1,371 | |||||||||
Profit for the period | 3,612 | ||||||||
3,483 | |||||||||
Depreciation and amortization expense | 436 | ||||||||
450 | |||||||||
Non-cash expenses other than depreciation and amortization | 271 | ||||||||
1 |
Significant clients
No client individually accounted for more than 10% of the revenues in the three months ended June 30, 2018 and June 30, 2017.
2.25 FUNCTION WISE CLASSIFICATION OF CONSOLIDATED STATEMENT OF PROFIT AND LOSS
(In crore)
Particulars | Note no | Three months ended June 30, | |
2018 | 2017 | ||
Revenue from operations | 2.16 | 19,128 | 17,078 |
Cost of Sales | 12,288 | 10,900 | |
Gross profit | 6,840 | 6,178 | |
Operating expenses | |||
Selling and marketing expenses | 1,005 | 888 | |
General and administration expenses | 1,298 | 1,179 | |
Total operating expenses | 2,303 | 2,067 | |
Operating profit | 4,537 | 4,111 | |
Reduction in the fair value of Disposal Group held for sale | (270) | – | |
Other income, net | 2.17 and 2.1.2 | 726 | 814 |
Profit before non controlling interest / Share in net profit / (loss) of associate | 4,993 | 4,925 | |
Share in net profit/(loss) of associate, including impairment | 2.23 | – | (71) |
Profit before tax | 4,993 | 4,854 | |
Tax expense: | |||
Current tax | 2.15 | 1,450 | 1,499 |
Deferred tax | 2.15 | (69) | (128) |
Profit for the period | 3,612 | 3,483 | |
Other comprehensive income | |||
Items that will not be reclassified subsequently to profit or loss | |||
Remeasurement of the net defined benefit liability/asset | 2.20 and 2.15 | 1 | (3) |
Equity instruments through other comprehensive income, net | 2.4 and 2.15 | 4 | – |
5 | (3) | ||
Items that will be reclassified subsequently to profit or loss | |||
Fair value changes on derivatives designated as cash flow hedge, net | 2.10 and 2.15 | 9 | (66) |
Exchange differences on translation of foreign operations | 87 | 107 | |
Fair value changes on investments, net | 2.4 and 2.15 | (45) | 27 |
51 | 68 | ||
Total other comprehensive income, net of tax | 56 | 65 | |
Total comprehensive income for the period | 3,668 | 3,548 | |
Profit attributable to: | |||
Owners of the Company | 3,612 | 3,483 | |
Non-controlling interests | – | – | |
3,612 | 3,483 | ||
Total comprehensive income attributable to: | |||
Owners of the Company | 3,668 | 3,548 | |
Non-controlling interests | – | – | |
3,668 | 3,548 |
for and on behalf of the Board of Directors of Infosys Limited | ||
Nandan M. Nilekani Chairman |
Salil Parekh Chief Executive officer and Managing Director |
U. B. Pravin Rao Chief Operating Officer and Whole-time Director |
D. Sundaram Director |
M. D. Ranganath Chief Financial Officer |
A. G. S. Manikantha Company Secretary |
Bengaluru July 13, 2018 |
INDEPENDENT Auditor’s Report on audit of interim consolidated financial results
To The Board of Directors of Infosys Limited
1. | We have audited the accompanying Statement of Consolidated Financial Results of INFOSYS Limited (“the Company”) and its subsidiaries (the Company and its subsidiaries together referred to as “the Group”) for the quarter ended June 30, 2018 (“the Statement”), being submitted by the Company pursuant to the requirement of Regulation 33 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, as modified by Circular No. CIR/CFD/FAC/62/2016 dated July 5, 2016. |
This Statement, which is the responsibility of the Company’s Management and approved by the Board of Directors, has been compiled from the related interim consolidated financial statements which has been prepared in accordance with Indian Accounting Standard 34 “Interim Financial Reporting” (“Ind AS 34”) prescribed under Section 133 of the Companies Act, 2013, read with relevant rules issued thereunder and other accounting principles generally accepted in India. Our responsibility is to express an opinion on the Statement based on our audit of such interim consolidated financial statements.
2. | We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the Statement is free from material misstatement. |
An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the Statement. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the Statement, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial controls relevant to the Company’s preparation and fair presentation of the Statement in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal financial controls. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Management, as well as evaluating the overall presentation of the Statement.
We believe that the audit evidence obtained by us, is sufficient and appropriate to provide a basis for our audit opinion.
3. | In our opinion and to the best of our information and according to the explanations given to us, the Statement: |
a. | includes the results of the subsidiaries as given in the Annexure to this report; |
b. | is presented in accordance with the requirements of Regulation 33 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 as modified by Circular No. CIR/CFD/FAC/62/2016 dated July 5, 2016; and |
c. | gives a true and fair view in conformity with the aforesaid Indian Accounting Standards and other accounting principles generally accepted in India of the consolidated profit and total comprehensive income for the period and other financial information of the Group for the quarter ended June 30, 2018. |
For DELOITTE HASKINS & SELLS LLP
Chartered Accountants
(Firm’s Registration No. 117366W/W-100018)
Bengaluru, July 13, 2018 | P. R. RAMESH Partner (Membership No.70928) |
Annexure to Auditors’ Report
List of Subsidiaries;
1. | Infosys BPM Limited |
2. | Infosys Technologies (China) Co. Limited |
3. | Infosys Technologies S. de R. L. de C. V. |
4. | Infosys Technologies (Sweden) AB. |
5. | Infosys Technologies (Shanghai) Company Limited |
6. | Infosys Tecnologia DO Brasil LTDA. |
7. | Infosys Public Services, Inc. |
8. | Infosys Americas Inc., |
9. | Infosys (Czech Republic) Limited s.r.o. |
10. | Infosys Poland Sp z.o.o |
11. | Infosys McCamish Systems LLC |
12. | Portland Group Pty Ltd |
13. | Infosys BPO Americas LLC. |
14. | Infosys Technologies (Australia) Pty. Limited |
15. | EdgeVerve Systems Limited |
16. | Infosys Consulting Holding AG |
17. | Lodestone Management Consultants Inc. (Liquidated on May 17, 2018) |
18. | Infosys Management Consulting Pty Limited |
19. | Infosys Consulting AG |
20. | Infosys Consulting (Belgium) NV |
21. | Infosys Consulting GmbH |
22. | Infosys Consulting Pte Ltd. |
23. | Infosys Consulting SAS |
24. | Infosys Consulting s.r.o. |
25. | Lodestone Management Consultants GmbH |
26. | Lodestone Management Consultants Co., Ltd. |
27. | Infy Consulting Company Limited |
28. | Infy Consulting B.V. |
29. | Infosys Consulting Ltda. |
30. | Infosys Consulting Sp. Z.o.o. |
31. | Lodestone Management Consultants Portugal,Unipessoal, Lda |
32. | S.C. Infosys Consulting S.R.L. |
33. | Infosys Consulting S.R.L. |
34. | Infosys Nova Holdings LLC. |
35. | Panaya Inc. |
36. | Panaya Limited. |
37. | Panaya GmbH |
38. | Panaya Japan Co. Ltd. |
39. | Skava Systems Pvt. Ltd. |
40. | Kallidus Inc. |
41. | Infosys Chile SpA |
42. | Brilliant Basics Holdings Limited |
43. | Brilliant Basics Limited |
44. | Brilliant Basics (MENA) DMCC |
45. | Infosys Arabia Limited |
46. | Infosys Middle East FZ LLC |
47. | Infosys Science Foundation |
Annexure to Auditors’ Report
List of Subsidiaries;
48. | Infosys Employees’Welfare Trust |
49. | Infosys Employee Benefits Trust |
50. | Wong Doody Holding Company Inc.(Acquired on May 22, 2018) |
51. | WDW Communications Inc. (Acquired on May 22, 2018) |
52. | Wongdoody Inc. (Acquired on May 22, 2018) |
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