Infosys Limited Form 20-F Summary
Reporting period: Annual report for the fiscal year ended March 31, 2022, prepared under IFRS as issued by the IASB and presented in U.S. dollars. The requested “2021 Q4” period is not a quarterly filing; the source is the fiscal 2022 Form 20-F.
Business context
Infosys provides consulting, technology, outsourcing, business process management, digital transformation, cloud, analytics, cybersecurity, software products and platforms. It operated in 247 locations across 54 countries and had 314,015 employees at March 31, 2022. North America and Europe represented 61.7% and 24.8% of revenue, respectively.
Financial performance and liquidity
| Metric | Fiscal 2022 | Fiscal 2021 | Change |
|---|---|---|---|
| Revenue | $16,311 million | $13,561 million | +20.3% |
| Operating profit | $3,755 million | $3,325 million | +12.9% |
| Net profit | $2,968 million | $2,623 million | +13.2% |
| Profit attributable to owners | $2,963 million | $2,613 million | +13.4% |
| Operating margin | 23.0% | 24.5% | Down 1.5 percentage points |
| Net margin | 18.2% | 19.3% | Down 1.1 percentage points |
| Net cash from operations | $3,345 million | $3,258 million | +2.7% |
| Capital expenditure | $290 million | $285 million | +$5 million |
- Constant-currency revenue growth was 19.7%.
- Digital revenue increased to 57.0% of total revenue from 48.5%; core revenue declined to 43.0% from 51.5%.
- Gross margin declined to 32.6% from 34.9%, primarily because of higher employee compensation, technical subcontractor costs and third-party delivery costs.
- Selling and marketing expenses were $692 million, or 4.3% of revenue, versus 4.6% in fiscal 2021. Administrative expenses were $868 million, or 5.3% of revenue, versus 5.8%.
- Income tax expense was $1,068 million, with an effective tax rate of 26.4%, compared with 27.1% in fiscal 2021. SEZ tax incentives reduced fiscal 2022 tax expense by an estimated $395 million.
- Cash and cash equivalents were $2,305 million and current investments were $880 million at March 31, 2022. Working capital was $4,432 million.
- Infosys reported no outstanding borrowings. Lease liabilities totaled $722 million on the balance sheet, with undiscounted lease commitments of $823 million.
- Trade receivables were $2,995 million and unbilled revenue was $1,650 million. DSO improved to 67 days from 71 days.
Material changes versus the prior comparable period
- Revenue growth was driven by increased digital revenue, large-deal wins and volume growth across most business segments. Infosys reported more than $9.5 billion of large-deal total contract value during the year.
- Utilization improved to 82.4% including trainees and 88.3% excluding trainees, compared with 80.8% and 84.7%, respectively.
- Offshore revenue increased to 50.2% from 47.9%, while onsite revenue declined to 49.8% from 52.1%, mainly because of pandemic-related travel restrictions and client cost-control measures.
- Manufacturing segment profitability declined because of ramp-up and transition costs on large deals. Hi-Tech and Life Sciences profitability also declined because of lower realization and higher subcontractor costs.
- Employee headcount increased by 54,396 net hires to 314,015. Attrition and competition for digital talent remained significant concerns.
- Infosys completed a $1,243 million share buyback, purchasing and extinguishing 55,807,337 shares, or 1.31% of pre-buyback share capital. It paid $1,703 million of dividends during fiscal 2022.
- Fiscal 2022 investing cash flow was negative $1,005 million, while financing cash flow was negative $3,325 million, principally because of dividends and the buyback.
Guidance, outlook, commentary and unusual items
- The filing does not provide a clear fiscal 2023 revenue or margin guidance figure.
- Management identified continued opportunities from cloud, AI, automation, cybersecurity, digital commerce, analytics and hybrid-cloud adoption. Infosys Cobalt included more than 35,000 cloud assets and over 300 industry cloud solution blueprints.
- The company’s capital allocation policy targets returning approximately 85% of cumulative free cash flow over a five-year period through dividends, buybacks and/or special dividends, subject to applicable laws and approvals.
- The Board recommended a fiscal 2022 final dividend of ₹16 per share, subject to shareholder approval. The filing estimated an associated cash outflow of approximately $885 million.
- COVID-19’s fiscal 2022 impact on revenue was described as not significant, although remote and hybrid work created additional cybersecurity, delivery, productivity, travel and cost risks.
- Geopolitical conflict in Eastern Europe, inflation, immigration restrictions, visa delays, wage pressure and potential reductions in client technology spending were identified as material forward-looking risks.
- On April 20, 2022, after the reporting date, Infosys completed the acquisition of oddity, a Germany-based digital marketing and commerce agency, for consideration of up to €50 million, including contingent consideration and incentives.
- Income-tax claims not acknowledged as debts totaled $528 million at March 31, 2022. Management expects its positions to be upheld and does not expect a material adverse effect, but the matters remain pending before appellate authorities.
- Legal proceedings arose in the ordinary course of business; management did not expect them to have a material adverse effect.
- Deloitte Haskins & Sells LLP issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Management concluded that disclosure controls and internal controls were effective.
Important facts for investors to verify
- Reconcile the fiscal 2022 annual metrics with the separate fourth-quarter or earnings-release disclosures if a quarterly comparison is intended.
- Assess whether margin pressure from wage increases, subcontractors, onsite delivery, large-deal transitions and talent shortages is temporary or structural.
- Review the sustainability of the 57% digital-revenue mix and the profitability of digital, core and individual industry segments.
- Evaluate cash deployment, including the $1.243 billion buyback, $1.703 billion dividend cash outflow and the proposed $885 million final-dividend outflow.
- Monitor the $528 million disputed tax claims, the expired U.S. tax APA and the effect of expiring Indian SEZ incentives on future tax rates.
- Review unbilled revenue, contract assets, fixed-price contract estimates and the $9.797 billion remaining performance obligation balance, noting that customers generally have termination rights.
- Assess exposure to foreign-exchange movements; the filing estimates that each 1% movement in the Indian rupee/U.S. dollar exchange rate affects incremental operating margins by approximately 0.46%.
- Verify the financial and operational integration of the post-year-end oddity acquisition and any related contingent consideration.