Intangible assets score sheet

We caution investors that this data is provided only as additional information to them. We are not responsible for any direct, indirect or consequential losses suffered by any person using this data.

From the 1840s to the early 1990s, a corporate’s value was mainly driven by its tangible assets – values presented in the corporate Balance Sheet. The managements of companies valued these resources and linked all their performance goals and matrices to these assets – Return on Investment and capital turnover ratio. The market capitalization of companies also followed the value of tangible assets shown in the Balance Sheet with the difference seldom being above 25%. In the latter half of the 1990s, the relationship between market value and tangible asset value changed dramatically. By early 2000, the book value of the assets represented less than 15% of the total market value. In short, intangible assets are the key drivers of market value in this new economy.

A knowledge-intensive company leverages know-how, innovation and reputation to achieve success in the marketplace. Hence, these attributes should be measured and improved upon year after year to ensure continual success. Managing a knowledge organization necessitates a focus on the critical issues of organizational adaptation, survival, and competence in the face of ever-increasing, discontinuous environmental change. The profitability of a knowledge firm depends on its ability to leverage the learnability of its professionals, and to enhance the reusability of their knowledge and expertise. The intangible assets of a company include its brand, its ability to attract, develop and nurture a cadre of competent professionals, and its ability to attract and retain marquee clients.

Intangible assets

The intangible assets of a company can be classified into four major categories : human resources, intellectual property assets, internal assets and external assets.

Human resources

Human resources represent the collective expertise, innovation, leadership, entrepreneurship and managerial skills of the employees of an organization.

Intellectual property assets

Intellectual property assets include know-how, copyrights, patents, products and tools that are owned by a corporation. These assets are valued based on their commercial potential. A corporation can derive its revenues from licensing these assets to outside users.

Internal assets

Internal assets are systems, technologies, methodologies, processes and tools that are specific to an organization. These assets give the organization a unique advantage over its competitors in the marketplace. These assets are not licensed to outsiders. Examples of internal assets include methodologies for assessing risk, methodologies for managing projects, risk policies and communication systems.

External assets

External assets are market-related intangibles that enhance the fitness of an organization for succeeding in the marketplace. Examples are customer loyalty (reflected by the repeat business of the Company) and brand value.

The score sheet

We published models for valuing two of our most important intangible assets – human resources and the ‘Infosys’ brand. This score sheet is broadly adopted from the intangible asset score sheet provided in the book titled, The New Organizational Wealth, written by Dr. Karl-Erik Sveiby and published by Berrett-Koehler Publishers Inc., San Francisco. We believe such representation of intangible assets provides a tool to our investors for evaluating our market-worthiness.

Clients

The growth in revenue is 25.8% this year, compared to 3% in the previous year (in U.S. dollar). Our most valuable intangible asset is our client base. Marquee clients or image-enhancing clients contributed 49.8% of revenues during the year. They gave stability to our revenues and also reduced our marketing costs.

The high percentage of revenues 98.0% from repeat orders during the current year is an indication of the satisfaction and loyalty of our clients. The largest client contributed 4.7% to our revenue, compared to 4.6% during the previous year. The top 5 and 10 clients contributed around 15.4% and 25.7% to our revenue respectively, compared to 16.4% and 26.2% respectively, during the previous year. Our strategy is to increase our client base and, thereby, reduce the risk of depending on a few large clients. During the year, we added 139 new clients compared to 141 in the previous year. We derived revenue from customers located in 71 countries against 66 countries in the previous year. Sales per client grew by around 16.6 % from US$ 8.35 million in the previous year to US$ 9.74 million this year. Days Sales Outstanding (DSO) was 63 days this year compared to 59 days in the previous year.

Organization

During the current year, we invested around 2.57% of the value-added (2.34% of revenues) in technology infrastructure, and around 2.13% of the value-added (1.94% of revenues) on R&D activities.

A young, fast-growing organization requires efficiency in the area of support services. The average age of support employees is 31.8 years, as against the previous year’s average age of 30.4 years. The sales per support staff has increased during the year compared to the previous year and the proportion of support staff to the total organizational staff, has marginally decreased over the previous year.

People

We are in a people-oriented business. We added 43,120 employees this year on gross basis (net 17,024) from 27,639 (net 8,946) in the previous year. We added 15,883 laterals this year against 4,895 in the previous year. The education index of employees has gone up substantially to 3,43,407 from 2,96,586. This reflects the quality of our employees. Our employee strength comprises people from 88 nationalities as at March 31, 2011. The average age of employees as at March 31, 2011 was 27. Attrition was 17.0% for this year compared to 13.4% in the previous year (excluding subsidiaries).

Notes

External structure – our clients

2011

2010

Growth / renewal

Revenue growth (%)

In U.S. dollar terms

26

3

In rupee terms

21

5

Exports / total revenue (%)

98

99

Clients

Total

620

575

Added during the year

139

141

Marquee clients

Total

138

126

Added during the year

22

19

Revenue contribution (%)

50

50

Revenue derived – number of countries

71

66

Efficiency

Sales / Client

US$ million

9.74

8.35

Rupee Symbol crore

44.36

39.55

Sales and marketing expenses / revenue (%)

5.50

5.21

DSO (days)

63

59

Provision for debts / revenue (%)

0.01

Stability

Repeat business (%)

98.0

97.3

No. of clients accounting > 5% of revenue

Client concentration

Top client (%)

4.7

4.6

Top five clients (%)

15.4

16.4

Top ten clients (%)

25.7

26.2

Client distribution

1 million dollar +

366

338

5 million dollar +

187

159

10 million dollar +

126

97

20 million dollar +

73

59

30 million dollar +

53

41

40 million dollar +

41

33

50 million dollar +

28

26

60 million dollar +

24

16

70 million dollar +

19

12

80 million dollar +

15

10

90 million dollar +

11

8

100 million dollar +

11

6

200 million dollar +

2

1


Internal structure – our organization

2011

2010

Growth / renewal

R&D

R&D / total revenue (%)

1.94

1.93

R&D / value-added (%)

2.13

2.09

Technology investment

Investment / revenue (%)

2.33

2.37

Investment / value-added (%)

2.56

2.58

Total investment

Total investment / total revenue (%)

4.73

2.89

Total investment / value-added (%)

5.20

3.14

Efficiency

Sales per support staff

US$ million

0.92

0.84

Rupee Symbolcrore

4.20

4.00

General and administrative expenses / revenue (%)

7.17

7.16

Average proportion of support staff (%)

5.35

5.36

Stability

Average age of support staff (years)

31.8

30.4


Competence – our people

2011

2010

Growth / renewal

Total employees added during the year

1,30,820

1,13,796

Gross

43,120

27,639

Net

17,024

8,946

Laterals added

15,883

4,895

Staff education index

3,43,407

2,96,586

Employees – number of nationalities

88

83

Gender classification (%)

Male

66.2

66.5

Female

33.8

33.5

Number of non-Indian national employees

7,805

6,064

Efficiency

Value-added / employee (Rupee Symbolcrore)

Software professionals

0.22

0.21

Total employees

0.20

0.20

Value-added / employee (US$ million)

Software professionals

0.05

0.04

Total employees

0.05

0.04

Stability

Average age of employees (years)

27

27

Attrition – excluding subsidiaries (%)

17.0

13.4

Attrition – excluding involuntary separation (%)

15.5

10.4

Note : The above figures are based on IFRS financial statements.