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Thank you all for standing by and welcome to the ATOS first half 2022 results. At this time, all participants are in a listen only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question at that time, you'll need to press star then one one on your telephone keypad. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your speakers today at the Atos Management Team. Thank you. Please go ahead.

Good morning. Good morning, everyone. And thank you for joining us today for the presentation of HAPOS H1 2022 Results. I'm Nordin Biman, Co-CEO in charge of Tech Foundation. As you know, since July 13, we have strengthened our governance with a new management team that is here with me today. Together, we bring relevant skills and long-term experience in our industry across managed services, digital, cloud, finance, and more importantly, business turnaround and transformation to lead Atos in its transformation journey. I will let Philippe, Diane, and Nathalie introduce themselves shortly. A few words on my background. I have been in this fantastic group for more than 21 years, where I have served and led teams across various countries and units. Most of my time was spent in our managed services business, where I executed complex turnaround in the U.S., Europe, but also growing markets. Through those experiences, I developed a deep understanding of our business, global operation, and our unique assets, and I have built strong relationships with our customers and our talent. Across those roles, I have built and applied a consistent playbook of turnaround that has been very successful in each of those missions and that I will be happy applying going forward. I look forward to working alongside with the entire team to lead ATOS in its new next chapter. I will now hand over to Diane to introduce herself.

I am Diane Gals, Senior Executive Vice President in charge of strategic projects and support functions for the group. In my last position, before joining Atos, I was Senior Executive VP of QS, in charge of strategy and transformation, and also CEO of smart and environmental solutions globally, in particular IoT and software solutions, as well as sustainable consulting. I also have a particular experience in M&A and CarVal transactions.

Good morning, Philippe Oliva, Co-CEO, in charge of Avidian. So in my last position, I was the Chief Commercial Officer offshoot LSAT in the space industry, and also worked 20 years at IBM in several leadership positions, both in Europe and the U.S.

Good morning, everyone. I'm Nathalie Sinesho, Group CFO. I joined NATO's finance team more than seven years ago, allowing me to acquire over the years a broad perspective on the Group's businesses and financial fundamentals, Before I close, I spend my legal and finance career handling key strategic initiatives for companies, such as acquisition, spin-off, carve-out processes, which is useful expertise to have now with ATOS. As a group CFO, I will focus on the financing of the transition period, of course, but also and mostly on profitability, cost discipline, and cash generation. And I'm really looking forward to having a transparent and constructive discussion and trustful dialogue with the financial community.

Thank you, Nathalie. So going forward with this team, we'll be entirely focused on, first, improving ATOS performance, operational performance, and second, delivering our strategic transformation project. I want to emphasize here that this management team believes that the strategic project we announced during our Capital Markets Day is the best path forward to deliver value for our stakeholders. The plan presented on June 14 is the best one for Atos, our customer, and for our 112,000 employees. It is also the one that we are convinced will ultimately create the most value for all our shareholders. So now it's time for action. we must execute and deliver for all our stakeholders. And this is the first commitment of that Atos new management team is giving you today. With that, let's turn to the highlight of H1 2022. As you know, in June, we announced our strategic project following six intensive months of assessment, strategy definition, but also reorganization. Now that we have a clear strategy in place, Going forward, we will be laser focused on our customers, employees, and operations, improving continuously our performance. It is now our top priority for the organization, and the second commitment that our new management team is giving you today. Also, I'm really happy to share with you today, after a fantastic job done by Diane, Nathalie, and their team, that the financing of our transformation plan is now fully secured. This is an important milestone as we now have the means to execute our strategic project during the transition period. Now if we look at the commercial traction, it has improved a lot in Q2, with a B2B going from 72% in Q1 to 101% in Q2. I would like to stress that customer response to the announcement of our strategic plan has been very positive. We signed more than 600 million order entry post-announcement, of which circa 75% are new services or new logo. As an indicator, as we look ahead, our current weighted pipeline for H2 is 30% higher than our weighted pipeline was at the beginning of the prior semester, suggesting significant continued momentum. In addition, our H1 financial performance is consistent with the back-end loaded plan, which we have previously announced. We have confirmed and refined our 2022 objectives based on detailed and fully operationalized plans. Lastly, Atos continues to hire at scale and in line with our objectives, with a total gross hiring of more than 16,000 people in H1, This significant growth in recruitment ensures the condition of our future growth and demonstrates Atos' ongoing attractiveness in a challenging talent market. Looking at the key figures for the semester, revenue was slightly down, minus 0.6% at constant currency and minus 2.1% organically. The positive momentum continued into Q2. with organic growth improving sequentially from minus 2.4 in Q1 to minus 1.1% in Q2. The organic growth would be minus 0.8, excluding the decline in the VAR business. And as a reminder, this is a business we are gradually exiting due to low margins. Operating margin was 1.1% of revenue, impacted in particular by high-cost inflation, which translated mostly in salary, but also in energy and component. Free cash flow was minus 555 million euros. On top of our usual seasonality, it reflects the low level of operating margin recorded in H1. Nathalie will come back to that in detail later during the presentation. Headcount reached 112,000 at the end of June, increasing plus 2.1% organically mostly in our offshore centers. Coming now to commercial activity, and clearly there is some good news here as we have seen a strong sequential improvement in Q2. Order entry reached 2.8 billion in Q2, strongly up compared to the 2 billion we recorded in Q1, and our book-to-bill was 101% in Q2 compared to the 72% in Q1. Q2 order entry is primarily composed of small short-term deals that will feed directly our revenue goal in H2. Looking forward, our weighted pipeline for H2 is 30% higher than our weighted pipeline for H1, which again suggests that significant continued momentum. This renewed commercial traction that we expect to continue in the coming quarter reflects the benefit of our new organization structure by business line and the subsequent refocus on our core offering. On talent, again, we have been able to recruit the right talent at scale and at a steady pace in H1 with more than 16,000 gross hiring. Our attrition rate was broadly stable in Q2 versus Q1 and remained in line with industry average at around 20%. As you noticed, we did continue to grow our headcount in H1 whereas our revenue did not. This might have held back our margin in H1, but in the context of our dynamic order entering Q2 and the return to growth we anticipate in H2, it was critical for us to secure the right talent and to ensure the condition for a successful delivery in the future. By the way, 80% of our recruitment were in offshore and nearshore locations. We intensified hiring at the junior level to optimize our labor pyramid structure. It is in line with our strategy and demonstrates again ATOS attractiveness is intact. I will now hand over to Diane.

Thank you, Nordin. Good morning, everyone. As mentioned by my colleagues, we are very happy to announce that we have successfully secured our new debt package. As Nordin said, This is time for action and we are set to deliver. So this is really a key milestone in our transformation, which we are delighted to share with you today. So we have received bank commitments covering the full amount and expect to sign the final documentation in the next few days. The success of this financing is a significant leap forward in our transformation plan and also demonstrates strong support from our banking partners. As part of this process, the net debt to OMDA-rich financial covenants has already been reset at 3.75 times and will be tested annually. This financing will provide the group with all the funding it needs during the interim period before the potential split and will significantly reinforce its liquidity. I would like to stress that in the current macroeconomic context and debt market, this is a very strong achievement as we are ahead of schedule by a month and that the operation is likely to be largely oversubscribed, demonstrating again strong support of our plan by our financing partners. On the next slide, I'm going to give you a quick update on the progress made since our CMU with regard to our strategy transformation plan. So we have now a clarified governance with a new experienced leadership team that you have in front of you to ensure successful delivery of our strategic roadmap, both on performance and on the envisaged spin-off. We have just secured our new debt package, as I mentioned, which is a crucial milestone And we have also here marked the assets for sales with a total value exceeding the 700 million targets we announced. Execution is progressing according to plan. All CAVAO preparation work streams have been launched and significant progress has been made on the on-the-page structuring. In terms of milestones, we are ready to start the employees' consultation process as soon as early September with representative bodies which have already been provided with information. On the operations side, what we are seeing is very positive. Indeed, our talent retention and change management program are deployed and effective with 90% of retention of our key people. In fact, attractiveness on the talent market and significant commercial wins, including after the CMD has now been highlighted, demonstrate strong support of the plan by our customers. I will now pass it on to Philippe.

Thank you, Diane. Indeed, our evidence project is to bring together the expertise and the great assets on both digital and BDS in one entity to accelerate our value creations for profitable growth. So each of these two businesses a strong leadership position that we already shared with you during the CMD. But the real advantage and uniqueness of Avidian remain the combination of both to create differentiating offerings which will accelerate our innovation capabilities to gain market share. Combining the capabilities of digital business line in the cloud migration and application services with our leading and undisputed position in managed security services, will make us the right and trusted partner for Secure Cloud. We are positioning ourselves as a unique player, providing incremental value to all the hyperscalers and help our clients to embrace digital transformation and data analytics in a regulatory, secure, and compliant journey. We are accelerating our development to support enterprises and institutions to build trust in the cloud and to comply with the regulation. This is just an example of what together digital and BDS can bring as a unified company. In addition, together, and as we explained at the CMD, we have all our core offerings relying on unique capabilities with proprietary IP. We are leveraging artificial intelligence, machine learning, and that's at the core of our managed security services business to reach the highest level of efficiency. We also provide a full service from industry consulting to application development, implementation, and management. And the remaining point that is quite an important one, we are also tackling massive inefficiency in IT server utilization to help our clients implementing their transformational journey and to reach their net zero commitment. In the past, we were not delivering the best cross-selling performance between digital portfolio and BDS customers. And conversely, BDS has a strong footprint in public sectors and defense, which will accelerate its migration to public cloud in the next years. And that creates a tremendous potential for us using digital cloud capabilities. On the other end, customers are now looking to take advantage of high-performance computing on a broader scale. And not only focusing on their institutional affairs and defense, we are seeing more and more momentum in manufacturing sector and also in financial services institutions. And we are perfectly positioned to reach client and industry new requirements. Let me remind you that our ambition for APDN is to achieve 7% organic revenue growth on average on a five-year span basis and 12% operating margin and circa 700 million free cash flow before interest and tax in 2026. Now I'll give you some color on evident H1 performance. So our revenue grew 2% year-on-year at constant currency. This was a bit of a slowdown compared to 2021. So digital grew thanks to recent acquisitions and positive organic trends in application and cloud that were mitigated by volume reduction with a large customer and also deliberate decrease, as Nordin mentioned, on the value-added resale. So BDS suffered from HPC activity, cyclicality, and supply chain tension, but it's looking at a strong recovery based on the very high order entry that we had in H1. Digital security on its side continued to grow slowly above the market. Looking at H2, we had a very solid book to build in Q2, standing at 145%, and this is a significant improvement compared to the 86% we had in Q1. There's a lot of short-term and medium-sized deals in these book-to-bill figures that will underpin revenue growth as soon as in H2. In terms of margin, we were at 3.5% operating margin in H1. We've been impacted by inflation as well as by low volume in HPC. However, we are expecting a market improvement in H2 with HPC recovery and performance improvement actions that the group as launched in H1. Now, I would like to highlight a few high-profile contract wins in H1, reflecting the great commercial momentum that we had and the attractiveness of our services and solution. First, we signed an artificial intelligence and machine learning deal with the major pharmaceutical players. We also partnered And that's quite an important win with a major German car manufacturer to develop a connected vehicle software development factory, meaning Industry 4.0, which is a growing area that will gain more momentum in the coming quarters. And what is really important is that it's not the first win in this area. That's the third one where we are showing our terrific capability around digital transformation and artificial intelligence development. Then we won an important contract. with an Asian government related to big data infrastructure for age and AI. And finally, as you already know, we were the sixth supercomputer out of eight in the Euro HPC program, which is a proof to our technical and technological excellence. This award for a pre-execute excellence, this award for a pre-exescale system that will be hosted by Barcelona Supercomputing Center in Spain, We are really happy that our R&D and our brilliant colleagues of BDS are part of this exciting journey, one that will contribute to strengthen and unlock complex applications in key fields such as medical, clinical trials, and climate research. Moving forward, Avidian will be able to further capitalize on the unique and outstanding offering sets of digital and BDS to expand our customer base and win high-profile contracts. Echoing what Nourdin said, we are 100% committed to the strategy project and in improving the group financials and operational performance. With that, I will now turn it to Nourdin for the highlights of Tech Foundation. Thank you. Thank you, Philippe.

So as presented at the Capital Market Days, Tech Foundation project is a complete turnaround by 2026 with most of the actions focused over the next 24 months. The plan follows the proven playbook I mentioned before across all our markets to drive strong and similar transformations that we did in the past. The key elements of the playbook are, first, a refocus phase where we are going to rationalize our fragmented portfolio and focus on the right offering. A recall phase where we will address our structural cost issues. and a rebound phase where we are investing in sales capability and modernizing our portfolio to drive profitable growth. This will enable us to deliver a full revenue stabilization by 2025, more than 600 basic points increase in operating margin to reach both 5% margin by 2026, and a strong recovery of our operation cash flow to reach 150 million euros by 2026 and growing 50 million per year thereafter. We wanted this plan to be prudent and realistic, but clearly our ambition with the team is to do better and faster. So now let's look at the tech foundation performance in H1. Clearly, the momentum is building up quickly. The newly formed business line in March, combined with our decision to invest in this business, have changed everything for our employees and our customers. They are both excited about our decision to invest in the business, which is a stark contrast to our prior strategy where part of the business were going to be disposed, and where the group focus had shifted away from our core infrastructure business. Now the focus is back, and it shows up in the numbers. Revenue decline was limited to minus 2.6% in H1, which is a huge sequential improvement compared to 2021, which I remind was minus 11%, including UCC. Even further, the revenue decline would have been only minus 0.5% if we excluded UCC and the VAR business that we are executing, almost flat. Our digital workplace and professional services are seeing significant revenue momentum and are growing well. And in addition, we have contained the decrease in our infrastructure revenue, and that is the direct consequence of the focus and the energy that our 48,000 people have put back into this business. Recently, Gartner, for the second time, has positioned Atos as a leader in its magic quadrant for data center outsourcing and hybrid infrastructure managed services worldwide. Our book-to-bill is also improving significantly. Customer response to the announcement of our project has been good, and we continue to see significant momentum. Our H222 pipeline is 50% higher than our H122 pipeline six months back. Our focus on top account is yielding results. Our top 30 account grew at 2.2%. Now we plan to extend the playbook we have deployed over those top 30 accounts to the top 100 accounts over the course of H2. In terms of margin, we were in line with the margin reported during our capital market days at minus 1%. On this slide, you could see four examples of deals that we won in H1. As you can see across those deals, we are helping our customer on all the key CIOs' priorities ranging from modernizing infrastructure, innovating on employee experience in an hybrid world, and providing business continuity for mission-critical application. We have signed a mainframe contract with a major U.S. insurer, a second one where we provide an end-to-end IT managed services for an agent navigation company. I was telling you earlier that our Envisage transformation plan had been positively received by our customers. So indeed here, you could see two examples of contracts that were signed after we announced our plan. First one, we are going to provide large infrastructure and transformation contract for public central procurement agency. And second one, we signed a renewal as well as an extension to provide digital workplace services to a global quick service restaurant chain. Those contracts are profitable cash generating, and in line with our midterm objective. So in summary, we have made a huge leap in tech foundation to stabilize the revenue and are seeing improved commercial performance and pipeline. Going forward, we are now focused on implementing the initiative we kicked off in H1 to drive H2 financial performance and accelerating the broader transformation. I will now hand over to Nathalie to deep dive into our financial performance.

Thank you, Nourine. Turning now to the headline figures of our H1. On this slide, you can see the main financial KPIs for the first half of 2022. I'm going to detail them, starting with revenue and operating margins, then net income, pre-cash flow, and net debt. Atos recorded revenue of 5.6 billion euros in H1, up plus 2.6% year-on-year, including a plus 3.1% foreign exchange rate impact. Growth at constant currency was minus 0.6%, with an organic decrease of minus 2.1%, and a scope effect of plus 1.6%. Our organic growth kept improving sequentially at minus 1.9% in Q2 versus minus 2.4% in Q1. Philippe and Nordin presented the performance of tech foundation in the evident perimeter. I will now comment on our regional business units, starting with revenue. Americas were up plus 0.4% at constant currency. driven by the contribution of the recent acquisition. Positive trends in digital, in particular with the ramp-up of new contracts with the major hospital chain, were offset by a contraction in the intra- and UCC businesses, as well as fluctuation in advanced computing. Northern Europe and APAC were stable compared to H1 2021. The term positive in Q2 2021 driven by a good momentum in digital services, particularly in public sector and defense, as well as cybersecurity and advanced computing. Tech foundation activities were slightly down, but also improved sequentially between Q1 and Q2. Central Europe was down by 1.7% at constant currency, impacted by the termination of an underperforming contract with a telecom operator and low activity level in HPC and UCC. Excluding these items, revenue was stable with a marked improvement between Q1 and Q2. Southern Europe decreased by minus 2.7% due to fluctuations in the HPC business and to the continued wind-down of value-added resale. There was a robust momentum in digital and a limited decline in infrastructure. Turning now to operating margin, it was 1.1% at group level, impacted by high-cost inflation, particularly on salaries, but also on other cost lines, continued tension on supply chain. As Nordin mentioned, the increase in our headcount, whereas our revenue did not grow, but again, they were key to secure the conditions for the growth we expect in H2. And let's face it, probably an element of defocus, as we may have been distracted from day-to-day operations at a certain time in H1. These impacts pertain to all of our RBUs. I will also mention Central Europe at minus 1.7%, which on top of that, suffered from challenging delivery on some contracts. Looking at H2, we are clearly expecting a strong improvement in margin, driven by energetic merger in place to restore a much better level of profitability, as Nordin will explain later on. Moving on the next slide, on the income statement, the main items to highlight are the following. The impairment of goodwill and other non-current assets which amounted to $91.3 million and relating to the assets now for sale. The other lines, which decreased from $164 million last year to $64 million this year and included $32 million relating to Russian activities and $25 million of exceptional costs related to our transformation plan. The net financial expenses which includes this year a loss of €109 million related to the disposal of the Worldline shares in June, which, I remind you, generated €219 million of net profits, contributing to the financing of our transformation plan. Looking now at our cash flow statements, Free cash flow was minus 555 million euros on top of usual seasonality, whereby free cash flow is always significantly lower in H1 than in H2. Our free cash flow in H1 this year reflects the low level of OMDA recorded over the period at 369 million compared to 633 million last year. The change in working cap was minus 383 million. There is a seasonality here, too, of course, and this change was mainly driven by a minus 237 million decrease in customer advance payments. Reorganization, rationalization, and integration costs amounted to minus 113 million euros, They pertain mainly to cost-saving measures launched in H1, which positive impact will unfold in H2. In addition to the free cash flow of the period, acquisitions amounted to 312 million euros. This is mainly cloud-rich and the profit from the sale of Worldline shares in June for 219 million euros. Foreign exchange fluctuation and other items amounted to 97 million euros, leading to 1,792,000,000 net debt at the end of June. As mentioned by my colleagues, we have successfully secured our new debt package. Atos has already received commitments from banks for the conversion of the 1.5 billion out of a total of 2.4 billion of existing RTF into an unsecured term loan with a maturity of 18 months with two six-month extensions at our option. A 900 million RTF is maintained, maturing in 2025. We expect to sign the final documentation in the next few days. With that, I will hand over to Nourdin for the full year objective.

Thank you, Nathalie. So, as previously announced, 2022 is going to be a back-end loaded year. There is always a seasonality in our margin and cash flow. but the swing is expected to be even more pronounced this year as most of the performance improvement measures we launched in H1 will bear fruit in H2. And as I said, the whole organization is now laser-focused on execution in H2, now that we have a clear strategy in place. So today, with the management team, we are confirming and refining our full year objectives. Revenue. Our objective of minus 0.5 to 1.5% growth at constant currency is unchanged. Growth should turn positive in H2, and this is underpinned by the good momentum in order entry that we observe at the moment. Operating margin, we are targeting the lower end of the 3% to 5% range. And as a direct consequence, free cash flow is now expected at the lower end of minus 100 million to 200 million range, excluding the additional impact of a transformation plan. So now, let's give you more granularity on what it means for H2 in terms of operating margin first. So we do expect an uptick in H2, which would be largely driven by the improvement plan launched in H1, focused on three key levels. First, reducing our cost base. As we are unwinding the spring program, which is our prior structure organized by industry, our structure costs are going to come down significantly as soon as H2. Since we increased our headcount rapidly in H1, going forward, we'll be more selective in hiring and focus only on specific area like cybersecurity or analytics. We will reduce our use of subcontractor and increase cost discipline, which arguably we have lost a bit on non-personal cost. Second, we are tackling our underperforming contract. Philippe and I and the entire team are focusing on more than 30 red accounts that we are renegotiating commercially or even exiting in some cases to improve the profitability thanks to those actions. Third, increase in price in the context of the continued inflation will be key. We have a solid plan in place. We have already increased our price on some contracts, mostly the time and material, and others are currently under negotiation. This is more a medium-term effort, and you will note that we are not being overly ambitious for its true on that particular topic. In addition to this action, the recovery, as Philippe mentioned, in HPC volume especially for the supply chain challenges, will also have a direct impact on our margin with better fixed cost absorption in H2. This improvement will come on top of the usual seasonal improvement that we have every year between H1 and H2. I will now pass it to Nathalie for the free cash flow part.

Thanks, Myrdine. As a direct consequence of the uptick in operating margin, free cash flow, excluding additional costs of our transformation plan, should recover in H2. And this recovery, as you can see on the chart, will be entirely driven by UMDA, while we are prudently assuming only a partial reversal of H1 working capital outflow. This includes circa $150 million of RRI costs restructuring costs which were already embedded in our guidance and, as I said, exclude additional impact of our envisaged transformation plan. At this stage, our best estimate for such additional costs would be circa $250 million in 2022, which is consistent with the indication given at the capital market day of around $150 million additional RRI costs The final amount will, of course, depend on the speed of our execution. It also includes the cost of the new financing that we've just secured, around $50 million of exceptional external costs linked to the plan.

Thank you, Nathalie. So a few words to conclude. We now have a clear strategy and transformation plan in place. My colleagues from the management team and myself are now fully focused on our customers, our employees, as well as the execution of the plan. We have seen a renewed commercial momentum in Q2 and continue to see even higher momentum on sales into H2, which will support our revenue growth in H2. We are executing at pace on the performance improvement measure, which will drive a significant increase in OM and free cash flow in H2, and give us full confidence in our full year objective. Last, but not the least, we are moving forward with our transformation plan, and we have just made a significant progress as its financing is now fully secured. So, thank you for your attention, and I think we are now ready to take your questions.

Thank you, management. We will now begin the question and answer session. As a reminder, if you would like to ask a question, please press star then 11 on your telephone keypad and wait for your name to be announced. Please stand by while we compile the Q&A roster. Our first question will come from Amit Hashindani at Citi.

Please go ahead.

Amit Hashindani from Citi. I've got a couple of questions, if I may. My first question goes towards the financing plan. You've given us a bit of a detail in terms of some of the key parameters, but could you clarify a bit more in terms of the cost of financing, the decision to convert it into an 18-month term loan and not longer term? What are some of the puts and takes in terms of how you've gone about thinking about this financing, please? And can you categorically confirm this implies there is no need for any form of equity financing down the road? And then I have a second question.

Thank you. Yeah.

Yeah, I'll answer jointly with Nathalie. On the equity financing part, yes, we confirmed that it means that we are not planning to do an increase of capital with this newly secured financing. To remind the parameter, 1.5 billion in terms of term loan and 900 million in terms of RCS and also a bridge to disposal of 500 million.

So on the cost of financing, it will be in line with the market rate. The cost will be disclosed later, but again, fully in line with the market. no longer term because we are financing the interim period pre-spinoff, and there is no need for equity financing at all.

Okay. Okay. Second question, if I may, please, with regards to the turnaround broadly at the company and the behavior of customers, We have seen you've talked about some corrections in your backlog. You also talked about customer advance payments coming down. You cited seasonality in the first half. Can you give us a sense for what is the tone of discussions with customers? Because on one hand, we do see the bookings going up. But on the other hand, as you can imagine, customers are looking at what's happening at ATOS and making up their minds. So could you give us a sense for the overall tone of discussions with customers, please, and the comment on corrections and the move in advance payments?

First, so just to start with Philip speaking, so to start with the backlogger correction that you are mentioning, so it's business as usual. We had some bookings that were pertaining, let's say, to previous periods. we decrease our write-off, let's say, following analysis of the older part of our backlog. So nothing to do with the performance that we had in H1. So business as usual in our industry.

On customer reaction, I think it's important also to highlight, I mean, that especially, I would say, on the tech foundation side, What the customer are feeling now is we are investing in that business. We are not trying to sell it by pieces. And we see that we are bringing more cohesiveness to that line of services that we have been pushing over the years. So the customer reaction has been pretty positive across the board with all the thousands of customers with whom I have been speaking with. They have been positive about what we are pushing and the fact that we are investing into their business. Natalie, for the last point?

The reduction in the customer advance payments is purely a seasonality effect. And same seasonality decrease, this is exactly the same seasonality decrease that we had in H1 last year, that we will catch up in H2.

Noted.

Thank you all.

Our next question comes from Thomas Portreau from BNP Paribas.

Please go ahead.

Yes, hello. Good morning. Thank you very much for taking my question. I've got a few, actually. So, first of all, coming back to the cost of financing of this new debt package, I mean, I understand you just said it's going to be a market trade, but given your... your debt rating at the moment. I mean, is it reasonable to assume something like high single-digit rate on that new debt package? That's the first question. And I've got a few follow-ups.

Let's see if I can find any.

On your first question on cost of financing, Again, we will disclose them later, but they are in line with the market conditions.

Right, understood. And also, in 2023 specifically, we are more and more talking about a potential recession, at least in Europe. So I was just wondering how... did you reflect this potential recession in the plan that you outlined, the TMZ and most notably for TSCO?

Thank you, Thomas.

I think totally to the I think in the context of recession, I would say the TSCO business is a pretty good defensive business, because as you know, it's a multi-year contract. When we start the year, we have more than 80% of the revenue already contracted, then the rest is only about, you know, the turnaround or the in-quarter revenue plus the new logo that we may sign, which will yield the revenue during the year. So I would say entering into a recession, even macro potential situation, I would say the tech foundation business, book of business, give us a more broader and longer visibility versus a cyclical business.

All right. And if I can sneak in an additional one. On HPC, I mean, you announced in June that you have been awarded the Mare Nostrum 5 supercomputer contract. I think it's been publicly disclosed. It's a 151 million contract in total, which I guess already contributed to the order entry that you announced. you had in Q2, but could you help us understand the timing of the revenue recognition for that contract? I mean, do you expect, you know, the full 151 million to basically be recorded in revenues in H2, or should it be more split over time?

We had multiple wins on the BDS side, so it's not only one single contract that is materializing, let's say, the yield assumptions that we took for H2 revenue roadmap. This large deal is going to have, let's say, multiple periods of revenue generation depending on the milestone of the project, but our H2 roadmap is absolutely not only relying on this deal. We had a very strong book-to-bill and momentum on BDS and HPC in Q2, and that's multiple deals with a significant improvement of our book-to-bill ratio in Q2 that will generate the revenue. But you know large deals, especially on the very complex HPC infrastructure are large implementation projects, generally oscillating between 12 to 18 months of revenue generation.

All right, that's it for me. Thank you very much.

Our next question comes from Laurent Darre from Kepler.

Please go ahead.

Yes, thank you. Good morning, ladies and gentlemen. I also have a couple of questions. My first one is on the U.S. profitability, which used to be much above the roof thanks to the Sintel business. So does this mean that in the first part of the year, for the first time, you experienced a sharp decline. of your offshore business, explaining the drop in profitability in that region. My second question is back on your flu year guidance on the margin side. I mean, you basically need to improve by roughly four points the margin between H1 and H2, which is much more than what has been achieved in the last decade. So does it mean that the seasonality of margin has moved year after year? Because all the actions you have presented this morning make sense, but they might not be visible instantaneously. And also the restructuring you booked in the first part of the year are not much higher than what we've seen in the past year. And my very final question, If we could have more granularity because the profitability level that you have at the moment is way, way below what you expect on the long term and below peers. Does it mean that you have a big negative impact from HPC or is it more utilization rate issues or a little bit of everything? Thank you.

Thank you for your question. Let me start with the operating margin. First, it's a combination of multiple factors. We mentioned the cyclicality of HPC, and you know that HPC is a manufacturing business, so that means that we have a significant amount of fixed costs that have not been covered in H1, so it's purely due to cyclicality and we will recover in H2. The other factors that we are facing is really the impact of the inflation of our cost level base. And that's, let's say, multiple actions that we took, like impacting on our time and material business with new rate cards, the inflation, and that's part of the recovery plan that we have in H2O. There's no utilization rate issue at all on our evident business, and the remaining part is really related to, let's say, the supply chain shortage that we faced that prevented us to stick, let's say, to the initial delivery plans that we had on the BDS business side.

On your second question on seasonality, so We are starting actually from a very low H1 at 1.1 percent. We are targeting 5 to 6 percent in H2, which is the margin we did in H1 last year, and below the typical 10 percent we used to do in H2 in the past. So in itself, not that challenging. H2 margin is supported by actions on our code base, which are already identified and engaged, and the whole group is fully mobilized on this H2 margin.

And on the U.S. business?

On the U.S. business, I guess your question is related to the trend that we had, let's say, following the acquisition of Intel, and it's still a profitable business that is running, let's say, with the right revenue growth. As I said also during the presentation, we had one effect of a contract, but that has nothing to do with the announcement. It was already, let's say, a scope reduction on the large accounts. But with the short-term signings that we had on the order entry in H1, no doubt that we will recover and grow as per the plan that we committed to during the Capital Market Day.

But have you seen some structural issues on the markups or the gross margin you're making on the offshore? Because when you bought Sintel, it was a 25-26% EBIT business. and was about a third of the size of the U.S. So it seems like you had an issue between the prices on the wages in India. Can you give us a bit more granularity on what is happening there?

No, the only additional information that I can share is that what we explained is we knew that we had to anticipate some ironies related to the convictions that we had in the very strong, let's say, book-to-bill and order entry that we realized in Q2. That has generated, let's say, like an unbalanced business model related to incremental costs versus revenue stream that we were having. but that was required also to secure the revenue generation for H2. But there's no specific issue related to our global dairy capability. We are still winning. We are even expanding on a very large contract that we have on the U.S. side, so there's no specific information related to the business trend in North America.

And if I can complement specifically on skin care, even though margin was impacted by cost inflation as everywhere, Intel remains a good performer in America for digital business.

Thank you.

Our next question comes from Gianmarco Conti at Deutsche Bank.

Please go ahead.

Yes, thank you for my questions. So I have a few to ask. I'll ask two and then I'll ask some follow-ups. Out of the 16,000 hires, how many were purely offshore? Where exactly? That's my first question. My second question is, where did you see most of the order entry growth? Would it be in digital, fiber cloud or decarbonization? Or is there also a case that you saw some momentum also in tech foundations too?

I will take the first one, and Philippe the second one. On the hiring and the headcount in HR, out of the 16,000, almost 80% of them have been in offshore and near-shore location. So it has been building up capabilities in our remote location. And also, as I mentioned in the presentation, when I say junior capability, a lower hand of the pyramid as we are transforming the overall pyramid of the company.

Sorry, before we go to the second question, sorry, but how much is exactly an offshore, not near-shore, offshore, purely offshore? Is it more like 50, 60, a bit more?

Out of the 80%, to be frank, I think it's closer to 70, 75% in offshore.

Thanks. On your first question related to the business dynamics on the offering and business line side, as I said, we are seeing strong momentum on the cybersecurity side. still growing above the market. We are confirming also the trend that we've seen on the digital side with, let's say, alignment with the plan that we had that is 7% revenue growth per year. And as I highlighted, we've been impacted, let's say, in H1 on the BDS revenue, mainly related to HPC. and that's part of the recovery plan to maintain, let's say, the objectives that we had for revenue generation in fiscal year 22.

Thank you. Just two more questions. My third question is, could you perhaps elaborate more on what exactly were the tensions of the supply chain? Like maybe, you know, give us a bit more granularity about that. Are these related to specifically, I don't know, orders from hardware to HPC products or Are there other moving parts, maybe deteriorating demand environment, maybe because of slow supply chain production for certain customers? I don't know. Any bit more detail here would be great. And my fourth question is, how much of your operating margin targets are pinned to recovery in HPC? Could you perhaps quantify the impact in margin terms? I'm just trying to understand here whether a continued downturn in HPC, so the character and supply chain tensions, might impede the material expansion margins and potentially putting guidance at risk. Thank you.

Yeah, so on the HPC side, so you know that we are talking about, let's say, large and complex infrastructure that we are manufacturing. So it's obviously more difficult to drive, let's say, supply chain management processes when you are in a system built infrastructure versus, let's say, volume place. So that's the reason why, let's say, the anticipation is directly related to the confidence that we have on the pipeline and the win ratio that we can extract. So we anticipated, let's say, another time because our inventory grew in H1 to ensure that we will stick to the commitment that we had in terms of delivery milestone in H2. So this is perfectly under control to commit on the yield that we mentioned and the recovery between H1 and H2. On the margin, so nothing more to say than what I already shared at the Capital Market Day. We are planning, let's say, to operate at each single digit operating margin uh let's say in 2022 and with the recovery at the end of the five years plan with a single digit margin right thank you our next question comes from amit hashandani at city please go ahead

Thank you for taking my follow-on questions. I've got two more, if I may. With regards to the free cash flow generation profile, if we assume that you do minus 150 and the 215 exceptionals, that's closer to minus 400 for total cash outflow, total cash free cash flow this year. And we had more than 400 million negative last year Are you in a position to comment if the free cash flow profile gets better in 2023? And beyond that, how do you think some of these exceptional transformation costs might play out in 2023 and 2024? That would be my first question. My second question goes to the topic of the transformation that you're embarking upon in tech foundations. stuff like rationalizing contracts, talking about looking at, you know, some of the changes to structures. I mean, for those of us who have covered ATOS for a long period of time, we have heard this before. So Nadeem, given that you've been with the company yourself for a long period of time, What is it that, in your view, is going to be different this time as you drive the transformation in the infrastructure projects versus what has happened in the past? What are your learnings versus what you have seen in the past that hasn't worked for this one? Thank you.

Again, I will start. Thank you, Amit. Really important question. I will start with your second, and then Natalie will come back on the free cash flow. On the turnaround, I think the biggest difference that I see today versus yesterday, if I may, is that today we finally have the funding to do that transformation. I would say in the past we were always constrained, and you know us and you have seen the revenue decline in that business in the past, and we never really addressed it yet. I think this time the board and the entire team acknowledge the full size of the issue and have decided to address it to make sure that we could rebound. I think that's the biggest difference. Then, I think in terms of methodology, I would say with the vertical setup we had before, it was not at all easy to apply the playbook. Responsibility was diffused in a complex matrix, if I may. Now that we simplified the organization, it's almost a top-down organization, pretty military. This gives us the framework to execute in a much energetic way and stronger way all the usual suspect into those kind of turnarounds. talking about productivity, automation, offshore obviously, but red account, portfolio. But remember, in that business, the biggest impact is to stabilize the top line. So as you have seen in H1, we have been able to start seeing a huge sequential improvement from last year minus 11% to this year minus 2.6%. And with that, I have much less transit costs to address. which are impacting directly the bottom line. So in that perspective, we feel that now with the team, we have a good, I will say, trend in terms of top line to be finally able to improve the margin of tech foundation. So that's really my key feedback to you. Nathalie?

So, Anit, on your first question on the 2023 free cash flow, So as we mentioned during the capital market day, the majority of the transformation costs will come in 2022 and 2023. As we already mentioned, we have already identified and launched strong actions on operating margin, which will trigger benefit already in H2 2022. and also on H1 and the full year 2023 going forward.

I give you the opportunity of your second batch of questions to come back to your first one. On the duration for the financing, it just contains 18 months plus two extensions of six months.

Yes, please. Thank you for that clarification. And actually on the financing bit then, after 18 months, are there any terms around which the renewals would be carried out? Do you need to be at a certain level of leverage? Do you need to be at a certain level of profitability? Or is it a straightforward renewal after 18 months?

We have a covenant which is throughout the period of 3.75 times OMDM at the ratio. So this is a constant of the period. Got it.

And finally, if I may, since I have your attention, you've got the 700 million, I believe, that's due to come from assets held for sale. If you're not able to generate that, again, I'm not sure where you are in terms of progress on that. If you are unable to generate that, do you need to then look at debt financing, additional debt financing to finance the overall transformation plan?

First of all, on the 700 million disposable program, we already executed 220 million. And for the rest of the program, we are very confident because we changed our strategy in identification of these assets, which are already earmarked and exceeding far above the amount of 700 million, so to make sure that we have the right, I would say, choices in terms of valuation and timing on the other end. Other points on the topic is the fact that these assets are mostly in evident side of the business, non-core, as we previously announced, but we already received a lot of mark of interest, quantitative ones. on the assets that we have here, Mark. So very confident on early disposals and announcements on the topic following the already 220 disposals that we announced.

Thank you, Annette. Thank you. I think it's now time to close. I just wanted to thank you again on behalf of the entire team and looking forward to speaking with you soon. Bye.

Thank you so much. This does conclude today's conference call. Thank you all for joining. You may now disconnect.