Atos SE

Good day and thank you for standing by. Welcome to the Atos Fall Year 2022 Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 and 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to the Atos management team. Please go ahead.

Thank you, operator, and good morning, everyone, and thank you for joining us for the presentation of the Atos full-year results for 2022. I'm Nordin Biman, Group CEO and Co-CEO in charge of Tech Foundation, and I have with me today Diane, Group Senior Executive Vice President, Philippe Olivin, Co-CEO in charge of Evidence, and Nathalie Senechaud, our group CFO. For the agenda today, Philippe and I will first share the highlights of the group performance in 2022. We will then cover the performance of Tech Foundation and Evidium. Diane will then provide an update on the significant progress we have made in our transformation project. And Nathalie will then go through our financial performance. And at the end, we will share with you our outlook before going to Q&A. As you know, 2022 was an eventful year for Atos. The key event was the announcement in June of our strategic transformation plan, which we began to execute immediately. Through this strategic plan, and thanks to the strong commitment of our 111,000 employees, our transformation is already well underway. In terms of financial performance, 2022 was a tale of two halves, as we delivered a strong recovery in all TPI in the second half, enabling us to achieve our full year objective. In Q4 in particular, we recorded a significant pickup in our commercial momentum with a book-to-bill of 112%. This renewed commercial traction demonstrates Atto's strong position in its core markets and the enduring attractiveness of the group's offering. In addition, we have made good progress in focusing our portfolio on core offerings that are differentiated and meet emerging customer needs. Moving forward, we are embracing 2023 with confidence. While we are mindful of the current macroeconomic context, we see ahead of us wealth of opportunities and are confident in our capacity to continue improving our performance throughout the year. Finally, we have achieved significant progress towards our envisioned separation within only eight months and we are on a clear path for completion in H2 of 2023. This separation will be a turning point in the group's history unleashing the potential of both future entities and maximizing value for all our stakeholders. Looking now at our key financial figures at the group level. 2022, Atos returned to growth. Our revenue reached €11.3 billion, growing 1.3% at constant currency, which is at the high end of our guidance. We stabilized our revenue organically with a continued improvement throughout the year, quarter after quarter. Operating margin was 3.1%. I will remind you that in H1, our operating margin was 1.1%. So in H2, with the team, we managed to drastically improve the margin to 5.1%, despite continued cost inflation. This was driven by significant action focused on improving structure costs and the performing contract, And pricing. Free cash flow was minus 187 million in 2022. Excluding the cost related to the group transformation plan, free cash flow was in fact minus 58 million, better than the group 2022 objective of minus 150 million. Nathalie will elaborate on this point later in the course. Net debt was minus 1,450 million at the end of December, resulting in a 2.4 OMDA ratio, providing a really large headroom for our covenant of 3.75. Headcount at the end of the year was 110,797. Let's go now into more detail about our human resources in the next slide. Our headcount was slightly up by circa 1,700 people net over the year. However, you may remember that we were close to 112,200 at the end of June. This means that we decreased by a net 1,400 people in H2. This is the result of more selective hiring in H2, as we said, with circa 13,000 hiring compared to the 16,000 in H1, and more restructuring which doubled in Q4 versus Q3 as we started to implement our transformation plan in countries such like the US or UK. Lastly, in September, for the first time, Atos was listed as one of the Europe's best workplace in the Great Place to Work 2022 annual list. As of today, we have achieved Great Place to Work certification in 19 countries, and we are expecting twice this number in addition over the coming weeks. representing an all-high time in the number of countries and in our employee positive engagement. We continue investing in our people with more than 85,000 certifications achieved in 2022. So to summarize this slide, Atos remains an attractive employer. We continue to focus on offshore and nearshore locations, representing 62% of the new hires in 2022. And at the same time, we started in H2 to be more selective in hiring and to accelerate our restructuring in line with our plan. So now looking in detail at Tech Foundation, and I would like to start by thanking the entire Tech Foundation team for the impressive turnaround they achieved already in H2. In 2022, we delivered fast and tangible first results on our strategic roadmap, which I remind is based on three pillars, refocus, recover and rebound. Refocus, we mobilized our team around an ambitious turnaround project and put full focus back into the business. We managed to pass on some price increase to our customer around 50 million Euro in 2022 in order to mitigate cost inflation. In addition, a comprehensive set of action were initiated to reshape our portfolio by reducing our exposure to some BPO and to the value added recently. Additionally, you have seen that we announced also the strategic sale of UCC with Mitel Networks. In our second pillar, Recover, in 2022, we took major steps to start reducing costs, in particular, significant adjustment of our cost base in the US and UK. overall we executed on the 100 million of run rate cost action driven by reduction in high cost country headcounts we launched strong action to reduce also underperforming contracts and our third pillar rebound we increase add-on revenue on our existing existing contracts draw revenue rotation as our win rate on renewal was 10 points higher in 2022 than in 2021 And we're successful in winning new logo and large deals. We accelerated building partnership to enhance our cloud offering and upscale our delivery. We also revitalized our project roadmap for edge sovereign cloud and public cloud offering. Furthermore, we have reduced by 40% our number of offering in 2022 as to reposition our portfolio around the area of strengths, which are global leadership in managed infrastructure services and employee experience, European leadership in private hybrid and sovereign cloud, visionary offering in managed services enabled by AI, and we continue pioneering tech in decarbonization. Looking now at Tech Foundation performance on slide 10. Tech Foundation revenue was slightly in excess of 6 billion. In 2022, our top line momentum improved dramatically as we were down only 1.6% organically, which is a sharp improvement compared to the minus 11.4 in 2021. You remember we achieved an early than anticipated organic growth in Q3. And in Q4, we accelerated the rationalization of our portfolio as we tackled large underperforming contracts, particularly in BPO pensions, and further reduced value-added resale, excluding non-strategic activity, BPO and VAR, where revenue was deliberately reduced, as well as UCC. Tech Foundation core business grew organically by circa 1% in Q4. Also, interesting to highlight, is that our core infrastructure business, which accounts for roughly one-third of the tech foundation revenue, declined by circa minus 5% in 2022, excluding VAR. So we are now back in line with the market. Digital workplace, where we are world leaders, having more than 5 million users, recorded a robust growth, so did professional services unit, which is a structurally growing and profitable business. Operating margin was 1.3% for the year, turning positive three years ahead of the plan. Further, our margin in H2 was 3.6%, represented a 470 basic point improvement over H1, driven by significant cost action we took. Let's now focus on our commercial momentum. Overall, you will see a significant acceleration in our commercial momentum quarter over quarter. In Q4, Tech Foundation book-to-bill picked up at 94% compared with the 83% in Q4 last year. We are clearly starting to reap the benefits of our refocused commercial strategy while being carefully selective on the new contract we take in in order to drive our margin up. Looking at the key metrics, we significantly increased our order entry by 16% with cross-sell and upsell growing overall by 20%. In particular, new logo increased by 50%, which is a significant improvement versus 2021. Furthermore, we are back on the large deal front. Order entry from large deal, I mean more than 50 million, grew to 20% of the mix, and we aim to continue to drive this even higher. I will mention two examples. We signed an eight-year partnership with the European Soccer League, USA, to provide a comprehensive and secure end-to-end digital solution. We won also a large contract for an industry-leading digital workplace engagement extension with a large worldwide healthcare company. We also win another new logo where we will provide as well digital workplace services over three years to a newly formed global consumer company. Lastly, a word about the strategic partnership we signed with AWS late November. This type of partnership between Infrastructure Player and Icoscaler is really demonstrating the shift to accelerate workload migration to the cloud and achieve digital transformation for our customers. Atos has selected AWS as its preferred enterprise cloud provider, and AWS named Atos as a strategic partner for IT outsourcing and data center transformation. As of today, we already have jointly built a pipeline of circa half a billion US dollars and launched a group-wide upskilling program in AWS certification since the announcement. So with all those good news, I will now pass on to Philippe.

Thank you and good morning. Everyone regarding the vision. We also had a very dynamic and productive year. So, we position our strong value proposition around our key differentiation factors and unique key competitive advantage that we will build on to deliver the success that we're expecting. If I'm looking at the core building blocks that are making us unique, you can see easily that we have global leadership in managed security services, emerging end-to-end cloud capabilities that we're building with a 100% cloud-native operating model, very strong offering in sovereign cloud and decarbonization, And let me insist on the fact that we are the sole European manufacturer of high performance computers and advanced computers operating with more and more sovereignty requirements coming from the clients and from our market. Our expertise in application management and transformation is also a key differentiation factor and all those capabilities are leveraging and helping us out in showing our capability in everything that is related to mission critical systems. We have a clear roadmap to tap the significant synergy potential that exists between these offerings. With the aim to position Avidian as the leading provider of high value-added services and solutions to customers, we are increasingly mindful of sovereignty and security requirements. Our integration strategy of our key technology assets is uniquely positioning our company to provide innovation that matters to our clients. on advanced computing, artificial intelligence, cybersecurity, and data analytics. Now turning now to the next slide to review Evidian's performance. In 2022, Evidian delivered revenue in excess of $5.3 billion, up 4.8% at constant currency and 2% organically. As expected, growth accelerated strongly through H2 at plus 5.4% in H2, and plus 11% in Q4. This acceleration was delivered thanks to the significant ramp up of our advanced computing business that you remember is following a very strong that we delivered in Q2, not only on high performance computers, which ramps very strongly in Q4, but also in our advanced servers and high-end servers, where we have a key differentiating expertise on both the performance side, but also the decarbonization side. Also, what I want to highlight is a steady, strong growth in cybersecurity services, where Evidian is capitalizing on our global leadership, and we're basically, we are continuously gaining market share on the market, growing faster than the market growth. We are also seeing a strong acceleration in digital and our cloud business. Ebedian delivered 5.2% operating margin in 2022, also with a strong improvement in H2 at 6.7% compared to 3.5% that we had in H1. This improvement was driven by all the key actions that we started to implement at the beginning of our fiscal year, better discipline on our cost base, different pricing strategy, increasing our utilization rates and billability of our workforce, and obviously higher volumes in our advanced computing business that facilitated our ability to absorb the fixed costs of our manufacturing plants. As you can see in H2, evident potential of profitable growth started to show up, and we are only at the start of our journey toward our 2026 ambition. Now turning to our commercial activity, we are continuously delivering a very strong book-to-bill in Q4, standing at 130%, driven both by BDS and digital. We continue to be very selective on our portfolio strategy that we started to implement, where we can demonstrate the power of our portfolio and our differentiation factors. This translated into more short-term signings, offering us a faster revenue yield assumptions. 51% of our Q4 bookings were less than 18 months of total contract duration, compared to 43% in Q4 last year. We also have a smaller size, which is a great demonstration of the efficiency of our Salesforce. 66% of our Q4 bookings were below 10 million compared to 59% in Q4 last year. Obviously, smaller deals offer a lower risk profile, but also generating a better margin potential. In terms of significant contract that we want in Q4, I will just mention a few that illustrates our strong market positioning. First of all, we are going to install a brand new high-performance computer of the Max Planck Society, a world-leading science and technology research organization. This new system is based on the latest Vue Sequoia XH3000 platform, and in its final configuration, These new environments will deliver a performance that will be three times higher than the current system that Max Planck is operating. I will remind you that we delivered six out of eight high-performance computers as part of the HPC program, including in Italy, for Cineca, the fourth most powerful supercomputer in the world, which is a great achievement. In cybersecurity, we also won a significant contract. to control that is a civil military organization dedicated to supporting European aviation. What I think is very important is that the first demonstration of our power in artificial intelligence on managed detection and response, that is the ultimate evolution of our cybersecurity portfolio. And that's also something that is generating a significant traction on the market. In digital, we want to contract for major global retail company where we will design, build, and roll out new IT system based on mobile application, embracing the new digital world, and supporting, let's say, enablement platform built on Microsoft Azure. That is one more time reinforcing our cloud migration capability and strategy. And still in digital, we want a very large contract with Siemens to deliver next generation integration on IT service management, leveraging also our ecosystem, especially related to a brand new service management capability that matters to the seamless operation that Siemens is trying to implement. So to summarize, I'm really pleased with the momentum gradually building up at Avision. We are clearly going in the right direction, and I'm very impatient to show how much more we can progress this year, especially in 2023. I will now hand over to Diane for an update on our transformation project.