Atos SE

Hello and welcome to the Atos H1 2023 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, please press star 1 1 on your telephone to join the queue. To withdraw your question, press star 1 1 again. Please be advised that today's conference is being recorded. I would like to hand you over now to the Atos management team. Please go ahead.

Hello, good morning, everyone, and thank you for joining us to discuss Atos H123 results. I'm Nordin Biman, Group CEO and Co-CEO in charge of Tech Foundation, and today I'm joined with my colleagues, Diane Galb, our Group SEVP, Philippe Oliva, Co-CEO in charge of Evidence, and Nathalie Sinecho, our CFO. In today's call, I will first share the highlight of a group performance in H123. Philippe and I will then cover the performance of our two businesses, Tech Foundation and Evidence, After that, Diane will provide an update on our strategic transformation project. Then Nathalie will go through the detail of our financial performance in the first half of this year. And lastly, we will discuss our outlook before going to Q&A. So overall in H1, we have kept our momentum and continued to successfully drive our operational improvement. This ongoing improvement has translated into robust H1 results. In particular, we experienced solid commercial traction at the group level in Q2 with 112% book-to-bill. This is a significant improvement compared to Q1, which was at 73%, and evidences the relevance of the go-to-market strategy that are implemented at both tech foundation and Eviden. We also delivered a robust organic revenue grow at 2.3%, and brought our operating margin to 3.8%. Consequently, we have revised upwards our full year outlook for revenue growth and confirmed our operating margin outlook. We will come back to it at the end of the presentation. Our free cash flow in H1 was minus 969 million euros and should be broadly similar over the full year. This reflects the high test of execution of a major transformative action we are carrying out through the year, the margin expansion, including restructuring and tackling legacy underperforming contract, as well as internal carve-out activities and working capital normalization. We did achieve significant milestone in our transformation project in July, notably the separation of our internal operation into two entities, and we have fully secured our 700 million euro plus divestment program which we are now expanding by an additional 400 million euros. All of this was completed within a 12-month time frame. Let's now turn to Tech Foundation. As you remember, we recently hosted an Analyst Day that provided to the Tech Foundation team an opportunity to shed more light on our business and on the clear value creation plan that we have in front of us. We have redefined our portfolio around core activities in order to address a wider market and focus on a higher growth segment in order to deliver a core revenue growth up to 2% in the next two years and accelerating hereafter. We also highlighted our comprehensive margin expansion plan expected to deliver 1.2 billion euros in gross benefits by 2026. That will bring our operating margin to industry standards And as of today, we have already delivered 32% of this objective. It has been a very rich and productive first year for Tech Foundation. The strong execution of our plan led us to upgrade our midterm ambition, which are detailed at the bottom right of the slide. Another key aspect highlighted at the event was how AI is already and will continue to enhance all aspects of our business. At TechFoundation, we are actively embedding several GenAI platforms to improve our internal and external operations. In our offerings, for example, in Hybrid Cloud, GenAI will improve the management of IT infrastructure by automated incident triage, ticket routing, and problem resolution. Also, GenAI is a key technology in providing coding assistance to our infrastructure as a code practice. In digital workplace too, GenAI is changing the way we deliver our services with more personalized, context-aware experiences, knowledge management, and co-pilot offering readiness. We are developing new GenAI offering. Altogether, we are already having highly industrialized GenAI platform available with two new solutions already released, and we are working on a few additional specific partnerships, more to come. Many use cases are bringing benefit, not only in our sales function for crafting proposal, but also launching automated bid and RFP, response generation, or in procurement with supplier assessment. Overall, Tech Foundation is fully embracing generative AI technology in our offering, in our operation for our customers, and for our internal efficiencies. Turning back to our H1 result and starting with book to build, Book-to-bill in Q2 was 106% compared to 67% in Q2 last year. We exceed the 100 mark for the first time since the tech foundation business line was created. This is quite an achievement, and our refocused go-to-market strategy is clearly showing some tangible results. We improved the upselling on our top 100 account and successfully drove revenue retention with major long-term renewal in Q2. Commercial traction improved, in particular in the US, where we needed the most to rebuild sales teams and commercial pipeline, which we are doing, and it is starting paying off. Throughout Q2, we won several high-profile contracts, including a leading entertainment company based in the US, where we extended for five years a digital workplace contract and network operation. We are talking about a significant contract value with more than 80,000 clients with highly automated resolution. We renewed also a contract with Texas Department of Information and Resources where our private cloud and meant from other services model delivers adaptive, resilient, cost-effective, and secure services to over 35 state agencies. Another one. With Onda, we renewed for three years a contract to continue their modernization and delivery of their digital workplace services for more than 3,500 associates. And lastly, we won a contract extension with the European Commission, Digit, after 15 years of successful collaboration to accelerate their IT transformation project. And I will take a moment here to thank all our customers for the deep relationship we have been able to keep and maintain and grow during the years. If we move to the next slide, Tech Foundation generated revenue of 2.9 billion in H1. The core business was stable as the decline of hybrid cloud and infrastructure continued to soften while digital workplace and technology advisory posted a moderated growth. In parallel, we kept reducing our non-core activities which I remind BPO and all the hardware and software we sell as part of our portfolio reshaping strategy. As a result, we posted a managed organic decrease of minus 1.6% in total revenue for H1-23. As discussed during our analysis day, we are making steady progress on margin expansion plan targeting our 1.2 billion euro in gross benefit by 26. As of June 23, 32% of this target has already been achieved compared with 21% at the end of March, meaning that we had a very productive Q2 with an additional €120 million gross run rate benefit delivered, partially offsetting by cost inflation and backfilling and the impact of the revenue decrease. This achievement was primarily driven by headcount reduction in high-cost countries, €900 headcount in total during H1, and the continuous focus on addressing underperforming accounts, which accounted for 8% of our H1 revenue versus 9% last year. This concludes the Tech Foundation section, and I will now pass it to Philippe.

Thanks, Nordin, and good morning, everyone. So, like Tech Foundation, we did another robust first half. Strategically, we continue to expand our unique sovereign capabilities around data and our technology capabilities, as well as cementing the deep industry expertise that we have and which is enhanced by an efficient delivery model and a strong IP portfolio. In H1, we opened three new cloud centers in India and in Eastern Europe that we enforce our end-to-end cloud offerings from engineering, application migration to operation, and obviously improving the efficiency and competitiveness of our delivery capabilities. We also launched very significant capabilities that we're calling AI-ZAC CyberMesh. It's a cutting-edge cybersecurity detection and response solution powered by generative AI technologies and that we deployed in partnership with AWS. We also opened a new campus and leading research and development center in Grenoble, in France, with the capacity of 1300 people bringing expertise in artificial intelligence, decarbonization, and obviously our high-performance computing capabilities. Lastly, we are getting our digital identity solution ready for what is called on the market the post-quantum era. Notably, our evident leading products on identity management or encryption will evolve to be adapted to quantum threats by the end of this year. And that's an announcement that you've seen a couple of weeks ago. AI is a domain that we've been working for years. As you know, we already drive solution in infrastructure with our advanced computing solution, where we have specific high performance computers with AI application on premise or in the cloud for large research center, healthcare, and other application domain like climate change monitoring. Of course, GenAI is a fantastic opportunity on the market and also for us, and we're embracing it. So what is the GenAI offerings we are building? We are currently building offerings to help our customers fully leverage GenAI from application to orchestration capabilities, new business models, and obviously impact on the infrastructures. This also include a very practical way and pragmatic capabilities on how to roll it out in a corporate environment. That means tackling the regulatory and compliance, making sure that the data sets that we're using are highly secured and obviously ensuring the highest level of data encryption and security on those environments. This includes local solution and infrastructure from supercomputers to the edge. as many customers want to leverage GenAI in a private, sovereign, and high-end secured environment. In Europe, we are the unique player to be able to provide those kind of capabilities, and that's really something that we are continuously insisting on, related to the fact that we are the sole unique remaining hardware manufacturer in Europe. Our solution in the cloud, notably with our key partners, Microsoft OpenAI, Google Cloud and AWS, we are already supporting world leading customers in this domain and with a specific reference that is currently live for patient data management in the US. We need to use industry use cases. So we know that we are actively developing on the market many, many use cases related to product hyper personalization, knowledge management, patient assistance, or risk assessment and secure development capabilities and improvements. What we are doing differently is that we are already deploying internally what we call our coding acceleration and developer assistance solution to also drastically improve our cost-based effectiveness and obviously our time to market to ensure, let's say, a fast deployment of new application to our clients. And of course, we are working to apply genii to ourselves so internally we say we are drinking our own champagne we are driving genii project in consulting ourselves in marketing development in obviously application development but also in the knowledge base model that we're calling jenny that is basically the capitalization of all the ip that we're creating internally to ensure also a fast understanding and rollout of our co-innovative solution We all know that GenRI is a revolution. We all have to leverage it. But what is putting us in a unique position in Europe is really related to our first dealing with 8,000 data experts and our unmatched number of key patterns, such as our 260 patterns in cognitive solution, that means artificial intelligence, machine learning, and also our 100,000 patterns in advanced computing and more. Now let's go back to our H1 performance and starting with the book-to-bill one more time. Our commercial momentum remained really, really strong in Q2 with the 119 book-to-bill well-balanced between it all and our big data and our cybersecurity, our business. We maintain our focus on what we're calling short-term signings. That means ensuring that our backlog is really well positioned to extract fast revenue yield capability. Interestingly, our under-entry reflects the unique differentiating factors that set Evident apart. Highly synergistic portfolio. We won, as an example, a very large contract with Coca-Cola Hellenic Bottling Company to provide both application modernization, public cloud migration, data analytics, AI and machine learning, and everything protected with our cybersecurity portfolio. We also announced and demonstrating our leadership in HPC. We won our first major HPC contract outside of Europe with the Indian Ministry of Earth and Science for climate change monitoring. So it's really, really something that we can be proud of because that drastically changing the way our innovation is recognized on a global basis. Sovereign cloud offerings, we won a contract with the European Engineering and Technology Company to deliver first of its kind AI as a service through evident Nimbix portal, which is a key to the sovereignty cloud strategy and the blueprint for further AI offerings developments. We then also demonstrate our expertise in selected industry, which is allowing clients to really recognize our differentiated capability in very diverse sectors, including energy, utilities, healthcare, where we recently won a major US company to provide public cloud migration to Microsoft Azure, combining application development and cybersecurity. Now let's look at our revenue and operating margin. Evident delivered strong organic revenue growth at 7% in H1. Growth was strong in both cybersecurity and advanced computing, as well as digital and cloud business lines. Organic growth improved significantly compared to the same period last year, driven by smart platform and cloud transformational services, along with very positive trends in the public sector and military and defense activity in Europe. Our growth in Q2 is optically lower than what we deliver in Q1. This is a reflect of a higher comparison basis, plus 270 basis points higher than in Q1, and fewer networking days in Q2. But our underlying business trends in Q2 remain as solid as what we delivered in Q1. Evidence operating margin was 5.3%, a substantial increase compared to 3.5% in H1 2022. Despite continued cost inflation, we demonstrated improvement across all activities, resulting from effective cost takeout actions, portfolio rationalization, and higher cost of absorption in our advanced computing and manufacturing capabilities. With that, I now turn it over to Diane.