Atos SE

Thank you for joining us this morning to discuss our full year 2023 results. On the call with me today is Carlo de Sarro-Biondo, our group COO, and Jacques-Francois Deprest, our group CFO. And for the agenda today, I will share some key messages related to our accomplishments in 2023, as well as current strategic initiatives underway. Carla will cover in more details our performance bylines of business and regions. And then Jack Francois will go over our financial statement for the year. I'll come back to with closing remarks, and then we'll take your Q&As. Before we get started, I want to draw your attention to the disclaimer that you'll find on slide three. And then you see the agenda. So let me move on to review the year. year end and you can see from the slide, we delivered group revenue and operating margin results that were in line with our full year guidance. This is my key messages. Our evident business reported continued growth and increased profitability in an environment where we saw a market softness in the Americas and in Northern Europe, particularly during the second half of the year. For the fiscal 23 tech foundations executed on this transformation plan, which was based, if you recall, on three pillars, refocus, recover, and rebound. And this has translated into a strong improvement in profitability and increased win rates with existing and new customers. Free cash flow for the second half of the year was slightly below our guidance, as we stated previously, and that was primarily due to deal slippage at year end. For the full year, Free cash flow was negative 1.1 billion euros, reflecting higher restructuring, separation, and transformation costs, as well as lower working capital actions compared with the prior year. Cash at the end of the year was 2.4 billion euros, including the benefit of working capital actions of 1.8 billion. Last year, our working capital actions were 2.3 billion. 2023 was a pivotal year for Atos as we successfully executed on our plan to create two distinct operating units in tech foundations and evidence. Each is well positioned to compete and grow in their respective markets. We're now focusing on leveraging the strength of our business offerings in those two businesses through our coordinated go-to-market strategy. We are evaluating strategic alternatives following the end of our negotiation with EPE for the potential sale of tech foundations and with Airbus for the sale of evident BDS business. Another key message is that we're in discussions with our banks and bondholders on a refinancing plan that will address our debt maturities. Those discussions were progressing with the support of an ad hoc and the , which is the committee interministerial, the restructurization industriel of the French Ministry of Finance and Economy. And now those discussions are going to be progressing within the framework of an amicable conciliation procedure. We're targeting a global refinancing agreement by July of this year, and we will present the parameters of our proposed refinancing framework to our creditors the week of April 8th, and we will provide an update to the market around that time. You should know that we have sufficient liquidity to operate our business until a refinancing agreement is reached, and we are working with our financial creditors on an interim financing that will provide additional liquidity cushion for us. And finally, we also received a favorable decision on TriZetto case earlier this month, vacating entirely the compensatory award. Now let me turn to our full year results. On this slide, we're showing our revenue operating margin and free cash flow for fiscal 22 for reference. Next to it, you'll see that guidance for fiscal 23. And in blue are results for fiscal 23. And as I mentioned earlier, we met our revenue and OM guidance for the year. Group revenue was 10.693 billion euros, up 0.4% organically year over year. Operating margin for the group was 467 million euros, or 4.4% of revenue. up to 170 basis points compared with the prior year. Both Evident and Tech Foundation delivered results in line with guidance and better than the prior year. Free cash flow for the group was negative 1.1 billion, roughly, euros, slightly below our targets for the year. And free cash flow, as I mentioned, for 23 reflected the higher restructuring separation and transformation costs and lower working capital actions compared with the prior year. Now, as I mentioned, we have two lines of businesses. Both we're investing to position them to expand their market leadership and bring unmatched value and innovation to our clients. Evident is a leading global player providing mission-critical IT services. Evident is a 5.1 billion euro business with more than 47,000 employees. operating in 45 countries. The business has strong intellectual property with over 2,100 patents and over 50,000 certification in digital, cloud, and next-generation technologies, including Gen AI. 20% of our top 30 clients have relationship with us over 10 years. And we have an average renewal rate of close to 90%, and more than 97% of our revenue is generated from existing clients. When you look at our key offerings in Evident, they range from transformation, acceleration, smart platforms, cloud migration and operations, and sustainability in our digital business. And for BDS, our offering is in digital security and advanced computing. Underpinning all of these offerings is our GEM AI capability. The key strategic priority for the business are modernizing client applications, delivering digitization at scale, and providing actionable insight to clients through data analytics and artificial intelligence. The business is also a leader in digital security, identity management, threat identification, and protection. And in advanced computing, Evident introduced the first FSKL computer in Europe, and we're introducing GenAI high-performance computing as a service. Now, all these offerings are well-recognized by the industry analyst community, including Gartner, IDC, Everest Group, just to name a few. Turning to Tech Foundation, the business is 5.6 billion euros in size with more than 48,000 employees. in operations in 69 countries. The business has a proven track record of serving clients with their mission critical operations. And the business has a balanced offering and geographic mix. The average relationship across the top 170 clients is 10 years with a 90% renewal rate. And the net promoter score for this business is 20% higher than industry peers. Tech Foundation is a leading IT infrastructure player with key offerings in hybrid cloud, infrastructure, technology advisory, customized services, business platform, and digital workplaces. And our key strategic opportunities and priorities actually in that business is to manage client's workload, workload in a hybrid cloud environment, transform operations powered by AI, focus on next-generation offerings, and aligning talents on post-generative AI opportunities and maintaining our leadership in helping clients in their sustainability and D&I initiatives. Now, let me turn the call to Carlo, who is going to give you more information on our performance in fiscal 23. Carlo?

Thank you, Paul, and greetings to everyone. I'd like to go into more details about operational results for fiscal 23. Revenue at Eviden was 5.1 billion euros last year, with a 2.9 organic growth. BDS revenue growth reached mid-single digits, driven by digital security and by significant contracts in high-performance computing, in particular in Europe and in India. With two of the highest performance computers in the top 10 globally, Chineca and Barcelona, Eviden is now the number one provider of HPC in Europe, India, and South America, and number two worldwide in high-end critical and in-memory computing on-premises or in the cloud. This technology is absolutely key at a time where GNI opportunities are arising everywhere. Our digital business line showed growth, strong revenue growth in Europe, driven by demand for specialized application development, application management, and next-generation products and services. America has shown softness in H2 in big complex projects due to a general market slowdown in the US as clients take longer to reward new business. Turning now to profitability, our operating margin in Eviden was 2.94 million euros last year, representing 5.8% of revenue and a plus 110 basis points improvement over 2022. There was also A sequential improvement through 2023, with operating margin reaching 6.3 in the second half. We are benefiting from cost takeout actions, better utilization of buildable resources, and higher absorption of fixed costs in advanced computing. While driving growth and profitability, we have continued to invest in our product design, in particular in GNI-related solutions and cloud frameworks. As an example, we are embedding GNI in our solutions which is allowing us to deliver greater savings to our clients. And our centers in India are continuing the developments of that solution with success. To go now to book-to-bill in Eviden, our book-to-bill was 94% for the year, with a Q4 lending just at 100%. On the pipeline development in Eviden, I want to call out a couple of elements. First one, we are increasing our focus on smaller projects in order to translate into faster time-to-revenue. We've been very careful in qualifying opportunities better and solutioning life's complex project to reduce the risk of execution. Having said that, our win rate for large deals has gone up by 10%. Let me now comment two of our recent wins in Q4. In Spain, we will implement for Canal de Isabel a new commercial system in SaaS mode, as well as the associated support and maintenance. This is a 51 million euro contract over four years for the water distribution in the 6.5 million people living in the Madrid community. All billing, repairs, service requests will be handled by this platform, which will be based on SAP S4 HANA in Microsoft Azure. The other one I would like to bring and to highlight and then to bring to your attention is the very first exascale supercomputer that will be delivered in Europe by Evident VDS to the Jülich Supercomputing Center in Germany. It is a 500 million euros project where Evident will build the first European system able to surpass the threshold of 1 trillion calculations per second. It is a key milestone to ensure Europe's scientific excellence and industrial independence. Jupiter, which is the name of the supercomputer, is designed to tackle the most demanding simulations and compute intensive applications in science and industry. For instance, human brain digital twins, most critical climatology research, and large AI models training for scientific community. This system is indeed one of the largest AI training machines in the world, with more than 23,000 GPU interconnected. And very important, we will also provide the dedicated data centers through our innovative modular data center architecture MDC. to deliver exascale machine through eco-friendly container. Let me now turn out to tech foundation. Revenue was 5.6 billion euro, decreasing organically by 1%, sorry, by 1.7%, reflecting the deliberate reduction in non-core activities, including the decrease of hardware and software resales that are low margin, which were down by 90%. We have also reshaped our portfolio by disposing of our UCC business in H2. BPO activities were up year on year, but this was due to a one-off favorable comparison effect. Growth in digital workplace and technological services helped to partially offset the structural decline in the on-prem outsourcing. Tech Foundation operating margin reached 172 million in 2023, representing 3.1% of revenue. This is a strong improvement of 210 basis points compared to 22, reflecting the quality of the execution of the transformation program, including the shift of the business portfolio toward higher margin new offerings. There was also a positive impact from the accelerated reduction in underperforming contracts via renegotiation and improved delivery, better pricing of new business, and continued reduction of low-margin non-core activities, such as resales. Our operating margin also benefited from the delivery of our workforce adaptation plans, especially in Germany. While delivering and probably overachieving on our transformation, we have also improved customer satisfaction and delivery quality parameters and developed full next-gen infrastructure offering, allowing to propose multi-cloud and AI-based services to customers who are looking to access to innovate. On book to bill, While we have successfully managed our top-line evolution, the book-to-bill has improved sequentially, quarter on quarter, reaching more than 117% in the fourth quarter, the highest recorded in the last three years, mostly due to a contribution of new services or new logos. On the full year, book-to-bill reached 94% versus 75% in 2022, so a significant improvement. The renewal rate is higher than 90%. testifies to the quality of service the company provides, while the wins of important new contracts in all our geographies demonstrate the validity of our multi-cloud and integration bridge approach. Regarding the Q4 contracts wins, I would like to comment specifically HSS in Australia and LCH in the UK and Ireland. We were able to win this opportunity thanks to our hybrid cloud infrastructure offering displaying our latest services orchestration layer. This demonstrates how our teams are smoothly integrating new offerings while leveraging some client intimacy to close larger transactions. I want to take the opportunity to thank them. Also, our digital workplace division remains very active, with strong wins, including large global new logos. Let me now quickly turn to geographies, starting with Southern Europe. Southern Europe revenue was 2.284 million, 2.284 million, up 3.9 organically. High single-digit growth in evidence was driven by strong performance in big data and cybersecurity and HPC. Digital also grew, benefiting from new customers' contact contracts as well as demand for application modernization and decarbonization solutions. Tech Foundation reported a low single-digit decline. The solid performance with public sector clients was offset by volume reduction in the aerospace and transport and logistics sectors. In the Americas, though, Revenues was $2,441,000,000, down 71% organically, reflecting a general slowdown in market conditions, delay in contract awards, and tougher comparison with the prior year. Both evident and tech-conditioned business were down year-over-year in Americas. In advanced computing, the delivery of HPC in South America in 2002 could not be compensated by another HPC delivery in 2023. while softer market conditions led to volume reduction in digital, particularly in finance, transportation, and healthcare. Tech condition was impacted by contrast scope reductions, notably in pharmaceutical and finance verticals. In Central Europe, revenue was 2,506,000,000, increasing by 2.2 organically. Solid double-digit growth in digital and BDS was driven by strong demand in the public and automotive sectors. Revenue decline in tech condition was due to lower activity in manufacturing and banking. Lastly, Northern Europe and Asia-Pacific revenue was 3.163 million, so 3.163 million, up 1.3% organically, reflecting solid demand from the public sector across Northern Europe and good performance in the financial vertical in Asia-Pacific. Digital activities were up single digit on solid demand from application modernization and cloud transformation, partially offset by reduction in low-margin lab-as-a-service business and lower HPC revenue compared to the previous year. which had benefited from several supercomputer deliveries. In tech foundation, growth came mostly from stronger public sector business in the United Kingdom and in the financial sector in Asia Pacific. Let me now very quickly talk about headcount evolution. The total headcount was 95,140 people at the end of December, 2023. A decrease by 14.1% compared with 110,797 at the end of December 2022. This was due largely to scope effects linked with the vast investment program. Excluding the scope impact, the decrease would have been 5.7% over the period. During the year 2022, the group hired 14,139 staff. 70% of hirings were in offshore and nearshore countries, showing the resilience and attractivity of our group in 2023. Attrition rate, this is important, declined from 21.6 in 22 to 14.5 in 23. By the way, those positive trends continued in January with the lowest attrition rate recorded in the last 25 years at 12.5%. Let me now conclude with the operational takeaways. In managing tech foundation and evidence, we have decided to manage tech foundation and evidence as separate entities within the group. However, we will adopt a coordinated sales approach to leverage synergies and maximize opportunities with Clay Van Doren leading sales for the group. On delivery excellence, and I really want to say that in my few months with the company, I was really happily surprised by the client's recognized delivery excellence of the activities of the group. We remain committed to our focus on delivering excellence as it is recognized by our clients. The dedication to exceptional service will continue to be the cornerstone of our operation in 2024. Investing in new offerings. We are dedicated to expanding our offerings, particularly by integrating AI into our digital and cloud automation tools. And India is the cornerstone to achieve that, so are the development centers there. This investment reflects our commitment to staying at the forefront of technological innovation and meeting the evolution needed by our clients. And it is deeply appreciated. Investing in our people. Our people are our greatest asset. And we will continue to invest in their development. We highly value our training initiatives and will further enhance them to ensure our team members have the skills they need to excel. On reinforcing leadership. we do understand the importance of strong leadership in driving operational execution and supporting the sets of new offerings. As such, we will continue to invest in leadership development to ensure we have the necessary skills to effectively lead in 2024 and beyond. On tech foundation, I will take the operational responsibility of tech foundation as Noureddine Binman decided to leave us, and we have new managers which have joined the group recently to help manage the company at the standards we need. Thank you. I will now turn the call to Jacques François, who will comment in more details on financial results.

Thank you, Carlo, and good morning to you all. I joined less than two months ago, so as you can imagine, it feels slightly more. Before I start, let me first tell you that our consolidated financial statements were established as usual on a going concern basis. All numbers I will comment today are in euros. I will now give you a snapshot of our key financial numbers for 23. Group revenue was 10.7 billion in 23, up 0.4 organically compared with 22, with evidence up 2.9%, and tech foundations declining by 1.7%. Order entry. reached 10.1 billion during the year, representing a book-to-bill ratio of 94%, up four points compared with 22. Group operating margin was 467 million, representing 4.4% of revenue, up 170 basis points organically, compared with 22, with both businesses contributing to this improvement. Free cash flow was minus 1.1 billion for the full year, of which $660 million restructuring and separation costs and $502 million lower working capital actions at year-end compared with December 2022. The net debt was $2,230,000,000 by the end of 2023 within our bank covenant. Net loss group share was $3.4 billion, mainly impacted by goodwill and intangible impairment charge of $2.5 billion and reorganization expense for 696 million. Total headcount of the group was 95,000 at the end of December 23, a decrease of 14% due to the disasters that occurred during the year and workforce optimization as we just commented. This is a 5.7% organic decrease of total headcount. Let me now guide you through our revenue evolution in 23. 2022 revenue was adjusted by 71 million, minus 71 million. This represents a 0.6% decrease versus the revenue that was published last year. This is due to the review of the accounting treatment of certain software resale transactions following the decision published by ESMA in October 23. During the year, scope impact was minus 3.9%, consisting mainly in the divestitures of Atos Italy UCC, and our stake in the State Street Joint Venture. Currency effects negatively contributed to revenue for minus 1.6%, mostly due to the depreciation against the Euro of the USD, the GBP, the Argentinian peso, and the Turkish lira. Organic growth was plus 0.4%, leading to a full year revenue of 10,693,000,000 euros. Group operating margin was 467 million euro, representing 4.4% of revenue. Evidence operating margin was 294 million, or 5.8% of revenue, up 110 basis points. And tech foundations operating margin was 172 million, or 3.1%, up 210 basis points, all organic percentages. You can see on the slide a reminder of the key levels that led to these profitability improvements. Let me now comment on the financial elements of the rest of the P&L. Non-recurring items were a net expense of 3.6 billion, and I will comment upon the key elements there. Firstly, reorganization costs amounted to 696 million, consisting in 343 million in workforce adaptation, of which 147 million for the extension of the German restructuring plan launched in 22 and 353 million in separation and transformation costs. Secondly, goodwill and other non-current asset impairments amounted to 2.5 billion euros. Full annual goodwill impairment test was performed at year-end in compliance with IS36 and in the context of the contemplated disposals of assets. Fair values were determined based on multi-criteria approach, including discounted cash flows, discount rates, reflecting estimated execution risks, and adjusted trading multiples, consistent with the methodology applied in prior years. Thirdly, in 2023, other items were a net expense of $169 million. Those exceptional items mainly included litigation costs and vendor contract renegotiations for $65 million, Net capital loss arising from disposals for 46 million, mainly due to the disposal of UCC, reassessment of onerous contracts that were accounted for in other items in 21 for 36 million. As a result, 2023 operating loss stood at minus 3.1 billion euros. Net financial expense was 227 million and was composed of a net cost of financial debt of 102 million, which increased by 73 million due to the higher interest rates, coupled with additional drawdowns on bank borrowings, and other net financial expense of 125 million, which include in particular the interest components on pension and liens. The tax charge for 23 was 112 million, Consequently, net loss group share was $3.4 billion, mainly impacted by goodwill and intangible asset impairment charges of $2.5 billion and reorganization expense for $0.7 billion. Now, free cash flow statement. Let me guide you through the key items. CapEx and lease payments totaled $562 million, down $94 million from the prior year. as the group further optimised lease and capital expenditure and moves to less capital-intensive activities. The negative contribution from change in working capital requirement was 391 million. We have taken lower working capital actions compared with prior year, as year-end working capital actions amounted to 1.8 billion euros. This compares with 2.3 billion in prior year, of which 862 million was factoring. Let me give you full clarity on these numbers on the next slide. Our working capital requirement at year-end was negative 319 million euro. The group indeed carried out specific actions to optimize its working capital. These actions are of three different natures. Non-recourse transfer of trade receivables for 712 million. Other specific actions on trade receivables for 455 million. consisting mainly in the reduction in the average payment period for trade receivables, as well as specific actions on trade payables for 650 million, resulting mainly from the extension of supplier payment execution. Those specific actions did not comprise any reverse factoring measure. Bear in mind that in the 650 million, you have any past due invoice, including if it is overdue by one day. Back to the free cash flow statement. The total of reorganization, rationalization, and integration cost reached $660 million compared with $283 million in 22. Restructuring cost was $605 million, of which $382 million of one of separation and transformation costs. Cash out related to other changes was $312 million and consisted mainly of cost incurred on onerous contracts for $129 million. payment related from past settlements with customers and vendors, and legal costs for 115 million. As a result of the above impact, mainly driven by reorganization costs and the change in the working capital requirements, the group presented the negative free cash flow of minus 1.1 billion in 23 compared with minus 187 million in 22. The net cash impact resulting from net disposal amounted to 411 million, and mainly originated from the disposal of Atos Italian Eco Act. This corresponds to the end of our 700 million disposal program launched in 22. No dividends were paid to Atos AC shareholders in either 23 and 22. The 38 million cash out that you can see on the table corresponded to taxes withheld on internal dividend distribution. I will now comment on our cash position. As you can see, The group net debt position as of 31st December 23 was 2.2 billion, compared with 1.45 billion as of December 31st, 22. The group remained within its borrowing covenant applicable to the multi-currency RCF and term loan A with a leverage ratio of 3.34 times at the end of December 23. Our leverage ratio must not be greater than 3.75 times and is calculated excluding IFRS 16. Cash, cash equivalents, and short-term financial assets at the year-end were €2,423,000,000, and we had also a headroom of €320,000,000 undrawn RCF, which was drawn early January 24. Regarding our term loan A, as we already communicated, the first six-month maturity extension of the €1.5 billion term loan A has been exercised end of January, pushing its maturity to July 24. Such maturity is subject to another six-month maturity extension subject to standard conditions. I would now like to comment the liquidity position of the group. We are conducting constructive discussions with our banks and bondholders with a view to enhance liquidity and tackle upcoming debt maturities. These discussions will now be framed under an amicable conciliation procedure in order to facilitate the emergence of a global agreement by July 24, following on from the mandate ad hoc procedure initiated last February. We have sufficient liquidity to operate our business until a refinancing agreement is reached, and we are in discussions with our banks and bondholders on an interim financing to provide additional liquidity cushion. Following the end of discussions with EPI and Airbus we are actively evaluating strategic alternatives. In parallel, we are making good progress in the execution of the 400 million euro asset disposal program announced in July 23. We are targeting to reach a global refinancing agreement by July 24. We will present the parameters of our refinancing framework to our creditors the week of April 8, and we will provide an update to the market. Once agreed by all parties, the final refinancing plan would likely result in a dilution of the existing shareholders. The refinancing of the group's debt maturities, as well as the execution of our asset disposal plan, are fully factored in our upcoming liquidity analysis plan. If these actions were to fail, indeed, that would question the going concern of the group. Let me now conclude my presentation with the outlook topic. Full year 24 objectives are not provided at this time. given current market uncertainties and contemplated sale of assets. We will communicate on Q1 at the end of April. Regarding the 26 objectives, the group withdraws previously communicated financial objectives, given the contemplated sale of assets and the ongoing debt refinancing discussions. Thank you for your attention. I will now turn the mic back to Paul for the conclusion.