Atos Origin Sa

Before we get started, I'd like to draw your attention to the disclaimers on slide two. On the call with me today is Carlo Di Saro-Biondo, our Group Chief COO, and Jacques-Francois Duprest, our Group CFO. For the agenda today, I'll share key messages related to our first quarter of 2024. and some updates on the current discussions with our financial creditors for a refinancing plan. Carla will cover in more details our performance in commercial activity for Evident and tech foundations, and Jack Francois will go over the refinancing discussions. Then we'll take your questions. So now let's turn to key highlights for the first quarter of 2024. Group revenue for the first quarter of the year was 2.5 billion euros, down 2.6% organically year over year. The revenue decrease reflects a continued market softness in Americas and in the UK for evident, and we're seeing also lower scope of work with certain clients in Americas and Central Europe for our tech foundations business. Order entry was 1.6 billion euros for a book-to-bill of 64%. Evident book-to-bill was 83% compared with 79% in the prior year, driven by stronger demand and high-performance computing. Tech Foundation's book-to-bill was 47% compared with 68% in the prior year as clients delay contract decisions. Regarding the group profitability, operating margin was 48 million euros in the quarter representing 1.9% of revenue. Our cash position was a billion euros at the end of the first quarter, reflecting primarily a 1.3 billion reduction of working capital actions compared with the year end December 2023. Our net debt position was 3.9 billion euros at the end of the quarter. As was already communicated last month, we've opened an amicable conciliation procedure, which is with the aim of reaching a refinancing plan with our financial creditors by July 2024. And that is done with the framework of a conciliation process. And discussions with our banks and bondholders are ongoing. And the implementation of a 450 million euro interim financing plan is in progress now based on current market conditions and business trends we're working on updating on updating our 24 to 27 business plan and that should lead to an increase in of the parameter of cash needed to fund the business into a potential additional reduction in total debt we will communicate any changes to that business plan and to the refinancing parameters to the market in the coming days. As a result also of this work, we decided to extend to May 3rd the refinancing proposal deadline in order to allow all stakeholders time to incorporate new information, again, that we'll be sharing with the market in the coming days. Our plan is to evaluate all the proposals that will be submitted on the 3rd of May under the ages of the conciliator, Maître Hélène Bourboulou, and we'll discuss them with our creditors, and then we'll decide on the best path forward. Our objective remains to reach a refinancing agreement with our financial creditors by July 2024. With that, I want to just turn now the call to Carlo, who will comment on our first quarter performance.

Thank you, Paul, and good morning, everyone. I'd like to go now into more details about Q1 performance.

Group revenue was 2 billion 479 million euros, down 2.6 organically compared with Q1 2023. Evidence revenue was 1 billion 164 million euros, and decreased by 3.9% organically, reflecting continued softwares in America and in the United Kingdom. Tech Foundation's revenue was 1,314,000,000 euros and decreased by 1.5% organically, reflecting lower scope of work with certain clients in America and Central Europe. Regarding our commercial activity, order entry for the group was 1 billion and 586 million euros for a book to build of 64 percent down for 73 percent in q1 2023 reflecting delays in concert awards as clients await the final resolution of the group's refinancing plan evident order entry was 966 million euros leading to book to build of 83 percent compared to 79 percent in prior driven by improved commercial activity in high-performance computing. Tech Foundation order entry was €620 million, for a book-to-bill of 47%, compared with 68% in prior years, as client delay contract decisions, particularly in public sector, as we said before. Regarding profitability, group operating margin in the fourth quarter of 2024 was €48 million, representing 1.9% of revenue, compared with 3.3% in prior year. Evident operating margin was 22 million, or 1.9%, down 330 basis points organically, reflecting revenue shortfall and lower utilization of billable resources. Tech Foundation operating margins were 26 million, or 2%, up 50 basis points organically, reflecting the continued execution of our transformation plan. Let me now comment evident commercial activity. Evident book to bill was 83% and improved by four points compared with the same quarter last year. Order entry was particularly strong at BDS, which recorded a book of bill of 104% with three large high-performance computers orders. I would like to focus on them. First, we have signed a new contract with the Danish Center for AI Innovation, owned by the Novo Nordisk Foundation, and the Export and Investment Fund of Denmark to construct a state-of-the-art AI supercomputer. The supercomputer is designed to cater to large-scale projects that utilize AI and prioritize the highest level of security to support Danish data sovereignty. The new HPC is expected to be one of the most powerful AI supercomputers in the world, and its goal is to accelerate research and innovation in various fields such as healthcare, life science, and the green transition. We have also been selected by several French public administrations to provide a major extension to the capacity of the Jean Zay supercomputer. This announcement marks a new step towards sovereign AI in France and is funded by the France 2030 program, which was announced by the French president. The third HPC contract signed during the Q1 concerns the capacity extension by four times of the Santos Dumont supercomputer. securing the computer's rank as the most powerful in Latin America for academic research. These significant wins illustrate the unique combination of our expertise in HPC, AI, and cybersecurity, which offers unparalleled advantages with best-in-class cooling technologies, advisory on AI computing design, data science on use cases, and expertise to design, build, deliver, and operate. On the side of digital deals, a contract with the federal office in Germany by using Red Hat technology, the authority is significantly accelerating its digital transformation process. The products and services meet all ethical law requirements, in particular security regulations. A second contract, another one, with the European Parliament to implement and maintain a SAP-based financial information system.

Let's move to tech foundation commercial activity. For this quarter, tech foundation book to bill was 47%.

Business was temporarily affected by a slowdown in the commercial activity as we face softer market conditions. We also saw the impact of customers delay contract awards. Regarding the contract wins, I would like to highlight these three deals. We extended a contract with an Asian bank to provide mainframe services. In Egypt, we won a contract with a government entity to support and implement smart campus network in order to facilitate seamless communication, high-speed connectivity, and intelligent data management. And finally, we signed a six-year contract with Macomb County in North America to migrate the client from an on-premise system to a cloud-based ATOS solution, providing infrastructure services for the next-gen 911 call handling.

quickly turning to our revenue performance by region.

As you can see, our business has a well-balanced geographic mix with Northern Europe and APAC representing 30% of group revenue, America, 22%, and the rest of Europe, 45%. Quickly, details on each regional business unit in the next slides. Size in Europe, 1,000 Europe, apologies. was up 0.7% organically. Evident revenue grew mid-single-digit, reflecting strong activity in high-performance computing. Digital activity grew as well, benefiting from large contract wrap-up in Spain and with a major European utility company in France. Tech Foundation revenue declined low single-digit following contract completion with banking and public sector customers, as expected. America's revenue decreased by 7.5% on an organic basis, reflecting the current general slowdown in market conditions. Digital services were down, reflecting contract completion and volume decline in healthcare and insurance. BDS revenue declined on a tougher comparison with the prior year, as the supercomputer was delivered in South America in Q1 2023. Revenue in tech foundation was down due to contract completion and scope reduction of select customers, as expected. Central Europe revenue was down 3.8% on organic basis. Evidence revenue slightly declined as growth in digital activities in Germany and Austria offset lower activities in BDS. Tech foundations revenue declined, high single digit reflecting delays in public sector spending. Northern Europe and Asia Pacific revenue decreased by 3.2% on organic basis. Evidence revenue declined, high single digit reflecting a lower demand for public sector healthcare and insurance customers. revenue in tech foundation was slightly up with contribution from asia and increased bpo activity in the uk of setting some volume decline in the healthcare sector to conclude on the overall revenue evolution i would like next slide yes good i would like to illustrate that waterfall starting by the two million 806 million, 2 billion, 806 million revenue reported last year for Q1. That revenue was restated by 16 million euros. This is due to the review of the accounting treatment of certain software resale transactions following the decision published by ESMA in October 2023, as we explained already during our financial year 2020 results publication. Organic revenue evolution was minus 2.6%. That is 67 million euros. Scope effect was negative by 239 million, reflecting the divestiture for Italian operations, of UCC business, of Eco Act, and of the share in the gin venture with the state street in Americas. Currency effect never had the impact, the impact revenue by 4 million euros. They mostly came from the depreciation of the American dollar, the Argentinian peso and the Turkish lira. not compensated by the appreciation of the British pound. Group revenue was therefore 2 billion 479 million euros in Q1.

Let's move to the group profitability.

Group operating margin in the first quarter of 2024 was 48 million, representing, as said, 1.9% of revenue compared with 3.3% in prior year. Evident operating margin was $22 million, or 1.9%, down 330 basic points organically, reflecting the revenue decline, lower utilization of B-level resources, and investment in advanced computing. Tech Foundation's operating margin was $26 million, or 2%, up 50 basic points organically, reflecting the continued execution of its traditional transformation plans. Finally, we're adjusting our 2024-2027 business plan and will be communicating any decision in the coming days based on our current market condition and business performance for the first quarter of the year, as Paul said.

Let me very quickly talk about headcount evolution.

The total headcount was 93,632 at the end of March 2024. decreasing by 1.6% compared with 95,140 at the end of December 2023. This means that during the first quarter, the group hired 3,079 staff, of which 94.7 were direct employees, while attrition rate in the first quarter of 2024 was the lowest Q1 over three years at 13%, versus 15.3 in 2023. Thank you. I will now turn the call to Jacques François, who will provide an update on our refinancing solutions.

Thank you, Carlo, and good morning, everyone. I would like now to focus on the refinancing discussions. As a reminder, we have entered into an amicable conciliation procedure at the end of March in order to frame discussions with our financial creditors. This is to facilitate the emergence of a global agreement regarding the restructuring of our financial debt within a short and limited timeframe of four months, which could be further extended by one month if needed. On April 9th, we have also announced the implementation of an interim financing of 450 million euros with groups of banks and bondholders and with the French state. The implementation of this interim financing is in progress. We also presented the key parameters of our refinancing framework based on our business plan. However, Based on current market conditions and business performance for the first quarter of the year, we will adjust our business plan for the whole year 2024 and onwards. This should lead to an increase of the parameter for cash needed to fund the business and to a potential additional debt reduction. We will communicate on that in the coming days. Consequently, we decided to extend to May 3rd the refinancing proposal deadline in order to allow all stakeholders time to incorporate new information. We will evaluate all proposals under the aegis of the conciliator Maître Hélène Bourboulou in the best corporate interest of the company, including its employees, clients, suppliers, shareholders and other stakeholders, while maintaining an attractive business mix. We will also take into consideration the sovereign imperatives of the French state. We are confirming targeting to reach a refinancing agreement by July 2024. At the end of March 2024, cash and cash equivalents and short-term financial assets was €1 billion, and net debt was €3.9 billion, reflecting primarily a €1.3 billion reduction of working capital actions compared with December 2023. Thank you for your attention. Paul, I think you can now launch the Q&A session.

Thank you, Carlo. Thank you, Jacques-Francois. Sharon, can you just really now move to the questions session, please?

Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Once again, if you would like to ask a question today, please press star 1 and 1 on your telephone keypad.

Once again, if you'd like to ask a question, please press star one and one on your telephone keypad. Thank you. We will now go to our first question. One moment, please. And your first question.

comes from the line of Nicolas David from OdoBHF. Please go ahead.

Yes. Good morning, Paul. I have just a very quick one. I'm not sure that we'll be able to provide a lot of color about that, but when you mentioned a change in performance and market condition, what do you mean by that? It's more on the really operational side because Q1 was pretty in line, I think, now in terms of organic growth. So I suspect that it may be more on the bottom line in free cash flow. Or is it also a market condition in terms of financing and appetite from potential investors? Could be a bit more precise about that. Thank you.

No, thank you so much for your question. So no, I would say a couple of things that are a little bit different. One is that we're not seeing the rebound in the market that we would have expected to start for Q2. We realized that in the first quarter that was a carry-on softness that we had seen in some markets in the Americas and the UK for evidence. And as we had indicated, some softness also for the tech foundation in areas like Central Europe or with certain type of industries or customer segments. So we were expecting some turnaround, and we're not seeing that, and that softness has seemed to be persisting. So that's the first thing that's the market environment. The second one is certainly something that we're seeing also, which is delays in some contract awards as customers await the outcome of some of our refinancing discussions in some cases. In some other cases, they're just really delaying their contract award for other reasons. And that is also impacting a little bit more our outlook for the full year. So we're trying to incorporate those two points in our projections to make sure that we have the appropriate amount of understanding of their impact on the cash need for the business for the 24 and the 25 timeframe in particular. And then... be able to just really make sure that we reflect that properly in our key parameters. And as we indicated, we'll give that information to the market in the coming days.

Right, that's good.

And just a follow-up on that, yes, because the book-to-bill of tech foundation, obviously, is low. Is it something which is supposed to have an impact in the very short term? Or given the very recurring profile of this business, it's more something... which can affect the business more at the end of the year in terms of revenue.

Yeah, I can give it to Carlo in a second, but I think generally speaking, the tech foundation is a little bit more lumpy, except that we were expecting two large contracts to be signed by now. And again, this is one of those circumstances where it's been pushed out a little bit. Decision has been pushed out due to, again, the client awaiting a little bit more understanding on the outcomes of our refinancing these are decisions where clients are you know want to do work with us and just really waiting to see how this is going to be playing out but they don't have impact as on the tech foundation things will not have impact near term but much more more potentially on 25. but i'll leave it carlo anything you want to add no i would add clients are delaying some decisions

Also, and in particular, because they love the quality of the service and they want to stay with us. So Tech Foundation is a business of long-term contracts. So the impact for this year will be actually very limited. And what we believe is that as soon as the situation clarifies, we'll be able to rebuild the pipe. But there will be some impact if there will be some impact in 2025 for this, not in 2024.

That's on the Tech Foundation side. The Tech Foundation.

yes that's clear thank you very much you're welcome thank you once again if you would like to ask a question please press star one and one on your telephone keypad that is star one and one on your telephone keypad we will now go to our next question one moment please And your next question comes from Derek Macon from Bernstein. Please go ahead.

Good morning, guys. Two questions for me, if I can. The first one on TFCO. So first quarter performance seems very good versus what you expect for the year. So can you help us to understand what would be the momentum of TFCO business in Q2 and H2? to reconcile the minus 1.5 in Q1 and the minus 6 that you target for the year? That's my first question. And the second question is on the bookings of evidence. Do you have the share of short-term bookings within the 966 million euros that you posted and recorded in Q1? I think it's a KPI you gave in the past that is really helpful for us to understand What would be the dynamics of your revenue for coming quarters? And also in this 966 million euro bookings for Evident, can you split that between BDS and digital? Thank you.

All right. That's just like you said, two questions, but there's three components. Let me just make sure. On the TFCO side, I think it's a good start. In a sense, it has a little bit more the business is carrying on with a good backlog coming into the year. So I do believe the first half seems to be pretty steady. I think we're just really being cautious in the plan that we had originally given on the financial trajectory of the business to make sure that the second half of the year will be more impacted by any potential, as I mentioned, a delay of you know new contracts or uh or you know or scope of work with clients until our refinancing solution is um is is done so i think a good start uh hard to uh re how to tell beyond again the first half of the year um the second question had to do with more detail behind the Some KPIs, I think I'll have to get back to you. I don't have that information in front of me. The other thing you asked is the breakdown in the book-to-bill, you said. Is that what it is for the BDS?

Between BDS and digital.

BDS and digital, I would say book-to-bill, we said that the digital was 75% and the BDS was 104%.

Thank you very much. All right.

Thank you.

There are currently no further questions. I will now hand the call back for closing remarks.

All right. Again, thank you so much. I look forward to, we will be updating, as we mentioned, some of these parameters in the coming days. And we'll look forward to being on our call with you at that time. Thank you.