Atos SE

Good morning to everybody. Thank you for joining us to discuss our half-year 2024 results. On the call today will be Carlo Dazaro-Biondo, our Group COO, as well as Jacques-François Deprey, our Group CFO. Before we start, I just want to draw your attention to the customary disclaimer that you find on this slide. Now for the agenda, I will share some key messages related to our first half 2024. Then Carlo will cover in more detail our performance by lines of business and region. And then Jean-Francois will go over our financial statement for the half year. And then I will come back with closing remarks and we will take your questions. As far as the highlights of the semester are concerned, first, The opening of the accelerated safeguard proceedings by the commercial court last week marks another important step in Atos financial restructuring process. In three words, Atos is saved. We now have an agreement with our financial creditors that secures the financing for the short and long term and provides ample liquidity to run the company. This plan establishes strong foundation for the company future with a total debt reduction of 3.1 billion euros and no debt maturing before the end of 2029. With this stronger capital structure, we target an improvement of our credit rating profile to double B by the end of 2026. So this is really the start of a new period of commercial recovery and the development for the group. with reinforced focus on serving our customers for innovation and high quality of service. Second, our revenue and operating margin for the first half of 2024 are in line with the business plan we shared with you on April 29th. We are investing for our future and our free cash flow for the semester reflects increased investments for customer and one-off reduction as announced, of our working capital optimization. Finally, on the operational side, we have seamlessly delivered the Euro Football Club. And as you know, our teams are currently fully mobilized for the Paris Olympics and the Paralympic Games. Our commercial activity was resilient during this semester. Our success rate on contract renewal was 88%. which demonstrates the confidence of customers in Atos. Let me now give you an overview of our first half 24 financial performance. Group revenue was 5 billion euro, down 2.7% organically compared with the first half 23. Evident revenue was affected by the general market slowdown in the Americas and by contracts co-production in the United Kingdom. Tech foundation revenue decreased due to lower scope of work with certain clients in America and Central Europe. Group operating margin in the first half of 24 was €115 million, representing 2.3% of revenues, compared with 3.3% in H1-23. The group operating margin was impacted by the allocation to the business of SG&E costs previously allocated to other expenses below the line as part of the separation project in prior year. Evident operating margin decreased beyond the allocation of SG&E costs. The profitability was also impacted by revenue decrease and lower utilization of resources. Tech Foundation profitability improved. The business benefited from the continued execution of its transformation program. There was also a positive impact from the accelerated reduction of underperforming contracts, their renegotiation and improved delivery, which more than compensate the SG&E cost allocation. Group free cash flow was at minus 1.9 billion euros for the first half of 2024, reflecting the planned reduction of 1.3 billion of working capital optimization compared to December 31st, 23. In addition, A decision was made to prioritize client capital expenditure and R&D, which will translate into future earnings, and conversely, to save on restructuring costs in order to manage our cash position. This translated into higher capital expenditure for H1-24 compared to H1 last year, and to lower restructuring costs. Now, I hand over to Jacques-Francois. Thank you, Jean-Pierre.

And good morning, everyone. Jacques François will cover the financial elements more in detail later on. And I would now like to share our key business highlights. Let me change slides. Let me introduce our HR and business highlights by providing some updates on our commercial activity. First half of the year was soft for the industry in general. We had nonetheless, in the course of the semester, several commercial successes, with in particular four large contract renewals and two new customers. Also, a limited number of customers decided to leave us and some contract awards were delayed as some customers are waiting for the formal finalization of our financial restructuring process. In this context, we had intense customer engagement and were able to secure a contract renewal rate of 88%. As stated in this context, commercial activity was lower in the first half of 2024 with a book-to-bill ratio of 73% compared with 93% in H1 2023, as contact awards were delayed. Evident book-to-bill was 85% in the first half of 2024, and tech foundation book-to-bill was 63%. I would like to highlight four illustrative deals, including renewals and wins. We signed new deals to provide application services to two large customers in Europe. We have also signed a four-year renewal contract with Eurocontrol to provide mission-critical systems as well as hybrid cloud and security services. We signed a three-year renewal contract with a U.S.-based used vehicle retailer to deliver computing, hosting, and networking solutions. Those example wins illustrate our commercial strategy focused on contracts with fast implementation and on large contracts for U.S. leveraging partners. Turning now to our revenue performance by region. As you can see, our business has well-balanced geographic mix, with Northern Europe and APAC representing 31% of group revenue, Americas representing 22%, and the rest of Europe, 44%. Let me provide more details on each regional business unit in the next slide. Southern Europe was stable organically. Evidence revenue grew low single digits. Digital activities grew, benefiting from the ramp-up of large contracts in Spain and with a major European utility company in France. Revenue in BDS grew thanks to HPC deliveries, high-performance computer deliveries in France. Tech foundation revenue declined low single-digit due to contract completions with select customers. America's revenue decreased by 6.9% on an organic basis. Reflecting the current general slowdown in market condition as illustrated by the performance of some of our peers. Evident revenue was down low double digit impacted by contract completion and volume decline in healthcare and finance. The delivery of a supercomputer project in South America in H1 2023 also provided a higher prior year comparison basis for BDS2 this year. Tech Foundation revenue declined low single-digit due to contract completion as well and scope reductions with select customers. Central Europe now, Central Europe revenue was down 4.5% on an organic basis. Avid and revenue declined mid-single-digit, impacted by a project delay in a mission-critical system and contract ramp-downs in manufacturing defense. Tech Foundation revenue declined mid-single-digit, reflecting volume reductions in manufacturing and banking sectors and delays mostly that delays in public sector spending. Northern Europe and Asia Pacific revenue decreased by 1.3% on an organic basis. Evident revenue declined low single digit. The revenue increase at BDS due to new business in advanced computing with an innovation center in Denmark was upset by the decline of digital revenue, reflecting a lower demand from public sector healthcare and insurance customers. Revenue in tech foundation was down single digit with volume decline in health care insurance and public sectors. Let me finish by talking about headcount evolution. You can see details on the slide. First, we were able to hire 1,900 employees in our global delivery centers thanks to the certification program that we've put in place. Second, we managed to adjust our headcount to the business environment. And third item to be noted, our attrition was lower than in H1 2023, and in line with our historical ratio. With that in turn, I turn the microphone to Jacques-Francois, who will comment in more detail on financial results.

Thank you, Carlo, and good morning to you all. Our consolidated interim financial statements were established as usual on a going-concern basis. I will now give you a snapshot of our key financial numbers for the half year 24. Group revenue amounted to 5 billion euro in the first half 24, down minus 2.7% compared with the first half 23, down minus 4.2%, and tech foundations declining by minus 1.4%. Group operating margin was 115 million euro, representing 2.3% of revenue, down 100 basis points compared with H123, with contrasted performance between tech foundations, which improved in the first half, and Eviden, mainly impacted by market softness. Our H124 revenue and operating margin, as well as cash, are in line with the business plan that we presented on April 29th. Free cash flow, with minus 1.9 billion euros for the half year, largely explained by 1.3 billion euro lower working capital optimization at half year compared with December 23 as planned. Also, we decided to increase our investments and conversely to lower restructuring costs as Jean-Pierre explained in his introduction. Net debt was 4.2 billion euro at the end of June 24. Net loss group share was 1.1 billion euro mainly impacted by goodwill and other intangible impairment charge of 1.6 billion euros. I will now comment more in detail these numbers. You can now see on this page the detail of the revenue growth. This revenue bridge is explained mainly by the revenue organic decrease of 2.7% that Carlo commented, as well as scope disposals last year. This leads us to a half-year revenue of €5 billion. Group operating margin was €115 million, representing 2.3% of revenue, down 100 basis points compared to H1 last year. This margin decrease comes mainly from the allocation to the business of SG&A costs, which were previously allocated to other expense as part of the separation project which was conducted last year. Evidence operating margin was 58 million, or 2.4% of revenue, down 230 basis points. Beyond the allocation of SG&A cost, profitability was also impacted by revenue decrease and lower utilization of billable resources. Tech Foundation's operating margin was 57 million euro, or 2.2% of revenue, up 30 basis points organically. the business benefited from the continued execution of its transformation program. There was also a positive impact from the accelerated reduction of underperforming contracts via renegotiation and improved delivery, which more than compensated the SG&A cost allocation. Let me now comment on the financial elements of the rest of the P&L. Net loss amounted to minus 1.9 billion euro, and I will comment upon the key elements there. Firstly, reorganization costs amounted to €60 million, a strong reduction compared with the €430 million cost incurred last year. Secondly, Goodwill and other non-current assets impairments amounted to €1.6 billion. The Group performed impairment for this June closing, considering the ongoing financial restructuring of the Group and the resulting offers received. At risk of stating the obvious, I remind you that this impairment charge is a non-cash item. Thirdly, in the first half-24, other items were a net expense of €150 million. Those items mainly included an additional loss on past disposals for €55 million, an advisor's fees on the financial restructuring of the group, an advisor's fees on assets disposals for €51 million. Net financial expense amounted to €175 million. The net cost of financial debt was €73 million, an increase by plus €33 million due to higher interest rates on the Term Loan A and the multi-currency RCF, for which additional portions were drawn in the second half of 23 and in January 24. Also, interest income was lower as a result of a lower level of deposits. Turning now to our free cash flow statements. Free cash flow was minus $1.9 billion for the half year. Let me comment on the key elements there. Firstly, the free cash flow for the semester reflects the planned reduction by $1.3 billion of working capital optimization compared to December 31, 2023. Details of these working capital actions are provided in the following slide. Decision has been made to prioritize clients' capital expenditures on R&D, which would translate into future earnings, and conversely, to save on restructuring costs in order to manage our cash position. This translated into 168 million higher capital expenditures in H124 compared to H123, and to 103 million lower reorganization, rationalization, and integration costs. You can see on this slide the various components of working capital optimization reduction of 1.3 billion euro. For Uniformation, this is not written on the slide, but that's on top, working capital optimization amounted to 1.6 billion euro at the end of H1 2023, a year ago. To conclude my comments on cash flow, let me give you clarity on the other change line. Cash out related to other changes was 167 million euro stable compared to H1 2023. This amount included 96 million euros of costs incurred on onerous contracts, 34 million euros of advisors fees paid related to the restructuring of the group and to asset disposals, and 13 million euros of legal costs. In conclusion, the group reports a negative cash flow of minus 1.9 billion euros in the first half 24, reflecting primarily stronger investment on customer contracts, and a 1.3 billion reduction of one-off working capital optimization as planned. I would like now to comment on the financial restructuring plan of the group. As a reminder, we announced on July 24th the opening of an accelerated safeguard proceedings by the Specialized Commercial Court of Nanterre. This approval from the court is a major milestone in securing our company's future, and it is based on strong financial terms. firstly this will provide sufficient liquidity to fund the business at near and long term we also secured 800 million euro interim financing providing the liquidity necessary to fund the business until close of the financial restructuring plan this interim financing will be refinanced at closing when the 1.7 billion euro new financing will become available secondly we will reduce significantly our net debt by 3.1 billion euro through 2.9 billion euros of loans and bond debt converted into equity, and 233 million euros capital increase open to existing shareholders, which is backstopped. Thirdly and finally, we will push out our debt maturity to 29 and beyond, which will provide more financial flexibility to operate business. Thank you very much for your attention. I will now turn the mic back to Jean-Pierre for the conclusion.