Atos SE

Good day and thank you for standing by. Welcome to the Atos Group first half 2025 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 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Philippe Salle, Chairman and CEO of Atos Group. Please go ahead.

Okay. Good morning, everybody. This is Philippe Salle. I'm in the room with Jacques François. start the presentation i will do the business highlights and the operating performance jacques francois will then talk about the financial results and the weekend we will wrap up with the outlook so if we start on the first topic first the h1 performance is in line we are very i would say pleased with the results that we have announced this morning We reiterate the guidance of 2025, the guidance that we have given on the CMD in May. Second, on the right, you have the genesis plan. So it's in force on the seven pillars. In fact, already three pillars have been completed. And we are, I would say, well engaged on the restructuring plan that we have, of course, launched in the beginning of this year. We estimate that we are, versus the restructuring, half of, I would say, of the journey. And we'll be probably at two thirds by the end of the year. Third point, we have signed with the French state yesterday night. During the night, in fact, the SPA for the French, the advanced computing. So remember that we had a press release on June the 2nd saying that we have been able, I would say, to renegotiate the deal because we have changed the perimeter. And then we confirm exactly what we have announced on the 2nd of June. We are entering now, I would say, in the phase of the carve out of the business and the closing will happen probably in Q2 26, between March and June, end of Q1 or in the course of Q2. And the last point that we strengthen the governance with board members, with a new board member, in fact, that joined the company in June. And we have done also the reverse split according, I would say, to the AGM of January where we announced, I would say, that we will launch this in the course of Q2, in fact, the 25th. Key figures, so revenues around 4 billion plus. The good news for me is that we are stabilizing, I would say, the revenues at roughly 2 billion per quarter. operating margin is 113 million which is roughly three percent of revenues 2.8 to be really precise and i would say it's a 15 organic growth versus last year which i think is quite a performance given of course the slide of the revenues order entry is 3.3 billion so it's improving we are restarting i would say to I would say Chase, of course, new deals, and it will continue, I would say, to increase in the course of the year. For information, last year, it was at 73%. So the free cash flow, we have said already, is around the minus 96 million. The net debt, 1.7 billion. And the liquidity, and we have advertised it, in fact, in the course of July at 1.8 billion. If we look at the book-to-bill ratio, as you can see, in fact, we have taken quite a hit in Q2 and Q3 last year. And of course, this translates, I would say, to loss of contracts in H2 last year. And of course, we have the effect in H1 this year. But as you can see, it's improving. And we are, I would say, quite confident that it will now increase in the coming quarters. We have put some... examples in fact in the below on the the major contracts or wins or renewals that we had in q2 now if we go to genesis this is the seven pillars i have shown in fact in may so the growth is done so we have i would say reorganized completely i would say the i would say the growth uh excuse me I would say the gross organization in the street has been selected. The bid excellence has been reviewed. The only thing, of course, that we have not touched is the HR is done. Country reviews, we have started, I would say, to launch this process. It's an acceleration in fact in H2 and I would say next year. We probably, I would say, exit probably 10 countries plus probably in the course of the second semester this year and we continue next year. Portfolio review is done also with the business sign offer, the contract review, so what we call the red and black contracts and the practice turnaround. Now the gross margin and of course the cost review, this is of course a journey that we have in the course of 25 and 26. So the billability rate in fact has increased, the pre-sales is completely done, the project margin announcement, it's the move to offshore is in course, it's a journey also, it will take some time. Delivery Excellence, that's the only topic that we haven't touched, but the CTO who is joining the company on September the 1st, we launched, of course, this project. Cost review, everything is under review. I would say we have done all, I would say we have identified, I would say, all the savings. And then the cash, DSO and DPO is in force. Of course, it's a journey also for the next probably two or three years. The DPO probably We will finish by 2025, 2026. And so for me, it's a two, three year project. Securitization, we will not do anything this year. CAPEX has been reviewed, and tax management with a new tax manager. In fact, there is a lot of things in course. Now, if I just zoom on some projects. So as I say, on growth, this pillar is down. So we have a new operating model. we have also reviewed i would say the backbone of our sales i don't know if you i have said that but we have what we call cep so client executive partners around 300 of them roughly one third will be a probably change in the course of h1 so some of them have been replaced already and probably in the course of h2 the idea for us is to have i would say the full team by the end of the year and we expect of course then to i would say to to see an increase, I would say, in the pipeline, of course, and in the deals in H2 and next year. Portfolio review, as I say, we have already exited one country, but it will accelerate for sure. And the low margin contracts, we are now back to only three contracts and probably two next year. And we are trying, I would say, probably to exit these two by 26 or 27. Of course, it will depend on the negotiations that we have with the customer. Delivery on the GNA, as I said, the billability rate now is at 79, so we are above 79%, so plus 3% versus the end of 2024. The offshoring rate, remember that we are targeting around 65%, so we have gained roughly one point. The cost base of the GNA has been reduced, I would say, by 10%. And as I said, overall, I would say the envelope of Genesys has been uh we are roughly at 50 percent of the envelope so of course some exits have been done at the end of each one this year it will accelerate in fact in h2 in some countries because we have negotiated i would say with the unions the exit and as i say we will be probably between 60 and 70 percent of the plan by the end of the year So if I look at the operating performance by segment now so just as a reminder, what was the revenues last year and this year, remember that we have a scope and which is well grid and foreign exchange, which is mainly in the US. US euro dollar, as you can see, we are roughly at a 2 billion around 2 billion, I would say, per quarter stabilizing I would say the revenues and minus 17% versus last year for the first semester. in terms of, I would say, the revenue by regional business units. So as you can see, in blue, you have Atos, and in orange, you have Eviden. So Atos, in fact, the severe hits we had, in fact, was US and UK, where I would say the customer were more, let's say, frightened on the situation of Atos in the course of 23 and 24, and to lesser extent, in fact, in Europe, so for Benelux and Germany and France. As you can see on the right, the number one country right now, given the new exchange rate, is Germany, around 19% of the turnover, the revenues of the company for each one. Then you have the US, 17%, France and the UK, around 15%, also international market. Then Benelux and Nordics are evident around 10%. If I look at the operating margin, so we are quite a good news. So we are roughly flatish versus last year. But if you take into account, I would say the scope we were agreed and the exchange rate, we are in fact increase the operating margin by 15%. Now, if we go deeper, I would say by business union and SBU, in fact, the good news is that ATOS is around 6% already. For the first time, Germany is positive in H1, and of course, there will be much more to come with the restructuring plan that is in force, that will, in fact, start in H2 this year and will be completed, in fact, in H1 next year. USA and Canada, 10%, and that will come back. France is 2%, which is also still low, and there will be more to come also with restructuring. UK, 909, international market, 8%, and Benelux is 6%. What is very important is also to understand that we have a seasonality for the SBU of Eviden. So Eviden is negative in the first half and will be strongly positive in H2. So overall, I would say Eviden, of course, will be positive for the fiscal year of 25. Now, if I deep dive, let's say, geo by geo on the ATOS, remember that ATOS is service and Eviden is hardware and software. So Germany first, the biggest country, as you can see, minus 8% in terms of organic growth. We have been able, I would say, to resign a very big contract, in fact, with one of the OEM in the automotive sector, and with a positive margin because it was a contract that was losing money. As I said, the operating margin now is positive. Of course, it's quite, I would say, close to zero, but it will be strongly, in fact, impacted by the restructuring, positively, of course. uh for 26. so we are definitely seeing that in 26 we will have a very tough very steep in fact increase in profitability and we will be probably back at five percent plus in terms of margin then if i go to the next one the us and canada this is uh of course one of the region where we have been hit i would say severely in terms of contracts around down because of course as you can imagine in the anglo-saxon world let's say the uh the risk department probably a stronger than i would say the the case in continental europe or in other countries and probably i would say some of our customers were a little bit frightened we have been of course uh also hit by the competition we have let's say used the i would say the weakness of fatos last year to try to steal some business not the case of course in h2 this year but for sure it was an opportunity for the competition i would say to try to stack, we say, to arm us a little bit. We have been able, I would say, to, of course, shave costs very rapidly. So the margin is increasing. Of course, it's a decrease in terms of quantum because, as you can imagine, the decrease of turnover is too strong, I would say, to have a profitability that can stay, I would say, the level of last year. Now, next, France also hit roughly of minus 11%. And also, we had a very slow start of this year in the public sector that is very strong in France. Remember, it has hit, in fact, all of our competition. Remember, since in France there was no budget for some time, it was not possible for our public, I would say, customers to launch new projects, and that's why there is a delay. We definitely think that there will be much more opportunities, in fact, in H2. The good news is that we have been able to increase, I would say, the operating margin. It's still too low, for sure, at 2%. But it's much better than last year, given the fact that we have also lost some contracts. If I go now to UK, same thing. We have been able to stabilize, I would say, the operating margin in Euro. But in fact, in terms of percentage, as you can see, we increased it roughly by 3 points. Still decreased also, like in the US, for the same reason. And also remember that in the UK, that's where the BPO contracts are there. And we have, of course, closed some of them. There are only two remaining. And we want to close, of course, both of them in the course of 26, 27. I already said, in fact, that there is one that is going to be terminated, in fact, in the course of next year, normally 26 or 27. And the second one is a much longer contract. And we are in negotiations, I would say, to stop this contract. Now, last, international markets. Also quite, I would say, some decrease. Remember that in the international market, so you have Latin America, Africa, Eastern Europe, and Asia, and we have also MEV, the major event business unit, of course, with the Olympics, with a strong turnover that was the last year. So there is an impact. And we have also a strong impact, in fact, in Switzerland also, where some clients have decided, I would say, to stop some contracts. However, as you can see, we have been able to manage the margin at 46 million, roughly 8%. So we are quite, I would say, pleased with the genesis, I would say, actions that we have taken in this region. Last, Benelux and Nordics, also an impact. Less, probably, I would say, than the rest of the, let's say, the other regions, around minus 5%. uh same thing i would say with the public sector that was impacted also with the i would say the beginning of this of this year and the good news as you have seen is that we have done a lot of restructuring in this region mainly benedict in fact in belgium and around and we have also signed new contracts that are in force in fact in q2 so we are quite confident i would say for the rest of the year With this, I give the floor to Jacques-Francois to review. Sorry, I have Eviden, sorry. I went a little bit too fast. So Eviden, remember, this is the hardware and software. Again, this, as I think we said that, but I would say this year is a very particular year with the Jupiter project and the Exascale that we have sold to Germany. remember also that we are also in the process of selling another exact scale in fact for france next year but in fact with the i would say the pattern of the delivery most of the revenues and the margin will be in h2 between let's say september and december so as i say we had minus 33 million so roughly flatish versus last year but in fact the h2 will be of course very strong and the profitability will come back on a yearly basis for evidence. Jacques-Francois, it's yours.

Thank you, Philippe. Good morning, everyone. Now that Philippe has gone through the drivers of the business operational performance, let me review the P&L items below the operating as well as the cash flow statements and the balance sheet. So let's start with the P&L. As Philippe indicated, Our operating margin amounted to €113 million in H1 2025. We incurred reorganization and rationalization charges for €379 million in total, of which €355 million reorganization costs as we have made significant progress in the execution of our restructuring program, and €24 million provision related to real estate leases. We did not impair any goodwill this semester, contrary to last year when we booked a €1.6 billion non-cash charge. Other items reached a negative €174 million. They include litigation provisions for €107 million and asset impairment for €35 million. The net cost of our debt reached €162 million, up from €73 million last year reflecting our new debt structure and including peak interest, non-cash interest, as well as the amortization of the 2024 fair value adjustment of the debt, according to IFRS 9. Other financial expenses were 40 million euros in the half due to debt lease and pensions. As a result, our net income group share amounted to minus 696 million euros. Okay, moving on to the cash flow statement. Free cash flow generation improved significantly year-on-year from minus €593 million to minus €96 million in H1 2025. We generated €309 million OMDA in the first six months and expensed €93 million in CAPEX and €122 million in LEASES. Our change in working capital requirements once we neutralized for the working capital action was positive of 167 million euro you might recall that these working capital actions i'm referring to are the cash that we received in advance from some customers at the end of 2024 and these customers were mainly from the public sector this positive 167 million comes mainly from the lower revenue and therefore lower associated trade receivables Due to timing effect, our cash restructuring expense was only, if I can say so, only 154 million euros. It is expected to accelerate in the second half of the year. Tax paid was 13 million euros, mainly due to one-off credits in the half and cash cost of debt 80 million euros. Other items amounted to 109 million euros. They included litigation settlements and onerous contracts cashed out. As a result, our free cash outflow was limited to 96 million euros. Turning now to the net debt bridge. At June 30th, 2025, net debt was 1 billion and 681 million euros compared to 1 billion and 238 million euros as of December 31st, 2024. Beyond free cash flow, it reflected the impact of the change in working capital actions for 176 million euros, negative Forex impact for 112 million euros and other elements such as peak. Another way to look at net debt is to start with cash and cash equivalent for 1.4 billion euros, which I deduct from the gross debt for a nominal value of 3.1 billion. And then we end up again with a net debt close to 1.7 billion. This is excluding the IFRS 9 fair value adjustment. As a result, leverage ratio increased to 4.0 times during the period. I remind you that our target is to reduce leverage below 1.5 times at the end of 2028. Before handing back over to Philippe for the outlook, I would like to clarify for you the impact of Forex during the semester. Whilst we have a degree of natural transactional hedging, we are exposed to currency translation. In the half, 17% of our revenues were USD denominated, hence the impact on reported aggregates. We also had a significant portion of our cash position in USD, which resulted in a negative impact on our net debt in euros. The euro to USD conversion rate evolution also affected our equity position, which led, when we added to our negative net results, to a negative equity position in consolidated of minus 90 million euros. at the end of June. You should be aware that currently we are under constraints which prevent from systematically hedging our transactional risk. However, with the ongoing normalization of our financial situation, we will increasingly be in a position to actively manage our currency exposure. Thank you all for your attention. I will now hand back to Philippe.