Atos, a global leader in digital transformation, high-performance computing and information technology infrastructure, today announced its financial results for the first half of 2022.
Atos’ new leadership team, Nourdine Bihmane, Diane Galbe and Philippe Oliva, said: “Commercial momentum improved strongly in Q2, with a sharp rebound in order entry from existing and new customers and several high-profile contracts signed, including an additional high-performance computer as part of the EuroHPC program. On top of usual seasonal movements, operating margin and free cash flow were impacted in H1 by inflation and supply chain-related headwinds. We expect a significant improvement in both metrics in the second half, supported by improvement actions launched earlier in the year, on our cost structure and contract portfolio. In consequence, we are fully confident of achieving our full-year objectives. We have successfully secured our debt financing; our envisioned transformation plan is now fully funded for the interim period before the contemplated split into two listed entities, and our liquidity is significantly strengthened.”
|
€M |
H1 |
H1 |
Variation |
Variation at constant currency |
|
2022 |
2021 |
|||
|
Revenue |
5,563 |
5,424 |
+2.6% |
-0.6% |
|
Operating Margin |
59 |
302 |
||
|
In % of revenue |
1.1% |
5.6% |
-450 bps |
-460 bps |
|
OMDA |
369 |
633 |
||
|
In % of revenue |
6.6% |
11.7% |
-510 bps |
|
|
Normalized Net income (loss) |
-119 |
162 |
||
|
Net income (loss) |
-503 |
-129 |
||
|
Free Cash Flow |
-555 |
-369 |
||
|
Net debt |
1,792 |
1,129 |
H1 2022 performance highlights
Atos is currently benefitting from a renewed commercial momentum, with a sharp rebound in order entry in Q2, at €2.8 billion compared with € 2.0 billion in Q1, and a strong sequential improvement in book-to-bill, at 101% in Q2 compared with 72% in Q1. Order entry included several high-profile contracts with existing and new customers, including a supercomputer as part of the EuroHPC program (the 6th awarded to Atos, out of 8 in total in the program). This ramp-up of commercial traction underpins the revenue growth acceleration expected in H2, and indicates strong customer support of Atos’ envisioned transformation plan, as more than €0.6 billion of new orders were signed post announcement.
Revenue was € 5,563 million in H1 2022, slightly down -0.6% at constant currency. On an organic basis, revenue decreased -2.1%, with a continued sequential improvement in Q2, at -1.9% compared to -2.4% in Q1. Tech Foundations reported a much more contained decrease than in FY21, at -2.6% at constant currency, thanks to renewed focus under the Group’s new governance. The Evidian perimeter grew +2.0% with robust trends in Digital and Cybersecurity and a temporary low level of HPC sales driven by cyclicality and supply chain challenges. Acquisitions contributed +1.6% to the Group’s revenue growth. Foreign exchange contributed +3.1%, mainly reflecting the appreciation of the American Dollar and the Pound Sterling against the Euro over the period.
Operating margin was € 59 million, or 1.1% of revenue. On top of usual seasonality, it was impacted by high inflation (salaries, energy costs) and supply chain tensions, whilst the first benefits of the performance improvement actions launched in H1 are expected to unfold in H2. Operating margin was also hampered by the hiring of more than 16,000 new employees, mainly in Digital and BDS, and predominantly in offshore and nearshore countries, in anticipation of the growth expected in the second half, and in order to ensure the conditions for future success. H1 operating margin was consistent with the back-end loaded delivery embedded in the Group’s full-year objectives.
Free cash flow was €-555 million in H1 2022, driven by operating margin, working capital seasonality and costs related to restructuring and reorganizations planned at the beginning of the year, which are being executed swiftly.
Net debt was €-1,792 million at the end of June 2022. The Group’s liquidity remained strong, with €3.5 billion of gross cash and €2.3 billion of undrawn revolving credit facility.
Financing of Atos’ transformation plan successfully secured
Atos announces that it has successfully secured a new debt package, which will provide the Group with the funding it needs during the interim period before a potential split into two listed companies, and significantly reinforces its liquidity.
Atos has already received commitment from banks (subject to documentation) for the conversion of €1.5 billion out of a total of €2.4 billion of revolving credit facility commitment into an unsecured term loan with a maturity of 18 months with two 6-month extensions at the Group’s option. A €900 million revolving credit facility is maintained, maturing in 2025. Atos expects to sign the final documentation in the next few days.
As part of this process, the net debt/ OMDA financial covenant is reset at 3.75x and will be tested annually.
The success of this financing demonstrates banking partners’ strong support of the Group’s strategy and marks an important milestone in its envisioned transformation plan.
The interim period is fully financed ahead of the envisioned split into two listed entities, and the Group’s liquidity is significantly strengthened.
On July 13, 2022, S&P Global lowered Atos’ credit rating to BB. This new rating, which takes into account the envisioned transformation plan presented on June 14, still provides a favorable framework for the setup of an adequate and sustainable capital structure. It also allows Atos to continue to have access to a wide range of debt financing instruments, thus maintaining the flexibility needed to optimize its capital structure.
As highlighted by S&P Global’s statement, Atos’ liquidity is strong and its financial policy is supportive. In particular, S&P Global stated that Atos' planned liquidity should provide the Group with the means to deliver its transformation plan, with its now secured €1.5 billion term loan and, €900 million revolving credit facility, reduced commercial paper utilization, and €700 million in non-core assets disposals.
H2 outlook
Revenue growth at constant currency is expected to turn positive in H2, underpinned by the renewed commercial momentum observed in Q2, and the Group’s success in securing the right talents in H1.
Operating margin is expected to increase markedly as the benefits of performance improvement actions launched earlier in the year will materialize in H2. Such actions are focused on structure costs (including the unwinding of the Spring organization, a reduction in subcontracting, selective hirings and strengthened cost discipline), underperforming contracts and pricing. Additionally, Atos expects an uptick in operating margin in its hardware-intensive businesses, primarily HPC, driven by volume recovery and secured components supply.
Free cash flow, excluding additional costs of the transformation plan, is expected to improve significantly as a direct consequence of operating margin recovery, supported by positive seasonal working capital effects.
2022 objectives confirmed and refined
Atos reiterates that its FY22 performance will be back-end loaded, and refines its full-year objectives.
Revenue growth objective is unchanged, at -0.5% to +1.5% at constant currency.
Operating margin is expected at the lower end of the 3% to 5% range.
Free cash flow is expected at the lower end of the €-150 million to €200 million range excluding additional impacts of the envisioned transformation plan. Such additional impacts are estimated around €-250 million, including the cost of financing, in line with information communicated at Atos Capital Markets Day in June.
Progress in Atos’ value-creating separation project
The in-depth analysis of the separation project announced on June 14, 2022, is progressing to plan.
The launch of the consultation of the Group’s employee representative bodies is scheduled for early September, in line with the envisioned timetable.
The interim period before the envisioned separation into two listed entities is now fully financed.
The Company and its Board of Directors are convinced that this project is the most value-creating for all its stakeholders, considering notably the potential synergies between BDS and Digital, and prospects for improving Tech Foundation's operational performance.
As announced on July 13, 2022, Atos appointed a new management to ensure a successful execution of the strategic transformation project under consideration. Nourdine Bihmane is co-CEO and in charge of the Tech Foundations business, Philippe Oliva is co-CEO and in charge of the Evidian Perimeter and Diane Galbe is Senior Executive Vice President in charge of strategic projects and support functions.
In addition, the Group appointed a consultative ad hoc Committee within the Board of Directors, in charge of overseeing the study and implementation of the strategic project by the management team. This committee is composed of a majority of independent directors and is chaired by René Proglio.
Human resources
Total headcount stood at 112,180 at the end of June 2022, up +2.8% compared to 109,135 at the end of December 2021 (+2.1% organically).
In H1 2022, Atos hired 16,089 new employees (gross), of which 7,855 in Q2, mainly in Digital and BDS, and predominantly in offshore and nearshore countries, in order to support the growth expected in the second half of the year and to ensure the conditions for future success. Atos also welcomed Cloudreach’s 742 employees.
Operating Margin to Operating Income
|
(in € million) |
H1 2022 |
H1 2021 |
|
Operating margin |
59 |
302 |
|
Staff reorganization |
-73 |
-79 |
|
Rationalization and associated costs |
-33 |
-42 |
|
Integration and acquisition costs |
-18 |
-22 |
|
Amortization of intangible assets (PPA from acquisitions) |
-67 |
-79 |
|
Equity based compensation |
-11 |
-33 |
|
Impairment of goodwill and other non-current assets |
-91 |
|
|
Other items |
-64 |
-164 |
|
Operating income (loss) |
-298 |
-118 |
Operating income was a loss of €-298 million in the first half of 2022, compared to €-118 million in the first half of 2021.
Staff reorganization, rationalization, and integration costs amounted to €-124 million in the first half of 2022 decreasing compared to €-143 million in the first half of 2021. In H1 2022, Atos executed swiftly on cost optimization measures and reorganizations planned at the beginning of the year (for a total estimated annual cost of €-150 million).
Impairment of goodwill and other non-current assets for €-91 million in the first half of 2022, related to the impairment of assets associated with disposal groups classified as held for sale.
Other items amounted to €-64 million in the first half of 2022, compared to €-164 million in the first half of 2021. They included €-32 million related to the impairment of current assets related to the Russian business classified as held for sale.
Operating income to Net income Group share
Net financial expense amounted to €-129 million in the first half of 2022, compared to €-3 million in the first half of 2021. They included mainly €-109 million related to the disposal of Worldline shares in June, for net proceeds of €219 million, and €-13 million of net cost of financial debt.
The tax charge was €-77 million in the first half of 2022.
As a result of the above, Net income (Group share) was a loss of €-503 million for the first half of 2022, compared to €-129 million in the first half of 2021.
Basic EPS and diluted EPS amounted to €-4.55, compared to €-1.18 in the first half of 2021.
The normalized net income (Group share) excluding unusual, abnormal and infrequent items (net of tax) was a loss of €-119 million, compared to an income of €162 million in the first half of 2021.
Normalized basic EPS and normalized diluted EPS amounted to €-1.07, compared to € 1.48 in the first half of 2021.
Free cash flow and net debt
|
(in € million) |
H1 2022 |
H1 2021 |
|
Operating Margin before Depreciation and Amortization (OMDA) |
369 |
633 |
|
Capital expenditures |
-123 |
-154 |
|
Lease payments |
-207 |
-183 |
|
Change in working capital requirement |
-383 |
-394 |
|
Cash from operation (CFO) |
-344 |
-98 |
|
Tax paid |
-21 |
-46 |
|
Net cost of financial debt paid |
-13 |
-13 |
|
Reorganization, Rationalization & Integration costs |
-113 |
-147 |
|
Other changes |
-64 |
-66 |
|
Free Cash Flow (FCF) |
-555 |
-369 |
In the first half of 2022, free cash flow was €-555 million. On top of usual seasonality, whereby free cash flow is significantly lower in H1 than in H2, H1 2022 free cash flow primarily reflects the low level of OMDA recorded over the period, at €369 million, compared to €633 million in H1 2021.
The seasonal working capital outflow was €-383 million, primarily driven by a decrease in customer advanced payments.
Reorganization, rationalization and integration costs amounted to €-113 million and were primarily composed of staff reorganization costs.
Other items below free cash flow amounted to €-11 million and included mainly acquisitions net of the disposal of Worldline shares for €-92 million and the impact of foreign exchange fluctuation effects for €+98 million.
As a result, the Group’s net debt position as of the end of June 2022 was €-1,792 million compared to €-1,226 million at the end of December 2021.
Backlog
Full backlog at the end of June 2022, amounted to €22.6 billion, down €1.6 billion at constant currency compared to the end of December 2021, including €0.9 billion of corrections pertaining to prior periods, and representing 2.0 years of revenue. The full qualified pipeline was €7.1 billion, slightly up compared to the end of December 2021 and representing 7.6 months of revenue.
Condensed consolidated financial statement
Atos’ Board of Directors in its meeting held on July 26, 2022, has reviewed the Group half-year consolidated financial statements closed at June 30, 2022. The Statutory Auditors have completed their usual limited review of the half-year condensed consolidated financial statements and an unqualified Auditors’ report is in process to be issued.
Conference call
Atos’ Management invites you to an international conference call on Group first half 2022 results, on Wednesday, July 27, 2022 at 08:00 am (CET – Paris).
You can join the webcast of the conference:
- via the following link: https://edge.media-server.com/mmc/p/iiti2i5q
- by telephone with the dial-in, 10 minutes prior the starting time. Please note that if you want to join the webcast by telephone, you must register in advance of the conferenceusing the following link:
https://register.vevent.com/register/BIaf7b1d0609fe43269237c0b40f06802b
Upon registration, you will be provided with Participant Dial In Numbers, a Direct Event Passcode and a unique Registrant ID. Call reminders will also be sent via email the day prior to the event.
During the 10 minutes prior to the beginning of the call, you will need to use the conference access information provided in the email received upon registration.
After the conference, a replay of the webcast will be available on atos.net, in the Investors section.
Forthcoming events
October 26, 2022 (Before Market Opening) Third quarter 2022 revenue
February 28, 2023 (After Market Closing) Full year 2022 results
April 27, 2023 (Before Market Opening) First quarter 2023 revenue
July 26, 2023 (Before Market Opening) First half 2023 results
October 26, 2023 (Before Market Opening) Third quarter 2023 revenue
