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Atos has given an update on the Tech Foundations deal and its financial aspects with no real progress at this stage. Confusion and uncertainty abound, in particular on the capital increase. The renegotiations with EPEI should lead to the cancellation of EPEI’s stake in Eviden, a higher amount of cash paid for Tech Foundations (in return for which) and the reinforcement of the Onepoint position. Atos is still in discussions on its debt refinancing and is considering further divestments. What will
Companies: Atos (ATO:EPA)Atos SE (ATO:PAR)
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Organic revenue was down 3%, more than expectations. Conversely, the book to bill ratio improved thanks to Tech Foundations. Atos was impacted by lower volume in software and cloud licences and longer decision-making by customers in the US and an adverse comparative in South America. The stabilisation of revenue is anticipated in the Americas in Q4 23 (vs -13% in Q3 23). 2023 guidance is confirmed, thereby removing fears of a slippage regarding tough trading conditions in the US market.
The new governance does not change the scenario for Tech Foundations and massive capital increase announced in August 2023. The extended completion time will be even more negative in terms of business development and financing. The new target price takes into account a capital increase reset at the par value of the share (€1.0/share).
The appointment of Jean-Pierre Mustier as the new Chairman of the Board is positive given the disastrous results of Bertrand Meunier. The appointment of Laurent Collet-Billon as Vice-Chairman of the Board is the political aspect of the case considering the involvement of Atos in defence and cybersecurity. Inversely, the scenario for Tech Foundations does not change and shareholder approval of the operation (including the capital increase) has been delayed until early Q2 24. No hope of a lasting
Tech Foundation has revised upwards its mid-term targets vs the previous objectives given last year. Revenue growth is expected to be back in 2026 after a bottom of €5.0bn in 2024, one year ahead of the previous target. The operating margin is expected to be 6-8% of revenue in 2026 (vs above +5% in 2025 previously). The presentation of the measures show the scale of the task over the next few years.
Q1 23 organic revenue growth beat expectations (+2.8%) due to the strong growth at Eviden (+9.5%), boosted by the ramp up of the HPC activity on the back of strong orders in H2 22 and growth in application development and digital security. The Tech Foundations’ core businesses were flat, which was reassuring. The book to bill ratio improved in Tech Foundations and showed high volatility in Eviden. 2023 guidance is maintained. There is still no guidance for free cash flow.
Atos achieved the 2022 guidance after a long period of negative news flow. The H2 22 showed an improvement in the book to bill ratio (112% in Q4 22 vs 71% in Q3 22), and an improved organic revenue growth (+2.3% o/w +4.6% in Q4 22) and operating margin (5.1% vs 1.1% of revenue in H1 22). At the end of February 23, 80% of the €700m of divestments had been completed/or secured. The 2023 guidance is not exceptional but includes further improvements.
The decrease in organic revenue is slowing sequentially (-0.1% vs -1.9% in Q2 22) thanks to the earlier-than-expected stabilisation of the Tech Foundations activities. The recovery of HPC revenue in Q4 22 based on strong order intake in Q2 22 should support group revenue growth close to +1.5% at constant currency in 2022. The operating margin should be at the low end of 3%-5% of revenue. Atos confirmed the completion of the separation of its activities in H2 23.
Onepoint has made a €4.2bn offer for Evidian which does not integrate Evidian’s potential recovery by 2026 presented at the Capital Market Day in June 2022. Onepoint justifies this valuation by the deterioration in the performance of Evidian. Regarding this offer, all of Atos’ debt would be removed from its scope. The offer has been rejected by Atos which is expecting a higher valuation with the distribution and listing of Evidian shares as from mid-2023.
Atos reported a mixed set of figures for H1 22. Nevertheless, there were some positive achievements sequentially. In Q2 22, the decrease in organic revenue decelerated and the order intake jumped vs Q1 22. The operating margin was low in H1 22 (1.1% of revenue) and should improve in H2 22 thanks to restructuring, higher HPC volume, price increases and further work on underperforming contracts. Atos secured new debt to fund the transformation plan before the split into two listed companies.
The transformation plan includes two independent entities, SpinCo and TFCo, significant investment and the disposal of non-core assets. The joint announcement of the resignation of the CEO highlights a governance problem. In 2022-23, the funding needs are under control if there is no slippage in the execution of the plan. By the end of 2023, 70% of SpinCo shares should be distributed to Atos shareholders and the remaining stake should be monetized to fund TFCo’s transformation costs.
Q1 22 was hardly fantastic but there was some small improvement. Organic revenue decreased (-2.4%) showing a sequential improvement (-6.9% in Q4 21) partly explained by the catch-up in activity from Q4 21 to Q1-Q3 22. Revenue decreased at a lower pace than expected in infrastructure and increased in the digital business and cybersecurity services. High Performance Computing was affected by difficulties in the component supply chain. The low book-to-bill ratio was the bad surprise. The 2022 guida
Atos released its final 2021 figures that were in line with the preliminary numbers. The news flow does not improve significantly. 2022 guidance is disappointing with revenue between -0.5% and +1.5% at constant currency due to the continuing decline in the classic IT infrastructure and a low operating margin of 3-5% of revenue reflecting uncertainties on how much the decrease of IT infrastructure will slow and on the timing to pass on price increases to customers to offset wage inflation.
Bad news continues with significant impairments and provisions (€2.4bn in total) and lower 2021 revenue and operating margin than previously announced. There remains an undisclosed impairment (under assessment) to reflect a lower recognition of the group’s deferred tax assets. Nevertheless, it seems now that all is cleared up given the thorough analysis of all the contracts. The new organisation is simplified around three business lines (legacy infrastructure, digital & cloud services, big data
Atos missed all 2021 guidance. Revenue decreased by -2.4% on constant currency (vs stable revenue expected), the operating margin was c.4% of revenue (vs c.6% of revenue expected). The huge deterioration in free cash flow to c.€-420m is effectively very bad news. The new CEO’s priorities are the portfolio of services, the commercial activity, the cost base and a simplified organization. There should be a better visibility on the direction of Atos at the end of February 22.
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