Atos Posts Financial Results of First Half of 2020

July 27, 2020

PARIS, France, July 27, 2020 — Atos announced its financial results for the first half of 2020.

Elie Girard, CEO, said: “During the first half of 2020, in the very specific context of the pandemic, we prioritized the health and safety of our people, while ensuring business continuity to our customers by delivering critical services supported by our resilient business model. We also started early in the semester to prepare our customers for the post-Covid times through our Future-Ready portfolio of offerings.

Thanks to this timely strategy and the unique profile of the Group, Revenue only declined by -2.8 % organically, with the bottom of the curve reached in Q2. While taking care of our customers in this very special period, our close to 110 000 colleagues around the world have achieved an outstanding commercial performance, with an Order Entry increased by close to 10% year-on-year. We signed in Q2 several large contracts encompassing Digital, Cloud and Security. Last but not least, the pipeline strongly increased by € 1.2bn, with customers progressively focusing on front-end transformation, Full Stack Cloud migration and Employee Experience while the demand also accelerates in Business Critical Applications, Digital Security as well as Decarbonization. In the latter domains, the acquisitions announced today will reinforce further our capabilities.

This strong dynamic also reflects the fast progress in the implementation of our SPRING program driving Industry specific offerings and go-to-market approach while enhancing our culture of customer obsession. With these first results of the Group’s pivoting, we are definitely very well positioned to deliver all our objectives this year as an important step towards our mid-term targets disclosed at our 2020 Analyst Day last month.”

 H1 2020 performance by Industry

Revenue was € 5,627 million, down -2.8% organically. In the context of Covid-19 crisis, Group revenue decreased only slightly thanks to its solid positioning in most of the Industries.

Revenue Operating margin Operating margin %
In € million H1 2020 H1 2019* Organic
evolution
H1 2020 H1 2019* H1 2020 H1 2019*
Manufacturing         1,037 1,142 -9.2%              13 81 1.2% 7.1%
Financial Services & Insurance         1,077 1,126 -4.3%            126 147 11.7% 13.1%
Public Sector & Defense         1,216 1,146 +6.1%            116 97 9.5% 8.5%
Telecom, Media & Technology            836 885 -5.6%              84 55 10.0% 6.2%
Resources & Services            804 827 -2.8%              43 73 5.3% 8.9%
Healthcare & Life Sciences            657 665 -1.2%              68 71 10.3% 10.7%
Total 5,627 5,792 -2.8% 450 525 8.0% 9.1%
* At constant scope and exchange rates

Manufacturing reached € 1,037 million of revenue, down -9.2% at constant scope and exchange rates. The Industry was impacted by a significant decrease of its activity mainly in Q2 due to Covid-19 in the Automotive and Aerospace sectors, especially in Southern Europe, North America and Central Europe. The Industry was also impacted by lower volumes with Siemens, mainly in North America, and the base effect of contracts ended in 2019 in Northern Europe. Operating margin reached € 13 million, representing 1.2% of revenue, due to some one-offs on difficult contracts and as a consequence of the revenue drop, and impacted by the ability to reduce the costs only partially within the first semester.

Financial Services & Insurance revenue was € 1,077 million, down by -4.3% organically. The Industry was impacted mainly in Q2 by a decrease of activities as several banking institutions have postponed and reduced discretionary expenses in the context of Covid-19. This was more particularly the case in North America and Central Europe while sales performed last year in Growing Markets were not repeated. Operating margin was € 126 million, representing 11.7% of revenue, decreasing by -130 basis points compared to last year, mainly impacted by revenue decrease in North America.

Public Sector & Defense revenue was € 1,216 million, up +6.1% organically, accelerating in Q2 2020 to reach +9.0%. The growth was driven by a strong demand in High Performance Computing activities, mainly in Northern Europe with a weather forecast institution and in Central Europe with a research center, while projects delivered last year in Southern Europe were not repeated. All other businesses were very resilient; this was particularly the case with higher volumes with European Union Institutions in Cloud solutions in Northern Europe and new SAP Hana deals in Central Europe. Operating margin reached € 116 million, representing 9.5% of revenue, an improvement by +100 basis points, led by the growth of the activity, a better business mix and strong costs reduction initiatives.

Telecom, Media & Technology reached € 836 million, down -5.6% organically. The Industry was impacted by application projects postponed and some contracts ramped down in most of the geographies, as well as legacy activities of Unified Communication & Collaboration, more particularly in Central Europe. On the opposite, a strong performance was recorded in North America led by Digital Workplace offerings, the ramp-up of a contract signed in Q1 with a major engineering company, new businesses and extensions with large tech and media companies, and finally organic growth from newly acquired Maven Wave. Operating margin was € 84 million or 10.0% of revenue, up +380 basis points, led by positive one-off transactions and effective cost measures.

Revenue in Resources & Services reached € 804 million, down by -2.8% organically. The business was strong in Energy & Utilities but more challenging in Retail & Transportation due to the high exposure to the pandemic. The project activities were impacted by less discretionary expenses mainly in North America and Southern Europe. Legacy Unified Communication & Collaboration activities remained challenging particularly in Central Europe. Conversely, the business was strong in Big Data & Cybersecurity with new projects in Energy & Utilities in Southern Europe, Growing Markets, and Central Europe. Operating margin reached € 43 million, representing 5.3% of revenue, down -350 basis points, coming from the revenue decrease, which actions on costs could only partly compensate, and a lower margin in the start-up phase of some new contracts.

Healthcare & Life Sciences revenue was € 657 million. The revenue decrease was limited to -1.2%, as the Industry delivered +2.6% organic growth in Q2. Application projects were postponed particularly for hospitals in North America, while Southern Europe recorded a strong activity in Digital projects. Conversely, the business segments based on multi-year contracts were resilient and achieving a global stability in revenue over the semester with an acceleration during the second quarter. Operating margin was € 68 million, representing 10.3% of revenue, broadly stable compared to last year.

 H1 2020 performance by Regional Business Unit

Revenue Operating margin Operating margin %
In € million H1 2020 H1 2019* Organic
evolution
H1 2020 H1 2019* H1 2020 H1 2019*
North America       1,355 1,423 -4.8%            208 193 15.3% 13.5%
Northern Europe       1,360 1,368 -0.6%            101 134 7.4% 9.8%
Central Europe       1,370 1,372 -0.1%              42 86 3.1% 6.3%
Southern Europe       1,143 1,229 -7.0%              86 85 7.5% 6.9%
Growing Markets          399 399 -0.0%              54 65 13.4% 16.4%
Global structures           –           –           –             -40 -38 -0.7% -0.7%
Total 5,627 5,792 -2.8% 450 525 8.0% 9.1%
* At constant scope and exchange rates

The first half of 2020 and more particularly the second quarter were impacted by lockdowns and restrictions which affected application project activities and fertilization on existing contracts, while businesses such as Digital Workplace, Cloud transformation, Big Data and Digital Security either continued to grow or were very resilient. Revenue was the most affected in Southern Europe where public measures were the most stringent. In North America, while the Covid-19 pandemic hit later than in Europe, customers took drastic reduction actions earlier.

  • In North America, revenue reached € 1,355 million, decreasing by -4.8% organically mainly coming from project postponements and volume reductions in several Industries. The Business Unit achieved growth in Telecom, Media & Technology as well as in Public Sector & Defense thanks to the ramp-up of the NG911 contract in California. Conversely, Manufacturing faced non-repeated product sales performed last year as well as volume decrease with Siemens;
  • In Northern Europe, revenue was roughly stable at € 1,360 million. Strong business was recorded in Public Sector & Defense mainly led by the continuation of the new contract with European Centre for Medium-Range Weather Forecast, and with European Union Institutions. The situation was more challenging in Telecom, Media & Technology, impacted by application projects postponed and some contracts ramped down, as well as in Manufacturing due to the base effect of contracts ended in 2019;
  • In Central Europe, revenue was stable at € 1,370 million, led by Big Data platforms in Public Sector & Defense, as well as new Digital Workplace contract with a global Life Sciences company and healthcare provider. The geography was impacted by application projects postponed particularly in Manufacturing (aerospace and automotive industries) and in Telecom, Media & Technology, as well as the legacy activity of Unified Communication & Collaboration. Conversely, the geography performed new sales with a large German manufacturer, new SAP Hana projects with Siemens, and increasing volumes with BASF and Rheinmetall;
  • In Southern Europe, revenue reached € 1,143 million, decreasing by -7.0% The geography was impacted by application projects postponed particularly in Resources & Services and Telecom, Media & Technology, as well as non-repeated sales in High Performance Computing activities performed last year both in Public Sector & Defense and in Manufacturing;
  • Growing Markets was stable year-on-year at € 399 million APAC and Middle East & Africa were roughly flat, the activity in South America was growing particularly in Resources & Services, while Major Events was impacted by the postponement of the Tokyo 2020 Olympic Games.

Operating margin reached 8.0% of revenue representing € 450 million, down -110 basis points compared to last year. The strong cost actions implemented end of Q1 have partly mitigated the revenue effect in most of the geographies. The situation was more challenging in Central Europe, more particularly in Germany due to a lack of flexibility in labor costs and some one-offs on difficult contracts.

Commercial activity

During the first semester of 2020, the Group order entry reached € 6,280 million, representing a book to bill ratio of 112%, of which 121% in the second quarter.

Book to Bill ratio was particularly high in Public Sector & Defense at 148%, Telecom, Media & Technology at 127%, and Financial Services & Insurance at 120%.

The main new contracts signed over Q2 included notably a large outsourcing contract in Financial Services & Insurance in Northern Europe, a Server and Cloud Management contract with a Belgian grid operator in Resources & Services, an application modernization contract with a loans group (Financial Services & Insurance), and a new contract with a customs and fiscal union (Public Sector & Defense), as well as a large contract with a German specialized manufacturer in Central Europe (Manufacturing).

Contract renewals in Q2 included large signatures with notably the European Commission (Public Sector & Defense) in Northern Europe, a large American financial services company (Financial Services & Insurance) and Texas Department of Information Resources (Public Sector & Defense) in North America, and a large French electricity and gas supplier (Resources & Services) in Southern Europe, as well as a German banking institution (Financial Services & Insurance) in Central Europe.

In line with the commercial activity, the full backlog at the end of June 2020 amounted to € 22.5 billion, compared to € 21.9 billion at the end of December 2019, representing 1.9 year of revenue. The full qualified pipeline was € 8.6 billion, compared to € 7.4 billion at the end of December 2019 and representing 8.8 months of revenue.

Operating income and net income

Operating income for the first half of 2020 year was € 362 million, resulting from the following items.

Staff reorganization costs amounted to € -80 million with the acceleration of the adaptation of the Group workforce in several countries, in particular in Germany. Rationalization costs were € -22 million resulting from the closure of office premises and data center consolidation, mainly in North America and France. Integration and acquisition costs amounted to € -20 million and were mainly related to the integration costs of Syntel to generate synergies as well as migration and standardization of internal IT platforms from previous acquisitions.

Purchase Price Allocation amortization was stable at € -78 million in H1 2020. Equity-based compensation plans also remained stable at € -35 million in H1 2020. In the first half of 2020, other items amounted to € 147 million, compared to € -24 million in the first half of 2019. The H1 2020 amount included the net gain, before tax, on the disposal of the Worldline shares which occurred in February 2020 for € 120 million. Additionally, the remaining 3.8% Worldline stake is no longer accounted for under the equity method and was therefore valued at the fair value at the disposal date, leading to a profit of € 54 million.

Net financial expenses amounted to € -1 million for the period compared to € -79 million for the first half of 2019. The variation mainly came from the decrease of the cost of debt from € -36 million to € -21 million as a consequence of the successive debt reimbursements in H2 2019 and in H1 2020 thanks to the disposals of Worldline shares, as well as the net variance for € +41 million related to the part of the Optional Exchangeable Bonds which is treated as a derivative from an accounting standpoint and the underlying Worldline shares.

The tax charge for the first half of 2020 was € -34 million corresponding to an annualized projected Effective Tax Rate (ETR) of 18.5% (excluding the tax effect of the Worldline transaction).

As the 3.8% remaining stake in Worldline is no longer accounted for under the equity method, Share of net profit of associates accounted for under the equity method is not significant and amounted to € 3 million in the first half of 2020. Non-controlling interests amounted to € -1 million.

As a result, the Group reported a net income of € 329 million for the half year ended June 30, 2020, representing 5.8% of Group revenue, compared to € 180 million for continuing operations in H1 2019. Both basic EPS Group share and diluted EPS Group share were € 3.02 compared to € 1.68 for both (for continuing operations) in H1 2019.

The normalized net income was € 319 million, representing 5.7% of Group revenue, compared to € 343 million for continuing operations in H1 2019. Both normalized basic EPS Group share and normalized diluted EPS Group share were € 2.93 compared to € 3.21 for both (for continuing operations) in H1 2019.

Free cash flow

Group free cash flow during the first half of 2020 was € -172 million, compared to € +23 million in the first half of 2019. The variation results mainly from c. € -60 million less Operating Margin before Depreciation and Amortization (OMDA) and from several working capital effects which will be recovered for a large part in the second semester.

OMDA was € 774 million representing 13.8% of revenue, compared to 14.5% of revenue in June 2019, reflecting the decrease of the operating margin, partly compensated by an improvement of the margin quality.

Capital expenditures totaled € -186 million, representing 3.3% of revenue, 30 bps higher than the same period last year. For the full year, capital expenditure will be in line with 2019, below 3% of revenue.

Change in working capital was € -407 million compared to € -269 million in the first half of 2019 due to reduced sales of receivables variation over the semester for c. € -65 million, timing effect of third party payments which became due in the first semester for c. € -50 million, as well as increased work in progress on large deliveries of High Performance Computing for c. € -25 million. All these effects will be caught up by year end. As of June 30, 2020, € 795 million of trade receivables were sold, compared to € 873 million as of December 31, 2019.

Cash out related to taxes paid amounted to € -55 millionCost of net debt represented € -21 million, decreasing by € 15 million due to the full reimbursement in November 2019 of the $ 1,900 million term loan related to the Syntel acquisition and the early redemption of a € 600 million bond in April 2020.

Reorganization, rationalization and associated costs, and integration and acquisition costs amounted to € -97 million in the first half of 2020. A larger portion of reorganization costs was pulled forward into H1 to maximize the impact on the full year operating margin.

Finally, Others amounted to € -7 million in first half of 2020. An improvement of € 19 million versus H1 2019 due to a decrease of one-time impacts.

Net cash evolution

Net acquisitions/disposals in H1 2020 amounted to € 1,239 million mainly relating to the disposal of the Worldline shares which occurred in February 2020 and the acquisition of Maven Wave.

In H1 2020, the impact of share buy-backs was € -45 million compared to € -76 million in the first half of 2019. These share buy-back programs are related to the delivery of shares under long-term incentive plans and aim at avoiding any dilution for the shareholders.

In the first half of 2020, no dividends were paid by Atos SE due to the exceptional circumstances linked to the Covid-19.

Foreign exchange rate fluctuation determined on debt or cash exposure by country represented an increase in net debt of € 62 million mainly in U.S. dollar, Indian rupee and Brazilian real.

As a result, Group net debt position as of June 30, 2020 was € 779 million, compared to € 1,736 million as of December 31, 2019. As a reminder, assuming the full conversion of the Optional Exchangeable Bonds, net debt would be € 279 million.

Human resources

The total headcount of the Group was 106,980 at the end of June 2020 compared to 108,317 at the end of December 2019. The Group welcomed 374 new employees from Maven Wave and Miner & Kasch acquisitions.

Excluding this scope effect, the staff decreased by -1.6% taking into account Covid-19 crisis and accompanying and anticipating the effect of automation and robotization. During the first semester of 2020, the Group hired 7,176 staff, compared to 9,165 in H1 2019. Hiring has been mainly achieved in offshore/nearshore countries such as India and Poland. Attrition rate was 11.8% at Group level (15.1% in H1 2019) with a strong reduction in Q2, of which 16.7% in offshore/nearshore countries.

2020 objectives

The Group confirms all its objectives for 2020, still based on the macroeconomic scenario of a progressive recovery over H2 2020 and 2021, as well as the management’s daily discussions with Group customers:

  • Revenue organic evolution: between -2% and -4%;
  • Operating margin rate: 9% to 9.5% of revenue;
  • Free cash flow: € 0.5 billion to € 0.6 billion.

Mid-term targets

On June 24, 2020, at the occasion of its 2020 Analyst Day, the Group presented its mid-term ambition to become “the Leader in Secure and Decarbonized Digital”, as well as its mid-term targets:

  • Revenue growth at constant currency: +5% to +7%;
  • Operating margin rate: 11% to 12% of revenue;
  • Free cash flow: an operating margin conversion rate to free cash flow above 60%.

 Two strategic moves announced today in the field of Cybersecurity and Decarbonization

 In line with its mid-term ambition including Decarbonization and Cybersecurity, Atos announced today that it has:

  • signed an agreement to acquire EcoAct, an internationally recognized carbon reduction strategy consulting firm based in France with over 150 employees and climate experts worldwide. The closing of the transaction is expected to take place in H2 and is subject to the final approval of Atos and EcoAct governance bodies;
  • entered into exclusive negotiations to acquire digital.security, a leading independent player in Cybersecurity in France and BeLux with 250 cybersecurity consultants and specific IoT knowledge. The closing of the transaction is expected to take place before the end of the year and is subject to the consultation with employee representative bodies of both companies.

For more details, please see the two separate press releases issued today.

 Appendix

Revenue and operating margin at constant scope and exchange rates reconciliation

In € million H1 2020 H1 2019 % change
Statutory revenue 5,627 5,744 -2.0%
Exchange rates effect 14
Revenue at constant exchange rates 5,627 5,758 -2.3%
Scope effect 32
Exchange rates effect on acquired/disposed perimeters 2
Revenue at constant scope and exchange rates         5,627           5,792   -2.8%
Statutory operating margin 450 529 -15.1%
Scope effect -6
Exchange rates effect 1
Operating margin at constant scope and exchange rates 450 525 -14.4%
as % of revenue 8.0% 9.1%  

Scope effects amounted to € +32 million for revenue and € -6 million for operating margin. They are mainly related to:

  • the acquisition of Maven Wave, consolidated as of February 1, 2020 (5 months for € +44 million for revenue and € +2 million for operating margin);
  • other acquisitions (Miner & Kasch, IDnomic, X-PERION) for a total amount of € +13 million for revenue and a neutral combined effect on operating margin;
  • the disposal of some specific Unified Communication & Collaboration activities mostly in H1 2020 as well as former ITO activities in the UK beginning of H2 2019, and the disposal and decommissioning of non-strategic activities within CVC, for a total amount of € -25 million for revenue and € -7 million for operating margin.

Currency exchange rates effects positively contributed to revenue for € +15 million and to operating margin for € +1 million mostly related to the appreciation of the U.S. dollar against the Euro which has more than compensated the depreciation of both the Argentinian peso and the Brazilian real against the Euro over the period.

 H1 2020 revenue performance by Division

Revenue
In € million H1 2020 H1 2019* Organic
evolution
Infrastructure & Data Management          3,101 3,179 -2.4%
Business & Platform Solutions          1,963 2,128 -7.7%
Big Data & Cybersecurity            563 485 +16.0%
Total 5,627 5,792 -2.8%
* At constant scope and exchange rates

  

Q2 2020 revenue performance by Industry

Revenue
In € million Q2 2020 Q2 2019* Organic
evolution
Manufacturing            499 588 -15.2%
Financial Services & Insurance            550 584 -5.9%
Public Sector & Defense            632 580 +9.0%
Telecom, Media & Technology 393 446 -11.9%
Resources & Services  386 411 -6.1%
Health & Life Sciences 334 326 +2.6%
Total 2,794 2,935 -4.8%
* At constant scope and exchange rates

Q2 2020 revenue performance by Regional Business Unit

Revenue
In € million Q2 2020 Q2 2019* Organic
evolution
North America  674 724 -6.9%
Northern Europe 662 672 -1.5%
Central Europe  704 712 -1.2%
Southern Europe 549 620 -11.4%
Growing Markets 205 207 -1.0%
Total 2,794 2,935 -4.8%
* At constant scope and exchange rates

About Atos

Atos is a global leader in digital transformation with 110,000 employees in 73 countries and annual revenue of € 12 billion. European number one in Cloud, Cybersecurity and High-Performance Computing, the Group provides end-to-end Orchestrated Hybrid Cloud, Big Data, Business Applications and Digital Workplace solutions. The Group is the Worldwide Information Technology Partner for the Olympic & Paralympic Games and operates under the brands Atos, Atos|Syntel, and Unify. Atos is a SE (SocietasEuropaea), listed on the CAC40 Paris stock index.


Source: Atos 

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2020 has proven a harrowing year – but it has produced remarkable heroes. To that end, this year, the Association for Computing Machinery (ACM) introduced the Read more…

By Oliver Peckham

Nvidia and EuroHPC Team for Four Supercomputers, Including Massive ‘Leonardo’ System

October 15, 2020

The EuroHPC Joint Undertaking (JU) serves as Europe’s concerted supercomputing play, currently comprising 32 member states and billions of euros in funding. I Read more…

By Oliver Peckham

Intel Xe-HP GPU Deployed for Aurora Exascale Development

November 17, 2020

At SC20, Intel announced that it is making its Xe-HP high performance discrete GPUs available to early access developers. Notably, the new chips have been deplo Read more…

By Tiffany Trader

Nvidia-Arm Deal a Boon for RISC-V?

October 26, 2020

The $40 billion blockbuster acquisition deal that will bring chipmaker Arm into the Nvidia corporate family could provide a boost for the competing RISC-V architecture. As regulators in the U.S., China and the European Union begin scrutinizing the impact of the blockbuster deal on semiconductor industry competition and innovation, the deal has at the very least... Read more…

By George Leopold

HPE, AMD and EuroHPC Partner for Pre-Exascale LUMI Supercomputer

October 21, 2020

Not even a week after Nvidia announced that it would be providing hardware for the first four of the eight planned EuroHPC systems, HPE and AMD are announcing a Read more…

By Oliver Peckham

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