Atos Reports Financial Results for First Half of 2016

July 27, 2016

July 27 — Atos, a global leader in digital services, today announces its financial results for the first half of 2016.

Revenue was € 5,697 million, up +17.9% at constant exchange rates and +1.7% at constant scope and exchange rates. Organic growth at +1.8% during the second quarter of 2016 reflected the sustainability of the revenue momentum.

Order entry totaled € 6,309 million during the first half of 2016, up +24.0% year-on-year and representing a book to bill ratio of 111%. Commercial activity remained strong in Q2 with a book to bill ratio of 120%.

Operating margin was € 444.4 million, up +23.1% compared to H1 2015 operating margin and representing 7.8% of revenue, an improvement by +60 basis points at constant scope and exchange rates. Net income was € 234 million including € 51 million for Worldline share in Visa Europe sold to Visa Inc.. Net income Group share reached € 205 million (including € 36 million Group share for Visa), up +66.9% compared to H1 2015.

Free cash flow totaled € 181 million during the first half of 2016, +74.2% compared to H1 2015 free cash flow. Further to free cash flow generation, payment of Unify acquisition, dividend paid on 2015 results, and proceeds received from Visa Inc., Group net cash position was € 412 million at the end of June 2016.

Thierry Breton, Chairman and CEO, said, “During the first half of the year we delivered very strong financial results materializing our strategy to leverage our leading position in Managed Services in order to cross-sell the skills and expertise of all our Service Lines. As we continue to invest in our offerings, I am proud of the momentum we have created in our business with new bookings up +24% in H1 2016, a record revenue at € 5.7 billion, a strong free cash flow up +74%, and an EPS growing four times faster than revenue. We foresee a strong second half of the year and we anticipate a very limited effect from Brexit due to our low exposure to discretionary IT spending in financial services in the UK. Considering all of this, the Group raised all its objectives for 2016.”

2016 Objectives

The Group raised all its objectives for 2016:

Revenue: Organic growth of +1.5% to +2.0% (vs. above +0.4% initially). Growth at constant exchange rates above +11% (vs. above +8% initially).

Operating margin: Between 9.2% and 9.5% of revenue (vs. 9.0% to 9.5% initially).

Free cash flow: Above € 550 million (vs. circa € 550 million initially).

The figures above include Unify Managed Services from February 1st, 2016 and exclude Equens contribution.

Managed Services

Managed Services revenue was € 3,221 million, +0.6% at constant scope and exchange rates. The Service Line continued to successfully drive the transition of its customers to hybrid cloud infrastructures resulting in positive organic growth, thanks to growing volumes and new contracts globally compensating for the decrease in the unit price, while increasing margin. This trend materialized particularly in North America with a strong commercial dynamism further to the integration of Xerox ITO, and in Germany with existing large customers including Siemens. Asia Pacific also contributed to growth mostly thanks to higher volumes in Financial Services.

Operating margin was € 281.0 million, representing 8.7% of revenue compared to 7.2% during the first half of 2015 at constant scope and exchange rates. This strong improvement came from the continued actions to decrease the cost base thanks to higher industrialization as well as more cloud based businesses and automation. The increased profitability was also generated by the successful integration of Xerox ITO and by the first effects of the cost saving plan on Unify from restructuring, rationalization, and procurement.

Consulting & Systems Integration

Revenue in Consulting & Systems Integration was € 1,584 million, up +0.5% at constant scope and exchange rates materializing a steady top line improvement. A stronger activity with several large banks in France and Germany, compensated for the Ashgabat project delivered last year in Central & Eastern Europe. The business was also fueled by new contracts with central and local administrations in France and Germany and with a large media company in the UK, offsetting contracts delivered last year in Manufacturing and Retail in the US and in the UK.

Operating margin was € 77.8 million, representing 4.9% of revenue, +20 basis points compared to the first half of 2015 at constant scope and exchange rates. Excluding pension one-offs recorded in H1 2015, the margin improvement represented +70 basis points thanks to a strong revenue growth in Germany and in France, and a better project and workforce management in all geographies.

Big Data & Cybersecurity

Revenue growth in Big Data & Cybersecurity accelerated at +12.8% at constant scope and exchange rates, leading to € 302 million revenue in H1 2016. Revenue growth was generated in all geographies and mostly in the public sector. Demand for High Performance Computing remained very strong in order to support the growing Big Data processing needs of our clients, as well as for encryption, access management solutions, and Intrusion testing solutions.

Operating margin was € 42.4 million, up by +14.1% compared to H1 2015 at constant scope and exchange rates and representing 14.0% of revenue, thanks to revenue growth and the remaining synergies resulting from the Bull integration.

Worldline

From a contributive perspective to Atos, Worldline revenue was € 589 million, improving by +5.9% organically. On a standalone basis, revenue reached € 615 million, up +6.0% at constant scope and exchange rates. Merchant Services & Terminals was up +10.0% mainly thanks to higher volumes and positive price mix in Commercial Acquiring. Financial Processing & Software Licensing was up +4.1%, mainly driven by Acquiring processing volume growth in France and India and a strong level of license sales in Payment Software & Licensing. Mobility & e-Transactional Services grew by +3.5% thanks to a strong activity in e-Government Collection and in e-Consumer & Mobility compensating for the UK VOSA contract ended in Q3 2015. Except the UK, all the geographies strongly grew.

Standalone OMDA increased by +80 basis points, reaching € 117.2 million and representing 19.1% of revenue. Contributive operating margin was € 91.6 million, or 15.6% of revenue, +180 basis points at constant scope and exchange rates compared to H1 2015. This strong improvement was led by Merchant Services & Terminals, thanks to both volume transaction growth and a tight cost control.

A detailed presentation of Worldline H1 2016 performance is available at worldline.com, in the investors section.

Several large geographies significantly improved their revenue performance during the first semester:

  • Germany confirmed its recovery, turning back to positive in all Service Lines, with a strong organic growth of +4.9% (to be compared to -1.4% posted in H2 2015), notably thanks to strong actions undertaken by the management combined with positive sales achieved in Big Data & Cybersecurity;
  • North America was up +4.4%, compared to +0.1% posted in H2 last year, benefitting from the full effect of the integration of Xerox ITO and the new sales dynamic in Managed Services;
  • France with +3.4% revenue organic growth, improving compared to +1.1% recorded in H2 2015, grew notably in Systems Integration and in Big Data & Cybersecurity.

Worldline continued to contribute to the Group organic growth with a strong +5.9% over the period and “Other Business Units” also contributed to Group revenue increase, thanks to a double digit growth in Asia Pacific, South America and IMEA.

Conversely:

  • The United Kingdom posted a -4.6% organic decrease mainly attributable to the base effect of outstanding volumes processed for NS&I in H1 2015;
  • Benelux & The Nordics at -5.5% due to the ramp-down of contracts in Managed Services, notably in Financial Services.

During the first half of 2016, the Group continued to execute the Tier One program through industrialization, global delivery from offshore locations, and continuous optimization of SG&A. In addition, operating margin benefitted from ongoing cost synergies including the integration of Unify. This resulted in a strong margin improvement in several large geographies such as Germany, North America, and France. Finally, in the first half of 2016, the Group did not benefit from any positive one-off impact of pension schemes optimization.

Global structures costs for IT Services increased by +60 basis points compared to the first semester of 2015 at constant scope and exchange rates, mainly due the positive effect recorded in H1 2015 for pension plan optimization.

Globally, the Group improved its operating margin rate by +60 basis points. The improvement was +130 basis points excluding pension schemes optimization one-offs recorded in H1 2015.

Commercial Activity

During the first half of 2016, the Group recorded € 6,309 million order entry, up +24.0% year-on-year and representing a book to bill ratio of 111%.

Commercial activity was particularly strong in Q2 with a book to bill ratio of 120%, driven by Cloud migration projects such as in the contract signed with the Texas Department of Information Resources for Hybrid Cloud Services and by digital transformation projects as for example the signature with a new logo, an American large quick serve restaurant provider, to deliver digital retail solution and an improved customer experience with the development of a mobile app. The Group also renewed large contracts such as the PIP contract with the UK Department for Work & Pensions. Commercial dynamism also came from the cross-selling strategy of the Group. As such, the Group signed a significant contract in Big Data with a French car manufacturer including the sale of a HPC, showing the promising perspectives of Big Data opportunities in the private sector, and had one of its first significant wins with Unify for the outsourcing of the communication network’s management and services of Solvay.

Commercial dynamism translated into healthy book to bill ratios in all Service Lines. Managed Services book to bill ratio reached 110% thanks to large signatures in Benelux & The Nordics as well as in North America and Germany. Consulting & Systems Integration order entry represented 106% of revenue thanks to several contract wins in UK & Ireland in particular as well as in Benelux & The Nordics and in France. The level of booking was also high in Big Data & Cybersecurity and Worldline at 127% and 116% respectively.

In line with the dynamic commercial activity, the full backlog at the end of June 2016 amounted to € 19.5 billion, representing 1.7 year of revenue, compared to € 19.1 billion published at the end of 2015. The full qualified pipeline was representing 6.7 months of revenue at € 6.4 billion, compared to € 6.2 billion published at the end of 2015.

Operating Income and Net Income

Operating income for the first half of 2016 year was € 324 million, +64.2% year-on-year, resulting from the following items:

Costs for staff reorganization, rationalization, and integration amounted to € 97 million compared to € 116 million in H1 2015, as a consequence of the adaptation of the Group workforce in continental Europe. These actions were initiated as early as possible in order to maximize cost savings effect in FY 2016.

€-45 million were recorded as amortization of Purchase Price Allocation for SIS, Bull, Xerox ITO, and Unify. The amortization of the equity based compensation plans amounted to €-22 million, compared to €-16 million in H1 2015.

Other items amounted to € 43 million compared to a charge of €-1 million in H1 2015. They included the gain on the sale of the share in Visa Europe to Visa Inc. for € 51 million, partially offset by a settlement of an old litigation in Germany.

Net financial result was a charge of €-32 million, including the cost of the straight bond issued in mid-2015. Total tax charge was €-58 million, representing an effective tax rate of 19.8%, significantly down compared to 25.2% in H1 2015.

As a result, net income was € 234 million, +69.8% compared to € 138 million in H1 2015. Non-controlling interests amounted to € 29 million and were related to the minority shareholders in Worldline. Therefore, the net income Group share reached € 205 million, +66.9% compared to € 123 million in H1 2015.

Net income of Unify Software & Platforms discontinued operations was a loss of €-31 million. The annual objective to reach €+10 million net income is confirmed.

Basic EPS Group share was € 1.99, +62.3% compared to € 1.23 in H1 2015 and diluted EPS Group share was € 1.98, +62.9% compared to € 1.22 during the first half of 2015.

Free Cash Flow

Operating Margin before Depreciation and Amortization (OMDA) was € 586 million representing 10.3% of revenue, compared to € 459 million in H1 2015 (9.3% of revenue).

As planned, total cash-out for reorganization, rationalization, and integration was €-96 million compared to €-142 million in H1 2015, fully in line with the € 150 million 2016 target.

During the first half of 2016, capital expenditures totaled € 202 million, representing 3.5% of revenue, compared to € 215 million in H1 2015 (4.3% of revenue). Change in working capital negatively contributed by €-22 million, due to a growing activity in the public sector. It represented €+49 million in H1 2015 mainly thanks to the optimization of Bull’s working capital.

Cash-out for financial costs was €-8 million (€-3 million in H1 2015) and tax paid was €-74 million compared to €-58 million in H1 2015. Finally, other items totaled €-3 million, compared to €+14 million in H1 2015.

As a result, the Group free cash flow generated during the first half of 2016 totaled € 181 million, strongly up compared to € 104 million in H1 2015.

Net Cash Evolution

Net acquisitions / disposals in H1 2016 amounted to €-322 million, mainly related to the acquisition of Unify. As part of the sale of Visa Europe, the Group received € 36 million from Visa Inc.

Capital increase, mostly related to proceeds from stock-options totaled € 21 million in H1 2016 compared to € 38 million in H1 2015.

The cash-out resulting from the option for the payment in cash of dividend on 2015 results was €-47 million compared to €-31 million last year, roughly in line with the increase of dividend per share from €0.80 to €1.10.

Finally, mainly due to the British pound decreased versus the euro, foreign exchange rate fluctuation effect on debt or cash in foreign currencies totaled €-49 million compared to €+67 million in H1 2015.

As a result, Group net cash position as of June 30, 2016 was € 412 million, compared to € 593 million on December 31, 2015.

Human Resources

The total headcount was 96,352 at the end of June 2016. The increase of +5.5% of the Group workforce compared to 91,322 at the end of December 2015 was mainly due to the circa 5,200 staff who joined the Group from Unify on February 1st, 2016.

Attrition was 12.2% at Group level of which 18.4% in offshore countries, excluding the discontinued Unify Software & Platforms operations.

The number of direct employees at the end of June 2016 was 88,926, representing 92.3% of the total Group headcount, compared to 93.7% at the end of 2015. Adjusted from the scope effect from Unify, indirect staff decreased by -5.1% in line with the continuous optimization of the indirect workforce.

Number of staff in offshore countries reached 26,126 people by the end of June 2016. The majority of the offshore workforce is located in India, the rest being mainly in Eastern Europe. Offshore for Systems Integration represented 44% of direct staff.

About Atos

Atos SE (Societas Europaea) is a leader in digital services with pro forma annual revenue of circa € 12 billion and circa 100,000 employees in 72 countries. Serving a global client base, the Group provides Consulting & Systems Integration services, Managed Services & BPO, Cloud operations, Big Data & Cybersecurity solutions, as well as transactional services through Worldline, the European leader in the payments and transactional services industry. With its deep technology expertise and industry knowledge, the Group works with clients across different business sectors: Defense, Financial Services, Health, Manufacturing, Media, Utilities, Public sector, Retail, Telecommunications, and Transportation.


Source: Atos

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