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Atos SE (ATO.PA), a global leader in digital transformation, confirmed that its fiscal 2023 revenue and operating margin results align with the guidance provided earlier, despite a negative free cash flow for the second half and full year.
The company’s earnings release has been rescheduled to March 20 to allow external auditors to complete the audit of non-cash goodwill impairment results. Furthermore, negotiations with EPEI regarding the sale of Tech Foundation concluded without an agreement.
Key Takeaways
- Atos has met its fiscal 2023 revenue growth and operating margin objectives.
- Fiscal 2023 second half free cash flow was negative €109 million, and full-year free cash flow was negative €1.078 billion.
- Net debt stood at €2.230 billion, with a year-end leverage ratio of 3.34 times, staying within bank covenant limits.
- The earnings release has been postponed to March 20 due to pending audits of non-cash goodwill impairment by Deloitte and Grant Thornton.
- Discussions with EPEI on the sale of Tech Foundation have ended with no deal.
Company Outlook
- Atos will continue to operate Tech Foundation and Eviden as separate entities with a coordinated go-to-market strategy.
- Strategic options for all assets will be considered in the best interest of customers, employees, and shareholders.
Bearish Highlights
- The company reported a significant full-year negative free cash flow of €1.078 billion.
- The revenue for Tech Foundation decreased by 1.7%.
Bullish Highlights
- Group revenue for fiscal 2023 was €10.693 billion, with a 0.4% organic growth rate.
- Eviden’s revenue was €5.089 billion, up 2.9% in organic growth.
- Operating margins for the group were achieved at 4.4%, within the 4% to 5% guidance range.
Misses
- The full-year free cash flow fell short of the guidance by €78 million.
Q&A Highlights
- Atos is unwinding the working capital actions, resulting in €500 million less at year-end 2023 compared to 2022.
- Despite unwinding these actions, the free cash flow was close to guidance due to better performance in other areas and some end-of-year deal slippages.
- Bookings in Q4 showed a book-to-bill ratio of 100% for Eviden and approximately 117-120% for Tech Foundation, with the entire company at 108%.
Atos remains committed to its strategic goals and will provide more details during its rescheduled earnings call on March 20. The company’s financial position and operational performance reflect its resilience in navigating the challenges of the fiscal year.
Full transcript – None (AEXAF) Q4 2023:
Paul Saleh: Greetings everyone. Today we issued a new market update. As part of that update as you will see on the Slide 3, Atos is confirming that its fiscal 2023 revenue and operating margin results are in line with the guidance. Our fiscal 2023 second half free cash flow was negative €109 million. And for the full year free cash flow was negative €1.078 billion. Our net debt position at the end of the year was €2.230 billion. For fiscal 2023 earnings release is going to now be rescheduled for March 20. This is to allow our external auditors to complete the audit of the company’s non-cash goodwill impairment results. And finally, discussions with EPEI on the potential sale of Tech Foundation have concluded with no deal being reached. If I take you to the next slide, you will see the results for the fiscal 2023 operational and their objectives have been met for revenue growth and operating margin. On the slide, you will see the fiscal year 2022 for the group Eviden and TF, the guidance that we have provided for fiscal 2023. And in the blue sections, you will see not only the revenue for each one of those — for each one of the items for group Eviden and TF, as well as the organic growth. So for fiscal 2023, the group revenue was €10.693 billion for a growth rate of 0.4% organic growth rate, which is within the guidance that we provided for 0% to 2%. And for Eviden, we — the results were €5.089 billion in revenue and 2.9% organic growth, which is an acceleration over the 2% that was the organic growth in 2022. And for TF, the objective was to manage its decrease. And the revenue was €5.6 billion, a decline of 1.7% compared with the prior year of 1.6% decline. Operating margins, again, are within the guidance that we have provided for the group Eviden and TF. Our guidance for fiscal 2023, for the company was 4% to 5%. In 2023, we achieved 4.4%, which is within that range. Eviden the objective was improvement over the 5.2% in the prior year in terms of margins and our results show a 5.8% margin. For TF, for our Tech Foundations, the expectation is to have positive profit margin and we delivered 3.1% compared with 1.3% in the prior year. And finally, for the free cash flow our guidance was to be at about minus €1 billion for the full year. And we came in slightly short of that at a minus €1.078 billion. Moving on the next slide. We talk about our year-end capital structure. At the end of the year, our net cash position was €2.4 billion. Our net debt was €2.230 billion. And our year-end leverage ratio was 3.34 times, which is within the bank covenant of 3.75 times. If I move on to the comment I made that our earnings release date now has been set for March 20. The reason for that is there is a non-cash goodwill impairment test that is performed by the company every year. But our group external auditors, Deloitte and Grant Thornton are awaiting an independent Business Review to complete their audit of the company’s non-cash goodwill impairment results. This annual goodwill impairment test is performed at year-end in compliance with standards — accounting standards and in the context of the contemplated disposal of assets. So the delay in our earnings release and the rescheduling to March 20th is simply due to the auditors needing more time to complete their audit of the work that we have done on our non-cash goodwill impairment. If I go now to the next slide and to talk a little bit more about the Tech Foundation and the potential sale that we were considering to the EPEI Group. And then as we indicated in our press release, in the context we had an exclusive negotiation going on with the EPEI Group for the potential sale of Tech Foundation. That is a deal that was announced back in August 1st. And both parties have not reached a — we could not reach a Mutually Satisfactory agreement. The discussions and the put agreements have therefore been terminated by mutual consent. There will be no indemnification by either party. Each party will be released from any future reciprocal obligation subject to maintaining the Confidentiality Agreements. Now for Atos we will continue to run Tech Foundations and Eviden as separate businesses and I’ll show you that in a second. And we’ll continue to consider strategic options for — at Atos for all of our assets in a way that is — that serves the interest of our customers, employees and shareholders. As I mentioned a moment ago, on the next slide you’ll see that we’ll continue to operate Tech Foundation and Eviden as separate businesses, but we will stress a coordinated go-to-market strategy. You’ll hear a little bit more about it on March 20th. On this slide you see the offerings for the Eviden business as well as the Tech Foundation. And we’ll be leveraging the strength of our complementary offerings to serve our clients. So in closing, our key takeaways, we are confirming our 2023 revenue and operating margin results in line with the guidance that we were providing you. Fiscal 2023 second half free cash flow was negative €109 million. Our full year free cash flow was €1.078 billion — negative €1.078 billion. Our earnings date — release date has been now rescheduled for March 20th. And finally the discussion with, EPEI on the potential sale of Tech Foundations have concluded, with no deal being reached. With that, Nadia, I’m going to turn it back to you and to open the forum for questions and answer.
Operator: Thank you so much. [Operator Instructions] Now we’re going to take our first question, just give us a moment. And the first question comes from the line of Nicolas David from ODDO BHF. Sir, your line is open. Please ask your question.
Nicolas David: Yes. Good morning, Paul and Philippe. Just one question from my side regarding Tech Foundation the fact that you are keeping the asset so far in your portfolio. What are you going to do regarding the abnormal working cap or the working cap optimization? Are you going to unwind this anyway? Or are you going to roll it over as the business goes?
Paul Saleh: Yeah. We have been — actually that’s a very good question Nicolas. We are unwinding the working capital actions. In fact, when you’ll see the details in on March 20, you will see that we have actually — when I compare our working capital actions in the end of 2023 compared with what it was in 2022, we are — just have €500 million less working capital actions at year-end than we had a year ago. And we’re going to continue just to drive that number down.
Nicolas David: Okay. That’s a — and was it initially expected when you guided on minus €1 billion free cash flow in August last year? Or did you perform better in other elements which enabled you to unwind? And at the end of the day despite unwinding this having the free cash flow close to your guidance?
Paul Saleh: Yeah, good question as well. What happened is that we were expecting to do more working capital actions. We did less. Second of all the reason why our cash flow was also off by €100 million versus being flat that was our objective for H2, if you recall that is — was much more due also for some deals that just really slipped from the end of the year that otherwise would have contributed to our cash flow.
Nicolas David: All right. And a second question from my side is could you provide us some color regarding the bookings of Q4 at group level and by division?
Paul Saleh: Yeah. I think we’ll go in more details at the beginning on the 20, but I will say to you that all of the Eviden business was a book-to-bill of 100% and Tech Foundation was close to 117%, 120%, okay?
Nicolas David: Okay. Thank you very much.
Paul Saleh: And the whole company was 108%.
Nicolas David: Yeah. Thanks.
Operator: Thank you. [Operator Instructions] Dear speaker there are no further questions. I would now like to hand the conference over to Paul Saleh for any closing remarks.
Paul Saleh: Well, again, thank you for joining us on short notice for this update and we look forward to our earnings call on March 20. Thank you.
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