IT giant Atos cuts itself in half and separates from its short-lived CEO Rodolphe Belmer

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The IT services and hardware heavyweight Atos announces today the appointment of two Deputy Chief Executive Officers so that the group prepares its split into two listed companies. The departure of Rodolphe Belmer, current CEO of Atos, will take place no later than September 30, 2022. He will ensure the transition with the two new Deputy CEOs. The decision was taken by the Atos Board of Directors and formalized on June 14.

Rodolhe Balmer had been poached from Eutelsat and arrived at Atos in January 2022. One wonders why he had been perceived as having the right skills to lead a corporate IT giant employing 106,000 people in complex jobs when this CEO succeeded in his career in the sale of subscriptions, at Canal + and Eutelsat , and in the management of small businesses. As a reminder, Eutelsat, his latest company, employs 100 times fewer people than Atos.

Two companies, each listed on the stock exchange

Anyway, in the future, Atos would split into two entities, each with its own strategy, its management team, an independent Board of Directors and an appropriate financial structure. These are SpinCo (Evidian) and TFCo (Atos).

The SpinCo entity is positioned in the digital transformation, Big Data, cybersecurity and supercomputing (HPC) markets. This is the good part of Atos. “ This market generates strong growth and high margins underlines the Board of Directors. This entity has a plan of 400 million euros to accelerate its growth. These activities, BDS (Big Data Security) together, generated revenue of €4.9 billion in 2021, with organic growth of +5%, with an operating margin of 7.8%. This entity generates free cash flow of approximately €150 million before interest and taxes.

Outsourcing down -12%

TFCo, for its part, operates in outsourcing services, digital workspaces and professional services. This is the part that goes wrong. It will have a plan of 1.1 billion euros in order to successfully recover completely by 2026. In 2021, it generated revenue of 5.4 billion euros (excluding Unified Communications activity & Collaboration, UCC), down -12% organically, with an operating margin of -1.1%.

The contemplated project involves a prior reorganization that would be completed in the second half of 2023, before the listing and distribution of SpinCo shares by the end of 2023. Atos management team presents today its transformation plan under study, during an event dedicated to investors and financial analysts.

Two key managing directors of the operation

Philippe Oliva has been appointed Deputy Managing Director in charge of the Digital/BDS scope called upon to form the new SpinCo (Evidian)), a company operating in the digital transformation, Big Data and cybersecurity markets, Philippe Oliva joined Atos in April 2022 as Group Commercial Director, with international experience in the digital sector, after 20 years at IBM where he managed integrated technologies, cloud services and hybrid services. Anil Agrawal will be SpinCo’s Chief Financial Officer.

Nourdine Bihmane has been appointed Deputy Managing Director in charge of Tech Foundations, focused on infrastructure management services, digital workspaces and professional services. With 20 years of experience in the technology sector, driving major transformation programs, growth and P&L performance, Nourdine Bihmane will be responsible for the quality, innovation and level of competitiveness of TFCo. (Atos).

Activities with very different growth and operating methods

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IT giant Atos cuts itself in half and separates from

In detail, within SpinCo, the Digital part represents 50,000 people, manages partnerships with major platforms and leading software publishers on the market. Digital supports its clients in their digitalization process to transform their activities. This market is growing strongly supported by the migration to the Cloud and by a growing demand for digital transformation,

Digital generated a turnover of 3.5 billion euros in 2021

As for Digital, this activity is led by Rakesh Khanna, and it generated, in 2021, a turnover of 3.5 billion euros with a 1-digit operating margin, at the top of the range. Digital’s 2022-2026 acceleration plan represents a total cost of 370 million euros over the period. This would allow Digital to improve its business performance and transform its delivery model to increase profitability.

Still at SpinCo, the Big Data and Security (BDS) part represents 9,000 people. BDS is involved in data security through two activities: Digital Security and Advanced Computing. BDS is presented by Gartner as the world’s No. 1 in managed security services and by Hyperion as the world’s No. 3 in supercomputing. BDS is positioned on cybersecurity and advanced computing products and services. Led by Jean-Philippe Poirault, BDS generated, in 2021, a turnover of 1.4 billion euros and a 1-digit operating margin, in the middle of the range.

Repositioning contracts in advanced calculation

BDS was penalized by the Advanced Computing division while the Digital Security division generated a high 1 digit margin. Investments in the BDS activity over the 2022-2026 period, for approximately 40 million euros, would aim to accelerate its growth, in particular by repositioning its business portfolio in advanced computing, and to increase its margin operational, under the effect of an acceleration of growth and an improvement in its cost base.

There could be commercial synergies in order to sell the offers of Digital and BDS

SpinCo could benefit from commercial and managerial synergies between its two business lines, Digital and BDS, in particular through the fertilization of Digital’s customers by BDS and through a joint marketing strategy. In total, SpinCo’s acceleration plan would represent an investment of 400 million euros over the next five years.

This should enable SpinCo to achieve organic growth of around 7% on average over the 2022-2026 period based on expected revenue of €5.3 billion in 2022, to gradually improve its operating margin to reach 12% in 2026 and generate 700 million euros of free cash flow before interest and taxes, i.e. a conversion ratio of its OMDA (Gross Operating Profit) of 75% to 80%. SpinCo’s target financial leverage at the end of 2024 would be less than 3.0x OMDA.

The outsourcing activity employs 48,000 people

For its part, TFCo (Atos) will be made up of Atos’ Tech Foundations business line, specializing in the design, implementation and management of information systems worldwide. Tech Foundations is positioned in infrastructure and the private cloud, which is currently undergoing a transition to next-generation infrastructure.

This business line employs 48,000 people worldwide, serving 1,200 customers in different geographies and business sectors. Tech Foundations generated, in 2021 (excluding UCC), a turnover of 5.4 billion euros, an operating margin of -1.1% and a free cash flow before interest and negative taxes of -507 million euros. This includes an exceptional cost of 180 million euros linked to the financing of a restructuring plan in Germany, and the normalization of the working capital requirement for around 200 million euros.

Turn around outsourcing business and part with unprofitable customers

The objective is to refocus the outsourcing activity by rationalizing the portfolio of activities. This involves exiting non-strategic activities and redressing or exiting loss-making customer accounts. Similarly, this activity must be rectified. Workforce management will arise. This imposes an adjustment of the cost structure by addressing structural issues related to the location of resources and their age structure, reducing outsourcing expenses and consolidating data centers and offices to generate cost savings. .

Finally, the Board of Directors is aiming for a rebound by stabilizing turnover, then developing new generation offers and investing in sales forces. TFCo’s revenue is expected to reach approximately €5.0 billion in 2022 (excluding UCC). According to the plan, revenue should bottom out at 4.1 billion euros in 2024, before stabilizing in 2025 and growing from 2026. The operating margin should return to positive territory in 2025 and exceed 5% in 2026. Free cash flow before interest and taxes is expected to be €150 million in 2026 and grow by around €50 million each year thereafter.

A change in turnover estimated between -0.5% and +1.5% in 2022

The management teams of SpinCo and TFCo will focus on the day-to-day management of the business and the execution of their respective transformation plans. The envisaged separation process will be managed by a dedicated team, led by Rodolphe Belmer, Chief Executive Officer of Atos and Diane Galbe, Chief Strategy Officer of Atos.

For the full year 2022, Atos forecasts a revenue evolution at constant exchange rate of -0.5% to +1.5%; an operating margin of 3% to 5%; free cash flow between -150 and 200 million euros. Current business trends confirm the revenue growth and free cash flow ranges and point to the lower half of the operating margin range.

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IT giant Atos cuts itself in half and separates from its short-lived CEO Rodolphe Belmer

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