Atos Origin 2006 First Half Earnings Announcement
2006 organic revenue growth objective confirmed at +3%
Financial Performance for the First Half 2006, ended 30 June 2006
|(in EUR million)||
First Half 2006
First Half 2005
|% of revenue||5.1%||6.7%|
|Normalised net income (Group share)||86||112|
|Net income (Group share)||10||121|
|Normalised basic EPS (euros)||1.28||1.68|
|Basic EPS (euros)||0.15||1.81|
Bernard Bourigeaud, CEO, declares:
“Since our July announcement, we have been active. In the UK, a new organisation has been launched, 3 new consulting partners have been recruited and we are progressing rapidly towards signing some large contracts – we have currently preferred bidder status on EUR 900 million total contract value.
In Italy, given that the outlook is really tough, we took the decision to undertake a restructuring of our Italian operations to ensure that the future profitability improves, despite the market environment. We are now ready to launch the programme after discussions with the worker councils this summer. A new simplified organisation is already in place. In addition, we have made an impairment of our goodwill.
We are preparing for a rebound in growth and profitability in 2007.”
In July, the Group issued two important announcements, the Half Year revenues, including a downgrade of our previous guidance, and the acquisition of Banksys and Bank Card Company (BCC). The short-term miss in our guidance, concentrated in the UK, does not affect the Group’s capacity or determination to develop its business, particularly in its speciality businesses which are stock exchanges, payment systems and medical BPO, and win new contracts.
1st half 2006 operating performance confirmed
Group revenues for the first half of 2006 amounted to EUR 2,696 million, representing an organic increase of +2.9% compared with the same period last year on a constant scope and exchange rate basis, with a slight acceleration in the second quarter, as expected, to +3.2% after +2.7% in the first quarter. Nevertheless, the second quarter performance was lower than our initial target, due to slower than expected new business in the United Kingdom. In the rest of the world, revenue growth was exactly in line with our expectations, up +6.0%.
The first half operating margin was 5.1% due to the new estimate of costs to complete of several public sector legacy contracts in the United Kingdom of EUR 25 million. For the rest of the Group, progress is in line with our expectations.
Non-recurring items amounted to EUR 80 million, including an impairment charge of the Group’s Italian goodwill of EUR 60 million.
After taxes, interest charges and minority interests, net income Group share came to EUR 10 million. Normalised net income Group share and basic EPS was EUR 86 million and EUR 1.28 respectively.
Cash flow from operating activities before working capital increased +20% to reach EUR 189 million, or 7.0% of revenues, in the first half 2006, compared with 5.8% in first half 2005. This performance is temporarily offset by an increase in working capital of around EUR 197 million in the period due to seasonal effects, as last year at the same period. After inclusion of other cash items, net debt at 30 June 2006 was EUR 326 million versus EUR 363 million at 30 June 2005.
UK Action plan is being implemented
To strengthen the commercial effort to reflect Atos Origin’s strong strategic position and operational capacity, the plan includes :
- Increasing the commercial capacity of the consulting operations with the recruitment of new Consulting partners to win new business and thereby improve the utilization rate.
- Reorganizing the UK Systems Integration sales teams, by focusing on one hand on large account management for large, end-to-end contracts at the United Kingdom level, and, on the other, pushing the dedicated sales teams down in to the business units in order to bring them closer to the business for more reactivity and speed to market,
- Rebalancing the public / private sector mix, currently at 62% and the mix of large to small and medium-sized deals.
Already at the end of August, positive business news is coming through in the UK
Overall, the UK has recently been awarded preferred bidder status in key public and private sector projects to the value of EUR 900 million. These include NHS Scotland, The Department of Health North West and South West Diagnostic Centres, Government Gateway and the National Farmers Union Mutual. In addition to this, three new Consulting partners have been recruited, strengthening the financial services and healthcare teams within the company.
An Italian restructuring programme to ensure sustainable profitability in the future
The Italian operations have achieved +4% organic growth in the first half, won new contracts, and are slightly profitable but the market remains very difficult; pricing pressure, small average assignments, and low productivity. For these reasons, the management has engaged appropriate discussions with the worker councils during the summer to prepare a restructuring plan which is ready to be launched. The programme includes reduction in the number of management layers, re-profiling of the skills portfolio and replacement of sub-contractors by employees. The restructuring costs are estimated at EUR 20 million. A goodwill impairment charge of EUR 60 million has been recorded at the end of June 2006. Management is now confident that there is potential to generate sustainable profitability in the future.
Acquisition of Banksys and Bank Card Company
The acquisition of Banksys and Bank Card Company (BCC) is a significant step in the development of a pan-European payment business. We are convinced that SEPA will trigger further consolidation and that we are ideally positioned to take advantage of this evolution.
Banksys and BCC will become an integral part of Atos Worldline. The combined unaudited proforma IFRS 2005 revenues of the new Atos Worldline activities would have reached EUR 600 million. The four main shareholders (Dexia, Fortis, ING, KBC) have confirmed their commercial relationship with the new entity for at least 5 years. The agreement was signed on 19 July 2006 and we aim to finalize the acquisition by the end of this year, subject to approval by the European Competition Authorities.
The full Half Year Report is available on our internet site .
An analyst meeting will be held at 10.00 am CET time, and will be broadcast live on our internet site.
31 October 2006: Announcement of 2006 3rd Quarter revenues
This document contains further forward-looking statements that involve risks and uncertainties concerning the Group's expected growth and profitability for the second half of the year 2006. Actual events or results may differ from those described in this document due to a number of risks and uncertainties that are described within the 2005 annual report filed with the Autorités des Marchés Financiers (AMF) on 15 May 2006 as a Document de Référence under the registration number : D06-402.
Glossary of terms used in the press release
TCV (Total Contract Value). The total value of a contract at signature (prevision or estimation) over its duration. It represents the firm order and contractual part of the contract excluding any clause on the decision of the client, as anticipated withdrawal clause, additional option or renewal.
Pipeline. The value of revenues that may be earned from outstanding commercial proposals issued to clients. Qualified pipeline applies an estimated percentage likelihood of proposal success.
Organic growth. Organic growth represents the % growth of a unit based on a constant scope and exchange rates basis.
Normalised net income. Net income (Group share) before unusual, abnormal and infrequent items, net of tax.
About Atos Origin
Atos Origin is an international information technology services company. Its business is turning client vision into results through the application of consulting, systems integration and managed operations. The company’s annual revenues are EUR 5.5 billion and it employs over 47,000 people in 40 countries. Atos Origin is the Worldwide Information Technology Partner for the Olympic Games and has a client base of international blue-chip companies across all sectors.
Atos Origin is quoted on the Paris Eurolist Market and trades as Atos Origin, Atos Euronext Market Solutions, Atos Worldline and Atos Consulting. For more information, please visit the company’s web site at http://www.atosorigin.com
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