2023-07-28 10:27:18
(BFM Bourse) – The digital services company published results in the first half without a huge black spot. But, on the cash flow statement, the cash outflow of 969 million euros due to variations in working capital requirements and costs associated with the company’s split plan weighs on the title.
This is the big stock market sanction of the day: Atos shows a vertiginous plunge of 21.7% to 11.55 euros, showing the largest drop in the SBF 120, after the publication of its accounts for the first half.
The income statement does not present anything very alarming. Overall revenues for the first half of the year totaled 5.55 billion euros, or 0.8% less than the 5.593 billion euros expected by the consensus, quoted by Stifel. But the operating margin was multiplied by more than three to 212 million euros for a corresponding rate of 3.8%. The consensus was counting on an amount of 174 million euros and a rate of 3.1%.
The net loss, of 600 million euros, widened a little compared to the same period of 2022 (503 million euros).
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But it is on the generation of cash that the shoe pinches. Over the first six months of the year, free cash flow was negative, at 969 million euros, compared to -555 million euros in the first half. However, the consensus expected a disbursement of 680 million euros. Net debt consequently increased to 2.32 billion euros at the end of June against 1.8 billion a year earlier.
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“Normalization” of the working capital requirement
While the group’s operating cash flow improved in the first half, free cash flow was penalized by the costs related to the preparation of the split of Atos into two companies: Atos, which will retain its traditional businesses (” Tech Foundations”), such as outsourcing, and Eviden, which will bring together dynamic activities (digital transformation, cybersecurity, big data) and is due to be listed on the stock market in the second half of the year. These costs amounted to 274 million euros in the first half.
In addition, Atos had to deal with the “normalization” of its working capital requirement, compared to the same period of 2022, which weighed in at 250 million euros.
Last year Atos succeeded in compressing its working capital requirement, via payment delays from its customers and suppliers. But this effect is reversed this year, while with the transformation of the group and inflation, customers and suppliers may be more demanding or less flexible on payment deadlines.
CFO Nathalie Sénéchault reminded analysts, visibly a little surprised, that the group had indicated at its investor day in June 2022 that it anticipated an impact of 400 million euros on its cash flow due to this “normalization”. The leader also explained that this impact would amount to 400 million euros for the whole of 2023 (therefore the amount reported in June 2022). The annual impact of transformation costs will be around around 500 million euros at the cash level, she also said.
Cash targeted for breakeven in the second half
Regarding its outlook for 2023, Atos has raised its growth forecast, now expecting a comparable variation of between 0% and 2%, against a range of -1% to +1% previously. The company is targeting an operating margin for 2023 between 4% and 5%. Regarding cash, the group expects it to be similar throughout the year to that of the first half. This means that Atos is aiming for balance in the second half.
In the end, the publication of Atos “is contrasted between on the one hand good achievements for Tech Foundations (the historical scope of Atos, editor’s note) and an improvement in order intake and on the other, a slightly weaker performance than expected for Eviden and above all a much more negative cash flow than expected”, underlines Invest Securities. Stifel talks about “mixed at best” results.
In view of the fall in the stock market, a Parisian analyst is showing nuance. “Frankly the market is tough because we had to expect this impact on cash, which could have been anticipated when reading the 2022 accounts. And at the same time the accounts are quite good and there is even an increase in “growth objective. The new management of the group (since the summer of 2022, editor’s note) is doing a good job within a company in a complicated situation”, he judges.
Regarding its split, the group said it had finalized “its internal operational separation”, which is an important step. “As a result, Tech Foundations and Eviden are now fully operational as separate entities within the Atos group,” the company added. The company is currently working on the breakdown of the capital structure (to simplify the breakdown of debt and equity) of each entity, said Nathalie Sénéchault.
Furthermore, after fully securing its €700 million disposal program, Atos announced a new €400 million additional disposal program. With this in mind, the group explains that it has already received expressions of interest for new asset sales.
Julien Marion – ©2023 BFM Bourse
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