Atos Origin 2006 first half revenues up 2.9%
2006 revenues growth estimated at +3%
Consensus operating margin too high for 2006
Paris, 18 July 2006 - Atos Origin, a leading international information technology services provider, today announced that unaudited revenues for the six months ended June 30th, 2006 amounted to EUR 2,696 million, showing 2.9% organic increase on a constant scope and exchange rate basis. Due to delays in new business in the UK, the annual organic growth guidance for 2006 has been revised down to +3%. As a result, the consensus margin forecast is too high.
Analysis of Revenue Performance
Reported Group revenues for the first half ended June 30th, 2006 were EUR 2,696 million, compared with EUR 2,725 million for the equivalent period last year. After adjusting for disposals, mainly Nordic and Middle East activities, for EUR 119 million, and at constant exchange rates, the Group generated organic growth of +2.9%.
Revenues analysis for 1st half 2006
On an organic basis, growth in the first half reached 2.9%, with a slight acceleration in the second quarter to +3.2%, as expected. Nevertheless, the second quarter performance was lower than budget due to slower than expected new businesses in the UK. Despite a good pipe-line since the end of 2005, new business wins are behind schedule due to significant delays in decision-making by clients. As a result, part of the 2006 pipeline has been pushed back to 2007. In the second quarter, UK revenues were down 5% on an organic basis, better than in the first quarter (-11%), but under budget. In the rest of the world, revenue growth remains exactly in line with budget, up +6.0%.
By service line, Consulting was down -6.8%, weakening further in the second quarter due to a shortfall in new business in the UK. All other countries have achieved positive organic growth, with particular strength in France and Spain.
Systems Integration grew by 3.2% organically in the 1st half, with a strong Q1, up 6 %, offset by a limited +1% in Q2, resulting from a reduced number of working days in the quarter due to the later than usual Easter holidays. All countries, except the UK, performed in line with budget. In the UK, revenues were impacted by a few loss-making contracts. They impacted our capacity to transfer people to available new business and did not generate revenue. The new estimate of the costs to complete on these loss-making contracts will impact the operating margin in Systems Integration in the UK at the end of June by 25 million euros.
Managed operations organic growth is up +4.3% during the first half, boosted by Q2 organic growth of 8%. Strong performance was achieved in all countries, including a rebound in the UK, thanks to continued fertilization and penetration of existing clients combined with several medium-size contract wins, with new customers.
The operating margin for the first half of 2006 will be slightly above 5%, 1 point below our initial target, due to the new estimate of the costs to complete of a few loss-making contracts in the UK.
The book-to-bill ratio (excluding the long-term Business Process Outsourcing activities) declined to 96% in the first half due to the lack of any large wins during the period, and despite particularly active contract renewals and business fertilisation during the period.
Pipeline and backlog
The full qualified pipeline reached EUR 2.8 billion at the end of June, up +44% year on year and +9% since the beginning of the year. On the other hand, the full backlog at the end of June 2006 was over EUR 7.2 billion, representing 1.4 annual revenues, down slightly on March. Delays in the signatures of several large, long-term government contracts, particularly in the UK, explain these trends. We expect the order in-take to pick up in Q3, as several large deals are being negotiated and will contribute to revenues in 2007.
Action plan for Atos Origin UK
Atos Origin UK business has undergone a major change over the last few years, moving from a Consulting & Systems Integration organization to a fully-fledged “design, build and operate” organization. At the same time, it has established 4 service lines (Consulting, Systems Integration, Managed operations and BPO Medical services) capable of competing with the best. This dual positioning of “best-in-class” service line capability combined with an ability to aggregate the services into a “design, build and operate” proposition is key for the future.
The UK team has been focused on several large deals, resolving and closing the loss-making contracts and reorganising its sales organisation.
Several specific commercial actions are being implemented to strengthen the commercial effort to reflect Atos Origin’s strong strategic position and operational capacity. This includes:
* Increasing the commercial capacity of the consulting operations with the recruitment of new Consulting partners by July 2007 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 UK 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 and the mix of large to small-medium-sized deals.
Outlook for the remainder of 2006
The 1st half Operating margin will be slightly above 5%, 1 point below initial target, due to the new estimate of costs to complete of UK public sector legacy contracts, as mentioned above. The delay in the signature of several large contracts will have an effect on 2006 organic growth. While reducing our target, we still expect to see growth at around +3%. This revenue performance including the one-off impact of the new estimate for the loss-making contracts in the UK will have an impact of more than 1.5 point on fiscal year 2006 operating margin.
The cash flow from operating activities before working capital reached 7.1% of revenues in the first half 2006 compared with 5.8% in 1st half 2005. This performance is temporarily impacted by an increase in working capital of around 200 million euros 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 increased to 339 million euros versus 363 million euros at 30 June 2005.
We expect to generate a free cash flow of around 250 million euros in the second half, by the combination of a reduction in working capital and a higher cash flow from operations linked to the operating margin level in H2. Net debt is consequently expected to fall to below 100 million euros by year-end.
Outlook for 2007
In the UK, we are confident that the action plan will deliver the desired results and generate a pick-up in activity. As we go into the second half, the pipe-line is strong and under-performing contracts have been cut, our sales organizations are being reorganised to accelerate growth in new business and there are some good opportunities nearing completion.
In the rest of the Group, progress is being made in line with expectations.
In Europe, Atos Origin strategy is constant: the Group deploys a design, build and operate approach, with a balanced mix of consulting, systems integration and managed operations. The Group has strong client base with long-term relationships. We have also carved out some strong niche positions in Exchanges, Payments Systems and Medical BPO services that are all expected to generate higher growth as demand consolidates.
Based on these healthy fundamentals, the Group is confident in its capacity to grow profitably in its key markets. Decisions taken in 2006 will prepare the Group for a rebound in 2007.
September 6th, 2006
Announcement of 2006 1st half results
A conference call in English will be held at 10.00 am, CET time,
to discuss these figures.
The call is accessible on www.atosorigin.com
This document contains preliminary unaudited figures that should be finalised during the half-year closing and reviewed by the external auditors.
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 May 15th, 2006 as a Document de Référence under the registration number : D06-402.
Glossary of terms used in the press release
External revenue. External revenue represents Atos Origin sales to third parties (excluding VAT, nil margin pass-through revenue).
Book-to-bill. A ratio expressed in percentage terms based on order entry in the period divided by revenue of the same period.
Order entry / bookings. The total value of contracts (TCV), orders or amendments signed during a defined period. When an offer is won (contract signed), the total contract value is added to the backlog and the order entry is recognised.
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.
Backlog/ Order cover. The value of signed contracts, orders and amendments that remain to be recognised over their contract lives.
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.
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 more than EUR 5 billion and it employs over 46,000 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.
- Contact Information
- Marie-Tatiana Collombert
- Contact for Press
- Atos Origin
- Contact via E-mail
This news content was configured by WebWire editorial staff. Linking is permitted.
News Release Distribution and Press Release Distribution Services Provided by WebWire.