“Atos Origin first half results for 2005”
Paris, 7 September 2005
Operating income rises strongly, to EUR 196 million
Atos Origin, a leading international information technology services provider, today announced that revenues for the six months ended June 30th, 2005 amounted to EUR 2,725 million, representing an increase of 8.1% compared with the same period last year on a constant scope, exchange rate and accounting basis. The operating margin increased to 6.7% in line with our expectations and net debt fell substantially, to EUR 363 million, following disposal of the company's Nordic activities at the end of June.
The Group is reporting under the new International Financial Reporting Standards (IFRS) for the first time. Basic earnings per share under IFRS before unusual items (net of tax) were 33% higher than the figure for 2004 on a fully comparable restated basis.
FINANCIAL PERFORMANCE FOR THE SIX MONTHS ENDED JUNE 30TH, 2005
(in EUR millions)
6 months ended
June 30th, 2005 (a)
6 months ended
June 30th, 2004 (a)
% OF REVENUE
% OF REVENUE
NET INCOME – GROUP SHARE
% OF REVENUE
RESTATED BASIC EPS (b) (d)
RESTATED DILUTED EPS (c) (d)
BASIC EPS (b)
DILUTED EPS (c)
June 30th, 2005 (a)
Dec. 31st, 2004 (a)
NET DEBT TO EQUITY RATIO
EMPLOYEES AT PERIOD END
(a) Under IFRS
(b) In euros, based on a weighted average number of shares
(c) In euros, based on a diluted weighted average number of shares
(d) Based on net income (Group share) before unusual items (net of tax)
EPS = Earnings per share Group share
Review by the Group Chief Executive, Bernard Bourigeaud (extracted from the Half Year Report):
“It is almost exactly two years since we announced the acquisition of Sema Group from Schlumberger. The integration process has been successfully completed and has transformed Atos Origin into a major player in the global IT services market. As the market for IT services recovered during 2004, we were therefore able to take full advantage of the scale efficiencies that were achieved, especially in the major countries of Europe. We now have strong leadership positions in France, The Netherlands and the United Kingdom. We will double our revenues in Germany this year, although we still have work to do to reach our scale objective, and we are making good progress in Spain and Italy.
We have also started to lay solid foundations for the expansion of our business in Asia Pacific. This is a vibrant region, with a strong economic growth rate and many opportunities to deliver radical IT solutions and services to our clients. In China, we already have a strong base of clients and our Olympic team is preparing for the Beijing Games in 2008. In Malaysia, China and especially in India, we are growing our offshore support capability rapidly, in line with demand from our clients.
I am pleased with the progress we have made in accelerating the organic growth of the business. We have also streamlined our organisation, including disposing of non-core businesses. As a result, I expect our borrowings to fall to low levels by the end of this year and to return to a net cash position next year. That leaves us well positioned to take full advantage of developments in the global IT service market.
First half results
Group revenues for the first half of 2005 were slightly ahead of our expectations, at EUR 2,725 million, representing an organic increase of 8.1% compared with the same period last year, on a constant scope and exchange rate basis. The performance was broad-based and each of the three main service lines recorded good growth, with Consulting being especially strong and leading the recovery. Recurring revenue business represented more than 60% of Group sales in the first half of 2005, driven especially by application management.
The operating margin for the period was 6.7%, again in line with our expectations, with a strong surge from 5.7% in the first quarter to 7.7% in the second. At EUR 183 million, the Group's organic operating margin growth was 18% at constant scope and exchange rates. The integration of new contracts signed since the second half of last year is progressing well and we expect the benefits of management action to flow through strongly in the second half of this year.
Net income was EUR 121 million, 4.5% of total revenues, representing earnings per share of EUR 1.81 on a six-month basis. This is a substantial increase compared with net income of only EUR 28 million and EPS of EUR 0.44 at this time last year, which included significant restructuring costs after the Sema Group acquisition.
In the first half, the Group generated a net cash inflow of EUR 128 million and net debt at the end of June 2005 decreased to EUR 363 million. This was in spite of a short-term increase in working capital and restructuring payments of EUR 55 million during the period. It included nearly EUR 220 million of cash flow from operating activities, representing 8.1% of total revenues, and net cash proceeds of EUR 141 million from the disposal of the Nordic business. In the second half, we expect a further reduction in net debt, coming both from higher profitability and a reduction in working capital levels.
- Encouraging inflow of new orders, with a book-to-bill ratio of 139%
- Critical contract renewals (UK Department for Work and Pensions)
- Important new contract signings (Renault, LCH-Clearnet)
- Extension of Olympic contract up to 2012
- Partnership expansion with Euronext (Atos Euronext Market Solutions)
- Extension of commercial partnership with Philips until 2008
The successful reorganization of our commercial strategy after the Sema Group acquisition began delivering results in the second half of 2004. In the first half of 2005, the book-to-bill ratio reached 139%, including the substantial renewal of the contract with the Department for Work and Pensions in the United Kingdom and important contracts signed with Renault and LCH-Clearnet.
On July 1st, 2005, Atos Origin, as the Worldwide Information Technology Partner of the International Olympic Committee (IOC), signed a contract extension to become the Information technology systems integrator for the 2010 Olympic Winter Games in Vancouver, Canada, and the 2012 Olympic Summer Games in London. Such signings demonstrate the confidence of our clients in building strong, committed, long-term partnerships.
In July 2005, Atos Origin also announced a major expansion of AtosEuronext, its partnership venture with Euronext, Europe's leading cross-border exchange business. The two companies have signed an agreement to form a new company, to which additional activities have been contributed jointly, including the provision of services to Euronext.liffe in London. The new extended venture is called Atos Euronext Market Solutions (AEMS). AEMS is one of the leading providers of exchange solutions and well positioned to build a dominant business to serve capital markets globally. At the same time, it will enable Euronext to enhance its operational efficiency and further extend its leading market position.
In addition to AEMS, the Group has two other specialist businesses in Managed Operations providing strong added value for its clients. Atos Worldline delivers card payment and internet processing services in France and Germany. We believe that there are opportunities for growth in the European market for such services and, more specifically, we believe that there will be strategic opportunities for Atos Origin to expand the scope of its activities into other countries in the region.
In Healthcare, we already have a strong base of skills and resources centred around success in developing business in the United Kingdom with the Department for Work and Pensions (DWP), the Department for Trade and Industry and Royal Mail. There are opportunities for building business further with the UK National Health Service, especially in Scotland. I believe that there will also be opportunities to build on our experience within continental Europe, where we are already working with public sector authorities in France and more broadly with Philips Medical Services.
In May 2005, Atos Origin completed the disposal of its Venezuelan business and at the end of June 2005 finalized the sale of its significant Nordic operations to WM-data. The annual revenues of that business were approximately EUR 175 million. Atos Origin and WM-data have entered into an alliance agreement to provide extended support for each other's clients in their respective geographic domains.
In 2004, the Group disposed of businesses with annual revenues of just over EUR 200 million and the Nordic disposal represents a significant step towards reaching its original objective of disposing of activities with annual revenues of up to EUR 500 million. The eight disposals to date had cumulative annual revenues of around EUR 410 million, representing more than 80% of the disposal plan. The Group expects to complete the remainder of its disposal program by the end of 2005.
New syndicated loan
On May 12th, 2005 Atos Origin signed a EUR 1.2 billion multi-currency revolving credit facility with a consortium of nine banks, which is to be used for general corporate purposes, including the refinancing of the previous EUR 900 million syndicated facility, which was established in January 2004 following the Sema Group acquisition. The new credit facility has a five-year maturity with two one-year extension options. The new facility offers a 0.3% annual spread over Euribor in comparison with an annual spread of 1.5% on the previous syndicated facility. The new facility will reduce borrowing costs and increase the Group's available financial resources. The repayment terms and conditions of the new agreement are considerably more flexible than under the previous facility.
On July 13th, 2005 Royal Philips Electronics sold its holding of 10.3 million shares in Atos Origin (15.4% of the common stock) to Citigroup in a block deal. Citigroup immediately sold those shares on to a wide range of investors. Following this transaction, the free float of the Company's shares is now almost 100%. The volume of shares traded each day has increased proportionally and I believe that this will make the Company's stock more attractive to many investors, especially the larger institutions, and lead to it being represented in more of the major European share indices.
The commercial relationship with Philips remains excellent and we are one of their preferred suppliers for IT services. Philips is one of Atos Origin's largest customers and the Group has many contracts and service level agreements with Philips that mature at different dates, of which 60% relate to the Managed Operations business. The close collaboration and trust between the two companies has just been confirmed by the signing of an extension of our global IT partnership until the end of 2008. Our partnership with Philips is based on a deep understanding of Philips' strategy and the provision of added-value solutions and business expertise. To support this long-term agreement, Atos Origin will continue to be innovative, flexible, transparent and pro-active in delivering high quality services to Philips on a worldwide basis.
Board representation and governance
At the Annual Shareholder Meeting last June, Alain Le Corvec stepped down from the Supervisory Board and I would like to thank him for his support to the Group. Diethart Breipohl was appointed as a member of the Board. Dr. Breipohl is a member of the Management Board of Allianz and of the Supervisory Board of KarstadtQuelle.
Gerard Ruizendaal has resigned from the Board following the disposal by Philips of its share stake in Atos Origin and I would also like to thank him for his many contributions to the Group. We currently have a Supervisory Board comprising seven directors.
Outlook for the remainder of 2005
In 2005, Atos Origin will continue to focus on achieving organic growth, ensuring that it executes properly on large contracts and provides its clients with the highest level of service.
Based on a clear recovery of the IT services market, a steady flow of new orders announced since the beginning of the second half of 2004 and good order coverage for the remainder of 2005, including an expansion of the AtosEuronext partnership in the second half, the Group now expects to achieve organic revenue growth of at least 8% in 2005 on a constant scope and exchange rate basis.
The ramp-up of profitability on new contracts and continuation of organisational streamlining launched in 2004 will drive the Group's profitability forward, and I confirm that we expect the operating margin for 2005 to be in the range 7.5% – 8.0%.
We also expect to reduce working capital significantly in the second half and to complete the business disposal program. Consequently, net debt is expected to fall to around EUR 200 million by year-end.”
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.
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