“Atos Origin 2006 unaudited revenues – transformation plan”

Paris, 5 February 2007

2006 Organic growth in revenues +1.5%
Transformation plan to accelerate organic growth capabilities, improve operational efficiency and operate as a global company

Atos Origin, an international information technology services provider, today announced its 2006 revenues and operating margin before equity-based compensation of EUR 5,397 million and EUR 270 million respectively and a transformation programme aimed at accelerating organic growth by operating globally and improving productivity. All figures are unaudited.

2006 Performance

 

Revenues

2006 Reported Group revenues reached EUR 5,397 million, compared with EUR 5,459 million last year. After adjusting for disposals and exchange rates movements, the Group generated organic growth of +1.5%. After +2.9% organic growth in the first half, the second half, as expected, was flat against the previous year due to the delays in new business signatures in the UK and a tough environment in Italy.

The year has been severely affected by a 12.6% decline in revenues in the UK resulting from four major contract ramp downs (one in consulting and three in Managed Operations), which were not compensated for by new business. Excluding the UK, Group revenues were up +5.4%.

In EUR million

Revenues

Organic growth

Organic growth excluding UK

Consulting

406

-8.1%

+7.9%

Systems Integration

2,243

+2.0%

+4.3%

Managed Operations

2,749

+2.5%

+6.0%

Total

5,397

+1.5%

+5.4%

Portfolio

By year end, all the major contracts in the UK pipeline had been signed and will start contributing progressively in 2007. As a result, order entry picked up significantly at the end of the year at EUR 6.3 billion in 2006 i.e. a book to bill ratio of 116%. On top of the large UK contracts such as Department of Constitutional Affairs, NHS Scotland, and National Farmers Union Mutual, Government Gateway portal, NHS Diagnostics and Rail Settlement Plan, there were some significant new contracts in the Netherlands for ING, Delta and Telegraaf, in Brazil for the Rio Pan-American Games and in China for ChemChina.

Operating margin

Following the latest recommendations from the AMF of 20 December 2006, promoting best practices in France for the presentation of IFRS accounts, Atos Origin has taken the decision to integrate all equity-based employee compensation (Stock options and employee savings plan costs) into the operating margin. For the last time, and for ease of comparison, the operating margin analysis below has been provided on the operating margin before equity-based compensation but both sets of figures are provided in the appendix.

In EUR Million

FY 2006

FY 2005

Revenues

5,397

5,459

Operating margin before equity-based compensation

270

413

Operating margin rate before equity-based compensation

5.0%

7.6%

Equity-based compensation

23

14

Operating margin after equity-based compensation

247

399

Operating margin rate after equity-based compensation

4.6%

7.3%

The Group's operating margin for the year reached EUR 247 million or 4.6% against 7.3% in 2005. Equity-based compensation rose due to the launch of a new Employee savings plan in December. The operating margin before equity-based compensation was EUR 270 million, or 5.0% of revenues, down by EUR 143 million against 2005.

The UK operating margin before equity based compensation declined by EUR 91 million due to the combination of lower than expected revenues, extra costs to complete of EUR 47 million on several difficult projects and lower utilisation rates in Consulting. In Italy, the operating margin declined by EUR 25 million with the Italian activities moving from profits into losses due to the difficult market conditions. A major restructuring programme is underway in these two countries to ensure sustainable profitability in the future.
 

As a result of this performance, the Italian goodwill will be fully impaired in 2006 for a total amount of EUR 77 million, and impairment tests on the UK goodwill are currently underway. The total impairment for the year will be in the range of EUR 350 to 400 million.

While being affected by the performance in the UK, Consulting and Managed Operations have maintained a good financial performance with an operating margin before equity-based compensation, of 9.1% and 8.5% respectively. In Systems Integration, while the operating margin in the Netherlands is still double digit, it remains low in all other countries.

Financial situation

Excluding the effect of the acquisition of Banksys and BCC in December 2006, unaudited net debt at year end 2006 fell by EUR 120 million to EUR 60 million. This reduction was due to strong operating cashflow, a significant seasonal inflow of working capital in the second half and after capital expenditure at about 3.8% of revenues. After the net acquisition costs of Banksys and BCC, total net debt reached EUR 360 million at year end.

Transformation 3 O 3 Plan

A transformation programme has been launched with 3 Objectives over 3 years to accelerate the organic growth, improve efficiency and operate as a global company.

The Management Board has been strengthened by the arrival of Philippe Germond. A new Executive Committee has been created as the main operating body of Atos Origin to manage operations, service lines and functions. This will bring together the CEOs of the large countries, Atos Worldline, the heads of Group Sales, Global Service Lines and key functions. New managers have been appointed in the UK, Netherlands, Italy, Belgium, France, Group Sales and Finance.

In the last month, working groups have been defining the plans to accelerate organic growth, improve operational efficiency and operate as a global company in seven different domains:

  1. Industrialisation through standardisation of processes and tools within Systems Integration
  2. Systems Integration targeting 20% in offshore and nearshore by end 2009
  3. Creation of Managed Operations Global Factory to ensure standardised, consolidated global delivery
  4. Optimisation of Sales resources and development of solutions portfolio
  5. Global purchasing to reduce costs
  6. Stronger and more efficient key functions
  7. Accompanied by a strong Human Resources programme to attract, develop and retain best people.

The total cost of the transformation is estimated at EUR 270 million, of which EUR 160 million in 2007 (EUR 40 million in operating margin).

Objectives

The 2007 objectives of the Group are to achieve top line growth of 8.5%, a recovery in the operating margin in the UK and Italy, execution of the transformation plan, development of Atos Worldline, Atos Euronext Market Solutions and medical BPO. We expect an improvement in the operating margin rate before the costs of the transformation plan and positive free cashflow after restructuring.

Concerning this announcement, Bernard Bourigeaud, CEO of Atos Origin, declared: “2007 is going to be an exciting year. Our objectives are clear, to strengthen the management team, restore the profitability in the UK, Italy and other low performing countries, implement the new organisation and ensure that the Transformation plan is effective. Our ambition is that by 2009 we are able to double our operating margin, assuming cautious topline growth. The whole Atos Origin is focused on achieving this plan.

Next date

28 February 2007 - Announcement of 2006 Results

Disclaimers

This document contains unaudited 2006 figures.

This document contains further forward-looking statements that involve risks and uncertainties concerning the Group's expected growth and profitability for 2007. 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

 

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 5.4 billion and it employs 50,000 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 for Press:

Marie-Tatiana Collombert, Tel: +33 (0) 1 55 91 26 33, marie-tatiana.collombert@atosorigin.com

Contact for Investors:

Virginia Jeanson, Tel: +33 (0) 1 55 91 26 32, virginia.jeanson@atosorigin.com
Gilles Arditti, Tel: +33 (0) 1 55 91 28 83, gilles.arditti@atosorigin.com
Bertrand Labonde, Tel : +33 (0) 1 5591 24 45, bertrand.labonde@atosorigin.com

Contact for Industry analysts:

Roger Cox, Tel: +44 (0) 77 33 313 251, roger.cox@atosorigin.com

Analysis of 2006 unaudited reveneu and operating margin

(Click on the image to enlarge)

Analysis of 2006 unaudited reveneu and operating margin

In € Millions

FY 2006

FY 2005

% Change

Revenue reported for FY 2005

5,397

5,459

-1.1%

Disposals  

-148

 
Exchange Rate impact  

6

 
Organic growth

5,397

5,317

+1.5%

Notes:
1. Organic growth = growth at constant scope and exchange rates.
2. Operating margin comprises operating income before stock option charges, capital gains or losses on the disposal of assets, reorganisation and rationalisation costs, impairment losses on long-term assets, net charge to provisions for major litigation and the release of opening balance sheet provisions no longer needed.
3. Corporate costs: global Service line costs are included in corporate costs in the geographic breakdown but have been allocated per service line for the service line breakdown in 2006 and for 2005.
4. The United Kingdom and France are not comparable year-on-year due to the change in scope and revenue and profit allocation per country resulting from the new AEMS (Atos Euronext Market Solutions) structure, started in July 2005, with the French margin being slightly deflated and the UK margin slightly inflated. Overall the AEMS operating margin is up.