ATOS : 2017 annual results

Free cash flow +25.4% at € 714 million

above 55% of operating margin

Net income Group share +11% at € 601 million^[*]

Stronger financial objectives in 2018 confirming 2019 Ambition targets 

Paris, February 21, 2018: Atos, a global leader in digital transformation, today announces its full year 2017 results and achievement of all of its annual objectives. 

Thierry Breton, Chairman and CEO, said: "In 2017 we successfully executed the first year of our three-year plan as we continued to deeply transform the Group. Our significant investments to create our technology leap generated a strong momentum in all digital transformation businesses. Thanks to our technological strengths, our highly skilled engineers and the success of our Digital Transformation Factory, we accompany our customers in their digital journey and we provide security for their cyberspace. In this context, we delivered all our 2017 financial objectives and we made several acquisitions which reinforced the Atos' footprint and digital capacities. 

The company starts 2018 with a stronger balance sheet and no debt, a stronger visibility with more than 75% of its revenue based on multi-year contracts, a stronger-than-ever technological profile and portfolio of offerings, and finally a stronger top management team and enhanced operational governance. All this makes us very confident to deliver value for our clients and shareholders and stronger financial objectives in 2018 towards our 2019 Ambition." 

Revenue was € 12,691 million, +10.1% at constant exchange rates, and +2.3% organically, particularly led by the Atos Digital Transformation Factory which represented 23% of 2017 revenue (vs. 13% in 2016) benefitting from the strong demand of large organizations implementing their digital transformation. 

Operating margin was € 1,292 million, representing 10.2% of revenue, compared to 8.9% in 2016 at constant scope and exchange rates. This improvement by +130 basis points notably came from a fast increasing hybrid or private cloud business, the synergies with Equens and Unify, and the continuous execution of the TOP transformation program. In 2017, the Group continued to execute its pension schemes optimization plan which resulted in operating margin one-offs for € 28 million, compared to € 41 million in 2016. Excluding these effects, the Group profitability was up +140 basis points at 10.0% in 2017. 

The commercial dynamism of the Group was particularly high in 2017 with order entry reaching € 13.9 billion, up by +6.8% compared € 13.0 billion statutory in 2016. It represented a book to bill ratio of 110% in 2017, of which 123% during the fourth quarter. Full backlog increased by +6.0% year-on-year to €22.7 billion at the end of 2017, representing 1.8 year of revenue. The full qualified pipeline reached € 7.4 billion, a strong increase by +14.7% compared to € 6.5 billion published at the end of 2016.

Net income was € 665 million, +14.5% compared to 2016 excluding the gain on the Worldline's sale of the share in Visa Europe to Visa Inc. for € 51 million and net income Group share reached € 601 million, +10.7% compared to 2016 excluding Visa share. Therefore, basic EPS Group share was € 5.72, +9.3% compared to 2016 excluding Visa share and normalized EPS Group share was € 8.24, +9.3% compared to 2016. 

Free cash flow reached € 714 million in 2017, +25.4% compared to € 569 million in 2016, materializing the continuous improvement of operating margin conversion rate to free cash flow, reaching 55.3% in 2017, 56.5% excluding pension one-offs. Net cash position was € 307 million at the end of 2017, broadly stable compared to € 329 million at the end of 2016, reflecting the amount paid for acquisitions and dividend during the year. 

2018 objectives 

In 2018, taking into account the effect of IFRS 15, the Group targets ambitious objectives for its 3 key financial criteria in line with its 2019 Ambition: 

Revenue organic growth: +2% to +3%. 

Operating margin: 10.5% to 11% of revenue. 

Free cash flow: circa 60% of operating margin. 

2017 performance by Division 

Infrastructure & Data Management: Accelerating the transition to hybrid cloud and integrating Unify leading to profitability improvement 

Infrastructure & Data Management revenue was € 7,144 million, +0.9% at constant scope and exchange rates, with a significant growth in strategic areas such as Cloud Services and Technology Transformation Services. Indeed, growth accelerated with new Digital Transformation Factory contracts won in several geographies as the Division continued to successfully transform the IT landscape of its main clients and to roll out automation and robotization. In particular, Canopy Orchestrated Hybrid Cloud showed a strong traction while Digital Workplace and SAP HANA were also boosted by contracts in Asia Pacific and Central & Eastern Europe, respectively. 

Growth materialized primarily in the Public & Health sector, notably in North America and in France. Financial Services benefited from the ramp-up of new large contracts in the United Kingdom, the Netherlands, France, and in Asia Pacific. Manufacturing, Retail & Transportation was stable as increased volumes with Royal Mail Group in United-Kingdom and ramp-up of the new contracts in Germany, North America, France, and Benelux & The Nordics compensated for lower volumes on Unified Communication & Collaboration (formerly Unify S&P) which mostly impacted Germany and North America. Telcos, Media & Utilities was impacted by the re-insourcing of parts of the BBC contract further to its renewal in Q2 and scope reduction with some customers in North America. 

During the fourth quarter of 2017, revenue in Infrastructure & Data Management grew by +0.8%. 

Operating margin was € 752 million, representing 10.5% of revenue compared to 9.6% in 2016 at constant scope and exchange rates. This improvement by +90 basis points (+100 basis points excluding pension one-offs) came from the migration to cloud based infrastructures and highly automated/robotized delivery in a further industrialized setup. Operating margin improvement materialized across most the geographies and was also led by increased revenue, combined with continued tight cost monitoring and strong project management leading to higher delivery efficiency. Additionally, the Division benefitted from costs synergies with Unified Communication & Collaboration.

Business & Platform Solutions: Continuous top line improvement and strong margin increase 

Revenue in Business & Platform Solutions was € 3,243 million, up +2.5% organically. Growth acceleration mainly came from the success of the Atos Digital Transformation Factory and in particular Codex in France and Iberia; SAP HANA in Germany, Asia Pacific, and several customers Benelux & the Nordics; and Digital Workplace to a lesser extent with several projects in France and Germany. 

Public & Health was the main growth contributor with the Olympic Games and Asian Martial Games projects contributing to the double digit growth in Other Business Units and increased volumes in North America. Manufacturing, Retail & Transportation also strongly grew thanks to ramp-ups and larger volumes in Germany and Central & Eastern Europe. In Telecom, Media & Utilities, the base effect of large transition projects delivered last year in Germany was only partly compensated by the ramp-up of contracts in Central & Eastern Europe and new business in Iberia and South America. The Financial Services sector was impacted by fewer projects mainly in France and in Iberia which were not fully compensated by the increased activity with NS&I in the UK. 

The division grew by +2.7% organically during the fourth quarter on 2017. 

Operating margin was € 245 million, representing 7.6% of revenue, an improvement of +110 basis points compared to 2016 at constant scope and exchange rates (+150 basis points excluding pension one-offs). Profitability benefited from revenue growth, implementation of the Application service transformation program, and the successful workforce management materializing in an average daily rate improvement. The Division continued to invest in innovation, mostly for Codex and SAP HANA offerings. 

Big Data & Cybersecurity: Double digit revenue growth led by the demand for Cybersecurity solutions and High Performance Computing 

Revenue organic growth in Big Data & Cybersecurity reached +10.9% at constant scope and exchange rates, leading to € 754 million revenue in 2017, pulled by the extension of the Division's markets both in terms of industries served and geographies. The demand in Cybersecurity services is increasing to face more and more sophisticated cyberattacks. The activity was particularly strong with the signature of new projects with IDM & B&PS existing customers such as Xerox in North America, Department of Energy & Climate Change and BBC in United-Kingdom, as well as Nokia in Germany. The activity in High Performance Computing remained strong in order to support the growing Big Data processing needs of our clients. 

Organic growth reached +5.2% in Q4 2017 in Big Data & Cybersecurity. The Division faced postponements of orders and deliveries in Big Data in the French public sector. 

Operating margin was € 114 million, broadly stable compared to 2016 at constant scope and exchange rates and representing 15.2% of revenue. The Division continued to record significant growth while investing in innovative solutions and products as well as extending its international footprint in geographies such as North America, Middle East & Africa, and Germany. 

Worldline: Fast integration of acquisitions leading to a high level of margin 

From a contributive perspective to Atos, Worldline revenue was € 1,550 million, improving by +4.3% organically:

• Revenue for Financial Processing, was up +6.6% organically to € 705 million, pulled by increasing volumes and high project activity in all its businesses: Issuing processing, Acquiring processing, Digital banking, and Accounts Payments.
• Merchant Services revenue grew organically by +5.4% to € 531 million, driven by positive business trends further to the demonetization in India, higher volumes in Commercial Acquiring, and thanks to Private Label Cards & Loyalty services in Spain.
• Revenue in Mobility & e-Transactional Services was done by -2.0% to € 314 million. On-line activities such as Trusted Digitization, e-Ticketing, and e-Consumer & Mobility, mitigated the effect of the termination of the Radar contract in France which affected Worldline growth in H1. Excluding that effect, growth in Mobility & e-Transactional Services would have exceeded +9% in 2017. 

During the fourth quarter of 2017, Worldline grew by +6.2% organically.

Contributive operating margin was € 253 million, or 16.3% of revenue, +310 basis points compared to 2016 at constant scope and exchange rates. This strong improvement was mainly achieved thanks to transaction volume growth, synergies on acquired perimeter, and a tight cost control. The Division recorded a € 7 million pension one-off during the first half of the year; excluding this effect, the Division's operating margin improved by +270 basis points. 

A detailed presentation of Worldline 2017 performance is available at worldline.com, in the investors section. 

2017 performance by Business Unit 

The Group recorded a revenue organic increase of +2.3% and improved its operating margin rate by +130 basis points in 2017. 

Almost all Business Units grew organically:

• Germany up by +1.6% with a steady acceleration throughout the year fueled by new contracts in Business & Platform Solutions as well as in Big Data & Cybersecurity, while Infrastructure & Data Management was impacted by the revenue evolution of Unify;
• North America was up +1.1%, benefitting from the migration of several large customers to Hybrid Cloud and Digital Workplace and also to its progressive diversification to Big Data & Cyber-security and to Business & Platform Solutions. The Business Unit was also impacted over the year by Unify;
• France organic growth reached +0.7%, driven by contract ramp-ups in Infrastructure & Data Management in particular for hybrid cloud orchestration;
• UK & Ireland was up by +1.2% deriving from new businesses in Atos Digital Transformation Factory and the strong dynamism of Big Data & Cybersecurity sales;
• Benelux & The Nordics, closing the year at -0.8%, a significant improvement compared to the performance recorded the year before (-7.3%) thanks to the turn-around of Infrastructure & Data Management activities;
   
• "Other Business Units" also positively contributed to the Group revenue growth, thanks to a sustained activity in most of the countries for all divisions;
   
• Worldline continued to contribute to the Group organic growth with +4.3% led by increased transaction volumes within Merchant Services & Financial Processing all over the year. 

Global structures costs reached €-79 million, a decrease by € 17 million compared to previous year at constant scope and exchange rate, reflecting the continued efforts in costs optimization and a better monitoring both in procurement and real estate costs. 

The Group operating margin improved by +130 basis points (+140 excluding pension one-offs) led by a fast increasing hybrid or private cloud business, the synergies with Equens and Unify, and the continuous execution of the TOP transformation program. All the Business Units strongly improved their operating margin rate except the United-Kingdom due to the re-insourcing of part of the BBC contract as mentioned herein above and pension one offs. Indeed, pension one-offs were recorded within Worldline for € 7 million in H1 and within the United-Kingdom for € 21 million in H2, therefore a total of € 28 million compared to € 41 million in 2016 (only in the United-Kingdom).

Commercial activity 

The commercial dynamism of the Group was particularly high in 2017 with order entry reaching € 13.9 billion, up by +6.8% compared € 13.0 billion statutory in 2016. It represented a book to bill ratio of 110% in 2017. It translated into all Divisions as Infrastructure & Data Management book to bill ratio reached 107%. Business & Platform Solutions order entry represented 115% of revenue. The level of booking was also high in Big Data & Cybersecurity at 125%. Worldline book to bill ratio reached 104%. 

Book to bill ratio reached 123% during the fourth quarter of 2017. Several contracts were won with new customers such as Aviva in the United Kingdom in Infrastructure & Data Management and a large car manufacturer in France in Business & Platform Solutions as well as with Henkel in Germany in Infrastructure & Data Management. The group also renewed some significant contracts such as Disney in North America, Bundesagentur für Arbeit in Germany, and Euronext in France. 

In line with the dynamic commercial activity, the full backlog increased by +6.0% year-on-year to € 22.7 billion at the end of 2017, representing 1.8 year of revenue. The full qualified pipeline reached € 7.4 billion, a strong increase by +14.7% compared to € 6.5 billion published at the end of 2016, representing 7 months of revenue. 

Operating income and net income 

Operating income reached € 875 million in 2017, +5.8% compared to 2016, resulting from the following items: 

Costs for staff reorganization, rationalization, and integration amounted to €-163 million and represented 1.3% of revenue, at the same level of 2016, in line the target of 1% of Group revenue plus the cost planned to generate the synergies with Equens. 

Amortization of Purchase Price Allocation of acquired companies represented €-109 million compared to    €-106 million in 2016. The amortization of the equity based compensation plans amounted to €-86 million, compared to €-50 million in 2016. 

Other items amounted to €-59 million compared to €- 27 million in 2016 excluding Visa share. In H2 2017, following the acceleration of significant cyberattacks such as WannaCry and NotPetya as well as to prepare a faster implementation of GDPR, the Group ran specific programs to reinforce its skills and offerings and to prepare a faster implementation of GDPR. The Group also decided to settle several longstanding litigations. 

Net financial result was a charge of €-62 million, compared to €-55 million in 2016, including the costs of pension, the two bonds issued mid-2015 and in October 2016. Total tax charge was €-149 million, representing an effective tax rate of 18.3%, stable compared 2016. 

As a result, net income was € 665 million, +14.5% compared to 2016 excluding the one-off sale of Visa share. Non-controlling interests amounted to € 64 million and were related to the minority shareholders in Worldline. Therefore, the net income Group share reached € 601 million, +10.6% compared to 2016 excluding Visa share. 

Basic EPS Group share was € 5.72, +9.3% compared to 2016 excluding Visa share and diluted EPS Group share was € 5.70, +9.4% compared to 2016 excluding Visa share. Normalized EPS Group share was € 8.24, +9.3% compared to 2016. 

Free cash flow 

Operating Margin before Depreciation and Amortization (OMDA) was € 1,608 million representing 12.7% of revenue, compared to 11.1% in 2016. 

As planned, total cash-out for reorganization, rationalization, and integration was €-157 million compared to €-150 million in 2016, in line with the target of 1% of Group revenue plus the cost planned to generate the synergies with Equens. 

In 2017, capital expenditures totaled € 526 million, representing 4.1% of revenue, compared to € 456 million in 2016 (3.7% of revenue) materializing the investment made in Cloud architectures and in payment platforms within Worldline extended scope. Change in working capital was €-25 million, in line with growing activity in particular in the public sector.

Tax paid was €-133 million compared to €-131 million in 2016 and cash-out for financial costs was €-24 million (€-20 million in 2016). Finally, other items totaled €-30 million, compared to €-40 million in 2016. 

As a result, free cash flow reached € 714 million in 2017, +25.4% compared to € 569 million in 2016, materializing the continuous improvement of operating margin conversion rate to free cash flow, reaching 55.3% in 2017 compared to 50.8% in 2016, 56.5% excluding pension one-offs. 

Net cash evolution 

Net acquisitions / disposals in 2017 amounted to €-403 million, mainly related to the acquisitions made by Worldline i.e. First Data Baltics, MRL Postnet, DRWP, and the three consulting companies acquired in healthcare in the US. 

Capital increase, mostly related to proceeds from the employee share plan totaled €+38 million in 2017 compared to €+28 million in 2016. In 2017 the Group performed a share buy-back program for € 59 million. 

The cash-out for the payment of dividend on 2016 results was €-168 million compared to €-47 million previous year, in line with the increase of the dividend per share and the full payment in cash. 

Finally, mainly due to the euro increase versus the US dollar, foreign exchange rate fluctuation effect on debt or cash in foreign currencies totaled €-144 million compared to €+6 million in 2016. 

As a result, Group net cash position as of end of 2017 was € 307 million, broadly stable compared to € 329 million at the end of 2016. 

Human resources 

The total headcount was 97,267 at the end of 2017 compared to 100,096 at the end of 2016. Excluding scope effect from 2017 acquisitions (circa 1,100 staff), this represents a decrease by -3.9% compared to the end of 2016 and translates the Group hiring adaptation in anticipation of the implementation of automation and focus on digital transformation skills. The Group pursued the digital training and reskilling of its teams. 

Attrition remained stable at 11.7% at Group level and 17.8% in offshore countries. 

IFRS 15 

As a whole, the Group confirms a circa -5% effect from IFRS 15 on 2017 revenue and a circa +50 basis points on its operating margin rate. Obviously, this is will not change operating margin and free cash flow amounts. 

Dividend 

During its meeting held on February 20, 2018, the Board of Directors decided to propose to the next Annual General Meeting of Shareholders a dividend in 2018 on the 2017 results of € 1.70 per share with the option for a payment in Atos SE shares.

Appendix 

Atos consolidated and statutory financial statements for the year ended December 31, 2017, were approved by the Board of Directors on February 20, 2018. Consolidated financial statements have been audited. 

Revenue and operating margin at constant scope and exchange rates reconciliation 

The integration of Unified Communication & Collaboration (11 months) represented a FY 2016 revenue restatement of €+420 million. 

Scope effects amounted to €+467 million for revenue. This was mostly related to the positive contribution of Unify Services and Unified Communication & Collaboration (UCC, formerly Unify S&P) (January 2016 for €+63 million), Anthelio (9 months for €+133 million), Equens, Paysquare, and Komerçni Banka Smartpay (9 months for €+229 million). Other effects were related to the acquisitions of Pursuit Healthcare Advisors, Conduent's Healthcare Provider Consulting, and Conduent's Breakaway Group, First Data Baltics, Digital River, MRL Posnet, Engage ESM, zData, and Imakumo, on one side, and to the disposal of Cheque Service on the other side. 

Currency exchange rates effects negatively contributed to revenue for €-195 million and mainly came from the British pound and the American dollar depreciating versus the Euro. 

The integration of UCC represented a FY 2016 operating margin restatement of €+18 million. Exchange rates effect accounted for € -21 million and scope effects amounted to €-2 million. 

2017 revenue performance by Market 

Q4 2017 revenue performance by Division, Business Unit, and Market

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