Atos investor says turnaround plan 'too ambitious and complicated'

Sycamore Asset Management: Outsourcer 'badly run' with 'profit margin,' growth 'below industry averages'

Beleaguered outsourcing tech giant Atos is coming under fire from a section of its investor community over the ambitious turnaround plan that will see the business carved up in two later this year.

Cyril Charlot, founding partner at Sycamore Asset Management (SAM), gave a thumbs down to Atos' recovery blueprint late last week as the company's stock slumped to a near 30-year low.

"Our main request is that the board members which have been there the longest are replaced with new members who are well recognized in the IT industry," Charlot told Reuters.

SAM is a minority stockholder, owning between 0.5 and 1 percent of Atos.

"We have tried to engage with the management and the board in vain so we now think it's time to speak up and we think other shareholders are ready to speak up too."

The share price for Atos currently stands at €10.7 (c $10.8) and was previously close to this level in 1993. Just last week, Atos shed 15 percent of its market valuation after Goldman Sachs swapped its rating for the shares to "sell", saying the troubled financial profile and low visibility indicates drawn out recovery.

"The Goldman Sachs note show that the company has lost the trust of markets and investors," said Charlot. He said "if there is no change at the board it will be really hard for the company to regain the trust of investors."

"What's needed is careful management; the [bifurcation] plan is too ambitious and complicated to implement," Charlot added. "The main problem of the company is that it is badly run – profit margin, sales growth are below industry averages."

The difficulties faced by Atos in the past year were obvious: multiple profit warnings, a failed attempt to buy DXC Technology, and the appointment of a new but shortlived CEO this year.

Yet the rot set in much earlier. Atos didn't evolve rapidly enough in the era of the cloud and only admitted at the start of 2022 that datacenter infrastructure services should not represent its future. This is something CSC and HPE Enterprise Services realized when they merged their businesses in 2017. And of course IBM spun out the Global Technology Services unit into a separately traded entity, Kydryl, toward the end of last year.

The two-way split of Atos was announced in June: it involves creating a new brand, Evidian, for the faster growing Digital, Big Data and Security businesses, and housing the remaining declining units (datacenter and hosting, digital workplace, unified comms, and BPO) in a Tech Foundation Co.

Two new divisional CEOs were appointed for these units and Group CEO Rodolpho Belmer quit over the strategy, just months after being hired to lead a turnaround. Belmer leaves at the end of this month. The Group CFO is also departing for pastures news.

Under the move, Atos – whose losses are widening – waved goodbye to 12,370 employees in the first half of this calendar year and hired 16,089 people "predominantly in offshore and nearshore locations," mostly its the Digital and Security divisions.

Atos said it met with SAM in July and responded with written answers to its questions, saying "quality of dialogue with shareholders" was a "priority" for senior personnel. It said it believes the split will be a success.

A spokesperson at Atos sent us a statement:

"Atos has embarked on a transformation plan in the interest of all its stakeholders, and the whole company is mobilized to work towards the success of this plan.

"This plan has two main focuses: the interest of all stakeholders, including our employees, and the creation of significant value for our shareholders in the medium term.

"Atos attaches great importance to the quality of the shareholder dialogue, which is a priority for the Board of Directors, the Chairman and the management of the Group. In this perspective, Atos confirms that it has responded to Sycomore's requests by systematically answering Sycomore's letters, in this case by letters dated 28/6 and 14/7." ®

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