Atos hopes for lifeline as refinancing saga set to drag on into May

Struggling French tech giant posts disappointing Q1 results

Crisis-hit tech giant Atos is pushing back the deadline for its refinancing proposals after posting a slim operating profit of €48 million ($51 million) for calendar Q1.

The French IT integrator has struggled for some time with looming debt repayments and attempts to restructure itself to meet the changing IT landscape.

Earlier this month, the company aimed to have refinancing proposals ready by April 26, but this has now been postponed to May 3 to allow stakeholders time to incorporate new information, with July still the final target date to reach an agreement.

However, Atos said its business plan - presented on April 9 - will need to be adjusted to reflect current commercial performance and trends. Revisions to its 2024-2027 business plan are likely to require an increase in fresh funding and additional debt reduction, it indicated today.

Implementation of €450 million ($483 million) in interim financing is also in progress.

At the same time, the company has posted disappointing Q1 results, with revenue down 2.6 percent from a year ago to €2.5 billion ($2.7 billion), which it attributed to "continued softness" in the UK and Americas for its Eviden subsidiary, and a "lower scope of work with certain clients" in the Americas and Central Europe for its Tech Foundations business.

Revenue for Eviden (digital, security, and big data) stood at €1.17 billion ($1.25 billion), down 3.9 percent year-on-year, while the top line for Tech Foundations (datacenter, digital workplace, and business process outsourcing) was €1.3 billion ($1.4 billion), down 1.5 percent.

"Tech Foundations and Digital are executing on their transformation plans. Business was nonetheless impacted by softer market conditions in key regions such as the Americas and Central Europe as well as delays in contract award," Atos Group CEO Paul Saleh said in a statement.

Despite this, there were pockets of postive news. Saleh claimed the Big Data and Security (BDS) business had expanded with add-on work for existing HPC customers plus a new contract award in Denmark to accelerate research and innovation in fields such as healthcare and life sciences.

At €48 million, operating profit was less than half the €110 million ($118 million) Atos reported for the same trading period a year ago.

TechMarketView analyst Georgina O'Toole said the poor Q1 results show the effects of Atos's precarious financial position on the confidence of clients and prospects.

"A difficult three months has done nothing to shore up the coffers. Indeed, rather the opposite," she commented. "With July 2024 remaining the target date for reaching a financial agreement with the Group's creditors, there will be prolonged uncertainty, and, undoubtedly, a difficult Q2."

Megabuyte analyst James Preece was in agreement. "Unfortunately, tough market conditions and customer reluctance to commit to new programmes of work are likely amplified by the suppliers' very public fight for their own survival – we can't see this changing until the refinancing goes through or someone scoops up the pieces," he stated.

Both the Tech Foundations and Eviden businesses are executing on their transformation plans internally, according to O'Toole, "but this must be very tough to achieve with the purse strings pulled tight," she said.

The Tech Foundations business in particular is suffering, as clients will be far more reluctant to enter into major long-term, transformational contracts, she added.

Atos has been working through a rough patch over the past several years. The company cooked up a plan to split itself in two and divest itself of Tech Foundations, but this deal fell through earlier this year following the cancellation of a planned €720 million ($774 million) rights issue. Last month, Airbus also pulled out of a deal to buy up the BDS part of the business.

The French Finance Ministry said last month that France would use all the means at its disposal to protect the strategic assets of Atos, following the collapse of the Airbus deal, but the company insisted that its financial woes would not affect its ability to deliver IT services for this year's Olympic Summer Games in Paris.

However, the company remains in a precarious position, with its net debt standing at €2.23 billion ($2.39 billion) as of the end of last year.

"Agreeing a financial resolution cannot come soon enough, for investors, for clients, or for employees," said O'Toole. ®

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