Atos SE (ATO) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Atos Q1 2020 Revenue Conference Call. [Operator Instructions] I must advise that this conference is being recorded today, Wednesday, 22nd of April 2020. And I would now like to hand the conference over to your first speaker today, Chief Executive Officer, Elie Girard. Thank you. Please go ahead.

Hello, everyone. Elie Girard speaking. Thanks for being with us this morning in this very particular period. I would like to start with the deep thought to all the victims of COVID-19 across the world and their families and a big thank to all people working every day and night at the front. I'm sure many of you have some of them around you. And I wish you, your families and your banks, funds, companies and institutions to keep safe. I will first go through the highlights of the last quarter, the way we handle the current situation, and I will then go to our objectives for 2020 taking into account COVID-19. Uwe will go through the financial performance of Q1 and will develop our views for the rest of the year. After my conclusion, we will open the floor to your questions. Eric Grall, our COO, is with us as well. So let's move to the first slide. In this unprecedented environment, our first priority has been to protect our people while supporting efforts globally to curb the spread of the COVID-19. Our very centralized organization model allowed us to react very quickly to take care of our employees. We immediately adopted all hygiene and safety guidelines as published by the WHO and all 73 local governments where Atos has employees, including the quarantine recommendations when necessary, the distribution of masks, gels and sanitation equipment to those requiring office or factory work. Our crisis management task forces took the lead for employee care with the fast setup of an alert infrastructure, mobilizing the group HR network to provide individual support for those with COVID-19 symptoms and diagnosis. Also leveraging and reinforcing the Atos infrastructure, we fully adopted work from home across the group, moving from circa 30% in normal time to 96% work from home worldwide in a manner of days, including a massive movement to home working in India in less than 24 hours. We also provide emotional and mental support for employees isolated at home. Finally and obviously, most travels have been stopped. Let's move to the next slide. While taking care of our employees, the business continuity plans we set up ensure continuity of service for all customers through massive homeworking support, service desk and workplace as well as seamless continuation of mission-critical activities for hospitals, policies and governments, energy production, et cetera. In particular, we quickly rolled out communication and collaboration technologies to enable remote working and social distancing at our customers. As soon as in the early days of the crisis, we launched our Always Ready program and portfolio especially dedicated to COVID-19-related needs. It is a collection of customer cases, offerings and actions on how we are helping communities and clients to respond to the situation. Whether it's rapidly enabling telemedicine in hospitals or supporting job claim management, Atos employees are working hard to contribute to the fight, supporting customers and communities on a daily basis. We are strongly supporting our customers reinforcing the cybersecurity at the moment where this is more critical than ever for business continuity and they are potentially targeted by an increased cyber threat. Supporting public and health authorities is at the heart of our concerns with an immediate response for accelerating critical research on COVID-19 with our high-performance computers, analytics and other services but also to support emergency communications dispatching and help pandemic tracing with critical realtime information on outbreaks, allowing to reduce time to react. Now our minds and efforts are turning to the post-COVID times, actively preparing for the new normal, which we'll see an acceleration in specific customers' needs, namely data platforms, cybersecurity, cloud migration, digital workplace and decarbonization. The group is solidly positioned to navigate smoothly through the crisis, thanks to deep client relationships across all industries, a resilient business profile and a robust balance sheet that provides a strong financial flexibility. On the next slide, I would like to elaborate on the key components of our business profile solidity. First, our resilience comes from our multiyear contract that generate 2/3 of the group revenue, deriving from Infrastructure & Data Management but also Application Management contracts included in Business & Platform Solutions. In Big Data & Cybersecurity, most of our services and products are absolutely necessary to our customers, including and sometimes even more in crisis times. In total, circa 75% of our revenue is made of critical services and products. The composition of our customer base also brings resilience as Atos is mainly performing business with large companies having more than EUR 1 billion annual revenue or with the public sector or similar bodies. Together, they represent 90% of our revenue. On the next slide, I would like to highlight the breakdown by industry. As you can see, we have a well-balanced industry mix. Indeed, our largest industry is Manufacturing, which represents 20% of the group; and the smallest exposure is Healthcare & Life Sciences, which represents 12% of our business; all the 4 others being in between 15% and 20%. In addition, the group is underexposed to the most impacted sectors at the moment and rather overexposed to the most resilient ones. Exposure in Financial Services is 19% compared to 26% for the IT Services market as a whole, while we are overexposed to the Public Sector & Defense, 20% versus 16% for the market; and Healthcare & Life Sciences, 12% versus 6%. Finally, our exposure to travel and leisure is only circa 2% of our revenue. On the next slide, taking into account our visibility by business and by industry. For a company with a size close to EUR 12 billion, the effect from the reduction of the demand this year leads to EUR 750 million less revenue mainly in discretionary projects and fertilization partly mitigated by extra work related to COVID-19 such as Digital Workplace, Unified Communications and Cybersecurity. For the sake of clarity, this impact is versus our initial guidance at circa 2% organic growth this year, not versus last year revenue. Uwe will go in more details on the topic in his presentation. Let's move to the next slide on our approach to mitigate the impacts on the group. Bold actions are being taken involving all our stakeholders for a fair sharing of the impacts on the company, notably in terms of profitability. Those actions are detailed on the next slide showing contributions and implications per stakeholder. Non-personnel cost and discretionary spend have been restricted, and we implemented a strong purchase order freeze for noncustomer-related requirements. We put in place subcontractors furlough for time and material and outsourced services and replaced when possible with our own staff capabilities. We also initiated a large review of our key suppliers asking for volume reductions, additional discounts or starting price renegotiation. As far as the Atos employees are concerned, we froze hiring and took actions on bonuses and salary increases, asked employees to take vacations where there is no impact on the business. And when absolutely required, we implemented short-time work. In addition, we reassigned internal staff to certain needs such as mission-critical deliveries. I already talked of our support to customers to maintain the highest possible level of activity. We engage with them when needed to shift from discretionary spend to crisis support in order to absorb the impact. And we also discussed when relevant services extension post crisis. This is done through commercial negotiation but obviously keeping in mind a strict contract management. Finally, Shareholders & Group Management Committee. In these unprecedented circumstances, during its session yesterday on April 21, the Board of Directors took the exceptional decision not to propose the EUR 1.40 per share dividend, which was initially considered to be submitted to the Annual General Meeting. Regarding group management, as the CEO of the company, I have decided as well as other colleagues of the General Management Committee to reduce by 30% our compensation during the current 3-month period from March to May 2020. The Chairman of Atos Board of Directors has made the same decision. On the next slide. As a consequence of all the actions launched, we expect to mitigate 2/3 of the net revenue reduction and, therefore, an impact on the operating margin at circa EUR 200 million this year. Again, Uwe will go deeper on the topic in this presentation. Let's move to the next slide. What are the other highlights of Q1? First of all, we implemented our new industry-led organization to be closer to our customers with higher skills and know-how by sector. In this project, we want to expand and industrialize our portfolio as well as reshape our go-to-market. Second, importantly, we have successfully renewed large contracts in the U.S., where I'm going to comment in a few minutes. Third, in February, a little before the outbreak of the crisis, we achieved a EUR 1.5 billion placement of the last Worldline shares available in order to deleverage. The placement of this size overnight was possible, thanks to the liquidity provided at the time of the announcement of the deal with Ingenico. Finally, we acquired Maven Wave, a strong U.S. partner of Google Cloud. We also announced today the acquisition of data science firm Miner & Kasch in the U.S. These are very good examples of bolt-on acquisitions that we want to make in order to support our business growth. On the next slide, you have the key figures of the first quarter of 2020. Revenue reached EUR 2.8 billion, slightly down minus 0.8% organically and reflecting a lower activity in projects in March, which is every year the largest month of the quarter. The sales dynamics were strong with an order entry at EUR 2.9 billion, representing a book-to-bill ratio of 103%. The backlog was at EUR 22.1 billion, which obviously helps to get some visibility for the future. Finally, the pipeline remains strong, EUR 200 million above the end of last year, with several additional large signatures expected in the next few months. Let's move to the main wins of the quarter. As part of the renewal of our contracts, the group was recently awarded a multiyear contract with the state of Texas to deliver next-generation private cloud transformation and artificial intelligence capabilities. This modernization will automate processes, create efficiencies, free up resources and improve service delivery quality for the state's agencies and residents. For Conduent, the renewal covers a broad range of IT infrastructure services supporting Conduent. The scope includes cloud, midrange, mainframe and security services. A key element of the renewal is a joint program to optimize and simplify the overall IT landscape. Also in the area of Telecom, Media & Technology, we signed in the U.S. a large deal in Digital Workplace with a major company in the engineering sector. In Germany, we signed with Norddeutsche Landesbank, a contract covering a new sourcing strategy on Digital Workplace. We also signed an interesting contract in the U.S. with Goli Nutrition, an innovator in health. We will deliver a predictive maintenance as a service as part of our Codex solutions. In Manufacturing, we signed a multiyear extension on SAP HANA with a global European firm in capital goods; and finally, in Health & Life Sciences, with a major European pharmaceutical company in digital project on Syntel's offering. Let's move to the next slide. As the 2020 objectives disclosed on February 19, 2020, were pre-COVID-19 effect, the group updates today its 3 objectives for the full year 2020 based on the current macroeconomic scenario of a progressive recovery over H2 2020 and 2021 as well as the management's daily discussions with group customers: a revenue organic evolution between minus 2% and minus 4% versus circa plus 2% pre-COVID-19; an operating margin rate between 9% and 9.5% of revenue versus plus 20 to plus 40 basis points above 2019 pre-COVID-19. As a reminder, in 2019, we reported 10.3%. A free cash flow between EUR 0.5 billion and EUR 0.6 billion versus circa EUR 0.7 billion pre-COVID-19. The group suspends its targets for 2021, the last year of the 3-year plan presented in the Investor Day held on January 30, 2019. The group will present its vision as well as its mid-term targets at the 2020 Analyst Day, for which the date will be rescheduled as soon as possible. Thank you, everyone. And now, Uwe, the floor is yours.

Thank you, Elie. Hi, everyone. Uwe speaking. Let's start with the usual reconciliation between the statutory figures and pro forma. The currency exchange rate effects came mostly from the U.S. dollar as well as the British pound and positively contributed to the revenue for EUR 27 million. Scope effects amounted to EUR 14 million for revenue and are mainly related to the mentioned acquisitions of Maven Wave consolidated as of February 2020, IDnomic from October 2019 and X-PERION from December 2019 and the disposal of some activities. Let's move to the revenue by industry, which is now the first level of reporting, and the geographies for regional business units remain the second one. Today and also for the first semester, we will report revenue by divisions for the last time. Revenue evolution was different by industry. Manufacturing reached EUR 539 million of revenue, down 2.9%. The industry was impacted by a slowdown in the Aerospace sector and in Discrete Manufacturing as well as in the Chemical industry mainly due to less application project work and also shift of equipment sales. The Financial Services & Insurance revenue was EUR 527 million in the first quarter 2020, down by 2.6%. In North America, the reduction of project activities accelerated in March due to the decisions from several financial service firms to postpone or reduce the discretionary spend in the context of COVID-19. Northern Europe benefited from ramp-up with Aegon in the U.K. Public Sector & Defense was EUR 584 million, up 3.2%. The growth was driven by the contract ramp-up with the European Centre for Medium Weather Forecasts in the U.K. as well as with the European Union. The situation was more challenging, though, in Southern Europe, impacted by less High Performance Computing projects and less product sales. Telecom, Media & Technology reached EUR 443 million, up 0.8%. Inside this industry, the technology part grew especially with Unified Communication & Collaboration offerings in Central Europe and the organic growth of newly acquired company Maven Wave in North America. Revenue in Resources & Services reached EUR 418 million, an increase by 0.4%. Business in Energy & Utilities sector contributed most to the growth. Additional High Performance Computing projects were delivered in South America. The situation in Retail, Transportation & Hospitality sectors was more challenging in the context of the crisis. Health & Life Sciences revenue was EUR 323 million, down by 4.9% impacted by volume reductions in both North America and Northern Europe due to health care providers directing all resources towards patient care. At the same time, the industry benefited from the ramp-up of a global contract with Bayer and an Australian public agency contract. Now let's look at the next page at geographies and the new configuration of 5 regional business units. First, North America. Revenue reached EUR 680 million, decreasing by 2.6%, as commented before, mainly because of the reduction of project work especially in the application area in the second half of March due to COVID-19 for Financial Services and Manufacturing clients. At the same time, other sectors like Telecom, Media & Technology and Resources & Services grew, thanks to new customer wins. In Northern Europe, revenue was roughly stable at EUR 698 million. Strong business was recorded here in Public Sector & Defense. Healthcare & Life Sciences contracts, in the contrary, suffered from volume reductions especially in BPO. In Southern Europe, revenue reached EUR 594 million, decreasing by 2.6%. Healthcare & Life Sciences posted a double-digit growth, thanks to digital projects delivered and High Performance Computing activities. However, the geography was impacted by less activities both in Public Sector & Defense and Manufacturing. In Central Europe, the geography increased organically by 1%, leading to EUR 667 million revenue. Manufacturing was up, thanks to several ramp-up of hybrid cloud contracts with customers such as BASF as well as additional projects with Rheinmetall. This more than offset the impact of project [indiscernible] postponed in the crisis. Growing Markets reached EUR 194 million revenue, plus 1%. Manufacturing and Resources & Services posted growth mainly in APAC and in South America. Next slide presents the performance by division. In Infrastructure & Data Management, revenue was EUR 1.558 billion, minus 0.5% organically. The division has successfully continued its activities in Hybrid Cloud transformation and orchestration as well as Digital Workplace implementations. COVID-19 increased customers' focus on business continuity. In addition, the division recorded strong demand on Digital Workplace solutions and offerings linked to the working from home and remote working initiatives of our customers. But the division was also partially impacted by a decline of fertilization in existing contracts in March. In Business & Platform Solutions, revenue was EUR 1.016 billion, down 4.9%. As a reminder, the division was down 1.2% in Q4 2019 due to the tensions in financial sales in North America as well as in automotive industry in Germany, and therefore, we did not expect an improvement in H1 2020 even before COVID-19. In the new context of COVID-19, the division faced additional project slowdown across the industry. This business segment is more dependent on the cycle and customers started in March to postpone discretionary projects and also to delay project acceptances. Most impacted are the professional service activities requiring engineers on customer side which cannot be performed remotely. This is circa 30% of the B&PS business. On the opposite, application development and maintenance based on longer-term contracts are more resilient, which is 40% of B&PS. In between, a large part of critical digital projects, which is circa 30%, can be performed from remote. The business in Big Data & Cybersecurity remains strong, with revenue up 16.3% at EUR 259 million in the first quarter of 2020. In the current context, customers are asking for more consulting and solutions to increase the robustness of the cybersecurity setup. In Big Data, there was no disruption in the supply chain, and therefore, all deliveries could be performed on time. On the next slide, let me give you a quick status on the Syntel synergies. We continue to see good traction in deals being closed, e.g., 66 deals closed in Q1 and the pipeline of EUR 900 million contract value. I have 2 examples of those recent wins which are each between EUR 20 million and EUR 50 million contract value: one is with a global pharmaceutical company for the deployment of analytics solutions in their R&D processes; and the second one is with a global insurance company to manage their global application landscape in an agile DevOps mode. On the next slide, I'm covering the head count evolution. The total head count of the group was stable in comparison to December 2019. The scope impact was related to Maven Wave starting in February in North America. Overall, the hiring was mainly in offshore locations. Attrition rate in the first quarter of 2020 was 12.3%, down from 14.5% in 2019. Indeed, attrition dropped in March to 9.5% after January and February at 13.5%. On the next slide, I would like to point your attention to our strong financial position, as Elie had pointed out, which has been recently reinforced with the disposal of Worldline shares in February 2020. Starting with the net debt at minus EUR 1.7 billion as of December 2019 and taking into account the proceed of EUR 1.4 billion relating to the sale of Worldline shares net of tax and fees and reduced by the acquisition price of Maven Wave and the remaining Worldline shares underlying the EUR 500 million exchangeable bond, we are pro forma debt-free. We have access to EUR 2.4 billion revolving credit facility not expiring until November 2024 and an option to extend it by another year. Only EUR 80 million of this was used as of last year-end. Also, you can see on the page the future redemptions of our bonds. All in all, a very solid liquidity situation for 2020 and beyond. On the next slide, I would like to comment on the situation of our pension plans at the end of the first quarter of 2020. As of March, the deficit of our pensions amount to EUR 0.9 billion, decreasing from EUR 1 billion at the end of December 2019. Our plan assets are invested only 10% in equity, leading to a very small exposure in the crisis. 2/3 is invested in corporate and sovereign bonds. At the same time, due to the increase of the corporate interest rates, the defined benefit obligation decreased. The effect was higher than the decrease on the plan assets. Important to note is that 87% of our deficit of EUR 0.9 billion is not requiring funding in the next year. This was also the result of our contribution of Worldline shares to the U.K. pension fund in Q4 of 2019. On the next slide, I would like to detail the main items leading to an update of our revenue organic growth objective to take into account the impact of COVID-19 as per Elie's earlier explanations. The main reduction effect relates to discretionary project mainly on professional services, which normally are delivered on customer side, and also to take into account a coming slowdown on customer demand for our projects. We are estimating this effect for 2020 to be circa EUR 450 million. Another effect is on fertilization and volumes for circa EUR 200 million on our multiyear contract. We also estimate less product sales of software and hardware for circa EUR 100 million. On the other side, in the current context we experienced, we are experiencing additional demand on Digital Workplace, enterprise communication, obviously, security offerings, estimated at circa EUR 100 million. Plus, we see an additional EUR 50 million in additional work for the Public Sector & Defense. All in all, we move to a bracket between minus 2% and minus 4% organic evolution this year, as explained by Elie. So what are our actions to mitigate the effect of less revenue on the operating margin this year? First, we launched a strong action plan to decrease third-party spend for all areas and geographies for a total of circa EUR 170 million. This includes as well the replacement of external spend with our own people. Second, we centralized hiring decisions in the context of hiring freeze. This is augmented by part-time work and further initiatives in several countries. Travel freeze is expected to save circa EUR 40 million this year. We expect that the effect of salary freeze and also on reduced variable pay provides circa EUR 90 million additional euro savings. In summary, all the actions identified and launched will reduce the cost by EUR 400 million, leading to an operating margin objective between 9% and 9.5% for the year. Finally, on my last slide, we have updated the free cash flow objective to take into account the operating margin decrease, which is circa EUR 150 million after tax. We factor in our estimate a negative effect from customer collections of circa EUR 50 million. We will partly mitigate both effects by several actions like reducing capital expenditures by circa EUR 25 million and other items by circa another EUR 25 million. This leads, in summary, to a free cash flow objective this year between EUR 500 million and EUR 600 million. Thank you, and back to you, Elie.

Thank you, Uwe. Before moving to the questions, I just to summarize here our main priorities for 2020. First, as I mentioned earlier on, we are working on the post-COVID needs of our customers to support them actively during the recovery phase in areas like Digital Workplace, for which working from home will have to be made much more structural; migration to the cloud, which will even more accelerate; Cybersecurity, for which the current crisis has emphasized the absolute criticality; but also decarbonization, which is an accelerating trend in our business. The same way Atos has been able to support our customers during the crisis, we are well prepared for the post-COVID. Second, a strong emphasis is being put on the day-to-day management dedicated to workforce, cost control, cash and Syntel synergies. Third, succeed in 2020, the rollout of SPRING to get a relevant end-to-end business model to address rising critical needs of our customers. This has not been slowed down by the current situation. And finally, we maintain our focus on bolt-on acquisitions, as I already explained. Thank you very much for your attention, and let's now move to your questions.

[Operator Instructions] Your first question comes from the line of Michael Briest.

First of all, appreciation for you providing guidance. It seems to be increasingly rare in parts of the sector. But 2 from me. Just drilling into that technology, professional services, which I think you described as about 30% of the BPS (sic) [ B&PS ] portfolio, I mean that looks like it's a run rate of about EUR 1.3 billion a year. Can you sort of square what you're expecting there if these people can't work in the current crisis situation with the EUR 450 million reduction in discretionary projects that you're expecting? How much of that is related to Q1, Q2, where effectively you can't deliver? And how much is -- of the EUR 450 million is expected to be weaker demand? And then I had a follow-up on sort of payments.

Michael, thank you. So Uwe, do you want to take this first question of Michael on how we modelize that?

Yes. So indeed, circa 30% of our B&PS business, Michael, is related to more on-site type of activities, where we either now transform those people into other engagements where we can work remote and even with those customers which we're not able to perform their projects, how can we help them to do the same work from remote. So it's a conversion, if you want, of the way of delivering, which, of course, takes some time and took some time to do so. So in this sector, we had, of course, the biggest decline of the revenue. And this was remodeled that the impact would be most in, of course, March, we saw it already; but in Q2, where we have the most impact. And then we'll gradually get out of this situation and have less and less dependency on the on-site piece. But at the beginning, the decrease is, of course, the most in this sector with about 15% to 20% in Q2 and then gradually improving.

Okay. And then just on the cash flow bridge, I mean, you're allowing about EUR 50 million for extended payment terms. That's, I think, less than 1 day on DSOs. We're hearing a lot of companies are pushing for extended payment terms. You yourself are going to try and push it down to your suppliers. Can you sort of rationalize how you came to that and what you're actually seeing already from clients in terms of requests for longer payment terms?

Uwe?

Yes. So on the payment terms, of course, this is a piece which, yes, we see requests, although we, of course, tried to resist that as much as possible as we are not really being the bank or the government for those companies. But we have, of course, rare instances where we see those cases or late payments. But in many cases, we are also trying to mitigate that impact in our overall base. Overall, we have very large customers, which normally are also sticking to the contracts which we signed with them. So we have a limited number of those requests. And we are, of course, trying to mitigate that as much as possible in our cash flow estimations.

Your next question comes from the line of James Goodman from Barclays.

A couple from me, please. And just firstly, on the cost actions to save the EUR 400 million, you can achieve that without restructuring, I took from your comments. Can you remind us just where we are for restructuring cost this year and just confirm that there's been no change to the non-IFRS costs there as a result of COVID? And then secondly, just if you could add a little bit more context around utilization and head count expectations for the year. So attrition clearly reducing at the moment but a hiring freeze as well. I'm just thinking about when the furlough schemes roll off, how much of the EUR 80 million saving there potentially need to be looked at again?

James, thanks for your questions. I will take the first one, and Uwe will take your second question. On the first one, we haven't modeled an increase of restructuring. At this stage, we believe that all -- with all the actions that we described with Uwe and our management of the workforce, we should be able not to increase the restructuring charge this year compared to what we guided on so far, which is roughly 1% of the revenue, plus EUR 30 million coming from the Syntel integration and EUR 25 million on the special plan in Germany. So we intend to stick to this. Uwe, please, on the second question from James?

Yes. On the second question, James, so indeed, we have modeled in our EUR 80 million, roughly half of that to be coming from the furlough actions, which, as you said, are more temporary in nature. So we assume about a 4-month period for that until also in our estimations, our growth rates and our revenue production will increase again. And the second half is really on the hiring freeze, where we assume that we will have a reduced hiring in the offshore locations of about 20% and in the onshore locations of about 70% in the -- in our normal hiring activities during that phase, which will provide us the second half of the EUR 40 million also -- of the EUR 80 million, sorry, the second EUR 40 million, and therefore will also be on a run rate. Of course, increasing as the hiring and the freeze of hiring will kick in, so to say, over time, as you can appreciate, whereas the furlough is now, of course, modeled and also actual for the next 4 months, at least in our model.

Your next question comes from the line of Laurent Daure.

Three questions, if I may. First is on all the renewals you announced in the first quarter, if there is -- especially for Conduent and Texas DIR, if there is significant changes in the scope versus your initial contract. And on that, could you also comment a little bit on Siemens? I think you have to renew partnership next year. Any granularity on this will be welcome. The second question is on your guidance. I was just wondering what type of hypothesis you have taken on the fertilization of contract, potential additional pricing pressure. And if the deals that have slipped, if you consider them to be lost for the year. And final one is on the pensions. You said that the majority doesn't need any more funding. What is now, going forward, annual funding for the pensions?

Laurent, thank you for your questions. I will take the 2 first ones, and Uwe will answer on the pension. So an important question you asked about our renewals in the U.S. and then Siemens. So on the 2 renewals signed this quarter, in Q1, in the U.S., on Texas DIR, we renewed a big chunk of the current delivery that we are implementing for the state of Texas, which is the cloud, which was up for renewal. The other pieces are going to come for renewal or are coming actually now for renewal piece by piece, okay? So what we have renewed at the moment is roughly half of the current scope. The rest is to come for renewal. On Conduent, the scope, so we are, of course, consenting price decreases in line with our -- the productivity gains that we can implement on our cost base. And in exchange, we also have an increase of the scope that we're delivering for Conduent. This is the usual trade-off that we find in our commercial discussions at the time of renewals with customers. On top of that, we intend to partner even more closely with Conduent on joint go-to-market. So it's -- I'm really proud of what the team has achieved in this enhancement of our relationship with Conduent at the occasion of this renewal. On Siemens, what I can tell you is that we are currently already discussing on the extension of our commercial relationship with Siemens, but it's really too early to be more precise about it. On your second question, Laurent, on how we see price pressures and the shift of the few transactions that we mentioned. On the price pressure, we do not see at the moment and across the board price pressure. We're seeing punctual asks from some customers who are facing the biggest difficulties in some sectors, to which, as I explained in my presentation, we're roughly less exposed than the entire market, but a few customers indeed asking for that. And what we're doing, and we explained that in the presentation, is that we are engaged in commercial discussions to find, let's say, clever and constructive trade-offs, where we ask some extension of the contract in scope and/or in time for the post-COVID period. So that's what we are doing. But again, this is limited, this is punctual, and there is not at all any trend of further price pressure. I mean we are in a sector, as you know, where there are price decreases every year. We are selling productivity gains and cost savings to our customers in some part of the business. It continues, it will continue, but I cannot say that there has been and there will be an acceleration on that side. And on the shift of transactions, there has been -- as we explained with Uwe, there has been a few shifts of transactions. These are shifts postponement much more than cancellation because what we're talking about here are really elements that the customers anyway really need. The only thing is that at the end of March, with all what happened with the virus impact, there has been some delays, hesitations at the customer and sometimes very practical and logistic issues to sign papers or to deliver stuff. So it's much more shift postponement that we expect to recoup either in the next quarter or later but not a lot of cancellation. Uwe, can you take the question on pensions from Laurent, please?

Yes, sure. So on the pension, of course, yes, of course, the service and the funding. So on the funding, it is very minimal over the next year. So that's circa EUR 10 million per year. And if you include the service cost, we had about between EUR 30 million and EUR 40 million per year including the service costs. But from a pure funding, it's about EUR 10 million a year.

Your next question comes from the line of Stacy Pollard from JPMorgan.

A few more from me, 3 maybe. Does COVID-19 cause a delay to the Syntel revenue synergies? Secondly, you mentioned cost reductions including replacing subcontractors with own freed-up staff. How many subcontractors do you have now sort of as a percentage? And what is the usual run rate that you would expect in better times? And then third question, maybe just touch on the acquisition that you made today. Just a little bit of background detail. I know it's AI and big data consultants. I presume this is very much in the vein of what you expect to continue to do.

Stacy, thanks for your questions. I will take number one and three, and Uwe will answer on the subcontractors. So on your first question, the answer is no. So you asked about, I mean, has there been any delay or slowdown in the Syntel synergy implementation. The answer is no. We are well on track, and there is no change to what we said here. On the third question, on our acquisition of Miner & Kasch today, it's a small acquisition, but still, of course, we wanted to mention it because it's very representative of what we want to achieve through our M&A acquisition -- M&A strategy, sorry, like we did for Maven Wave earlier in the year. Miner & Kasch is, as you said, an AI and data analytics company, very high-skilled new colleagues. And they are actually joining an acquisition we made 2 years ago or 3 years ago, which is called zData, which has been performing extremely well in the U.S. as well. So they are joining together forces and generate a lot of synergies and really reinforcing our data analytics capabilities in the U.S., which is a huge market for that. And we intend to continue in that direction. On the question on subcontractors, Uwe?

Yes. So Stacy, of course, our subcos and outsourced services spend is a combination of real people and sometimes even services, so it's hard to put that into head count. Overall, we're expecting 15% to 20% reduction in this count. But you can roughly imagine it's between 5,000 and 6,000 named subcos which we are using, and then the rest is more in services where we expect the savings to occur over the remainder of the year.

Your next question come from the line of Mohammed Moawalla from Goldman Sachs.

Two questions from me. One, in terms of the Digital Workplace demand that you sort of saw, I think, Elie, you mentioned that this is structural, so could you potentially contextualize the kind of portfolio of offerings, how big it is and what sort of growth you expect from this? And then secondly, you also had sort of highlighted more bolt-on M&A. So should we assume that for the time being, some of the sort of scale M&A that you are planning in cyber is sort of off the table in the short term?

Mo, I will answer your second question on the M&A, and Eric Grall, who's with us, will answer your first question on the Digital Workplace needs especially during the crisis and post-crisis, as you asked. So on the -- your second question on M&A, the answer is no. We -- I know I just mentioned the bolt-on acquisitions at the occasion of the presentation and Stacy's question with the acquisition today of Miner & Kasch, which is part of our second axis of our M&A strategy, bolt-on acquisitions on specific skills like data analytics, cloud and industry-specific offerings. Our first strategic axis of M&A is, of course, cybersecurity of -- that can be sizable if there are targets available. So there is no change to this, to your question, so absolutely no change. So Eric, can you take the first question of Mo on Digital Workplace needs?

Yes, sure. Thank you, Mo, for the question. So I think we've seen, in fact, the 2 dynamics supporting our demand and the demand for Digital Workplace solutions from our customers. And we know it's an important part of our IBM business also, where we are enjoying a very strong rating ranking from all industry analysts. So we have 2 types of demands we have been able to fulfill for our customers. Number one is, of course, related to the crisis is helping customers to accelerate in, really in question of days, implementing remote working solutions for their employees. And thanks, for example, to our partnership and strategic partnership with Dell, we were able to provide not only the remote technology solutions and remote access solutions with our Unified Communication capabilities but also providing the devices, the PCs, the printers, laptops and so on so that customers could maintain their way of working with accelerated deployment of solutions into the home locations of their employees. And that has been a booster, if you want, to the activity we started to see in March and that we see continuing in the second quarter. And by the way, we -- as part of what Elie mentioned about our always-on type of offering for our customers, we especially created an always-on solution around Digital Workplace to help them deploy in an accelerated manner these capabilities, again, in strong partnership with some of our alliance partners, and also with other solutions we plan to deploy and develop for them to continue to enhance the way of working remotely. The second dimension to the enhanced demand we see on Digital Workplace come from the more, I would say, structural, large opportunities that we have continued to win. Elie mentioned in his introduction a large -- a very large, significant win in North America in the Telecom, Media & Technology sector. And we continue to see the pipeline for the rest of the year nicely developing in that space with a few very large transactions in the pipe for 2020 that, of course, we expect to successfully close.

Your next question comes on the line of Neil Steer from Redburn.

Just 2 quick ones, if I could. Firstly, following on from the last question, when you look at the -- in your sort of revenue bridge for this year, are you assuming that the uplift that you're seeing in some of these Digital Workplace technologies and services is sustained throughout the course of the year? Or are you assuming that you see a near-term benefit, but that decays naturally as we go through the course of the year? And then secondly, when you look at the overall shape of the recovery or the shape of the cycle as it were and your guidance, I mean, one may expect, given the late cycle nature of IT services, that the current conditions that you're seeing actually deteriorate somewhat towards the end of the second quarter into the third quarter. Is that assumption baked into your guidance? Or are you just assuming that the current market conditions are broadly flat throughout the course of this year?

Neil, I will take your question, both questions. So on the first question on the Digital Workplace which -- I mean, Digital Workplace is one of the current needs in the situation, but there are some others, Unified Communications, Cybersecurity and so on that we described. But you're asking whether it's conjunctural or it is structural. Our assumption is that there are some additional needs linked to the current situation. That is what we explained in this bridge. And that compensates and mitigates part of the hit on the revenue elsewhere. It is too early to say how much structural this will be. We expect those needs, and Eric explained, that post-COVID to be reinforced especially by the need to make the homeworking more structural. There are situations where the move to homeworking has not been that easy, so we had to implement quick solutions that probably will have to be re-architectured properly afterwards to make them really structural. So that will be pieces of work -- additional pieces of work for us. So we expect indeed to have, post the crisis and even post-2020, some additional needs and support in these activities. To which extent and for how long is too early to say. On your second question on the shape of the recovery, our guidance is based on a bottom in Q2 and a progressive recovery in Q3, Q4 and then in the course of 2021. This is how we built it not just from a theoretical point of view, not just following the macroeconomic cycle described by economics around the world and in your institutions but also with our daily discussions with customers, what we have in our backlog and what we see in our pipeline. So we did a quite precise work to build that curve, again, bottoming in Q2 and progressively improving all along the rest of the year.

Okay. So it sounds from the shape that you're looking at in terms of the cycle that you're expecting revenues. And I'm not asking for guidance here, but revenues potentially to be increasing in 2021. Is that fair?

No, I will not answer this question. It's too early to give this, I think we made a quite precise work to be able to guide you on the year 2020. I think some of you mentioned that it's quite exceptional in those times, if I'm not mistaken. We will talk about 2021 a bit later, if you don't mind. I gave you the general shape of the curve. That's enough for today, Neil.

Your next question comes from the line of Nicolas David from ODDO Securities.

I have 2 actually. First, just as a follow-up on the previous question, can you share what is currently your best assumption regarding the organic growth trend in Q2 and what's -- what kind of bottom we can reach? And the second is could you also share the split of the impact you expect on revenue on the -- among the over EUR 750 million shortfall of revenue you expect, between what is linked purely to your ability to deliver your services due to the COVID-19 and what is rather due to the demand and how you expect the first part and the issue on delivery, how would you expect them to evolve during the year.

Nicolas, so I will answer your questions as well. So on the Q2 bottoming, we expect it to be in the mid-single-digit area for Q2 and then, again, a progressive improvement in Q3 and Q4. On your question on the revenue impact, I want to make it very clear here, we do not have any supply issue. The impact is only coming from demand issues at our customers. And as I explained, as Uwe explained, we managed to move 96% of our people to homeworking. The others are on site. And I mean, yes, we have a few who should be on-site and cannot be there, so -- but it's extremely, extremely limited. It's not significant. So really, we do not have any problem of supply, and I thank every day all our people to make it possible. The only impact is coming from demand from customers, so this is a fair assumption to consider that all of the EUR 750 million described by Uwe earlier is coming from that. Okay. So I think that was the last question. So I only have to wish you a great day, to keep safe and to thank you very much for your attention. Talk to you soon. Thank you.

That does conclude our conference for today. Thank you for participating. You may all disconnect.