Atos SE (ATO) Earnings Call Transcript & Summary

Thank you all for standing by, and welcome to today's Atos Q1 2021 revenue conference call. [Operator Instructions] Please be advised the call is being recorded. I would now like to hand the call over to your speaker, Chief Executive Officer, Mr. Elie Girard. Thank you.

Good morning, everyone, and thank you for being with us this morning for our conference call on the Q1 2021 revenue. Of course, as usual, now, I hope you and your closest ones are doing well and keeping safe. I will first come back to the audit in North America, further to the press release we issued April 1 to make a follow-up, then dive into the Q1 2021 highlights. We will then open the floor to your questions. Pierre Barnabé, our Head of Manufacturing and Head of Big Data & Cybersecurity; as well as Adrian Gregory, our Head of Financial Services & Insurance and Head of Atos Syntel, are with us this morning to answer your questions. Let's move to the Slide 5. I would like to start today's presentation by coming back to the press release we issued at the beginning of the month with regards to our 2020 audit in the U.S. I would like to remind the status of where we stand and the next steps. First of all, the company immediately reacted during the process and had a quick and transparent communication on April 1, just after our auditors issued their qualification for limitation of scope on 2 U.S. legal entities. What happened? Several issues have been found by the company and its auditors in 2 U.S. legal entities. Those 2 entities represent 11% of 2020 group revenue. They concern outsourcing business, the former IDM segment and do not relate to Syntel. As stated in the press release of April 1, the group did not identify any statements that would be material for its consolidated financial accounts. Nevertheless, even if these are not material, the conjunction of several accounting errors and internal control weaknesses deserves a serious focus and follow-up by the group. Therefore, and this is on the next slide, we have decided that we, as a company, would conduct a full accounting review of those 2 U.S. entities. The status update will be given at the time of H1 results. But I want to underline that our plan of actions is not limited to accounting audit matters. We want to make sure that these issues never happen again in the U.S. and, of course, never happen anywhere else. Hence, the launch of a strong remediation and prevention plan. This plan has been placed under the leadership of Alexandre Menais, the Group General Secretary. On the next slide, we give you the different categories of actions covered by this plan. First, preventive controls and reinforcement of the levels of approval required; guidelines and documentation are also reinforced, in particular, harmonizing instructions and documentation requirements; HR reviews, of course, to make sure the right people are in the right place; in skilling an organization, additional IFRS experts are being hired and internal control organization is being reinforced; global compliance trainings are implemented to include additional relevant elements and reinforce trainings or being developed for operations management; finally, complementary analysis is ongoing in order to ensure that the plant is exhaustive and to enrich it anywhere it is necessary. Let me now turn to the highlights of Q1 2021 on the next slide. Revenue in the first quarter of 2021 reached EUR 2.692 billion, minus 1.9% compared to Q1 2020 at constant currency, minus 3.9% organically. COVID-19 was still impacting Atos business over the quarter despite good resilience in Financial Services & Insurance and in Healthcare and Life Sciences as well as in Northern Europe, in growing markets and Southern Europe showing an encouraging recovery. We had a disappointment with the North America operations as some projects were postponed from Q1 2021 to subsequent quarters and fertilization projects on large contract was low. Uwe will come back to this later during his presentation. Further to the increase all along 2020, the company continues to grow and increase its share in our key segments, which was digital, cloud, security and decarbonization, leading to 51% in Q1 compared to 46% last year. Total headcount was around 104,500 colleagues at the end of March 2021, roughly stable versus end of December 2020, actually slightly up. In the first quarter of 2021, the group hired around 4,200 staff. On the next slide, you see that in the first quarter of 2021, the group order entry totaled EUR 2.596 billion, representing a solid book-to-bill ratio of 96% compared to 101% achieved over the same period last year. The full backlog at the end of March 2021 amounted to EUR 23.2 billion, representing 2.1 years of revenue, up plus 8% year-on-year. The full qualified pipeline was EUR 8.4 billion at the end of March, representing 9 months of revenue and up plus 14% year-on-year with a large portion in our key segments, a sign that we are on the road to change our business mix. On the next slide, I selected some new contracts won in Q1. Globally, orders were signed in the key segments across most of the geographies. Interesting signatures were in IoT, smart factory with a leading a multinational automotive manufacturer; in cloud with a large European bank as well as in public sector and defense with a German employment agency for an analytics platform and associated applications. The group signed an interesting deal in pharma with Pierre Fab in cloud, supported by artificial intelligence. We will also monitor for them cybersecurity. In TMT, we signed with a large European telco company, a digital workplace in cybersecurity and vulnerability management contract. In digital workplace, we also signed a new contract with an international airline company. Let's move to the next slide, where you can see digital security activity continued its acceleration in Q1 2021. First, in Q1 2021, we won many deals across all regional business units, covering a large panel of value proposition. This was possible, thanks to the wide presence of Atos in these geographies. Second, the portfolio of offerings is in constant evolution to fit the market and especially on the as-a-service side of the house. One example in identity and access management, Evidian ID as-a-service offer available from the cloud on a subscription basis is now on Google platform. Another one in cybersecurity services, managed detection and response offerings were extended to combine Atos Prescriptive SOC and Paladion platform, a cloud-native solution with hybrid and multi-cloud support. Finally, the recent acquisitions are well contributing to the acceleration of -- in digital security, which is one of the pillars of our midterm plan. So all in all, in Q1, order entry was strong on that scope with 129% book-to-bill and revenue grew by 37% year-on-year at constant currency. Let's move to the next slide to share with you some very interesting achievements in Big Data as well. Order entry in computing, which combines Big Data had performance computing and quantum increased by 17%. Thanks to the commercial successes, we doubled our factory capacity in Q1 2021 compared to Q1 2020. To illustrate this increase, I will quickly focus on 2 areas. The strategy to extend computing capabilities to the Edge is paying off. Use cases, we extensively develop, solve challenges across multiple industries. And as such, we won multiple new logos in these areas in Q1. In high end servers, that means second area, the important rollout of our BullSequana as-a-service in Google locations is on track for Q1 2021, with more than 500 high speed servers delivered. Capacity should accelerate over the next quarters. On the next slide, you will see that the decarbonization business we launched last year is delivering. The business generated EUR 20 million revenue in Q1, together with EUR 35 million order entry. This is a good signal for its potential and the positive impact we expect in midterm on the group revenue growth. Our offering is very well received across industries, thanks to its completeness, Atos being able to propose digital decarbonization assessment, design and develop the technology solutions of the future for decarbonization at their core, proposed consultancy services through EcoAct acquired last year and commit to decarbonization level agreements with a guarantee of carbon reduction target and/or offsetting. Let's move to the next slide. We are preparing our workforce to succeed at a high level in a post-pandemic world, ensuring that skills, training, flexibility and above all health already, both today and tomorrow. I just want to underline on this slide that in Q1, our workforce achieved close to 14,000 new digital certifications with significant increases in SAP and cyber certification and more particularly, new cloud certifications having doubled in Q1 this year compared to Q1 2020. On the next and last slide of this section, we confirm today the full year objectives as they have been issued on February 18 this year. In the next section, I would like to take you through the transformation journey of Atos and the next step of transformation that the group needs. Let's start on the next slide. The first and urgent step of transformation was SPRING that we launched early 2020. That was about the way we present ourselves towards our customers, the way we address their needs. SPRING is delivering a very positive response from customers and also bringing tangible benefits to employees and the group. Our customers are giving us great feedback on the evolution of our offerings and the industry-specific innovation as well as the technology leadership we are already known for. As a result, Our Net Promoter Score has gone up by 6% to an all-time high. All this translated into a strong commercial momentum with the highest order entry last year ever reached, as well as the commercial momentum. We are also seeing positive feedback from employees. Client executive partners [indiscernible] feel they are bringing more specific value to customers, and this is reflected across all our employees with Great Place to Work scores up by 9 percentage points. Now I would like, on the next slide, to go through the next steps -- the next step of transformation that we need. First, we need to address our recurring North American business issues after another disappointment in Q1, as explained earlier. Our plan for North America holds on the 6 pillars you see here. First of all, we expect the new logos to be ramped up over the year. For instance, large hospital chain applications and infrastructure deal won last year is on track to go live on May 1. We are ready to deliver for Atos a fully managed digital workplace. We will start cloud migration project during Q3 for Willis Towers Watson, and we will start rolling out the smart kiosk solution in Q3 for Goli. Across all industries, we are strengthening the leadership and accounting -- and account teams welcoming many new joiners. 4 new heads of industries, plus 2 heads of consulting being brought in, all with very strong industry experience. We also hired 10 account leaders, all from Tier 1 competition. We also see industry-specific demand rising. For example, In Public Sector & Defense, we see opportunities in citizen-centric services driven by the pandemic and following on from our success in the state of Oklahoma. In Manufacturing and Resources & Services, we received increasing demand for S/4HANA migrations and domain expertise in smart manufacturing, contactless and digital commerce, IoT and smart operations. In Financial Services & Insurance, we are helping clients with increased regulatory pressure and budget reduction, and so on and so on. Our boost on delivery excellence with the creation of a dedicated North America quality, risk and customer experience organization will improve performance on the accounts. The focus on quality of service is improving customer satisfaction. 11% improvement in Net Promoter Score compared to the same period last year, which means our customers are more open to discussing the broader Atos capabilities. For example, we are pursuing cloud migration opportunity with one of our manufacturing clients following improvement of some specific delivery issues. Therefore, we are expecting ramp-up in along the year. We also set up 5 streams to drive even higher Atos Intel cross-sell in 2 respective accounts, improving joint end-to-end go-to-market, including with Maven Wave. And finally, we leveraged our strategic alliances to expand our offerings, and we will also leverage new acquisitions and their current partnerships, like Maven Wave with a Google Cloud Premier Partner, or Eagle Creek with the Salesforce Gold Partner to accelerate momentum, combining capabilities, integrating certifications and elevating Atos partnership levels too. On the next slide, very importantly, we want definitely to address the profitability issue, which weighs on our German operations. Indeed, we have parts of the business, all of them related to former IBM business, which are loss making and cash negative. All the issues relate to a legacy, heavy structure of costs. This hampers not only our agility, but also our competitiveness. The decision is made to engage into discussions. We want to implement the measures we try to be, at the same time, appropriate but significant and structural, obviously, under the local regulation. These measures are expected to start within this year 2021. In Q1 and in prolongation of 2020, the group continued to work on its key segments; digital, cloud, security and decarbonization, as you can see on the next slide. The strategy to pivot the group towards those key segments of business currently relies on 2 dimensions: first, the organic reconfiguration of our portfolio of offerings with SPRING; second, our bolt-on acquisitions program. And by the way, I am delighted to announce 3 more acquisitions today. Ipsotek, a leader in edge and computer vision solutions, headquartered in the U.K.; cryptovision, specialized in cryptography solutions and products, headquartered in Germany; and Processia, a specialist of product life cycle management, PLM, headquartered in Canada, but with operations in the U.S., in the U.K. and in France. Now in addition to these actions and programs to reposition the group, we have decided to activate a third dimension. We initiate -- we will initiate a portfolio strategic review of noncore assets to accelerate this ability to change our business mix. Before I leave the floor to Uwe, I would like to share with you on the next slide the necessary move that I want to operate for the company. This transformation is not much commercial or financial. It fully relates to our human capital and our culture. We do have to implement culture, changes internally, leveraging on our DNA strength, which are undoubtfully strong. I don't want to comment on all of them, you can read on the left side of the slide, but we clearly build strong market positions. We have a loyal customer base, a very strong technology content, strong differentiators, our people fighting every day and long-standing ESG focus. We need now to move to an anchored and permanent culture of customer obsession. In the same spirit, we need to implement a culture of structural quality. We want to boost our quality standards delivering long-term impact and enforcing our competitiveness and the -- on the long run with a focus on structural actions. We must also continue to enrich and develop our people with digital skills in order for them to embrace with no resistance and with full capabilities our 7 digital breakthrough, compete from full stack cloud to security, from business-critical applications, to digital platforms from employee to customer experience and, of course, decarbonization. This would come from our training efforts, but also supported by bolt-on acquisitions. We need to accelerate on the offshoring and nearshoring front. A step change in mindset is needed here. Finally, reinforcing accountability spirit within the company is still necessary as well as developing human capital. All our actions must be aligned with our purpose with priorities and culture of commitment, loyalty and development. Therefore, to cover all the areas I've just detailed, I will launch in H1 a company-wide change management program led by an executive reporting directly to me. With the announcement of these new important steps for the company, I conclude my overview and now hand over to Uwe. Uwe, the floor is yours. Thank you.

Thank you, Elie, and good morning, everybody. Let's start on the backlog that continues to be strong and grew 8% year-on-year. The EUR 23.2 billion of backlog are well balanced across industries and regional business units. The backlog represents 2.1 years of annual revenue. Let's move to the next slide on the evolution of our business mix. The group has continued to make good progress towards its midterm target We generate 65% of its revenue in digital, cloud, security and decarbonization. In 2020, we improved to 46%. And in Q1 2021, we stand at 51% of group revenue. 70% of the sales pipeline at the end of Q1 was in these pillars. This is a good sign that our customer-facing teams are selling the right portfolio. Moreover, the 12 acquisitions made already and the 3 announced today will speed up the business mix shift towards our midterm targets. On the next slide, we find the first quarter 2021 revenue performance by industry in comparison at constant currency to same period last year. Overall decline is minus 1.9% compared to a Q1 in 2020, which was only slightly impacted by COVID. The performance by industry is differentiated. Financial Services & Insurance grew 7.4% across geographies, thanks to more digital transformation projects and new customer wins in the second half of 2020. Healthcare & Life Sciences grew by 3.4% on a broad geographic base, thanks to expanded scope in existing customers and new wins. Manufacturing declined by minus 6.7%, mainly in Central Europe and North America, still impacted by COVID in comparison to Q1 2020. Public Sector & Defense is down minus 3.2% due to high performance computing project delays to subsequent quarters as well as volume reductions in North America, but expected to recover in Q2. Telecom, Media & Technology reported minus 5%. Performance was impacted by the base effects of some large deals performance in 2020 and not repeated in 2021, while a large worldwide contract with a global technology company generated positive contribution to the industry. Resource & Services decreased by 6.2% with different dynamic within its components. The business with utility customers is performing well, but the transportation and retail segment continues to be affected by lower demand. On the next slide, you can see the quarterly evolution of the growth rates at constant currency by industry for the last quarter. This includes as well some indications how I anticipate Q2 2021 to perform from the current viewpoint. Starting by manufacturing, which is progressively improving, in particular in the sectors which have been heavily affected, such as aerospace, automotive, chemicals and process industries. This industry is under the leadership of Pierre Barnabe since the beginning of the year. Pierre was particularly successful to grow both Public Sector & Defense as well as Big Data & Cybersecurity in the past. In this industry, some recovery was already made. We see more and more customers willing to invest in digital, cloud and security and decarbonization projects. Bookings were improving in Q1 versus previous quarters, and therefore, I expect the continuation of this recovery trends. Financial Services & Insurance improved significantly in the last quarter, and the business sees high demand, especially in cloud and digital transformation projects, both in our banking and insurance clients. In Q2, good growth will remain, but below the 7% level of Q1. Next is Public Sector & Defense. As explained before, the decline in Q1 is mainly due to some high-performance computing projects delayed into the next quarters. Therefore, we expect Q1 to be the exception in Q2 to return to growth already. In Telecom, Media & Technology, while the legacy Unified Communication business continued to decline, I expect Q2 growth rates to improve given the 2020 base effect and a stronger business with hyperscalers. Resource & Services is clearly expected to improve in Q2 after a difficult Q1 from the combination of improvements in sectors very penalized last year by the demand of customers and continued growth in energy and utilities. Healthcare & Life Sciences growth evolution was relatively stable over the last quarter, and we expect this trend to continue. Next slide, I'd like to switch to the performance by regional business units. North America decreased by minus 9.4% at constant currency. While a part of the decline is explained by COVID last year hitting North America later than Europe, the volume reduction in public sector and onetime sales in Q1 2020, the region performed behind our expectations by circa EUR 40 million. 60% of this miss is coming from projects postponed from Q1 2021 to subsequent quarters and the remaining 40% from the lack of fertilization in existing customers. Northern Europe increased by 6.2%. Strong business growth was recorded in TMT as well in Financial Services & Insurance and Health & Life Sciences. Central Europe is down 8.5%. This mainly resulted from a still challenging situation in the UCC business and also from the macro trends in manufacturing. Several new contracts in Healthcare & Life Sciences, Resources & Services, but also Public Sector & Defense would not compensate for that. Southern Europe increased by 1.9% compared to Q1 2020. The growth of the business was mainly driven by the good performance in Public Sector, Financial Services, Resource & Services and Health & Life Sciences. The situation remains challenging in Telecom, Media & Technology and to a lesser extent, in manufacturing. Growing markets is up 5.1%. In most of the industries, the activity was stronger with new digital projects within Financial Services & Insurance being particularly strong. On the next slide, I'd like to talk you through the quarterly growth rate trends by geography. First, North America. After a weak Q1, as explained before, I expect that in Q2 the growth rate will improve as projects shifted from Q1 start materializing and project ramp-up of 2020 wins are continuing. In Northern Europe, the trend goes in the right direction, especially in Financial Services, TMT and Health & Life Sciences, This will continue, but the growth rate will be slightly lower than in Q1. In Central Europe, we expect improvement, especially with incremental business at Siemens and continued recovery of the manufacturing business. Southern Europe made great progress the last few quarters and will continue to improve in Q2 and subsequent quarters, thanks to new wins and increased fertilization in existing accounts. Finally, growing markets considerably improved the last quarter and more particularly in Q1 2021, I expect further improvement of growth rate in Q2. If I sum up for the group overall, we expect Q2 growth rate at constant currency to improve significantly and to deliver positive organic growth in Q2. For the year, I expect a profile which is more seasonal towards second semester in terms of revenue growth and subsequently a margin in comparison to last year. Shifting to my last slide on the headcount development. The total headcount at the end of March 2021 was slightly up compared to the end of December 2020. The scoped impact is related to the new acquisitions of Eagle Creek, SEC Consult, Motiv, Infidem and Profit4SF. In the first quarter of 2021, the group hired 4,215 employees. The hiring has mainly occurred in offshore and nearshore countries such as India, Poland and Romania. Thank you, and back to you, Elie.

Thank you very much, Uwe. And now let's move directly to your questions.

[Operator Instructions] First question is from the line of Stacy Pollard from JPMorgan.

A few for me. First of all, you reiterated the 3.5% to 4% growth for the full year. Just sort of subcategories there. Do the 3 new acquisitions fall within that or add to it? Secondly, how should we think about the quarterly seasonality, especially given the easier year-on-year comp from Q2? Now you did give a little bit of a hint there. But would it be fair to say that Q2 could be the highest growth quarter of this year, just given the easy comps? Or should we be a bit more careful as -- of a more gradual recovery? And then second, unrelated question to the growth, would be just as we look at free cash flow, can you give us a sense of the H1-H2 splits as well? I mean I know it's typically back-end loaded. But can you provide us any kind of guidance around or broad ranges around H1 expectations?

Stacy, thanks for your questions. Uwe, will you take those questions, please?

So no new question. So first question was on the acquisitions. So this is within the overall guidance. As we said, that bolt-on acquisitions would be part of it. So those acquisitions are in there. And there are about EUR 45 million on an annual basis at least for 2020. Around the recovery, Stacy, on the -- I would expect a more gradual improvement. Indeed, there is a base effect for Q2, but I expect a gradual recovery of the growth rates over the next few quarters, increasing quarter-by-quarter from both organic and also growth rate at constant currency. And to your question around free cash flow, indeed, we will also, and always have, a seasonality between the first and the second semester, but I expect an improvement versus the swings which we saw in 2020. So an improved situation for H1, but still a seasonality between the 2 semesters.

That's helpful. Yes, sorry.

No, I would just maybe add to the first point. Uwe, gave you a number of the acquisitions on a full year basis in 2020. But of course, those 3 acquisitions are going to enter into our numbers only when they will be closed. Some of them will be in Q2, and one of them should be more at the end of Q3. So it's only that portion of revenue until the end of the year, which will count, of course, in the growth at constant currency for the full year.

The next question is from the line of Amit Harchandani from Citi.

Amit Harchandani from Citi. 3 Questions, if I may. My first question relates to the comment around accounting errors, which have been found in North America. While we wait for the results of the audit, I'm assuming you have been in touch with the team in North America trying to figure out what could have led to this. Do you get the sense that these errors are an outcome of maybe potentially some pressure to deliver revenues in a business line that has been under pressure? Or is there something else which might have led to these errors? Secondly, you talked about weaknesses in internal controls. Have you have a sense of why these weaknesses have been identified now and not earlier, considering this is not related to Syntel. So I'm assuming it's a part of a business which has been around before 2020. And my last question relates to the comment about a strategic review of noncore assets. Could you expand on it and talk about what in your eyes is noncore? And what's the kind of time line you're looking at to complete the review and share the findings with us?

Thank you, Amit. I will take those questions, on your first question on the origin of the accounting errors. I mean we are in the middle of an analysis at the moment to perfectly understand the root causes and what could have led to those accounting errors, even if not material. So that could come for -- from several causes, and we are today analyzing this. So I cannot give you a definitive conclusion. I suspect it will be quite multiple angles and causes and multiple root causes, but I cannot -- we cannot conclude today on those causes. But we will finish up the analysis and tackle the right root causes, we will find, for sure. Second, on the weaknesses of internal control, and that's a very important and good question. We identified some internal control weaknesses in the course of 2020. And we took some actions then with our internal audit and corrected some of those processes all along the year. And we observed, by the way, that at the end of 2020, progress has been -- had been already made, but obviously, not enough. And the issues around the internal control were probably more serious than what had been a rate in the course of 2020. So that's why we are today implementing this deep -- precise detailed remediation plan also on the internal control front. I may add that independently from these analyses and findings on internal control, a lot of people, individuals have changed in the North American team all along the year 2020, both in the finance team and in the operations team independently from all that. That's an element of context I wanted to bring as well. And your last question, on the portfolio strategic review of noncore assets. First of all, you will recognize, Amit, that I think it's the first time the group is announcing its willingness to conduct such a review. So you will allow me not to be too detailed. I've announced that we are initiating this work in an orderly and structured manner. So this is what we are engaging into now. So it's a bit early to give you more color or more details. You're asking me a more general question, I would say what is considered noncore for the group? Well, I would simply say that it could be an activity, which could not be considered is critical to deliver the digital transformation, which is our ultimate commitment to our customers. And maybe some parts of our activity, and again, I don't want to conclude before we do the proper review. But maybe some of our activities could be enough to partner to outsource to -- work with other parties and not necessarily own those pieces of business that -- again, I'm -- I will be much more specific in due time when we will have conducted this review. But I think the information today, which is, I think, important for the group, important for you is that we have decided something that had never been decided and which I think is very necessary for this group is to conduct this review and act consequently.

Our next question is from the line of Mohammed Moawalla from Goldman Sachs.

A couple from me. Number one, Uwe, could you clarify that, I think at the time of Q4, you said that The inorganic contribution for the year was expected to be around 200 basis points based on sort of what you have done so far, but also the rest of the pipeline on M&A, do you still expect that to be the case? And then secondly, just coming back on the sort of the shape of the gross recovery. In terms of your sort of expectations, clearly, Q2, you said will be positive. But I noted a comment that there's a second semester will be more back-end loaded Is it fair to then assume that -- I know the comps are still easy in Q3, but would you expect to sort of stay positive in Q3 on an organic basis? Or is it very back-end loaded? And then lastly, just a question on some of the, sort of, initiatives, group initiatives to turn things around. Will you expect to take any additional restructuring charges already or is that already baked into the current assumptions that you have for the full year in the free cash flow?

Thanks for your questions. Uwe will answer.

Yes, on your first question around the inorganic, indeed, when we communicated the -- let's say, the composition of the 3.5% to 4% was circa 2% coming from inorganic. That is still my view. As you know, and Elie explained before on the acquisitions, of course, it depends always on a bit of the timing of when these acquisitions close and enter the books of the group. But as we see and from the pipeline and current experience, that indeed is still a good assumption to have about 200 basis points from the bolt-on acquisitions. On your second point, around the quarterly development. I expect, as I said, Q2, already to be growth on both counts, organic and at constant currency, and also in Q3 and Q4. So while we're seeing a ramp-up of the growth rate, Q3 as well, we'll see an improvement versus Q2 and then sequentially to Q4. And on the restructuring, obviously, as we guided before that we expect in 2021, means this year, the restructuring, rationalization, integration, these 3 components together to be at around 2%, so a bit higher than in the previous year. This is mainly due to The program Elie announced as well on Germany. As we said, we will focus a lot of our efforts in fixing the situation in Germany. But then after 2021, from a net income perspective, on P&L perspective, to go below 1%. So this is absolutely still the plan. And will only be this year with a heightened restructuring charges, mainly due to the German project.

Okay. That's great. And can I just follow up on just in terms of the different segments. I know you stopped sort of breaking the business segments out. But we think about sort of the back half of the year, particularly around that sort of recovery, maybe if you could add some color on sort of B&PS on the kind of most cyclical consulting business. What's the visibility you have around that in terms of sort of projects? And I guess one of the risk factors is it still kind of infrastructure stabilization? If you could help us just give some qualitative color.

Yes. I would say, indeed, on the -- if you think about the more project-type business or application-led business, then, of course, Q1 was still, of course -- due to the base impact to Q1 2020, still, of course, a decline. But we see the application and the project business recovering. We see it already in a number of headcount in that area, a number of projects going in. So we expect Q2 indeed already now growing and then also recovering. You saw also financial services being already an early indicator of growth. This is an industry where we have a lot of project and application business. So we expect this business to recover and from now on being growing quarter-by-quarter.

Our next question is from the line of Amit Harchandani, again, from Citi.

A couple if I may. The first one is the timing of the strategic review that you have announced today, Elie. We've obviously seen the move for DXC, which did not go through as anticipated, and you've talked about M&A in the past. Is the strategic review a sign that maybe some of your organic actions in some of these businesses haven't yielded the results you wanted and/or maybe you're looking to focus more on what you can change internally rather than looking to do transformational M&A? So any thoughts around what's triggered the strategic review would be helpful. And secondly, if I may, with regards to North America, And you've sort of talked about the pathway towards recovery coming through in North America. Is there any element of significant restructuring that would be required to deliver this turnaround? Just wanted to clarify that.

Thank you, Amit, for your additional questions. On the strategic review, we will give you a status update, I think, at the time of the H1 results, okay, already. And we will inform you, of course, regularly on our advancement. But on your question, why are we doing this? It's exactly what I explained at the beginning in my presentation. We want to accelerate the transformation of the group. You basically have 3 levers, 3 dimensions, to transform a group in terms of business content. First is the organic dimension, which were pushing hard with our offerings in the key segments. You saw the results in some of those segments like security, for example. The second lever is the bolt-on acquisitions. I think we are delivering on this commitment, 10 last year, 3 or 4 -- 1 at the beginning of the year, 3 now that we just announced exactly in the areas that we sell. And now we're just saying that we want to use a third dimension, which is to revisit our current portfolio and potentially do something about it. So it's -- you shouldn't see anything else like this. I have to say that our pipeline of bolt-on acquisitions is very well provided. There is a lot of possibilities. So we will continue. And if we can do more, of course, we will do more here also to accelerate on that dimension. Your second question, Amit, which was on North America. We do not expect way -- the large restructuring in North America to support the plan of recovery that we presented.

Our next question is from the line of Laurent Daure Kepler Cheuvrex.

I have 2 questions. The first is back on the restructuring charge that you do not change in absolute number. I'd just like to understand better. Because you already started to restructure in Germany, I think, it was early retirement plan. So what are you doing additional to that? And why is the total number unchanged despite taking more actions? And my second question is on the U.S., which is, for sure, the toughest part. This activity has been made of a series of acquisitions from Siemens and Syntel. Do you believe you need to do more integration between all those units? Or what is for you the main issue in the region at the moment?

Uwe, you take the first one. I will take the second one on the U.S.

Laurent, to your first question, first of all, we have an increase, we say 2%. Last year, we were 1.6%, 1.7%. We are increasing this year the restructuring. And indeed to -- we did restructuring, but I would say not enough to cover or to fix the issue. So indeed, we did early retirement and other programs. But we need to do more deep and more structural changes in Germany. And how we do it within the envelope, which we communicated is we'll focus, of course, our restructuring into Germany. We believe that in the other countries, it's -- there's, I would say, not that much to do in comparison to Germany. So Germany is really the focus of that activity. And of course, more to be communicated, as we said. Just started dialogue with the social institutions. But of course, we will go deeper than what we did in the past.

Thank you, Uwe. On your question -- thanks for your question. So your second question in the U.S. What I would say on the U.S. is that this mix topic -- business mix topic of this group, the structure of the business of the group is probably more prominent in the U.S. than in the average of the group. We have in the U.S. something like EUR 2 billion of business. Indeed, due to the acquisitions you mentioned, which is Infrastructure business. And we've got Syntel, which we are very happy with. But we have roughly EUR 2 billion of Infrastructure business in the U.S. We are transforming it. We are making those bolt-on acquisitions, in particular, in cloud. If you look at our activity in cloud applications, it's moving, thanks to Maven Wave and some others. We are growing like the market is not better. But that piece is still too small compared to the legacy infrastructure business in the U.S. So I would say this is our issue, and this is why I'm insisting on using any lever, any dimension to change the mix of our activities. The -- if you look at the group as a whole and you compare to whoever, you will make very quick and shortcut comparisons. Now if you look at the group really business by business, in any of our business, we are at either like the market or better than the market. So the problem of this group that we're trying to solve with this strategy is a question of content of business mix, okay? And this is why I'm keeping and repeating and coming back on this. This is what we're trying to do. I repeat that in the U.S., we've got successes, many successes in cross-selling with Syntel, many sentences around the cloud application, replatforming, containerization, et cetera. But we need to grow this part of the business. But when we are in this business, we are very successful. Let's move to next question.

The next question is from the line of Alexander Sauer from Exane BNP Paribas.

Just have 1 quick follow-up on capital allocation. Thanks for updating us on the bolt-on pipeline. I was just wondering how we should think of perhaps more medium-sized M&A going forward and even possibly other sorts of capital allocation options you might be thinking of Elie. As you said the strategic review is the first for Atos. So perhaps we have a first and even more -- I know you're not a big fan of share buybacks, perhaps you have changed your view on this? So how should we think of capital allocation going forward?

Thanks for your question. Whether there are many questions in your question. First, on bolt-on acquisitions, I think we're very satisfied. Now we've got in and Adrian, we've got 18 months of background on this. We've done quite a lot. I think we're satisfied with all of them. keeping the management, the results, double-digit growth, et cetera. And also already and looking at Pierre, thinking of many deals that we've won. Thanks to those acquisitions and deals that -- larger deals which are really synergetic even with a small acquisition -- with bolt-on acquisitions. So this strategy, we could intensify. Second, you asked on more midsized deals. We already, for midsized deals, but I will only repeat what I've been saying many times now. Any move, more medium, would only be executed if it fits and supports our midterm strategy of growth and that it helps this repositioning, is pivoting the change of mix of the group, which is the strategy of this group, digital health, digital organization. This is what we need to do. And on your last question, which is, of course, share buyback. Let me be very clear on share buyback. First, it's a decision of the Board of Directors. You can be sure that the Board of Directors regularly discuss this option because it's a legitimate question that several of you and several shareholders ask. The position of the group at the moment, relating to what I just said, is that the priority for this group is to transform it and to accelerate its business mix change. And for this, we need money to make those bolt-on acquisitions or maybe needed size acquisitions. So, so far, this is the position of the Board of Directors of the group.

Our next question is from Neil Steer from Redburn.

I've just got a couple of, hopefully, quick ones, if I may. Firstly, you've mentioned a couple of times that the accounting irregularities. You think there are no material misstatements. Can you sort of clarify what you mean by materiality in that context, please?

Neil, this is Elie. Well, it's material as notified by the auditors. So there are limited size to the consolidated statement of the group. It's accounting technical term to say that...

Okay. Would that be sort of plus or minus 5%, 2%, 1%. Can you give us a figure?

No. I mean this is really something, which is defined by the auditors, and we don't want to comment on the auditor's work. They define the materiality.

Okay. And Uwe, in your presentation, I think you implied that the seasonality of margin differential, first half and second half and, obviously, growth is going to be more skewed in 2021 than in previous years. Can you give us a feel for what the greater margin differential would be in '21?

Neil, yes. So -- it's, of course, I cannot give you precise numbers. But of course, with the delay which we have in Q1, which we believe can be caught up in the subsequent quarters based on the project delays, this will have an impact on the seasonality of revenue and, of course, with that also with margin. So that's why I expect the -- indeed, the -- let's say, semester over semester comparison to last year to be a bit more skewed to the second half. But I cannot give you right now precise numbers. But of course, we'll communicate as soon as we know a bit more.

Okay. And just finally, I know that you're choosing not to do this, but is there any chance you could give us a sense of the organic growth by region? Obviously, there's been consistent data provided in the past on organic evolution, but somewhat difficult to get an underlying view as to how the business is genuinely performing without those numbers this time?

Look, Neil, we -- I think we explained for some time that we would -- in fact just align to our competition. our competitors in terms of reporting our numbers. Still, I think, it will be fair that if we have a huge discrepancy because of acquisitions of larger scope in a given segment, of course, we will give some sense. But otherwise, we'll stick to our new way of reporting, which I repeat is the one of all our competitors.

We'll now move on to the questions coming from webcast. Mr. Gilles, the first question.

Good morning all. We have a series of questions which have been asked on a written form. I will not mention the one which has been already asked by your colleagues. I'm starting with Michael Briest from UBS. What is your hiring plan for the year? Headcount was stable quarter-on-quarter. How much is likely to grow by over the year.

Uwe?

Indeed, we expect -- I mean if you think about our growth expectation, then of course, this will lead to an increase of headcount, especially in the businesses which are growing like the digital cloud, cybersecurity and decarbonization. On the other side, of course, we will still continue on more, I would say, productivity-focused businesses in the infrastructure business to decline. So you could probably expect that circa half of the growth overall is also translating into a headcount increase.

Also from Michael, when the portfolio review will be concluded?

I think I already answered that. We'll give first status update at the time of the H1 results.

Question from Anton Badri from HSBC. What was the rate of growth of digital cloud security, which reached 51% of total revenue in Q1?

So depending by segment between 15% and 20%. So some areas are even beyond 20%, as you heard on the security side, and some business more in the 15% range.

Okay. Question from Nicolas David from ODDO. Do you think that the current situation regarding the audit of North American fiscal year '20 had a negative impact on revenue in Q1 in the region. i.e., some destabilization of the organization of all more caution in the way revenue is recognized?

Well, it's a difficult question. I don't think, Uwe, that there is a direct link. There is no restatement as far as I know, which would impact the revenue of Q1 and explain this disappointment in Q1. Now my manager view, I would say, is that we cannot exclude, obviously, some form of the focus -- management focus due to these audit issues over Q1, at least, we cannot exclude. But it's difficult to make a strict link between the 2.

Okay. Question from Adam. Q1 '21 was weaker than expected and book-to-bill was in line with average, but below Q1, which perhaps does not point to a strong rebound post Q1. Are you still confident to hit the upper end or for the new cost guidance?

Well, I will answer to this. The -- on the book-to-bill -- we didn't talk much about the book-to-bill because 96% is the upper range of the long-term average for Q1. And I think what Adam is mentioning this -- question is that it's a few points below last year. We had quite many shifts of large deals, which are coming up in Q2, probably a bit more shift than usually. We have this every quarter, but maybe some large ones that will happen more probably in April or May. We expect a very strong book-to-bill in Q2. So at the moment, as we said, we maintain our guidance. Please consider that the guidance we gave -- the range we gave for the guidance is particularly narrow with only 50 basis points way between the bottom and the high end of the range. So it's very early to start telling you we would be more at the bottom or at the high end of the range. My message is that the commercial activity is continuing to be vivid, dynamic and in line with what SPRING has created since the beginning of 2020.

Question from Sven Merkt from Barclays. Review of noncore assets. Do you see more -- some regions or divisions more focused on? And why have you decided to go ahead with this now?

Thanks for the question. I think I answered to -- an oral question already on this. Again, today, we announced that we are going to conduct this decision. It's a real decision to do this. We've never done that before. I can give you already some pre results. We'll give you a status for the H1 results for sure. I can't be specific today. I'm sure you would understand on where, which, what. Now on your question why I decided to contact this? I explained earlier. For me, this is -- after the -- further to the SPRING program, which is organic, further to the bolt-on acquisitions program, which is inorganic, this is for me a third dimension to accelerate this repositioning of the business mix of the group, the change of mix of content of the group. So this is -- there's nothing more than that, but still it's an important decision. But there is nothing else than that. Pursuing, intensifying, accelerating the business mix change of the group to understand in this decision.

Okay. We are going to take the last question. It's coming from Derric Marcon from Societe Generale. What's the level of revenue of legacy infrastructure now in the group, in percentage of revenue?

I mean obviously, we are not -- as we said, before not tracking anymore the differences between the numbers. But as you can calculate probably itself, it's -- of course, it is declining as the other pieces, like the BDS environment and also the businesses around decarbonization and so on are growing. So it is becoming a lesser wait in the overall business. But as I said, we are tracking by industry, we are tracking by geography, but not anymore by IDM versus B&PS business. Okay. No more questions. Okay. So thank you very much for your presence this morning. Of course, we all remain available for you, in particular, of course. But Uwe, myself and all the management team whenever you need us and you want to ask further questions. Thank you very much. Bye-bye.

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