Atos SE (ATO) Earnings Call Transcript & Summary

Good day and thank you for standing by. Welcome to the Atos Full Year 2021 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I will now like to hand the conference over to your speaker today, Rodolphe Belmer, Atos' CEO. Please go ahead.

Good morning and thank you for being with us today for the presentation of Atos 2021 results. I am Rodolphe Belmer, CEO, and I'm joined on this call by Uwe Stelter, Group CFO. As you know, our 2021 results have been pre-announced earlier this year. Uwe and I will go through them in detail. We'll then present our main priorities and objectives for 2022 before taking your questions. Atos didn't deliver well in 2021. The accelerated move to the cloud prompted a severe decline in classic IT services that could not be compensated by growth in cloud, digital and security activities. In addition, the unexpected reassessment of a large contract, as well as unforeseen slippages at year-end, further impacted the group's performance. This led to the results you already know, minus 2.5% revenue decline at constant currency, 3.5% operating margin, and a free cash flow of minus EUR 419 million. In light of such developments and of the group's decision to refocus its activity portfolio towards the growing parts of the business, I joined Atos in January with a clear mandate to lead deep, structural and rapid transformation of the group in order to restore growth and shareholder value. This transformation is already firmly engaged. An important first step was achieved in February with the announcement of our new simplified governance structured around 3 distinct business lines that is designed to make the group more efficient and accelerate our business cadence. This is a very important step but only the first one of an ambitious turnaround plan that we will present in May, together with our mid-term's objectives. I will now move on to the highlights of 2021. You already know some of these figures as they have been pre-announced. Revenue decreased by 2.5% at constant currency and by minus 4.3% on an organic basis. Operating margin was EUR 383 million or 3.5% of revenue. Net income was negative, close to minus EUR 3 billion, mainly due to impairments. Free cash flow was minus EUR 419 million, and our net debt increased to EUR 1.2 billion or 1.1x OMDA. We managed to grow our head count to more than 109,000 people. And I would like to stress that despite a very difficult year, Atos has remained an attractive employer in 2021. This is key in the current state of the talent market. Particularly, because of the net loss recorded in 2021, the Board will propose to the AGM not to pay the dividend this year. Commercial activity remained sound in 2021 with an order entry of EUR 10.8 billion, representing a book-to-bill ratio of 99%. 2021 largest wins were logically focused on cloud, digital and security activities. I will mention a couple of them, a digital transformation contract for a European leader in imaging systems. This contract embarks cloud, security and decarbonization. A contract with a U.S.-based global insurance company for public cloud migration, and in the logistics sector a contract for a cloud-native application development using machine learning and artificial intelligence. Our backlog at the end of 2021 was EUR 23.6 billion, representing 2.1 years of revenue. Atos made 9 bolt-on acquisitions in 2021, representing around EUR 170 million of annual revenue and adding 1,500 highly skilled professionals to the group. In total, over 2 years, Atos has acquired 19 companies that generated cumulative revenue of around EUR 600 million in 2021. These companies focus on cloud, digital, security and decarbonization, therefore, supporting the group's business mix improvements. Our bolt-on acquisition program is already complete for 2022 with Cloudreach, which we actually finalized earlier this year and which is larger than other bolt-ons we recently did. Now we are going to focus on integrating these acquisitions and delivering synergies. Moving now to key non-financial indicators. Atos made progress in all of them in 2021. Customer satisfaction remained very high in 2021. This is measured by the Net Promoter Score, which increased to 66%. This compares favorably to 65% in 2020 and 59% in 2019. The group kept reducing its carbon footprint in 2021 to 2.4 million tons for scopes 1, 2 and 3. This is 27% less than in 2019. Employee satisfaction remained high, too, which is key in the current talent market. We scored 66% at our annual all-employee Great Place to Work assessment, which was slightly higher than in 2020. Lastly, we remained in the high end of our industry in terms of gender diversity, with 32% women in executive positions. For many years now, Atos has been one of the most advanced companies of our industry in terms of sustainability, which will remain at the heart of our strategy going forward. Now over to you, Uwe.

Good morning, everybody. Uwe Stelter speaking. Thank you, Rodolphe. On this slide, you can see the main financial KPIs for 2021. I'm going to detail them in the coming slides, starting with revenue and operating margin, then net income, free cash flow, and finally, net debt. Let me start with the 2021 revenue evolution. The group recorded revenue of EUR 10.8 billion in 2021, which is a minus 3.1% decrease compared to 2020. Growth at constant currency was minus 2.5%, including an organic decline of minus 4.3% and the scope effect of 1.8% positive, coming mainly from the acquisitions described earlier. Foreign exchange accounted for minus 0.5%. On the next slide, you can see that the gradual improvement of our business mix continued in 2021, which reached now 51% of our revenue generated in the portfolio of digital, cloud, security and decarbonization. Moving on to the revenue analysis by regional business units. First, on revenue. North America decreased by minus 4% that's a decline in classic data center activity was only partially mitigated by a good performance in consulting system integrations and application development, cloud and Big Data and cybersecurity. By industry, public sector, resource and services, health and life sciences were down, while telecom, media and technology, manufacturing and financial services and insurance recorded growth. In Northern Europe, it decreased by minus 3% due to the reassessment of the cost to go on the BPO contract with a large U.K. customer in financial services, which led to a major revision of the project's completion rate. Business with customers in telecom, media and technology, as well as in manufacturing and health and life sciences grew, while revenue decreased in public sector and resource and services. Central Europe was down minus 6.8% year-on-year, reflecting again the decline in classic IT services, especially in the manufacturing industry, as well as the lower product sales in unified communication and collaboration, and also in Big Data and cybersecurity. Southern Europe grew by plus 3%. Revenue grew in most industries, health and life sciences, in particular, with a double-digit growth, as well as manufacturing, financial services, insurance, public sector and defense and resource and services. Growing Markets grew by plus 2.7%. Health and life sciences grew again double digits driven by Australia and in Asia, and manufacturing and financial services delivered robust growth. This was partially diluted by a low level of activity in public sector and defense and UCC. Then on the operating margin. The group as a whole decreased from 8.9% to 3.5%. Of course, there are some region-specific sectors, but the main reasons for this strong decrease are the ones that also explain the variance with our initial guidance for 2021 and that we already mentioned in our previous announcements. First, for circa 280 basis points, the decline in the classic IT infra business in all regions, where limited cost flexibility did not allow us to adjust the revenue decrease. Second, the U.K. BPO contract reassessment with circa minus 120 basis points impacting Northern Europe. Third, dispute settlements later in the year and delayed compensation by customers for extra work, in total circa minus 70 basis points. And fourth, investments in hiring, retention and salary increases for minus 60 basis points. Moving to the performance by industry. Based on the impacts described before on the decline of classic infrastructure business, most of them recorded a decrease in their global revenue at constant currency, as well as a lower operating margin compared to 2020. Exception was manufacturing, which managed to grow its revenue and operating margin, partially recovering from a strong decline in 2020. Financial services and insurance revenue and, to a large extent, operating margin, were negatively impacted by the U.K. BPO contract reassessment in Q4. Public sector and defense recorded a decrease in revenue and profitability, driven by the volume reduction with a large client in North America and lower high-performance projects after a very strong performance in 2020. In telecom, media and technology, revenue decreased slightly with a sharper decrease in profitability, based on the non-repeat of one-off benefits in 2020 and the reduction of UCC business. Resources and services contracted as volume reductions in retail and energy and utilities could not be compensated by a partial recovery in transport and hospitality. Finally, healthcare and life sciences continued to grow its revenue after a resilient 2020 already while operating margin was significantly lower in North America. Moving on to the next slide, on the income statement. The main items to highlight are: first, reorganization, rationalization and integration costs for minus EUR 437 million. This amount includes EUR 180 million related to the German turnaround plan as communicated before. Impairments and others for minus EUR 2.5 billion. This is largely the result of the comprehensive asset and contract review we conducted over the last month in the context of the accelerated move to cloud and the refocusing on the growing segments, which we communicated already on February 10. I will come back to that later. Net financial expenses for minus EUR 151 million. Here, the year-on-year increase reflects the change in fair value of the optional exchangeable bond derivative and of the underlying Worldline shares for minus EUR 81 million. On the next slide is more detail on the impairments and other impacts that resulted from the assets and contracts review conducted over the last months. These numbers are fully in line what we presented on February 10. First, the goodwill impairment amounted to circa EUR 1.3 billion and relates to the Atos legacy businesses. Second, other non-current assets and provisions for supplier commitments amounted to EUR 532 million and included EUR 165 million of impairment of intangible, tangible and right-of-use assets; and EUR 367 million of provisions on certain supplier contracts on which we had commitments. These first 2 amounts, EUR 1.3 billion and EUR 532 million, add up to the EUR 1.9 billion of goodwill and other asset impairments we communicated on February 10. Third, contract asset impairments, bad debt and provision for EUR 499 million. This breaks down into EUR 280 million of provisions for onerous contracts, and EUR 219 million of asset write-offs and bad debt reserves related to the legacy business. Coming now to the free cash flow statement. In line with our previous communication, free cash flow was minus EUR 419 million. Besides a lower OMDA at EUR 1.95 billion, this reflects, first, CapEx at 2.5% of revenue, slightly below last year where it was 2.9%; lease payments at 3.6%; thirdly, change in working capital for minus EUR 156 million, reflecting the adverse impacts on customer advances and supplier payments we communicated in July and in January for roughly EUR 400 million, mitigated by the mechanical decrease in contract assets and receivables, resulting from the organic revenue decrease in Q4. Fourth, reorg and rationalization and integration costs of EUR 438 million, including the payment of EUR 180 million related to the German restructuring plan, as well as costs related to the implementation of the Spring program. Fifth, other changes for EUR 151 million, which includes the cash impact of the early retirement programs, as well as customer settlement. Leading us to the net debt slide, M&A activities led to a net payout of EUR 275 million. Dividends were EUR 101 million. Including share buyback and foreign exchange effects, net debt was EUR 1.226 billion. Assuming the full conversion of the optional exchange of the bond, the group's net debt would have been EUR 883 million at the end of 2021. Last but not least on the head count evolution. We managed to recruit close to 26,000 people in 2021. Net of people leaving the company, it is an organic increase of more than 3,000 people, mainly in offshore and near-shore countries. As Rodolphe mentioned, the ability of the group to recruit new talent in the business where we want to grow is absolutely key in the current market environment. We also welcomed 1,644 new colleagues from acquisitions. As a result, the total head count was 109,135 at the end of December and is up 4.5% compared to last year. Thank you and back to you, Rodolphe.

Thank you, Uwe. As I said, Atos is now firmly engaged in a deep and structural transformation, aiming at accelerating the return to growth, improving drastically our financial performance and restoring shareholder value. This transformation will be articulated around 4 main priorities. One, adapt and simplify our governance. On this one, we have just made a major step forward, which I will detail in a minute. 2, energize sales and commercial momentum. There is a unique technological know-how at Atos that we need to shorten our time to market and be better at capturing the vast opportunities in the IT services market offers. 3, rationalize our cost structure. In particular, over the past couple of years, the group's structural costs have increased, largely due to the reorganization by industries. This will clearly reverse with our new organization. And 4, reposition our activity portfolio through disposals and acquisitions. We are looking forward to presenting in detail our turnaround plan at a dedicated Capital Markets Day in May. The precise date will be communicated at a later stage. Moving now to our new governance, which again is a major first step in the group's transformation. It is simpler, more efficient, lighter, and will provide the best framework for an improved commercial and economic performance. It is structured around 3 distinct business lines. Tech foundations, which include asset-intensive and mature activities like data center and hosting, digital workplace, UCC and BPO. Second business line is called digital. It's a skills-driven service business that includes digital applications, application maintenance, cloud and decarbonization. Third one is Big Data and security, BDS. It is a high-growth, R&D-intensive business that includes Big Data, cybersecurity, high-performance and edge computing and mission-critical systems. There is a strong rationale for such an organization as different activities must be managed differently, depending on how mature they are, what growth potential they offer and what investments they require, as well as the specificities of their economic models. It also makes more sense externally, in particular, for market disclosure. We are going to report our numbers according to these business lines, starting at our Capital Markets Day. This will provide a much better visibility, not only on the financial performance, and this was indeed a shortfall of the current reporting by industry, but also on the value of each of these business lines. We also have 4 regions, which will have ownership of accounts, regional resources, and full P&L. Lastly, the Executive Board will be streamlined with 2 members instead of 24 previously in order to accelerate decision-making and increase accountability. On this note, I'm happy to announce that 4 new members of the Executive Board are going to join to complement and finalize the overhaul of the Executive Board of the company. The names will be announced later today. In this context, 2022 will be a pivotal year for Atos, paving the way for recovery. Headwinds will persist. In particular, the continued decline in classic IT services, personnel cost inflation, and supply chain tensions. They will put further pressure on our revenue and profitability, particularly in H1. However, the second half should see an improvement with a return to revenue growth and an uptick in operating margin. Thanks to a better business mix, a lower comparison basis, and the first benefits from performance optimization measures. Therefore, we expect a back-end loaded year which should, however, see revenue bottoming out and financial performance starting to go in the right direction. Overall, for the full-year, we expect revenue growth at constant currency between minus 0.5% and plus 1.5%, operating margin between 3% and 5%. Again, the continued decline in classic IT services, as well as accelerated salary inflation will keep our margin under pressure. We also adopted a more cautious approach to profit recognition on certain contracts. How quickly we can cut costs and pass on inflation will ultimately determine where we end within this range. Free cash flow will be between minus EUR 150 million and plus EUR 200 million, depending on operating margin delivery and potential working capital fluctuations. Now I want to make this very clear, because of the H1, H2 sequence I just described, our results for the first half of the year will be below these annual targets. Then the second half will see a sequential improvement, leading to the ranges you see here for the whole of 2022. This is, of course, fully embedded in our guidance. We have a lot of work ahead of us, but we now have a solid base to build upon and a springboard for improvements. 2022 will be a first step in Atos' recovery and I'm convinced that we have all the assets in hand to get back on track and make our transformation a success. Now Uwe and I will take your questions, but maybe before that, Uwe.

Yes. Perhaps, on a personal note, before we go to Q&A, I decided to leave Atos effective beginning of May, so not now, but beginning of May. My successor will arrive May 1. I think this is a good time for me to open a new chapter in my life, but also for the company to gain the benefits of a new experienced leader who will accelerate the turnaround already started. Now over to Q&A.

Thank you, Uwe.

[Operator Instructions] And the first question comes from the line of Stacy Pollard from Atos (sic) [ JPMorgan ].

From JPMorgan actually. Just a couple of quick questions from me. First of all, quite a large range for operating profit margins. Usually, you're sort of 50 basis points, and this time it's 200 basis points. Now I appreciate it might be similar in absolute amount, but what are the big swing factors? Is it more some uncertainty around revenue streams and the types of revenues? Or is it more around the cost flexibility and controls as you move through the year? So that was question #1. And really the second 1 is, any comments on progress for the disposals? And are there any additional assets -- now that you've been there for a couple of months, are there any additional assets that you might consider for disposal?

Well, on the first question, it's certain that we are providing a slightly larger range for our operating margin guidance for 2022, which is actually reflecting how we see the business evolving in 2022, and the reason why we are using that slightly wider range is because there are still moving parts in the business at the moment. And I will list a few of those. The first question is, how quickly can we come back in line with market average in the decline in revenue of the infra business, which is one of the main factor of erosion of our operating margin, this deceleration in the infra part of our business. The second question, of course, is how quickly can we take the cost out of this declining IT business. There is also a question of cadence in how quickly we can reduce the structural costs that were inferred by the implementation of the Spring program, which is quite heavy in that regard. And there is also a point on how much of the salary increase we can pass on to our customers in terms of price increase. And of course, well, natural question like the ramp-up pace of new contracts in H2. But all in all, it means that there are still moving parts in our operating margin buildup, which explain why we have taken a bit prudence and provided a wider scope than usual in this metric. On the second question on disposals, there is not a lot of progress to report on that front. What I can say is that, we continue to see disposals as one of the key elements of our strategy. Maybe I should start saying that, our strategy is to return to growth and to accelerate our growth in the growing parts of our business in digital and at BDS. Second element, which is also very important, as you have understood from what I said before, we wanted to stabilize what we call the tech foundation part of our business and to focus on being resilient in that part of the business, which is also very important. And that's one of the main element why we have decided to change organization to be able to focus more determination, more energy in that respect, and to be in control of that important part of the business, which is today decelerating too much rapidly. That's the first one -- first element. We are focused on business. Second element, we continue to see an important part of our strategy to dispose some of the assets we have announced previously, like the infrastructure business and the unified communication business. Unfortunately, on those 2 questions, negotiations and discussions are still underway, but we have no progress to report at this stage. What I said also to answer a bit more to the long-term part of your question on how I see disposals going forward, what I said is that, our turnaround plan will be articulated around 4 main drivers, one of them being -- that's the last 1, but it's a very important 1, portfolio considerations and I mean, what I'm saying.

Next question comes from the line of Laurent Daure from Kepler Cheuvreux.

I have 3 questions. The first one is on the free cash flow guidance that you have set up. Could you share with us your assumption you have taken for the cash restructuring charge and the range of working cap increase or decrease? My second question is on the infra business. Could you walk with us a little bit on how fast you could close some of the data center and the kind of revenue decline you could cope with without further deteriorating the losses of this business? And my final question is, Uwe, if you could share with us on the balance sheet the contract assets and advance payments you had at the end of 2021?

On the first question that you have on the free cash flow guidance, which is a bit more wider than the -- than what is suggested by the operating margin bracket that we're providing. The reason for it is that, we have provided for a slight deterioration in our working capital, which is in the order of minus EUR 150 million to minus EUR 200 million. That's what we have in our guidance. In terms of restructuring, we are going to -- our base case is that, we're going to stay at the -- at our customary level of 1% of our revenues, which is EUR 110 million. In our guidance, we have provided some flexibility, which could lead us to go up to EUR 150 million in that line. That's not our base case, but we have this kind of small reserve in case we wanted to be -- we're in a position to go little faster in that -- in some restructuring projects. In the infra business, well, what I can tell you on this question is that, the infrastructure part of our business is in decline, double digits, in the mid-teens level, which is substantially higher than the reference markets of that business, which is in decline also, overall, but it's more in the single-digit level -- mid single-digit level, meaning that we underperform. One of the reason is probably because of the de-focus which was brought by the Spring organization. And what we intend to do is to come back to market average in that part of the business by refocusing our management on resisting in that part of the business and maximizing the fill rates of our infrastructure, which is a key driver of revenue, but also of margin in this purely fixed-cost business. Deceleration in that part of the business costs a lot in terms of margin and in terms of cash flow, and we need to resist on that and we have lots of headway and potential for that by only returning to market standard level of performance.

And Laurent, on the contract assets, so on a net basis, you will see a reduction of EUR 350 million actually. So it's come down from EUR 900 million to circa EUR 550 million, which is a good reduction. One part -- 1/3, I would say, of that is due to write-off, but the other part is really operation and so on. 2/3 are -- is operational and will, of course, help the cash flow moving forward on contract assets.

Next question comes from the line of Nicolas David from Oddo BHF.

The first one is just a follow-up of the previous question from Laurent regarding -- it's regarding restructuring of exceptional items in the P&L this time for 2022. I understand that restructuring could be between 1% and 1.5%, but usually you also have other exceptional items. So could you give us a sense of what would be the overall exceptional item below the line in 2022 and what do you expect over the midterm? My second question is, you mentioned several times some growth -- market average growth for infra management. Where do you see currently this market average growth and where do you stand currently compared to that? And when do you think you can catch up this level? And my last question is regarding profitability. Could you give us a sense of the current profitability by business line and what you expect for 2022, which business line would improve and which one may suffer more?

Your first question on the other exceptional item that we might have taken our assumptions, I will let Uwe answer. And Uwe, you want me to start with the 2 last questions? On the infrastructure and the improvements, the potential we have in that important business line, which weighs around a bit less than 40% of our total group revenue. As I said before, we are in this business line in decline quite marked actually around, but a bit less than minus 15% year-on-year. And in the early days of 2022 this trend is the same, continues. The reference markets, as we see it and it's our internal figures, we consider that the infrastructure market is in decline at between minus 6% and minus 8%, means that we declined twice faster than the market average. And this has started at the beginning of last year, probably due to the Spring organization where we decided to organize ourselves by industry and not by business line anymore, which means that we de-focused a lot our teams from the -- [ from existing ] in the infra part of the business, all the more that our strategy is very clear and is in change, working to focus on digital, cloud, cyber and we have focused all of our sales efforts into growing that very important growing part of the business. But it doesn't mean that we have to give up on the existing core business of the company and we should resist on that. And that's exactly the notion behind our -- the evolution of our governance of organization. Meaning that there is lots of potential to catch up with market average and there is no reason why we shouldn't perform like market average given our size, given the quality of our infrastructure, given the quality of our people. The fact is that, this is easy to say, not that easy to do. Why? Because different from digital, the sales cycle in the infra part of the business is long, it's longer than in the digital part of the business. Contracts are bigger and sales cycle is also longer and on average, the sales cycle is between 12 and 18 months. Meaning that to see a real improvement, a step change improvement in our infra part of the business it will take time. Of course, we are fighting hard to accelerate that and make sure that we restore our revenue trajectory faster than that, but you have to understand that it will take some time, and that's one of the reason why we have some uncertainty also in our operating margin bracket because we don't know exactly how fast can we be in stabilizing while improving, should I say, the performance in the infra part of the business and that's one of the reason why our H2 will be better than H1, because we consider that we will be able to improve slightly the performance in that segment during the course of this fiscal year. Profitability by business line, we are not going to comment on that today. What I said is that, we intend to provide guidance across our 3 business lines as from the Capital Markets Day, to give visibility to our investors on the performance of our 3 business lines, to be also in a position to maximize their performance and manage them effectively and also to make sure that everybody can make up their mind on the real value of our company. And I think that's all what I can say today on this question.

And Nicolas, on the exceptional items, we expect that the year '22 comes back to the level prior to, of course, all the reassessments and all the impairments which we did. So we expect that to come back to the level we had in the years before.

And just regarding the infra decline, to what extent do you think that your willingness to sell the asset is also penalizing your ability to grow in line with the market?

Sorry, could you...

Yes. To what extent your willingness to sell this infra management business is penalizing also your ability to grow in line with the market, given maybe a negative perception from the clients you may have given, you are in the process of disposing this asset?

Well, it's a good question, but I think it's a second-order consideration. Even though we sold those assets, we are going to -- well, to continue to a very solid infrastructure, very talented people, meaning that whatever the end owner of this activity, the customer service will be unchanged. Meaning that seen from my point of view, I think it's a second-order consideration for the customers. And what we say now plainly and clearly to our teams is that, they should, and we are motivating them and we are also incentivizing them on this -- in this direction. They should resist in that business and we should focus much more time, energy and resources to defend our positions in that business and to perform at least at par with market average. Now we have a team which is dedicated to manage that part of the business. They have their own self-support, they have their own KPIs, they have their own remuneration systems which makes sure that they are going to deliver on that -- against those objectives. We have had some questions from customers indeed on the subject of disposal, but we have never found it was a very determined or very structural consideration in the decision-taking process.

Next question comes from the line of Mohammed Moawalla from Goldman Sachs.

A couple from me. You talked about sort of a lot of cost-cutting and efficiency, particularly around the infra business. Can you talk about what you've budgeted for investments, particularly around the digital side of the portfolio? And I'm talking here organic investments and the timing and phasing of that. And related to that, what is your thinking around kind of also pursuing bolt-on M&A as part of the plan to sort of further improve and diversify the portfolio around digital? My second question was really around the phasing of the growth for the year. So obviously, it's going to be a back-end loaded year, but does Q4 represent the trough for organic growth, or should we see that trough continue for a little longer before the organic growth sort of rebounds? And in a similar vein, as we think of that sort of free cash flow, can you just reconfirm that H1 free cash flow will be below the lower end of your -- of the guidance for the full-year? And if so, give us a rough indication on the H1, H2 loading?

On the bolt-on strategy, we don't deviate from this strategy, which we find solid and quite a relevant in our activity, especially to accelerate our migration to digital and to continue accelerate growth by building capabilities in the digital segments. What we said and probably we should have been more explicit on that is that, well, we have an envelope of around EUR 300 million to EUR 400 million that is earmarked for bolt-on acquisitions each year. This year, a very substantial part of this envelop has already been consumed with the acquisition of Cloudreach, which is a slightly bigger acquisition than what we did previously under our bolt-on strategy. Going forward, in the following years, we are going to continue this bolt-on strategy, continue to concentrate this strategy on the segments of activity which we think are the most value-creative for us going forward, which means in the digital part of the business, digital, meaning for us mostly cloud in which we need to build capabilities, we're still too small in the cloud part of the business. And also in cybersecurity, which is truly the growth engine of the BDS division of the group, which is growing very nicely, very solid double-digit growth rate. On the structure of the H1, H2 for this fiscal year, in terms of revenue and in terms of free cash flow and in terms of operating margin, H1 will be lower than the annual average in all respects but it will be better than Q4 of 2021. We will have revenue growth, which will be slightly declining, probably, well, in negative territory in H1 and with a better profile in H2. Similarly, in H1, the operating margin will be significantly lower, positive territory, of course, but significantly lower than our average. I'm not sure I have the H1, H2 cash flow structure. Uwe, do you have it in mind?

No, but it's following more or less the operating margin. Of course, it will be lower in the -- so it's the same story than the operating margin. So expect as well, but probably a negative cash flow in the first half and then a positive cash flow in the second half. Better than last year in H1, but still probably H1 in negative territory.

Can I just clarify, Rodolphe, on the comment on revenue growth, is that constant currency growth or organic?

Sorry, could you say it again, Mohammed?

The comment you made around revenue growth, is that organic revenue growth or is that constant currency revenue growth?

Well, it's a bit of both, actually. The impact of inorganic for this year is around 1.3% -- or precisely 1.3%. Meaning that, well, if you take the constant currency growth, we will be probably slightly negative in terms of revenue growth, in terms of -- well, for H1 minus low single-digit. And if you want to take the constant perimeter, you subscribe 1.3 percentage point to that.

Next question comes from the line of Michael Briest from UBS.

A couple from me as well. Uwe, just starting on the cash flow, I mean, last year I think there was about EUR 150 million of receivables that slipped. You obviously extended customer advances by EUR 200 million, there were suppliers and subcontractors, you got EUR 200 million. And then there was a slipped Big Data business of about EUR 100 million. So there seem to be quite a few things which would be helpful to cash flow this year, and yet Rodolphe has said that you're going to assume working capital deteriorates by EUR 150 million. Can you sort of give some context about why we shouldn't see some of these things reverse from last year?

I think this is also the reasons for the width of the range, right? So what Rodolphe mentioned is, of course, when you go to the low end of the range, besides the margin impact, you have potential deterioration of cash -- of collections and supplier payments, but on the high end, of course, you see the benefits of what reverses from the year before. It's just that we anticipate or want to be sure that we also have that in mind if there is a further deterioration of any of the customer collections or supplier payments, because we are still in a situation, especially on the supplier side that we are very much dependent on the supply chain. Therefore, paying potentially earlier might be necessary to secure the delivery to our customers, and on the customer collection side you always have volatility, and also an uncertainty. So that's also the reason why the range, as you saw from the free cash flow guidance is wider than the operating margin range. But in the high case, we expect, of course, that this actually has a neutral to positive impact.

And then just on the pipeline, I mean, it's down a hell of a lot year-on-year. And I hear what you say about the infrastructure management deals being bigger and sales cycles longer. Where would you like that number to be exiting this year? Do you think you can get back to where it was at the start of 2020? And related to that, attrition has obviously risen quite a lot. Is there any comments you can make about current rates of attrition, whether they're continuing to increase or stabilized or even improved?

On the pipeline, the figures of 2021 are below the figures of 2020, that's what you're remarking. Now that what you're noticing, there are different reasons for that. First, in 2020, the pipeline figures were a bit unusually high because we had lots of renewal that year which we do account for in our pipeline figures, in the order EUR 4 billion in 2020, a bit smaller in 2021, which is 1 source of deviation. And the second source of deviation, of course, as you have remarked by yourself is the evolution in our business mix, the contracts in digital are much smaller than in infra and it weighs, of course, in our pipeline figures. The more our business mix evolves towards more digital and less infra, the smaller our book-to-bill. And in that respect, given the typical contract duration in digital, we should expect it to stabilize to a level of pipeline we have had in 2021 into 2022.

Okay. And all the best for the future -- I'm sorry, attrition.

Attrition. Well, Attrition is stabilized. Over the past few years, it has remained -- well, if you exclude the evolution which was triggered by the COVID crisis, it's almost stable and we believe it's going to stay at that level in 2022.

Next question comes from the line of Frederic Boulan from Bank of America.

Just a few questions on the data center hosting business, please. So can you share with us a little bit of granularity on trends, maybe where H1 revenue were in terms of year-on-year growth, H2, and what's embedded in 2022? And I know the question has been asked already, but would be great to see what was the margin of that business in 2021 and where that can go? And then in terms of improving the performance of the business, can you share with us a little bit what the plan is here, is it to increase fill rate even if it entails more competitive pricing? Is there more demand for that area? I mean, it seems to be still a very challenging market overall. And then secondly, what happens if the sale is not successful? If we fast forward a few years is the plan to keep on running the business, and if you can comment where you see the economics of that in the medium-term would be great?

Well, on the infra part of the business, well, in 2021, we delivered narrow operating margin, well, driven by the reduction in revenues, which was quite substantial, as I said, around minus 15% year-on-year. And the start of 2022 is in the same kind of vein as 2021 and we expect this part of the business to continue to erode at double-digit pace into at least the first half of 2022. That's what we have in our assumptions. And that's the underpinning driver of the guidance that we have in -- for 2022 -- for the full-year 2022. Well, what's the driver of the improvement of performance? First of all, there is demand on that market. Well, customers continue to have an increasingly [ have ] and sort of hybrid approach. They move to the public cloud for some of their workloads but they want to maintain some private infrastructure for some parts of their workloads, and it will continue like that and [ they are that ] and there is dark contracts, we just have to make sure that we get our fair share of those tenders of those new customers. That's the first element. Second element, we need to make sure that we increase price effectively in that part of the business. That's a business that's needed for customers in which we deliver a very good service, plus which is necessary for our customers, which [ wants ] very well for their sensitive workloads and we should make sure that we monetize that. And of course, there is a work that needs to be undertaken to continue to optimize the cost line of those business and make sure that we adjust as much as we can, the cost line with the fill rates of those infrastructure. If sales is not -- if the disposal of this part of the business is not successful, which could always be the case, even though we are determined to fight hard to dispose that business, if we can find a good and a value-creative solution for shareholders, we are not going to dispose at any price, of course. But well, we would keep it and we would make sure that we manage this business as an infrastructure business in a declining market, which means that pricing considerations, make sure that we use our importance on the market and the fact that we are a necessary facility for our customer to maximize the revenue and profitability by playing more on pricing considerations. That's typical on infrastructure in a declining market when you are not able to boost your profitability by the fill rate of your infrastructure, because of the erosion in demand in volume. You have to make sure that because your infrastructure is crucial for your customers, you're able to reflect the importance of the service you deliver into your pricing and it will be one of the focus of our strategy going forward.

Next question comes from the line of Neil Steer from Redburn.

I just have a couple of quick ones. The first one is on the prepared remarks, you referenced a couple of times both in '21 and your forward-looking commentary that you're facing the pressures of salary increases. That's somewhat different to the messaging we hear from other companies where they're suggesting they can use the staff pyramid and pricing to offset wage increases in terms of the impact on the margin. I'm just wondering to what extent, given the challenges of the business you're having to overpay to recruit head count in the company today, and if that's the case, for how much longer that has to continue? That's the first question.

On the wages, what we said actually is that, well, we see inflationary pressure on that element, which increase -- compensation increase, which is weighing on the operating margin of the company. The consideration on how to mitigate that inflation was through pyramid measures or pricing is, of course, an evidence. But what we see is that, even though the [ generization ] is an effective way to manage the workforce and the cost base of the company, it doesn't really enable to offset the inflation in wages across the industry, which also applies to the junior person, and not only to the senior one, meaning that it's something which is a bit -- which is true across all the age group, meaning that that's not really a consideration that we see. Second element, key for us will be to make sure that we continue to attract key talents and we pay at market pricing, meaning that if market price is increasing, we have to increase our compensation also for the newcomers. But the key for us, and we see clear inflationary elements in that context that we have reflected in our operating margin targets. But what I want to say, what I said earlier, and maybe I'm going to elaborate a bit more, is that, of course, the key for us will be to compensate those costs that we have to support with price increase that we can pass on to our customers. On that question, the mix effect that we have today is not totally favorable and not totally comparable that what you might find at some of our competitors and our peers. Why? Because the portion of our business that we do in the infrastructure is higher than many of our peers. And in that part of the business, as you know, we have big contracts and we have long-term contracts, which means that it might -- which most often don't provide for CPI, or automatic price increase, adjusting to the inflation rate. And of course, in digital where contracts are shorter, as we said before, it's much easier to compensate for the wages increased through automatic adjustment in price for customer. In the infrastructure part of the business, we have to work on that because long-term contracts have to be enhanced in order to compensate for that price -- for that wages increase, and it's not that automatical, not that easy to do. We're focused on that. We are determined, but it is something we have to work hard to be in a position to offset that element.

Just a couple of clarifications. The question has been asked a couple of times. But just to be clear, obviously, the P&L charge for staff reorganization, rationalization, including property and integration of the P&L charge is what the P&L charge will be for this year. But perhaps most importantly is, what is the cash of those 3 line items going to be in 2022, so that's staff reorganization, rationalization including property and integration costs. Can you give us a figure for that, please?

Yes. So it's in the same neighborhood -- somewhere -- as we said in our guidance, at about 1%, and what we catered for as well in our cash flow upper and down -- or let's say, on the low case scenario is that, we would also go to a 1.3%, 1.4%, so the EUR 150 million, because we took already a lot of those provisions also in cash for the German restructuring into account, so that's already taken in 2021.

Okay. So just to be clear, the total cash cost of those items is only going to be just over 1% in 2022?

Yes, between 1% and 1.4%. Yes.

Okay. The provisions, you mentioned you've taken EUR 280 million of contract provisions also. Could you give us a sense of the time horizon over which those contract provisions of EUR 280 million get utilized or released back to the P&L?

It's -- of course, it's very different by contract. Of course, the largest -- the longest ones, which is only 1 or 2 could go even up to 10 years, but the other ones, I would say, in average is 3 to 4 years of remaining contract durations.

Okay. And so, just very 1 final comment. You've mentioned, Rodolphe, that in response to a question about if you can't sell the businesses you want to sell you have to think about pricing and maximizing the profitability and [ circle ] from those businesses. Given those businesses were at breakeven last year and with the revenue declines you've referred to are probably on the cusp of making losses in the first half of this year, wouldn't it be a good time now to think about upping the pricing, [ indeed ] you have the flexibility to do so?

Well, it's a bit difficult to have this kind of conversation which is a bit theoretical, what if you shouldn't sell. Well, first, what we said that we are going to refocus our energy on to stabilizing that part of the business and delivering a performance which is at par with market average. And with that, we have already lots of upsides to improve substantially the performance in that part of the business and to reduce the weight of that business, the drag of that business on the operating margin and cash flow generation of the group. That's the first question. Second, as we said, we continue to see disposals as one of the key option for this part of the business, but I cannot promise on that because I'm not the only one to decide. We need to make sure that somebody is buying those activities at a price that we deem value-creative for shareholders, and also in customer service situation, which is satisfactory for our customers, because it's also a very important consideration. Last point, it's a bit theoretical but, well, we could debate on, [ sorry ], if you like, for quite a long time. But if we're not able to sell, what's the situation? The situation is that, we see in the long-term that hybrid cloud will be staying, meaning that we don't see all the workloads migrating to the public cloud. What we -- in our conversations with our customers, we see very clearly that they will continue for some part of their workloads which could be the most sensitive, the more sophisticated, the ones for which they don't want to take any risk for their data, or many different considerations, they will keep private infrastructure that will be continued to be operated by us. And for those very specific activities which will be needed for our customers, we will provide them at a higher price because of the added value that's required by our customers, but also because we will be one of the few remaining players under that theoretical assumption, which is again [ an impetus ] for the long-term would be one of the few players staying in the infrastructure part of the business, which will give us, hopefully, a leverage to pass to our customers the legitimate price for us to operate with a decent operating margin. I think we are coming at the end of our call today. Well, before the concluding words, I would like to -- well, even though it's not a goodbye call from Uwe because we still have another meeting for the quarterly results in 2 months from now. But since the announcement was made today, I would like to thank Uwe and to express my gratitude for his dedication and professionalism in this sometimes a bit tense moment for the company over the past 2 years, in which he has shown a very strong professionalism, commitment and resilience at the helm of the finance group of the company. Again, it's not a goodbye, but I wanted to make sure that I can express my gratitude at this point in time. Well, and I want to say also that we are making sure that -- and Uwe has accepted to make sure that a smooth transition is done with his successor, meaning that everything will be managed in the most professional and the most prepared way to make sure that this is a perfectly best-in-class and smooth transition for the finance group of this company. And that's for the comments I wanted to make on that important subject. Well, I understand there is no more question. As a conclusion, I would like to reiterate that I'm convinced that Atos has a clear path to recovery. We will start our roadshow shortly after this call. And I'm looking forward to continuing our open dialogue and hopefully, embarking you on our transformation journey. Thank you for your attention.

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