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Cohesive Portfolio & North America Central to Atos' 2019 Ambition

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Atos’ recent analyst and advisor day in Boston provided further details around the company’s three-year (2017-2019) growth ambitions that the company unveiled in November 2016. In a nutshell, Atos is targeting:

  • CC/CS revenue growth of 2%-3% per annum (2016: +1.8%)
  • An adjusted operating margin in the range of 10.5%-11.0% by 2019 (up from in 9.4% 2016).

More here about Atos’ 2017-2019 financial plans. NelsonHall covers Atos extensively in both its Quarterly Vendor Update program and also in its Key Vendor Assessment program.

Atos described several levers that it is pulling to achieve these financial objectives. These include SG&A spending rigor, M&A financial discipline, delivery automation and delivery industrialization (including a recent initiative on application management industrialization).

In addition, Atos unveiled several initiatives in support of its financial objectives including those focusing on:

  • Service portfolio management, with a focus on its Digital Transformation Factory (DTF) portfolio, and cyber security, focusing on back office services (as opposed to front office work such as UX, and digital marketing agencies)
  • Continued growth in North America (4.5% CC/CS growth in 2016)
  • HR and retraining people to digital skills.

Service Portfolio Management

Atos has transformed over the years from a federation of geography-centric (GBUs) operations into a more global organization with global service lines. This is the case of Worldline, of Big Data and Security (mostly hardware and software products), of Infrastructure & Data Management (which groups IT infrastructure services and BPS). Increasing, Business & Platform Solutions (its C&SI businesses) is becoming global, starting with application management services.

With the adoption of a global structure, Atos has launched new global service offerings. Those global service offering also reflect the nature of the portfolio of Atos, which now includes software products (Evidian security), hardware (bullion enterprise servers and HPC), and for now Unify (communication software).

Atos is targeting hyper-growth in its four Digital Transformation Factory pillars (Canopy cloud computing, SAP HANA, Atos Codex, and Digital Workplace), aiming to grow from ~€1.5bn revenues in 2016 to €3.8bn in 2019, with SAP HANA and Digital Workplace expected to achieve a 2016-2019 CAGR of around 90%.

While these objectives are ambitious, they do include the market evolution of IT services e.g. from SAP ERP to the SAP HANA ecosystem and S/4 HANA.

The event provided more insights on various initiatives across the global services lines in support of the targeted growth.

Service portfolio innovation is critical to this: we are starting to see evidence of this with Atos offerings putting increasing emphasis on IP and accelerators. With Atos Codex, for example, the company is developing IP-based use cases.

Cross-selling is also on the agenda with Bull-branded hardware (bullion) optimized for SAP HANA. In the longer-term, Atos is has also positioned its HPC hardware processing high volume of data as the hardware that powers big data, working on expanding its HPC client base from its traditional research and weather company usages towards enterprises, with one French automotive OEM as the early example of this transition.

Innovation through partnerships with start-ups is also one of the routes Atos is experiencing to drive growth. Partners presenting at the event included Apprenda (cloud orchestration), Inventy (SAP processes performance benchmarking and optimization), and Cognicor (AI) (having transitioned from IPSoft’s Amelia).

With end-user computing, Atos is also using its Unify UCC subsidiary to cross sell the recently-developed Circuit into its end-user computing client base. Siemens, the largest client of Atos, and the former parent of Unify, is the largest client of Circuit with almost 400k seats deployed. Atos wants to transition clients from a voice and service desk centric approach to and end-user experience. Transformation in the form of professional services is very much a priority.

Across DTF, Atos is investing into automation, whether through partnerships or through its own IP. This is a work in progress, and Atos is likely to further invest over the coming years. Also, expect Atos to expand its DTF offerings to a wider range of use cases.

Continued Growth in North America

Continuing the positive momentum in North America is a priority. North America is now Atos largest region (€2.1bn revenues in 2016) and it has integrated and stabilized Xerox ITO, turning around several challenging contracts, and improving NPS significantly.

With the recent acquisition of Anthelio, expect to see further inorganic growth, with expansion of capabilities in its Business & Platform Solutions business a priority.

North America will rely on the DTF of the overall Atos, relying also on cyber-security, expanding organically and complemented by tuck-in acquisition (e.g. the recent acquisition of Pivotal services specialist zData, which brought ~30 personnel).

Offering verticalization is another priority: with Anthelio, Atos doubled its presence in healthcare, expanding into the healthcare provider sector. Anthelio was relatively large ($250m in revenues) and Atos in North America would like to replicate this vertical approach to other sectors. Priority sectors include retail and manufacturing.

Looking ahead, North America aspires to serve as the first mover for Atos, bringing new partnerships with the intense start-up ecosystem in the U.S. and with large partners. This is aspirational at this point, we think.

HR Management

Atos also provided some light on its HR policy and its effort at aligning its workforce to digital skills, still in the context of constant pyramid reshaping. The company is combining hiring from tier-one universities (1.5k personnel each year), identifying internally though analytics personnel with high potential, retention programs (with an objective to reach 95%) through career paths (5k) and its well-being at work programs, reskilling through digital certification (4k to 6k personnel each year).

Atos, which hold its event on the International Women’s Day 2017 is also targeting a big uptick in its women labor force. In the past four years, women have represented 26-28% of its headcount and the company wants to accelerate to reach ~40% by 2020. The company will achieve this objective by increasing its women hiring mix to 50%. This is a bold ambition.

Atos Has More Financial Freedom that in the Past

With an adjusted operating margin of 9.4%, and a net cash position of €481m at end of 2016, Atos has significant financial flexibility, while maintaining an annual spend of €300m on R&D. All rosy then? Of course not - Atos’ journey to a 10.5%-11.0% operating margin relies heavily on SG&A reduction through procurement rationalization and other TOP actions. Atos is a firm that impresses with its execution on cost management.

Evolution from European Services Player; Vision Centers on being Digital Leader

With the Digital Transformation Factory play and its gradual adoption of global units, service lines, and offerings, Atos is no longer a federation of European-centric firms and is becoming a more integrated firm. It is also no longer a services pure-play but a vendor that has a unique mixture of services, software and hardware assets that it has worked hard to shape into a coherent portfolio with a central positioning of supporting clients on their digital journey. Finally, we are seeing a much stronger focus by Atos on innovation - including through partnering with start ups - than we have noted in the past.

Dominique Raviart and Rachael Stormonth

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