Wednesday, 30 April 2008

Atos Origin deserves to get its future sorted

Atos Origin has reported Q1 revenues €1.424b, marginally down on Q1 last year . This was mainly due to the disposal of its Italian operations in Jan 08 and AEMS Exchange due to be sold in Sept. On a continuing basis organic growth was 5.3%on an organic basis.

Atos Origin reiterated its full year guidance, which calls for organic sales growth of 4%; an improvement in operating margin to 5.6% compared to 4.6% in 2007; and a net debt reduction of €100m.

Atos Origin has a market valuation of €2.68b – a PSR of c0.5. Atos share price is down around 30% on a year back.

Atos Origin UK

I had the opportunity to talk to Keith Wilman, who runs Atos Origin UK, earlier this morning. Atos Origin UK reported an underlying growth of 8.25% to £178.3m in Q1 2008 (5.5% if you include discontinued activities) Putting this into context, I reckon that Atos Origin’s UK revenues declined from £696m in FY2006 to c£675m in FY2007. Although they will grow by c8% in H1 FY2008, that will slow in H2. So I’d reckon on full year revenues up c5% to just over £700m. Note – all these figures and comments exclude the medical BPO business in the UK.

Atos Origin UK has c4000 employees (excluding medical BPO) of which c20% or 800 are offshore; mainly in their Mumbia centre with a helpdesk facility in KL. They aim to grow to nearer 30%. Given that they are excluded from using offshore staff on their big Homeland Security contract, that is fairly respectable.

I was most interested in getting Wilman’s views on the outlook for the market. Q1 Book-to-Bill was 108% - always encouraging when bookings exceed billings! It’s widely spread too – coming from over 400 separate customer orders.

But the picture is pretty similar to that we have heard from others:-

Business is coming from what others refer to as 'customer mining’ – in other words getting more revenue from existing customers for add-ons etc. He was particularly pleased with the new work they had done with ‘old customer’ National Express for their internet ticketing system. It’s the new business with ROI exceeding a year that is facing the greatest difficulty. In Financial Services, Wilman is encouraged by the number of financial institutions who were now at least investigating outsourcing – a taboo area previously for many. Their SAP operations – again mainly in the “add-ons for existing customers” area - is also ‘going from strength to strength’.

All-in-all, I got the feeling of a ‘steady as she goes’ and ‘well run ship’ at Atos Origin UK.

Activist interest in Atos Origin

Atos Origin’s trading performance sometimes seems a sideshow to the main entertainment – the battle for control. Two activist funds – Centaurus Capital and Pardus Capital – have built a 22.3% share in Atos and want to appoint their own directors to the board at a shareholders meeting on 22nd May. The activists are unhappy about the pace of change at Atos. It doesn’t look like the activists want to take control. What they want is to shake up the management so that Atos can be sold at a premium resulting in them making a killing after buying their share without paying the premium required for a full scale bid. Atos management are somewhat against this as you might imagine.

The activists have been going through a series of possible candidates to become ‘independent’ directors at Atos Origin – suggestions had seriously included Bernard Bourigeaud; the previous CEO who only stood down last year! They seem now to be prepared to back Jean-Francois Cirelli (CEO of Gaz de France) and Rene Abate (Boston Consulting) – candidates put forward by Atos Origin itself. However, ‘peace has not broken out’ as the activists want to remove Atos’ three existing ‘independent’ directors as well as Chairman Didier Cherpitel. This battle royal has been front page news in France and has an unsettling effect on customers and staff alike.

The sooner the “Who will own and control Atos Origin?” question is answered, the better.

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