(PitchBook) Atos to rejig refinancing, debt reduction plan amid tough market conditions

25th april 2024

Jean-Marc Poilpre

Softer market conditions in key regions and delays in contract awards impacted Atos’ revenue in the first quarter of the year, requiring an adjustment to the refinancing framework outlined only two weeks ago, the company announced this morning. One of these adjustments could be deeper cuts in Atos’ debt pile. The group's bonds fell by up to six points across the stack in response. 

Revenue in the first quarter of 2024 declined 2.6% organically to €2.479 billion, and Eviden revenues dropped 3.9% organically, reflecting continued softness in Americas and the UK, while Tech Foundations was down 1.5% organically, reflecting the lower scope of work with certain customers in Americas and Central Europe, Atos said in its first quarter 2024 performance report.

The French IT company on April 9 unveiled a broad funding and debt reduction plan with the aim of bringing its credit rating profile to BB by 2026. This would require that Atos’ financial leverage falls below 3x by year-end 2025 and below 2x by year-end 2026, with the achievement of a gross debt reduction of €2.4 billion. At the time, Atos was seeking €1.2 billion of new money.

This plan needs to be adjusted to reflect the current business performance and market conditions, the company said today. The update to the 2024-2027 business plan “should lead to an increase of the parameter of cash needed to fund the business and to a potential additional reduction in total debt”, said Atos Group CEO Paul Saleh during the conference call. Any change to the business plan and these parameters is to be communicated to the market in the coming days.

Creditors and interested parties had been invited to submit long-term funding and debt reduction proposals by April 26. But the deadline has been pushed to May 3 to allow all stakeholders to incorporate the — as yet unknown — new information.

The company is still looking to reach a refinancing agreement with creditors by July 2024.

Clarification sought
During the Q&A, analysts sought some clarification on the trigger for this revision of the business plan, since the first-quarter numbers were pretty much in line with expectations. Atos’ management pointed to two key factors: the delay in contract awards and the “persisting softness” (note, the company had expected a rebound which did not materialise during the first quarter).

"We had expected a larger debt forgiveness at the original announcement so today’s announcement tallies with our numbers. Q1 numbers are not that bad and despite the lower book-to-bill ratios, the further debt forgiveness may reflect new money providers expecting more favourable terms at the expense of existing creditors and shareholders," Tomas Mannion, senior analyst at Sarria, commented after the call. 

On the implementation of the interim financing of €450 million with groups of banks and bondholders and the French state, which was announced on April 9, Atos simply said that it was “progressing”.

Following the call the firm's bonds fell by up to six points, according to Tradeweb prices. By early afternoon, this left the 1% unsecured notes due November 2029 in a 22.48/25.74 market, the 2.5% November 2028 notes at 22.45/25.79, and the 1.75% notes at 23.76/26.26.

Gross margin
Atos’s group operating margin in the first quarter of 2024 was €48 million, representing 1.9% of revenue, compared with 3.3% in the prior year.

Eviden's operating margin was €22 million or 1.9% (down 330 bps organically), while Tech Foundations' operating margin was €26 million or 2.0% (up 50 bps organically), reflecting the continued execution of its transformation programme, the company said.

As of March 31, 2024, cash and short-term financial assets stood at €1.0 billion, down €1.4 billion compared with Dec. 31, 2023, primarily reflecting €1.3 billion lower working capital actions compared with the end of fiscal 2023. Net debt was €3.9 billion compared with €2.2 billion at the end of last year, primarily reflecting the reduction of the working capital actions.

The book-to-bill ratio for the group was 64% in the first quarter 2024, down from 73% in the same period of 2023, reflecting delays in contract awards as clients await the final resolution of the group’s refinancing plan, Atos said.