Group in crisis: disaster year for Europe's former IT hope Atos since it missed data clouds.

"The French Atos Group has lost billions. The share price is plummeting, the competition is already reaching for the best divisions.

Atos, the French IT service provider, posted a net loss of around 3 billion euros last year. This is the biggest minus in the recent history of the company. 

 

Not only does it deepen the group's crisis, it also puts a serious damper on Europe's hopes of building its own champion in the IT industry. 

 

According to the Management Board, the negative result for 2021 is mainly due to the high depreciation. From now on it should go uphill again. The stock market, however, was initially shocked.

Investors put Atos shares on sell list on Tuesday. The course lost around 20 percent. With a market capitalization of only around 3 billion euros, the group could be considered a takeover candidate. Due to numerous construction sites and the generally gloomy situation on the markets, however, competitors are holding back with potential offers.

 

With 10 percent of the shares, Siemens is still the largest single shareholder. The Munich-based company sold its IT subsidiary SIS to Atos in 2011 and in return received 180 million euros in cash and almost half a billion euros in shares and convertible bonds. Since then, the share price has fallen by 25 percent.

 

 

The takeover was initiated by the former Siemens boss Peter Loescher and the then Atos board member and current EU Commissioner Thierry Breton. 

 

In doing so, they wanted to build a European IT champion who would catch up with the American industry giants. 

 

"We need a partnership like the one with Siemens in Europe, we need a company like Atos," Breton told the F.A.Z.  In 2015, Breton bought the French computer manufacturer Bull, and in 2016 the German telecom service provider Unify, in which Siemens also held shares.

Key market Germany

The German head of Atos, Udo Littke, said in an interview with the F.A.Z.: "Siemens is still the largest customer and partner today." For example, Atos offers maintenance and repair software that customers of the Munich group use. With around 10,000 employees, the business in Germany is very important for the French company, since, according to Littke, it accounts for around a fifth of group sales, and Atos wants to boost this as quickly as possible under new management.

For the time being, however, the new CEO Rodolphe Belmer, who took office in January, tried to draw a line under the past year. For 2021, he had the enterprise value and other long-term assets written off by 1.9 billion euros. He booked another 500 million euros in impairments, provisions and revaluations for contract assets, bad debts and future losses.

The Atos boss openly admitted on Monday that the company was facing "considerable difficulties" and had missed its financial targets. A spokesman even spoke of a “disaster year”. Belmer wants to turn things around. His target range for sales growth is minus 0.5 to plus 1.5 percent. He is aiming for a return on sales of 3 to 5 percent, after 3.5 percent most recently. Analysts consider these goals to be unambitious after sales in 2021 fell by 2.5 percent compared to 2020 to around 10.8 billion euros and the return on sales in the year before last was 9 percent.

A whole bundle of reasons explains the downward spiral in which the French IT service provider has gotten itself into and which has cut the share price in half within twelve months. In September, the title was even dropped from the leading French index CAC 40.

 

 The mistakes include sloppiness in accounting and too late switch from classic IT services such as the operation of data centers to the business with the so-called data clouds.

 

Belmer's predecessor, the ousted Élie Girard, also got involved with the failed takeover of American competitor DXC Technology. There were also corona-related difficulties such as delivery bottlenecks. 

 

According to observers, Thierry Breton, who was in office for eleven years before that and was appointed EU internal market commissioner two years ago, also overslept developments such as the cloud boom.

 

The group itself is only vague about the mistakes of the past. Since the change at the top, Atos has been trying to look ahead. The presentation of the new Bullsequana XH3000 supercomputer in mid-February went well with this. Atos is the last European company that can keep up with American specialists such as HP or IBM or Fujitsu from Japan in this field. But it really does not calm you down.

Speculations about security division

In recent weeks, Belmer has succeeded in stabilizing the share price, at least temporarily, with internal restructuring. 

 

He combined the activities and regional responsibilities in several divisions and bundled the lucrative cyber security business in the Big Data & Security (BDS) department. But with this he arouses great desire outside his home.

 

Speculations have been rampant for weeks that the French armaments group Thales wants to acquire the BDS division. 

 

Atos could even be broken down into individual parts. Belmer wants to counteract this and is therefore pushing for structural reform. The group recently stated that the profitable cyber security business is not for sale. Thales, however, has clearly formulated its takeover interest. Therefore, rumors persist in the market that a sale of the division is only a matter of time. 

 

The reasons: The French state is the largest shareholder in Thales, and in the politically gloomy general climate, cyber security is currently at the top of the agenda of President Emmanuel Macron's government - and it makes no secret of its will to create "national champions".

 

However, there is still a long way to go until then – and not just for the French. The German business is also in the middle of restructuring. The conversion should be completed by the end of 2023. This will result in job cuts. Around 1,300 jobs are affected, said Germany boss Littke. But it's not just about downsizing. “We try to bring the majority of employees to other areas through retraining,” said Littke. Around 600 employees are currently being retrained internally, for example in the areas of SAP implementation and cyber security.”

Selling supercomputers is in tough competition with more new and fashionable data clouds. This is the key problem for Atos.