Atos delays restructuring plan after weak Q1 performance
PARIS, FRANCE — IT services giant Atos postponed its refinancing deadline to May 3 after a poor showing in the first quarter of 2024.
The firm originally targeted April 26 to present a comprehensive restructuring plan to address its towering debt. However, Atos pushed back the deadline to allow time to incorporate its Q1 results and reassess its turnaround strategy.
Atos stated that its business plan, which will help reduce its debt, will now need revisions in light of its deteriorating commercial performance in early 2024.
The company also warned that updates to its 2024-2027 outlook will likely require an increase in the amount of fresh capital it requires and potentially deeper debt reduction targets.
Disappointing financial performance
The firm reported a 2.6% year-over-year revenue decline in Q1 2024, equating to €2.48 billion (US$2.66 billion).
Its Eviden digital services unit saw a 3.9% organic revenue decline, impacted by “continued softness” in the Americas and UK markets. The legacy Tech Foundations business was also down 1.5% organically due to lower scope of work from certain clients in the Americas and Central Europe.
Operating profit plunged to just €48 million (US$51 million) for the quarter, less than half the €110 million (US$117 million) earned in Q1 2023, highlighting Atos’ financial struggles.
Failed acquisitions and debt crisis
Compounding Atos’ challenges are its failed acquisitions and asset sales. Its $3.4 billion purchase of Syntel in 2018 is viewed by some analysts as overpriced for the $1 billion in revenue Syntel generated.
Atos also scrapped a planned $10 billion acquisition of DXC Technology in 2021 after investor pushback.
More recently, Atos suffered setbacks when two potential deals that were part of its restructuring efforts collapsed. European aerospace giant Airbus abandoned talks to acquire Atos’ cybersecurity unit after conducting due diligence.
Separately, a deal to sell the Tech Foundations business to Czech investment firm EP Equity also fell through in February over disagreements on valuation.
The failed Airbus deal is a particular blow, as it leaves Atos struggling to address its debt burden while retaining ownership of BDS (Big Data and Security), which some consider a strategic national asset due to its government cybersecurity contracts.
Atos has €3.65 billion (US$4 billion) in debt due by the end of 2025, with a €500 million (US$535 million) convertible bond maturing in November 2024. The company’s free cash flow was negative €1.1 billion (US$1.2 billion) in 2023, further exacerbating its liquidity concerns.
Plummeting share price and analyst confidence
The repercussions of Atos’ financial turmoil have reverberated across global markets. The company’s shares plummeted by nearly 25% in Paris trading, leaving it with a significantly diminished market capitalization of around €329 million (US$352 million).
This precipitous decline underscores the severity of Atos’ predicament and the erosion of investor confidence in the company’s ability to chart a viable path forward.
The French government has already pledged to utilize all available resources to safeguard Atos’ strategic assets.
However, TechMarketView analyst Georgina O’Toole warned of prolonged uncertainty and an undoubtedly difficult Q2.
“Reaching a financial resolution as soon as possible is crucial for investors, clients, and employees alike,” O’Toole emphasized.
James Preece, an analyst at Megabuyte, echoed similar sentiments, stating that Atos’ financial troubles will not change “until the refinancing goes through or someone scoops up the pieces.”
