Acquisitions in the IT services sector are notoriously difficult to integrate, and Atos Origin SA has announced results for the first half of the year that show its $1.8 billion purchase of Sema Group has forced the company into the red.
However, Atos Origin has built a strong reputation for smoothly executing M&As, and despite the net loss there are some encouraging signs that the company, which increased its headcount by 72% to 26,473 in the first half, is progressing well amid variable market conditions.
In the six months to June 30, 2004, the Paris, France-based company made a net loss of 22.6 million euros ($27 million) compared to a profit of 24.3 million euros ($29.4 million), on revenue that grew 72% to 2.65 billion euros ($3.2 billion). Sales fell 1.3% on a constant scope and exchange rate basis in the first half, although Atos Origin said that the French, UK and Dutch operations posted organic growth in the second quarter.
The company’s operating profit margin met the company’s expectations of six percent in the first half, growing from five percent in the first quarter to seven percent in the second quarter. Atos Origin expects this to remain above seven percent for 2004 as a whole.
Atos Origin said it was immediately up and running with the Sema integration when it closed on January 1, 2004, having already put in place a new management organization to oversee the transition. It has created global teams to coordinate bids for international consulting, integration and outsourcing contracts, and has pooled its various consulting resources under the Atos Consulting name.
It said revenue from two of Atos Origin’s largest clients, Philips and Euronext declined significantly in the first half, but said the company continues to grow its outsourcing business and the proportion of its revenue that is recurring increased to 60% in the first half from 55% in 2003. It announced its largest-ever outsourcing deal with German retailer KarstadtQuelle last week.
The company said its sales efforts are currently focused on 30 major clients plus a further 70 key accounts with potential, which together represent 60% of total sales. Looking ahead, the company said it expects a modest but sustainable recovery in IT services in 2005, but expects flat revenue in full-year 2004 on a like-for-like basis.
Further disposals are expected in the second half of the year, following the sale of three divisions in the US in recent months. The company’s net debt fell from 700 million euros ($848 million) at the end of 2003 to 676 million euros ($819 million) at the end of June, and it expects this to fall below 550 million euros ($666 million) by the end of this year.