Bernard Bourigeaud, chief executive at the Paris, France-based company, which ranks as the 12th largest services supplier worldwide, talked up the company’s plans to expand its global sourcing capabilities and to tighten up its management and cost structures, stating: We want to get back to the days when we delivered what we promised.
The company was rattled last year by contract losses and delays in the UK, and tough market conditions in Italy which caused its share price to almost halve in value between April and August. Atos Origin’s sales reached 5.4bn euros ($7bn) in 2006, up 1.5% on an organic basis, but down slightly on last year’s reported figure of 5.5bn euros ($7.1bn). However, the real problem was its operating profit margin which fell from 7.6% to 5%, before equity-based compensation is factored in.
Bourigeaud highlighted the main areas of concern: a 12.6% decline in UK revenue from four major contract ramp-downs (including the Metropolitan Police where it lost out to Capgemini); a utilization rate of just 51% in its UK consulting business; and its struggling Italian operation falling into the red.
New CEOs have been appointed for both the UK and Italy to oversee cost cutting programs, with 10% of the Italian workforce expected to be axed. The resulting goodwill impairment for the year is expected to be in the range of 350m euros ($453m) to 400m euros ($517m).
Atos Origin has identified three main objectives for the next three years as part of what it calls its 3O3 Plan: to accelerate its organic growth capabilities; to improve operational efficiency; and to operate as a global company. The plan, which is set to cost 270m euros ($349m), is aimed at doubling the company’s operating profit margin by 2009, building on a recovery in 2007, while sales are expected to increase 8.5% this year.
Underpinning all of these points is a change in the company’s management structure, with the appointment of a new executive committee to increase collaboration between its main service lines, and its sales and operations teams. Philippe Germond has been given the task of implementing the 303 Plan, as well as overseeing the company’s offshoring strategy.
Global sourcing is at the forefront of the company’s strategy for the next three years, with plans to have 5,200 employees based in offshore locations such as India, Brazil and Malaysia by 2009, and a further 900 providing services from near-shore centers such as Morocco and Poland. It expects to achieve these targets without acquisition, and although it is being less aggressive in terms of offshore expansion than the likes of Accenture and IBM, Atos Origin pointed out that there is very low demand for offshore delivery from its core territories such as France and Spain.
These staff will support the company’s outsourcing/managed services accounts, but it is the company’s systems integration operation where it plans to use offshore sourcing most intensively, with the company claiming that as much as 40% of the integration work it provides can be delivered from offshore centers.
Atos Origin expects to improve its cost base by consolidating and centralizing its delivery network and back office functions. It plans to move from nine mainframe support centers to a single one in Essen in Germany, and to rationalize its human resources, IT and finance operations. Bourigeaud said he is keen to spend the company’s 2bn-euro ($2.6bn) annual procurement budget, which includes some 15,000 to 20,000 PCs, in a more co-ordinated way.
One of the main trends to watch in the services sector in 2007 is that vendors are increasingly offering standardized, packaged services based on pre-defined templates. IBM Global Services has made a raft of announcements along these lines, and Atos Origin said that it will standardize some of its systems integration offerings in order to free up resources to pursue growth opportunities rather than handle delivery.
The company did come out of 2006 with some positives. It booked 6.8bn euros ($8.8bn) worth of contracts last year including major deals with NHS Scotland and the Department of Constitutional Affairs, it boosted its presence in the European card processing sector with the combined 300m-euro ($388m) acquisitions of Banksys and BCC, and its French and Dutch divisions performed well.
Atos Origin’s shares have recovered some ground in the last five months. However, the announcement of the recovery plan was met with a Gallic shrug of indifference from shareholders, as they fell back 2% to close at 43.32 euros, giving the company a market capitalization of 3bn euros ($3.8bn).
