Operator: Ladies and gentlemen, thank you for standing by and welcome to the Atos H1 2020 Results Conference Call. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today, Monday, July 27, 2020. I would now like to hand the conference over to your first speaker today, Elie Girard.

Thank you. Please go ahead.

Elie Girard: Hello, everyone. Thanks for being with us this morning for our conference call on the first semester of 2020. I will first go through the highlights and the key figures of the last semester.

And then, Uwe will develop the financial performance of H1. After my conclusion, we will open the floor to your questions. Eric Grall, our COO and Head of Manufacturing; as well as Pierre Barnabé, our Head of Big Data & Cybersecurity and Public Sector & Defense are with us as well this morning. Let’s start with the highlights of the semester. The first half of the year, and in particular, the second quarter has been marked by a very strong sales activity.

Indeed, the order entry increased by close to 10%, while the weighted pipeline grew by 21%. These figures are even more impressive considering the COVID impact, of course, which hit the first semester across the world and across sectors. This reflects a strong commercial dynamism and a first outcome of the implementation of SPRING transformation since the beginning of the year. As detailed at the occasion of our Analyst Day, a month ago, SPRING is our key strategic program, moving the group to an industry-led organization. This program is fully on track.

The third highlight relates to the cost saving program we immediately set up at the time of the outbreak of COVID-19 to mitigate the effect of the slowdown of the activity. The plan is well on track with all the actions underway to reach the €400 million cost reduction compared to our initial guidance. Uwe will go deeper on that in a few minutes, line by line. In terms of M&A, we have been particularly active this semester, with 5 transactions announced. We pursued our program of acquiring Cybersecurity, Decarbonization and bolt-on targets

such as: Digital Security and EcoAct that we announced today.

These are 2 very strategic acquisitions. Digital Security will add 250 Cybersecurity experts to our already numerous resources, reinforcing our Number 1 position in Europe in Cybersecurity services. Additionally, digital security comes with a high level expertise in the area of IoT security. I am particularly proud as well of the acquisition of EcoAct, which will significantly enhance our decarbonization ambition. EcoAct is a leader in decarbonization assessments and advisory with more than 150 experts.

As you can see, with those 2 acquisitions, we are determined to boost our 2 strategic differentiators announced at our Analyst Day, security on one side and decarbonization on the other. Finally on this slide, the sale of Worldline shares brought the group back to a deleveraged balance sheet, leaving a financial room to perform a sizeable and transformative acquisition, should a sound opportunity arise. Let’s move to the next slide, where you can see the main figures of H1. Revenue at minus 2.8%, with a Q2 revenue decrease contained at minus 4.8% representing the trough of this year’s revenue profile. The very balanced group mix across industries, geographies as well as businesses has played its amortizing role as planned.

Operating margin rate reached 8%, in line with our full-year guidance, in the range 9% to 9.5%. Uwe will cover this later on in his presentation, as we had a contrasted situation by industry and also by geography. Free cash flow was negative by €172 million due to timing effects, and obviously, the effect of COVID on the operating margin itself versus last year. You will get a precise bridge H1 to full year later in this presentation, showing the drivers, mostly mechanical as reversals of H1 timing effects to reach our €500 million to €600 million guidance for this year that we fully confirm. Normalized diluted net income reached €2.93 per share, in line with the effect on the operating margin.

Finally, the total number of staff was 107,000 colleagues, 1.6% below the level of the end of last year, reflecting a slowdown in hiring and the pursuit of the adaptation plan related to automation and robotization, while the group experienced a much lower attrition rate, particularly in Q2. On the next slide, I come back to the sales activity. Important to note that not only the order entry and the pipeline were at record levels, but also the backlog reached €22.5 5 billion, an all-time high. This is a key factor for the future, both to cover the future revenue level and to give visibility in those uncertain times. In H1, the book to bill was particularly high in Public Sector & Defense, in Telecom, Media & Technology, and in Financial Services & Insurance, all above 120%.

Book to bill was also strong in North America and Southern Europe above 130%. On the next slide, let’s focus on some examples of representative deals signed in Q2. Globally, we saw several signatures in digital workplace such as in North America for a German capital goods company, as well as for the European Union, and finally, in Healthcare & Life Sciences for a global vaccine producer, allowing them to maintain and accelerate their research and production during these hectic times. We also signed very interesting deals in the area of application modernization, for example, in the UK, for a new customer delivering loans. We also continue to renew our great relationship with the State of Texas with – for this quarter, our mainframe services contract, which is also about modernization.

In TMT, we will develop RPA for PwC through the signature of a flagship deal. And in Resources & Services, we will design, set up and run a cloud management contract on behalf of a grid operator in Belgium. I told you about our significant increase of our pipeline. So let’s move to the next slide to categorize broadly what we see at the moment as 4 areas with highly repeatable Atos offerings. First, in the area of Full Stack Cloud, we see more and more customers asking for application modernization, meaning re-platforming and redeveloping applications onto the cloud.

Key platforms for modernization include VMware, Red Hat, and PAS services from hyperscalers. Most of those applications are now business-critical applications and offer a highly competitive angle for Atos. Data center and mainframe takeouts have also been clearly boosted by the COVID period. And we have a lot of those in our pipe. We see a trend moving away from traditional hosted virtualization estates towards digital hybrid cloud based upon VMware and public cloud orchestration, using products such as ServiceNow, Red Hat and several Kubernetes solutions.

In the area of employee experience or digital workplace, the role of the crisis is very clear. And we see some very popular offerings in those days. Migration of legacy workplace management tools to cloud-based modern management with Microsoft or VMware technologies. Transformation of service desk contracts to innovation-rich services including AI, chatbots and intelligent automation, leveraging cloud-enabled platforms, including ServiceNow or LogMeIn. Data-driven proactive service delivery with the introduction of experience level agreements, powered for example by Nexthink.

Regarding cyber security on top of the expansion of demand for security operation services, we experienced a strong demand for identity and access solutions in financial services, in manufacturing and in telecom, as well as for cloud security solutions to enable transitions to secured remote office. Additionally, several important secured encrypted communication contracts have been already signed with public sector clients, but also private customers in resources and services. In decarbonization, the most demanded offerings are about performing decarbonization assessments to help our customers’ baseline and benchmark the IT CO2 emissions and develop a concrete decarbonization roadmap. Obviously, the EcoAct acquisition will help us replicate massively these assessments, supporting renewable energy projects through grid management with our smart metering offering from Atos Worldgrid, and leveraging on our AI/ML/Big Data capabilities to optimize patterns of fuel consumption. Those deals also need large computing capabilities, where we can also make a difference, as you know.

On the next slide, let me give you a quick status of our SPRING transformation program, which is about, as explained in February in detail at our

Analyst Day: number 1, expanding our and industrializing our portfolio of offerings industry by industry; number 2, redesigning our go-to-market approach around group of consultants and experts of each industry or sub-industry; and number 3, finally, setting up an industry-led organization. In H1, SPRING has strongly ramped up, fueled by exceptional commitment from our teams. We set up the 6 industries and ramped up our vertical portfolio. We developed our industry-specific go-to-market. We completed the creation of the client teams.

Back in February, we created the client executive partner role, the CEP role, as the CEO of each account and appointed them. And we created 5 regional business units to support locally the new organization. I said earlier, I can tell you we could feel in H1, especially in the context of COVID, the first impact of driving this customer obsession culture through SPRING across the organization. Again, the response to customers’ challenges, and above all the productivity of the teams have been outstanding. So now, in H2.

We are completing each client team, moving all client-facing roles from divisions to industries. And we are pursuing the ramp-up of industry consulting and marketing to boost our impact at the customer’s end. And we are implementing industry operations and appointing client delivery executives, CDEs, the COO role of the account. Let’s move to the next slide, where I would like to summarize the key initiatives launched in H1 to support this group’s transformation. You will see that the teams have been incredibly active during this semester on absolutely all fronts.

We held beginning of July our fully virtual tech-days, allowing for a very strong attendance, much more than in the previous years with 500 customers and 100 partners attending. We also launched this month Scaler, the Atos accelerator. Here we select and welcome 15 start-ups every year in order to accelerate open innovation and ecosystem innovation. In H1, we have also worked a lot on enhancing further the technological skills of our people, which makes the DNA of this company. We held last month for the first time a fully internal innovation week, where each employee could share with colleagues his or her invention or simply teach to colleagues his or her areas of expertise.

Also worth to mention, during the first half of the year, our employees have received 34,000 new certifications, which represented an increase by 50% compared to last year. This increase was certainly fueled by the COVID lockdown where employees took advantage of more flexibility to train themselves, which is great. As a reminder, the employee shareholding plan subscribed in June was a fantastic success, with the volume at 3 times the previous plan, showing the engagement and the trust of our people in the group’s transformation, and the long-term development of the company as there is a 5-year lockup on these shares. In terms of diversity, I am glad to announce that out of the 450 executives within the group, we have now 31% women, coming from 13% last year. As per my objective, this is representative of the overall group, which is itself slightly ahead of industry average.

Finally, also as a reminder, we committed in June this year to reach a net zero CO2 emission by 2035. To be very precise, this includes the so-called scopes 1, 2 and 3 in total – scope 3 in total, making this objective the most ambitious worldwide in our industry. Again, decarbonizing Atos is the best reference to decarbonize our customers. Now on my last slide, I simply want to confirm today all the objectives disclosed in April for the full year 2020, taking into account the COVID-19 effects, still based on the same macroeconomic scenario of a progressive recovery over H2 2020 and the full year 2021; a revenue organic evolution between minus 2% and minus 4%; an operating margin rate between 9% and 9.5% of the revenue; a free cash flow between €500 million and €600 million. Thank you for your attention.

And now I hand over to Uwe.

Uwe Stelter: Thanks, Elie, and good morning, everyone. Uwe speaking. Let’s start with the usual reconciliations between statutory figures and pro forma for revenue and operating margin. Currency exchange rates effects come mostly from the appreciation of the U.S.

dollar as well as the depreciation of both the Argentinean peso and the Brazilian real. Second element are scope effects mainly related to the acquisitions of Maven Wave, the disposal of some specific Unified Communication & Collaboration activities as well as ITO activities in the UK and CVC. Let’s move to the next slide, which is performance by industry. Most of the industries were impacted predominantly in Q2, by application project delays and volume reduction on more discretionary activities. The cost containment plan partially mitigated the revenue effect.

Manufacturing was the most impacted industry, especially in automotive and Discrete Manufacturing. The industry was also impacted by lower volumes with Siemens, mainly in North America and the base effect of contracts ended in 2019 in Northern Europe. Besides the effect from revenues, the operating margin of Manufacturing was impacted by some one-offs on difficult contracts. Financial Services & Insurance was impacted mainly in Q2 by a decrease of activities as several banking institutions have postponed and reduced discretionary expenses in the context of COVID-19. This was more particularly the case in North America and in Central Europe.

Strong growth in Public Sector & Defense, with contract ramp-ups in North America and increase in demand for cloud and SAP Hana solutions in both Northern Europe and Central Europe. Big Data sales contributed as well to revenue growth. The higher level of margin comes from increased margin quality in new contracts. Telecom, Media & Technology faced application projects postponements in most of the geographies as well as a decline in legacy activities in Unified Communication & Collaboration. On the opposite, North America grew, thanks of the contract signed with a major engineering company in Q1 and strong organic growth in newly acquired Maven Wave.

Operating margin benefited from the group’s cost containment plan and some positive one-offs. The resource and services business was strong in Energy & Utilities, but more challenging in retail and transportation, especially North America and Southern Europe. In Energy & Utilities, Big Data & Cybersecurity projects increased in Southern Europe, Growing Markets and Central Europe. Operating margin was mainly impacted by the revenue decline overall and a lower margin in the startup phase of new contracts in North America. Healthcare & Life Sciences was slightly down by 1.2% for the semester, but succeeded to return to growth in Q2 due to the ramp-up of large contracts with a global life science player and with a healthcare provider in North America as well as increased digital projects in Southern Europe and Growing Markets.

Let’s look at the geographies in the new configuration of 5 regional business units on the next slide. North America decreased, mainly coming from project postponements and volume reductions, especially in Manufacturing, Financial Services & Insurance, and in Healthcare & Life Sciences. The business unit achieved growth in TMT as well as in Public Sector & Defense, thanks to the ramp-up of the NG911 contract in California. Despite margin headwinds due to reduced business volume, the team managed to take more costs out and benefited from a continued high margin in Syntel. In Northern Europe, revenue was roughly stable.

Strong business was recorded in Public Sector & Defense, mainly led by Big Data contracts, as well as increased business with European Union institutions. The situation was more challenging in TMT and Manufacturing due to application projects postponed and some contracts ramp-down. Operating margin decreased based on specific price reduction on some BPO contracts in the context of COVID-19 as well as commercial investments in large deals in Benelux and in the UK. Central Europe revenue was stable as well, led by Big Data sales and SAP Hana projects in Public Sector & Defense and the ramp-up of a Digital Workplace contract with Bayer. At the same time, the geography was impacted by application projects postponed, particularly in Manufacturing and in TMT, as well as the legacy activities of Unified Communication & Collaboration.

Operating margin declined due to incremental costs on difficult contracts, while the cost reduction programs did not fully materialize yet, due to less labor flexibility. Southern Europe was the most impacted geography with postponed and reduced application projects, particularly in Resources & Services and TMT. In addition, the 2019 level of Big Data sales could not be repeated both in Public Sector & Defense and Manufacturing. Growing Markets were stable. APAC and Middle East and Africa were roughly flat.

The activity in South America was growing mainly with Big Data, while major events was impacted by the postponement of the Tokyo 2020 Olympic games. Next slide represents the performance by division. Infrastructure & Data Management was able to ramp up projects in several geographies, including eu-LISA with the European institutions, the ramp phase of Aegon in Northern Europe, with state governments in the U.S., a large German automotive manufacturer and Bayer in Central Europe, and a U.S. multinational technology company across multiple geographies. This allowed to partially mitigate some volume reductions in comparison to 2019.

Business & Platform Solutions was strongly impacted by the consequences of COVID-19. As expected, several application projects linked to discretionary expenses were either postponed or reduced across most of the geographies and the industries. Big Data & Cybersecurity continued to perform on a consistently high growth rate, especially in Big Data and in Cybersecurity services. A quick update on the development of the Syntel synergies on the next slide, the synergy pipeline is very active with 107 projects won above €1 million in H1 and the pipeline of €1 billion. The examples at the bottom of the slide demonstrate that the combined offerings are finding very good response by customers, are in the core of the customers’ business around digitalization and IoT.

Cost synergies are continuing to materialize and have reached now €45 million run rate savings in both G&A and direct costs. Moving to the operating margin, as described in April, at the occasion of our Q1 revenue release, the new revenue guidance was considering a lower revenue by circa €600 million compared to the initial circa 2% organic growth for 2020. A cost containment program was launched targeting €400 million cost savings. Cost savings launched in March are on track to deliver the €400 million in 2020. We achieved actually 43% in H1, which is consistent with the revenue decline in the first semester.

Salary freeze and variable compensation as well as travel freeze are ahead of the plan, while third-party spend reduction is expected to contribute more in the second half. Now let me comment on the main items on the income statement, on the next slide, of H1 2020. Reorganization, rationalization and integration costs increased by €18 million versus previous year due to the acceleration of the workforce adaptation in the first semester to increase the savings in second half. In the first half of 2020, other items amounted to positive €147 million compared to minus €24 million in the first half of 2019. The H1 2020 amount included 2 items explaining most of

this variation: first, the net gain before tax on the disposal of the Worldline shares occurred in February 2020 for €120 million; second, the remaining 3.8% Worldline stake, which is no longer accounted for under equity method, was valued at fair value at a disposal date, leading to a positive effect of €54 million.

Net financial expense reduced by €78 million mainly coming from, first, the decrease of the cost of debt of €22 million after the repayment of the $1.9 billion Syntel term loan in November 2019, and the reimbursement of a €600 million bond in April 2020, thanks to the disposal of Worldline shares. Second, the net variance of €41 million related to the part of the optional exchangeable bond, which is treated as a derivative from an accounting standpoint, and to the underlying Worldline shares. Bottom line, net income from continuing operations increased from €180 million in H1 2019 to €329 million in H1 2020. The normalized net income was €319 million compared to €343 million for continuing operations in H1 2019. And normalized diluted EPS was €2.93 compared to €3.21 in H1 last year.

Let’s move to the free cash flow on the next slide. Group free cash flow was minus €172 million compared to positive €23 million in H1 2019. The main component of this

decline are: first, the OMDA reduced by €61 million, which is less than the operating margin decrease of €79 million, reflecting a further improvement margin quality; second, change in working capital increased by €138 million from minus €269 million in 2019 to minus €407 million in 2020, coming from 3 items. One, the reduction of sales of receivables, although it will remain stable for the full year, the effect was circa €65 million versus last year; second, a timing effect of third-party payments which became due in the first semester for circa €50 million versus last year; and thirdly, the increase of work in progress on large deliveries of high performance computing for circa €25 million. Those working capital effects will be caught up by yearend, and as such, will not impact the full year free cash flow generation.

Other changes of significance are the following. Capital expenditures increased by €13 million in first semester, but will be down to the same level as last year for the full year in percentage of revenue at below 3%. Cost of net debt decreased by €15 million due to reimbursements of term loans and bonds. And the line others improved by €19 million, mainly due to less negative one-time effects year-over-year. Net debt is now at minus €778 million, including the net proceeds of Worldline disposal of €1.4 billion and the cash used for acquisitions of €200 million.

Considering the remaining Worldline shares underlying the optional exchangeable bond, net debt would be €0.3 billion. On the next slide, I’d like to walk you through the free cash flow plan for full year. This bridge is starting from an H1 at minus €172 million to full year between €500 million and €600 million, confirming the full-year guidance. Like in previous years and consistent with our industry, the second semester is always the much stronger semester for cash generation. Last year, we reached €582 million in H2.

Compared to the cash generated in H2 2019, we expect to have €60 million less OMDA, excluding pension effect, consistent with full year operating margin guidance between 9% and 9.5%. As most of our pension deficit does not require any funding anymore, we expect €15 million less payments compared to last year. For the full year, capital expenditure will be in line with 2019 below 3% of revenue, and therefore, will lead to a reduction of CapEx by circa €20 million in H2 2020 compared to the same period last year. The financial expenses will reduce by €15 million due to the full reimbursement of loan and bond explained earlier. And then we have the reversal of the H1 effects regarding sale of receivables, reception of payments for large delivery of HPC and third-party payments.

All this leads to the free cash flow bracket of €500 million to €600 million of our guidance, which we reiterate today. On my last slide, the total headcount of the group was 106,980 at the end of June 2020 compared to 108,317 at the end of December 2019. The group welcomed 374 new employees from Maven Wave and Miner & Kasch acquisitions. Excluding those scope effects, the decrease was minus 1.6% over the semester. The attrition rate was 11.8% in the first semester, decreasing from 14.5% in Q1 to 9.1% in Q2.

The group hired 7,176 staff over the period. Majority of the hiring was in offshore countries and 50% of the hiring – and it was 50% less than the hiring of last year. Now back to you, Elie, for the conclusions.

Elie Girard: Thank you, Uwe. And before moving to the questions, I just want to summarize on the last slide, our main priorities for the second half of 2020.

First, we intend to sustain the high level of order entries reached in H1. Indeed, we are working on the post-COVID needs of our customers to support them actively during the recovery phase, especially through our future-ready portfolio of offerings launched early during the crisis. Second, we will pursue our strong COVID-related cost-saving plan over H2. And of course, a strong emphasis is there to reach our full-year cash target, supported by the reversal of timing effects experienced in H1. Third, it is a top priority to make successful this year the rollout of SPRING.

Indeed, this is the way the group will definitely get a relevant end-to-end business model while customers are rising critical needs in their digital demand. Finally, M&A remains key. And we maintain our focus on Cybersecurity services companies, on decarbonization and on bolt-on acquisition to reinforce our portfolio of offerings in specific industries or capabilities. More to come in H2 as well on this front. All in all, we are on track to reach all our objectives this year.

This is clearly an important step on the road to achieve our ambition and our strategy, and to reach the midterm targets that I presented to you at our Analyst Day last month. Thank you very much again for your attention. And let’s now move to your questions.

Operator: Thank you, ladies and gentlemen. We will now begin the question-and-answer session.

[Operator Instructions] Your first question comes from the line of James Goodman from Barclays. Your line is open.

James Goodman: Well, thank you. Good morning. Yeah, I wondered if I could first ask you for a little more detail around the interesting acquisitions that you announced today, particularly the deal in cyber.

Just any sort of commentary on how specifically that overlaps or is synergistic to your existing business? Any commentary around the growth of that or sort of the materiality in the context of your cyber exposure, and whether this is the sort of deal size most likely out there in cyber, multiple ones of these sorts of deals or would you also consider something larger? And then, secondly, just on the free cash flow and the recovery in H2, thank you for the bridge there. I just wondered if we could come back on a couple of points. The first was the lower receivables factoring. I wondered why you had sort of chosen to reduce the amount of receivables factoring in this period, is that related to the lower sales, and especially if you’re going to bring that back in the second half? And on the supplier payments as well, why you ended up paying €50 million earlier to suppliers than anticipated? And again, just some more details so that we can increase the comfort in the recovery in H2. Thank you.

Elie Girard: Hi, James, and thanks for your questions. On the first question, on the cybersecurity acquisition, Pierre Barnabé, who is with us, will answer to the first part of your question. I would answer very quickly to the second part of your question, on the size, type of deals that we are ready to do in cybersecurity. We are ready to do larger acquisitions, to answer to your question, on cybersecurity. Now, we think that it’s quite relevant to go one by one on more bolt-on acquisition, medium-sized acquisitions, because there are quite many opportunities, where there are much less opportunities of larger assets.

And I think we integrate very well under the leadership of Pierre those small, medium-sized targets. But we are ready to go bigger on cybersecurity acquisition. Pierre, can you explain digital.security?

Pierre Barnabé: Okay. Good morning, James. In digital.security is, of course, reinforcing clearly our position of number 1 in Europe in cyber-services by extending our footprint mainly in France, but also in the BeLux.

It’s a clear assessment and it’s in line with our 2 axis strategy. First one is to reinforce our technological portfolio, and the illustration was the Paladion acquisition 1 month ago. This one, digital.security, is more to reinforce our services positioning and our footprint in our main countries. It’s 250 experts very active in mainly domains in digital security and expertise of pen test, consultings, integration, provision integrations and so on.

Elie Girard: Thank you, Pierre.

On the second question, on the elements on the free cash flow bridge for H2, Uwe?

Uwe Stelter: Hey, James, good morning, yeah. So on your first part of the questions, on the lower factoring. The main reason of that is that the volume in Q2, as you saw from the revenue numbers is, of course, lower than a normal quarter with the minus 4.8% we described. So that, of course, has a timing effect on billing. We expect for yearend, of course, as we said, the Q2 being the trough.

And of course, Q4 and Q3 will be better, and therefore, we’ll have a higher volume of billing, and therefore, also a higher volume to sell. To your second part, on the payables, here it’s mainly about larger procurement of licenses of software with some of our strategic vendors, which had large payment terms and payment in the first half, in the second quarter, which will not reverse itself – it will not repeat itself, will actually reverse, and there will be no payments in the second half. These are the 2 reasons.

James Goodman: I see. Thank you.

Elie Girard: Thanks, Uwe. Thanks, James. Next question, please.

Operator: Your next question comes from the line of Stacy Pollard from J.P. Morgan.

Your line is open. Your line is open. You may ask your question.

Stacy Pollard: Hello, can you hear me? Hello.

Elie Girard: We can hear you, Stacy.

Hi, Stacy, we can hear you.

Stacy Pollard: Oh, sorry. A little…

Elie Girard: Yeah. Hi, no problem.

Stacy Pollard: Little check there.

Sorry, so many of my questions were answered. But I was hoping you could – and I’m sorry if it was already asked, because I missed a little bit of it, but I was hoping you could talk about free cash flow development as you go through the third quarter and fourth quarter and then kind of expectations into 2021 again. And sorry, if that’s a little bit of a repetition.

Elie Girard: No, we’ll find something else to say then, not to repeat ourselves, Stacy. First of all, on 2021, I don’t think we are going to give you figures now.

I remind everybody that we gave, maybe we are the only one or one of the only ones to give back in April, at the heart of the crisis, a guidance for the year 2020. So please don’t ask us to give figures now on 2021. I mean don’t expect anything weird on 2021. It’s just that I think it’s not the right time to give guidances or indications on 2021.

Stacy Pollard: Do you think consistent with your midterm strategy, sorry?

Elie Girard: Yeah, of course, of course, yes.

Stacy Pollard: Okay, towards just [indiscernible] okay.

Elie Girard: Of course, but we don’t want to be – no, no, of course. That’s what I meant when I said nothing weird, absolutely, in consistent with our midterm strategy. On the free cash flow of the year, I think Uwe explained in his presentation on the elements and as an answer to James. Maybe, Uwe, you could give a very quick indication of what we have seen without giving figures, of course, everybody will understand, what we have seen so far in the beginning of the second semester.

Uwe Stelter: Yeah. I mean, of course, the semester is very young, but I would say after the first week at least I would say the first indicators actually make me very confident that this bridge is absolutely working, both from a billing perspective but also from a collection perspective, so obviously actually some good upticks already in the beginning of the semester.

Elie Girard: Thanks, Uwe. Thank you, Stacy.

Stacy Pollard: That’s useful.

Elie Girard: Yeah, thank you. Next question, please.

Operator: Next question comes from the line of Mohammed Moawalla from Goldman Sachs.

Mohammed Moawalla: Great. Thank you very much.

Good morning, Uwe and Elie. So, for me, first of all, Elie, as you look to the second half of the year, obviously, the book-to-bill was quite good. You announced kind of early kind of renewal of contracts. Maybe can you walk us through the kind of puts and takes across the divisions and particularly, in B&PS, how you sort of expect the shape of kind of recovery? I mean, is B&PS likely to just remain in this sort of territory? Or could that improve as we get into the back end of the year? And then, on Big Data and Cyber, obviously, the comps really get tough. I know you had some one-offs in Q4 last year, but how should we sort of expect the top-line to evolve across the 3 segments? And then, secondly, again back on the cash flow, Uwe, I remember, last year, the cash flow was quite backend loaded.

You talked about sort of some good signs in the first few weeks of July. But, can you give us a bit more clarity on how backend loaded some of these collections are likely to be or is it going to be more even? Thank you.

Elie Girard: Hi, Mo. I will answer the first one and, Uwe, the second one, on the cash. So on the commercial activity, as we said, we expect to maintain this level of commercial activity in H2.

And to your question across divisions, specifically on B&PS, on Business & Platform Solutions, this is one of the key drivers of the progressive recovery of our top line over H2. What I have to say here is that we’ve got 2 drivers of this. We expect very progressively the project business to come back, okay, over H2, and then in the next year; but also, which is a trend that we are seeing more and more, more and more Business & Platform Solutions is win, has gained through combined offerings across the other divisions. And we have already, so it’s not in the numbers of Q2, but we have already signed in July some significant deals which are combination of the – our IDM, B&PS and BDS divisions, which is also very strong driver to improve the top-line of B&PS. That comes in particular, if you remember, what we tried to explain at the Analyst Day.

That also comes through the Full Stack Cloud trend, which is about getting the application modernization and re-platforming, Eric, at the same time as we are moving the infrastructure to a hybrid cloud setup. So we are helped by this. And those types of deals are becoming very popular in our pipeline at the moment. On the free cash flow, Uwe?

Uwe Stelter: Yes, Mo. Good morning, hi.

Yeah, I mean, to your question around the seasonality in the second half and the backend of it, indeed, I mean, this is typical for our business. And you saw it last year with cash flow generation of close to €600 million in the second half. This is also, of course, part of our business nature. Both from a revenue perspective, the second half is stronger, but also from a billing perspective. And this time, I think what adds to that is what we described, especially with the high-performance computing projects, where there’s a specific timing effects on 2 contracts where we signed the contracts and started to deliver.

But of course, the collection of that is in the second half, which increases actually collection in the second half, so very, very typical to our business.

Mohammed Moawalla: Okay, that’s very helpful. Thank you.

Elie Girard: Thanks. Thank you, Mo.

Next question, please.

Operator: Our next question comes from the line of Laurent Daure from Kepler Cheuvreux.

Laurent Daure: Yes, good morning, gentlemen. It’s Laurent Daure speaking. I just have 2 quick questions here.

It’s on the good level of activity in the first half of the year. Any granularity on between the deal renewal and the new deals? And also, I think one of your ambitions was really to increase the number of new customer. So I was wondering if the new deal was made with existing customer or more new logos, so any granularity on these? And as well, in the past, you provided the book-to-bill by unit. It would be useful. And the second question is regarding the business during the second quarter with the COVID impacts.

How has it developed in last couple of weeks at the end of the quarter? And can we expect a progressive recovery from now on as expected?

Elie Girard: Hi, Laurent, so on the commercial activity to give you a little bit more granularity, the share between renewals and new business is really average. There is nothing – we had in the past some ups due to big renewals, like for example from memory in Q2 2018 or something like this, we had a lot of renewals at that time. In 2019, we had less renewals. This year, and I think we said that for some time already, because we know when the renewals are landing. We are average on 2020.

That was the case in H1. That will be the case in H2. So nothing special to say on the share between renewals and new businesses. On the new business, it is a little bit the same between what we have from current customers, existing customers, and additional deals, in particular, Eric, on all the application management and application modernization, as we said earlier, on existing customer, for whom we are already delivering the infrastructure part and the new customers. It’s also quite well balanced.

I will say roughly half-half on the part which is outside the renewals. Maybe, Uwe, you can give the book-to-bill by divisions. That was also part of the question from Laurent. And then, I will come back on the Q2.

Uwe Stelter: Yeah.

So when you look by division, then the strongest book-to-bill, we have actually in B&PS, which is a good thing. On the project business, it’s 128%, in comparison to the overall 112%, so it’s higher. And you have 124%, which you would expect in the BDS business, which is of course growing. And you add about 99% to 100% on the IDM, which is – so in itself, it’s very – supporting very well what we see on the market. That is, of course, all H1 numbers.

Elie Girard: Yeah, that was H1. Q2 is, of course, much higher. On your question on Q2, well, you will understand we’re not going to go and give you figures week by week. The only thing I can tell you is reiterate that what we have been seeing over Q2 makes us confident in the fact that Q2 was the trough. And we are progressively recovering over the summer, later in the year and in H1 2021.

We haven’t deviated from this trajectory that we announced as early as the month of April.

Laurent Daure: Okay, right, thank you.

Elie Girard: Thank you, Laurent. Next question, please.

Operator: Next question comes from the line of Alexandre Plaud from CIC Market Solutions.

Alexandre Plaud: Hi, everyone. Quick questions. The first one is could you provide us with the operating margin on Infrastructure & Data Management, B&PS and Big Data & Cybersecurity as well? So that’s the first question. And second one, any idea, or any elements you can give to us regarding the price paid or supposed to be paid for digital.security, [for confirm the] [ph] asset disposal? Thanks. That will be all for me.

Elie Girard: Hello, Alexandre. So I will answer the second question and Uwe will give you the figures you requested on the first question. On the second question, we don’t disclose the prices exactly, but what I can tell you is that the multiple of both acquisition is between 1 and 2 times, 1 and 2 times of the revenue, which I believe is reasonable price given the strategic aspects here of those assets both, by the way, in digital.security and EcoAct, and their metrics and dynamic. On the first question, please, Uwe?

Uwe Stelter: Yeah, so by division, in BDS, to start with the one which expanding – was expanding the margin, so improved year-over-year from 10.1% to 11%, so improved margin year-over-year. And the other 2 divisions, Infrastructure & Data Management, from 8.5% to 7.2% for the half, 8.5% to 7.2%, and Business & Platform Solutions from 11.5% to 10.1%.

So meaning BDS ahead of last year and on the other divisions more or less in line with the overall group change in operating margin by about 110 to 130 basis points.

Alexandre Plaud: All right, thank you very much.

Elie Girard: Thank you, Alexandre. Next question, please.

Operator: Your next question comes from the line of Michael Briest from UBS.

Michael Briest: A couple for me. Could you talk a little bit about the one-offs affecting Manufacturing and TMT margins, their scale and what caused them? And I think on Manufacturing, the ambition is to get to above-average margins there, so you’re long way from them. What are the headwinds to achieving that? And then, on the sort of outlook, I think at the Capital Markets Day you said that the first half next year will still be relatively challenged. You’ve come in a bit ahead of consensus in H1. I mean, do you still see the low-end of this year’s guidance as achievable? And do you still feel that the headwinds will be there in the first half of 2021? Thanks.

Elie Girard: Hi, Michael. Thanks for your questions. Uwe will answer on the one-offs that we had for, more or less, the same amount actually in Manufacturing and in TMT. And then, Eric will explain how he sees developing his business over time in terms of profitability. And I will come back for the last question.

Please, Uwe?

Uwe Stelter: Yeah, so both – Michael, hi, good morning. So both are in the neighborhood of €25 million, €28 million, in that range. On Manufacturing, I would say it’s a few contracts where we had some issues in transition, transformation and fixing some quality problems. And in TMT it’s actually the other way around. So sometimes, you pay more money.

Sometimes, you actually get some positives out of settlement and out of problematic contracts, which in this case we were happy to receive on the TMT side.

Elie Girard: Thanks, Uwe. Eric?

Eric Grall: Yes. So, on your question and the journey towards effectively, as we presented in the Analyst Day, 1 month ago, to bring Manufacturing towards double-digit in the medium term, we have a clear plan. We have a lot of actions that are already underway that we are going to see – or which we expect to see the first benefits already in H2, but also in our trajectory towards bringing the profitability to double digits.

So, of course, a lot based on automation, robotization, a lot of product productivity levers we are going to exercise to – and also, by the way, further leveraging Syntel and their know-how to continue to improve the profitability and the application works that we do for our manufacturing customers. So we have a very large set of actions and strategies in place that we are executing. And the last one, as I also explained in the Analyst Day, we have some contracts with customers with very low margin. And effectively, throughout the normal sequence of this contract, when we come to renewal, we’ll come to strategies and put strategies in place to progressively bring these contracts as well to the target margin that we need in order to achieve the double-digit in the midterm.

Elie Girard: Thank you, Eric.

So, on your last question, Michael. So the – as we said, and we stick to this, we are on a scenario of a progressive recovery and back to normal by the end of H1 2021. So, I mean, Q2 indeed was very resilient. We expect a recovery in Q3 and then in Q4, quite linear. We didn’t want to change the guidance.

I mean we are surrounded by people not giving guidance. We didn’t want to go to the other extreme and start to be over-precise in those quite uncertain environment. But this being said, this is not hiding anything, with the commercial activity we’ve been having in H1 and in Q2, what we see in the pipe, frankly, we can only be very, very confident in the trajectory that we’ve been describing.

Michael Briest: Does that apply to the margin as well as revenues, Elie?

Elie Girard: Yes, absolutely.

Michael Briest: Okay, thank you.

Elie Girard: Thank you, Michael.

Operator: Next question is from the line of Neil Steer from Redburn. Your line is open.

Neil Steer: Hi, can you hear me clearly?

Elie Girard: Hi, Neil, absolutely.

Neil Steer: Yes, okay.

So I’ve just got 2 quick questions actually. The first actually follows on from Michael’s question. When you mentioned the figure of €25 million to €28 million in response to the one-offs in Manufacturing and TMT, was that a net positive? Was that €25 million to €28 million the net positive of those 2 trends? Or was that relating to one of them, but with an offset on the other side? I wasn’t quite clear on the response there.

Elie Girard: Yeah, the net is a wash, okay? So you’ve got the – more of the same amount of negative one-offs in Manufacturing and the same amount of positive one-off in TMT.

Neil Steer: Okay.

Thanks. That’s very clear. And then just a general question, Elie, with your comments on the guidance, you were very clear and have been in response to the last question to say that your guidance has been maintained based on the similar macro assumptions that you made at the end of the first quarter. I’m just wondering. Are your macro assumptions and your forecast based upon largely what the customers are telling you today? Or are you looking at sort of the broader economic forecast that we’re seeing for this to be the far worst economic impact in Europe and North America even worse than the post-global financial crisis GDP and economic impact?

Elie Girard: Yeah, that’s a great question, Neil.

Thank you very much. It’s a mix of both. What we have been doing, number one, is looking at the macro prospects and weight this on our footprint, so which is on average going back to this normality at the end of H1 next year. So that’s one. And with – I mean, I guess, we all read the same global forecasts with the global economy as a whole coming back to normality earlier than the more industrialized economy.

But on average, here we are back to normal, end of H1 2021. So on the one hand with this, we have this. On the other hand, of course, we are discussing with our customers every day, CEO, CIOs, COOs, which obviously give us a more real-life feedback which pretty much matches this global outlook. And you know that our customer base, we’ve talked about it several times, is quite representative, I believe, of the industries, in particular, across industries. And this really validates this global macro-outlook that we got from the first approach.

Neil Steer: Okay, thanks very much.

Operator: Next question comes from the line of Nicolas David from ODDO BHF.

Nicolas David: Yes, hi, good morning, everyone. Thank you for taking my question. I would like to come back on the North American profitability, which was very strong in H1.

Could you elaborate a bit on that? I understand that you had a recovery of IDM there which is playing. But I would be also interested by – in understanding what are the trends for Syntel, because obviously the growth of Syntel has been under pressure, I think, for the last quarters and I guess for H1 also. And what happened therefore to margin then if the margin held well? Can you elaborate a bit on those drivers? Thank you very much.

Elie Girard: Nicolas, thank you for your question. Uwe?

Uwe Stelter: Yeah.

Nicolas, indeed I would say 3 trends in play. So one, of course, there’s an effect from the revenue decline, so I would say there’s a bit of a pressure, of course, on margin. But on the other side, we have a strong – as you might remember, we have a strong turnaround plan, which we started 2 years ago, of improving margin as well. So that more than offsets actually the impacts. And also the positive one-offs I was describing were partly also in the U.S.

And then to your question around Syntel, that margin actually holds up very strong, so actually, very, very resilient from a margin perspective. And revenue-wise, yes, of course, it’s part of the project business, which is declining at the rates we were describing for Q2. So margin effect, in summary, out of these 3 effects led to a positive expansion of the margin in North America.

Nicolas David: And just maybe to follow up on regarding this question, and regarding IDM in the U.S., now, are you back to a normal level of profitability or do you still see some upside there?

Uwe Stelter: We are always working on upsides. But indeed the turnaround and the plan started 2 years, was actually mainly on the IDM and that actually shows now the results, while Syntel is more or less keeping the very high margin.

So it’s really the improvement comes from the IDM part.

Nicolas David: Okay. And you mentioned the one-offs. So it’s partly – when you mentioned partly, is most of it – most of the €25 million was on the U.S., or partly means maybe 50%, or just to have some granularity there, on the trends?

Uwe Stelter: Well, it’s more or less a wash between, because some effects on the negative side in Manufacturing were also in North America. So it’s more or less a wash.

So really the improvement programs made it a big difference.

Nicolas David: Okay. Thank you very much.

Elie Girard: Thank you, Nicolas. So I think we will close the call here.

Thank you very much for your attention. And next time we talk to you will be Gilles in October for the Q3. Thank you very much. Have a great summer. Talk to you soon.

Bye-bye.

Operator: That does conclude our conference today. Thank you all for participating. You may all disconnect.