Yves Bernaert, CEO of Atos Group, and I'm here together with Paul Saleh, our CFO. So thanks everyone to for joining this call this morning. I will make some comments, but at the same time, you will see some slides on the screen that are supporting my messaging. So first of all, we wanted to share, as you have seen in the community, that we are making changes in the group governance. Following Bertrand Meunier resignation, we have appointed Jean-Pierre Mustier as the chairman of the board, but as well, Laurent Collet-Billon, who has been appointed as Vice-C hairman. This has followed the nomination committee process.
Secondly, the separation of Tech Foundations and Eviden will unlock the intrinsic value of Eviden and reflect the different dynamics of the two businesses, and we really wanted to share more information, make more information available, within this communiqué today. The contemplated transactions offer for us the most achievable path to execution of separation of the Tech Foundations and Eviden, and the improvement of the risk profile of the Atos Group. As we speak, the consultation process is progressing with the Social European Committee and at also at local level, and most regulatory pre-filing or filing have been submitted in all the relevant jurisdictions. The shareholder meeting and completion of overall transaction is now anticipated in early Q2 2024, given the expected timing of regulatory approvals.
We are doing also the ongoing exclusive negotiation that we already announced with EPI, to address certain, you know, financial parameters of the contemplated transaction. The group is in an active discussion with the financing banks also to obtain loan waivers that are required for the contemplated sale of Tech Foundations and secure new financing for Eviden. Should the transaction also with EPI not go forward, the group will have to access the debt and equity capital market and/or, you know, consider the sale of additional assets to ensure we have the adequate liquidity to address the upcoming debt maturity in 2025. So with the pending shareholder approval of the contemplated transaction, Atos continue to monitor market development and is committed to an ongoing open dialogue with shareholders, as I already said in the introduction.
Moving on to the next page, I would like to share that the board of directors consider a number of strategic options if we want to go back to this, decision for the future of the group, prior to the announcement of a separation plan on June 14, 2022. These options included keeping the business together or selling, parts of the business. There is different business dynamics across the two businesses, growth and cash generation profile, and capital requirement of Tech Foundations and Eviden parameters. So the separation as, that's been decided, will unlock the intrinsic value of Eviden, since the business operates in market segments that are current higher valuation multiples than the Tech Foundations business as it is today.
Next, I would like to share that the leading to the decision of separating the business in June 2022, there were some following parameter that get us to the decision. First, unlocking the inherent intrinsic value of Eviden, as I just said, but also we will get greater agility to execute the tailored strategy of the distinct business separately. As well, the operating model of each business is tailored to customer needs. We will allow each company to invest in their core capability, but also ensure each business has an appropriate capital structure. Next, which I think are some messages I would like to pass before handing over to Paul. So since the announcement of the separation plan in June 2022, Atos was approached by several players interested in the acquisition of the Tech Foundations business.
The group and its board examined all received expressions of interest in light of the group's corporate interest. The contemplated transactions that we refer to today were set in mind to offer the most achievable execution plan for the separation of Tech Foundations and Eviden. Today, the contemplated transaction improved the risk profile of the group post-transaction. The economic and capital market conditions made it intrinsically challenging to monetize Eviden on acceptable terms and access the financial market for Tech Foundations. With this, and to share a bit more information on the financials, I would like to hand over to Paul. Thank you.
Thank you, Yves, and greetings, everyone. On this slide, we talk about the key milestone associated with the contemplated transaction. They're listed on the left-hand side. These were the steps that the company had to go through, leading to the potential capital increase. Let me just briefly mention each one of those, status for each one of those, steps. On the regulatory side and social plan, we filed in most jurisdictions, and we're making solid progress there, and we're in social consultation with the SEC at a local and also local social plans.
We have been also in active discussions with our financial partners for renegotiating on debt refinancing an obligation coming in January of 2025, and we're receiving also positive feedback for obtaining waiver associated with the transactions. We are also preparing pro forma financials for Tech Foundations and Eviden, and they're being currently worked on and the relevant information in this respect will be provided to the market when finalized, and in any case, before the contemplated shareholder meeting. We also are in active discussions on certain transaction parameters with EPI, the party interested in buying the Tech Foundations, and the final agreements are targeted to be completed by the end of this fiscal year.
We're also anticipating the shareholder meeting to be occurring in early Q2, and this is as a result of the approval process with the regulatory bodies taking a little bit longer. But this shareholder meeting will be scheduled to approve both the proposed sale of Tech Foundations as well as the capital increase. And finally, given the anticipated shareholder meeting, ultimately next year, the capital increases will take place as soon as practicable after the shareholder meeting. Let me move back now next to the transaction overview. On this page, what you'll see on the left-hand side is the elements associated with the contemplated Tech Foundations sale to EPI. And on the right-hand side, you see the elements associated with strengthening of the Eviden capital structure.
Let me start with actually the what is on the left-hand side, which is the contemplated TFCO sale to EPI, and you see every element of the key parameters associated with that proposed transaction. Let's start with the first one, which says that the Eviden will be entitled as part of this transaction for EUR 104 million euro net positive cash proceeds as a result of it. What are the mechanism on for that net cash proceeds, shown on the right-hand side? I just want to mention that all receivable and payables attributable to Tech Foundation has to be conveyed to TFCo at closing. The agreement that we have with the potential buyer allows the group to monetize EUR 442 million euros of receivable through factoring.
Out of the EUR 442 million in cash proceeds from this factoring, which is a sale of receivable, Eviden will be entitled to EUR 104 million net cash proceeds, as I mentioned earlier. The balance remains with TFCo in the form of EUR 250 million of cash that will remain on the balance sheet of TFCo, and EUR 88 million of cash compensation will also remain with the company for the transfer of risks and charges, and ultimately, EPI will be paying EUR 1 for the shares of TFCo. If I move to the next bullet on the left-hand side, as part of the transaction, we are conveying EUR 1.9 billion of on-balance sheet liabilities that will be transferred to the buyer. Element of the on-balance sheet liabilities are shown on the right-hand side.
We have discussed those on our August 1 meeting, but they are listed here. They consist of provisions for risk and charges, lease liabilities, pension provisions, and other contingencies. The balance as of December 2022 of those elements, and they're listed, each one of them, was 1.9 billion EUR. We updated the numbers for the June 2023. The only element that's changed is the lease liabilities, it decreased by EUR 100 million , and it's only a factor that interest rates continue to go up. Basically, though, the key takeaway from this slide is that the transfer of on-balance sheet liabilities will significantly reduce the group risk profile for Eviden. If I go to the next bullet on the left-hand side, the transfer of 7.6 billion EUR of off-balance sheet liabilities.
Again, for the purpose of this meeting today, we've identified all the elements that make up this liability that will be transferred to the buyer. They consist of performance guarantees, lease guarantees, financing guarantees, and other parent guarantees. And again, those transfers of off-balance sheet liabilities significantly reduce the group risk profile. Now, let's move to the other items, which is the conveyance of EUR 800 million of working capital that is attributable to Tech Foundations. Let's start by saying that working capital, just to be clear, is the current operating assets, less current liabilities, and those are attributable to TF, Tech Foundations. As of August 1, the working capital to run TFCo as it was estimated at approximately EUR 800 million, and that was to be conveyed to the buyer at closing.
Now, as mentioned in our press release, the company takes working capital actions that include non-recourse factoring. That means that we sell receivable for cash. The company also makes a reduction of average payment periods of trade receivable. What that means is that we receive some cash from our clients in advance of the due date, and it results in a reduction of our trade receivable. And we extend supplier payment terms, and that means also we preserve cash, and then our payables are increased. So those working capital actions are also effected at the TFCo level. So the TFCo working capital, after those type of actions, was forecasted to be negative EUR 200 million as of December 31st, 2023. This is at the end of this year.
Conveying EUR 800 million working capital at closing to the buyer, which includes, again, as I mentioned, current operating assets and liabilities attributable to TFCo, represents a big €1 billion difference between the forecasted working capital of a negative EUR 200 million at year-end. I want to just really clarify that the EUR 1 billion difference does not represent cash paid by Eviden to TFCo. Let me move on to the deconsolidation of Tech Foundations negative free cash flow. As a result of this transaction, we will be just basically avoiding significant negative free cash flow of TFCo. In 2023, that cash flow was significantly negative. It is also going to be the case in 2024. The reason for it is that we do have restructuring.
The business of TFCo requires consolidation also of data centers. They have vendor commitments, and they do have also to account for those charges associated with head counts. The next point on as part of the transaction, there's an upside sharing mechanism for Eviden, and that means that Eviden will be entitled to receive up to 10% of the TFCo share capital in 2027 if the business itself achieves certain operational targets. In addition, in case there is a total or partial monetization of TFCo by the buyer, EPI, Eviden would be, will be entitled to receive 40% of the net proceeds of such transaction before December 31st, 2026.
After 2026, so from January 1st of 2027 to December 31st, Eviden will be entitled to 20% of those net proceeds, again, if that business is partially or totally monetized. Lastly, I want to stress here that the EPI group will set up a special purpose vehicle that will be capitalized with EUR 800 million at closing to acquire TF Co. and to support the business. Let me now move to the right-hand side of that transaction overview, is what is needed to strengthen the Eviden capital structure. I'll start with the fact that we have contemplated a capital increase of EUR 900 million, consisting of EUR 180 million of reserve capital for EPI at EUR 20 per share in exchange of 7.5% stake in the company.
That parameter is still on the table. EUR 720 million rights offering is expected as part of this transaction. Again, this is pending shareholder approval of the transaction as well as the capital raise. Then we highlighted back in August that there's a standby underwriting provided by BNP Paribas and JP Morgan for the rights issue, subject to our usual conditions. There is no MAC clause associated with that standby underwriting. Let me move to the next element of strengthening the capital structure of Eviden, which is the EUR 400 million divestment plan. This was an announcement that was made on July 28th, 2023. This EUR 400 million consists of non-strategic Eviden assets.
We've already signed one transaction, and the signature and cash proceeds for the remaining assets are expected to occur in the first half of fiscal 2024. Now, let me talk about also the point on the left-hand side, which says the target Eviden pro forma net leverage of approximately four times, and the expectation that it will improve to two times by the end of 2025. On the right-hand side, you see the waterfall. We would expect our expected reported net debt pre-transaction, pre-IFRS in December was EUR 2.1 billion. It's expected to be EUR 2.1 billion. Next to it is the net cash proceeds expected from the transaction. Next to it is the EUR 1 billion that is the reversal of TF Co. working capital actions that we have just really covered several slides earlier.
We have other contingency, other and a contingency of EUR 200 million. Then we have the asset disposal of EUR 400 million. Then we have the capital raise of EUR 900 million, consisting again of EUR 180 million of capital reserve and EUR 720 million of the rights offering. As a result of that, the Eviden business on a pro forma basis at closing would have a pro forma net debt of EUR 1.9 billion, and that represent a leverage of four times, and that was really very consistent with our objective of getting the business in a good capital structure at closing, with the objective of having that business improve its leverage very rapidly and going from four to three to two times by the end of 2025.
If you look at the slide that talks about the capital structure framework, this is basically the driver of what we are trying to do for the Eviden business. I'll start with the liquidity management. This Eviden business has strong free cash flow characteristics. We would have access to our revolver credit facilities. Our objective is to maintain the current revolver, as well as to secure a new forward-starting revolver that will start in November 2025, when the old revolver would expire. The debt maturity. Do we have a new term loan that we are negotiating with our banking partners that would have a lower principal maturity, but will have a lower principal, but will be maturing in December of 2026?
that will give more time for a more capital structure, a stronger capital structure for the Eviden business. We believe we'll have access to the debt market for Eviden, and we'll have a balanced maturity ladder once this effort is completed. The credit profile of Eviden, as I mentioned, starting at a four times, going to two times, initially S&P, after we announced the deal, we met with S&P, and they have given us already a double B minus indicative rating at closing, which was one of the objectives that we had. Our Eviden will be targeting an investment-grade credit profile, again, consistent with some of the parameters that I have just shared with you.
Then that will be associated with the net reporting leverage moving to three times, about three times by 2024, and two times by 2025. The current maturity profile is shown on the bottom of the page. You can see that there's an exchangeable bond coming due in November 2024. The term loan A, shown in blue, is also listed, and you see a EUR 750 million existing bond coming in May, and due and maturing in May 2025, and the EUR 900 million of revolver capacity is currently maturing in November 2025.
As a result of so many things that I've just really shared with you, the capital structure targeted will look like this, where we would, hopefully, with the discussion that we're having with our bank, have a new term loan that will expire in December of 2026 , with a new forward-starting revolver that's starting in November 2025 , and it will be maturing at the end of 2026 , while we will also be maintaining our current revolver capacity. Let me move on to the liquidity plan and be very specific about two scenarios. Should the contemplated transaction and capital raise be approved by shareholders, Eviden is expected to have, as I just covered, necessary liquidity to run its business.
Now, this is driven by the access to capital market, as well as assuming the capital increase and the new term loan from the financing banks is secure. Should the contemplated transaction not move forward, the group expects to meet its liquidity requirements for 2024. This is driven by our forecast business performance. We're assuming that continued access to the factoring program and completion of the EUR 400 million asset divestment plan announced on July 28, 2023, will be done, but the group will have to have access to the debt and equity capital markets, and/or consider the sale of additional assets to refinance the EUR 1.5 billion term loan A maturing in January 2025, that I'd shown you on the prior page, as well as the EUR 750 million bonds maturing in May 2025.
Finally, there are some accounting matters that we wanna bring to your attention. The pro forma financials of Tech Foundations and Eviden, as I mentioned earlier, are currently being drawn up. The annual impairment test that the group carries out at year-end could lead this year to significant impairment charge. Among the factors that may lead to this annual impairment are the contemplated transaction regarding Tech Foundations, and the other thing is if the Atos share price continue to remain at those current level, is another factor that we'll have to take into consideration. With that, I'm gonna turn it over to Yves for closing comments.
I will happily go to all of you for any questions. Thanks a lot, Paul, for this clarity. As I said in the introduction, going forward, we will ensure all the right and adequate regular clarity on the financial communication. This is today, but we're gonna keep being back to you regularly as much as needed. I would suggest we open up now for any questions.
Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Once again, that's star one and one if you wish to ask a question. Please stand by while we compile the Q&A roster. We will now take the first question. One moment, please. From the line of Alexandre Faure from BNP Paribas Exane, please go ahead.
Hi, good morning. Thanks for letting me on and putting up that call this morning. Just two questions. Could you give us a sense of what you think is the minimum cash pile for Eviden to operate going forward, growth cash? And the second point was on receivables, factoring. Could you remind us of how much of that would stay with Eviden after separation? Thank you very much.
All right. I would say the first one, in terms of cash, I think the business would fundamentally need about a couple of hundred million of cash to operate. We do have, in addition to that, some cash in certain countries that are really available to the country, but not necessarily easy to extract, you know, in such places like India or Morocco. And we do have also some restricted cash on the balance sheet in addition to what we need for as we continue to pursue this litigation matter with Cognizant. And hopefully when this matter is resolved, we will be able to release that amount. So I would say operationally, I would say about 200 million for the business.
And I think the second part of the question was regarding the-
The receivables factoring
in Eviden.
Yeah, I think it would be about EUR 300 million or so on receivable factoring. I think that's the amount, 300 or 400, depending on the timing. But I would say also to you that we are fundamental. We have an exercise going on within the company. We're fundamentally improving the operating working capital structure of the company to improve the day sales outstanding, as well as renegotiating terms with our vendors that will give us better days payables. And so as a result of that, over the course of the next couple of years, the working capital fundamentally of the business, in addition to Eviden, will just really fundamentally be able to be improved significantly. The reliance on factoring will not be necessary.
Understood. This is helpful. Thank you. If I can squeeze one third question, please. Just thinking of this upside sharing mechanism for Tech Foundations, could you give us a bit of background on, you know, how you came to working on such mechanism? I can't recall if that was part of the August first announcement, for instance.
Yeah, very good question. I think it was really designed to just really make sure that we were not leaving any, you know, value on the table, right? So two things. There was obviously negotiation with the buyer, EP, on the trajectory of the business, back and forth. So the mechanism of the upside of 10% of the share capital all the way till by 2027, allows us to just really make sure that indeed, if the business outperformed, the projection that we had presented, will be entitled to have ownership in that entity, and therefore be entitled to monetize that or getting dividend if that business ever pays a dividend.
In the second case, if the buyer were to suddenly sell part or all of the business, we would be automatically entitled to 40%, as I mentioned, of the proceeds for the first couple of years, and after that, for the next three years, we would be entitled to 20% of the net proceeds. Again, it's to protect against a situation where suddenly there were more value to be extracted from that business.
This is helpful. Thank you.
Thank you. Once again, as a reminder, if you wish to ask a question, please press star one and one from your telephone keypad. That's star one and one if you wish to ask a question. There are no further questions at this time. Please continue.
All right. If there are no more questions, we are available. I think, first of all, thank you for just really joining us today. I'm gonna turn it to Yves for any closing comments.
Yeah. Well, thanks a lot to Colin. Oh, I see a question. Shall we take it?
No problem. We will take the next question. From the line of Adam Wood from Morgan Stanley.
Hi, good morning. Thanks so much for taking my question. I've also got a few, if I could. Just firstly, apologies, I missed the very start of the call, but could you just explain again on the delay in the deal? Could you say if that's purely the timing of getting regulatory approvals or are there any other concerns that you have around getting shareholder approval or completing the sale that led to the delay? Secondly, apologies for coming back to the factoring. Could you maybe just go through that again in terms of the factoring that's gonna be outstanding at the end of these transactions and the split?
As I understand it today, the EUR 715 million of factoring, the Atos Group that you announced at the first half 2022 results, is the EUR 442 million that you speak about in the slides. Is that a new additional factoring program? And then if that's so, could you kind of specify where that will sit between the two businesses post this? You've also talked about if the deal doesn't happen, you know, needing access to equity debt markets or looking at asset sales. Given the change in the board structure, does that mean that the group would be more open, for example, to the sale of the cybersecurity business?
And then maybe just finally, is there any help you can give us with the cash outflow that's needed on restructuring and what's left of the restructuring program on the Eviden side of the business and on the TFCo side of the business in the second half of this year, and then through 2024 and 2025, please? Thank you.
I can thank you for the question. I can initiate the answer, and with Paul, we'll combine ourselves. First of all, on the delay, as we stated, it's related to the regulatory process that requires time to go through it. In parallel, as I mentioned, we are going through the social process, which will be closed in the next few weeks. As we go, as I said, around Q2 for the process. It's also then it generate the opportunity. It's not a condition, but it generate the opportunity to leverage the final 23 data for the transaction. Over to Paul for the follow-up question.
Sure. The one that I heard was about the factoring. I would say to you that the factoring for the—as we had stated publicly in June, on June 23, was EUR 715 million. There were about 300 million or so factoring related to Eviden. The 442 that we mentioned in our in the document itself is a different matter. We're saying that if you recall from the slide, that all the—at the time of the closing for TFCo, we will have, Eviden will have the opportunity to monetize EUR 442 million of receivable, also factoring. That's something that is a little bit different than what we typically do during the year.
And that amount then allows us to extract EUR 104 million of net proceeds for Eviden, and the rest remains with TFCo as part of the transaction. What was the other one? The cash outflow, I think, you answered, or you asked?
It was just around the stance on the sale of the cybersecurity business, given the change of board-
Yeah.
- and then the restructuring was, the cash outflow that you think is needed, because obviously we had the initial plan at the capital markets day, but there will be, there will have been restructuring cash outflow between then and now. Could you maybe just give us an update on what's left?
Yeah
... in the second half of this year and then through 2024 and 2025, if possible, across the two businesses?
Yeah, we're not gonna comment on the remainder for this year, right? Because that's something that we will cover next week at our earnings call. I would say to you that you can see again of the conveyance of EUR 1.9 billion transfer of liabilities as part of the transaction. In that line item that was highlighted, that was in the six hundreds of some million, there is restructuring included in those numbers in terms of liability that make up for the one point nine that will be transferred of on-balance sheet liability to the buyer.
As far as the sale of asset, we do not comment on specific items like that at this stage, just because what we are trying to just point out is that we do have an adequate liquidity for 2024 , should the transaction not be approved by the shareholders. We will have, during 2024 , to start to address through an access to the capital market or from equity as well as debt, or potentially having to consider the sale of some assets.
Mm.
How to deal with the maturities coming due in January 2025 and May 2025?
Therefore, to your question, that will be the time where if that has to happen, then we will look at the options.
Perfect. Thank you very much.
Thank you.
Thank you. We will now take the next question from the line of Fred Boulan from Bank of America. Please go ahead.
Hi, good morning. Just one question, please. So when we look at slide twenty-four and we look at your commentary saying, should the completed transaction not move forward, I'm just wondering to what degree the spin-off structure that used to be plan A is still on the agenda, considering that the whole team, whether it's Chairman, CEO, CFO, that came up with a plan back in June 2022, has now been replaced. Is this still an option we have? Or if the transaction is not moving forward, we're gonna look at, as you just mentioned, just access to equity markets to shore up the balance sheet.
But just trying to explain whether we'll see what are the next steps and options, if the transaction is not approved.
Yeah, if the transaction is not approved, we said in the press release that we will continue with the course of separating the two businesses.
Mm.
Because that is the, that, that's the, the thing, that, we believe provide the best value for our shareholders. So that's the... You know, and the only other things, the rest of it, just suggests that again, the funding, the liquidity is there for 2024, and then we will have to address maturities coming due in 2025.
All right, thank you. And then, I don't know if you can answer to that, but what do you think can lead us to that option? So what do you think are the main issues, assuming you have regulatory approval, et cetera, any feedback or discussion you've had with your main shareholders on supporting that transaction?
Could you repeat that? What is what?
My question is, what could drive us to go to that second option of, you know, transaction not moving forward? What are the key risks to the transaction you see? Is it on the approval side? Is it on the buying side? Is it on liquidity side?
I think there's at this stage again we're progressing with the transaction. That's our main focus. We're just saying that in case the transaction is not approved by the shareholders, then we will have to go to plan B, which is, you know, we have liquidity available to us through 2024, and then we have to deal with the maturity coming due. But at this stage, it's all hands on deck and progressing to bring this matter to the shareholders for their approval.
Okay. Thank you.
Thank you. There are no further questions at this time. I would like to hand back over to the management for any final remarks.
Thank you, thank you, Paul, with me, who participated to answer all of your questions. Thanks to all of you for your participation. This is an important day and moment where we really wanted to share the evolution of our governance, but as well, as I said, I want to repeat that I expect you will agree with me, some extremely clear financial information. But as well, we will, outside of the Q3 result, which is coming very soon, keep this conversation and exchanging on any financial update that we're gonna need to happen. For the Q3 result, this is happening next week on the 26th of October, and for sure, we will have more conversation on that day. Again, thanks a lot for being here with us today.
Have a great day.