Atos Origin SA (OTCPK:AEXAF) First Half 2016 Results Earnings Conference Call July 26, 2016 12:00 PM ET
Thierry Breton - Chairman and Chief Executive Officer
Patrick Adiba - Chief Commercial Officer
Elie Girard - Chief Financial Officer
Michel-Alain Proch - Senior Executive Vice President & Chief Executive Officer of North American Operations
Charles Dehelly - Senior Executive Vice President, coordinating Global Operations & Top Programs
Brice Prunas - Exane BNP Paribas
Stacy Pollard - J.P. Morgan Cazenove
Michael Briest - UBS
Amit Harchandani - Citigroup
John King - Bank of America Merrill Lynch
Gerardus Vos - Barclays Capital
Charles Brennan - Credit Suisse
Neil Steer - Redburn Partners, LLP
Alexander Tout - Deutsche Bank
Good day and welcome to the Atos First Half 2016 Results Conference Call. At this time, I would like to turn the conference over to Mr. Thierry Breton, Chairman and CEO. Please go ahead, sir.
Good afternoon, ladies and gentlemen. Thierry Breton speaking. Thank you for attending Atos conference call today on our results of the first-half of 2016. I am going to share this presentation together with: Elie Girard, our Group CFO; and Patrick Adiba, in charge of our global sales. Here in the room are also Charles Dehelly and Michel-Alain Proch, both Senior Executive Vice President.
I will start with the key figures and highlights of the semester. Then I will quickly update you on the group strategy and present the new guidance of 2016. Patrick will comment on the group commercial dynamism and several large signatures in Q2. And then, Elie will develop the operational and financial performance under the semester. And, finally, we will have the usual Q&A session.
So on my first slide, are the key figures of the very solid performance that we delivered during the first-half of 2016. These set of figures reflect well the pertinence of our strategy. Revenue reached €5,696, increasing by plus 18% at constant exchange rate and plus 1.7% organically. All the service lines as well as most of our geographies were up organically this semester. In Q2 organic growth reached plus 1.8%.
The sales activity was very dynamic as reflected in the record order entry at €6.3 billion. This represented a 24% increase and a book-to-bill of 111% with Q2 at 120%. This figure demonstrates the successful alignment of our value proposal with clients’ needs, allowing us to maintain a continuous sales momentum. At the same time, we kept improving, of course, our profitability with an operating margin reaching €444 million, up 23% year on year. This represented 7.8% of revenue, up by plus 60 basis points compared to last year.
We improved profitability by selling modern value services to our large clients, in particular in the field of cloud and digital transformation by fixing first the situation in Germany and managing its recovery by successfully integrating the Xerox ITO and also Unify, which I must say was particularly well prepared. Obviously, all of this was performed with a continuous strict control of our cost base.
Total number of employee was 96,000 at the end of June. During the last semester, we hired more than 8,000 staff and we accelerated the competence building and re-skilling programs to digital and innovative technologies. Net income group share stood at €205 million, representing a strong increase of plus 67% compared to the first-half of 2015 with roughly the same number of shares.
Free cash flow reached €181 million, which strongly improved the cash conversion. And Elie will detail the components of the free cash flow as it is, of course, one of our most important key financial indicators.
Finally, group net cash position was €412 million at the end of June 2016 after having paid the acquisition of Unify. As you can see, we keep strong financing capabilities for future strategic development.
On to next slide, I wanted to come back on the quarterly revenue evolution, just to remind that we performed the seventh quarter in a row of positive organic growth. You can see here three different periods within our three years plan. 2014 was a time of the necessary transformation and reorganization of operations, which was reflected in a slight revenue decrease. In 2015, we started benefiting from this reorganization, in particular on the commercial standpoints and this materialized in a stabilized or slight increase of revenue.
Finally, the Q1 period is a one of most significant organic growth as we reached 1.7% organic growth in H1. You may wonder now of course if this is sustainable. It is clearly the case. And please, let may explain why I believe so on the next slide.
Indeed, you can see here a reminder of our strategy, which consist to leverage our Q1 position in data and infrastructure management in order to cross-sell all our service line. Data and infrastructure management is really the group backbone and it is where evolutions require more security, compute speed, application transformation, and of course, collaboration.
The Atos Cloud Orchestration is ruling this business and are offering in that field and supporting our market share gain. Cloud, virtualized infrastructure and automation are coming with strong delivery in cost reduction and so with significant margin improvement as you can see in the H1 Managed Services profitability improvement.
Data management demand is fast growing and generate disruptive evolution, requiring technologies such as 5G, blockchain software, artificial intelligence, SWAN [ph] computing and so on. And my job is to make sure that Atos is at the front run of the disruption, as for example, in the field of data analytics with the development of the Codex offering.
This Atos Codex solution may be compared to Watson solution from IBM or Predix from GE. But actually, as some analysts say, it a combination of both as it provides end-to-end data analytics along the complete IT value chain. This solution offers organization fast and cost-efficient means to explore the value of the existing data. Atos Codex provides the smart user data analytics, that is a competitive differentiator to help organization stay one step ahead and become disruptors rather than being disrupted.
On the next slide, I wanted to explain how much the development of Codex and the associated promising perspective is revealing the move that Atos is doing from a model of data storage and processing to a model of valuation of the data through new business outcomes for its clients. We can do it, because we are state-of-the-art in innovative technologies. The strong footprint of the group to the manufacturing sectors will make Atos to benefit the most from the Big Data and IoT Era as it is a sector with enormous potential from these technologies.
This new business model of Atos is supported by strong partnerships, of course, with technological leaders like the renewed alliance with Dell and EMC Federation until 2021. All in all, these kinds of perspectives make Atos both sustainable and we are just at the first phase of this new forefront of the disruption at for example in the field of data analytics with again the development of the Codex offering.
Let’s move on to the next slide. We deeply reviewed the potential impact the Brexit could have on Atos. First of all, the effect of currency exchange is limited to less than 10 basis points on the operating margin rate. Indeed, most of our costs in the UK are in pounds.
On the activities in UK, our view is that the potential risk is constituted on discretionary expenses limited to the banking and financial sector, which is definitely in sort of a turmoil now for the time-being. The Atos exposure to the financial services in the UK is quite limited, in particular, if we look at Consulting & Systems Integration only.
Anyway we decided very fast to implement a contingency plan with restructuring in order to secure our UK performance post-Brexit and wipe the pound/euro currency impact on our results. And we do not change the full year business model.
I move now on the objective of the year, which are always as you can see in the next slide. Revenue organic growth moved from above plus 0.4% initially to 1.5% to 2%. Combined with the contribution of Unify, that Elie will detail, growth at constant exchange rates will be above plus 11% compared to the above 8% that we initially guided.
We have also in operating margin, which will be improved again from 9.2% to 9.5%, previously as you know it was between 9% and 9.5%. And finally, we plan to generate free cash flow above €550 million. The initial guidance was circa €550 million.
So thank you. Patrick, it is now your turn to explain the sales momentum.
Thank you, Thierry. Good afternoon, ladies and gentlemen. This is Patrick Adiba speaking. I will start my presentation with the key commercial figures of H1. The total group order entry has reached €6.3 billion for the first six months of 2016, representing a book-to-bill ratio of 111% and 120% in the second quarter. In line which is very positive evolution of Atos commercial activity, the full backlog at the end of June 2016 amounted €19.5 billion, representing 1.7 years of revenue compared to €19.1 billion published at the end of 2015.
The full qualified pipeline was €6.4 billion at the end of June, representing more than six months of revenue. I will add to the dashboard that Atos top accounts are now the main driver of the group revenue with plus 4.4% revenue growth this semester mainly led by added value cross-selling actions.
On the next slide, these positive metrics demonstrates our capability to further grow on our go-to-market consistently with our new portfolio of end-to-end digital transformation solution. Our go-to-market has been a solid growth engine this semester, thanks to successful effort in selling global solutions, leveraging the expertise of many service lines. And second, our major customers have confirmed their trust in Atos, while new logos among global leaders in their industries have chosen Atos for their digital transformation.
Next slide you will see some examples of the wins in this quarter. Going now into the specific of some representative of those wins, first of all, cloud computing for Texas Department of Information Resources. Texas DIR had an excellent delivery record. But the agencies are going outside of the process to procure Cloud services from third-party providers, causing potentially security issues.
The solution we have implemented has been a Hybrid Cloud Services with a Virtual Data Center and self-provisioning, which improve speed and customer satisfaction. The main benefit was faster resolution times from simplified event handling and enabling a paper-use model.
The next win with a larger American quick serve restaurant provider illustrates further how we can drive digital transformation at our customer. For this customer we’ll improve the quality of the help desk services in the restaurant and implementing new technology, while decreasing the cost substantially. Another example, Kas Bank in the Netherland, with this new contract, we’ll support Kas Bank’s strategy goal to take the leading position in security services to professional clients in European pension and security industries.
This resulted in a seven-year partnership with Atos for the outsourcing and management of the Kas Bank IT services and the related transformation.
Another example with Unify on Unified coms, the customer in that case is Solvay and the main driver was lowering the total cost of ownership. Solvay decision was to upgrade to a centralized and unified communication network, replacing PBX from different suppliers. With more than 400 global locations, it brought significant savings by outsourcing the network management and services.
By committing to a Managed Service agreement with Unify, Solvay has centralized its six voice infrastructures in Europe and reduced total cost of ownership by 30%. Finally, in those wins Atos Codex with a French automotive manufacturer. This contract shows a double breakthrough. It’s a major breakthrough selling high-performance computing based solution to industrial private customer and it’s a major breakthrough for an industrial case breaking out the traditional R&D and mobilization model for application.
Those wins - these wins is one of the very significant one in the ramp up of our Atos Codex offer, as we look into more detail in the next slide.
In the next slide, I want to focus specifically on Atos Codex. As explained by Thierry our Atos Codex solution is a strong growth engine to support our customer in their digital transformation. The first example I want to take is with a South African telco operator for which will be the first data platform and implement use-cases to monetize the massive amount of data generated by this telco.
The next one is the Ministry of Justice in the United Kingdom. Atos will implement a solution to generate better quality insight, much faster to support the decision-making process and to predict disruptive events in prison such as violent attacks or potential riots. The next example is with an oilfield services global leader for which we will increase the Mean Time Between Failure for mission critical down-hole tools and also identify opportunity for improving job executions through improvement of the processes.
The next example is also with a global transportation manufacturer for which we’ll implement a predictive maintenance platform using flight information data and this is just a beginning, because we can see with those examples that Atos Codex is an enabler for the second generation of digital transformation in all vertical markets.
Elie, the floor is yours.
Thank you, Patrick. Good afternoon, everyone, Elie speaking. I am going to cover the operational and financial performance of the first-half of 2016. First, let’s start with the reconciliation between statutory and organic figures for revenue and the operating margin, also including revenue at constant exchange rates as it is one of our objectives this year and in the future.
We reached almost €5.7, representing a growth year on year of 15.3%. Exchange rates had a negative effect of €108 million mainly attributable to the British pound, the Argentine peso, the Brazilian real and the Turkish lira. Therefore, revenue performance at constant exchange rates was 17.9% growth in H1 this year.
Scope effects on revenue amounted to €776 million and were mainly related to the positive contribution of Xerox ITO six months for €596 million and Unify services five months for €233 million. It includes revenue made by Unify services with Unify software and platforms for €89 million in the first-half of 2015.
Indeed, as operating margin was already part of Unify Services we decided to record also the corresponding revenue to get consistency between revenue and margin. I would like to remind you that only the services business of Unify, which is basically communication and collaboration services, has been transferred to Managed Services and is part of H1 revenue this year.
As planned, the Unify Software and Platforms, S&P business is not part of Atos revenue and is recoded in discontinued operations, therefore it is not consolidated. Revenue basis was also adjusted by €22 million for the disposal of the occupational health governmental activity sold in January this year; by €8 million for the sale of onsite services activity in France to Manpower Proservia in March 2015; and finally, by €21 million for the early termination of the DWP WCA contract on our initiative in March 2015.
Adjusting all these items led to revenue growth at constant scope and currency of 1.7% in H1. Revenue made with Unify S&P during the first-half of 2016 was €91 million compared to €89 million for the first-half of 2015 as I mentioned earlier. So there was no effect on the group revenue organic growth.
Operating margin reached €444 million in the first-half of 2016, up 23% year on year. The restatement of share-based compensation to operating income amounted to €15.5 million. The currency effect was negative on the margin by €11.2 million and the scope effect was €51.7 million. Therefore, the profitability show the improvement of 60 basis points to 7.8% of revenue compared to 7.2% in the same period of 2015 at constant scope and exchange rate.
Finally, the move from above 8% to above 11% of our objective for the full-year growth at constant exchange rate is explained one-third from the increase of the objective of organic growth, and two-thirds from the revenue Unified Services with Unify Software and Platforms that we decided to recognize as external revenue.
Next slide presents the performance by service line. I’m going to comment in the next few slides each of them, but in a nutshell all the service lines improved in both revenue and operating margin. On revenue Managed Services maintained and even accelerated its growth, while Consulting & Systems Integration came back into positive territory, which is obviously satisfactory.
Big Data & Cybersecurity and Worldline showed very healthy growth both in Q1 and in Q2. On operating margin two service lines maintained the high rates, Big Data & Cybersecurity and Worldline as respectively 14.0% and 15.6%. Consulting & Systems Integration slightly improved its performance and more significantly excluding the pensions effect of last year.
The largest improvement came from Managed Services with 150 basis points validating our strategy of building the group with business of data management as its backbone. In total, profitability was improved by 60 basis points to reach 7.8%. The improvement was even 130 basis points, excluding the pension one-offs regarding in H1 last year and which amounted to €38 million.
As a remainder, we plan in H2 a pension one-off of roughly half of the €74 million of the full year in 2015. This was already included in the operating margin guidance when we issued it.
Let’s now focus on Managed Services, 2016 first-half revenue in Managed Services was €3.221 billion, up plus 0.6% at constant scope and exchange rate, with a significant growth in cloud services and in technology transformation services. In addition, the service line won several key contracts, notably in the area of workplace automation and service based components, supporting growth in several geographies, such as North America, Asia Pacific and Germany. The teams collected proposed to their key client in the large geography to transform their IT landscape enabling them to automate and to migrate to a cloud infrastructure.
The performance of revenue growth materialized in almost all markets. Public & Health led the growth in almost all geographies, in particular in North America, mainly fueled by new large sales or additional business with existing customers. Manufacturing, Retail & Transportation benefited from a license sale with Siemens in Germany and from new cloud business with a large biotechnology corporation in North America.
Telcos, Media & Utilities benefited from sustained activity mainly in North America, with customers such as Disney. On the other hand, but to a much lesser extent, Financial Services was impacted by several base effect as with NS&I in the United Kingdom or McGraw Hill Financial in the U.S. and the ramp-down of one large contract within Benelux and the Nordics.
Operating margin in Managed Services was €281 million in the first semester of 2016, representing 8.7% of revenue. The strong improvement of 150 basis points compared to 2015 on the like-for-like basis was led by strong operational savings throughout all geographies, in particular, thanks to the migration to the cloud of several customers’ infrastructure, where our unit cost are materially reduced.
The improvement in margin of the Unify Services business resulting from the large restructuring program also contributed. With tight monitoring of costs and synergies from integration combined with revenue growth allowed several geographies such as North America and Germany, and to a lesser extent France, Central and Eastern Europe, and Asia Pacific, to significantly increase their profitability.
Margin in the UK was reduced due to lower revenue. Let’s focus on Cloud Services on the next slide. Most of the Cloud revenue is booked in the service line Managed Services. As you can see, the trend of Cloud revenue growth was confirmed in H1, a plus 39% at constant exchange rates, in line to exceed the €700 million targeted for the full year. Again, this very strong dynamic is significantly enhancing the group margin, as the migration to the Cloud is definitely attractive to our profitability, thanks to much lower unit cost.
Let’s move now to automation in Managed Services, which is obviously one of the big current trends and continues to be important for the future. As you will see, we have been following the automation topic for a number of semesters and I wanted to show you some KPIs that we follow; some of them are on actual figures, others reflect more our ambition in this field.
So for the time being, you can see the progress made in the number of service staff that we manage. It increased by 40% in two years. The number of LAN switches per staff was also up by 40% in two years. We’re running as well a number of automation programs which will further automate incident resolution and we target more than 100 customer accounts under this program by the end of 2017.
We will go deeper in each of the main actions at our next Investor Day in November. Next slide regards Consulting & Systems Integration, where revenue reached €1,584 million, up +0.5% at constant scope and exchange rates. Financial Services was the main growth contributor notably in France.
Telcos, Media & Utilities achieved also positive growth mainly driven in the UK in the media sector. Manufacturing remains slightly behind, while in the public sector, a new contract signed with several ministries in France and in Germany partly compensated for the Ashgabat phase 2 project delivered last year.
The activity was strong with SAP in particular for S/4 and HANA projects. Revenue increased in the large number of engineers and consultants working in the service line and SAP in the Cloud certified represents a promising growth driver.
Operating margin was €78 million, representing 4.9% of revenue. The improvement of 20 basis points organically, which is 70 basis points excluding the pension one-offs last year came from the successful workforce management, higher efficiency in most of the geographies, including France, UK and Germany, and the cost synergies in France.
Conversely, IMEA had to cope with a difficult contract for which the status is steadily improving. Overall, the start of the recovery of Consulting & Systems Integration both in revenue and margin was achieved, while investing in innovation and new offerings to enhance a higher profitability in the future. The objective is clearly to capture operating margin with the best-in-class of our peers.
Revenue in Big Data & Cybersecurity was €302 million, showing a strong organic growth of +12.8% compared to H1 2015. The performance regarded was strong. In almost all geographies, growth was primarily driven by the public and health sector, in France through high performance computing sales and software license revenue as well as cybersecurity activity. Revenue was also generated in the retail sector in Germany with a sale of software license to a large B2B specialty retailer.
Operating margin was €42 million, representing 14% of revenue with an improvement of 20 basis points, largely led by the strong revenue performance, including integration synergies combined with continuous cost optimization, which enable to maintain a high level of margin.
Let’s turn to Worldline on the next slide. From a contributive perspective to Atos, Worldline revenue was €589 million, improving by 5.9% at constant scope and exchange rates. The three businesses contributed to the organic growth over the period. Merchant Services & Terminals achieved a healthy double-digit growth rate, notably thanks to increased volumes of transactions and price-mix within Commercial Acquiring, as well as a strong level of payment terminal sales.
Financial processing and software licensing expanded, thanks to the higher transactions volumes in acquiring processing, notably in France but also in India, increased revenue from services initially in processing and a strong level of licenses sold both in Asia and in Europe.
In Mobility & e-Transactional Services, growth was led by activities in e-Consumer & Mobility, in e-Ticketing with railway companies in the UK and finally e-government collection in France and in Argentina. Overall, the business line managed to move - to more than compensate the effects resulting from the end of the VOSA contract in the UK in the third quarter last year.
Operating margin was €91.6 million or 15.6% of revenue, up 170 basis points compared to 2015, fueled by the strong performance in Merchant Services & Terminals. Operating margin in Financial Processing & Software Licensing was stable, while Mobility and e-Transactional Services almost achieved to compensate for the end of the VOSA contract.
OMDA, which is the KPI on which Worldline commits to the market for profitability measurement, increased by 80 basis points, reaching €117 million, and 19.1% of revenue. Operating margin rate increased faster, reflecting a more efficient productivity rate during the first half of this year.
The next slide presents the revenue evolution by business unit by quarter over the first half year. Globally Q2 was slightly better than Q1 with several specific trends. The continuous growth acceleration in North America reflecting the sales dynamics further to the successful integration of Xerox ITO. More importantly North America had 116% book-to-billion in H1, mainly in the digital edge area, which comforts the trend for the next quarter.
Germany growing at 2.7% more in line with current trend, as Q1 included some one-off sale in Big Data & Cybersecurity into Siemens. France remained slightly above 3% as expected, notably think to CS&I and Big Data & Cybersecurity and stabilization of Managed Services. UK revenue organic growth improved as expected in Q2 at minus 1.5% and return to positive growth is planned for H2. The trend was still difficult in Benelux and The Nordics, and we appointed a new management team to change the dynamics and get as soon as possible a commercial movement to reverse this trend. The good point here is that Benelux & The Nordics reached 130% book-to-bill in H1.
In Q2, other business pursued the trend with a strong performance in Asia and in South America compensating revenue generated last year and not renewed this year in Central and Eastern Europe. Finally, Worldline in retail [ph] achieved in Q2 at good performance, thanks to strong underlying growth excluding the end of the VOSA contract.
On the next slide, I will concentrate on the operating margin evolution by business unit. In all geographies, the group continued to execute the Tier One program through industrialization, global delivery from offshore allocation and continuous optimization of SG&A. We also benefited from the full impact of cost synergies of the last acquisition as well as the effect of the Unify restructuring plan materializing in 2016.
The margin improvement was particularly visible in several major GBUs, such as Germany, North America, and France. In the UK, despite the revenue effect already mentioned, the team managed to stabilize its operating margin rate. Benelux & The Nordics faced the lower margin coming from the level of activity in Managed Services, in particular in financial services.
Finally, we reached €444 million, representing 7.8% operating margin rate compared to 7.2% last year, which included, as I already mentioned, €38 million for pension scheme optimization.
My next slide presents an update on Unify. Since the closing of the acquisition, the integration plan is rolled out. As part of this plan, the restructuring program has been deployed and accelerated compared to the initially planned timing. As such, during the first semester, almost 90 staff were restructured, compared to the 800 full year target plan.
Actions for reduction of non-personnel particular in real estate, procurement and IT are delivered ahead of the full-year objective of €50 million cost reduction. I would like also to update you on some key operational indicators in Unify Software & Platform that I presented last quarter. We measure the expansion of the indirect sales channels by the number of partners. This number grew by 22% in H1. We also track the number of users of cloud-based communication, with a target to make it grow by 20% per year. Over the first semester, we grew from 203,000 users to 221,000 fully in line with the annual target.
Finally, we followed very carefully the deployment Unify S&P circuit collaborative tool with a target to reach 500,000 users by year end. So far 26,000 people are using this communication solution. And as Patrick said, we had significant wins in Q2 and massive deployment plan in Q3, notably within Siemens. H1 2016 net income of the Unify S&P discontinued operations was a loss of €31 million. We confirm the full year target to reach a positive net income of €10 million.
Similarly, the achievement of our target associated with the restructuring impact support our objective to reach circa €100 million EBITDA in 2017 for Unify software and platforms as announced in November last year. We will be of course available for your questions on Unify with Charles and Patrick in a moment.
On the next slide, you see that total headcount was 96,352 at the end of June 2016. The increase of +5.5% of the Group workforce compared to end of last year mainly - was mainly due to the circa 5,200 staff who joined the Group from Unify on February 1st 2016.
As Elie mentioned, the Group hired more than 8,000 staff during the first-half financed between off shore low-cost countries, but also in continental Europe in the UK and in the U.S. for high-skilled specialist for instance in digital, where the local presence close to customers is required. Excluding Unify software and platforms, attrition was 12.2% at Group level of which 18.4% in offshore countries, this figure did not really change for several quarters.
Number of staff in offshore countries reached 26,126 people by the end of June 2016. The majority of the offshore workforce is located in India, the rest being mainly in eastern Europe. Offshore for systems integration represented 44% of direct staff.
Let’s move to net income on the next slide.
Operating expenses were represented by €57 million staff of the organization, €26 million rationalization, €14 million for integration and acquisition cost mainly for Xerox ITO, Unify and Dequenne [ph]. The €43 million profit in other items mainly reflects the gain under Visa share disposal for €51 million, partially offset by a settlement ending an old litigation in Germany.
Net financial expense were €32 million of which €8 million at cost of financial debt and €24 million as nonoperational of which two third for pension. The tax charge was €58 million on a profit before tax of €292 million. The effective tax rate went below 20% compared to 25% for the first-half last year.
Finally, the increase in controlling interest reflects the increased Worldline net income, which includes the gain related to the sale of Visa Europe share. So in total, the net income Group sale of €205 million.
I move to the next slide. So as I’ve just said, net income Group share strongly increased in H1 from €123 million last year to €205 million, a €170 million excluding the proceeds from Visa, meaning a +38% increase compared to last year. Therefore, I would like to confirm that we are well in line with our objective to double the net income from 2014 to 2016 obviously, without the effect on the sale of the Visa share this year.
I’ll now comment the cash flow figures on the next slide.
The Group reported a net cash position of €412 million at the end of June 2016, thus representing an increase of €60 million compared to June 2015, while having acquired Unify in the meantime for a cash-out of €366 million. Capital expenditures totaled €202 million in the first-half, representing 3.5% of revenue. On the full year basis, CapEx would remain close to 4% of revenue as in the last year.
The change in working capital contributed negatively by €-22 million compared to a positive €+49 million in H1 2015. And on a full year basis, we expect to show a broadly neutral change in working capital contribution. Cash-out related to taxes paid reached €74 million in line with the decrease of our effective tax rate.
The slightly highest cost of debt at €8 million resulted from a net cash position of €593 million at the beginning of the period, notably reduced by the cash-out related to the Unify acquisition in January compared to €989 million at the beginning of H1 2015 and a decrease in the interest rate. Reorganization, rationalization and associated cost, and integration in acquisition cost reached €96 million that is a €142 million last year and fully in line with €150 million 2016 objective, as large portion of cost was pulled forward into H1, in order to optimize the impact in the full year operating margin. Other changes amounted to €3 million negative. As a result, Group free cash flow reached €181 million up 74%.
I move now to the next slide show in the cash conversion, which is a key KPI, we are focusing on from financial, but also operational point of view. This semester, we already recoded a significant increase of the cash conversion, indeed our H1 cash conversion was 41% strongly increasing from 29% last year. This was reached thanks to an operating margin not including pension one-offs. A decrease in restructuring and rationalization, the effect of a lower tax rate on larger profit and a tight control of our CapEx. We are well underway towards the full year objective of 50% this year compared to 43% in 2015 and 40% in 2014.
Turning to the net cash evolution. As a reminder, statutory net cash positions stood at €593 million at the end of 2015. Free cash flow for 2015 was €181 million. The net impact from acquisitions and disposals was €322 million, mainly due to the Unify acquisition paid at the end of January. Reflecting the stock options exercised to land capital increase totaled €21 million in the first-half. And as part of the sale of Visa Europe the Group received €36 million from Visa Inc. The volumes compared to the €51 million proceeds represent shares in Visa Inc. and a three year receivable from Visa Inc. as well.
In the first-half of 2016, dividends paid in cash amounted to €47 million. The increase compared to last year mainly reflecting the increase of dividend from €0.80 to €1.10 per share.
Finally, foreign exchange rate fluctuation represented a decrease in net cash of €49 million mainly coming from the British pound versus the euro. As a result, net cash positions to that €412 million at the end of H1 2016.
My last slide shows the main items of the Group balance sheet. Shareholders’ equity slightly decreased by €130 million, mainly resulting from the following items. Net cash was already covered decreasing by a €180 million further to the acquisition of Unify broadly compensated by the increase of the goodwill.
Net assets and liabilities held for sale relate to Unify software and platform discontinued operations and amounted to €87 million. Net pension deficit increased by €218 million coming 70% from interest rate effect and 30% from Unify services integration. All in all, the total assets of the Group at the end of June was €12.1 billion.
Thank you very much and it is now back to you Thierry.
So thank you Elie, and over, then, to move on the last slide. During our investor day in November 2017, I fixed targets for 2016. At that time, we committed to develop a group reaching €10 billion of revenues, €0.9 billion operating margin and between €450 million to €500 million of free cash flow at the end of 2016.
As of today, we foresee that Atos will generate in fact, this year circa €11.5 billion of revenue, €1.1 billion of operating margin and more than €550 million of free cash flow. At the same time, during the three years period, the net cash position of the Group increased by €0.5 billion and we estimate around €800 [ph] million at the end of the year.
By doing so, we kept intact to the Group capability to finance its future developments. I believe this is a way one can see the delivery of our past three years’ plan.
During our next Investor Day on November 8, we will give you our next midterm targets on which we will commit. Thank you for attention and we are now ready to take your questions.
Thank you. [Operator Instructions] We will now take our first question from Brice Prunas from Exane BNP. Please go ahead. Your line is open.
Yes, good evening, gentlemen, and congrats for this great H1 performance. I have two questions. The first one is to come back on your top-line guidance raise. I’m a bit surprised by the magnitude of your upward revision, because I had in mind that in H2 you had 50 bps headwind from Worldline. So in fact I would like to understand what does offset that for H2, because particularly you guide for the same level H1 to H2 give or take in term of growth.
So if you could give some granularity in term of these or regions that are driving the growth. And the second one is focus on North America, where you basically do very well both in growth and margin. I would like to know if you could elaborate on what is driving you so successful in that region. Do you have for example a temporary effect of the spinoff at Xerox Group happening now or do you have already most on to effect in Q2? Thank you.
Thank you, Brice. So maybe Elie will take the first question, and of course, Michel-Alain will take the second one. But I should tell you, Brice, that of course we saw growth in all our service line. That’s very important. And this is really the effect that I mentioned and in particularly this is much better than I did, the impact of our strategy to leverage our services on all customers. But we still have a lot of work to do. It is not the end of the game of course.
But we see tremendous opportunities and also I should tell you that in some things we are pretty proud chart [ph], I should say, is the fact that we are monitoring of course the fact that our customers now are really promoting Atos’ offering. More than 50% is a very high target. We are in a good - in a very good, range. So we are pretty optimistic, yes, to be able to see the growth continue in second half the way we saw it in first half in all our service line. But Elie will give you more details.
Hi, Brice. So to answer your first question we are expecting clearly an acceleration in C&SI, in Consulting & Systems Integration. It was roughly the order of 5% in H1. It was negative last year. And we are expecting to be around 2% in H2. In terms of geographies, what we can say that we expect an acceleration in the UK, going back to positive in the second semester. And I think, by the way that the book-to-bill which has been reached at group level, but in particular in the UK.
And the deals that we have in mind are also for the second semester, Patrick, [ph] and maybe as soon as Q3, are consorting this acceleration that we are anticipating for the UK. Additionally, I must say that in Germany, in France and of course in the U.S., we are expecting continued high growth in the range of - in the area of 3% or above. But I think that’s the right time to give the floor to Michel-Alain for the U.S.
Yes, Elie. Brice, in a nutshell we had really in the second quarter, you see here the materialization of the same recipe we had in Q1, but with an acceleration. There is really three points. The first one is the fertilization of our accounts, mostly coming from Europe we begin to see into our revenue the deals that we were not capturing in the U.S. coming from our European clients. The second point is Xerox by itself, there is no impact of any carve out or nothing. It is just that we are actually more scope, more volumes than expecting - than expected, and actually we are providing, as you know, separation services for Xerox in the context of the cut of Xerox into two companies.
And then the third point is what Elie was saying. We have been extremely successful in the - since the beginning of this year into materializing our digital edge strategy. I think I have told you so in Q1. The white stones for this quarter is the beginning of the ramp-up of our contract with the leader agricultural company in the U.S., and that was the first thing.
And the second thing is the signature, and Patrick discussed about it, about this digital edge infrastructure deal that we signed with Texas DIR. So you see Texas DIR not yet into the revenue, but into the order entry.
Okay. Thank you very much.
Thank you. We will now take our next question from Stacy Pollard from J.P. Morgan. Please go ahead. Your line is open.
Hi, thank you. Can I just dig in on the Big Data & Cybersecurity question, actually? What is the average size of a deal there? How does that compare to other areas? And then, what portion of that is really a recurring element? And then is the 14% margin in that business sustainable or could that even improve further as you scale or as your scale increases there?
And then, a sort of different question. Can you remind us of your midterm cash conversion targets and how you progress along that path?
Elie, you could take the questions. Just for the margin, we have already a pretty good margin. We are happy with it. And since we see a lot of growth momentum today, and it is not usual for me to say that, but I will prefer to maintain the margin and to use what we generate to continue to improve our gross revenue. Elie?
Yes, Thierry. Hi, Stacy. So on BDS, the size of the contract is slightly lower in managed services, for example. So we are - for HPC contract, we can be below between €10 million, €20 million. For security solutions, it can be a bit smaller, but it is very often embedded in infrastructure contracts and it helps us cross-selling, so it’s much more than the security solution revenue that we get thanks to this. We also have for some big HPC contract with some big customers longer contracts with a higher TCV, which can be from between five and 10 years, which includes the new generation and the renewal of the HPC. So there you get to, of course, higher TCVs.
Your second question on BDS is about the margin and the growth that we see as sustainable, as Thierry indicated, and for the cash conversion, our target for this year is 50%, but our midterm target is to be above 60% and we will, I think give more flesh and details on that, on the trajectory, at the Investor Day on the November 8.
Can I ask one really quick modeling follow-up? What tax rate should we be using in H2 in 2017?
So H1 was 19.8%, and I think it’s a good guess for the next 10 years.
That’s what we call visibility.
Thank you. We will now take our next question from Gautam Pillai from Goldman Sachs. Please go ahead. Your line is open.
Yes, thank you. Hi, guys, it’s Mo [ph], actually. Could you just comment a bit on the second half, again, as you are implying no acceleration? I know the UK has been a drag, but that level of drag has decreased. What is sort of your assumption around the UK for the second half and do you think that some of the strength you have seen in France could be sustained into the back half?
And then, the second question was just if you could update us on kind of your plans for Unify. I know you had indicated that you may look to kind of sell off the software asset now that kind of the restructuring is running slightly - has been accelerated. Can you update us on where the plans are there?
And then, finally, just on M&A, given the stronger cash conversion build of cash, can you update us where you are on the kind of M&A pipeline? Thank you.
So on the questions on H2, UK and France. So in the UK, you have to remember that in H1 2015 we had big one-offs, especially with NS&I, which is the root explanation for the apparent decrease in H1 this year. So in terms of numbers now for H2, the only thing I can say is that we will grow again in H2 in the UK and we will be more precise over time, of course. And in France, we were above 3% in H1, and I think we should achieve a sustainable circa 3% for H2.
Yes, so as Unify is concerned, we are obviously focusing on the very strong growth between plans, which has been described, and we are quite happy with this implementation that we are doing, so restructuring faster than expected. And we thought any type of turmoils that means by keeping the people focused on delivering their figures, which make us comfortable, as Elie mentioned to deliver the plus €10 million net income and at least €100 million EBITDA by 2017.
We always say that we are going once the restructuring is done to look at partnership, which could at the same time increase the business of Atos on the long term through more service, but also to find - to maximize the value creation for Atos.
And I should say that we are reasonably confident that we may finalize at least this part of the next few months. We will discuss this on our later presentation. And by the way, we just had a Board meeting before this announcement, and this is a subject that we follow regularly at the Board. And I think the Board was - which all are happy with what we explained on this matter especially.
So this being said, yes, you’re right, we are in a very solid position in term of net cash, and it’s true that we continue - it’s not a surprise to you - to look at opportunities, but always with - always our financial discipline and making sure that we can create value with our acquisition the way we did over the past eight years. And we will continue to implement the same financial discipline.
We have opportunities, Mo, that’s true. We are looking at it and it’s not a surprise. You could imagine where - Michel and I, we are looking at the U.S. So we have interesting things in the U.S. going on, but not only, and of course, as you know, Worldline on its part will also continue to look at opportunities.
So we have plenty of things on our plate, but we are moving at our speed and, again, making sure that every move we will make will create as much as value creation in the future that we did in the past or even more, if we can, because nothing it is, of course, impossible. I just wanted to add, Mo, that in term of the UK, we have very good potential opportunities to have new signatures, both in public sector and in private sector, and they all, Patrick that we can have that journalist community for our next presentation at the end of October.
Yes, absolutely, Thierry.
Great, thank you very much.
Thank you. We will now take our next question from Michael Briest from UBS. Please go ahead. Your line is open.
Thanks. Good evening. In terms of the slide on automation I think, there is clearly some strong progress there. My understanding would be that the clients would expect to see some of this coming back to them in terms of lower pricing. Your tone on the managed services business is still fairly robust. I’m just wondering how you’re managing to retain that for a period of time, but over the longer-term you would expect more pricing pressure to come in. Can you sort of talk about the growth rates in managed services.
And then Elie, maybe you can just talk a little bit about Unify. And going back to the slide from November last year, you were targeting €400 million of sales on a €40 million EBIT. It looks as though including some of the discontinued activities you’re running ahead of that at the half year. What sort of number should we be having in for the full year for 2016 on Unify. Thanks.
Hi Michael. So on your first question on automation what is really key to understand and maybe, Michel-Alain, you will complete on that is that we benefit from all those partnerships that we have signed. We are benefiting from large drop of the unit cost. So when we move a contract to an automated solution, we benefit from large drop of unit cost. And of course, which is part of it to a big part of it to our customers, but since we are ahead in terms of competition. We are ahead in terms of technology versus the competition. This is the time lapse that allows us to keep a part of the cost decrease. And this is exactly how we have materialized in H1 these improvement of margin in managed services. And this is what will continue over the next semesters. Michel-Alain…
On the second topic which is Unify. So that’s what I explain at the beginning of my presentation. So what we did Michael, is that we included the revenue which is made by what we call CCS which is the part of Unify, which is consolidated into MS, into managed services. We included the revenue made by this part by MS with the discontinued operation which is software and platforms. Okay. And this is why did we do that compared to the time we announced.
We did that, because it’s more consistent with the margin. At the time of the announcement, we accounted of course the margin was both the margin on the external revenue and the margin on what we call internal revenue with S&P. So you have the margin, but you have not the flow of internal revenue. And we want it to make it square into include that to put it back the flow of internal revenue, which is considered in fact as external revenue to be square and to be in line in consistent both between the margin and the revenue. So it’s true that mechanically, it decreases a bit the rate of operating margin, but we thought it was more consistent to do so.
And for the full year will that mean the 400 is more like 500 or in revenue?
Yes. Even more than that I think, it would be more between 550 and, yes, we’re around 550, I think.
And then, just finally, so when you put in the slides that H1 Software & Platforms lost €31 million, that is still in discontinuing? That’s not going through your books?
No, that in discontinued operations, okay. And again as I said it’s reaching on the slide. We are in line with our objective of €10 million net income positive plus €10 million net income for these activity which is discontinued and that we want to sell for the full year. So which is consistent with the restructuring plan that for which I showed the number and that was also commented by Charles.
All right. Thank you.
Thank you. We will now take our next question from Amit Harchandani from Bank - from Citigroup. Please go ahead. Your line is open.
Good evening. Amit Harchandani from Citigroup, and thanks for taking my questions. Three, if I may. My first question relates to your healthy performance in the first half. How would you attribute your performance in terms of growth in the market versus competitive market-share gains, and how do you see yourself positioned against competition in the second half? Is the raised guidance a function of share gains or simply market evolution?
Secondly, with regards to the cloud, I believe the comment made was that is incremental to the margin. Could you please remind us in terms of your cloud revenues how does that break down between infrastructure, platform, software, or any other means by which we could get more insight into your cloud revenue?
And finally, on automation, besides testing, any other areas that you would particularly highlight where you see automation accelerating? Thank you.
Yes, so on the first question, Patrick speaking…
Yes, Patrick will take the first question, and Elie, you’ll take the second, and Michel-Alain, the third one. Please, no more than four questions, because then we forget the question. Thank you.
So, yes, on Patrick speaking, on the first question, on the growth, it is a mix actually of market share, transformation, and cross-selling, because, as I explained, we are focusing on our core accounts, on our key accounts, and all those accounts we are selling transactional offer, which involves many service lines. So by just leveraging this, we achieved a good part of the growth.
And of course, we still have room of improvement, while increasing our cross-selling operations.
Of course, it is just the beginning, so we…
The beginning, yes. Michel-Alain?
Yes, Thierry. So I think there were actually two questions, one about cloud and the other one about automation. So beginning with cloud, the offer which is today the most successful into our portfolio is what we have called in Atos digital edge infrastructure. What is it really? It is an orchestrated and automated hybrid cloud, which combined legacy enterprise, private cloud and public cloud. All of this in all this estate, the workloads are totally automated and orchestrated.
We have chosen Charles two years ago to use ServiceNow to do entirely this orchestration and that’s exactly this framework that Charles have sold with the team to Siemens and that we have sold to this agricultural company, I was referring to in the U.S. and that we have sold to Texas DIR. Why is it so interesting? Because it allow the customer to decide process by process which workloads they want to keep into legacy. The one they want to put into an enterprise private cloud, or the one that they want to put in AWS or Azure, which are the two public cloud with which we are the most working.
The second point about automation, I think your question was about where is it that it is accelerating. The first point in which is accelerating is cognitive computing. That is by far, by far, by far is, and particularly in the U.S., but in Europe too, and always, most of the time, this type of innovation is beginning in the U.S. It is by far where we see the market is trending. So where is it affecting us? At many places into our portfolio. Cognitive computing on our Codex platform, cognitive computing on our service desk platform, cognitive computing in help desk, cognitive computing in infrastructure.
So, you see it is a transverse item and we are putting into motion the software and the solution that we have developed and adapted with our partners, you know them. We are talking about IPsoft. We are talking about [indiscernible]. We’re talking about Apprenda. We’re talking about TARGO [ph]. These are the software editors with whom we have a very, very strong element, obviously all of this based on the infrastructure that we mostly delivering with the EMC Federation.
I mean, I just wanted to add one point, is that, as you probably know, we have decided that Michel-Alain, who is obviously extremely important for our company, decided to move and to leave now with his family I could say, Michel-Alain in the U.S. And if I say so it is because we are not reading papers here. We are making the industry. Michel-Alain is spending a big bunch of its time understanding the reality.
I know that between some of you we have some evangelist believing that the cloud will change everything and kill our business, which are just the reality. Michel-Alain is spending his time with all the players in California, in North America on the west coast, on the east coast, everywhere and bringing new opportunities, new potential acquisition.
We see soon one of them, probably, or fully, if he talks. And again, understanding exactly what our customers are willing, adjusting, they’re willing. So on one hand, you read papers on the other hand, you see the reality that’s really why we decided to organize ourselves this way. Thank you.
Thank you, gentlemen, very helpful.
Thank you. We will now take our next question from John King from Bank of America. Please go ahead. Your line is open.
Great. Thanks for taking the question and congrats on the successful first-half. Just wanted to follow up briefly, Michel-Alain, maybe on the automation point, just clarifying your win rates there, what you are seeing. I guess, the implication is that you are seeing better win rates where automation is involved. Is there anything that you can give us there from the North America perspective or perhaps just more generally?
The second point, maybe for Elie, on the Unify Software & Platforms business, can you just update us on the growth of that business? Did it stabilize in any way, the business that you are not consolidating? And then, the last one was on the UK point. I think, maybe I misheard, but I think, you said something about UK restructuring.
Can you just give us a bit of background there as to what you are exactly doing? I think, you said also that there was limited impact from Brexit, so just trying to understand what is the move in the UK. Thanks.
Thank you John. So Michel, you take the first question.
Yes. Sure. Yes, John. So as a follow-up of what we discussed together, indeed the automation by itself is bringing more in rate. I mean, here I can really not giving you right now a percentage, but for sure what is happening on the market both with automation, cloud and orchestration. These three items and obviously cognitive computing, but cognitive computing is a consequence. Is that compared to what it was two or three years ago.
Now, the client has a choice to make between very different model. The model we are bringing is a model which is based on technology and on innovation. So obviously, it appeals to CIOs who are ready to take the next turn. And it’s we are not at all any longer, it’s really my view in a situation in which all solution are completely similar from one player to the other.
And what we are doing is we are reinforcing this innovation, this technology to make us even more different. I mean, I told you about the digital agent on in order to do on help desk. Instead of calling someone, you’re calling a digital agent. I mean, that’s a very good example compared to a traditional model.
Hi, John. So on your question on Unify top line. So, what I can say is that as you know the company was decreasing when we bought it. I can say that in H1, even if we do not report the numbers. In H1 clearly, we reduced the decrease. So it was a near slight decrease. We intend to stabilize the revenue over the year in 2016 and we are focusing and anticipating and expecting solid growth in 2017. So that’s for the top line of Unify.
For the UK restructuring, so what Thierry was saying what we have done is that we built a contingency plan is to be actioned if the risks are materializing. And we have a plan, which is especially focused on where we think the risks are, which are especially in the financial sector, especially, and in particular in the discretionary spending in the financial sector.
So we have built a contingency plan to be actioned in case of materialization of the risk, which is a €6 million restructuring plan that we will do deploying the restructuring - the restructuring from other DBUs. Since that, the target of €150 million of restructuring for the full year is absolutely maintained.
Got it. Thank you.
Thank you. We will now take our next question from Gerardus Vos from Barclays. Please go ahead. Your line is open.
Hi, good afternoon. I had two questions, if I may. Just first of all on the free cash flow, pretty strong kind of improvement, despite the working capital outflow, and there is still a relatively high restructuring. If I extrapolate kind of on the line and kind of improvement, I get far closer to the €600 million and the greater than €550 million for the full year. Are there any other kind of factors I should take in consideration there which I perhaps missed? And secondly, could you help me with the utilization rate for the business for Q2? Thank you.
We will not give you another guidance, of course, but we said it was €550 million. We thought it is enough, at least as a guidance.
And on your more precise questions, Gerardus, on restructuring, you said it is still a high level. Indeed, we still want to decrease in the next year, but I just want to reiterate that the H1, the €96 million you see for restructuring, rationalization, and integration costs in H1, is not reflecting half the amount of the full year, because we always pull forward into the first semester or as soon as the beginning of the year the cash out to be able to maximize the impact on the operating margin. So in H2, we will be at €54 million of restructuring, rationalization, and integration costs. Just wanted to precise that. I think on the total free cash, Thierry answered.
And maybe another point on the CapEx, the CapEx for the full year, we had many questions in the past about that with the cloud migration. Is it more capital intensive? No, it is not, or at least we know how to make it not more capital intensive, and we will be around 4% of the revenue in CapEx for the full year, and here you have got a little seasonal effect in the other direction, if I may say. And you’ve got the same on the change in working capital, where you have a minus €22 million in H1, and I still anticipate to be broadly neutral in change in working capital for the full year.
Very clear. And Elie, on the utilization rate for Q2?
On the utilization rate, we continue to improve in H2 versus H1, especially in Germany. I think where that was a geography where we had some issues in the last quarters, as you know, and the increase of the utilization rate was shown in the figures of growth, especially in the last quarter. And, of course, this increase of utilization rate is embedded, is included in our growth target.
Okay. Thank you.
Thank you. We will now take our next question from Charles Brennan, Credit Suisse. Please go ahead. Your line is open.
Thanks very much for taking my questions. I have got two, if that’s possible. The first is just a clarification on Unify. You recorded €89 million in the pro-forma base relating to what was going to be discontinued activities. Can you tell us what came in, in 2016 relating to that line item?
And then the second question is just about the drivers of profit improvement. If I back out the pension issue, it looks like you have increased profits by a very decent €80 million during the first-half of the year. If I think about the second-half guidance that you got, you are assuming much greater profit improvement during the second-half. But a couple of the big drivers of the first-half performance namely Xerox and Germany were already getting better in the second-half of 2015. So I am just wondering what the big driver of profit improvement is in the second-half. Thank you.
Hi, Charles, so on your first question, just to be - again, to be precise, the €89 million you’re talking about of H1 last year, five months, February to June, is not relating to the software and platforms. It’s not discontinued revenue. It’s the revenue of the services rendered by Managed Services to the client, the customer named S&P, Software & Platforms, okay. So if you like from a legal point of view, it’s internal revenue, because we own both entities.
From an accounting point of view, it’s external revenue. We accounted as external revenue because there is the margin, of course, because you got the margin in the numbers. So in this number this year just to make in, it is €91 million, so last year €89, this year €91. So it means no impact on the organic growth of the company is H1. So that’s for the first topic.
And second will be very easy, it will come from everywhere and I don’t want to comment. But we have the plan. This is again our objective. And we will do it. We will explain how we will do it, but this is a new commitment that we are taking. You’re right, it’s a challenge. But I’m committed that we will deliver it.
And just a quick follow-up, am I right in thinking you said there is going to be around €35 million of pension gains in the second-half of the year? Is that the last of the pension opportunity you’ve got or is there some roll-forward or further opportunities in 2017?
Charles, yes, I mean, it’s I mean nothing new compared to the time we issued our guidance. So we decrease - we divide by two this year, the pension effect, versus last year. So you’re right in your assumption. Then regarding after 2016, we will definitely continue to seek successful pension agreements to lower our pension deficit as we have started to do in the last years. Nevertheless, if we were to foresee additional positive pension one-off, we would, of course, disclose this at the time of the issuance of the guidance, so that you have no surprise.
Okay, great. And just one last one, if I can be cheeky, in the past, you have identified what part of the pension deficit you expect to be realizable and what part is not expected to be realized in your view. Can you just give us that split, given that the pension deficit has gone up? Thank you.
Sorry, I don’t want to be cheeky myself. But what do you mean exactly, Charles?
In the past you have suggested that some of your pension deficits not likely to be realizable as a genuine cash cost for Atos. Maybe I will take that offline.
No, it’s - to be clear what we do with those deals and what we did for example last year, to give you an example, because that maybe the kind of deal we will strike in the next semesters. The deal with the pension fund in the UK, which consisted in changing the indexation from RPI to CPI, which is something quite common in the UK as I am sure you know, we make sure that we manage to decrease as soon as possible the funding of the fund through this. So it means that what we seek to do is not just to have a pension one-off in the P&L in non-cash.
But we in the negotiations with the trustees we always want to get cash benefit, meaning a decrease of the cash funding over the year and starting the first year.
Right, thank you.
Thank you. We will now take our next question from Neil Steer from Redburn. Please go ahead. Your line is open.
Hi, thanks very much. And as you can imagine by now, most of the questions I had have been asked and answered. Just one follow-on, Elie, when you were speaking a moment ago about the revenues that were going to be excluded, but now are included, because of the Unify units within Managed Services supplying services to the old Unify Software & Platforms business, I think you said that in the first-half it was €91 million. But you seemed to imply from a comment earlier on the call that the delta was around about €150 million different to where you were previously when you - previously.
So is there a great deal of seasonality in that revenue stream from the M&S Unify Services to the Unify Software & Platforms businesses?
The figure was on 11 month, the figures you’re referring to. The €150 million additional is 11 month.
Is an 11 month figure; okay.
Yes, yes, because we closed at the end of January so we consolidate on 11 month this year. Sorry, it’s a bit…
Okay, that’s clear. Thanks very much.
Thank you. We will now take our last question from Alex Tout from Deutsche Bank. Please go ahead. Your line is open.
Hi, guys. Thanks, thanks for taking the question. Just a question on the Hybrid Cloud deals that you are signing. You mentioned that there is typically a split between more traditional infrastructure I guess, perhaps, we can call it private cloud; and more mutualized public cloud. Just on the deals that you signed so far what is the typical split between the two?
And then, zoning in on the public cloud part specifically, what is the split that you’re seeing typically between selling your own public cloud, so the Canopy solution and third-party public clouds? And do you typically resell, for example AWS or Azure, or does the client for that component typically contract separately with public cloud providers? Thanks.
Okay. So obviously the split that you are talking is 3%, okay. So there is a percentage X, which stay in legacy. There is a percentage Y, that go on an EPC or a digital data center. It’s the same thing. Okay, one is a big one and the other one is a small one, that’s why. And then, Z is a part that goes into purely cloud. Depending on the appetite of the client to put there their workload on public cloud we can see very different solution.
But the last two that sold in the U.S., it’s pretty much 30%, 55% and 15% in public cloud. And then part in public cloud can be larger if you have a very large need of storage because you have years of records, okay. But it’s good percentage to have you as a proxy, okay. And then, finally, in terms of public cloud I just want to be clear, we don’t have any public cloud, okay? We are not building, I think some of our competitor, if I’m not mistaken, HP have tried to build a public cloud, Helion, without much success.
But the public cloud providers are there. Number one is AWS. That’s the one with whom we have first signed a partnership and for whom we have developed what is called an API, which is a technical integration of AWS into our Orchestration model, okay. And then, we just signed the second partnership with Microsoft Azure. We did it with Charles, I think it was some months ago. And we are right now developing the same API, so same stuff, same API, the automatic integration of Azure into our Orchestration model done by ServiceNow.
And the next one, but if not this, I think it will be at the end of the year will be Google. But in term of I would say rank on the market, AWS, Microsoft Azure and then Google, so it’s the reason why we developed the API in this order. I hope it’s clear.
Yes, it’s clear. So just that - the 15% Z part of the deal that you mentioned then, that is reselling AWS or Azure, in most instances. Is that correct?
It’s reselling the workload and putting on top our layer of Orchestration which by itself has a value. Okay, it’s not the straight resell.
Great, that’s really clear. Thank you.
Thank you, all. Thank you for being on the call tonight. So we will talk to you for our release of the Q3 revenue. And then, of course, I will be very happy to welcome for our Investor Day in November, on November 8 in Paris. Thank you, all.
Thank you, ladies and gentlemen. That will conclude today’s call. And you may now all disconnect.
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