Alten S.A.

Good day, ladies and gentlemen. Welcome to the Alton call on activity at the end of September 2021. This is the speakers and the operators announcement. Please observe that this call will be... Listen only during the session, but after the presentation, you may ask questions. You can do so by pressing star 1 to have your question recorded. If you need assistance, press star 40 and you'll get an operator on the line. I'd like to give the floor now to Mr. Bruno Benelier, Deputy Chief Executive Officer, to begin today's call. You have the floor, sir. Thank you. Good evening, everyone. This last quarterly call of this year has to do with Q3 2021, a fairly surprising year if you just look back six months. Recovery in business was stronger than expected in Q3 and grew further in the subsequent quarter and in all geographies. In automotive and civil aeronautics, they were hit by the crisis. Nevertheless, business levels still down below pre-COVID levels in spite of it all. Business resumed in both of those sectors. It was a mix, though, from one geography to another. Revenue ended September 2021, $2.130.4 billion, which is up 20.7% versus Q3 2021. In France, business grew by 9.7% outside of France, up 27.8%. Like-for-like exchange rate and scope, business up by 9.5%, 5.4% of which in France, 12.1% out of France. 2.1% out of France. Now to just look at the quarter, business grew 40.2%, 48.7% internationally. Organic growth reaching 23.9%, 19% in France, 26.9% outside of France. Now, logically, business continued to grow, reaching 92.9% group-wide. As of end of September, 91%. Revenue slightly above normative rate, 92.5% for Alton Group in the period. All geographies came back to rates above 90%. Furloughing was halted everywhere as of the end of July. Headcount therefore began growing again in the period. Reminder, 33,800 employees as of... End of the period, 38,500. End of June, 33,000-some engineers. Now 40,700. End of September 2021, 35,700 engineers. Excluding acquisitions and divestments, headcount of engineers, 32,943 people, which is sequentially up 4,344 since the beginning of the year. 151 engineers in France, 3,300-some outside of France. Business, end of Q3, broken down by geography, looks like this. France, activity is up. There's a positive base effect, but there's a negative still coming from civil aeronautics and automotive. France hasn't yet reached the pre-COVID level, still 15% down, like for like, except for multimedia. The Amadeus effect representing 3.5% of revenue in France. Automotive representing 8.6% of revenue. France still down by 13%. All other sectors are growing versus Q3 2020. Multimedia, automotive, aero, versus pre-COVID levels. Buoyant sectors are energy, 16% of revenue, pharma, 10%, automotive and rail and naval, and then defense and security. Most of these are growing by 10% or more. As you'll have realized, I'd specify organic growth rates are given year-to-date end of September versus previous year to end of September. If we look at the quarterly activity like for like and compare it to overall group activity in beginning of 2020, business before the COVID crisis began In some locations, in spite of positive organic growth rates, we've still got some business levels that are lower, activity levels that are lower than was the case end of 2020 in some locations. End of Q1 2020 in some locations. Internationally. Business growing strongly in all geographies, all in all going beyond the pre-crisis level. Only Germany and Scandinavia where automotive and civil aeronautics are major. They're still down lower. North America, U.S., 80% of the North American geography. Businesses going up, growing by around 10%. It's gone beyond its pre-crisis level, including automotive, representing 20% of U.S. revenue, in spite of oil and gas being down 7% of revenue in the U.S., and telcos representing only 5% of turnover in the U.S. Canada, growth speeded up, reaching 30%, thanks to finance, tertiary, about a third or half of local, then telcos 20%. and life sciences, 10%. Germany, activity reaching similar level as at the end of September previous year, but still 10% down versus pre-COVID, mainly impacted by aerospace, over 10% of turnover in Germany, still down by 40% versus the pre-COVID situation, whereas recovery in automotive, 46% of turnover in Germany, speeded up in Q3, So now 10% below its pre-COVID level. Diversification like finance, 10% of revenue in Germany and other industry, 8% of turnover in Germany, growing strongly by 65% and 45%, respectively. Spain, activity growing by 7%. Pace of recovery speeded up in Q2 and Q3, thanks to defense and security, other industry, and aerospace. In Italy, growth remaining at 30% at September. Never stopped growing in spite of the crisis. Strong growing everywhere. Strongest growth to be seen in automotive, plus 50%. making up 20% of revenue in Italy. Defense and security, 12% of local revenue. Other industry, 80% growth, 12% of local turnover. Scandinavia. Activity like-for-like Forex and activity recovered, reaching a balance year-to-date end of September, but still 20% below the pre-crisis level. Finland represented 20% of the zone. Activity grew by 6% in industrial equipment, which is the bulk of business in the country. Sweden... now only down by 2.5% year-to-date, but somewhat of a more sluggish recovery in automotive and heavy vehicles. Telcos, 7% of revenue, but diversification areas such as life science, 7% turnover, energy, and rail growing strongly. Benelux activity grew by 8%, reaching its pre-crisis level, growing by 7% in Belgium. Except for tertiary, all the major sectors are growing, particularly pharma, representing over 40% of local revenue, up by more than 20%. The Netherlands activity up by 8.5%. Electronics and semiconductors representing around 40% of revenue in the Netherlands. All other significant sectors are also growing. Asia Pacific. Scope grew by 26%. Growth speeded up substantially, as you saw, in Q3. Growth grew by 40%. Asia-Pacific now is around 50% above the pre-crisis level. India, representing 30% of the APAC region, growing by 20%. China, representing 20% of APAC, growing by 30%. Singapore, 15% of the geography, growing by over 100%, thanks to activities in oil and gas. Sorry for coughing into the microphone, says the speaker in the UK. Business up by 4%. Business going beyond its pre-crisis level. Growth speeded up substantially in Q3 thanks to a big uptick in automotive, aeronautics. one vehicle equipment maker, defense, and tertiary. Switzerland, a little impact by the crisis, saw a big boost in business in Q3 in pharma and industry. Eastern Europe, lastly, strong growth thanks to Poland, representing 56% of the geography, growing by more than 60% thanks to finance and automotive. Romania, 40% of the geography, business grew by more than 12%. Now, of course, growth in business in Eastern Europe or Asia is due to local business with local clients. When these countries act as subcontractors near shore or offshore for clients from the U.S. or from Europe, corresponding revenue is booked in the companies that invoice the final client, European or U.S. companies. Recovery in business in Q2 speeded up in Q3. All activities saw benefit, including automotive and civil aeronautics. Now let's look, as usually, this activity by sector. Automotive, 16% of revenue. Automotive started to recover in Q2, and that was further confirmed in Q3, as we expected. In year-to-date, end of September, business sees positive growth of 3%, but still is 15% below the pre-crisis level. I think good.

At the lowest point, let me remind you that auto business was down 35% versus the pre-crisis situation. And some of the way it's been achieved at the OEM situation is contrast. If French, Swedish... The British and some Germans are down, whereas the other Germans, Italians, Americans, and Chinese are sharply up all in all. The manufacturers are down 3%, representing 30%. The equipment suppliers are up 20%, even if the performance varies depending on the client. Rail, naval, 4.5% of revenue doing well, up 13%, even if rail's growing far more slowly than naval. A significant part of the growth was achieved in the naval sector. At naval group, up 39%. The pre-COVID level has been exceeded. Aerospace and now 11.1% of revenue, up 2%. The business rebound in space is very vigorous. We anticipated even during the crisis last year, knowing that launches were going to resume later. After the crisis, we didn't anticipate such a strong rebound. It's of the order of 40% aeronautics, down 1.5%. Business has picked up sooner than expected, but remains 25% below its pre-crisis level. A 20% gap was filled in a year because a year ago we were at minus 45% versus the pre-COVID situation. Defence and security activities, that's 5% of our revenue, up sharply, more vigorous than expected. Growth 25%, also significantly topped the pre-COVID level. Energy represents 11% of revenue, is accelerating its growth to 9%. Sorry about that sound interrupt. Oil and gas, 6% of revenue is still down after the budget cuts last year, even if activity is picking up because of a resumption in investment plans. Demand is set to rise because prices are rising and underinvestment has been chronic in the sector for several years. in spite of the determination by all governments to strongly develop renewables, There won't be any reinvestment in fossil fuel, at least during the transition period. Nuclear power, 3.1% of revenue continues to grow by about 10%. Trends are very favorable. Energy equipment, 3% of our revenue accelerated its growth rate, exceeding 25%. Life sciences now... reach 10% of Alton revenue, barely half that four or five years ago, up 15%, pharmacy up 20%, medical devices up only 2%, 3% of markets set to grow rapidly again. Next year, other industries account for 6% of revenue, up over 20% at a level far higher than pre-COVID levels. Telecoms, close on 6% of revenue, slightly up as always. Activities, stable. Telcos, 4.7% of revenue, up 10% with equipment suppliers. In spite of this, it remains disappointing because telecoms activity hasn't yet fully returned to its pre-COVID level, even if it's closed. Electronics and e-commerce, 6.9% of our revenue is up 10%. a very significant increase, of course, in semiconductors and electronics as well as e-commerce because of the resumption of projects at Amadeus. Lastly, finance tertiary, 23.8% of revenue activities up in bank finance and insurance, plus 5% as well as in retail and services, plus 15%. The pre-crisis level has been exceeded all in all the sector sectors. is up 11.5%. In summary, aside from auto and civil aeronautics, to a lesser extent telecoms, all sectors have returned to a higher level than pre-crisis. The prospects for a catch-up in auto and civil aero, so there'll be interesting growth in the coming years. M&A, external growth, as you know. During the first half, we made four acquisitions in France and international that I won't discuss, all consolidated at 1st of July 21. In Q3, early Q4, we finalized two new acquisitions, one located in China slash U.S. It's a company that does development software for auto and telecoms, working for the U.S. market and for the Chinese market, a company that in 2020 achieved 60 million revenue with 1,900 consultants. In India, a company working essentially for the U.S. market, a little for Europe with auto, local front offices and sales, whereas all the engineers are located in India, a company specialized in product engineering, onboard system, ADAS system, and digital tech, a company that last year delivered 11 million in revenue with 990 consultants. 421, the year 2021 is said to be a good year, Contrary to all expectations, activity is rebounding faster and stronger than anticipated. We hope the momentum will continue into 2022. Our margins have picked up. We achieved some interesting acquisitions, larger, strengthening in Asia. Our due deals are currently underway. As a consequence, organic growth is set to exceed 10% slightly this year. I'll now hand over to Q&A and be happy to take your questions. Ladies and gentlemen, if you'd like to ask a question, please press star 1 on your telephone. And please make sure that your line has not been muted. I'll let you know when you can ask your question. Please press star 1. We have questions. The first is from Mr. Emmanuel Mato-Odo. Good evening, Emmanuel Mato from Odo. I hope you can hear me. Well, I had three questions, if I may. How are you currently managing growing Tensions on the labor market for executives. Talk about pay inflation and shortages in certain sectors. So what's the situation for Alten? My second question, should we worry about a business slowdown linked to a shortage of components, seven-year clients in order? I'm sure that several manufacturers are postponing orders. certain projects. My final question, can I have an idea of the profitability of the acquisitions achieved this summer? We look at revenue related to the number of consultants. We can have questions. Thanks. Concerning labor market tensions, they exist. They're not specific to France. They're present across the world. We have a pickup in turnover that's returned to historic levels of 25% or even slightly higher in certain places, which is, if we look at things positively, a sign of good health of the economy. and the confidence of people because they're happy to leave their employer to find a job elsewhere. Now, our business, of course, is to deliver projects, but it's also, and we tend to forget, to have real recruitment. We, Alten, recruit thousands, dozens of thousands of consultants every year. We have real know-how, and today... We're not too impacted. We're not overly impacted by labor market tensions. I say we can maintain pay levels at hiring, but it's true that in 2022 that we haven't really increased salaries in 2021. We'll have to review the rates for new hires as well as for our employees. So we'll have to talk to clients about tariff increases. I read in the press today several of our clients, I won't mention names, but have pledged to deliver 2% or 3% pay increases. Those are just general increases. Of course, what will apply for their own employees will... have to apply for their subcontractors. It does pose a problem. Well, we have to manage that in our business, but these labor market tensions and such in certain places We're probably limited in terms of growth. I'm thinking of Germany, for example, where we have plans that we have difficulty in delivering owing to a shortage of resource. Also the case to a certain extent in India, not yet in France, but here and there we're encountering difficulties in recruitment to meet demands. It's not the first time that's happening, but then it's... down to us to be creative and to have the right projects to attract engineers. You saw through our organic growth rates in Q3, Q4 will also be a good quarter. We manage the situation, but you're right to point that out, both on pay and on growth. Labour market tensions today is an issue of concern. discussion and concern for us regarding the slowdown in the auto sector because of supply chain issues for components. For the time being, we're not affected. As you know, we're not at all involved in production. were involved in the manufacturing side through manual engineering, but production proper were not involved in. But on the other hand, what is to be feared is that If, lastingly, our auto clients can't deliver, they'll meet with cash problems, and six months on they may postpone certain projects. That hasn't happened so far. Not everyone has picked up with the same dynamism. There are geographies where business picked up very strongly, auto and others where it wasn't the case. But I can't really deny that. There's a risk that in six months some may decide to postpone projects. But you also know that auto manufacturers have major investments in R&D to massively decarbonize oil. and to move to electric vehicles fast. So I think they'll probably maintain a sustained investment level. Profitability of acquisitions. Now, when we look at the revenue by head, it's not very high, especially in India. It's a company that works largely for the local market and revenue locally. per person is relatively. Now, when we look at the profitability by companies of the order of 7% to 8% profit margin before we acquired them, that is, post-acquisition, they'll probably be be improved profitability linked to the rollout of ALTEN management, project management, sales, bringing new projects. Conversely, very often we have to invest more for technical support, management, recruitment, sales and IS and administrative projects. because often it's quite basic. So take seven to eight as numbers, as long as they're not fully integrated. I can't tell you where we'll take them. Consider that they're at 7%, 8% of profit. Gross margins are not lower than those we can achieve in Europe, for example, but it's sure that revenue per head is It being quite low, notably for the Indian company, while obviously EBIT per capita is far lower, expressed as euros.

Thank you very much for those answers. We have another question from CSE Securities. Go ahead. Hello, everyone. Can you hear me? Yes, we hear you well. Hello. Hello. Congratulations on this rebound. First question. I only have one, actually. Acquisition prices. I know you don't disclose these, but when we look at these, back of the envelope, 48 million envelope, to integrate these and keep it the ratio as you expect, half year's worth of revenue. What about the acquisition prices and integration? That's the only thing I was wondering about. Answer, well, we have not changed the acquisition multiples much at all. If you look at enterprise value, we always pay around seven times. Seven times profits We're also paying earn-out based on the same multiples. So if you look at the price paid, including earn-out, go to the annual profit during the acquisition year, it'd be between 7, that's about the average price paid, and maybe 8, 9, or 10 in some cases when the company's booming. So in the financing tables, what you see in price paid for acquisitions, of course, you require some cash when you acquire a company as well. But the portion of payment includes some turnout, which usually earn out, which covers a three-year period generally. So we haven't seen an increase in multiples. Okay, well, thank you for that answer. Thanks a lot. And I hope you feel better soon. Thank you. Next question. On your panel. You have a floor. Hello, Bruno. Three questions. First of all, on hirings, net hires, are we seeing the same thing in Q3? I didn't get all those figures. 2,280-some hires in Q3, was that it? Could you tell us where things stand, if I remember properly? Previously, hiring didn't seem as high as it might have been, but these figures seem pretty good. Another question on guidance for organic growth, full year. You're seeing over 10%. But looking at it differently, is there any reason why Q4 organic growth should be much different from Q3 and Q2. I don't think there's a different base effect. That was the second question. Next point. If you were to recalculate our current growth, embedded growth, looking forward to 2022. Well, I'm looking up the answer to your first question. If we're talking about net headcount, end of June, I think end of June, up 2,180 engineers, about none in France, and most of these were international, therefore, 2,180. Around 1,360 engineers net headcount. excluding acquisitions, of course, without taking account of France. This is net because there were a lot of departures, particularly in sectors that are still down. There was hiring, though, in other sectors than internationally. 1,233 internationally. So fairly good quarter, right? That's right. Now into organic growth, Q4. Last year, the baseline effect was positive for Q3, even more positive in Q3. I don't know if you remember, but our business had continued to decline, particularly in aero and automotive versus expectations in Q3. Then there was a rebound in business that started only in Q4 So our expectation is organic growth in Q4, which necessarily will be lower than what we had in Q3 ordinarily, but it's not a done deal yet. After all, there are the Christmas holidays at the same time during that quarter. If we look at the number of time off, that could well have an impact on organic growth rates. So I suspect we won't reach the same figure for Q4. But we can be almost certain we will be above 10 for the full year. Now that other question, what's on board already, you can only calculate that once. year toward the beginning of January, first days of January. That's when you know exactly how many departures there were at the end of the year. So I usually give you that info during the January call when we disclose annual figures, when we see more clearly what the specific situation is in terms of departures during the year. We'll ask the question another time in the future. Okay, yes, in three months' time. Thank you. The next question from Sister General. Go ahead. Hello, Bruno. Sorry you've got a cold. Maybe you should get the flu jab. At any rate, I have several questions. Sorry to come back to some of the figures about net hiring, but we didn't hear those. And I didn't have the same as you for end of June, so we'd like to check this. Check against figures you've given as of end of June, what you said in July. 2,260 group-wide, including 100 in France. Which isn't the 2,080 you announced? 2,360. I may have adjusted departures of 30 June that happened after the payroll period, which closes out on the 20th, but not much of an impact. Figures ended June, which I have currently. 2,180. That's for the half-yearly, right? It's like for like. That's good. Like for like scope. Sequential, though, versus situation in 2020. We're talking about sequential hiring. 21 in France. 2,159 internationally. Q321. Again, plus 130 in France. 1,233 internationally. Yes, that's year-to-date nine months, including 115 in France and approximately 3,392 internationally. It's fairly symmetrical, right in line with what we lost in 2020, organically. Thank you, so we'll update that. Two further questions. One is easy, attrition rate. Is it under control? Is it becoming complicated to manage? Next point, acquisitions. The one in India. It's pretty high-end mechanical design, not low-end. We'd heard complex projects couldn't necessarily be put to... offshore. But we're talking about embedded systems here, and that's skills you have in Europe. Second point, also on acquisitions, China. A company of 68 million in revenue, if I heard that right. That's pretty infrequent, pretty big. Could you say more about this? What about these people in this acquisition? And what about clients in China? answer attrition rate on average 25 currently in the geographies that are above that would be India and Germany mainly next it's between 20 and 25 everywhere else the attrition rate so pretty well controlled right Absolutely, we'll have a handle on that. We're very accustomed to this. In 2022, there may be a wage problem in consideration, though, issue. Now, the company in India, yes. Some mechanical design, but mainly in the other business areas we mentioned. Embedded systems and digital technology technologies. Their clients... are either in the U.S. or well-known Indian clients or subsidiaries of U.S. corporations or European corporations that are active in India. Next. To tell you specifically the typology of projects they're working on and if they're as sophisticated as those where European engineers work, I can't tell you specifically, but what I can tell you is the projects are linked to these activities. This is one of the reasons for the acquisition. It's a company that's not in much legacy business. If there's greater demand developing in Europe and the U.S. for high-end offshore with lower costs for this type of business. This might be one way of keeping pace with demand. China, the company there, the parent company, well, the previous parent company was in the U.S., in California, and it held... Companies in China, so basically it was 70%, 70% to 80%, depending on the month, either with major Chinese clients or U.S. subsidiaries or direct business to U.S. companies via their front office in China. Sector of activity? very much automotive and telecommunications. It's a company that's only active in software development. That's what they do. Only software development. They have really rare skills. We identified them. This didn't go via a structured sale process. It's a company whose managers are Chinese, but they were trained in the U.S., and they reside in the U.S., for that matter, and work in the U.S., but they regularly travel to China. We got in touch with them, and that's how the deal was done. It's an interesting company. 1,900 consultants, soon to become 2,000 consultants. They're interesting. They bring in know-how in software development, precisely embedded software, communication software, and so forth, that boosts our presence in that area in China.

And contrary to our current Chinese activities that are for subsidiaries of China, of Western companies. This one has essentially US clients, be it locally or in the US. And so I didn't understand the split between the local business and the offshore for U.S. clients that are local. You say front office is Chinese for U.S. clients. Everything's done locally, right? No, there's one U.S. front office and a Chinese front office. So the Chinese company, the Chinese... There's one per location that work either directly for U.S. clients or via the U.S. front office for U.S. clients. They're in subcontracting mode via the U.S. front office or directly for Chinese clients, but the Chinese clients are either very big clients or U.S. subsidiaries of U.S. companies. My last question on the Chinese company. You said that the environment to grow in China is not ideal or stable or predictable. What made you change your mind on that point, especially in the current context, Chinese companies held by Chinese but in fact American? It's true that geopolitically, It's not the clearest situation. But what we find interesting in this acquisition was the skills that it brings us in an offshore market and its ability to work natively with U.S. clients and directly address U.S. clients without necessarily going via a local front office. because it does more business directly with U.S. clients than via its American front office. That's clear. Thanks. Look after yourself. Thanks. There are no further questions in the line. I'd like to once again... remind participants that you can put your question by pressing star 1 on your keypad. We have a further question. for Invest Securities. You're on the line. Your line's open. Yes, hi, Bruno. Hope you can hear me. Just a quick one on the sectors. Could you give us the change in Q3? I'm trying to do the maths, but maybe some rounding numbers if you have the... For Q3, by sector, you gave us the figures nine months, year-to-date. Well... So, Q3. Alone. Auto. I'll give them to you. Yes, please. Auto. Plus 23... percent rail plus two constant scope and forex otherwise it's meaningless aero plus 67 defense and security plus 35 energy plus 16 life science plus 17 Other industries plus 33. Telecom plus 5. Electronics plus 23. And finance tertiary plus 21. Perfect. That's great. Thanks. There are no further questions at this point in time. Back to Mr. Benoliel for the conclusion. Well, thank you all for joining this call. Apologies if I interrupted the call momentarily. Let me remind you that our next call will be held on January 27, 2022. on the 21 revenue, followed by the analyst's call that we'll probably hold in person. It's not yet sure to be held on 23 February next, we hope, at the Maison des Arts et Métiers. Till then, have a pleasant evening and see you soon. Bye-bye. Thanks for taking part in today's call. You may now disconnect.