Alten S.A.

Good morning. Welcome to the conference, Alten, covering our third quarter results. I will now hand over to Bruno Benoliel, the Deputy Managing Director. Over to you. Thank you. Good evening. Hello, everybody. Thank you for being here to our last conference call in 2022, which focused on our results from the third quarter. I hope you all received the information that was sent out just a few minutes ago. As you may have seen, if you've received this information, the activity has grown over the last 18 months in a stable manner, given the geopolitical and economic situation. Overall, numbers do not show any decrease in activity. This is in spite of the unfavorable consequences We've got $2 billion in revenue as of September this year compared to in France. Our activity has been increasing by 15.8 percent. Outside of France, 38 percent. Activity has increased in a stable manner. 18.8% in France, 13.2% and 21.7% outside of France. Acquisitions that have contributed to this represent 30% of the total and internationally 68.5%. In our third quarter alone, our turnover is 975 billion euros, an increase of 32% compared to last September, and an increase of 17%, 10% in France, and 20% outside of France. Our activity rate has remained quite high, 92.7% on the fourth quarter. an average of 92% across the year, which is better than our nominative total, which is 92.7%, generally speaking. Our turnover remains high, 28%, but our engineer headcount has increased by 150 people across the year, 530 in France and 80 outside of France. Others that have joined us from acquisitions represent 370 engineers. As a result, given that we had 43,000 employees at the end of December 2021, of which 7,150 engineers, so 46,000 engineers, 10,880 in France and 35,420 outside of France. These numbers confirm what I was saying to you last month during our meeting. There has been no change in trends And by geographical reasons, I will give you the results from the third quarter. In France, there's been no change. The increase in France is due to the aeronautic sector, which increased by 45% compared to other industry sector. Automobile, which represents 14% of the turnover, increased by... 70%. It saw a poor increase in 2022 and the volume increase was because of our offshore activity, which provided little value. This provided an increase of 7.5% in general. Growth in France, as you may have seen, decreased during the third quarter. 10% in Q3 and 13% across the year. In Europe, excluding France, our activity increased more than 10% with the exception of Switzerland. In the Iberia region, 22% increase. Sectors are growing strongly, aeronautics, finances, industry and telecoms. Activity is still strong in Germany, 23%. Aeronautics and energy is increasing by 30%. In Italy, growth has remained at 25% for the third consecutive year. All sectors are growing, especially the automobile, finance, security, defense, and telecom sectors. In the Benelux region, the increase is of 90%. And in Holland, there is a strong increase in the electronic and semiconductor energy sector. However, in Belgium, growth is stagnant. The aeronautics sector and defence and security defence are still showing a strong increase. In Scandinavia, an area where growth was quite stagnant in the third quarter, but growth then increased in the third quarter, representing 7.5 throughout the year, thanks to the automobile and transport sector. In Eastern Europe, there's around a 40 percent increase represented by 50 percent of Poland. In Romania, 40 percent again has seen a 20 percent increase in automotive and energy sectors. In North America, our activity has slowed down in the last quarter, 21 percent decrease. The main sectors are aeronautic, automobile, sorry, finance, telecoms, which represent at least two-thirds of our turnover. In the APEC region, 37%. China, 30%, thanks to the automotive industry. And the third industries represent 40%. Japan... is a key area in Asia, a 12% increase thanks to the finance and semiconductor industry. And Singapore represents a 50% growth, which is the same as Japan's growth, thanks to the finance sector. So you can see that the growth has remained constant in these geographical areas, with the exception of Switzerland, where the problems are purely managerial, which represents a significant percent, however, 3.8% of growth, the activities are growing, even though the rhythm is quite different. So to provide a little analysis of our activity by sector, automobile represents 70% 6% of our turnover and has grown by 30% and continues to do so. Daimler in Germany is not progressing however, but sorry, Daimler is growing significantly and growth is very sustained throughout Germany. Rail has grown by 3% thanks to Bombardier. Aerospace, 50%, thanks to civil aviation and Airbus. However, Safran Thales accounts have also provided significant growth in aerospace. Growth has picked up again, but only by 10%. All defense security and naval, which represents over 5,000 of our turnover, have grown by 10% across the sector, whereas energy represents 9% of our turnover is growing weekly. Energy represents 3% growth due to the gas. The fall in gas, which represents 7%, this fall, which is linked to the disinvestment, which has widely been seen across the sector, as you've seen, but has been highlighted by the withdrawal of Alten from Russia in our second quarter, which represents 21 billion turnover in 2021. It doesn't represent 21 billion euros over 2022, but it would be about half of our turnover of 2022. Nuclear represents 3% of our turnover and continues to grow by 5%, even though there's a shortage of engineers. And energy equipment are growing by 25%. Life sciences are growing 9%. especially in equipment and the pharmaceutical sector. Industrial equipment is growing 9%. Electronics and semiconductors, 25%. Telecoms have stagnated somewhat due to a fall in 20% with operators. Finance sector. 6% of our turnover is increased by 20% in North America and Southern Europe. Retail and services and the public sector is growing by 20%. And to summarize, over 95% of our activity, including gas, is growing, and it's a fairly strong growth. Related to external growth, We haven't any further acquisitions to announce which throughout the third quarter. However, we signed a FDA with activities focused on the earth sector. They're fairly specific, but not but they're fairly strategic for the group. There are a network of companies within the group which aim to distribute licenses in rare metals. It's fairly well developed over the last few years, and our business model is becoming more developed. And this is why we decided to stop this activity, which represented 142 million turnover and only 115 at the end of 2022 between the US and the UK. We should get further authorization in November. And I think maybe there will be some change end of November 2022. In terms of acquisitions, we have a number of projects in the pipeline which are fairly advanced. SBA negotiations are in progress and we should be able to announce the results by the end of the year, which will influence our external growth opportunities. In terms of opportunities by the end of the year, I think that we can confirm that our organic growth will be satisfactory and we should be, unless any major catastrophe, over 15% for 2022. If you could please now open the floor for questions so participants can ask any questions. Thank you. Ladies and gentlemen, if you would like to ask your question, please press 01 on your telephone keypad. We have a first question from Emmanuel Parot. Please, over to you. Hello, Bruno. I hope you can hear me. I have three questions. The first one, I'm not sure that I wrote everything down in terms of recruitment. I think that you had 190 recruitments. Is that correct? Yes. which is a good performance. I wanted to know what you are planning in terms of Q4, given that Q3 was so performant. Is there something that you wanted to do to slow this rhythm down? And then also I wanted to ask you about the costs. Did costs have an effect on your growth in Q3? And perhaps could you give us a little update on the negotiations in place for 2022. And then lastly, in terms of closing, could you perhaps tell us a bit more about the activities that you've discontinued? Thank you. Yes, recruitment in Q3, net recruitments, 190. So 80 in France and 100 abroad, sorry, 118 total. Q4 we have no forecast of what we're going to achieve. October was a very good month of recruiting but I'm waiting to see what the feedback is from the group and we didn't slow down our recruitment process. We still are keen on recruiting. Our activity levels remain strong. And I am hearing of a number of departures rather than staffing problems in terms of resources and projects. So we have a strong recruiting pattern in place, and we'll see what happens in Q4. In terms of the pricing effect, it's impossible to tell you precisely what impact this has had on our growth, because there are a combination of impacts that we're feeling on both sides. We can't tell you what comes from the cost and what comes from volume, I'm very sorry, but given that we have activities in a number of sectors and complex revenue models, it's difficult to determine what is going to be developed. It's something that was difficult to calculate given when the group was mainly focused on the consulting sector. It may have been easier back then, but now it's not. Then we also have this idea of client costs, which doesn't really provide us with any final conclusions or results. There's a combination of impact on our staffing because growth has led to hiring of more junior staff. So you can think that salaries have decreased because as they're more junior, it has a positive impact on our salaries and prices too. I suppose that this couldn't really allow me to give a structured enough response.

And when looking at the company we sold, this is a company for which the average margin is at the level of the group, so much more profitable when it comes to the average margin of the group. And we won't communicate on the assignment price. Okay, very well. Thank you so much, Bruno. Thank you. We have a next question from Gregory Ramirez for Brian Garnier. You have the floor. Yes, good evening, Bruno. I have two questions. The first one, to remain on the sell aspect, do you believe that there are still assets to date within the group? And second question, to try and understand, let's say, the organic growth level that we can hope for the whole year, because clearly more than 15% this seems obvious, but regarding the Q17, there's more than 17 for Q3, so, and the rest of the year, I believe that we will be closer to more than 17, rather than 15, you know, for the whole year. What do you think? Yes, regarding the sale, selling this company, in fact, has been done when we arrived to a conclusion that it would be better to sell it because we had a deep reflection on the evolution of different companies of our group. And this activity took very important proportions, obviously doing more than 15, so it is impossible for you to see what the software represents but if we were looking at different accounting system then you will understand that selling software is today almost 40% of our activity of the activity of that company and we are not software provider company when they enter the group it was a minor activity but it is an activity that is working fine and it is also a a reason for our development because also after that they can offer many services in relation to the implementation of agile methods, for instance, mostly in the IT sector. Then other activities in the group which would be not strategic today in our portfolio, we don't see any. So there won't be other activities, other companies sold, there's no new project to sell other companies of the group to reply precisely to your question. When it comes to the organic growth level, I said that on 2022, it will be above 15. But I didn't say it would be 15. So indeed, depending on the organic growth in Q4, we can imagine that the yearly turnover will be superior to 15, and it can indeed, it could indeed reach 17. This is not an unimaginable hypothesis, so it is possible, yes. Okay, very well. Thank you very much. Thank you. We have another question, a question in English from Aditya Budararapu from... Hi, Bruno.

Thanks for taking my question. First question for me. You, I think, previously said you would like to reach 50,000 engineers by the end of 2022. That looks a bit difficult, I guess, right now. So how do you think about the impact of that on 2023 growth? Second question, from your conversations with clients, are you seeing any change around demand or are there any concerns from clients around spending on R&D as they head into 2023? And then finally, I think previously you said that the second half margins should still be around 10% to 15%. Should we still expect that level of margins given, obviously, the very strong top-line growth? That's it. Thank you.

Maybe it would be more interesting to exchange directly in English with Aditya because I'm not sure I fully understood the first question because I don't believe I've mentioned 47 engineers to be recruited over the year.

No, reaching 50,000 by the end of the year, sorry.

If Aditya could perhaps repeat this part of the question, I could answer precisely. Then when it comes to the margins, we've communicated on the fact that first semester has been exceptional when it comes to margins, and the second one, second semester, will be with an operating margin necessarily lower. And I gave an idea of results. I said, I believe, that this margin for semester two will probably be between 10.2 and 10.5, if I'm not mistaken. So we keep this margin window and we will see at the end of the year what will be the final margin. What it will be sure is we will do more than 10% of operating margin for the activity on second semester 2022. And as a result, the yearly margin will obviously be superior to 10.5%. So if you could ask Aditya to please re-express his first question, or perhaps he could ask his first question in English directly, and I could directly answer, please.

Hi. So just to repeat the first question, I think you said you had a target of reaching 50,000 engineers by the end of 2022? Given that might be a bit difficult right now, how do you think that might impact growth in 2023? And the other question I had was, based on your conversations with clients, are you seeing any change in demand because of any concerns around the macro environment?

Thank you. Okay. So we currently have 46,300,000 engineers, so far above 40,000, but we will not reach the 50,000 engineers by year-round, that is for sure. We hope we will reach that number, of course, during H1 2023. Now, regarding the outlook for 2023, it's much too early to say what's going to happen and what will be the embedded growth, which will depend upon the end of 2022. I mean, how many people we will add during Q4, and also what will be the attrition of the engineers at your end. So, in January, I will give more information regarding the embedded growth, which, unfortunately, I'm not able to do now. Now, regarding the demand, it remains strong, to be frank. There is no deceleration regarding the number of bids that we receive. nor the time our customers need to make their decision when we answer a bid. We do not see any declining staff turnover either, which is normally a sign also of deceleration and the activity rate remains high, which is also a sign of high demand. The only perhaps vertical where we see a slight decline in the demand, which remains high, however, is the finance sector in some countries, but that's all.

Great. Thanks very much, Bruno.

Thank you. We don't have other questions. No more questions in French, no more questions in English. I do remind you, if you have a question, do not hesitate. You can press 01 on your dialer. We have a next question. of Derek Macron for Societe Generale. Yes, thank you very much for taking my question. I have two. First one is the French aspect, the NSPAD. Is it of STNA? Is it of an acceptable level? Or is it more than the average of the group of more than 28% despite all your efforts? Do you imagine... recruiting more, and despite your good efforts, this bad attrition really affected. We were trying to understand the dynamic in France because AT, obviously, is not so well. We've been used to you doing much better. And my second question is on the momentum for the automotive sector with the recovery in France and the very good growth levels that you can see on most of the German suppliers. Do you believe this is a sustainable trend, or is it about a rush at the end of the year and much uncertainty? Because it doesn't mean that it will continue the same way, so positively in 2023. So how do you see the trends evolving in the automotive sector? What about the demands? Yes. So in France, we have the two effects. We have a strong high turnover above 30% for France. So this is not helping. And we are also steering an activity rate, which is about 92, 93%, meaning that probably we haven't recruited enough. And I know that there are some EGF projects for which we have issues staffing in the nuclear sector. So clearly, We have a deficit. We are lacking staff in relation to a higher turnover and issues to recruiting for specific fields. But that said, I don't know how much we would have produced as a result. If the situation had been better, perhaps we would have doubled, tripled the results, but obviously not having a growth of 500 more engineers. Then when it comes to the momentum in the automotive sector for the moment, and when I discuss about it with some managers, whether they are French, English, German, or in the U.S., there's no decrease, no slowdown, and they're not really anticipating a drop in demand. So is it sustainable? Can we sustain such growth results? of 30% in the long run? I'm not sure. I don't believe so, because first, the Germans who invest largely, and we have growth levels which are important because this is due to results from last year, and everything restarted again really late. So as a result, we will have higher comparison rates. Therefore, we will have a deceleration of the nominal growth result next year, you see, for Germany on the automotive sector. In France, there are several projects that are being carried out in France. It is done at the moment because it is impossible to near shore or to offshore, but the majority of the growth is done with French manufacturers. It's been done mostly on the near offshore. And they have objective when it comes to productivity gain, which are really ambitious for the next two, three years to come. In the UK, in the US, this is going rather well. So 30% growth for the automotive sector in 2023, obviously no, but we should be able to continue having a positive growth in a sector, a field, which is really, there are high stakes, you know, with a short-term purpose. It's just a technical aspect because, for me, this is difficult to reconciliate the two because I don't have the real results for the end of June. So 9,700. Could you perhaps be more precise on these results, these numbers? Well, I got these results. This is about the engineers. At the end of June, it was 47,650 engineers. But if you do that, this is the number I got, plus, what did you say, 46,300? Yes, and we've consolidated two companies. This is why. that we've purchased in the first semester. So it represented a volume of 670 engineers. But from July on, right? Yes, exactly. OK, so 670, not 650. Yes. And in fact, among these two companies, one is an American-Indian company or Indian-American, whatever you prefer, of less than 400 people. And there's a British company also that we purchased in the UK, which has been consolidated into our perimeter in July with 285 engineers. But in reality, it's not taking into consideration the about 500 contractors, you know, that this company... hires in a lasting manner because we are in the UK. So we're not communicating on subcontractors because it's not part of the group's model. And the volume is quite stable in time, so therefore it's not really important. But at methods, this is an important detail to take into consideration because if we look at the turnover of this company, this is about 8,206 million euros, you see, and we will not have such a turnover with these headcounts. So these people are not within the 46,300 people, right? Okay, no, no, not at all. So well done, well done. You're very welcome. Next question from Nicolas David for Eau de Berger. You have the floor. Yes, good evening, Bruno. I had two questions. To go back to France, there's a slight slowdown when it comes to the organic growth. It's coming back to the sequential. Probably you've mentioned it. I've missed the beginning of the call. But is it only due to perhaps we've mentioned it to the issues of recruiting, net recruitment issues? Or maybe there was some other technical aspects. Maybe this is also due to the calendar aspect. Maybe we have a negative result in France. This will answer. Second question is when it comes to the slowdown we've observed in the financial sector, what is the reason? What do you think is the reason of that, the underlying reason for that? Well, already in the financial sector, there's a slight slowdown in some countries, but this is not general. I believe that the reason is that banks in our context have decided reducing their investment. It is an internal management decision. Then for France, yes, there's a calendar effect, which is from month to days. On Q3, it will be the case. In Q4 as well, meaning that in total in France, we will have less working days for S2. So practically, and you're right to say, this will impact the growth rate for France. So one working day on a quarter, mostly on quarter three, it means more or less 1.5% of activity rate, of growth rate, sorry, growth rate, 1.5. But that said, in France, growth is mostly due by the aeronautics sector. The other fields are facing growth, but not so much, which means that this is a slight decrease of the apparent growth in the aeronautics sector. I do understand.

Thank you very much. So there's the aeronautic sector, which is coming out of its recovery period. And in terms of COVID in France, what is the volume in France? 10% at the moment. Okay, very clear. Thank you very much. Thank you. We have another question from Lorando for Capochevreux. Over to you. Yes, thank you very much. I have a few points. Good evening, Bruno. Firstly, I have a question on the deconsolidation and the sale. Are you going to deconsolidate this over the whole period or just over December? And do we need to take any additional value into consideration? You haven't given the cost of the sale, but can we say that this cost of this would be also equivalent to the acquisition costs that we've experienced recently. This deconsolidation will take place at the date of sale. So by the end of November, we'll have 11 months of activity in our accounts for that company that will allow us to simplify things and deconsolidate by the 30th of September, but there will at least continue until the 30th of December, end of November potentially. So no retroactive deconsolidation. The added value total will be shared later. I don't know if we'll go into excessive detail, but this added value will allow us to have a financial overview, but this economic added value will be obtained from this company. I don't know if I'm very clear in my explanation. Is it a business that you acquired or something that was developed internally that you're selling? It was companies that we had acquired, essentially companies that we'd acquired. Not all of them, but most of them. That being said, acquired or created, there's no added value to our accounts. And then in terms of cost, what was that on multiples? We sold on a higher multiple than what we would use when we acquire. Okay. Thank you. And then another point, could you – Remind us of the consolidation entries this year for the four acquisitions that you made. Yes. OK. The four consolidations from these acquisitions. I'll go through them one by one. The first one, Lasertask in Spain. We acquired it on the 1st of April. Consolidation was completed on the 1st of April. Second on the 1st of July. The third methods in the UK consolidated on the 1st of July also. And the fourth one, I think it was a small consolidation, but it hasn't yet been added to our scope. Okay, but that was in Australia, right? Yes. So in theory, would that be in Q4? Yes, Q4. In terms of the deals that you are hoping to finalize by the end of the year in M&A, What kind of size companies are you looking at? Are they quite significant or small? Smaller deals between 100 and 300 people approximately. And lastly, if we look at 2023, I imagine it's still too early to have this conversation because conversations are only beginning, but Would you say that there are some areas within your activity where you have bullish returns and feedback on your operations that it's difficult to have a positive momentum or envisage a positive momentum over next year? It's far too early. One thing is certain is that everybody is positive and fairly relaxed. a lot of managers and discussions have begun, a lot of managerial discussions have begun focused on pricing for 2023. Even if my belief, and it's a very personal one, the pressure on salaries and wages will decrease over the next year. Because The majority of companies do not follow the inflation model and implement this into their salaries. And if growth and turnover slow down, it will be beneficial on growth because turnover has a limiting effect on growth and on salaries. And we'll see what happens in terms of the inflation rate. But we've seen that gas prices have decreased, oil prices have decreased, raw materials have also decreased. So if inflation goes down, then there will be an impact of this felt throughout all of our companies, which will also be translated into less strict political strategies than in 2022, shall we say. That's interesting. This negotiation that's beginning is interesting because there are clients who may be fairly pessimistic for 2022, just as they were for 2022, but at any point in your negotiations, has this not made things more difficult to increase costs, or is this generally accepted? No, we've had accounts where we haven't achieved any growth in wages at the costs at the beginning of the year and this is fairly rare. The only companies or clients who are not paying any attention to costs and tariffs is in the automotive sector but that doesn't necessarily mean that that's going to be forever the case because salaries are increasing, we have to increase wages and we're going to have to develop our offshore activities in some sectors and others that we may need to relocate and others that we've been able to keep in France or Germany as well. So I'm more confident in terms of tariffs for 2023 even though we are even though discussions haven't formally begun at the moment, these are just preliminary discussions that have taken place between our managers that are escalating the issue and making us aware that we'll need to discuss this, and between them and their clients as well. Thank you, that's very clear. Thank you, Bruno. Thank you very much. We don't have any more questions. Questions by phone, please. If you'd like to ask a question by phone, please press 01 on your telephone keypad. It seems that there are no more questions by phone. Well, if you don't have any questions, sorry, Mr. Ramirez has just added his name to the waiting list. So if we have time, please. Yes, of course. Yes, just to go back to the sale. Is it C Prime? Is that the company? Yes, C Prime. But companies did sign a deal, yes. Because I seem to remember that C Prime had completed some acquisitions, but I think it depended on whether it was a subsidiary of Kersos Labs. It wasn't an entity that was up for sale, I don't think. It wasn't an entity that what, sorry? It wasn't an entity for sale, no. No, not at all. Yes, it is C-prime who made the sale. Okay, thank you, Bruno. Okay. Thank you. We have no more questions by phone. Over to you. If there are no other questions, I would like to thank you for taking part in our conference. Please have a lovely evening. And as a reminder, our next conference will be for the publications of our Q4 results, which will be at the end of January 2023. Have a lovely evening and speak to you soon. Thank you. Ladies and gentlemen, the conference is now over. Thank you for taking part. You can now disconnect.