Alten S.A.

good evening i apologize for this small delay we had a couple of technical issues which i hope are sorted i hope you can hear me well if it wasn't the case please if it isn't the case please let us know thank you very much for joining this conference regarding the first quarter of 2024. The revenue for Alten is 1.067 billion, which is an increase from last year. We have seen 6% growth in France and 1.6 outside of France. For the same data, the business has growth to almost 1% plus six in France, and it is decreasing outside of France. This quarter has seen 0.9 less working days, which impacted the growth by 1.2%, which means that our organic economic growth would have been 2% for the same number of working days. The activity rate for the first quarter is at 91.5%. It was at 91.7% for the first quarter last year, so slightly inferior than last year because of attention in some countries where the activity has gone into a halt. as you can see the uh decrease in uh business for uh that we saw at the end of 2023 has continued and has accelerated in some places we will talk about it in more detail later the trend that seems to that we we are seeing um we have growth in march after an initial uh higher volume in 2022 we had 57 000 employees at the end of 2023 50 000 engineers end of march we are 58 400 which are all engine of which we saw a 1400 increase for engineers So 150 in France, 370 outside of France. Out of the 51,400 engineers, 11,950 are in France and the rest outside. So we have a slide on the revenue per country. France, if we look at the activity if we split it geographically France has seen good performance despite one less working day so 1.3% impact on growth which would have been 7.3% at for the same number of days we have a good good results in automobile rail defense and security retail and bank finance insurance have seen a decrease In Iberica, Spain 94, Portugal 16, we've seen a 5.5% increase. All the sectors are growing except for banking and finance, which is also seeing a decrease. In Italy, after many years of growth to up to 25%, The growth has slowed down to 14% for this quarter. All the sectors have seen a slowing down, but still showing strong growth because we're over 10% except for bank finance, which went well last year, but also saw a hold for this quarter in the city. Same for telecoms. It has is a sector that has stabilized in Germany. As you can see, we've seen a decrease starting from Q1 2023. The trend has continued for Q1 2024. It is true that there were 1.3 less working days than last year. So for the same number of days, it would have been an only 6.2% decrease instead of the 8. Several sectors in Germany are decreasing, automobile, the automotive industry. This very contrasted situation, the manufacturers except for one are all seeing growth. And it is the decrease of 45%. percent for the equipment. We've seen in Germany also a slowing down in aerospace. The activity is stable, but lower than last year. In the UK, which is also seeing one less working day, the decrease has continued in aerospace and in the public sector. where Method operates, which were acquired two years ago. On the contrary, Automotive, 15% of the revenue is seeing growth because we are working with the manufacturers and not the outfitters. Good growth in Belgium. We've seen a decrease in the Netherlands. So we're now moving on to Benelux. We've seen less projects, which was unexpected in semiconductors. In Scandinavia, less working days as it was for Germany. We've seen a continued decline. especially in automotive. Tooling in Finland also has seen a strong decrease for the first half of the year. And Eastern Europe, same one working day less. The activity is stable. We have a small growth in Poland. Romania has seen a 10% decrease because of the automotive banking finance sectors. In North America, as you can see on the slide, we've seen a continued slowdown of the activity and continued decrease. Canada has seen a decrease for bank and finance. Mexico is only 4% of the North America. is seeing growth especially on uh product uh which is quite productive on automotive bank finance asia pacific satisfactory growth uh four percent china which represents a third of the region has seen uh growth of 11 which is carrying the rest up india representing 30 of the region has also accelerated the growth we're at 17 percent if we could if we um look at station industry japan which is uh 20 of the region has slowed down and for korea 10 the slowdown has been felt because the growth is uh five percent where when it was much higher in uh in the previous year so in total at the group level we are at 0.8 percent growth on average with a couple of countries especially uk germany and scandinavia which are seeing uh the growth rates which you hadn't seen in 6 2020. if we look at it sector by sector so if we move on to the the pie chart which is just here uh automotive uh 18 percent and has seen uh five percent growth mostly thanks to manufacturers because they have seen except for ford in the u.s and volvo trucks in sweden we've seen a significant we've seen a good growth and but the decrease has been seen at the uh automotive suppliers, especially the Germans ones. Rail had started to increase last year, has continued in that direction because we are now at a 7% increase compared to last year. Aerospace, 15% of Alten is still very dynamic, 18% growth despite the slowing down in Germany and UK. Defense, security and naval, same thing, strong progress. more than 20%, which brings it up to 7.3% of the revenue. Energy is stable, 7.4% of our revenue. Oil and gas are only 2% of the revenue, have seen a decrease of 10%. Other sectors, nuclear, for instance, has seen an increase of 6%. Life sciences, 8% of our revenue is seeing a decrease because of mostly at the industrial class where the medical equipment is seeing growth. Industrial equipment, so mostly the heavy industries, industrial equipment and electronics is stable. We've seen an increase of 4% for other industries and semiconductors especially is seeing a significant decrease on almost all regions because we are close to a 10% decrease. Telecoms, a 4% decrease whether it's operators or suppliers. And for finance, 8.5%. We've seen a global decrease of 10% at the group level. The French banks, some Canadian institutions, a couple of Southern European banks to a lesser degree that are feeling the hit of the contraction of investments. Regarding retail services and media, we've seen a 6% decrease. So as you can see here, We have mixed results for the Q1. Some of the results were expected. The macroeconomic situation in Europe was harder than we imagined. To be honest, there are no signs of improvements for Q2, except for the USA, where we have seen positive forecasts. because of pricing or new deals that were not successful. We have still acquired a company, a group of companies to be more precise. We have a presence in Vietnam, which plays a DC role, a sales presence in Japan. It's a company that is specialized in BI, data science and software development. company that realized a 20 million euros revenue in 2023 950 consultants and a bit of 10 so for 2024 the first semester which is well underway will probably continue following the trend of the first quarter. The rebound expected for Q2 is not manifesting clearly. We're not seeing an increase in the call for centers. However, we should have a growth coming uh to us in a in a but it is difficult to uh anticipate which is why we're forecasting a three percent organic growth which will be uh reviewed at the next uh publication depending on how the year goes. So I'll hand it over to you now. If you have any questions, please feel free to ask away. And I'm obviously here and happy to answer any questions you have. So we have a first question from Mr. Markon.

Hello, Bruno. Hello, Eric.

First of all, congratulations for moving to teams. I'm a big fan. Two questions. The first one is the 3% on year. Is it the same theoretical exercise that you do at the beginning of the year? So an embarked growth without taking into account positive net stuffing on the quarters to come? Or is it... really what you think is doable in the current situations with the predictions of net suffering for the next quarters? That's my first question. The second one, is on the automotive industry. What is your visibility on this market for the coming quarters? So the first question we give the embarked growth, because we have no visibility on the growth dynamics. And it's difficult to project and to give even an estimation as to what we do. But communicating on it would be a bit premature. What we did here was looking at the current situation in the most objective way possible to date. And so we asked each department to evaluate what they believe to be reasonable to expect growth-wise for the end of Q1 and Q2, taking into account the trends observed on the first quarter taking into account the perspectives that we had last year or the beginning of this year, because we're realizing that there's quite a lot of clients that are postponing projects. They're not canceled, but they're postponed. And then we have other clients, especially in bank finance, that have reduced their investment budgets. which means that even in aerospace and automotive, there are consultations that are done on projects that should have started now, but will start in September, which leads to our current situation. So 3% is not embarked. It's what looks like. logical to us expected we'll see in july which is the next meeting if we confirm this if we improve it um well not depending on what happens in the interval to be honest it's quite uh um unfortunate we weren't expecting this uh slowdown to last this long um i think that we won't see rebound in 2024 in the us we have more positive uh forecasts especially in the automotive industry for now it's not really show uh translating into more consultations, but the restart after this slow period that is 2024, it might start with the US. But we have a visibility like other sectors where we have consultations of two to three months, manufacturers where things are going well are continuing to follow that trend. An important part of the growth in France actually came from the automotive. We've seen an increase in Germany because they are in a difficult situation. But we're not seeing the light at the end of the tunnel for the suppliers. When we listen to our German managers, quite depressed and there's no positive messages coming from this side going back on the first thing you said could you can you do the link between the two and a half and bar growth and the plus three that you see today as the most plausible results with the recruitments from q1 because in the plus 2.5 there is the net staff i mean

We recruited... We have degrowth rates in the high-cost countries that is more important.

So we've seen degrowth on the first quarter, which we didn't fully compensate end of March. We're not far from it. So that's what I meant... earlier, because we've embarked a degrowth for the year, if I can say it that way. And so we see that now it's going back up. So this explains the 30% organic growth, which de facto includes a growth on the second half, which we've presented in a very measured way. But we're not really seeing with the end of April now, we're not seeing because usually this is the period where we're starting to get some consultation of the second half of the year, which is not happening, except for Asia, where things are going relatively well. it's identical to the situation of the first half. Thank you. There's also a swing effect. There's one less working day for the first half. There'll be two more in the second half. So it will balance out. Thank you very much. We have a question from Mr. or Mrs. Aditya.

Hi, Bruno. This is Aditya from Bank of America. Thanks for taking my question. Just going back to the comments you made in the release, you talk about a potential recovery from September or October. Can you talk about what is driving that? Is it comments you're seeing from the customers or anything specific in terms of the end markets which will drive that improvement? And then could you also just talk about in general what you're seeing in terms of pricing this year? And then finally, how should we think about the margin expansion in 2024? I know you're not going to talk about or disclose those numbers until July, but how should we think about that given the weaker than expected pipeline development?

So, regarding the outlook for H2, we are relying on the... information that the people on the ground got from the customers. But what we see is that we don't have an increasing number of bids that we receive. And we also know that some customers say that they will launch more new projects in H2 than in H1. knowing that they have postponed a lot of projects in H1 to H2. So everyone is expecting an increasing number of consultations and bids and therefore projects in H2. But that said, we are expecting more volume in H2 than today because the same customers say that they don't have the same budgets and the budget they were expecting This is the reason why we have reduced our expectations on H2. We think that there will be a balance between H1 and H2, and that we will get, in any case, an incremental activity in H2, but which will not be that high compared to H1, especially if we consider what we were expecting at the time when we released our 23 numbers. Now, regarding the price effect, we had some price increase again in 24. Not that high if we compare with what we got in 22 and 23, obviously. We have, through the work package activities, Many customers today were asking us to help them to achieve productivity gains, especially within the auto sector, but also aero sector. So we are trying to package more and more projects. And that is in relation with what I was explaining during the conference. We are increasing the number of projects which are delivered, at least partly delivered through our ODC in Morocco, Romania and India in order to get to be on the market with a lower average price for our customers. So the situation regarding margins, even if this is not a conference for what we, we do not release our margins quarter per quarter. We always give some gallons when we know to the market. In February we said that we were expecting the operating margin still to be below 10% and I was talking about, I don't know, 9.6 to 9.7. But due to the decline in our sales expectations, our assumption today is that the EBIT margin will be probably quite similar to what it has been in 2023. we will see because the revenue curve will be key regarding the margin for 2024. Also, and this is important to notice, there will be again in 2024 an effect between H1 and H2 because there is a seasonality effect which disappeared in over the past two years, but we will have one this year, meaning that we will probably be slightly above 8 in H1 and slightly above 10 in H2, but I don't know to which extent today.

Alright, thanks, Bruno. That's very helpful. Monsieur Laurent Dorre has a question. Hello, can you hear me?

Yes, I do hear you. Okay, great.

Despite a fairly satisfactory organic recruitment campaign, you don't seem to have any signs of improvement in the first quarter. Is there a risk for your cost-use rate? I have more questions, but I'll let you answer this one first. I don't expect so. Recruitment was conducted in high demand geographical areas or business sectors. In fact, there is a mixed effect between departures in certain sectors and recruitment in others. We also recruited to meet demand in ODCs. So we also launched a large recruitment campaign in Asia, in India, as it were, and in Morocco. If we look at our headcount trends in France, due to growth, 150 people have been recruited. Although growth is stronger, part of this growth has been achieved with ODC. So, in addition to the 150 people hired in France, hundreds of people have also been recruited in Morocco and India to meet the need. On the other hand, we're losing staff in countries like Germany, Scandinavia and the UK, which is nothing new. So I don't think there's any risk for bench time. In any case, bench time is monitored on a weekly basis and is somewhat high in the banking sector, although its level is very similar to the group standard. Did you give your teams any recruitment guidelines for Q2? Of course. We are expecting a much lighter Q2 in addition to, in order of a word, Recruitment was high earlier this year, even without an identified project, because we had to offset departures. We were also expecting a stronger business activity, as is usually the case in March, and it turned out differently, which explains an average activity rate of 91.5, which is the group's average score, but which is higher. We're currently barely on the mark, i.e. 90%, for example, in Germany, in the UK, etc., So recruitment is at a standstill. Okay, with my second point, I'd like to talk about September. I remember a few quarters ago, some customers postponed contract launches, particularly in Germany, saying they would be back in September 2024. Have these customers officially come back and said, we can now announce that we're going to postpone again because we don't have the budget? It happened in Germany with OEMs, for example. And in other markets? It is also the case in Sweden, although to a lesser extent. On other markets, there are no signs of already postponed projects being postponed again. There are only indications that projects will be postponed. But the situation is very difficult in Sweden and Germany. Okay, going back to Derek's question. When you do your guidance, to put it simply, you basically analyse the impact of a business day and assume that, ultimately, the trends will remain quite similar to the current ones throughout the year. Yes, by making forecasts in certain areas, because this is a bottom-up exercise, which will be reviewed in June anyway, because there are a number of points to clarify. For example, we're bidding on some large-scale projects This can have an impact because when it comes to projects involving 50 or 100 people, you have to make assumptions, success factors or not. We'll see whether or not things get off the ground. But as I was saying, we've drawn up some truly objective scenarios about the Q2 and H2 outlook so far. The only areas where we haven't reviewed our growth scenarios, because we're currently on the mark, are the US, where we had anticipated the current outcome, i.e. the minus three. We even thought it would be slightly less and Asia, which is currently following its own development curve. Okay. One last question. You briefly mentioned acquisitions with a number of projects being scrapped. Does that mean that your M&A pipeline has shrunk or have you finally got potential new deals? It has shrunk slightly. There was a deal in the USA that we didn't do. There was a deal in Germany that we let go of due to the price, which was for a company with a revenue of almost 200 million euro. It was a major deal in Germany, but it was assigned at a sky-high price. There were some deals in Europe that we didn't pursue because of asset quality issues after having done some new deals. Despite our hard work, the end result is a single acquisition, which we finalised yesterday in Vietnam. One deal in Poland will be announced, I think by the end of Q2, which is currently being finalised. After that, we have other deals in the pipeline, but they are in the early stages, i.e. we are at the stage of signing the letter of intent or starting the new deals. So apart from the Polish deal, which, if it goes to plan, is due to be signed in May, no other acquisitions will be announced in Q2. Thank you, Bruno. There are no more questions for the time being. Let's wait a few minutes for any questions. I have another question from Mr. Malcolm. Bruno, forgive me for my questions, but that's part of the game, as you know. Regarding your current growth outlook, we understand that in Q3, there was a fairly strong day effect, which was going to boost H2 performance. When you look at your outlook for Q4 as it stands, if you have little net staff hiring in the meantime to offset the drop in Q1, in the high-cost countries, you're not going to achieve much more than you did in Q1. In other words, your growth exit rate will be close to 1%. Is that your forecast, or are there other scenarios and moving parts to be taken into account? Secondly, which is unexpected, is that some IT services companies have been talking about massification among certain customers and the positive effect of panel reduction they've experienced. We can't necessarily draw a line under your performance in Q1 and say that it doesn't apply to you, but in any case, it doesn't necessarily appear in the figures you posted in Q1. Are you lagging behind in this respect? Or are you benefiting from it, but you've got so much headwind on the other hand that it ultimately doesn't show? There are indeed massification effects, particularly by relying on the offshore and nearshore operations. In Morocco, for example, we hired 250 people this quarter. We're having the same effect for projects that are going to be managed in India, and in particular major projects for which we're bidding in the UK. We were also the successful tenderers of a very large project in Germany, which is in the ramp-up phase. Incidentally, the financial policy that I apply to large projects in the ramp-up phase is to take the costs even during ramp-up, i.e. to reduce the margin immediately. But unlike other companies, we don't immobilise them to linearise the cost throughout the project. We don't actually know exactly what the final margin for this type of project will be, because these projects may run for two or three years. The margin at the end of the project will depend on the massification capacity, the experience curve of the people who are onboarded, and their ability to generate a higher or lower margin as the project proceeds. So the answer is yes. We have such projects. Customers are asking for more and more massification. This doesn't actually revolutionise the company's business. There aren't that many of them, and the time it takes to bid, because the bidding processes are longer, and the time it takes for the projects to get up and running, and especially for them to start delivering revenue, takes longer than for projects with 5, 10 or 15 people. where the decision cycles can be between one and two months and the projects start immediately. Some companies, I don't know which ones, may already be benefiting and generating revenue from these projects. This is nothing new and it's been going on for quite a while. This phenomenon seems to be gathering momentum and necessarily benefits the largest companies, since they have the technical and delivery organisations that enable them to cope and bid. There are also massification projects that we don't bid for because projects with an 80% to 20% gross margin don't make sense. They require completely different organization altogether. Indian companies can take on projects with 18 to 20% gross margin if they're consulted or if they can meet the requirements because their front office and back office costs are based in India. In any case, the commercial and technical front office is primarily based in India. Companies like Alten and our European competitors have their entire front office in Europe. Bidding for projects, even large volumes with a 20% expected gross margin over a two-year period, is a risk that we don't take in any case. I don't know if others take it, but we bid for large projects, but with higher gross margins. I understand. What about your exit rate in terms of organic growth? That's where I'm not sure I'm with you because my organic growth forecasts in H2 are inevitably higher due to the expected growth, albeit lower than expected in headcount. Why are you talking about a 1% exit rate? Or have I missed a point? Maybe I'm correlating the 3% too much with the embedded growth exercise that you carry out with zero net staff hiring over the coming quarters. Ultimately, if you don't recruit or post positive net staff hiring every quarter, your growth rate will decline. So even if you have the working day effect in Q3, in Q4, when you compare 2024 with Q1 2024, if you still haven't recruited over the next three quarters, it's likely to be worse than when you posted in Q1. No, we still plan to recruit and increase the number of projects in Q3 and Q4. In fact, each one will probably be fairly similar to Q1 in terms of posts. We'll see how it pans out, but it's not going to be brilliant since, in fact, given the decline in Q1, we're already going to have to make up for the downturn in Q1 and Q2. Then growth will happen in Q3 and Q4, where we have indeed forecast an increase in sales, despite the August holiday period, which is associated with the growth in the number of projects, but which we have considered in a more conservative way. Much more conservative, in fact. OK, that's clear. Thank you. No further questions for the moment. Someone is raising their hand. We don't have the name. Please introduce yourself. You need to switch on your microphone. The speaker doesn't seem to be able to switch on their microphone. OK, we can hear you now. Can you hear me? Yes. OK, I didn't know you had to press star five and then star six. Sorry about that. I'm Nicholas David from OdoBHF. Good evening, Bruno. I just wanted to pick up on the last comment I made about your downturn in Q1. What conclusions should we draw? In economic terms, you still have a 2% growth. You have positive net staff hiring. I find it hard to understand this comment that you declined in Q1 and that you need to make up for that. We had more departures than usual at the end of the year. Three. Then the drop continued in the number of planned employees in January and February. And in March, business started to pick up again. That's when we did most of the hiring to compensate. We started in mid-February, but the end point is the end of March. As a matter of fact, the average headcount in Q1 is lower than the average headcount in Q4 last year. Moreover, When I talk about average headcount, I mean the average headcount in the broader sense, i.e. including subcontractors in terms of the number of total projects. In fact, if we consider that Q4 last year was the zero level, we were below it for almost the entire first quarter, because in fact, we were hit quite hard by the downturn in the UK and Germany throughout January and February. There are usually departures at the end of the year, Some projects are due to resume in January, but it's generally early February. And the standard pattern is that by mid-February, we've made up for the December departures and we start to grow again from then on. It didn't happen like that, at least not at group level, because obviously it was not the case everywhere. It wasn't the case in France, for example, or in Asia or in other markets. Overall, there's been a significant downturn in some sectors and in some regions. This has been offset by recruitment or increases in projects, which have taken place at a much more steady pace than the January-February downturn in sectors where the situation was very difficult, particularly in Germany, where the macroeconomic situation is not good, and neither is the situation in the field. What's quite surprising is that when we look at the aerospace activity, which is growing at a fairly sustained rate for the group as a whole, We've seen a sharp decline with an OEM, which is now picking up again, because the projects that are halted and due to be relaunched have not been relaunched, so they will be pushed back to Q2 and possibly Q3. When projects are at a standstill, they are not replaced by new ones, which leads to a clear drop in activity. There is a clear timing effect, which was very significant in Q1. Okay, I understand. As you managed to somewhat remedy the situation at the end of the quarter, unless the bench has gone up a lot, I struggle to understand how Q2 could be far below the economic growth of Q1. Yes, because we were down in Q1 and we're thinking in terms of headcount, when you lose dozens or even 200 or 300 engineers overall in high-cost countries, there's a very significant mix effect. By the way, When you were talking about the 370 net new international hires, I assume that they are combined offshore, including for France, which makes it easy to understand why there are 200 people in France. Precisely. In France, despite the 6% growth, we only hired 150 people. The remaining employees were hired in Morocco and India, and some in Romania. Then, when we look at Europe, they're very straightforward. In Germany, we're at minus 80. In Scandinavia, we're at minus 70. In the UK, it's minus 70. All these are high-cost sales in Eastern Europe to a lesser extent. Then there's Morocco at plus 200, India at plus 150. In fact, we're losing out in a place where sales are high per capita. We're actually compensating by recruiting. If you can call that compensating because the projects don't offset each other, but in slightly more low-cost countries. Then, in some countries, when you look at the growth in Italy and Spain, obviously sales per capita in Spain are lower than in France, and it's the same in Italy, but there's an increase in 130 or 150 engineers. Okay, now I understand. Out of the 370 net organic hires in Q1 internationally, almost 90% were low-cost. I'll give you the figures. We've lost some and we've also gained in countries that aren't. We can't call Italy and Spain low-cost countries. Now it's clear. Thank you. Next question. Please feel free to raise your hand. There seem to be no more questions. I don't see anyone raising their hand. If there are no further questions, I'd like to thank you all for taking part in our conference call. If my memory serves me right, I think the next one is set for 25th of July. I believe that's the day before the opening of the Olympic Games. We'll be able to cover the first half of the year as a whole in more detail. I hope that we'll have more information to share with you and a clear picture of what the second half of the year will look like. As usual, I'll be giving you a clearer overview of the trend in margins. Have a good evening and see you soon.