Alten S.A.

Welcome to the Alten web conference regarding the third quarter 2024 turnover. Please ensure that you have chosen the language that you prefer to follow the conference. In order to do so, click on the interpreting icon. To follow the webinar in optimum conditions, please launch it via the Zoom app or your browser. Do not hesitate to ask your questions directly in the Q&A module, or you can raise your hand and we will give you the floor at the end of the conference. Please write your first name and last name so that we identify you. For those of you joining us by phone, by the international phone number, you will not have access to interpreting. and you will hear the original audio without being able to follow the slides. We will not be able to identify you either, which is why please state your name before asking your question. If you would like to take part in the Q&A, you can raise your hand by typing the hash key and nine, and then you ask your question with Hashtag six. Thank you. We're now going to give the floor to Mr. Ben-Uriel. Thank you. Good evening. Thank you for taking part in this conference regarding the Alten activity at the end of September 2024. I am going to try to be brief. Because we have another conference for a system in one hour. You should have received our press release because Cecil sent it at the end of the day, and I'm sure that you've already checked the figures, so there's no rebound in the activity. This third quarter made the erosion of growth worse and worse than what had been anticipated by our clients. Some of those who had already planned reporting projects before the summer decided a few days before projects that had been confirmed in September and October, cancelled other projects, in particular in the automobile sector and in the aerospace sector. At the end of September 2024, our turnover is thus of 3,116,007,000 euros. In France, the business has gone up by 5.8% and 3.2% outside of France. On constant data, our activity is only growing by 0.3%. 5.8% in France. It is going down by 1.8% outside of France. On nine months, the business has had a 0.6 JO more than last year, and this has had a non-significant impact, a trivial impact on growth. In the third quarter, overall growth has been of 2%, 5.9% in France and 0.2% outside of France. And on constant data, growth is thus of 0.1%, 5.9% in France and minus 2.6% outside of France. As you know, the activity rate is slow this year. There are postponements projects, and so we have a higher level of intercontract. Our activity rate is at 91% this quarter. It was higher last year, and at the end of September, it's at 91.2 against 91.8 at the end of September 2023. The rise in intercontract is still limited in spite of the postponements, but it has an impact on our recruitment dynamic. The headcount of the group has gone down slightly because we were 58,000 collaborators when we were 58,300 in June and 57,000 at the end of 2023. Engineers have gone down by 51%. are now at 51 000 collaborators whereas we had 51 1,390 engineers at the end of June and 50,000 at the end of 2023. Overall throughout the year, our engineer headcount has gone up by 1,200 people, 894 from acquisitions and 376 from organic growth with a slight slowing down on growth in France with 50 engineers and 326 engineers outside of France. To sum up, out of the 51,220 engineers, 11,750 of them are in France and 39,470 outside of France. Now, if we look at business in geographical areas, the... You already have the main trends. They're exactly the same as the one we commented a month ago. Friends has a satisfactory performance this quarter, but with two extra business days compared to last year. So a growth of 2.9% had it been the same number of business days. So Friends is still growing. but you will see that the growth rate is slowing down. Business has grown year on year in automobile, life sciences, defense, and energy. Telecommunications and BFA are still slowing down. But business has gone down in the automobile sector and airspace sector. In the Iberian area, growth has stabilized at 9.5%, so more than 8% of growth year on year. All sectors are growing except for finance and life sciences, which are slightly declining. In Italy, growth is still slowing down, but it remains satisfactory because it's 8% in Q3. All of these significant sectors have slowed down but remain growing, except for non-finance, which is almost stable. Bank and finance, rather. In Germany, business has gone down by 16%, and year on year, it's more than 11%. The automobile sector... which represents about a half, our turnover is decreasing by 16%. OEMs, which represent two-thirds of German turnover, are still growing, but There's minus 45% for equipment. Aeronautics is not progressing much during the third quarter. In the UK, business has gone down by 12%, mostly because of the aerospace and the civil aerospace and public sectors. The public sector was impacted by the freeze of budget. and we're expecting this to resume in 2025, but we have no guarantees. The automobile and aerospace sectors have also slowed down, In Benelux, we have a stable activity, slightly decreasing in Q3 because of life sciences in Belgium mostly, whereas the semiconductors in the Netherlands has started growing in the third quarter again. In Scandinavia, our business is stabilizing at 10%. The tools and machines and tertiary sectors are the most strongly impacted. In Eastern Europe, there's a decrease that is not as significant in Q3 as it was in the second quarter, since it's only a 4%. Poland, which represents two-thirds of... Our turnover in Eastern Europe is growing, whereas in Romania, our business is still decreasing by 15% in Q3 because of the automobile sector and because of the tertiary sector. In Northern America, our business had started to grow again in the second quarter, but as you can see, in the third quarter, it's stable. This does not mean that our business is not resuming in the US. It was mostly impacted in Europe by the project postponements in Stellantis and New Origin. In Canada, our business is growing. It's in the US that our business has slightly gone down. And then in Canada, it's going by 7%, even in the finance sector, which was decreasing in the first quarter. In Mexico, we still have strong growth, 30% for automobile and banking finance. In Asia Pacific, our business is stable, still slightly impacted by the situation in Singapore. There's a 4% increase. China presents a third of the Asia-Pacific region. There's an 8% growth, but it's slowing down in Q3 because of the automobile sector and the telecommunications sector. India, 30% of the area, is growing by 10%. But this growth rate has slowed down in Q3 because of the automobile sector as well. Japan... which represents 20% of the area, and the growth was slowing down, but it's decelerated because it's only of 2% in Q3. As for Korea, 9% of the area, the growth is also slowing down because of the automobile sector. So in a nutshell, we can say that Southern Europe is growing still. It's satisfactory. For instance, between Northern and Southern Europe, same for Benelux, and Northern and Eastern Europe, including the UK, are struggling. They are faced with significant difficulties, especially in Germany and the UK. Now, if we look at the different business sectors, the automobile sector is growing by 3.5%, with the business stabilized in Q3. Just like for the first quarter, most OEMs, manufacturers are improving, but some have slowed down in the third quarter. As for OEMs, The slowing of business is more significant, minus 22 year-on-year, but almost minus 30 in Q3 because of German manufacturers. who have seen their number of projects decrease significantly. Rail, there's still strong growth, 6%. Airspace, 8% growth. But this growth was slowed down in Q3 because it only reached 4%. Airbus had made announcement in January, but actually this growth was even slower than what we expected. and projects have been postponed in September and October. Defense and security, there's a 19% increase. The growth rate has accelerated in the third quarter. Energy growing by more than 3%, thanks to nuclear energy, represents about a third of the sector. And the growth rate has reached 15%. The oil and gas businesses have grown by 15% year on year. We will see if this is because investments are resuming in this sector after several years of slow growth, or if it's just functional investments because of a few important clients in this business sector. Life sciences are declining slightly. Electronic semiconductors and industrial equipment is rather stable. And there's slight growth in the third quarter. Telecommunication are slowing by 5%, but this deceleration has slowed down in the third quarter. And here again, it's slowing down. The retail services and public sectors are also declining by more than 6%, mostly because of the significant decline in budget in the public sector and in services. In the third quarter, similar to the first one, because of a more significant decline in the airspace sector than we expected, So it's not what was announced by our clients at the end of 2023 for the second semester of 2024. For M&A, no new acquisition was finalized. The closing of the new acquisition that was announced should happen before the end of the year. So what to say about 2024? It is a difficult year. growth has eroded all throughout the year. The third quarter is more difficult than expected because some accounts in the automobile sector are still slowing down, including because of a few manufacturers. The number of projects started is much lower than what had been anticipated and announced. Even though the announcements in July had already encouraged us to make decisions and to take this into account in our recruitment strategy because there was a decrease in projects that had been announced. Alten was faced with projects being delayed or cancelled. Some of them were quite important, even if they had been confirmed by several clients. And this was because of cash flow strategies or investment strategies. We have... seen these um this is quite unprecedented because these projects were cancelled or delayed at the last minute it's it's extremely rare i think it had never happened since 2013 or 2012. it seems as though some clients were also surprised by their own difficulties which explains why they have postponed even more projects compared to what had been planned at the beginning of the

These postponements of projects also came with requests to delay payments at the beginning of January 2025 for projects that were due at the end of 2024. The economic context in Europe is not favorable. The rebound in the US is not clear. Asia's growth is sluggish. Even though we'd anticipated a worst case scenario, the truth is we have to even adjust slightly our growth objective for organic growth instead of organic growth. because we are planning on minus 0.7 and minus 0.4 organic growth for the end of the year. Operational profitability doesn't come as a surprise. It was announced it will be negatively impacted by an intercontract that is slightly more significant than planned and higher SG&A, slightly below what we had in the previous years. Despite an increase in the cost reduction plan that we didn't implement it as a consequence for 2024, we're planning on having an operational margin around 8.7% for 2024 in a similar economic context. I'll give the floor to the participants. I'd like for you to open the conference for people to be able to unmute. Please, as per usual. Mr. Le Rondeau has a question over to you. Hi Vincent, Bruno and Laurent. Going back to the forecast for Q4, It seems like there's a major step, 3% to 4% for organic growth. Is this only the difference? Is this difference only related to the automotive sector or is this something else? Finally, I know that it's probably early to say for 2025, but you're already starting the year with a decline or a degrade. Do you think? We have the capacity to go back to growth in 2025, or is it likely that we'll again have a performance that's declining in 2025? Well, these projects that have been postponed compared to what was planned initially, especially for projects that were supposed to start and that we were informed no more than 10 days before they were supposed to start, that they were postponed, when the teams were actually ready to go, This is a situation, I have to admit, that is very specific, very peculiar. Especially given the fact that we had been informed that they were reducing their costs for Q3 and Q4. And that is why we revised and downsized our organic growth objective. But usually, I'd say that the forecast that we have, we're able to make them happen. But I don't remember ever finding ourselves in a situation where almost on a Tuesday for the next Monday that our client doesn't have the budget and that the project has to be canceled. I can't remember that ever happening before. And this has happened more than once. These are situations that we've had to face across the board in the U.S., in Europe. Mainly Germany, France, UK, countries where We have a lot of aeronautics and automotive activities. And it's mainly in these two sectors that this kind of situation have occurred. But in other businesses as well, we've experienced an erosion of our growth or at least erosion of the demand and the level and the number of startups or projects or call for tenders end up being lower than expected. So to answer your question, globally, it's mainly relevant for the aerospace and automotive, but also you have life science, finance that are more resilient, but they're still more sluggish than what we had in our forecast, even though we had already been very reasonable in our ambition. I'm sorry for stepping in before you and your answer, but when you give us the figures after nine months and for... Q3, the verticals were not as bad for Q1 and Q2, including for the banking sector. It feels like Q4 is even going to be harder. Even though we had sectors that were starting to stabilize throughout the year, it feels like it's just going back to this decline, right? Well, the truth is that Q3 is not as good as we would have expected. We would have expected. So that means... Not only are we starting Q4 with this decline because of Q3, but on top of that, we've had to downgrade the forecast for Q4. So this accumulates. So the negative performance for Q4 also comes from the performance in Q3. What about in 2025? Well, this isn't really relevant comment. We're going to start 2025 with an onboarded degrowth that we haven't assessed yet. We need to wait for the end of the year to do that. But if 2025 is flat, and that's not the scenario that we have for now, we're discussing with our clients and Right now they're mainly reducing costs and managing their cash flow. That's what's happening right now. So there is no encouraging sign right now, as of today, that would allow us to think that there's going to be a rebound for 2025. And the big clients that we are lucky to work with, with large headcounts, talking with the technical management, R&D departments, They tell us that they have no visibility whatsoever because they've also had constraints in their budget management and they've suffered budget costs that they did not expect because of the financial department. And that's just the news that they got and there was no notice. So we ended up in a situation where we had a team of 50 people. We had a team of 100 people in Germany was supposed to start their project and it didn't. So the revenue of course suffered from it, and that also increases the fact that sometimes we have more downtime between contracts for 2025. If the activity stabilizes, then there will be organic growth. I don't know to what extent. So you're hoping for an increase in Q3, which would be, yes, symmetric with the deterioration that we've observed in Q3 for 2024. And apparently, and I don't want to speak on behalf of others, but based on the information that I get, it seems to be actually very similar in our sector and even beyond. Just one last thing. Have you been able to try to assess your taxes? Between three and five million euros in Q4. The tax surpluses. And probably half, this will be halved, but it needs to go through the, in 2025, but it has to go through the Senate. Aditya, over to you.

Hello? Hello, are you able to hear me?

Yes, Aditya, we can hear you.

Okay, great, thank you. Apologies for the audio.

Aditya, could you please speak a bit louder? Because you're very far.

Okay, sure. I'll try my best and let me know if there's any difficulties in hearing me. Thanks for taking the question, Bruno. I appreciate it. Maybe just to clarify a few things in case I missed it in the translation. So did you say that automotive OEM customers were down 30% in Q3? Is that the number you gave on the call?

No, not really. What I said is that within the auto sector, we on a year-on-year basis achieved a growth of 8%, which is not bad. There is a big difference between the OEMs and the manufacturers. because OEM still are growing at 14% while the manufacturers are declining 28% so close to 30% but just the manufacturers and the manufacturers are representing a third of the whole auto business at Alten. So what I said is that as a result we have on a year-on-year basis, a decline today of more than 20% at the manufacturers, while we still have a growth at the OEM market. And I also underline that globally what we see is that even at some OEM, which were performing well until now, we see a deceleration of the growth at some OEM in Germany and also in France and in the US. So we don't worry. We don't worry. But the situation is less, I would say, booming than it was during the H1. And we are very concerned by the manufacturers because in Germany, it's really very, very difficult. And we are at minus 45% in Germany for the manufacturers while we are still growing at the OEM. And I think that Q4 will be even worse in Germany at the manufacturers. But globally, it's not minus 20, 30%. It's plus 8%.

Okay, understood. Thank you. Thank you, Bruno. Just to clarify another point, on 2025, you said you don't see any signs of a rebound. Did you say something about entering the year with negative growth or did you say something about 2025 being flat growth and then follow-up? If you could repeat that, please.

Yes, for sure. Yes, as we've been declining over 24, and especially the decline in terms of trend will probably be stronger in H2 compared to H1, because starting September, The dynamic of O2 and IRO is much less positive than it used to be. We are going to start 2025 with a negative embedded growth. I still don't know how much, because it will depend where we're going to end 24, but for sure it will be a negative embedded growth. So to achieve a zero growth in 25, it means it involves that we will have to grow again to offset the decline of 24. And you're right. I said that we have no visibility at all as our customers themselves have no visibility on their project portfolio. I mean, globally for 25 and the global budget they will have.

Okay. Got it. Thank you. And then now the new guidance. for 2024 implies Q4 being something between minus three to minus 4.5%. Penny, maybe just talk about what gives you the visibility on getting to that number as well, given you're saying some of the cancellations or postponements are happening very close to the starting time. Do you have any indication at all that this number or these forecasts are maybe driven by projects which are definitely going to happen? Or could we see further very short-term cancellations as well impacting this full year forecast?

We have taken into account what we already know. And even if customers are today saying that they will not cancel further projects, They also said that in September and October, and we saw that it happened again. So to be frank, I decided to take a buffer of further cancellation, even on projects that have been confirmed for Q4.

OK. So there's already some buffer for project cancellations. OK. And then maybe just on the headcount, can you just talk about how you're thinking about the hiring and the headcount management into the end of the year and into 2025, given the uncertainty around demand and when projects might get postponed?

probably we will continue to slightly decline in Q4 in terms of net hiring as we did in Q3 because we have to follow our project requirements in terms of people if we don't want to born a a bench that will be too expensive. As we don't want to impact too much the gross margin, we are obliged to let people go because the staff turnover is still 22%. It has not declined to 15%. So we are monitoring the hiring in a way that we can adjust the bench to roughly 9%.

Okay, thank you very much Bruno, that's very clear. Thank you.

There are no more questions? Yes, there is one. We have a question from Nicola David. Good evening, good evening, Bruno. Going back to the automotive and airspace sectors, automotive, just to clarify, year-on-year Q3, it was four, and it was up 9% over the first nine months of the year. But Q4 should grow further. for automotive and year-on-year for the first half of the year. Because the performance was really good in Q4 and first half of the year, 2023 and 2024. There was actually a rebound in price, if I remember correctly. And this is going to amplify the year-on-year dynamics. We're starting the V-curve, which will have a hard time to reverse by next September. And what would be a realistic scenario in terms of year-on-year growth for the automotive for the first part of the year, 2024, if we're cautious? It's hard to forecast that. What we're struggling is to know when it's going to start slowing down with the OEMs. There are some OEMs for whom we have above minus 60%. And when we talk to some clients, they're panicking in Germany. OEMs are quite resilient for now. But globally, the whole sector has slowed down significantly in Q3. When I said that it's slowed down a lot, it's... The growth that has slowed down, even though the activity tends to stabilize, especially with some OEMs, it stabilizes after years of growth. But the real topic at stake here is that there are clients that have made announcements that you're aware of, Stellantis, Renault, you name it. Some German industrial OEMs as well. Volvo cars. But if it was only for them, we'd probably still have a two-digit growth next year. That, across the board, maybe not penalties. But the real question is OEMs. Okay. But I would feel that as if the OEMs that are down 50% to 60% year-on-year They would have hit rock bottom by now. But we don't know. Because this is something that we look at on a quarter after quarter basis. But if you read the news in Germany, they're announcing that they're going to slash the headcount. Between 40 and 50% reduction of their headcount. You were talking about OEMs that could grow next year, but why would OEMs, Volkswagen, Volkswagen, how would they grow in 2025? The danger is also the fact that it could also deteriorate. It could erode with the OEMs as well. That's what I said. But if it was only for the OEMs, because we have growth embedded, There's not a single player that has experienced negative growth. It's not because their growth rate is slowing down that we won't grow next year. See? And OEMs, they have to manage their cash better, clearly. That's a revenue issue that they have. If you read the news, it's clear. On electric car sales, you need to understand that. the revenues are not exactly what was expected. So, of course, adjustments have to happen on the slowdown of investments and cash flow management over three months and a little bit more. That's what we're going through right now. But there are still projects that need to take place as part of these transition projects. Now you also have OEMs that are asking themselves questions on their investment strategy. These are questions about what kind of battery should they invest, what generation. The Chinese are five to ten years ahead of the Europeans. There are some OEMs that have decided to acquire the Chinese technology with a licensed contract basis in order to avoid having to make the investment. So this is probably why our clients end up are spending their investments because they don't have this visibility as to how or where they should invest.

Thank you. That's clear. And the airspace sector, do we also have a decline among OEMs? Mostly Airbus, of course. It is the key account, but it's the same trend as in other OEMs. And at Airbus, they made a big adjustment in September, and now since the beginning of October, we are being very cautious for Q4, or is this also a... Airbus is still in decline, even for the first semester is going to continue sequentially. I am not sure that the contacts that we have have the information. When we read the communication given by Airbus regarding their production process rationalization plans. They communicated regarding these plans in the press, and it doesn't seem impossible that there might be extra projects, including for manufacturing engineering in 2025. They seem to have been to give a lot of visibility with their plan. They gave visibility to internally and on the market regarding their goals for their savings plan but the operational declination of the plan in the long term I'm not in a position to answer and neither are the contacts we have we don't know what impact it will have on the business level in 2023 but it will have an impact on the engineering projects And regarding prices, when we have renegotiation, will it be more difficult than in previous years? Yes, it will be more complicated for two reasons. First of all, because inflation has gone down again. So wages should not be raised as much. And our clients have many projects in the five years to come, and they don't have the revenue level that they expect. So we are expecting them to ask us to help them make productivity gains. It's already the case in the automobile sector. And our answer, I think, will be an acceleration of their offshore projects. And when we look at France only, we're way ahead compared to the rest of Europe. But growth in the automotive sector is made mostly offshore at 80% offshore since the end of COVID. This is very clear. We hired 1,000 engineers in three years in Morocco for the automotive sector and three or four in India. But for margins or EBIT, where do we stand? For the margin rates, yes, it's... Satisfactory, even if there are higher costs because we need to steer these projects. There's a critical mess, but we also have to accelerate our adaptation of our organization. We did not think that we would finish the year with such a low turnover. say we were expecting several dozens or even hundred thousands of euros our sgna has been cut significantly but we have structures that are still in high-cost countries and we're trying to reorganize our delivery among other things because uh Our turnover is not the same in Germany as it is in Morocco or India. We also have to adapt the cost structure. So our margins this year are not going to be great, but when we take into account the cost of the extra downtime, it explains a lot of the margin discrepancy. It means that we've We've compensated in part with our cost structure, the decrease in volume, because we've had lower turnover and top line this year. Indeed. Okay. Thank you. It's clear. This is the best that we can get with the visibility we have. Indeed, well summarized. I think that there are no more questions. So we're going to close this conference. right in time for the a system once that is one that is about to start so thank you for taking part in our third quarter conference we will see you again at the beginning of january for our conference on 2020 I'm not sure that we will have more visibility because it's usually in February and March that we are starting to have more visibility, but we will know the figures for year 2024. Thank you very much. Enjoy your evening. See you soon.