Alten S.A. (0O1S.IL) Earnings Call Transcript

[Interpreted] Hello, everybody, and thank you very much to participate in this conference. We will talk about the activity at the H1 2026. I think that everybody received the press release, which was published a few minutes ago. I would like to tell you a little bit more about the different activities at today's day. And you will see that for the second quarter, you will also -- we will highlight also the second quarter. The first quarter has been much better than anticipated. We will come back a little bit later on, on the split up according to regions. We have a relaunch in a certain number of sectors for the first quarter, but the second quarter turned out to be much more dynamic than anticipated, thanks to a few sectors, which accelerated the growth rhythm for the whole half year. This helped Alten to return to organic growth when we did not anticipate that before the second half year '26, and good news. At the end of June '26, the turnover is at almost EUR 2 billion, which is an increase by 1.2%, an increase. In France, we have increased by 4.4%. And out of France, we have a decrease of 0.5%. The exchange rate has been a negative effect. And at constant scope, the activity rose by 1.6%, and it is 3.3% in France and 0.8% outside France. At the second quarter, in particular, working to go immediately to that page. The turnover is at EUR 1.055 billion. It is an increase of 3.3% compared with the second quarter of '25. It is an increase of 2.2% out of France. At the constant scope and exchange rate, the activity of the group has increased by 2%, 6.5% in France and 1.5% outside of France. I remember that there is no calendar effect for the second quarter. The total of the activity has -- was at 91% for the second quarter, which means that we have 91.1% rate of activity by the end of the first half year. The activity of the group increased again after stabilizing by the end of the first quarter. We had 450,000 people working for Alten. We are 58,000 by the end of June, of which 12 -- of which 58,000 engineers. Alten has divested a company which was specialized in life sciences at the international level. We had 61 consultants. The M&A has contributed to 800 people, more engineers than we had foreseen, 400 people more by the end of the first half year, 150 in France and 250 outside of France. According to regions now. This is the dynamic of our activities. It's important to compare Q1 and Q2 in sequences to understand what has happened for the whole half year. In France, we stabilized during the first quarter, thanks to aerospace, an activity that accelerated strongly in Q2 because you see that we went from 0.3% to 6.5%, thanks to aerospace, which is increasing by 20%, the train also Defence, Security and Naval with more than 13%. And this is only for France. Nuclear grid and equipment for energy have also grown by 3%. Automotive industry has declined, which is representing only 8.5% of the turnover in France, but has declined even furthermore. Then in Life Sciences, Telecom, Treasuries and other activities are still declining slowly, which means that globally, carried and supported by Aerospace, Defence sectors, we have this increase of 6.5%, which means that we have an increase for the half year of 3.5%. The Iberic zone, global increase of 10.3%. All the activities there are increasing like for the Q1, those we -- it represents in the aerospace and defence sector more than 10%. In Italy, we had a slowdown during the Q1, but it reaccelerated during Q2 with an increase of 3.2%, which means 2.2% increase for the half year globally. It is the bank and finance activity that represents a little bit less than 50% of the turnover in Italy that shows the greatest decline. All the other activities are increasing and developing, including the automobile sector. In Germany, the performance is really remarkable and has to be pointed out because Germany went through a certain number of quarters, which really have shown a decline, '24, '25 have been like down, but it stabilized during the last quarter of '25. And the first quarter '26 helped us to almost reach the balance on a year-to-year basis. And Q2 has an organic growth of 4.5%, which helps Germany to be growing for this half year of 1.1% growth. The automobile sector represents a little bit less than 30% of our turnover in Germany. It is year-on-year basis declining, but the sequential growth has slowed down because it is between 5% and 10% nowadays. Still, the OEMs are declining strongly and the part of the activity at BMW, which is positioned on the AOUG shows slow and little margins. But Aerospace has strongly increased to reach beyond 25% of organic growth as well as Defence and Security with more than 10% of the global turnover in Germany and is growing by 30%. In U.K., the activity is, again, part of the organic growth during the second quarter. The sectors for automobile and civil aeronautics is still declining, but Defence has more than 20% now and represents more than 10% of our turnover. The same for Energy. Energy represents 10% of the U.K. turnover, which is good. Public sector, we are present, thanks to the acquisition of the company, which is called [indiscernible] a few years ago. This public sector was declining over the past 2 years, but it is growing again. It's a slow growth, but it is a growth. In Benelux, plus Benelux and Nordics are the geographic zones where we still have problems. But Benelux, the activity is stable in Belgium, is declining by 7.2% because of half conductors and energy. In Eastern Europe, the growth rhythm has slowed down only 2.2%. Poland represents the 3/4 of the zone has stabilized the activities, whereas in Romania, 1/4 of this activity of the zone is declining by 13% because of automobile and bank and finance. In Nordics, to end up with Europe, the decrease of the activity has slowed down, but is at 12% for H1. In Sweden, we still have minus 10% and in Finland, minus 15%. North America, the situation is increasing -- is improving by and by -- it is changing from the organization point of view. Management organization has changed and the perspectives are favorable despite the first quarter, but we are hopeful for the second quarter. In North America, the activity has declined by 3.3% globally, but it has -- it has developed favorably. In the United States, we still have an important activity, thanks to the automobile industry. It represents 50% of the turnover. Life Science and Retail Services are declining. But we are observing an interesting increase in telecoms, aeronautics as well as other industries. Canada represents 1/4 of the zones is increasing by 6% and growing by 6.6%. Those 2 sectors -- this activity is supported by the main activities in Canada and then we have an increase of -- we did not talk so much about Mexico because the activity is at the margin. However, the activities represented there like automobile industry is -- the activity is interesting because they really act on the local market as well as a little bit on the American U.S.A. market. Asia Pacific growth is back again since the beginning of the year, stable activity in China. It is 1/3 of the zone. The activity is growing strongly in India. 1/3 of this zone in Defence, Energy, Electronic, and Services. In Japan, another 1/4 of the zone, an increase growth of 4%, thanks to Services, but Korea declined by 4% because of the automobile industry, but it represents lesser activity. So you see that for the second quarter compared with the first quarter, we have very encouraging signs, positive signs [indiscernible] because growth is accelerating in those activities, driving the business or by and by stabilization of the activity according to geographical zones. If we look now at the activity according to the different sectors where we are present. Automobile, 13.6% of the whole turnover, which is stable, 13.7%. It is a proof that the activity stabilized. It is still on a year-to-year basis at -- declining by 11%. However, the activity is increasing and is improving during the second quarter because we had minus 12.7% during Q1. It's only 10% now for the second quarter. The activity, which is really stabilizing, we can say, and where the decline of the activity is slower on the OEM side, that represents 14% of the activity. It means that this activity is really stabilized from a sequential point of view, 20% decline on the OEM and equipment part. Rail, we have 3% turnover -- 3% of our turnover. Here, we have an improvement during Q2. Aerospace, obviously, representing 17.6% of our turnover is also increasing growth. We have plus 20% for the whole first half year, a very strong growth on the constructor point of view. We had anticipated that. We have also the whole equipment and service part of aerospace, where the growth is only of 8%. Defence, Security and Naval, 9.7% of our turnover goes on developing very strongly, plus 20% for Q2, which means plus 17.3% for the half year. Energy, 11.9% of our turnover has increased by 3.3%, thanks to nuclear grid and also oil and gas, which is positive again for the year '26 so far. Life Sciences. Here, we have the decline has slowed down during the second quarter, a decline of 6% for the second quarter, which is stabilizing for medical equipment that represents 17% of this part -- turnover of this part as also pharma industry. Pharma industry is still decreasing, a decline of 5% on year-to-year. But we have several parts which are developing and growing again. But unfortunately, the decline is due to our 2 main customers, Sanofi and Novartis. They are important for us, but the investment in Europe, in particular, in France, has decreased. Industrial equipment, electronics and semiconductors is declining, but it represents 8.1% of our turnover. We have a decline of 2.2% for the whole quarter. Unfortunately, the one-off electronics and semiconductors still decreases even if -- from a sequential point of view, it tends to stabilize. Telecom, minus 18.7% for the 2 quarters. The activity is still deteriorating at the operator's point of view, but it's better for the equipment providers even if on year-to-year data remains negative. The financial sector, 8.5% of our turnover declined minus 2.7%. We have a very heterogeneous situation according to our customers. We have some bank customers in Italy, in particular, where the decline is quite important. And then finally, the retail and public sector is increasing again at 11.3%. The services and public sectors are the drivers. They represent 5% of our turnover. And out of the 16.4% altogether, they are growing with a 4.5% growth rate. You see that ASD in particular, is really driving growth, but apart from telecom automotive also, which is still declining and the subsector of semiconductors, we have, let's say, a situation that tends to improve globally. And if they are not completely stabilized yet for the ones I mentioned, the decline is less strong than in the past. So ASD, which is Aerospace, Security, Defence, Rail is really improving with the sensitive growth. We will see what the second half year will bring if it may be comforted in those sectors or not, if it's going to stabilize during the second half year. However, this activity, which is increasing is going to generate a global growth because of this end of the half year's results, which are positive. As M&A is concerned, during the last call, I told you that we have acquired Klanik, EUR 68 million turnover, 12% internationally. We also acquired a small company in Germany with EUR 22 million turnover, 230 consultants. They are specialized in the automotive sectors, mechanical design as well as software-defined activities, which is the validation of quality insurance and project management. Those subjects are interesting. And this company is specialized. Again, in Germany, it is extremely difficult to outsource. So this is why we have acquired this company. So it is -- and it is a performance, I mean, the EUR 22 million revenues. We have, as I said before, divested a company which is specialized in life sciences, and international activity. They were working on clinical studies on the basis of ownership, which was showing deficit. We took the decision to stop complementary investments in this activity because it's quite marginal in this group. It represented only EUR 11.3 million revenues for the year '25. So we divested and we are going to deconsolidate it. Well, we have already deconsolidated it on the 1st of March this year. This is the reason why the reference turnover is EUR 4.91 million, something, if I remember well. So the outlook for '26 because of this good half year and despite the geopolitical circumstances, which are completely uncertain and despite also the development of the Iran conflict that goes up and down. So despite a very unpredictive context, we decided to increase the forecast for the year '26. We did not take into account the very brutal deterioration of any kind of those situations I mentioned before like Iran. But it seems that the markets get used to it, and they do not overreact anymore. So this is why we reevaluate our organic growth because of the second half year, we reevaluated between 1.4% and 1.8% for the whole year. And this 1.8%, which is the upper evaluation is still critical. The improvement of the operational margin will happen during the second half year. I have indicated -- I had indicated 8.8% altogether. We believe that for the whole year '26, we will have an operational profitability of, let's say, overall 9%. But we will confirm that in September during the publication of the results, and maybe we will have the opportunity to do some fine-tuning at that moment. This is it for my part. So I suggest that we move on to questions and answers. Maybe we could open up to questions, if you don't mind.

[Interpreted] Yes. Thank you very much. We open up to questions and answers. We have the first one from Mr. Laurent Daure, who raised his hand.

[Interpreted] Bruno, I have 3 questions. The first one is we have a relaunch, but also uncertainties in terms of recruitment. What is the policy of the group? What is the strategy of the group? Then for Aerospace, maybe if you could detail a little bit the kind of projects which are growing in -- as regards to Airbus in particular. And then to the buybacks, the buyback may go up to 7%, if I remember well. Where are we there in terms of buyback and also M&A because we had an amount of money, which was to be put in relationship with the second half year. So maybe you could tell us a little bit more.

[Interpreted] As regards recruitment, the HR policy and strategy is particularly opportunistic. Had you raised the question during the last call, how many people are we going to recruit during the second half year, I would not have said 400. First of all, because there was no forecast, there was no budget. Second, because honest -- to be very honest, we were not expecting the recruitment of so many people because we have not anticipated this increase of our activity during the first half year. So the recruitments are done by the operations and the businesses because it is completely decentralized and done according to projects. So if growth goes on like that, the -- we have more than 92% activity rate for the time being in the work package activity goes on and that brings us about having enough engineers to answer and to process the tenders. So we have shorter delays now, which means that if we go on growing like that, we will go on recruiting. But to be very honest with you, it is impossible for me to deliver any kind of forecast. It will depend on the forecast. And it will depend on the activity. I can't tell you more according to the context. Now as regards the Aerospace activities, we externalize any kind of projects. We have an increase -- a very nice increase of projects in the field of concept. Airbus went back to investments in R&D. We still have projects in the field of engineering. We still have projects in data. And even if it represents an activity which is lesser for Alten, we also have IT activities. So we cover all the references of the group. And to the contrary of engineering which was driving the activity, we can say that the whole portfolio of the activity is represented there. And as regards buyback, we bought back 4.1% of the capital. We know that we can go up to 7%. We have also acquisitions we do not have really restructuring activities that would mean that we really have to borrow money because, et cetera. But for the buyback, we had indeed, as you have mentioned, had set 2 limits, the M&A limit, but is not going to limit -- we are not going to be limited in terms of M&A. The second limit is the stock exchange rate. So we have a share rate, which has been defined. I don't know if it is good to keep up with this policy. However, we spent EUR 87 million in this buyback program. It is going to be prolonged during August. And in September, we will see if we stop at 7% or even before.

[Interpreted] Ms. Nicolas David over to you.

[Interpreted] I have 3 questions. First is something like details 91.8%, and that means a [indiscernible] of 92%. Is that right? We are just slightly above 92%, yes. Is that is a bit heating up. Is that right?

[Interpreted] No, we aren't overheating. That would be 93%, 94%. No, 92% is our normal level. We have had trouble keeping it up, but we have had trouble keeping it up in recent years, but we have been able to hold a level of 91%, 91.3%, which isn't bad, but thanks to the recovery of activity, we are coming back to the normative Alten level of 92%, that seems to me to be remarkable with the kind of heterogeneous growth that we've been seeing in this kind of context. I remember if I remember, it was quite difficult. The automobile, which is dropping; ADS, which is aero, defence that is growing strongly. Is there something a model, something that's been done to allow this, something different, something new? Or is it something -- it's not strategy? What it's an average, of course, yes, it's an average. It's a weighted average. And so there are sectors. It's not so much the sectors, but it's the countries. Within certain countries of the sectors, we have intercontract levels that are much higher than the 8% and intercontract in the wider sense, it's invoicing that is much higher than that. There are even places when we are -- where we are asking ourselves, should we not adjust our personnel if the level of activity doesn't improve. But there are other areas, other places where we feel that there's a lot of recruitment and we need to face demand and growth within a given country, we might have skills that move from one sector to another, and it's good to manage it. But different skills aren't always -- cannot always be transferred from one sector to another. So we need to regulate on one hand and recruit on the other.

[Interpreted] And my other question is -- could you go back to the automobile sequence? As OEM from quarter-to-quarter have improved, but the equipment manufacturers are dropping, but the sector is stabilizing. That was the case in Q1 and Q4. Is there still a scenario year-on-year where we might -- maybe around Q4 where we might have absorbed the decrease? Or at the end of the day, are we going to just have to note this drop and will not return to growth in the near future?

[Interpreted] Yes, I think we will be in 2026, year-on-year will be -- will continue to drop in the automobile industry. There are OEMs where growth has relaunched, has recovered, has restarted. One is CBM 1 where -- as I mentioned, there was a drop, but decrease, but we stopped answering tenders where the margins were very low, very narrow. So of course, we've lost a number of projects that are -- have very narrow margins that we don't always compensate for with BM in work package activity. But on the other hand, if that German OEM shows growth, I'm not going to give the names of the different OEMs. But according to certain geographical regions, if I look at the U.S., some OEMs are growing, others are decreasing. In France, we are growing almost everywhere even if there are -- we are growing, particularly with Stellantis and Renault. It's slightly more complicated with Renault. Stellantis is growing complicated with Renault. In Sweden, it remains complicated. In Germany, there are OEMs that have started growing again. We have an overall outlook that is globally improving in the automobile industry. Just a year ago, we were all over dropping, decreasing. But at the moment, as I said, given the details that the European Union has been given as to regulations for OEMs who are defining their own strategy and each person, it requires a recovery of investment, and we will be coming back to this in Europe. That's for sure. But I do hope that we will be stabilizing that activity at the beginning of 2027, year-on-year sequence in sequential approach with OEMs by the end of the year, but with equipment manufacturers who depend on the OEMs, there's always discussions ongoing as for the part -- the share of European components that must be included in vehicles that are made at least produced by European OEMs. That discussion is still ongoing and the situation with a number of equipment manufacturers is still complicated. Year-on-year, we are still at minus 20%. It will end up by stabilizing because the activity has dropped so much that once it will no longer be able to drop any further. When we were thinking about manufacturers, the situation is going to be -- if it doesn't improve, if it doesn't stabilize, the decrease should slow down, but that hasn't happened yet. Fortunately, that's less than 20% of the automobile industry turnover. So we should expect less decrease in T3, T4, but still decreasing in the automobile industry and hoping that 2027, things will recover.

[Interpreted] Last question was as for the guidance during Q2 is lower than -- is weaker than Q3. I know that automobile is during the second half, automobile is going to stop -- is going to slow its decrease. Is it Aerospace and Defence that's going to compensate? Or is there other sectors that are maybe going to slow down as well?

[Interpreted] We have been looking at hypotheses that are quite relevant for H2 because we have no visibility on the additional growth of H2. Of course, projects that started at the beginning of the year in S1, they will continue in S2. So they are in our project portfolio well established, but then decrease part of it depends on the onboarding decrease. But for the next semesters, we have looked at hypothesis of growth that have been fairly prudent. We mustn't forget that we have Q4 2025 that was a good one, even if it was still decreasing, but it surprised us by being more -- less decrease than we thought. There has been what we call the end of semester project interruptions that were quite important at the end of '25 that were quite high and surprised us. And we explained at the previous call, end of March, we recovered the level of activity that we had at the end of December '25. So -- in fact, there is some growth on ST, but there is a dip during the semester, but we are now at the -- above our level of activity at the end of '25, and that had not happened to us in '25. We hadn't found a level of activity of '24, neither had we found in '24, the level of activity at the end of '23. So these are positive elements that show a dynamic that is settling in, general improvement of activity. And as we had a Q4 fairly strong with a slowing decrease and new projects at the beginning of '26. That's not -- that wasn't particular for end of '25. At the end of every semester, we lose projects and then we, within 3 months, we recover them -- recuperate them. So in '26, it's gone better than in traditional years. At the end of June, we also had a number of projects that came to an end, and that will be replaced by others in September. So we will maybe at the end of September, when we have the analyst meeting. I don't know if it might be a bit early, but at the beginning of October, in any case, for the third quarter, we should be able to see clearer with more details as to recovered projects and see further ones that will have been launched at the beginning of September. 1.4 is a worst-case scenario. So we can have a T3 that could be quite positive, but we need to be slightly more careful, cautious for T4. We don't have any more questions for the time being. Yes, we do have a question. We have a question that comes from a phone number that I'm going to read. I'm going to let you speak up and please give your name and your name before you ask your question. Thank you.