Alten S.A. (ATE) Earnings Call Transcript & Summary

Hello, everybody. Hello. I would like to thank you for being with us for our conference, and we will talk about the figures by end of March 2026, a first quarter, which has revealed an activity in half notes, not really good. The figures, you will see, have improved for some of them, and others are still decreasing. By the end of March 2026, we had EUR 1.7 billion turnover, which is a decline of 0.8% compared with the same period last year. In France, we progressed by 1.3% and out of France, a minus 1.3%. We had bad conditions in terms of exchange rates. And we have managed to come back to an increasing organic turnover by 1.6%, which is stable out of France. For this quarter, we have no calendar effect, and the activity is almost identical to the one last year, and it had -- it is at a stable perimeter. At the same constant perimeter, we have improved the turnover, thanks to acquisition. ALTEN was having 54,000 people working for this company. We are we have altogether -- 154,000 altogether, of which 51,851 engineers. The acquisition have contributed, thanks to the increase of the engineers' part. At constant perimeter, we have a better progression out of France. According to the different geographical zones, this is what the activity looks like, and it has developed the following way. In France, the activity is stable, plus 0.3% year-to-year. The automobile sector is not decreasing, by minus 1.9%. Aerospace, security, defense are increasing slightly. However, for living sciences, tertiary, telecoms, this activity has decreased. In the Iberic zone, 85% for Spain, the rest for Portugal, the growth is still very positive. We have an increase of 6%, apart from the automobile sector, thanks to [indiscernible] and a slight decrease in the bank sector. In Italy, the activity has slowed down. We have 0.2% decline apart from the bank and finances, which is declining more. But all the other sectors are increasing, including the automotive activity. Germany, we have a performance, which with -- the turnover is decreasing, in particular because of the automotive sector. We had already the same phenomenon in '24 and '25. It seems that as we had indicated during the last communication that the activity is getting stable in Germany, year-to-year minus 2%. In the sequences, we will have a look and take a close look at that during the next quarter, but it seems that the activity is going back to stable. The automobile is decreasing by 30% year-to-year. But at the same time, the whole activity is slowing down in this sector. The aerospace, representing 22% of the German turnover, is at plus 2% year-to-year, same for safety and security. It represents now 7% of the turnover and is increasing by 1%. Still in Germany, the activity is -- from a qualitative point of view, has strongly increased. That's quality. We have started the sectorial development, but this policy really reveals to be fruitful. We have -- we are hopeful, and we hope that the activity is going to stabilize completely and will turn back to growth by the end of the year. U.K., the activity is stable for this quarter. The automotive sector is representing 10% and aerospace civil is still declining, both activities, but defense is increasing by more than 1% (sic) [ 20% ] and represents 10% of the turnover, the same for energy. As regards to the public sector, that represents 40% of the British turnover. The decline has stabilized now. Benelux, the activity is still declining, but is improving by and by. In Belgium, the activity is stable, but it declines in the Netherlands because of the half semiconductors for [ KSML ]. In Eastern Europe, a decreasing activity of 5.6%. Poland represents the 3/4 of the zone, declined by 3%. Romania is losing 3%, like, because of the tertiary sector. Nordics, it remains the only geographical zone where the decline is still very important. In Nordics, the activity has rolled a drawback by 6%, even if we know that overall, it tends to reach the minus 5%. And still the same reasons: automobile, life science and office activity. In Finland, it's a little bit better, close to zero for tool machines. North America, the activity has decreased by 5%, but we think that it's going to increase in the coming quarters. The United States represent -- of America represents a decline by 10%, but that's because of automobile industry and life science. It is stable -- progressively and stabilizing. In Canada, a plus 7%, thanks to aerospace and bank and finance. Then Asia Pacific, that is back to growth this quarter. The activity is stable in China, 1/3 of the zone, increasing more than 10% in India, another 1/3, and 6% growth in Japan. And Korea decreases strongly because of the automobile industry. Considering as we usually do, if we consider the activity by sector. The automobile industry represents 13% of ALTEN. However, it declines, and it goes on by 2.6% (sic) [ 12.6% ], a little bit less in sequential analysis. OEMs are declining too. And hopefully, by the second quarter, we will reach the balance, maybe at the third quarter. Rail, as we had indicated during the last conference, rail needs to tackle modernization. Growth is back during the first quarter, which is -- represents 10% of this activity in this sector that should progress further on in '26 over the whole year. We hope that the problems of ALSTOM, as you could read in the press, is not going to bring them about to decrease their investments. Aerospace has confirmed the growth of last quarter last year. Even aerospace has really reacted very well. Defense, security and naval goes on to progress very strongly. We have almost 10% increase year-to-year. Energy, 10% of the overall turnover, has progressed thanks to nuclear energy. Life sciences are declining and go on declining, only 7% of the turnover. Industrial equipment and pharma is also declining by 7%. Industrial equipment and pharma is also declining by 7%. That's -- no, sorry, that's still life science. Industrial equipment and electronics, this time, as well as semiconductors is declining by 8%. In the overall industries, we have minus 6%. The activity tends to stabilize by and by, and we hope it will turn stable at the second or even third quarter. Telecoms, that's the only field of activities, which is really at minus 18%, a very strong decrease. It is a decline that has to be split up between operators and telecom. Then we have bank, finances, insurance. Last quarter was positive of '25, but now it slightly decreases during this first quarter because of France, Italy, Spain and Southern Europe in general. But there is one activity that has increased in other geographical fields where bank finance insurance is important. It is Portugal, Poland as well as North America or Canada. And then it has to be pointed out public service and retail. This was decreasing over the last quarters. But during the first quarter '26, it has rebounded, and we have a slight decrease only. We hope it's turning back to stability, and we hope it will grow again during this year of '26. So you see that globally, apart from the telecom sectors, all the activities are coming back to growth or are stable. This looks much better for all our activities than 1 year ago. And for -- and as well as for this first quarter, that tends to confirm the stabilization of our activities. As M&A is concerned, we have signed but not completely closed. It will happen in the coming days, a company which we have communicated about. It's Klanik. We signed 2.5 months ago. They have EUR 60 million turnover, a company that has 470 consultants many external people working for this company. They are working on data, IT, cloud software development. It's a company that reinforces our critical size in IT in France, in particular, out of Paris, Southeast of France but not only. Our forecast for the year to come: macroeconomic, geopolitical context is of a high uncertainty and so it is extremely difficult to have a forecast. However, in this given environment we are working, in an environment which is not taking into account a deterioration that could happen because of the war in Iran, we forecast an organic growth between 0% and minus 0.5% for the whole first half year. And according to this hypothesis, the operational margin should increase compared with the one that we achieved in '25. We have no precise guidance for this time. Of course, we talk about operational margin of the activity. We do not expect an explosion. The increase of margin is going to happen by and by and will be strongly marked by what we are hoping for in the different sectors back to growth. But we thought that the margin at 8.6% during the year '25, well, this margin is going to be higher in '26. And now I am going to hand over to you, participants to this conference. If you want to raise questions, you are very welcome, and I will answer your questions.

Thank you very much. So we open now for the question and answer. Nicolas David has a first question. He has raised his hand. And you have the floor, Nicolas David.

Here I am. I would like to come back on the guidance. I understood that it does not take into account a degradation even at the bottom. But I'm surprised because when we hear the comments, we hear a lot of increase or stability, automobile, but also even Germany. If there is an increase, if there is an improvement, then do we have countries who are going to deteriorate? It is just -- countries or activities? Is it possible to find out if it has a link with Iran? This is my first question.

Well, data is being published on a year-to-year basis. Now you have to understand that there is a business dynamism. We have a first quarter, which is quite acceptable from an activity point of view. But this can be explained by 2 different things. First of all, we had a first and second quarters of '25, which were not good with the coming back to growth by the end of the last quarter. And then at the beginning of the first half year '26, it degraded again a little bit because that's how it is. It's the beginning of the year. We have projects that do stop on the 31st of December. And then it goes up again. And during those activities and expansion periods, we again come to crossroads with the loss that we had at the beginning of the quarter, which is going to be mixed with the growth that has been generated. Now this year, I mean this has come true again. For the first half year '26, we have lost a certain number of projects. And now we are still trying to catch up, but we have not reached yet the end of '25. It's going to happen. It was not done before. I think it is going to be achieved in '26, except if we have a real degradation of our activity. But the level of activity for the first quarter and even half year is going to be -- no, first quarter is going to be higher compared with the first one of '25, but we're not back to the situation end of '25. So to be clear, even if there is a certain dynamism which is okay and others which are less okay, I mean, we have countries that still decline and even sectors of activities that decline. We also have the contrary that goes into the good direction where we are going to reach a certain stability even if we do not go beyond, but we will reach the 0% level. This is why the uncertainty is about how is it -- how will we regain projects and what about the amount of projects we're going to lose. But this has nothing to do, if I may say, with the economic context that we are in. It has to do with this kind of cycle of our activities usually. It has always been like that. So we will see what happens by the end of the first quarter, and this will be the first trend, if I may say so, but we have to wait. I don't know if this answers your question. But to be even more precise, what about the minus 0.5%? Well, first of all, you understand that the gap -- I mean, we have not put minus 2%, plus 2%. We have a gap which corresponds to our convictions today, to what we are hoping in and what we observe on the market. There is a growth dynamism, which is very sensitive, in particular, as regards aerospace, defense, and this should not be destroyed. Because this -- even if things are better in the automobile industry -- I mean, it has dropped so much that at a certain point, you reach the bottom. But there are other sectors that decline and decrease. So what we can say today is that the war in Iran has so far no consequence on the dynamic of our customers. It is a 0% effect. There is no effect. There is no consequence. But we do not know because even our own customers are not able to deliver any kind of indication. We don't know if the consequence is going to be deferred in time, maybe summer, after summer or never. And according to what already happened, we have to wait to see the possible consequences. However, we can't say what is going to happen there. Maybe there is going to be a major oil shock. However, again, we do not know anything about the consequences. So we have no worst case. It is a worst case at, let's say, roughly around 0.5%. And we are absolutely unable with this war in Iran to say anything better than that.

That's quite clear.

Plus, it's far away, a lot of uncertainty. So for the [ SPE ], there is this 0.5%, and it's logical. For the second quarter, '25, the second half year '25 even, we had a sequential worsening of the situation. No, it is the second quarter '25. I can't even understand how the year-to-year, Tier 2 of the quarter of this year, '26, could be better because minus 20% would mean a scenario of strong degradation. I can't observe that. The minus 1% for the second quarter is, careful, prudent. There will be a sequential degradation because the second quarter is always lower than the first quarter. And then the question is, is this the result because we have less days, working days? Or is it because we have an additional decrease because of the internal functioning of our company. We also had a slight stop of projects by the end of the first quarter this year, a little bit more important than last year, but we are catching up with it. So it hindered a little bit the whole mechanisms. We took that into consideration, and we will see by the end of the quarter what we do. Organic growth, the second quarter will be identical or slightly inferior to the same quarter of last year. And in the worst case, we would have a minus 1%, minus 1.2%. It's extremely difficult to proceed to a forecast at this detailed level at the beginning of this quarter.

And the drop in headcount, does that reflect the degradation?

Yes, yes. Exactly. However, the activity levels are still okay. I mean, we have -- we do not anticipate on a loss of contract for the second quarter.

Okay. And a last one before I hand over to others. How do we explain the decrease in electronics and semiconductors? How do you explain that? Is it specific to ALTEN? Is it specific to the market? Could it really go back to growth? ST Microelectronics are back to growth.

This is an excellent question. We have exactly the same kind of question, by the way. And yes, we would like to understand. And for reasons that we all know, it is an expanding sector. So either the sector is less externally organized and the investments are about production and less on subjects that we are working on, like ASML. ASML, we know very well. What we know -- we can't speak for all the sector, but for ASML, we know despite a backlog with a very positive year and investments, the investments will start again. But for the time being, the subcontractors do not profit from it, so nor do we, nor do the competitors. So is it possible to extend that to the whole sector? I don't know, and I'm not sure. In the sectors of semiconductors, we have ASML, Samsung, ST Microelectronics, et cetera. So what is surprising is that on all of those accounts, we have a degradation of the turnover. So either it is a dynamic that has to be broken down sector by sector, or we are bad and we do not have the right sales strategy to develop those accounts, and they are still very important for ALTEN. So we will have to investigate a little bit to better understand. I understand the question. I do not have the answer. I think it's probably better to remain quite cautious at this juncture anyway. We don't really have the comfort of settlement of visibility in order to be particularly confident at this stage.

Thank you. Now let's move to another question, Laurent Daure. Over to you.

I have 3 questions. The first is related to the aeronautic section, which is slightly better after the last few quarters. But you see what's happening with regards to air traffic. Well, do you have any concerns about an eventual slowdown at the end of the year? What have you heard from Airbus, et cetera? That would be interesting to know. And my second point, when we're talking about margins, increasing margins, I just wanted to make sure that we were still on this dynamic salary versus price with the increasing strength of AI. And thirdly, I want to talk about the acquisition that was announced. If you could share with us the profitability levels expected and see if the price paid is within standards, I suppose?

Well, yes, The last question, yes, we're within the traditional standards. It's not going to be any burnout in this company. We have paid some which are similar to other acquisitions in the past. In terms of profitability of the company, it's at 7%, 7.5% of operational margin, bearing in mind that this is a company for which the gross margin is pretty good. And that means what? It means that there will be a potential improvement to 10% very quickly. And when I say quickly, I'm talking about 2027. For margins overall, well, the dynamic is interesting. But let's bear in mind that we have less and less activity in classic time and material. And the challenge, therefore, is to really maintain the margins for our projectors to ensure the internal production is up to par in order to -- or even improve it so that the clients have calls for tender, and they're going to consider the technical offer, but they're also going to look at the budgets that are allocated. But overall, we are managing to stay afloat and to hold our gross margins in a fairly satisfactory fashion. It's always a mixture, isn't it? There are areas where it's less good than others. But at group level, the gross margin is holding up. With regards to the aeronautic section, well, this is why I haven't really made any specific commentaries on Iran because we really don't know what's going to happen. We haven't got much feedback from the field. However, in head, I believe I have some ideas. And I look at 2024, for example, where we had no warning or very slight warning before any crisis and then suddenly, we're face-to-face with a work stoppage, project stoppages one after the other, and that was in October 2024. Our clients, the traditional ones, people working in the field, don't have much information currently, which would allow us to anticipate any slowdown before the end of the year. Now you know how it works. When the cash flow isn't there, well, the clients might very well decide to walk and to invest elsewhere from one day to the next. And it's not easy to predict this kind of information. Our direct clients are not necessarily informed of what's happening. Now today, we can see that for the last 2.5 years, we are changing. We're moving in an environment which is much less sure in terms of prediction because our own clients are often as unsure of what's happening as we are, particularly in terms of the budget. So similarly, as in 2024, we were caught off guard, and we weren't the only ones, let me tell you. In 2025, when we published our first quarter, first semester, we're trying to anticipate a recovery of the aeronautic industry in 2026. But actually, we've gone much quicker than we expected, even if the clients have been faced with certain problems because budgets fell after summer. So overall, it's generally satisfactory. But today, we just don't have any slowdown included in our predictions for Airbus for the end of the year. But we're not exactly forecasting an enormous expansion either. We have to remain focused, measured. But we haven't forecast a slowdown in -- or a decline in the activity. If we thought that the war in Iran was going to change everything, we would be obliged then, of course, to change the way we interpret all of the information we receive. But today, I think it would be gratuitous to do that because we just don't have the information.

And the acquisitions are going to be consolidated at the beginning of Q2?

No, no. So it will be at the beginning of Q3 if they are within the scope. And by that, I mean, they're able to provide what's necessary to get into those figures. Failing that, it will be the 1st of October.

Have you got many deals which have made a great deal of headway?

Yes, yes, we have deals on the table. Not major deals, but we do have deals there. We have deals in Asia, in North America, in Europe, quite a few, which are taking a long time to be developed, perhaps because of legal implications from the salespeople or because of the negotiations and some who are waiting because the results in 2025 weren't quite what were announced, and they'd like to prefer -- they would like to wait and see how the first quarter fare -- how they fare in the first quarter rather than getting involved in any kind of embedded vision. We have 2 fairly advanced deals which are practically finished, and we've got more than 5 deals underway. That's for the new deals. But if you look at the files that we have, we have deals that are signed. We've got more than 10 of them, which are in the wings.

So it's much like February last year?

Yes, exactly that.

Now let's move on. The next question, Derric Marcon. Over to you, Derric.

I hope you can hear me. Well, my first question is how we can reconcile the performance of the first quarter with this embedded growth that you outlined at the end of January. The second question is, why -- H2, why is that equivalent to H1? If you're going to continue to increase our staff hiring, the basis is going to develop at least in the third quarter. And the third question is related to the auto contracts in Germany. Can you give us some information on the major framework that you won or lost or which are underway? And how you view -- I suppose, what's your hypothesis surrounding these deals that are won or hopefully going to be won when you look at the organic growth of 2025? And with regard to the semis, in the hypothesis which you have announced, when you look at commercial performance, et cetera, they haven't relaunched investment. Is there an offshore option, because this is usually a part of deal for the deals for semiconductor clients? Are there any particular deals that you are aware of that are traditionally onshore, which are now being sent offshore?

Right. Well, if I take your question one by one. Embedded growth is annual, okay? So how have we managed to reconcile it with the figures from H1? Well, you're talking about cure? We're not talking about the same standards. What we were saying -- what I was saying anyway is that the principle of embedded growth is if the year that's starting, so let's say, 2026 is a year, which is particularly flat given the situation of 2025, then we're going to be less than 2.2%. That's what we estimated anyway.