Altran: Aricent back to growth in Q2!

/ September 11, 2019/ Altran, Financials, France

We eagerly awaited the earnings from Altran in H1 2019 to understand if Aricent would resume growth, as guided by Altran.

Aricent, indeed, resumed growth in Q2 2019, with revenues up 4% yoy at CC (+10%). Communications, which had been impacted by fraudulent revenue recognition last year, was back to growth thanks to 5G projects and Altran’s 5G software product. This is good news.

Having said the reorganization of what become Altran North America continues: among the goods news, frog is back to growth, with Altran’s management eager to make it a more predictable business. Lohika, the Ukrainian software product development unit continues to deliver high growth. On the negative side, the IP partnership with IBM is on a negative trend, although the business is very profitable. Also, Altran is transitioning its semiconductor engineering business from T&M onsite to offshore delivery for the next two quarters. The transition is painful: the CC/CS revenue growth of Altran Americas in Q2 slowed down to 1.8%, from an estimated 6.0% in Q1.

Outside of North America, Altran slowed down in Germany, impacted by market conditions in the automotive market, and the completion of large contracts. German automotive OEMs are also suffering in China, which impacted Altran’s growth in this geo too. The company will resume “tangible” growth in Q4 but expects the difficult automotive market conditions to remain in Germany and China.

Finally, Altran managed well the impact of the cyberattack on its financials, impacted H1 revenues by EUR 34m, including lost revenues and remediation costs. Insurance policies will reimburse about EUR 19m, We understand the net impact is EUR 16m.

In total, despite difficulties in North America, Germany and the cyberattack, Altran performed well: revenues were up 7.4% at CC/CS in H1 2019 to EUR 1.6bn, and its adjusted EBIT margin rose to 11.2%, up 110 bps. This makes Altran, the most profitable of all ER&D vendors with an onshore background. This is a good performance, given the number of distractions Altran’s management has had in the past 18 months!