UPDATED: Altran Finds No Additional Forgery in Aricent’s Accounts: Stock Still Down by 8%

/ September 6, 2018/ Altran, Aricent, Financials, France, India

There is a bit of irony about the performance of the stock of Altran on Thursday: Altran announced that it had found no further forgery in the accounts of Aricent. The company provided more light on how and where it was going to restore the profitability of Aricent without impairing its development.

Good operational performance

Altran also disclosed its H1 2018 results, which overall were decent, on the operational side: CC/CS revenue growth of +5%, with the US enjoying 10% growth at CC/CS and Germany now back to a revenue growth level (+7% at CC/CS) that the likes of Bertrandt would envy. France, which still is Altran’s largest geography, for now, was a bit soft, with a CC/CS growth +3.5%, impacted by somewhat slow recruitment levels.

Looking ahead, Altran is confident it will accelerate growth in most geographies: in France, thanks to further recruitments; in Northern Europe, thanks to improving utilization rates; a turnaround of Germany (with a focus on profitability in H2); and continued performance in Southern Europe. Altran highlighted it needs to turn around the communication business of Aricent, something it expects to achieve by H1 2019. We will commenting in a separate blog on the performance of Aricent.

On the profitability side, Altran’s adjusted operating margin was up (+80 bps to 10.1%), as expected, thanks to Aricent.

FCF and net debt a concern

Once relieved by the lack of further forgery, investors looked at the financial performance of Altran: net income was down 83% to EUR 10m, FCF was a negative EUR 225m, with Altran’s net debt to EUR 1.7bn. The fall in the net income reflects the impact of one-offs related to the Aricent acquisition and did not worry investors.

What caused the concern was the FCF performance. Altran highlighted that 2/3 of the decline in FCF were one-offs related to the Aricent transaction. The rest is a mixed bag, with almost 25% of the FFC decline caused by costs ramping up on large projects, and resulting in increasing working capital. Altran denied however that its business model is becoming more capital intensive.

The stock market’s reaction was a bit extreme and unfair to Altran. The fall in stock value is fragilizing Altran’s management, while it is busy transforming the firm for the better.

On the positive side, stock markets have signaled what they want, i.e., an improvement in FCF and net debt level. Altran’s management got the message and announced new initiatives to create a culture of cash internally.  Altran’s CFO now has four months to satisfy financial markets.

UPDATE: on Friday, the day after the annoucement, Altran was down again, by 6%. Altran will need to strong improve its FCF when it publishes its full-year 2018 results. If not, given its traditonally soft H1s, the company will not be able to demonstrate its recovery before its full-year 2019 results…


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