Altran Suffers from a Temporary Slowdown in Q4
Altran’s organic growth slowed down to +3.3% yoy in Q4. The company suffered from two main effects: Brexit delaying decision-making in the UK and deteriorating market conditions in the German automotive market. As a result, Altran’s North Europe and Central Europe business units were down by respectively 9.6% and 8.4% yoy in Q4.
All other regions performed well: North America accelerated to +5.4% thanks to the Communications sector accelerating its work around 5G and Frog. Altran is working on getting its semiconductor business back on track The company also suffered from the declining revenues related to IP partnership with IBM.
West Europe (mostly France) was somewhat weaker than expected, with organic growth of 3.9% in the quarter. Altran’s management remained confident with all KPIs green: hiring accelerated during the year, and the pipeline continued to be good.
Finally, Southeast Europe (mostly Italy) and Iberia enjoyed double-digit growth (to respectively +11.6% and 13.3% yoy organically), in line with previous quarters. Altran continues to benefit from its positioning in several verticals, including life science, communications (Italy), and defense and communications (Iberia).
In total, for full-year 2019, revenues were up by 6.0% organically, reaching a respectable EUR 3.2bn (USD 3.5bn). Altran also improved its adjusted EBIT margin by 60 bps to 12.7%. Its EBIT margin was also on the rise, by 160 bps, to 9.0%.
Looking ahead, Altran is confident it can accelerate its growth steadily during the year. The Brexit effect is gone in the UK, and Altran has a good pipeline. Revenues will take one to two quarters to get back to growth. In North America, Altran’s priority is to get the semiconductor business back to growth. Communications should continue to accelerate.
Germany is the only black spot in Altran’s portfolio: in H1, the business unit suffered from the impact of its cybersecurity impact. It lacked visibility over operations, and then it suffered from the slowdown in automotive. Altran is expecting Germany to improve in H2 2020.
So all good at Altran? Not quite, the disappointment came from Altran’s reduction of its net debt, which only decreased by EUR 30m in 2019 to EUR 1,280m (and increased to EUR 1,500, taking leased liabilities under IFRS 16). Altran’s net debt stability is a mystery, considering that it enjoyed robust FCF in 2019 (representing 5.1% of revenues, up from 2.8% in 2018). We were expecting Altran to deleverage by reducing its net debt. It looks like that the deleveraging will come through the increase in its EBITDA margin. This is not quite the same thing.