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Edited Transcript of ALT.PA earnings conference call or presentation 11-Feb-20 8:00am GMT

Full Year 2019 Altran Technologies SA Earnings Call

Paris Feb 14, 2020 (Thomson StreetEvents) -- Edited Transcript of Altran Technologies SA earnings conference call or presentation Tuesday, February 11, 2020 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Albin Jacquemont

Altran Technologies S.A. - Executive VP & CFO

* Dominique Cerutti

Altran Technologies S.A. - Chairman, CEO & President

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Conference Call Participants

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* Anna Patrice

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Derric Marcon

Societe Generale Cross Asset Research - Equity Analyst

* Gregory K. Ramirez

Bryan Garnier & Co Ltd, Research Division - Analyst

* Laurent Daure

Kepler Cheuvreux, Research Division - Head of IT Software and Services Research

* Peter Testa

One Investments S.A.G.L. - Analyst

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Presentation

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Dominique Cerutti, Altran Technologies S.A. - Chairman, CEO & President [1]

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Hello, everyone. Thank you for joining us this morning for the 2019 annual results of Altran. It's -- I'm Dominique Cerutti. As usual, I will start the presentation with the highlights of the period before handing over to our group CFO, Albin Jacquemont, who will present in greater length our financial performance for the past year.

I will then give you an update on the Capgemini's tender offer, and we'll conclude today's presentation. We will then open the floor for questions, knowing that most of the participants are over the phone today. We are here in Paris.

So let me move to Slide 3 on the deck. As I said, that's the agenda. I'm now on Chart 5 to start the presentation. In 2019, Altran delivered solid results in a challenging environment. We posted a 10.3% reported growth, that is 6.2% economic growth and 6.0% organic growth. We had a good performance in Europe, despite a challenging auto market in Germany and macroeconomic slowdown in the U.K. In Americas, we continued to see an acceleration of our growth and are quite satisfied with the outcome.

Looking at industry, our top line was fueled by strong performances in Communication, Energy, Industrial, Life Sciences, Aerospace, Defense and Rail, in that order. We continued to grow our margin faster than our top line and posted a 12.7% operating margin, which is up 60 bps versus last year.

And last, we had a strong free cash flow generation, reaching EUR 164 million for the full year versus EUR 82 million last year, with some exceptional proceeds. Albin will give you the detail of that in the way this free cash flow performance should be read. But again, strong cash flow -- free cash flow performance.

I'm now on Page 6 with more granular detail on our numbers. Also, Albin will go in greater detail. As I said, EUR 3.2 billion revenue, 10.3% reported growth, 6.2% economic; operating margin reaching EUR 409 million, up 16% versus last year. The operating margin in percent, 12.7%, as already pointed, which is 60 bps better than last year. Free cash flow EUR 164 million versus EUR 82 million last year. Leverage resulting from this free cash flow 2.8x EBITDA. We had a strong net hiring this year with more than 3,500 new engineers joining us, which means the group is now employing more than 50,000 employees.

The adjusted net income is close to EUR 213 million, which is up 29% versus last year. And our adjusted EPS is EUR 0.84 versus EUR 0.72 last year.

The Board of Directors has not taken a decision regarding the payment of a dividend for the 2019 year. This decision will be taken when the agenda of the shareholder's annual general meeting to be held on June 23, 2020, will be set.

I'm on next chart, but I will be short on this one, Page 7. That's the mix per geo or per sector. Nothing to write home about with this chart. On the right side, you see the split by industry, the result of the remix that we did over the last few years that is quite balanced. I already pointed the industry performing really well last year, but we will come back to that if you have questions.

On the left side, you see the revenue mix per geo. Noticeably, the fact that Americas is now 26% of our total revenue. Albin will give you more detail, but it's now unit, which is north of EUR 900 million, reaching more than 17% operating margin. So we're quite satisfied with the remix that has been accomplished over the last few years. That's all for the introduction. Albin the floor is yours.

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Albin Jacquemont, Altran Technologies S.A. - Executive VP & CFO [2]

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Dominique, thank you. I'm now on Slide 9, on which I will spend little time as these are figures Dominique already touched upon. Our financial results in fiscal 2019 were solid. We posted an organic growth of revenues of 6.2% to reach EUR 3.2 billion. From a profitability standpoint, we achieved strong operating performance, delivering 12.7% of operating margin, up 60 basis points year-on-year.

The strength of our operations and continuous discipline exerted enabled us to achieve EUR 164 million of free cash flow, a number on which I will provide greater details in a few minutes. We reduced our net debt to EUR 1.280 billion. Our leverage is, therefore, down to 2.8x EBITDA as of 31st of December.

Slide 10 presents our usual top line bridge, starting with economic growth and finishing on reported growth. The impact of working days was slightly negative in H1, but as predicted, was caught up in H2, which registered more working days.

On the ForEx side, we recorded a positive effect due to the dollar evolution this year.

Looking at the growth per region on Slide 11. We saw a good performance in Europe, particularly in West Europe, which remains our most important geography. West Europe, 35% of revenues. Revenues totaled in excess of EUR 1.1 billion, representing 6% organic growth.

Economic growth was 6.4%. France showed performance in the region, thanks to the dynamism of the aeronautics and energy sectors. North Europe, 11% of revenues. Revenues were of EUR 362 million, representing an organic growth of 2.3%. Economic growth was 2.2% in spite of macroeconomic slowdown due to Brexit.

Southeast Europe, 9% of revenues. The region remained very dynamic this year, notably driven by communication and life sciences industries, with revenues of EUR 303 million, representing 11.7% of organic growth. Economic growth was 11.7%, too. Iberia, 9% of revenues.

With fiscal year 2019 revenues of EUR 300 million, the cluster saw a 13.2% organic growth. Economic growth was 13.3%, thanks to ongoing dynamism of spatial and defense in Spain and strong growth in Portugal, particularly in communications.

Central Europe, 9% of revenue. Please note here, we were executing against tough comps last year, so revenues amounted to EUR 295 million, representing an organic growth of 2.2%. Economic growth was 2.1%. Over the year, and particularly in the second half, the region was impacted by the slowdown in the German automotive industry.

Americas, 26% of revenues. Revenues totaled EUR 803 million, representing 3.9% organic growth. Economic growth was 3.9%, too. The region recorded a steady acceleration throughout the year, benefiting particularly from increasing demand in the communications industry.

Asia, 1% of revenue. Asia recorded a robust performance over the year, with 13.5% organic growth and 13.6% economic growth. And Dominique in his conclusion will give you a bit more color on the outlook for the foreseeable future.

Slide 12 shows the dynamic recruitment policy we are implementing in all our regions. In the last year, we had a net hiring of 3,555 people to reach in excess of 50,000 employees worldwide. In France, net hiring for the year was in excess of 1,000 employees.

The next few slides deep dive on Altran's income statement. I don't have much to comment on Slide 13, as these are numbers I have already commented or will comment at greater length in a moment. Please note, our operating income increased 33% to -- year-on-year to EUR 289 million. This naturally led to an increase in income tax to EUR 58 million in 2019.

On Slide 14, I would like to touch upon a few points. Share-based compensation of EUR 11.9 million. As already commented on in H1, this is related to a change in financing plans of the management and corporate offices, which resulted in an increase in the number of guarantees and adjustment, based on performance in share price. This is close to the normative level as we now have free share plans in place.

Please note that the amortization of intangible assets arising from business combination is purely an accounting entry, with no cash impact.

Restructuring and convergence costs. Most of these relate to the restructuring in Germany, to the cost related to the integration of Aricent. You will note here the name of the integration project is convergence and to other recurring restructuring in our various geographies.

Acquisition and integration cost of EUR 5.3 million. This number is in sharp decrease year-on-year. Nothing surprising here. As for your reference, in 2018, we completed the acquisition of Aricent. Litigation and miscellaneous of EUR 6.8 million. This is a sum of items, which are detailed on the next page.

Slide 15 presents details of those one-off items affecting our other operating expenses. They can be grouped in 4 main buckets. Litigation costs were EUR 7.9 million. This is mainly due to the other time litigation in France. Cyber attack, a negative direct cost of EUR 20 million impact, not to mention the loss margin that was partly compensated by the payments we got from our insurance policies for EUR 15 million.

10 million of cost related to the Capgemini tender offer process. You should expect more of these costs in 2020. And finally, EUR 41.8 million of net proceeds from Aricent resolution. Let me dig deeper on this item. After an extensive forensic, we came to the conclusion that the sellers had not been in breach of their obligations, and as such, decided to pursue an amicable settlement that was closed end of 2019.

We appreciate the spirit in which a constructive dialogue has been conducted. This agreement is by nature confidential, and we will not be able to make any comment on it. On top of this agreement, we concluded a settlement with two carriers. We remind you that the reps and warranty insurance contain 6 players covered by 5 carriers.

The EUR 41.8 million figure you see here is the sum of 2 actions we have conducted in parallel and is net of litigation costs. We will continue to work for the best interest of our shareholders and continue to negotiate with the remaining carriers. For this reason, we will not further comment at this stage.

Slide 16 and 17 are self-explanatory. I have nothing to fight -- to flag, sorry.

I'm jumping to Slide 18 on the free cash flow performance. As explained in H1, new items appear on this table, due to the implementation of IFRS 16 this year. However, there is no impact from IFRS 16 on the free cash flow. I'm pleased with the discipline around working capital, which allows us to generate cash and in improving free cash flow year-on-year.

Slide 19. So the free cash flow bridge details our cash flow generation item-by-item, starting on the operating margin and ending on the reported free cash flow. It is based on the same numbers presented under previous slide, but breaks down into their components. To reach the operating free cash flow of EUR 330 million, it is worth noting the minus EUR 26 million variation in working capital, excluding minus EUR 5 million impact from cyber attack, EUR 65 million of CapEx and some nonrecurring items amounting to minus EUR 59 million. Therefore, the operating free cash flow stands at EUR 330 million.

To get to the reported free cash flow of EUR 164 million, please note that there are a number of one-off items specific to 2019. First, EUR 10 million corresponding to cash outflow coming from the cyber attack, which took place in the beginning of the year 2019; second, EUR 41.8 million, corresponding to a first tranche of proceeds from Aricent's resolution; finally, EUR 10 million of costs arising from the Capgemini tender offer.

Slide 20 presents the evolution of our net debt, which was reduced to EUR 1.280 billion at 31st of December 2019. Our free cash flow generation more than offset the negative impact of the acquisition of a higher stake in GlobalEdge software and the outflow of EUR 0.24 dividend paid in July.

Slide 29 (sic) [Slide 21] highlights the structure of our net debt, which represented 2.8x EBITDA leverage ratio. This is a decrease of over 3x EBITDA figure we posted at the end of December 2018, in line with expectations.

At the end of the appendix, there is also a chart highlighting the maturity of our debt, confirming that we have no debt maturing until 2025. That's it for me. Back to Dominique, who will now come back on the tender offer launched by Capgemini.

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Dominique Cerutti, Altran Technologies S.A. - Chairman, CEO & President [3]

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Thank you, Albin. Let me move on to Chart 23. That's an update on the Capgemini offer that was launched last June, if you, of course, remember. Since then, a few milestones have been reached. Let me come back quickly on those milestones.

So June 24, we have announced that Capgemini approached us in a friendly move, with the intention to acquire Altran via cash offer. This will create a global leader in the field of digital transformation in what Cap calls rightly intelligent industry.

We have a top line in excess of EUR 17 billion of revenue and more than 270,000 highly educated employee, consultant or engineers. So that's a unique combination. The offer was closed on January 22, as you remember, and Capgemini announced the success of the tender offer, owning 53.57% of Altran's share and at least 53.41% of voting rights. Subsequently, the offer was reopened and closed on February 10. The results of the second window are expected soon, next week.

Please note that the Paris appeal court will give its decision on March 19. So we heard that last week. So the date of the appeal court judgment will be March 19.

And until then, Capgemini has committed not to take control of Altran, which they are, of course, doing, which means 2 board members since have resigned from the Altran's Board, that is, the apex board members, that is done as committed on the day of the settlement of the offer, but Capgemini has not appointed board member for the time being, and will likely wait for the appeal court, March 19 to get that done.

So that's it. If you have question, I will answer in more length during the Q&A.

Let me move to the conclusion. And before I go to the conclusion per se, let me use a couple of charts to report to our fellow shareholders and analysts what Altran has done over the last few years besides delivering regularly the result and the financial outcome that we committed to our shareholders.

On Chart 25, you see a snapshot of the way we will describe Altran, making a long story short, we've been obsessed by rebuilding capabilities that we call Next Core, at the bottom left of the chart and Industrial GlobalShore, at the bottom right of the chart. Historically, Altran 5 years ago was positioned mostly on what we call now mainstream.

That's where we operate onshore across industry, across countries. We are present in 35 countries and a dozen of industries. The mainstream part of Altran is now reaching more than EUR 2 billion, with 28,000 engineers mostly onshore and they operate in free domain product and system engineering, digital and software and industrial operation.

No new news except the fact that for this bucket and stream, we did accelerate significantly in digital and software. It is to be noticed what we have done in Next Core, which is a broad transformation. We brought this business from basically EUR 80 million 5 years ago to EUR 500 million, highly profitable, growing fast as we committed, double-digit, with the iconic brand, frog, Tessella, IRM, Cambridge Consultant, creating now a very cohesive portfolio that is going to market together.

And on the bottom right side, you see the significant progress made in what we call Industrialized GlobalShore, which is our offshore. It's not only cost arbitrage, but talent acquisition that we have in different global engineering centers and we build industrial machines, namely in India, with more than 14,000 engineers there; Ukraine with more than 1,000 software engineers; North Africa, Morocco, Tunisia we have almost 2,500 engineers in that global engineering center; and Portugal that is reaching as of today almost 1,000 engineers.

Next Core represent EUR 500 million of business, growing fast. Industrialized GlobalShore represents EUR 700 million, growing fast and, of course, highly profitable. If I snapshot what we have done and, again, with no triumph, that's not what I'm doing here, I'm just showing what we have done over the last few years in parallel of delivering a, result, between the end of '14, when we started strategic plan called Ignition at the end of last year, 2019, the revenue has almost doubled from EUR 1.7 billion to EUR 3.2 billion.

The North America revenue has grown from $100 million to $900 million. Albin, has pointed that the U.S. -- the North America, sorry, zone operates in excess of 17% operating margin, 17.7% exactly, for a company which is now multi-industry and almost $1 billion.

The Next Core and IGS revenue has gone from EUR 100 million to EUR 1.3 billion, which is showing how fast we have accelerated that. The operating margin of the group has been elevated from 9.4% to 12.7%, recognizing the remix of the company. The employee number has gone from 22,000 to 50,000, so more than double. And again, the offshore headcount has grown from 600 to 18,000 headcount. I want to recognize what my team has done. I'm really proud of what has been accomplished, but more importantly, we think that -- and that is my last chart on Page 27.

We'll, of course, not go into detail of all those references and iconic brands, meaning client giving us their trust and confidence every day, but the good news for us is that the more we grow, the more we see that the large clients think accordingly to the model that we built and they operate, of course, through what we call mainstream, but it is obvious that more and more of they focus on what will be core next in their business using what we build in our Next Core business, and they try to optimize the costs or the efficiency of their R&D using what we call IGS, on the bottom right quadrant.

Again, I'm not going to go into detail of those client references, but the more we grow, the more we are encouraged by the confidence of the client daily, which is enabling us to grow the top line accordingly to what we said we would do, but grow the profit much faster than the top line, which has always been our goal. That's the basis of our shareholder returns.

That's it for this session. Let me go to the conclusion. I'm on Page 28. Solid performance in 2019 in a more challenging environment than what we saw recently with what we call disparate events in reality. If you check correctly, our results during the slowdown on the growth in the third quarter, we remain quite optimistic because if you check, again, the breakdown of our results, you will see that most of the zone are performing extremely well, with the exception of North, which is U.K. and Germany, that are the 2 zones slowing down significantly in the fourth quarter.

We attribute this slowdown to the Brexit in the U.K. The good news is that this is over and behind us, and the pipe is rebuilding extremely rapidly. So we think that over the course of the first quarter or second quarter, we will turn around and get back to growth. My personal view is that we will start growing again North in the first quarter and accelerate further in the second quarter, that's Brexit.

The Germany zone is a bit more complex, with complex auto situation, but the same. And if you have question, I will be more than happy to answer. The pipe is rebuilding in a very nice way. So it's promising because if we get back to growth, we are confident with the trajectory of the profit. Again -- so this breakeven that are going to normalize in 2020, and we remain committed through our execution to drive future performance as we have always committed.

That's it for the formal part of the session. We have a few person in the room and then a significant number of people over the phone. So we will start taking questions in the room and then move to the phone? Okay. Yes, first question?

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Questions and Answers

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Gregory K. Ramirez, Bryan Garnier & Co Ltd, Research Division - Analyst [1]

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Gregory Ramirez from Bryan Garnier. One question related to France. We have seen a slowdown in Q4, but all the players, all your competitors and peers have known that. Maybe there could be some influences from the recruitments which could be delayed, in December, especially due to the strikes in France and especially in the Paris region.

But have you seen this kind of, I would say, headwind? Even though we don't see it in the net staff hiring figures, clearly, it's a pretty nice performance overall. And still, in France, you don't -- it looks to me that you haven't seen the usual end of year effect that some competitors had at the end of the year, with some people leaving at the end of project as you usually see in France. So is this effect is as usual in January and not in December for like some of your competitors?

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Dominique Cerutti, Altran Technologies S.A. - Chairman, CEO & President [2]

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Okay. Several points, Gregory. So nothing to write home about in France. The outlook remains positive. We're growing the net hiring. That's a good sign for us. The pipe looks good. And I don't read too much in the small variation on the top line growth between fourth quarter and third quarter.

The year has been a steady improvement and so on, and France will continue to deliver what they have done. What I'm saying is that 5.4% growth, economic growth in France fourth quarter remain in the bracket of what we want to do and that's okay. We are, I would say, less sensitive to what you call -- what you're pointing, which we call returns in our jargon, quite likely, because what we call at Altran TAM, which is time and matter, has been significantly reduced over the last year.

So we are less and less sensitive versus other competitors, so that we are in project, in more sophisticated way of delivering, many time connected to offshore, which means that the clients are not cutting their capacity at the end of the demo. So what you're pointing is a typical effect that this well-known end of December, beginning of January, we call that a return.

Every quarter, we have that. It is more severe at the end of the year, but we're becoming less and less sensitive. So that's it for France. Laurent?

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Laurent Daure, Kepler Cheuvreux, Research Division - Head of IT Software and Services Research [3]

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It's Laurent Daure from Kepler Cheuvreux. Just 2 questions on my side. The first is on your margin targets for the longer term. You still have nearly 2 points to go. So if you could update us on what you already achieved and the levers you still have, particularly in Germany.

And the second question is your -- is on your headcount addition. Exactly 7% more headcount to comparable scope. I guess, there's some dilution because you're probably hiring more offshore, but if you could help us reconciliate your headcount addition and maybe an organic growth for the year that maybe at 5% plus or so, any clarification on that would be nice.

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Dominique Cerutti, Altran Technologies S.A. - Chairman, CEO & President [4]

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Yes, sorry, the first question was, Laurent, sorry?

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Laurent Daure, Kepler Cheuvreux, Research Division - Head of IT Software and Services Research [5]

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The margins are still a long way from 14.5%.

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Dominique Cerutti, Altran Technologies S.A. - Chairman, CEO & President [6]

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Thank you for the encouragement. I thought you were going to point to the progress we made. No, you're right. So again, that's quite -- I'm going to try to be as transparent as I can. Also, we're not, as you know, guiding the market, and we're not changing that for now. So we do not change anything mid-term on our high road plan. We are still committed to that.

We are quite satisfied because we have corrected the glitch that we inherited from Aricent. We said that the U.S.A. are back to growth, especially with the communication sector growing several points through 5G, as we said we would do, and delivering the result in terms of margin, which is north of 17% for the American continent and more than 19% for former Aricent.

So just to say that we are making progress where we needed to make progress, and the remix is working well. We have -- now back to your -- so we're not changing anything. We are recording, as I said, 2 zones that are -- that had special fourth quarter, which is U.K., but I suggest we put that behind us because that's behind us. It will normalize in the first and second quarter, and Germany, which remains in tough situation, so that's the situation now.

Back to your question precisely. We will continue to improve regularly the profit. The levers are the following. We are going to accelerate now what we call the remix of Europe. William, the EVP Europe, is in the room and that is his #1 priority, namely more Next Core and more IGS that are highly profitable. The reason why we are so profitable in the U.S.A. is because in U.S.A. we are born this way. So there is no remix. When we accelerate the top line, we get the profit expansion.

In Europe because of the heritage, we still have the remix. So we have a selection of -- I'm not going to go in detail, a series of accounts, where the teams are trained, coached and incentivized to accelerate the remix. Again, that means top line with more profit.

Once we get that done, we have leverage in the model, which means we will grow the profit faster than the top line expansion by nature. We're not growing the G&A accordingly. So that's basically the name of the game. Now besides that, we still have an area to fix, which is Germany.

A word of explanation on Germany and Albin may complement that. Germany has been the unit that has been the most hurt by the cyber attack for a variety of reasons. Their systems were under consolidation. They went blind. They were blind more than any other zone for a month and month and months. So beginning of the year has been especially difficult for Germany. And then the market in the auto sector also became difficult.

So it means we do not change our outlook on Germany, but we still have a significant work to do to restart the growth, which will be done at the end of the first half of this year and continue the restructuring that we have undertaken to get the profit. So that will be another key item for us.

I'm not going to do that, but if you check the profit of Altran without Germany, you understand what is our model and why we are so confident that we will deliver the high growth once we fix Germany. So that would be it. Albin, anything you want to add?

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Albin Jacquemont, Altran Technologies S.A. - Executive VP & CFO [7]

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Well, on Germany, like Dominique said, we were blind for the first half of 2019. So it took us some time to recover in the second half in finance and is now up and running and able to fully support the business.

As I speak, we have just migrated to a new ERP in Germany, which is up and running, the same as the ERP, we do have in all other -- almost all other countries in Europe. So finance would play all its role supporting the growth and the turnaround of Germany.

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Dominique Cerutti, Altran Technologies S.A. - Chairman, CEO & President [8]

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So headcount addition, we do not break down, but you're perfectly right, we have started reaccelerating offshore after fixing Aricent in 2018, where we took hundreds of people out. We have a part of the headcount, I don't know if you have the detail in the deck...

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Albin Jacquemont, Altran Technologies S.A. - Executive VP & CFO [9]

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Just to help, between 1/3 and 1/2, although wanted hirings took place in emerging countries.

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Dominique Cerutti, Altran Technologies S.A. - Chairman, CEO & President [10]

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Yes. So we don't do the math, but you are perfectly right, the headcount that we adding are offshore, don't drive the same revenue than onshore. But originally, it means we are on track to do what we said, we will navigate between 5% and 7%, so take 6%. And I am reiterating we are not obsessed by doing that like a norm every quarter, but that's basically the bracket that we are shooting for, for the year.

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Laurent Daure, Kepler Cheuvreux, Research Division - Head of IT Software and Services Research [11]

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Clarification. For the fourth quarter, I mean, your revenues slowed down to 3% and -- 3.3%. So does it mean that you have utilization rate issue. How would you reconciliate the growth in headcount and the growth in revenue? Because, I guess, you don't have 4 points of difference just due to offshore.

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Dominique Cerutti, Altran Technologies S.A. - Chairman, CEO & President [12]

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No. Check on Page 11. The fourth quarter, no, we don't have a utilization issue. It may be the case here and there, but not broadly. We continue to do good, but the slowdown is coming from North and Central Europe.

If I read the chart, the numbers for everyone, economic growth in West Europe is 5.4%; North Europe is minus 10%; Southeast Europe is plus 12%; Iberia is plus 12%; and Central minus 8%. So with just the 2 zones, Central and North, which is U.K. and Germany. So it's not technicality of utilization, it is the 2 zones that have gone south.

Questions over the phone...

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Operator [13]

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(Operator Instructions) We have one first question from Mr. Peter Testa from One Investments.

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Peter Testa, One Investments S.A.G.L. - Analyst [14]

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Just a couple of questions on segments out of Aricent, please, the old North American Aricent business. Can you just talk a bit about the Communication business acceleration and maybe give us some benchmark as to how that's performing versus AMAC's average and some visibility in the 2020.

And then on the semiconductor business, you've been talking about phasing and timing of business as you work through with a major customer. I wonder if you could give some update as we look into 2020? And then lastly, on the software agreement business, if you could give some sort of sense as to how that performed maybe cash flow versus the payments you made to IBM, for example, something there? And I have one other question.

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Dominique Cerutti, Altran Technologies S.A. - Chairman, CEO & President [15]

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So let me take the question. Albin will help on the last one. So Communication was a point of satisfaction for us, given the large franchise that we inherited from Aricent, a business that has not grown for a couple of years, at least. We could turn it around through investment in 5G, Edge, software defined network.

The team has done great and could grow, I mean, gradually accelerating until the end of the year and posting several points of growth, as we said. More importantly, we have done that through investment that we made early in the year in 5G, as I said.

And you may have seen that over the last quarter, in the fourth quarter, we had announced just to make sure the market would understand that, that we could get more than 50 contracts signed in 5G, so repositioning Altran and former Aricent as a leading company in the new technology, which means they are growing now, and they will continue to grow among communication, growing faster than the market, I think, but they continue to expand the profit.

I'm not going to go into detail of the profit, but the profit of communication industry within Altran is remarkable. And this time, it's done both on the U.S.A. and in Europe. So that is quite satisfactory. The pipe looks good. The team is really energized. So that's good.

SEMICON remained -- by the way, if I'm pointing one industry, which is going to require my personal focus with the team, it is SEMICON. I would characterize that as the following to be simple. We had a cycle. We already discussed that in the previous calls in 2019, but we saw this cycle as not being that severe. It always happen in SEMICON, but we had a cycle. So it was not helping.

We think this cycle is almost over and that the overall in the industry, we should have a better outlook. However -- and I cannot go too far because it's linked to one client who I cannot name. We have one challenge. We won large client, which we are at the moment in business discussion and several meetings that are scheduled, where we are slower than what we thought in SEMICON, which is also explained, a point of pressure in our 2019 results. So that's one industry which we need to focus on.

From a capability standpoint, outlook and quality and chain of value, there is absolutely nothing allotting, on the contrary, we're very strong. It's only a matter of business development. So that's SEMICON.

On the software agreement, I think you are referring to the very large software deal, namely IBM, and I will let Albin comment on that. We pointed revenue slowdown that is linked to the large client activity itself in the second quarter, if you remember. We think that things are normalizing as we go along.

So it's linked to actions that IBM has taken with us on their side. It's slow to go fix, but it's going in the right direction. From a profit standpoint, it remains very well oriented. As a consequence from cash flow generation, it is matching our plan. I will let Albin give you more detail on that.

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Albin Jacquemont, Altran Technologies S.A. - Executive VP & CFO [16]

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Yes. Those deals are very profitable. The contribution to the free cash flow was slightly positive. And why is that? It's because on one side, we have a high EBITDA contribution, 60% to 70% of revenues, and on the other hand, we have to pay back IBM.

So the payment which took place in 2019 were EUR 59 million. And you should note that, that will reduce to EUR 37 million in 2020. So those large software deals will be more contributive to free cash flow this year.

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Peter Testa, One Investments S.A.G.L. - Analyst [17]

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Okay. And then one last question just on free cash flow and days -- DSO, which was roughly flat for the year, I was wondering if you could talk a bit about progress in DSO and maybe as you go into 2020, whether the agreements you've struck with customers would allow more progress in 2020.

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Albin Jacquemont, Altran Technologies S.A. - Executive VP & CFO [18]

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On DSO, if you -- we do not communicate any more on the DSO. But if you look back on what has been done over the last 3 years, you would see that growth DSO would have reduced by 12 days, if you compare 2019 to 2016.

And on top of that, we are increasing our deferred revenues on the liability side of the balance sheet. And the short answer to your question is that there is further potential for us to materialize on DSO and working capital.

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Peter Testa, One Investments S.A.G.L. - Analyst [19]

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And is that embedded in some of the agreements you're now striking with customers, because I know it's one of these things you have to agree with customers over time. Do you see that sort of actually embedded in agreements as you've signed through your 2019 agreements into 2020? Or is it more something that requires sort of account-by-account work consistently over time?

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Albin Jacquemont, Altran Technologies S.A. - Executive VP & CFO [20]

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Improving cash involves pulling many levers. And the first and best lever for us to pull is accelerate invoicing, invoice earlier, streamline our processes, and the earlier we invoice, the earlier we will get the cash. It's very difficult to weigh on payment terms -- on supply payment terms because they are usually a bigger player than what we are.

Nevertheless, we are devoting much -- we're putting a lot of effort to get down payments at the beginning of the project, and we now have a cash culture, is well ingrained in the DNA of the company. We are making sure that projects are constantly, at least cash neutral over their lives.

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Operator [21]

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Next question is from madam Anna Patrice from Berenberg.

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Anna Patrice, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [22]

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Thank you for all the information that you've provided. For the outlook for 2020, you are saying that you expect some improvement because you think that situation is normalizing in SEMICON, because of Brexit [things will be gone] and because of improving Germany.

Do you see already the signs of that? Do you see the increase in the tender offers in the contract pipeline that you're talking about? And what is your embarked growth for 2020. That will be the first question.

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Dominique Cerutti, Altran Technologies S.A. - Chairman, CEO & President [23]

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Anna, we missed the last part of your question. We got -- the line is bad and breaking up. Could you repeat the last part?

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Anna Patrice, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [24]

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Okay. So basically, you are saying that the outlook for 2020 is improving. But what are the signs of that? Do you see that already increasing activity at your clients? How do you see the embarked growth for 2020?

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Dominique Cerutti, Altran Technologies S.A. - Chairman, CEO & President [25]

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Yes. So as I said, the 2 geo zones that were, if not a concern, at least slowdown was, Germany and U.K. Brexit go-to-market and from an industry point, SEMICON. We see those areas normalizing over time. In U.K., I could conduct an extensive review recently. The pipe is already rebuilt. That's being done.

So why is that? It's because in U.K., we are positioned on the high end of the project. We think we were more touched than the other guys because of this project that were delayed that we're signing. So that's going to take, in my view, a few more to rebuild the top line, but this is underway, the pipe looks good and rebuilding and accelerating. So that is U.K.

In Germany, we're just finishing reviews. We have William in the very detail, do same, slightly more to the right, which is at the end of the first quarter -- the first semester than the first quarter versus U.K. But the quality of the pipe looks good, either in what's already won or in what's being engaged, and the win ratio is improving in Germany as well.

So the combination of the win ratio that is gradually improving and the fact that the pipe looks healthy make us reasonably confident for the semester. SEMICON remained to be clear. I do not want to go into detail. I have personally a series of meetings in the U.S.A. in the upcoming weeks to go help the team fix a couple of situation.

We're confident because, again, we work with large clients in a very good spirit. We build industrial engine. We are -- we have a series of capabilities, which is second to none. But we are in a cycle, which I need to put behind us.

So net, when I compute all that, that provides me a very reasonable confidence on my -- our trajectory. We recognize the fourth quarter and first quarter that may be a little bit slower than what we thought it would be, but we will go for that.

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Anna Patrice, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [26]

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Okay. Understood. And so the weakness in Germany, was it because the win ratio was lower before or because there was less activity overall and the win ratio was the same? So will you improve the development in Germany because of the win ratio or because of the client activity?

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Dominique Cerutti, Altran Technologies S.A. - Chairman, CEO & President [27]

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Let me give you my view on Germany. The team has been significantly shaken by the cyber attack. I'm repeating, we didn't go through every detail of that, but it's a geo area where they have been maligned for almost 2 quarters. So there was suffering. As a consequence, we paid a little bit of price in the pipe and the sales activity that is true at the end of the first semester.

True, the German market in the automotive has become more complex, significantly in the third and fourth quarter. My team are quite selective because we do not want to get junky project or time and material that doesn't make the profit. So the combination created the slowdown.

And lastly, if you check the growth of Germany, in the fourth quarter of 2018, we were recalled right. If I correctly recall, the growth was 18%. By the way, same token for U.K., which was growing more than 20% in the fourth quarter of 2018. So we also have a tough compare, but we are not willing to blame that.

So it is all that combination that is providing the bad outcome on the top line of Germany. And that is, hopefully, going to gradually normalize.

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Anna Patrice, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [28]

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Okay. So should we expect then the top line growth in the range of H2 that will continue in H1? So kind of low mid-single digits and then acceleration as the year progresses to what your plan is?

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Dominique Cerutti, Altran Technologies S.A. - Chairman, CEO & President [29]

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I -- we do not guide the market. You know that, Anna, so I'm going to try to be as accurate as I can. If get back to 2 zones to clarify, we think we can get in positive territory in U.K. immediately first quarter.

We're working for that and then accelerate and get back to our normal track in U.K., meaning north second quarter. So that's one. In Germany, we think we may still be close to flattish around that in the first quarter and accelerate gradually later on.

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Anna Patrice, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [30]

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Okay. And then a little bit maybe difficult question because you mentioned many times that you don't look at Aricent as a stand-alone, but you had quite an ambitious target on synergies of combining Altran and Aricent.

So how do you able to measure if those synergies are coming through or not and where are we in the process? Are you happy with the synergies? Do you think there should be more to be done? Should we see some acceleration again coming from synergies, both on the top line and the bottom line?

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Dominique Cerutti, Altran Technologies S.A. - Chairman, CEO & President [31]

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Yes. So 2 things on synergy, top line and cost or profit. If you remember what we did in '18, we had computed the synergies that were announced before into a profile of growth, that is 6% to 7% over the period 2018, 2022.

So that is -- so if you get back to the Capital Markets Day, June 2018, you're going to find the precise detail of what I'm seeing. So the synergy top line are included in this profile of growth, 6% to 7%. And that's the reason why we say we are going to navigate that.

So net, as far as we are navigating close to 6%, hopefully, a little bit better. We can probably conclude that the synergies that we are committed are coming. If we navigate faster, it means we will get more synergies. So that's the top line, the simplistic view.

On profit, it is the same. It is a profit expansion that we have committed and that we are following, especially in 2019 (sic) [2020]. I'm repeating that we are particularly satisfied with the turnaround of former Aricent, which is now included in the Americas zone. They are concluding the year north of 20%.

They've posted, Albin, a year which is north of 19% operating margin. We can still praise them. It's a bit difficult. And they are growing. SEMICON is not growing within Aricent, but frog, which has not grown for years, have concluded the year with double-digit growth with significant synergies with Altran and the same with Communications as I already mentioned.

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Anna Patrice, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [32]

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Sorry, my line wasn't very good. Can you repeat what should be the growth with the synergies so that you are happy with this that the synergies are coming through? And then should we see those synergies coming mostly in the U.S.? Or should we see them in Europe? Where do you think will be the most visible impact?

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Dominique Cerutti, Altran Technologies S.A. - Chairman, CEO & President [33]

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So Europe are already navigating at a level which in terms of growth from the model we're following is okay. The organic growth for the full year in Europe is 6.5%. The economic growth is 6.7%.

If we can accelerate, we will, of course, accelerate. But the name of the game in Europe is to maintain that kind of cap and remix to get the profit. Again, we want to change the footprint inherited and bring more Next Core and GlobalShore in Europe. That's really the name of the game more than getting 1 or 2 points of revenue that will not bring the profit expansion.

However, we feel good with Europe. In the U.S.A., we are going to continue -- in Americas, sorry, we are going to continue what we have done, which is accelerate the growth. We are satisfied with what has been done, but if you see the resulting number for the year, it's still a couple of points below what we should do.

And we have -- now that we have put on growth Aricent, especially Communications and frog, I need to get that done with SEMICON, and expand through software engineering, which is growing significantly, to get zone Americas that will be at least in the same bracket than Europe.

And if we get that done, we will navigate, if you do the math, north of 6% to 7%, which is still to be done. I don't want to front run, but that's the name of the game.

So net, Europe will continue their trajectory, 5%, 6%, 7% remix profit expansion through IGS and Next Core. And U.S.A. has already the model, it means that if I get one point of growth top line, the profit is in expansion by nature of their model because they are mostly offshore and [IBU].

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Anna Patrice, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [34]

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Okay. Understood. And then maybe just last question from my side regarding the free cash flow generation. Are you happy with the free cash flow? Do you think that something could be done better? Because, obviously, there's also positive one-off effect of EUR 42 million from Aricent. Should we expect something more actually to come in 2020?

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Dominique Cerutti, Altran Technologies S.A. - Chairman, CEO & President [35]

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I'm going to let Albin start, but since you are asking if something can be done better, I will complement it. I'm going to let -- Albin, you first and me then.

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Albin Jacquemont, Altran Technologies S.A. - Executive VP & CFO [36]

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I don't know how to answer that. I'm trying very hard to avoid complacency and I think we can make further progress.

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Dominique Cerutti, Altran Technologies S.A. - Chairman, CEO & President [37]

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So I want to thank what Albin has driven with the team in terms of injecting cash management culture within Altran. It was not exactly the case a couple of years ago. We are strong on revenue and profit. This is, as Albin said, completely ingrained. I'm proud of my team. We are, by the way, all involved into that.

We have one weekly meeting at top level that we spend only on cash with that being anecdotal. But -- so it means the operational discipline has significantly improved, but more to go. The more we dig in, the more we think we can do better. By the way, if you do the math, we've got to again front running.

You, of course, understand if you check our free cash flow that we paid the last turn out on GlobalEdge when you see the bridge on the debt, which is, of course, a one-off which will disappear by nature in '20. The IBM payment are being reduced this year by kind of EUR 220 million and also by nature, between the profit expansion and those technical item, we think we should do a little bit better and we will work on that.

Any other question?

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Operator [38]

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Yes. We have another question from Mr. Derric Marcon from Societe Generale.

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Derric Marcon, Societe Generale Cross Asset Research - Equity Analyst [39]

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I've got 2 questions. The first one is about the restructuring cost that you expect in 2020.

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Dominique Cerutti, Altran Technologies S.A. - Chairman, CEO & President [40]

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Derric, your line is breaking up as well. Could you speak slowly?

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Derric Marcon, Societe Generale Cross Asset Research - Equity Analyst [41]

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Can you just help us to understand what would be the restructuring costs that you expect to flow in P&L in the past -- in 2020? That's my first question. And the second question is about the profit that you showed in Germany in 2019. So you said it was a drag on your profit. Could you help us to quantify that drag?

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Dominique Cerutti, Altran Technologies S.A. - Chairman, CEO & President [42]

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Yes. Albin, you want to take that or...

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Albin Jacquemont, Altran Technologies S.A. - Executive VP & CFO [43]

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As regards restructuring costs, we expect restructuring costs to be lower than what they were in 2020, so lower but [high] maybe.

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Dominique Cerutti, Altran Technologies S.A. - Chairman, CEO & President [44]

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So let me read them out because they are a bit difficult to read. If you go back in the detail of the chart, you will find, and Albin, correct me because it's at the top of my mind kind of EUR 40 million, but we are pointing that half of that is made with Germany and the so-called convergence program of Aricent.

So it is not a business as usual restructuring, it is what we have done to dock Aricent to Altran and so on. So this will be gone. Next, it means that you would find the typical restructuring cost for Altran being slightly above EUR 20 million, if you exclude convergence and what we have done for Germany.

Germany will continue a little bit this year because we still have offices to go close, but Aricent is, for the vast majority, done. Net, we would write the company, which is by the point where we are not satisfied. We will write the company to be clearly below 1% of revenue in terms of restructuring cost, including Germany and the end of Aricent.

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Derric Marcon, Societe Generale Cross Asset Research - Equity Analyst [45]

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And second question, the stability of Germany in '19?

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Dominique Cerutti, Altran Technologies S.A. - Chairman, CEO & President [46]

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So Germany is slightly below our expectation in term of profit, linked to what I said, but still in positive territory from a profit standpoint at the end of the year. But I would say, roughly, within one point below what we thought? Yes. So we'll try to catch up. So they delivered one point of profit below what we thought we would do, but they are positive.

The operator shows me that we have no more questions. By respect for your time, we will close this meeting here. We'll remain at your disposal. Thank you very much for your attention and your consideration and we will speak soon if needed. Bye-bye.