Might 3, 2020 (Thomson StreetEvents) — Edited Transcript of Alten SA earnings convention name or presentation Friday, April 24, 2020 at 10:59:00am GMT

Alten S.A. – Deputy CEO & COO

* Gregory Ok. Ramirez

So welcome to the convention, Alten, in regards to the turnover for the primary quarter 2020.

Now I will give the ground to Mr. Bruno Benoliel, the Deputy Common Supervisor. You might have the ground, sir.

Bruno Benoliel, Alten S.A. – Deputy CEO & COO [2]

Sure, good afternoon. So good afternoon to all of you. Thanks for taking part in that convention name concerning the exercise of the primary quarter 2020. That first quarter was affected by the start of the well being disaster in China in February, and in Europe mid-March, and within the U.S. That unprecedented disaster worse than the one in 2008 has led to suspensions of tasks. Typically it was huge in some areas, however not so huge in different areas.

The figures that I will current now are an proof of that, however they do not make it potential to attract conclusions in regards to the traits per sectors of exercise or geographies. After the lockdown that needed to be managed in China with a restricted impression on the group exercise. The turnover was EUR 32 million in 2019 in China. The lockdown measures in Europe have led to the suspensions of a number of industries after which in a while within the U.S.

The turnover for the primary quarter of 2020 is EUR 690.1 million, and it’s progressing by 7% versus the primary quarter in 2019. It was EUR 643.Three million on the time. In France, the exercise is secure. Outdoors France, it is progressing by 13.2%. Acquisitions for EUR 20.2 million have contributed as much as 3.3% of the group development. The precise fee have contributed to 0.4% of the expansion of the quarter.

Consequently, in like-for-like exercise and fixed trade charges, the expansion is 4% — at 0.4% in France due to the switch of a associated firm on the finish of 2019 that we’ve got transferred and the turnover was EUR 2.7 million of turnover. The natural development is 0.4% in France and 6.8% outdoors France.

The — there have been 0 — an extra 0.73 working days, 0.6 in France. And this has — of working days, this has contributed to an enchancment. There will probably be 123 working days for the primary quarter versus — properly, an extra of 0.Eight working days. And within the second semester, we’re going to have 50 — 127 working days. It is going to be an extra 0.7 working days through the second semester, it will likely be half a day extra day versus 2019.

The primary quarter began according to final yr in France and overseas. The exercise had a development fee that was extra standardized, like we defined within the assembly in January. As early as January 2020, recruitments have made it potential to compensate for the lead, and we had 32,800 engineers at the start of February. That was an extra 300.

March — in March, we had a brutal interruption and we had 32,760 engineers, so we have been at 37,200 on the finish of 2019. There have been 32,750 engineers. So we’ve got built-in a bit of firm in Japan with 115 individuals. In France, the engineers have been lowered by 131 individuals, and out of doors of France, the employees has elevated by 236 individuals. The expansion of the employees was due principally within the U.Ok. and Italy and in North America.

As you may think about, the priority since — at March isn’t recruiting however to maintain the exercise happening. Nearly all Alten engineers can work from their houses if their buyer base makes it potential. However that is fairly totally different, relying on clients and geographical areas. Many purchasers within the business principally have stopped their tasks. They’ve halted them or they’re going to resize them. Some clients have determined to shut the positioning and cease all actions through the time period. And dealing from houses was — has not been potential even for work-package work as a result of that they had — they did not have the employees mandatory in a extra pragmatic approach.

And as a way to anticipate the longer term disaster with the drop of the gross sales, many shoppers have determined to freeze a big share of their tasks in order that they might make a list and determine on the finish of the lockdown what can be the precedence tasks that they’d proceed, what can be the tasks that they’d proceed by lowering the dimensions of the groups and what can be the tasks that they’d cease. At this stage, it’s totally troublesome to know what the longer term will probably be as a result of we do not know what their tasks are, particularly in business that has been hardly hit just like the automotive sector and the civil aviation.

Since mid-March, in France, in Sweden, in Germany, within the U.Ok. and in Southern Europe, and now within the U.S., many shoppers are taking choices. Wanting on the bench, we’re confronted with this choice every day. In the course of the first quarter, the exercise fee went down by 2 factors versus 91.8% final yr. And in March, the exercise fee was 88%, which is 12% of — into contract.

The start of the well being disaster has hampered by 1/Three the outcomes for Q1 for the primary quarter. Now we’re confronted with totally different conditions relying on the geographical areas, the sectors of actions.

I would like to speak in regards to the state of affairs per geographical space, understanding that the traits for the primary quarter can’t be extrapolated to the second quarter. Now if I — we are able to estimate some information for the primary semester, however we’ve got to be extraordinarily cautious as a result of the state of affairs is altering in a short time. And we’ve got no clear visibility for the entire quarter for a big share of our clients.

In France in Q1, the exercise was secure, plus 0.4%. Suspension of tasks in March has penalized the expansion by 2%. So it ought to have been round 3%. The sectors which have grown the place Aerospace, plus 4%; Protection & Safety, plus 10%; power, plus 10%; the nuclear business, plus 16%; the rail and naval, plus 19%; and telecom, plus 4%. Total, through the first quarter, 2/Three of Alten exercise was rising.

The second quarter will probably be very totally different. The well being disaster with very brutal repercussions in France has led to many venture interruptions, principally in ASD automotive and within the tertiary sector in Amadeus, relying straight from air transportation, however not on the — many shoppers, all industries included, have closed the websites who haven’t made it potential to work from our houses. The intercontract fee ought to, in France, be at 30% in April after which go down, relying on the resuming of the exercise with our clients. We do not know but that what would be the restoration plans as a result of all industrial methods are being revisited, and we consider that the decline of the exercise can be within the neighborhood of 15% in France for the primary semester, 18% will probably be because of the disaster.

On the worldwide degree, the exercise can also be being affected by the well being disaster, however in a special method relying on international locations. No Q1 information might be extrapolated on Q2. After which to offer you country-per-country an general image of the state of affairs at this stage and the time to attempt to shield ourselves within the second quarter, in North America, the exercise has grown up by 25%, 16% for natural development. The ForEx was important, it was optimistic by 3.3%.

All sectors within the U.S. have been rising through the first quarter. Essentially the most dynamic sectors like in 2019 have been the automotive sector, plus 10%; power, plus 50%; life sciences, plus 25%; telecom, plus 11%; finance treasury exercise, plus 5%. The well being disaster has affected North America solely through the second quarter with the development of the intercontract fee that was very sturdy within the automotive and heavy weight within the first place the place we had 500 individuals as a result of many tasks have been stopped.

Power, the power sector, principally the fuel was affected for the explanations that you already know and the administration and consulting provide follow, [PNO] and agile consulting. We have now 350 individuals, which have been deployed principally within the power sector and treasury finance. The intercontract fee within the U.S. might attain 20% through the second quarter, that means that the U.S. exercise may very well be secure for the primary semester, whereas we did anticipate a development greater than 10%.

In Germany, the exercise has declined by 6.3%. On a like-for-like foundation, Germany was already being affected by the disaster, which weighted by 3% on the decline of the exercise within the automotive sector, 40% of the exercise. The exercise declined by 10%, 15% for tools makers. And for the aeronautic, it is barely rising through the first semester. However in Q2, like in France and for a similar causes, many tasks have been halted.

Let me recall that the automotive sector and the aeronautic interim accounts for 77% of the turnover in Germany. We might have 22% for the intercontract fee, and that is the rationale why the decline that’s anticipated can be within the neighborhood of 20% in Germany, 15% can be because of the disaster.

In Scandinavia, the exercise on a like-for-like foundation is declining by 4% throughout Q1. In Finland, it is rising by 3%, which accounts for 20% of the Scandinavian turnover. However Finland can also be being affected throughout Q2 by the disaster. And the actual fact must be declining by 13% for Q2, which for Finland can be an exercise declining by 5%. For the primary time in Sweden, 80% — making up 80% of the Scandinavian turnover. The automotive sector and heavy weight accounting for 52% of the turnover has stopped a majority of their tasks as early as mid-March, and their exercise is declining by 5%, 0.2% because of the disaster. Second quarter with an intercontract fee akin to Germany and the decline must be round 20% in Sweden as properly, and 15% can be because of the disaster.

In Spain, the exercise is rising by 6.8% general, however 1.5% are on a like-for-like foundation. However the well being disaster began earlier in February, however some strict lockdown measures have been put in place to the exception of the Safety & Protection sector declining by 20% and automotive declining by 20% as properly. Each sectors accounting for 20% of the Spanish turnover. These sectors have stopped their tasks like in every single place else in Europe.

All the opposite sectors or actions have continued. They’ve pursued their tasks working from dwelling, and the exercise has continued roughly usually. All the opposite sectors are rising.

Throughout Q2, the tasks that have been stopped due to the disaster can be — will intensify, and it will result in a rise of the intercontract charges. In the course of the first semester, we consider that in Spain, the exercise will probably be declining by 5%, so in a average approach. Within the Benelux, the exercise is rising at — rising by 5%. In Belgium, it’s secure, even when the performances are totally different from sector, and there must be a decline by 7% through the first semester.

Within the Netherlands, exercise has grown by 14%, 4% through the first semester to the exception of electronics and semiconductors accounting for 1/Four of the exercise within the Netherlands.

All sectors are rising. The impression of the disaster will probably be felt through the second quarter with an intercontract fee that ought to attain 10%. Consequently, the exercise must be secure through the first semester. That is why we thought we’d have a 3% development.

In Italy, regardless of the top disaster that has been brutal and began in February, the exercise was finished principally from dwelling and it has continued regardless of the lockdown. All sectors are rising, even within the automotive sector, plus 11%, even SAD, plus 20%, and the natural development has reached 15%. Nonetheless, anticipating a slowing down of their exercise, clients have lowered in a big method the price range for the second quarter. Subsequently, we consider there will probably be a robust slowing down throughout Q2. And in Italy, the expansion must be 8% for the primary semester as a consequence to the slowing down in Q2 and never the anticipated 14%.

In Asia Pacific, the scope has continued to develop, plus 32% and plus 13% in natural development. The expansion of the area was pushed by India as a result of native actions have continued to develop. They make EUR 11 million of turnover through the first semester, with an 18% development. In India, the exercise goes to decelerate throughout Q2 due to the lockdown measures.

China, EUR 5 million of turnover through the first semester is declining by 13%, and that is not shocking as a result of the exercise has stopped between January and starting of March. They have not been again to regular and the automotive gross sales are nonetheless being strongly impacted in China.

And at last, the U.Ok., the expansion was very rigorous, because of an distinctive 2019, nice — with a really sturdy development in aeronautics, plus 66%; automotive, plus 24%; nuclear, plus 100%; the rail — however there can be a robust impression within the U.Ok. in Q2. We consider there will probably be a robust decline. We consider the decline within the automotive and aeronautics sector will probably be within the neighborhood of 20% throughout Q2. So we’re nonetheless going to have a 5% development, however the disaster will price us round 13%.

Sectors of actions. So the primary quarter has confirmed the traits of the newest quarter in 2019, however the disaster has modified all prospects per sector of actions. The automotive is declining by 5%. Throughout Q1, the decline was strengthened by the start of the well being disaster. And it is fairly heterogeneous relying on automobile producers. Some are experiencing some development and others are declining. However the well being disaster goes to have a serious impression on the exercise and in a sustainable method, and that is going to worsen in 2020 with a potential bounce again in 2021 that we hope will occur. The rail/naval continues to be strongly rising, plus 16% for the place the disaster has slowed down the exercise in Q2. However the order books are full, and hopefully, the restoration ought to occur at the start of 2021.

For the aeronautics, we’ve got 16.1% of the turnover. The expansion has been 3% in homogeneous method between the area exercise, the tools makers and plane makers. However well being disaster has had a robust impression on airline firms. And that is going to have a sustainable impression on the aeronautics sector. Many tasks have been stopped, the plane manufacturing will go down and the intercontract fee tasks won’t be renewed, make it potential to fulfill the brand new demand. So many tasks will probably be stopped or lowered. And subsequently, the visibility that we might have may be very restricted.

Now Protection & Safety, 4.5% of the turnover. They’re strongly rising. Even when there’s an impression throughout Q2, that sector ought to bounce again in a short time. Power accounts for 11.5% of the Alten turnover. Oil and fuel, 6% of the turnover. They’ve a plus 25% development, however they are going to be impacted by the lower of crude oil.

Nuclear, 2% of the turnover. The expansion continues to be fairly sustained and the exercise must be preserved.

Life sciences, 7.5% of the turnover, they’re rising by 11%. And on the brief time period, the exercise is being impacted by the disaster, however there must be a bounce again.

Telecommunications, [6.6%] of the turnover. They’re barely rising 6.5%, to the exception of Ericsson in Sweden. The expansion is coming from operators, the 5G migration and the networks which are being overly used due to people who find themselves working from houses. This could proceed after the disaster. Telecommunication, media exercise is declining according to what was taking place in 2019, with a big decline at Amadeus, which goes to worsen through the Q2.

Amadeus, I do not know if that is one thing that’s identified. So I am not going to offer any determine, however the exercise is declining in a big method due to the interruption of the airline exercise. So Q2 digital multimedia, we do anticipate a decline that will be greater than 10%.

Finance and treasury sector, the turnover accounts for 18.4% of Alten exercise, and it’s rising by 3% and it is principally pushed by the banking exercise. Now for exterior development, we’ve got consolidated on January 1, an organization the place we held a minority shareholding, at 40% in Japan. We went as much as 100%. We had a name on that firm. It is an organization with 115 workers, and their profitability is kind of low, decrease than 5%.

The Chinese language-Japanese firm that we acquired on the finish of the quarter, the closing passed off on the finish of final yr. This firm is specialised on safety and software program improvement. There are 400 individuals. Prospects are in Japan, however many of the consultants are positioned in China. That firm made EUR 18 million of turnover in 2019, and their margin was barely decrease than 10%

For 2020, I would not dare to make any forecast, not for the second semester, however what we’ve got seen — that we have seen that the IT actions have been extra protected than different actions while you take a look at the breakdown of the turnover per sector of exercise. That is the rationale why international locations in Southern Europe are doing higher as a result of our exercise is kind of targeted in business with a big share in automotive and aerospace exercise in France and in additionally Northern Europe. We have used a number of — we have taken a number of measures when potential to attempt to maintain our margins as a lot as potential as a result of the intercontract fee that we’ve got to be confronted with are unprecedented, and it will be very expensive if governments couldn’t pay for a big share of it.

Now so far as the exercise for the primary semester is worried, we do consider there will probably be a decline of 9% on a like-for-like foundation. To the perfect of our information in the present day, that it is unattainable to make any forecast for the second semester as a result of a few of our clients are — can’t give us any forecasts for his or her actions.

I will provide the ground so you may ask any questions that you just might need.

In some industries, in gentle of the difficult state of affairs that our clients are confronted with, some negotiations are going down about costs. And so we do have a context that’s extra difficult than the one we had in 2008 as a result of it isn’t as a lot focused on one sector of exercise, and it is way more brutal with penalties that we’ve got to handle every day.

Having stated that, we are going to handle the state of affairs. Alten is a wholesome firm. We have no debt. We have needed to handle disaster up to now. And so we’re managing the present disaster. And hopefully, as early as subsequent summer time or most likely in September, there will probably be a rebound.

Now might we open the ground for contributors?

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Questions and Solutions

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Operator [1]

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(Operator Directions) So we’ve got first query from Laurent Daure.

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Laurent Daure, Kepler Cheuvreux, Analysis Division – Head of IT Software program and Companies Analysis [2]

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Sure. Actually, I had Three questions. The Airbus account, might you please inform us — I do know it is the most important account, however might you inform us what the state of affairs was final yr? And what would be the state of affairs for the primary semester?

The second level is on the best way you handle your headcount. What would be the group technique? Are you envisaging social plans or what will probably be — or are you ready after the tip of the lockdown? I assume that you’ve got taken some measures already, and also you do have some potential financial savings. Now for the M&A coverage, in view of the truth that it is troublesome to make any forecast, can — do you suppose we might have offers on the finish of the yr?

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [3]

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Now for the Airbus account, it accounts 10% of the turnover — of the group turnover. Allowing for that for that account, on Q2, we do anticipate to see a discount of 40% of the exercise. We have had extra in April, even when the month isn’t over as a result of we’ve got real-time reporting of intercontract. So we’re at 45% for April, however that is going to go down as a result of after the lockdown actions will begin once more. So perhaps 40% is a bit of bit excessive, however let’s be cautious. We might go all the way down to 10%, 15% for intercontract charges in June, however I consider we’re going to stay greater than that as a result of a number of the tasks won’t begin once more or they won’t begin with the identical measurement of the groups that that they had earlier than the disaster.

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Laurent Daure, Kepler Cheuvreux, Analysis Division – Head of IT Software program and Companies Analysis [4]

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So for the market share?

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [5]

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No, it isn’t particular to Alten. We’re most likely the #1 so far as engineering is worried with Airbus. They’re making a exact stock of all their tasks which are underway.

Now what I stated in regards to the first semester for the traits or the natural development forecast, we have made an train, which was to attempt to per buyer per venture what the exercise was going to be, and we have taken this under consideration.

Now the turnout had began to say no on the finish of March. In France, we have had lots of of individuals leaving the corporate, however these individuals had resigned earlier than. So we’re going to consolidate on the finish of April on the idea of what businesses are reporting what would be the resignations on the finish of April. That is how we’re going to have the ability to measure the turnover. Even when the turnover is declining, the turnover is reflecting the previous in the mean time. So we’ve got to take a look at the conduct of engineers for the reason that starting of the lockdown to see what number of resignations we’ve got obtained on the finish of April.

I haven’t got the determine at this stage. I do not consider that we’re going to go all the way down to Zero as a result of there are all the time individuals leaving. In 2008, simply to offer you an order of magnitude, the worst of the disaster, I believe we had been down to eight% to 9%, which continues to be fairly excessive for the account. The measures that we took concerning the employees, concerning the headcount.

For recruiting, like for everyone else, what are we going to do? There have been labor contracts that had been signed. So we have postpone them, however we’re not recruiting anyone in the mean time. Until there are some, clearly, wants for a beginning venture. Let’s not overlook that our clients have lowered their exercise in a strongly method, and subsequently, the business exercise has additionally declined. So we organized our conferences over the cellphone or by video, however the variety of business conferences have been lowered in a big method. That is going to result in a discount of tasks. And subsequently, right now, the recruiting insurance policies are on maintain. Whether or not we must always have a [softer] plan. At this stage, we’re utilizing furlough wherever we are able to to protect the abilities as a lot as potential. And we are going to modify — we have used furlough measures, and we’ll see.

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Laurent Daure, Kepler Cheuvreux, Analysis Division – Head of IT Software program and Companies Analysis [6]

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The query is concerning the intercontracts. Effectively, so generally, you’ve gotten furloughed workers since you get a profit from the federal government. It isn’t the case in every single place in all international locations. So what can be the financial savings in your margin?

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [7]

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I haven’t got the precise figures. I will have the determine, the precise determine on the finish of April.

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Laurent Daure, Kepler Cheuvreux, Analysis Division – Head of IT Software program and Companies Analysis [8]

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For March?

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [9]

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So it takes a while to place the request, get the approval, et cetera. So it should happen in April. And the precept is identical in all international locations. We make a request in volumes, in hours, or we multiply the — for instance, 5 days over Three days. It is a proportion. After which on the finish of the month, on the idea of the truth of the tasks, we declare that persons are furloughed. It may very well be a partial or a full course of. We have requested for furloughed measures within the U.Ok. and Romania, in Sweden, in Germany. We simply filed for it in Belgium, in France, for the principle international locations, in Spain as properly. Finland has additionally requested for the chance to do it. Even Italy, the place the intercontract fee is kind of low. So it is making use of to most international locations the place we do have an issue with the exercise.

The one nation the place there aren’t any furloughed workers is within the U.S. As a result of within the U.S., when you do not want individuals, you lay them off. However we’ve got determined to not do it as a result of when you recruit individuals, you practice them, we have determined to not dismiss them, however we’ll see in a month’s time, within the U.S., if we’ve got to regulate if tasks which have been stopped, like for Volvo, Ford, if they don’t begin once more. However a few of them will begin once more. However it’s too early on to take any choices at this stage.

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Laurent Daure, Kepler Cheuvreux, Analysis Division – Head of IT Software program and Companies Analysis [10]

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Now furlough, relying on international locations, you’ll compensate totally or not? In France, for instance, the federal government pays as much as 70% of the gross wage, which general implies that individuals will get 80% of their web wage.

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [11]

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There’s a Syntec conference, which is saying that we must always pay as much as 90% or 100% of the wage. The extra price isn’t being paid by the federal government, clearly, in all international locations on the earth. Furlough will give proper to paid holidays, which aren’t being paid by the federal government. So even when there’s furlough, it isn’t going to neutralize the price of the worker, and it isn’t going to do it in a unified method in all international locations. So furlough is an effective factor as a result of it makes it potential to carry and to not take hasty choices as a result of our know-how is our engineers. However it has penalties on the margin. Not solely there’s some residual price, however the misplaced turnover isn’t going to generate any margins. And that is true for the entire business.

The margin that we’re dropping on our turnover is a margin on tasks. So they’re much greater than the 30% that we’ve got as a result of this gross margin that we’ve got consists of intercontract or the whole lot that’s mandatory for manufacturing.

Now the M&A coverage. We had a variety of information that have been signed, however had not been closed. And so we’ve got frozen them in lieu of the state of affairs. However we’re taking a look at different information as a result of firms will probably be bought at a lesser value in the present day. However the issue is that it is difficult to evaluate an asset as a result of we do not know what the corporate’s exercise will probably be in 2020 and what the margin will probably be in 2020. There won’t be so many individuals promoting as a result of it is an atypical yr. And the query will probably be, if in case of any deal, we should agree on a down cost that’s the lowest potential related to the foreseeable exercise in 2020. So I do not see any potential offers earlier than Q3, and earnouts will most likely be greater as a result of they are going to be correlated to the rebounds in 2021, 2022. However it may very well be a possibility to make acquisitions in favorable circumstances that we could not have finished in different circumstances. So we’ve got not frozen our M&A coverage. We’re nonetheless wanting and analyzing targets.

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Operator [12]

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We do have one other query from Gregory Ramirez.

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Gregory Ok. Ramirez, Bryan Garnier & Co Ltd, Analysis Division – Analyst [13]

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Bruno, I would like to return again to price and to not the variable share for bills outdoors the top rely bills. What’s the flexibility that you’ve got applied for the reason that starting of the disaster? What can be the share of variable price in operational bills? I assume that it’s totally troublesome to make any budgetary forecast and that there are lots of potential situations. However what may very well be any lending state of affairs by way of operational margin on the idea of the decline on the natural development in 2020? For instance, if you find yourself at 10% of natural development, you can have 4% to five% of operational margin, for instance?

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [14]

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Effectively, I can’t talk in regards to the yr. We began to make simulations. Taking a look at assumptions for S2, whereas there are lots of of them, to make use of chances, it doesn’t suggest a lot. So actually, we can’t give any steering concerning the second semester. Allowing for that the uncertainty is what’s going to be the extent of exercise within the automotive sector and the aeronautic sectors which are essential sectors for us. As a result of as I used to be saying, our clients didn’t know what would be the tasks and what would be the quantity of investments that will probably be made for the tip of the yr. So it is a large uncertainty.

And concerning Laurent’s query, so far as the top rely is worried, that is additionally why we’ve got no certainty for the variable price at Alten. If I used to be a bit of bit provocative, I might say, we haven’t any. As soon as any individual is within the intercontract, it turns into a set price offshore ADC. They’re a set price as a result of it is captive. All prices are proportionate to the exercise. Engineers, clearly, as a result of relying on the variety of actions with a continuing and commonplace fee of exercise, which is 92%, 93%. These are proportional prices, however they are not variable price. As a result of to the exception of some subcontractors that we might determine to cease working with if the exercise stops. And this accounts for five% of the conductive earnings and a few of them are linked to some tasks.

So we aren’t going to cease working with them. As a result of once we name upon subcontractors, it is to not have variable price, it is as a result of we do not have the competence in-house. So to the exception of that side of issues, in actuality, there should not that many variable prices. The variable prices are the bonuses of managers, all features included. So we should modify the construction if mandatory, relying on the extent of exercise in 2020 — will probably be what we take into account to be the usual degree of exercise for 2020. If we take into account that 2020 is sort of a clean yr, relying on the tasks that we are going to have, we should take a look at to measurement the corporate. Clearly talking, the price have been sized for EUR 2.5 billion. Clearly talking, we’re not going to make that determine, we can have an natural development discount. And as I used to be telling Laurent, the lack of the turnover may be very costly as a result of we’re dropping the entire margin.

Now how is it going to translate in operational margin? It is going to be minus 5% through the first semester. Now for the second semester, I don’t know. Effectively, actually, for the primary semester, it would depend upon Might and June. So it is actually an advanced train. We do have totally different situations, however it’s an advanced train. Subsequently, we aren’t speaking on the margin. Often, I have a tendency to offer you some totally different ranges. However we do have situations that we have constructed exchanging — on the idea of the trade between the operational managers and the purchasers. However the clients has no visibility in any way, even on how they’re going to recuperate, how the exercise goes to be resumed. The well being plan needs to be outlined. A few of them haven’t outlined them. We all know that the — we’re going to get out of the lockdown in a progressive method. That will probably be an on-a-zone case. So it is perhaps extra difficult in gentle of what has occurred with the social companions even when all people may be very strict concerning the well being measures to be put in place.

So actually, that is to let you know that I am actually sorry, however I can’t offer you a really exact reply. However 5% isn’t absurd. It may very well be 6% or 4.2% or 6.5%. The sensitivity, we’re speaking about scores of tens of millions of euros, and we do not have that for S2. So EUR 100 million of turnover. So far as the gross margin on a venture is worried, it will likely be about EUR 35 million.

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Gregory Ok. Ramirez, Bryan Garnier & Co Ltd, Analysis Division – Analyst [15]

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So far as buyer’s conduct is worried, I assume that you’re having discussions about cost — exhausting to increase cost deadlines?

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [16]

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We do have a few of these discussions, however they are not crucial one. Actually, buyer, they do not ship out the orders, and that is how they handle their cost deadline. In our business, we’ve got a really longer cost occasions. Effectively, that might deteriorate. We have not seen it to date. We do get cash on due time. So the invoices for 2019 and 2020 are being paid. Now the discussions that we’re having with them are associated to different subjects, costs. Clearly talking, clients are getting again to us telling us that their monetary state of affairs may be very difficult and their money state of affairs may be very difficult. In order that they’re asking the entire business to make important efforts on costs. Some are doing it on a one-off foundation, however some want to evaluate all of the referencing and all the costs. So that is going to offer rise to difficult discussions.

Some clients are asking us to offer them the time to recuperate. Some are asking us to cut back our costs by 30%, others are asking us to cut back by 5% to 7% sooner or later. So actually, we see the whole lot. I believe that should you have been to speak to competitors, they’d say the identical factor. Typically additionally, when persons are working from their houses and the engineers should not on web site, some clients are saying, we take into account that productiveness can’t be the identical. So if it can’t be the identical we take into account that 10%, 15% of productiveness has been misplaced. So we’re asking for a discount of costs by 10% to 20%. We’re not saying sure. However simply to let you know that it is a difficult state of affairs.

Effectively, it isn’t shocking in view of the context. Issues will get again to regular, however that is the present context we live in the mean time.

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Operator [17]

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(Operator Directions) We have now a query from Derric Marcon from Societe Common. So we’ll take one other query from Stefan Slowinski from Exane BNP.

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Stefan Julien Henri Slowinski, Exane BNP Paribas, Analysis Division – Analysis Analyst [18]

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Bruno, I had 2 questions. The primary one was about China. I believe you stated that there was no restoration in China in the mean time. And we’ve got been listening to for the reason that finish of March that issues are choosing up in China, so I would like to listen to what’s your opinion about China?

And the second query, once we’re beginning to consider the reopening in Germany and presumably in France. I do know it is early on however perhaps for subsequent yr, do you suppose that tasks will change? How might tasks change in our clients? Now will the kind of tasks would change and what issues for purchasers versus the tasks we had earlier than the disaster?

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [19]

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So far as China is worried, the exercise has picked up in China progressively beginning in March. So all people was in a lockdown. Our engineers have labored from their houses for 1.5 months. They usually’ve been allowed to return to the positioning, both on the clients’ or on our web site progressively. In China, usually, our exercise fee is about 95%, 96%. 3%, 4% of intercontract. Intercontract has gone up through the lockdown as a result of some clients cease tasks within the automotive sector, notably. So we went as much as 30%, 35% of intercontract charges and all this has been solved, and now the speed is about 10%. The exercise has began once more, not fully, however for the automotive sector, we nonetheless have a excessive fee.

Now so far as tasks are involved. As soon as the exercise resumes in France, in Germany and Sweden in every single place, the questions will probably be, what’s the quantity of investments that clients will determine on the finish of 2020, starting of 2021 since their earnings within the automotive sector and the aeronautics sector will decline in a big method. So what they’re doing in the mean time, they’re making stock of their tasks. So they are going to determine which tasks will obtain the precedence. If that they had a venture that was finished as much as 80%, they need to end it. In any other case, they are going to lose the funding. However then, they are going to determine both to proceed — hopefully, most of them will proceed, however a number of the tasks will probably be stopped. And a few tasks will probably be resized as a result of a few of our clients are telling us that we must always begin excited about lowering the staff for the remainder of the venture, and they’re asking us to cut back the specs.

Some tasks may very well be revisited. For instance, I am excited about engineering, manufacturing actions at Airbus. A few of them have been taking a look at tips on how to meet line velocity, and Airbus stated that they have been going to cut back their manufacturing. So Airbus had a month-to-month fee as much as 120, they’ll go all the way down to 40. So the query is tips on how to save as a result of they will produce the 40 in the mean time.

After which a few of our clients are conducting a research about what can be the curiosity of continuous a venture or not. And we do depend upon their conclusions. But when there’s a discount of earnings in any sector, a discount of earnings will give rise to a discount of price range, even when they’re R&D budgets as a result of they’re pushed by the highest line.

After all, tasks about standardization, et cetera, besides if the European Union decides to go backward. Usually, these tasks ought to proceed as a result of life won’t cease. The continuing revolution within the automotive sector will proceed even when it will likely be postponed by 1 or 2 years. That is why we consider the exercise will actually resume in 2021, 2022. However we consider within the automotive sector, the disaster will probably be long-lasting and the funding degree will probably be lowered.

Now what would be the proportion, we can’t communicate on behalf of our clients, however it would occur.

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Operator [20]

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One other query for Derric Marcon with Societe Common.

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Derric Marcon, Societe Generale Cross Asset Analysis – Fairness Analyst [21]

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The primary query is in regards to the use fee, you stated it went all the way down to 88% in March. You gave us traits for Q2 per nation. May you inform us about the place you stand for the primary 2 weeks of April or starting of Q2, so we might have an thought?

And my second query, I would like to return again to Laurent’s query. When you find yourself speaking about intercontract charges which are very excessive, I assume it is outdoors the furlough. May you give us an thought of the variety of individuals that you just consider may very well be furloughed? I assume that you’ve got negotiated with the Ministry of Labor already, the variety of furloughed individuals out of those 3,000 individuals. As a result of if we take a look at the glass half full, to generate a 5% margin implies that it is best to get some heads that do compensate for the lack of turnover as a result of with 30% of intercontract means a giant drop of the margin.

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [22]

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Sure, that is fairly certain. Now for Q2, we took some assumptions for intercontract charges. That features furlough as a result of it isn’t cumulative. People who find themselves furloughed, they’re accounted for as being furloughed, however we take into account that they’re outdoors tasks. However it’s a very good factor to ask the query as a result of it isn’t cumulative.

So in March, we had an advanced month. For the final 2 weeks, the intercontract fee went up 12%, 13%. The intercontract degree in April is at about 25% on the group degree. And it’s going to go down in Might and June, most likely at a bit of bit lower than 20%. However that is a part of our simulations as a result of concretely talking, we do not know what would be the tempo for resuming tasks and what’s going to occur in June.

So when we’ve got people who find themselves not working — now furlough is to compensate for the lack of exercise in view of the financial context. It would not work precisely the identical approach in all international locations though the precept is identical. In some international locations, the place — when persons are not working and there’s furlough, there’s a potential furlough like in Germany. Now if you wish to apply for furlough, in Germany, it is a lot easier than in France, which isn’t shocking. Actually, we are able to take a look at what is going on in Europe for furlough and French paperwork is essentially the most environment friendly one, and that is not likely shocking, is it?

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Derric Marcon, Societe Generale Cross Asset Analysis – Fairness Analyst [23]

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No. They made some efforts to simplify issues.

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [24]

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Effectively, it is true for small-sized firms. As a result of I do know a variety of individuals and former workers from ALTEN have began their very own firms. So small-sized firms that are in a troublesome state of affairs, they get an settlement for furlough in a short time. Massive firms — for giant firms, it is extra difficult.

Now to return again to the way it works. In some international locations, when you meet the circumstances for having the suitable to furlough you can show that there’s a lot of exercise with the interruptions of tasks, et cetera. It isn’t open bucket, that in case you are entitled to furlough that you’ll get the profit both straight, like in Belgium, or it’s the firm that’s going to advance the cash after which it will be reimbursed by the federal government. So in some international locations, it is 70% of the price or 60% of the price, it actually relies on international locations. In a number of international locations, when persons are furloughed, we proceed to pay software program fees. In some international locations, it isn’t the case. In some instances, you must give some extra wage. You might have all conditions, all potential state of affairs. However in all international locations the place we apply for furlough, should you beat the standards, you may get a sure or a no reply. And if it is a sure, you might be entitled to it. So we filed for furlough in all international locations the place we’ve got a discount of exercise.

Intercontracts because of the lack of exercise are being compensated by furlough. In France, the federal government is vigilant. They wish to keep away from facilities. And subsequently, we’ve got filed a request for furlough as a result of in volumes, it’s in France that we’ve got essentially the most — the best variety of workers that may very well be furloughed workers. Once we speak about 4,000 engineers, should you take a look at Alten and its first subsidiaries, a few of them are fully unemployed and others are furloughed. We ask for the variety of hours on the idea of the volumes. And actually, we are going to declare on the finish of the month on the idea of actuality. We’re being given the inexperienced gentle for the amount of hours, however then we’ve got to justify that. And in France, we take into account [and this is the normal] that the federal government mustn’t pay for structural intercontract. So we’re not going to use for furlough for people who find themselves in intercontract or standardized intercontract. We do it for people who find themselves in intercontract due to the disaster. So clearly talking, if the intercontract fee is 25%, and normally, we’re at 6%, we’re going to apply for the distinction. And we must be able to — we must be able to justifying this. After which we’re having discussions with the administration, both we get an express settlement from the administration or we’ve got implicit settlement from the administration as a result of they did not have the time to cope with it, and they’re going to validate after 24 hours, then we are able to come and verify.

We do have questions and solutions. We have now to reply a few of their questions as a way to display that we’re in a state of affairs whereby we have to apply for furlough.

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Derric Marcon, Societe Generale Cross Asset Analysis – Fairness Analyst [25]

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Now what I used to be attempting to grasp, with all these discussions, have you ever performed — have you ever obtained all of the approvals? Have you ever budgeted your intercontract threat because of the disaster through the first semester? And should you make so, what’s the — so what’s the state of affairs in France in the mean time?

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [26]

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We have now filed in all European international locations, and I do not consider there was any downside. In France, we’ve got filed for furlough in all subsidiaries. Every thing has gone by an express or an implicit settlement for Alten as a — I can’t provide the figures, however we’re speaking about half of the top rely for France.

And right here, we’re exchanging questions and solutions. The administration is asking us a variety of questions. Have you ever put in place some measures to protect the exercise? Have you ever organized the truth that individuals might work from their houses? They’re asking authentic questions, and we’ve got to reply them. However it’s not as easy as in different environments.

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Derric Marcon, Societe Generale Cross Asset Analysis – Fairness Analyst [27]

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Effectively, 50% are being lined. So 50% for France are being lined. However what you’ve got finished already and the remaining 50% are a part of the Q&A session with the administration?

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [28]

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Sure, that is proper.

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Derric Marcon, Societe Generale Cross Asset Analysis – Fairness Analyst [29]

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We’re solely speaking in regards to the productive employees? Have you ever utilized for nonproductive employees?

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [30]

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Sure, we’ve got put a request for nonproductive employees as properly, not as a lot, relying on features. We have now reviewed features one after the other. For instance, the individuals in control of recruiting, they aren’t overwhelmed in the mean time. So we have requested for furlough for them, not complete furlough however we’ve got thought-about that almost all of them have been furloughed.

For the finance individuals, it isn’t the identical factor. Some business managers, it isn’t the case. They’re working nights and days. So it actually relies on your operate. Individuals organizing occasions, they’re furloughed. Even when some occasions must be organized for September, however business seminars in Might, company conferences, for apparent causes, they’ve all been canceled. So we’ve got checked out all features, one thing that the France administration is asking. They requested us to enter element for the organizational chart. For firms of our measurement, it may not be the case, for smaller firms, however they ask — they take a look at all positions within the organizational chart.

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Derric Marcon, Societe Generale Cross Asset Analysis – Fairness Analyst [31]

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One final query, if I could. In the event you take a look at what’s going to occur after the disaster, the truth that we’ve got organized telework out of your houses and from the shopper, is that going to make us take into consideration how we might ship merchandise to clients even after the disaster? Like engineers which are nonetheless working for Amadeus, they aren’t going to work for Amadeus for a very long time. Do you suppose you can reorganize the truth that they might work from their houses on different tasks in France since distant work is changing into commonplace? Or is it going to be nonetheless very difficult to make use of that workforce in a distant method?

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [32]

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So what we’re taking a look at, in the mean time, concretely talking, individuals who have been working for Amadeus, Amadeus goes to cease their tasks. We’ll — we’re taking a look at how we might use the competencies in different sectors of actions in reference to IT. They won’t essentially be based mostly in Sophia Antipolis. The reply is sure, we are able to get organized having individuals work remotely. Once they’re engaged on our facet, they’re already working remotely with clients as a result of some steering committees are being held on a weekly or month-to-month foundation. So we might envisage having distant work proceed. And actually, it is attention-grabbing to see that it really works fairly properly. Now we do not know if it’s going to proceed to work properly. As a result of as a way to work remotely, you should have the suitable circumstances. Not all people has all of the circumstances met as a result of generally you hear that the kids are within the again. However it saves transportation time. If individuals know tips on how to get organized and if they are often autonomous working from their houses, we might envisage on the long term to have much less premises, for instance. As a result of in the present day, we’ve got loads of sq. meters to place with clients’ necessities as a result of they needed their work packages to be positioned subsequent to the edges, so they might have smoother human exchanges. We might have much less premises, we might have individuals rotate on websites, work organizations whereby individuals would go to a web site for Three days after which they’d stay at dwelling for two days. And we’d have to arrange these kind of plans when we’ve got individuals engaged on safety.

For instance, we’ve got a variety of open area places of work. And there, we do not have the two meter distance — safety distance. So I do not consider individuals will have the ability to work from their houses with out by no means going to the workplace as a result of there’s skilled and social hyperlink that you should maintain. At Alten after just a few weeks working from their dwelling, persons are coming again to the workplace, and so they’re very completely happy to return to (inaudible). However that is going to power us to have a special group. We have seen video conferences with 60 contributors. That is one thing that we had by no means envisaged up to now. Even 6 months in the past, we would not have thought of it and it really works properly.

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Derric Marcon, Societe Generale Cross Asset Analysis – Fairness Analyst [33]

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Effectively, I am not listening to individuals slapping their kids. I am listening to individuals enjoying the piano. This morning, I had a convention — video convention and I heard any individual slapping their kids.

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [34]

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Sure, the principle impediment is the truth that faculties are closed.

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Derric Marcon, Societe Generale Cross Asset Analysis – Fairness Analyst [35]

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Sure, it is difficult.

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [36]

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As a result of you should have the suitable circumstances in place. We — our engineers are fairly younger, they’re roughly 30 years previous. So they only began their work lives. They do not all have a giant condominium the place they will isolate themselves. We have now to consider the sensible circumstances.

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Operator [37]

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Thanks. So the ground is yours for the conclusion.

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [38]

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Thanks very a lot. Thanks to all of you for attending that phone assembly, which is kind of distinctive. I believe in 2008, we had an advanced yr. However the subjects are fairly totally different from those that we have been speaking about. Hopefully, we’ve got given you an image of what the market regarded like. In the course of the publication in July, I will be extra exact on the S1 margin as a result of to make any forecast at this stage may be very troublesome. It should depend upon the turnover in Might and June and the turnover sensitivity may be very excessive. In July, I am going to offer you a exact image of what we might anticipate by way of margin for the primary semester. We’ll see whether or not the extent of exercise has declined by roughly 9%. We’d have a pleasant shock. However to be sincere with you, we consider that we have been fairly goal in our forecast. And hopefully, we’ll have a transparent imaginative and prescient of what would be the exercise within the second semester. And hopefully, issues will clear up. So I want you a pleasant weekend and see you quickly. Thanks. Bye-bye.

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Operator [39]

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The convention is over. Thanks to your attendance.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]



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