Dominique Raviart
Altran improves operating margin in H2
Altran, the French R&D services specialist, has slightly improved its operating margin from 5.8% in H1 2005 to 7.2% in H2, and reached 6.5% over the full year - up from 4.2% in 2004. Revenues grew organically by 2.7% in 2005 to €1.43bn. Comment: Altran has managed to increase its operating margin by 2.3 percentage points over one year, achieving operational savings of €13m. The company is announcing further improvements in cost savings on indirect goods, predicting €44m in 2006 and €54-60m in 2007. To put things into perspective, a competitor like Assystem, also incurring a transition period, achieved an operating margin of 7.5% in 2005. For 2006, Altran is targeting an operating margin of 8.1%.Altran's reinvention is not over yet. Its share of revenues derived from its top 50 clients has increased from 38% in 2004 to 45.3% in 2005, a sign that Altran's key clients have been giving it positive references. On the negative side, attrition is still high at 30%. That's 10% more than a body-shopper like Alten usually incurs. Another priority for Altran is to evolve from a network of agencies to a more centralised structure. And Altran predicts that in 2006 it will need to invest in tools such as knowledge management, and also invest further in branding and improving its own IT infrastructure.Altran is highlighting the fact that growth is back on the agenda. But that's not going to be easy in France, which accounts for roughly 50% of revenues. Among its top 50 clients, telecoms and automotive are its top two verticals. Yet, the market conditions in automotive and telecoms are likely to become even tougher: Renault and Peugeot are chasing costs to enhance their operating margins; while Alcatel is merging with Lucent, so synergies are also on the agenda. Aerospace and transport are more buoyant. Altran signed a three-year contract with the French operations of aerospace giant EADS in October 2004, which involves 400 Altran consultants. The EADS contract was secured at a time when the company needed to demonstrate its ability to win large contracts. We reckon that Altran has suffered from strong price pressure, not to mention the offshore phenomenon, which Altran's management is quick to downplay. With all this in mind, we don't think that Altran will see a spectacular improvement. Altran itself is predicting Q1 2006 revenues in the €350-360m range, compared to €356m in Q1 2004.
