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Edited Transcript of AKA.PA earnings conference call or presentation 18-Mar-20 10:59am GMT

Mar 20, 2020 (Thomson StreetEvents) — Edited Transcript of Akka Technologies Se earnings conference call or presentation Wednesday, March 18, 2020 at 10:59:00am GMT

Hello and welcome to the AKKA Technologies 2019 Full Year Financial Results. My name is Molly, and I’ll be your coordinator for today’s event. (Operator Instructions) I will now hand you over to your host, Dov Lévy, to begin today’s conference. Thank you.

Yes. Thank you, Molly. Good morning, everyone, and thank you for taking part in today’s webcast.

Due to the current situation with the coronavirus, we have had to adapt the presentation format several times. We have gone from a face-to-face event to a webcast. Furthermore, other speakers are in 3 different countries due to the confinement measures imposed by several European countries in last 48 hours.

We had to opt for an audio and slide on this transmission. We were also enabled to arrange live translation service. However, we will publish translated in this version of today’s presentation within 24 hours.

(Operator Instructions) Thank you for your understanding. And I leave the floor to Mauro.

Maurice Ricci, AKKA Technologies SE – Chairman of the Board of Directors & CEO [3]

[The floor is given to Mauro Ricci, Chairman and CEO of AKKA] [Interpreted] Good morning, everyone. Together with Nicolas and Kenneth, we will present you the financial year 2019 results and the prospect for the year 2020 in view of the coronavirus.

In 2019, the figures and the graphs speak for themselves. The group’s performance is there. We are satisfied with it, and the unexpected slight decrease during the Q4 had oversized repercussions. Today, it seems that there are some questions regarding our financing capacities. We are misled. And for us, it is unjustified and incomprehensible.

In the 2019 financial year, I would like to highlight 2 major elements. We have successfully integrated PDS, which is making strong progress in terms of profitability and organic growth. The group has also begun to develop its structured R&D offerings in the U.S.A. under the AKKA brand. Aeronautical diversification is underway. We are making progress with Boeing despite that context.

The group has finalized its negotiation with Data Respons. We are very satisfied with the evolution of the group’s positioning in the digital world. Kenneth will explain it to you in detail. It was a challenge for us. Data Respons is a listed company that is growing rapidly. So it was a good negotiation, and we’re very happy with the outcome of the transaction over the last few days.

Let’s have a look at the next slide, #4. In fact, for the year 2019, we note an increase in turnover of EUR 300 million. The operating profit rose plus 34.8%. The net profit rose 38.1% and the EPS is up 43%.

Restated for the PDS activities, which are in recovery, the operating profit increases from 8% to 8.7%. The slowdown in Q4 does not change the group’s fundamentals that this slowdown is due to both external and internal causes. We have identified the internal ones and a recovery plan was immediately launched.

In the current situation in view of the coronavirus, we are doing our best to show the highest production. AKKA has already shown its capacity to manage the crisis as we did in 2008 and 2009. However, we are very careful. We don’t know yet the precise impact of the measures taken by the government. These measures are new and they vary from country to country.

However, in Italy, thanks to the hindsight that we have, we managed to anticipate the evolution of our organization and production. In order to be more precise and pragmatic, we structured our approach through a plan, [fit to] CLEAR, that will focus obviously on production, everything that can be done remotely, sometimes with new digital solutions by using our expertise centers.

We already implemented some trainings on new technologies using e-learning and virtual platforms for our new volumes, new contracts. Also, there will be an increased control on the gross margin and the activity as well as the invoicing and the cash.

In addition, we will focus on the efficiency and the reactivity of our organization. We’re piloting all of this through several crisis cells. On a daily basis, the main thing is to remain reactive.

Before giving the floor to Kenneth, Nicolas will give you more details regarding the financial year 2019.

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Nicolas Valtille, AKKA Technologies SE – Group MD & Director [4]

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[Interpreted] Thank you, Maurice. The year 2019 ended on solid fundamentals as well in terms of activity with EUR 1.8 billion revenue, up 4.4% organically and 6.3% pro forma; operating margin in line with expectations at 8% despite sudden slowdown in Q4; and for financial balances, 5.5% free cash flow, above our target of 5%; and a leverage of 0.43, thanks to the increase in our profits and the success of ODIRNANE.

If we look back at the activity, initially, the company’s 19% growth was based on France’s momentum with economic growth of 6%, slowed over the end of the year due to Renault’s uncertainties and the consequences for Safran following the production shutdown of the 737 MAX.

Growth in Germany was 1.6%, of which 1.5% in Q4. The Chinese situation has added a constraint to the transformation underway in the automotive sector, which is promising for development.

The North American BU generated 17% of the group’s revenue, and pro forma growth was 17% and 4% in Q4 due to a very strong base effect in Q4 2018. The acquisition of PDS is a success that is reflected in our figures and the benefits for our aeronautical diversification on the North American continent.

International performance was mixed with occasional difficulties in Switzerland and in the energy segment in Italy. Belgium, Spain and Italy, which account for 60% of the BU sales, recorded good growth in the end.

Finally, the financial year 2019 grew by 5.8% to EUR 316 million and if we exclude the one-offs of 13% Switzerland and energy. The group now relies on 4 pillars to balance its growth in France, Germany, the U.S. and the rest of Europe.

Let’s look at the revenue by segment. By segment, we note that mobility represents 80% of our business as it did last year. Organic growth in the automotive sector was 4%. After strong momentum with Renault over the year as a whole, Q4 cooled off sharply pending the new governance. Business with Volkswagen was strong, offsetting the transformation of AKKA’s positioning at Daimler. On the digital side, the automotive sector in Germany is experiencing strong growth as shown by the results of Q4 for Data Respons.

Aeronautical sector grew by 46%, of which 7% was organic. Momentum with Airbus has been good, but the uncertainties surrounding the 737 MAX are causing disruptions in the aeronautical supply chain, Safran, GKN, and the outlook remains positive. The 23% growth of the railways was accentuated in Q4. This sector is very cyclical and our customers benefit from the tenders they have won. In the other sectors, life science in Switzerland and energy are undergoing reorganization, while communications are growing strongly.

Let’s look now at the operational profitability. As expected, the growth was 8%. And I would like to underline 2 main elements. All our business units have improved their profitability. If we exclude PDS, the group’s profitability is 8.7%, France registers a stable profitability of 11.2%, Germany at 9.2%, so its profitability increased by 20 bp despite the effects of its reorganization.

International business posted a profitability of 11.2%, including very good performance in Italy and Spain. As for the North America business unit at 4.3%, its profitability increased by 180 bp, thanks to the strong improvement in PDS profitability. In the end, the operating profitability of the business was up 22% to EUR 143.7 million.

Slide 11. Nonrecurring impacts were stable at EUR 18 million and notably cover the integration costs of PDS and SDC. The impact of the [SL] cost is down sharply as announced and was concentrated on H1. It allows us to generate an operating profit, which is EUR 121 million at 6.7% of sales and up 70 bp.

Financial expenses remain stable, and we experienced an increase in the tax rate notably due to the legislative change in France. In the end, net profit was EUR 73.3 million, up 47%, and EPS at EUR 3.64, a growth of 43%.

Slide 12. The cash was at EUR 469 million compared to EUR 271 million in 2018. The first explanatory factor is the free cash flow, which stands at 5.5% of sales, thanks to the improvement of the result, a WCR income as announced in September in the standards and stability of the factor financing.

In addition, there’s a financing impact of EUR 100 million, which covers the strengthening of our equity through the success of the EUR 175 million ODIRNANE and the loan repayment for EUR 50 million.

Slide 13. The balance sheet reflects the cash generation performance. Leverage is 0.43, thanks to the strengthening of our equity; by the rise in profit; the issue of ODIRNANE; the DSO, which is 49, an improvement of 4 days as announced in September, an impact factor of 4 days. We have improved the management of customer workflow and we’re thus able to invoice faster. The gross cash is EUR 469 million, and the net debt of EUR 73 million allowing to deliver a gearing of 0.15% (sic) [0.15x].

Slide 14. Here is an overview of the financing actions undertaken in 2019. RCF renegotiated and covenants relaxed at EUR 370 million. The factor increased by EUR 64 million, in line with the development of the activity. The factor — well, we’re doing it since 2000 because it is cheap and very flexible, under 1%.

We can do the consolidated factoring because our clients are premium and big companies, and that in order to invoice them, they give us a formal prior authorization, which is the equivalent of a payment authorization. The claims are, therefore, never questioned, and there is never any repayment of debt.

The consolidated debt increased by EUR 64 million. We strengthened our equity by EUR 173 million via ODIRNANE. ODIRNANE is a perpetual convertible bond redeemable at AKKA’s option, which is considered equity by our banks that are our only financiers. In addition, it is considered to be equity as I said, and it is in compliance with the IFRS regulation.

Finally, the leverage is 0.43, and the average maturity is 3 years. By the way, in order to illustrify it, we have added it to the next slide, Slide #15, that we usually include in the appendix. But this time, we decided to show it earlier. So it shows you that the maturity is 3 years and there is no major repayment due before 2022.

Another element that I wanted to underline is the situation after the acquisition of Data Respons. We’re going to pay EUR 318 million for the acquisition of Data Respons. It will lead us to a net debt of EUR 455 million compared to an EBITDA of EUR 189 million. So the gearing will be 95% on this pro forma basis and leverage 2.4x, much lower than our covenant.

2019 is marked by an increase of EUR 300 million in sales, 35% to 40% in margins and net profit. So the fundamentals are right. The slowdown in Q4 does not change the big picture and we’ll meet our clear targets. We are serene and we are going to accelerate our development in the digital sector for which there was strong demand and could even accelerate following the coronavirus.

That’s what Kenneth is going to talk about. Kenneth, the floor is yours. Thank you.

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Kenneth Ragnvaldsen, Data Respons ASA – CEO [5]

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To give you a short introduction to Data Respons, talk a little bit about our transformation towards software and digital. And in the end, I will talk a little bit more about digital and why I think it’s very strong to be positioned there and why it will increase even more going forward.

So my — on my first slide, which is #19, I will also say to you that the most important thing for you to understand around Data Respons is we are very well positioned in a strong market around software, IoT, industrial digitalization. We have a proven business model when it comes to digital and software. We have shown strong execution over the years, which I will come back to, with long-term growth and increasing margins and we have really high ambitions going forward.

When you look into our company, we have a Nordic profile and German profile. We started in the Nordics over 30 years ago. And our Nordic profile is now very strong. Our largest market, geographical market is Sweden with around 42% of our revenues. The most growing area for Data Respons late this year has actually been Germany where we have now built up a very strong position in software. And this is both very complementary to AKKA, of course. And this is what — one of the good things that this will really work out going forward.

So when we look over to the next slide, we will see that Data Respons — this is #20. Data Respons is a complete technology partner for smarter embedded and IoT solutions and industrial digitalization. And what we have — actually, where we’re coming from is working as an embedded solution specialist. So we’ve been working with mainly hardware and mostly software around inside of products. So we have made the brain of products, of robots, of cars, of everything you see around you.

And this is — so if you look at this big trend, Internet of Things, so we have been working with the things and making the things smarter. And then what’s happening over the years is that everything around us is going to be connected, and we can get access to all the data we have around us and we start to use the data in a smarter way. And we understood this a couple of years ago, and therefore, we have positioned our company towards that direction. And I think this is a very important place to be when it comes to the future development of our industry.

And if you take the next [slide], which is 21, you can see that we are actually trying to cover the total value chain. So we can work with the sensor. We can stop the sensors. We can work with IoT infrastructure. We can make a gateway. We can stop the gateway. We can connect it to the Internet infrastructure. We can make the cloud solution. We can make the [final] application. And we can work all the way down to the mobile app.

So in a way, you need to master the total value chain if you want to be a good partner for industrial digitalization going forward. And I think if you look around you and if you look at the players today, they are either stuck in the left side with sensors and that is [bordering] on the front end or they are really on the business level, more IoT business level.

We are actually working on all the segments around here, and this is very important because when you go to connect it into complex and very advanced applications and services, this is really, really complicated at least high skill sets. So therefore, what we have tried to do is to foresee this and build up a very strong skill set metrics around this.

And today, around 90% of our staff is software specialists that really also understand the hardware platforms. So this is a very strong portfolio of people and we have — really giving us this great success we have seen in the last years.

So if we move over to a little bit about the historic development of Data Respons, you can go to #22, and we see this growth of the company. We have been growing 20x since 2000, around that, and we have average growth of 17%. Over the last years, this growth has increased and we have even higher growth. And the margin is going up as I will come back to. So the starting point is that we are really a tech and customer-driven company. That is the DNA of the company, which is really fitting with AKKA.

And over time then, we have spread around in the Nordic and also to Germany. We started also the first office in Germany 15 years ago. So we are pretty much also a German company when it comes to our different operations there.

What we did actually, around 5 years ago, we really took a change of the company. And this is about this big (inaudible) I’m talking about, really understanding what is the skill metrics, what is the skills needed for industrial digitalization or IoT or with [hybrids]. What you will need is about software and it’s about technology. And we have moved our people in that direction. And that is giving us a very good starting point.

And then we have built up a very strong profit culture in the company and also running it very decentralized, which is very important when it comes to software because you need to have specialized groups around the new company that needed to have accountability but also be highly specialized. And then you can connect it together into big projects, but it’s very important to have that organization, which will continue with us going forward.

If you look at the — we’ve also done small and bolt-on acquisitions, which have really put us in a strategic direction over time. And that has led to this profitable growth as you see.

So if we move over to Page 23, you can see that the profitable growth is 18% the last year in growth. The last year, 2019, we have 25% of total growth, where 12% was organic, which is among the highest in the industry. And also, if you look at the profitability, it’s 11.6%. Underlying from the segment is even higher. As you understand, this is group level. And the profit from Q4 was 12.5% — 12%.

So we have managed to build up a very strong and profitable company, which is growing quite a lot. And to do — to be growing by organic, it’s all about how you are working as a company. So we are working with a lot of initiatives all the time. And many people are talking about HR and that kind of stuff. That is not so — that’s very important for everyone, but the most important thing is how can you build up, we specialize in big teams and big groups. And this is what we are good at, and then we can grow 12% organically in a market where there’s lack of resources, we must be doing something right. So this is the key evidence of — that we can continue this going forward.

So the company is growing very well organically. We have — we are trying to be diversified in the industry, I will come back to that, but specialists on skills. The large — and also, we are driving the company towards our strategic direction, which is it being the best player in the software digital space by our recent acquisitions.

And as you all might know about, we have done that very successfully in Germany over time and which brings strong also track record on the integration part. And the reason why the profitability is increasing is that we are accessing them this — with this skill metric, an area where it’s creating a lot of value for our customers. So there is better profitability, and we are helping them with their transition and also helping them with new revenue streams. And this is giving us quite a good valuable position and being a strategic partner with our customers.

And therefore, we are growing also in segments that is really lagging like the automotive, we are growing quite fast last year also and going into this year. This is because we are offering the right skills and competence of what they need going forward. So this is actually around everything.

And what — how we really want to work, and I know also this is the thinking of AKKA going forward, we want to be very focused on capital and resource allocation. We need to force and strengthen the areas where we have high growth and high margin, and we need to work with areas where the margin is lower and improve. So this is what we are working for every day going forward.

I want to give you one also thing about the current situation we all know about and a little bit around our structure. Because if you look at our structure and our actually high margin, including this, we have — actually, 1/3 of the company is subcontractors and freelancers. And on top of that, 10% more, it actually has variable structure. So over 40% of our employee cost is valuable. And that’s a pretty good thing to have in all market conditions. And it’s also saying a little bit about the underlying profitability of our company.

Okay. Then we move on to the next slide, which is 24. You can see that we have a very diversified customer portfolio, and that is also a little bit about how we are structured. We are a software-oriented company. Software is easier to — or skills and software competence is easier to move among different vertical segments. And that is also a very strong point going forward because we really want to grow in several verticals going forward and then also, that’s very important for AKKA. And by having this software focus and digital focus, this is a very good way to build up this diversified portfolio of customers.

We have, during the last year, strong development in all segments, telling a little bit about these underlying trends is hitting all the areas, all customers and all regions and also, for the sake of it, also very high growth in mobility also in the fourth quarter. And that is telling us a little bit, as I said, what we are working with.

So for instance, when we look into the different areas also, we see strong areas where I see a lot of the potential together with AKKA. Of course, for the total Nordic, there is a tremendous opportunity with AKKA skills and also building up that but also in other industries. For instance, we are very strong in telecommunication. Our large customers actually in the group is Ericsson. We’re working with other players like Cisco, Nokia, also the operators, and I think this mix of the competence, it’s also very relevant because we are very into communication. We have strong teams working with 5G, and that means that we are very relevant with what’s going on everywhere around here. And this is not going to be less important going forward.

And also, for instance, in Germany, of course, the automotive sector is very strong. But we also see a lot of other growing sectors in Germany, which is very important. For instance, in new energy facility, we are working a lot. We see more and more projects around smart homes, smart grid concepts, smart city concepts. We are working with several areas there.

We are working with — I think in the company, we have 10 projects concerning charging, electrification, which is also needing a lot of software and connectivity and all this kind of stuff. So we see actually growth opportunities across the board. And the good part is that we can use our good engineers in different verticals, and that makes us more stable and also able to grow going forward. So there’s lots of growth opportunities in the medtech sector, in the space, defense, security sector, the bank sector also for our type of special knowledge, which is really high level.

So that confirms actually a little bit. When we see the contract also, it’s concerning machine learning, it’s concerning 5G infrastructure, IT. It’s concerning also the utilization of processes and the total development cycles. So we are actually into a lot of different areas, which is interesting for the future.

So moving on to #25. I talk a little bit about why we think this is very important going forward. Okay. It’s a simple slide. It tells software eats the world. And the key factor is that this is increasing everywhere as we speak. Also, in this current situation, which is affecting all of us, and we are actually doing the best we can to apply for all the national and international advice and do the best for our customers and our people. What is actually the one thing that helps us in this situation, where we have people working from home and especially if you are a software developer, you can work with all your tools, it’s actually about digitalization.

So I think also this crisis, if it’s — [nothing] is going to help — learn us is that digitalization is even more important going forward because this is what is keeping the wheels running. And we have seen that also from the Nordic perspective, we are very high-level country when it comes to digitalization and infrastructure. And I think also, this is something that will come more and more for public sector and other sectors also in Germany and other places. And therefore, this is a very strong sign of where you want to put your skills in the future and where you want to put your offerings.

So this is happening everywhere. Gartner is saying that 75% of all businesses will be digital or have digital transformation on their agenda. That’s a lot, almost all — every company. The problem is that only 30% of that will be successful due to the lack of specialists and technical expertise. And this is the segment we want to be in. We want to be in segments where there is lack of specialists and where there is complicated things going on. And there’s lots of transformation in our customers because there is a good place to be going forward.

So this tells us that the total value chain of products and everything is going from physical and towards digital where in the old days, a product was like 70%, 80% was physical, mechanical and hardware, and 30% software. Now it’s the opposite. Now it’s — the 70% to 80% is software of a new product, and the rest is, however, physical. And therefore, this is enormous trend going on.

If we move on then to the next slide, 26, you see that we want to — we’re extending all the different 3 areas that is important going forward. And this is really hitting the skill metrics of all our customers. So everyone out there, they are working with the digitalization of processes and automating every cost you can and making the data more valuable. Everyone is working on the processes level, and we are also working there.

We want to work there on the industrial level a lot. And we have a lot of good projects going on with our customers to — around smart factory, around making the whole R&D cycle more digitalized because this is the future. And the software developers is going to sit everywhere in the world and they’re going to work on the same projects. And then you need a lot of digital software infrastructure around it. We are experts in that also. That’s one of the things that’s going to grow in these times.

And then you look at products and services, and you will find that the system infrastructure — product and service in the future is changing because of the connectivity going on that will connect all the products and also because you cannot send all the data to the cloud. That is not happening because you need to take a lot of decisions in the edge or embedded in the products. So there is a new structure going on in the edge of the products, which needs a lot of new infrastructure, software and connectivity between sensors and computers in the edge. And then you need cloud solutions around it to make new services and new — towards the total consumer or the consumers around.

So therefore, you have a total — everyone needs to do this. And then this is turning out — because you do these changes with your products, you enable new business models. So this model is there because technology enables it. So therefore, when you first see it from area to area, it’s moving from physical products, maybe stand-alone, long term, slow development towards smarter, software oriented, connected where you can change your products every day, every second. And we can build new functionality and products around it. And this is actually affecting the revenue stream and industry after industry. So you need to go that road. If not, you’re out.

So if you move to next slide, example around cars, getting to [be mobile] on wheels. And everything is changing around it with new mobile services, with new connectivity, new infotainment platforms and everything we want to do with the car in the future. And the good thing about it is that we will — actually going to use 1 — 3x more on our cars in the future on the usage, on the services, on everything else. So this is going to be a huge opportunity for the players that can really attack this area of the business and everyone is going there. So we are helping customers across the board in this level.

And that — if you look to the next slide, you can see that [the impression] we see in the area of automotive where there’s lots of industries going down and so on. It’s stable, but there’s also a lot of investments going on going forward. And this will continue, I promise you. And we are actually focusing and working in all these areas with fleet management structures, with the car as a service, with all different type of projects concerning this. So therefore, we see growth there even in this market.

So that concludes actually my feature on — from Data Respons. Everything is getting digitalized, connected and automated. And we, now being an AKKA company, it’s going to reattack this area. And I think with — being a member of this one group, I think we really have a great opportunity now to be the strongest player in Europe on this segment.

Okay. Thank you for me and over to you, Mauro.

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Maurice Ricci, AKKA Technologies SE – Chairman of the Board of Directors & CEO [6]

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[Interpreted] Thank you, Kenneth. So I would like to talk about the prospects. And obviously, the world will be different after this crisis or will learn new things. But I’m certain that everything will go through the evolution of technology. And AKKA will adapt to reply to the needs of our customers with positioning that evolves.

We will be able to build synergies with Data Respons and fulfill the traditional customers’ needs of the group. The means are all so evolving, especially in Germany, which is a market that we want to continue on developing and obviously to continue the multiplication of this digital platform on all the perimeter of the group.

Another challenge is to develop the professions of the future and to configure the historical jobs with a stronger use of the best-cost countries. The core business of the group is shifting to more added value, more digital, so more profitability. And at the same time, we will benefit from cost leverage on our traditional activities.

In our plan, CLEAR, we will namely focus our efforts on achievement and business. AKKA is a strong brand recognized by all the biggest OEMs and the big customers. The markets that we sign are easily closed. This is why it led to bad habits, namely the difficulties that we faced during Q4. So we had to review our proximity commercial approach. We reacted starting from mid-January. And today, it is structured more globally with CLEAR.

AKKA has a unique offering. Our organic growth needs to reflect it. The group that has specialized since 2011 in mobility accelerated its position from 2014 and concluded with Data Respons a list of investments to build a unique platform that weighs almost EUR 1.5 billion. When we talk about the digital, we cannot forget about the embedded systems, which is the main activity of the group. So the group generated EUR 1.2 billion in the digital IoT and embedded systems. We need to have the same approach as Data Respons.

Kenneth, with Data Respons, managed to build this bridge in order to evolve and to develop their margin over the last year. So we will base our approach on their experience. Kenneth explained to you the value creation through digital, increasing the size of our contract will also allow us to create value with the best-cost countries. Through Turkey, we will be able to support the German development. The French development will be sustained by Morocco and we will support the IT through India.

A particular focus will be directed to the digital training through the AKKADEMY, which will allow us to boost our digital potential. We are, therefore, equipped to seize this new market, which is growing faster than traditional R&D and thus, meet our CLEAR objectives. The group’s technological positioning will fuel growth in sales and earnings. The acceleration of digital and the massive use of best-cost countries will leverage profitability and make the group more attractive in terms of organic growth.

Everything has been implemented with fit to CLEAR in order to ensure a good 2020 financial year. We think that all the programs that are being implemented will allow the group to restart in optimal conditions. We are, therefore, serene in terms of our future.

Thank you for your attention, and we would be glad to answer your questions.

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Questions and Answers

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Unidentified Company Representative, [1]

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[Interpreted] First technical question that we received is to be answered by Nicolas. I would like to know if in the frame of all of the calculations, you’re taking into account the convertible bond.

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Nicolas Valtille, AKKA Technologies SE – Group MD & Director [2]

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[Interpreted] You know that for this kind of product, AKKA has full control and that there are other means of reimbursing these convertible bonds, so it won’t be dilutive.

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Unidentified Company Representative, [3]

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[Interpreted] Next question. We received many questions linked to coronavirus. People want to know if you have taken special measures regarding the partial unemployment. Volkswagen announced the closure of its factory. You’re well aware of what’s happening today. People want to know if there are any customers that have restricted access to your engineers.

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Unidentified Company Representative, [4]

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[Interpreted] The situation is changing every day. And in Italy, for instance, we have the same kind of situation. Some units have been closed. Sometimes, we faced some difficulties in terms of remote working. So we propose solutions for all those issues. Obviously, partial unemployment when needed, remote work and optimization of our activity by using our potential in order to progress on our project. So all of this has been done in Italy.

We had more or less the same situation with China. It was closed entirely. Now it — we opened its door. So we’re expecting the same disruptions in Belgium, France and Germany. So every day, we are trying to find new solutions, precise solutions. This is why we created several crisis cells to tackle all the issues.

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Unidentified Company Representative, [5]

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[Interpreted] Next question. Did you reduce your activity, your workforce in Italy following the lockdown?

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Unidentified Company Representative, [6]

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[Interpreted] Today, it is clear that our recruiting is not progressing. And the same time, our turnover is 0. In Italy, between the 5th and the 15th of March, our activity rate was almost not affected. We think that there will be heavier consequences in the second half of the month, especially that we still don’t have a solution for the shutdown of the factory in Finmeccanica. As I said, the situation really depends on this site. It goes above the client management.

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Unidentified Company Representative, [7]

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[Interpreted] Next question. What is the rate of engineers that can be transferred to remote working or working from home? And in case your customer will send you back the engineers, what will be your answer? Are you going to lay off? Or are you going to use a partial unemployment?

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Unidentified Company Representative, [8]

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[Interpreted] We will use all the possibilities as we did in 2008, 2009. The layoff is the last result. It’s really not our approach and has never been. The priority is production. Then we have internal programs in our research centers that are ongoing, and we can accelerate the development, but we need to do it consecutively. We will not focus only on internal projects. And obviously, we have more flexibility internally. But even internally, we are using remote working when possible. We need to protect our staff.

So we have all the solutions that you are aware of, as I told you. Every day, the committees are gathering early in the morning and late in the evening. So this allows us to be more reactive. We have all the solutions. And obviously, our staff is not 100% at our customers. And even when the customers are shutting down their factories, the research centers are within the factories. So obviously, they are closing them as well. So about half of our staff is in our premises whereas for the other half, we’re trying to find a solution and face this health crisis.

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Unidentified Company Representative, [9]

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[Interpreted] Next question for Mauro. Can you give us more details about difficulties you faced during the Q4 and how you solved them?

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Maurice Ricci, AKKA Technologies SE – Chairman of the Board of Directors & CEO [10]

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[Interpreted] When you have the volumes such as those that we had in 2018 and 2019 and when we receive important consultancy volumes from our customers and especially taking into account our skills and the fact that the customers know us well, well, this led to a passive attitude of our local commercial teams.

Now we are investing in a new commercial structure. And this decline had heavier consequences on us than of the others since some key indicators that we were following were not at the level that we expected them to be. Many little streams led to this big river, but 2 of them were Renault and the supply chain in the aeronautics. And to give you even more precise details, the management that was in charge of this left the group.

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Unidentified Analyst, [11]

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[Interpreted] Next question for Mauro. I would like to know if the remote work is a solution for the Finmeccanica example and the shutdown of its factory? Are the majority of the projects stopped?

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Maurice Ricci, AKKA Technologies SE – Chairman of the Board of Directors & CEO [12]

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[Interpreted] In Italy, yes, the remote work is a solution since we speak about R&D engineering activities. In the United States, it is less applicable because there is manufacturing and PDS does staffing.

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Unidentified Analyst, [13]

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[Interpreted] Next question for Nicolas. What was the overall amount of the factor at the end of 2019?

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Nicolas Valtille, AKKA Technologies SE – Group MD & Director [14]

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[Interpreted] There was a variation of about EUR 70 million and the amount of debt was about EUR 270 million approximately.

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Unidentified Company Representative, [15]

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[Interpreted] Next question. Your treasury situation and financing capacity, are they sufficient to face the possible decline of activity?

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Unidentified Company Representative, [16]

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[Interpreted] As we already mentioned, we have EUR 1 billion of financing capacity confirmed and secured. So we have sufficient capacity to manage the situation, and it doesn’t include the measures taken by different governments.

In Belgium, for instance, employer costs, some financial debts are delayed by 2 years. So the capacity to manage this situation is strong at AKKA. Plus, as I said, it is consolidated by the measures taken by different governments.

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Unidentified Company Representative, [17]

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[Interpreted] Thank you. Next question for Mauro. What is the situation around the — adapt inter-contract? And are you expecting some share repurchase in the near future?

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Maurice Ricci, AKKA Technologies SE – Chairman of the Board of Directors & CEO [18]

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[Interpreted] Regarding the inter-contracts, for instance — and again, it depends on the country. We have more than 80% of our staff that worked up to the last week in normal conditions, and many started to work remotely in France, in Germany. In Italy, which faces a more tense situation up to March 15, 93% of the staff were still working. So the inter-contract level has not planned yet. But I think that we will face this issue in the following weeks. In terms of shares, during the last recent Board meeting, we obtained from the Board the authorization to buy more shares than expected during the first authorization.

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Unidentified Company Representative, [19]

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[Interpreted] A question for Nicolas. Do you think you can access the factor receivables in the same conditions as before? Don’t you think that the cost will increase?

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Nicolas Valtille, AKKA Technologies SE – Group MD & Director [20]

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[Interpreted] The factor is linked to the activity, obviously. We have a firm annual contract, so I see no reasons whatsoever why this could change. Now we’re going through an exceptional situation, and all the economy stakeholders are taking special measures.

For AKKA, factor is not only linked to France. It is linked to Germany and to other countries as well. So the factor is something flexible, something confirmed. And I met with our banks a couple of days ago, and they said they had the same approach. And you shall not forget that AKKA’s advantage has always been finance diversification.

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Maurice Ricci, AKKA Technologies SE – Chairman of the Board of Directors & CEO [21]

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[Mauro added the following.] [Interpreted] I don’t understand why you’re focusing so much on the factor. I’m familiar with it since 1987. I can even tell you that the factor of the [CIS Group] is based on AKKA’s experience. For me, the factor is a receivable since there is no risk whatsoever. And we’re using this financing tool for almost 30 years because it is the most flexible tool that we can find. So during such times, this difficulty doesn’t exist.

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Unidentified Company Representative, [22]

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[Interpreted] New question. The customers in France accept remote work. And I would like to know how the situation developing over there. And when do you expect to adjust the costs?

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Unidentified Company Representative, [23]

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[Interpreted] Be it for remote work or for the repatriation of our staff back home, we have the means to do that. And obviously, we will have some discussions with the customers to adjust the costs in both ways. But I see no further adjustments. I mean the contracts have been signed, and they are still valid. We will be able to talk only about the generated costs and that’s it.

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Unidentified Analyst, [24]

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Flexibility, can you give us an indication of the flexibility of your cost structure? You don’t have fixed assets. So your structure should be quite flexible to adapt to the challenging situation.

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Unidentified Company Representative, [25]

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So this specific situation, in flexibility, we have obviously the capacity to adjust the subcontracting part of our cost structure, which is around 15%. Second, most of the European countries, they — some political decision has been made to make (inaudible) or temporarily unemployment easy to get, easy to access and quite interesting in protecting across the company and we are actively working on that.

We — another kind of flexibility which you have is related to the possibility to ask our staff to go on vacation. But we prefer to keep that possibility for the end of the crisis. So at the moment, we are more focused in developing and using the flexibility offered by the temporary unemployment.

And so this is the impact on the cost structure and (inaudible) but — which is not exactly related to flexibility, but something that can put some specific effect of our cost structure is that we are trying to optimize the situation to implement training session on the variety of items and topics but will be financed by different [subsidiaries] and local governmental support, the way we did it in 2008 that permitted us to — anyway despite a significant decrease in — maybe it was aid to protect our profitability and the sustainability of the company.

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Unidentified Analyst, [26]

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Some more visibility on the expected closing of the Data Respons transaction. When will the consolidation will take place, at what date?

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Unidentified Company Representative, [27]

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And so Mauro?

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Maurice Ricci, AKKA Technologies SE – Chairman of the Board of Directors & CEO [28]

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So we are expecting the consolidation to consolidate Data Respons 1st of April. You know that the consolidation is mainly related to the taking of power and control as a company, (inaudible) acquisition of the share.

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Unidentified Analyst, [29]

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Okay, okay. And a follow-up. You now have more than 90% of the capital. Will there be a second phase review by the German Federal Cartel Office? And do you intend to delist the company?

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Unidentified Company Representative, [30]

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So no. For the moment, our priority is to leverage the integration of Data Respons to answer the current situation. And delisting the company in Norway is on the list. But we’ll give you more information a bit later.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

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