Ladies and gentlemen, welcome to our Alten Turnover Conference for 2020. I'm going to give the floor to Mr. Bruno Benoliel, the Deputy CEO. Sir, you have the floor.
Thank you very much. Thank you for participating in our meeting for the results of the first half of the year for 2020. Things started off very well, the COVID crisis, of course, had a major impact on us. It started off in China, it came to Europe in the beginning of the year. By mid-March, it hit Europe, Asia, the United States, and other parts of the world. The crisis, which was much worse than 2008, led to a suspension and the stop of projects, massive ones in some areas and much more limited in other areas. Alten's turnover for the first half of 2020 was at EUR 1.240 billion compared with 2019's.
It was EUR 1.240 billion in France. Activity dropped off by 14%. Outside of France, it increased by 3.9%. Acquisitions, EUR 39.2 billion in terms of contributions, contributed 3% to our overall growth. Exchange effects led to an increase of 0.2% for the half of the year. At constant scope and for constant exchange rates and activities, the activity dropped off by 7.2%, and it dropped off by 13.7% in France and 2.2% outside of France. During the second half of the year, the situation in France and in Europe led to the stop of several projects in several different sectors, despite the fact that we had set up partial unemployment and distance work.
Getting out of lockdown was something that was still very strict but does not make it possible for us to return to normal activities for a number of practical reasons and also because several customers who were impacted by the crisis had no visibility in terms of what their short-term activities would be like. In the second quarter, things dropped off by 15.2%, by 20.2% in France, and by 5.2% at the international level. At constant scope, the activity dropped off by 18.2% and 27.9% in France and 11% outside of France. Quite predictably, as I said back in April, our activity dropped off in the second half of the year. It was at 77%, whereas it was at 90% for the previous year. This is something which Alten has never seen before.
This is the worst possible situation that we've ever been in, and it dropped off very strongly since the beginning of the year. During [inaudible] 2020, the activity was at 92%, whereas it was 91.9% during the last year. If we look at the context, it's, I think, worthwhile saying that in addition to what we did last year, we were able to improve at the international level. The first half of 2020 was 138.9 working days compared with a much higher number for the previous year and 125.9 compared with a much higher number last year, as well. Overall, this year, we had an additional working day and a half, I think, compared with 2019. Given the weak activity, and everywhere where this has been possible, we have set up partial layoffs for our workers to try to mitigate the effect of COVID on our workforce.
We reached nearly 30% layoffs during the first half of the year. Despite the fact that we had continued to hire people until the end of February, 32,000 odd engineers at the end of February, another 500 compared with the previous year. We saw a strong drop-off, and we also decided to freeze hiring at that point as well. The staff was brought down to 31,440 engineers out of a total of 36,500 associates, including the acquisitions done during the first quarter, whereas last year we had 37,200 associates. If I withdraw the acquisitions, the engineering associates are at [inaudible] , a drop of 1,500 people: 785 in France and 1,800 odd associates outside of France. Outside of France, the situation is very varied.
If we look at our activity at the end of the month of June, if we look at it by geographical zones, we begin with France, and we will see that this represents 40% of our turnover. The activity was much lower than it was, off by 27%, as I said to you earlier, primarily due to automobile and aeronautics activities. For the first half of the year, we dropped off by 13%, a bit better than what we thought we would have seen back in April when we talked about a drop of 15%. Automobiles, off by 14%, dropped by 20% and by 40% during the second half of the year. Aeronautics, 24% of our turnover for France. It dropped by 18% for the half of the year and by nearly 40% over the second half of the year. Energy, thanks to nuclear, is 50% of our turnover.
Naval and rail also have a drop -down, but they're beginning to pick up, and they are beginning to recover nicely. For the main sectors' activity, France is the country that is the most impacted by the COVID in our activities, primarily in heavy industry, followed by Germany and Sweden. The contribution of automobiles and aeronautics also explains this situation to a large extent. We have had to stop and suspend a number of projects in France. We've also had to do this in ASD, automobile, and tertiary, primarily for Amadeus. We lost about 100 consultants. For defense, activities are beginning to come back very slowly, just like in auto and in aero, where they are beginning to come back slowly as well. At the international level, the activity was heavily impacted by COVID, but much less so than in France.
Overall, the activity dropped off by 2.2% at the constant scope for the half of the year and 11% for the second half of the year, to be compared with the second drop of Q2 of 27% in France. The situation is still very different from one country and one geographical zone to the next. In North America, the activity grew by 7.5%, and it's stable at the organic level, as we foresaw back in April, with a rise of 2.2% this half of the year, despite a drop-off of 13% during the second half of the year. In the U.S., 85% of the North American zone activity dropped off by about 3%. It was marked by a strong drop in auto activities by 18% in the U.S.
Automobile had risen by 25% during the first half of the year, and it dropped by 30% during the second half of the year. In the tertiary sector, the drop was fairly gentle. All the sectors were impacted , including Aerospace. In Canada, 30% of the North America zone activity dropped by 15% in tertiary sectors, telecoms, and Aerospace. In Germany, the activity dropped off by 12% but 16% organically, a bit better than the 20% that we foresaw back in April. The country was exposed at the Automobile level. This was about 25% of the activity. Aerospace, 30% of Germany's turnover. They were hard hit by the sanitary crisis. The organic drop in Germany was 25% for the second quarter of the year. The activity dropped off by 24% in the Automobile sector, 33% in T2, and 20% in Aeronautics. The only exception was Aeronautics, 4% of turnover.
Life sciences also dropped strongly, 11%. All the other sectors are doing fairly well in aeronautics and automobiles. The visibility, for the same reasons, was as low as in France. In Scandinavia, the activity at the constant perimeter change was much lower than initially expected. Finland, which represents 20% of the geographical zone and dropped by nearly 3%, primarily in the area of industrial goods, which represents 75% of the Finnish turnover. Sweden, which represents 80% of the Scandinavian area. As you know, the major sector is the automobile sector and truck sector. This represents about 35% of the turnover. This sector was also hard hit by the crisis. This led to the stoppage of a number of sectors in March, and the sector dropped off by about 40%.
In the tertiary sector, at 20% of turnover, and 7% in telecoms, down 11%, making up 10% of turnover. All of the other sectors have increased in Scandinavia and Spain. Despite the health crisis, which began earlier in the month of February, and very strict confinement measures, some of these are still ongoing. Activity went down only by 3%. This is essentially due to the defense and the aerospace sectors, representing 18% of the Spanish turnover, which is down by roughly 30%. It is also due to the auto sector, which is smaller for us, representing 5%, a downturn of 40%. This can be found in a similar way across most countries in Europe and also in the U.S. In the defense, aerospace, and auto sectors, a lot of projects have been either suspended or halted altogether, as in other geographic zones.
Q2 represents roughly 20% of the Spanish turnover, but in all other sectors, there is growth of 80%. Benelux, a downturn of 1.6%. In Belgium, activity has gone down by 6.3% as we anticipated, and it's actually due to the tertiary sector representing 15% of the Belgian turnover. In the Netherlands, there's been a downturn of 3% from semiconductors, representing 7%, a quarter of our Dutch turnover. In Asia Pacific, the perimeter continues to grow. The growth in this area is driven by China. China is down 13% because of the confinement measures between January and March. The situation has gone back to normal, especially as regards the figures for the auto sector. Figures are still down, although we were expecting it to come back to a much more normal situation. In Italy, remote working has been organized.
Growth fell 8% in Q2, and across the first half of the year, there's been an increase in activity of 11.3%, especially in auto, 2% growth. It is low, but it deserves being pointed out: 18% of turnover. Aerospace and Defense, or ASD, represents 11.9% of turnover. In the U.K., 34%. Another abrupt stop in Q2 as anticipated. In ASD, 23% and 24%, respectively, of overall turnover is down 20%. All of this representing roughly 60% of turnover, down heavily in Q2 even though other sectors are increasing considerably. The downturn here risks becoming structural. By activity sector, like for like, as with our competitors, the auto and civil aerospace sectors have been very hard hit by the crisis. The other sectors are seeing a downturn with the exception of rail, naval, and life sciences.
In auto, 17.5% of activity is down 25%, with the first quarter down 40% in the second quarter. All of our customers are down between 15% and 35%, with the exception of one client in Germany and Tedlar in the U.K. Activity is picking up very gradually. It's been doing so since the month of June, but we won't see the same levels as before the crisis and probably not in the auto sector before the middle of 2021. Down 9.9% in the naval and automotive sectors. We're still waiting for activity to pick up in the middle of the year. In aerospace, 14.3% of Alten's turnover, down 15.6% in Q1 and down 38% in Q2. The health crisis has significantly impacted the airline sector and has had knock-on effects.
Lots of deals have been put on standby, and we have very little information visibility as to what's going to happen. We are very far away from the pre-crisis levels. There's a lot of activity on standby compared to the situation at the beginning of the year. The ranking of projects in particular with Airbus is still being worked out, but we still find that the same number of products will not be maintained in civil engineering and other engineering. The post-crisis levels being down 30% compared to pre-crisis levels are becoming a more likely outcome. We're looking at a return in around 2022, but growth in 2021 should be roughly 10% compared to the current situation.
Defense and security activity, representing roughly 5% of our overall turnover, is down 4.4%, having been impacted in Q2 by projects being stopped in this sector ; things should pick up rather more quickly. In Q2, we were down 13.5%. Budgets have not been cut significantly. Energy sector: 12% of our turnover is down 11%. We've returned to growth. This has been impacted by a fall in the cost of crude oil. Growth is maintained at around 18% thanks to EDF activities. We believe this should be maintained or continue to grow. Life sciences, representing 8.2% of Alten's turnover, has grown like-for-like 10% in the first half of the year, even though it slowed down in Q2. This should pick up again and continue to increase in the current health situation. Other industries representing 5.5% of turnover.
Equipment, goods, construction, and others are down 15% in the second quarter and down 10% overall for the first half of the year. We're looking to see a bit of a bounce back. Telecom, around 10% of turnover, down 8.7%. Networks and the modernization of networks. There's some growth here and a lot of demand here, thanks to things being migrated into the cloud. Media, down 8% with Amadeus and their request for software. We've had to let go of around 100 technicians and consultants, and without a return of activity in the aeronautics sector, this will be difficult. Semiconductors, again, that we hope to have an increase here. Tertiary sector, roughly 20%. Retail and services and public sector banking and finances continue to grow, an increase of 6%. That is the overall panorama by activity sector for the first half of 2020.
We have continued our growth activities by sector. Agreements that were signed at the end of 2019 have been put on hold. We wanted to have greater visibility about 2020. We have finalized the acquisition of two companies in Asia who have been very lightly impacted. A Japanese company with 400 IT consultants and with project teams, most of them based in China. Software development and IT, EUR 18 million in turnover. The profitability is not very high. We hope to improve that. There's also a Korean company with 300 consultants with EUR 21 million in turnover, specialized in software development, CAE and PLM. There are also a number of other companies that we are looking at at the moment. Difficult to set the price because obviously 2020 is turning out to be a bit of an inconclusive year. This should be finalized by the end of the year.
In terms of outlook for 2020, there will probably be more external growth to come. In terms of activity, specifically internal or organic activity for Alten, even though almost all of our engineers can work remotely if the context allows, the global impact of the pandemic and the crisis does not create conditions for a return to ordinary levels of activity. Strict confinement measures mean that a number of clients have either closed down their sites or suspended all of their activities during this period, and we have a number of projects that are going to be scaled down or stopped altogether. Air transport and associated services, along with civil aeronautics, have been very strongly hit and will be strongly hit over the midterm.
Our clients are seeing significant falls and cash flow problems in the mid- to short term, and a number of other sectors have decided to limit many of their projects, specifically in engineering, and are currently looking at inventories to see which are the priority projects and which ones are going to be continued. Some of them are simply going to be halted for budgetary and cash flow reasons. Other clients in other sectors are not doing so badly, and they have indicated that they are going to look to reduce their budgets in light of the economic crisis that is probably to come. A number of our major clients, specifically in the sectors that I've already mentioned.
June and July saw things pick back up a little bit. Things are not going to really pick up until Q3 and Q4. Some sectors are going to have to start from zero. Others are going to continue to drop off. We need to have a very prudent outlook for the second half of the year. I think there's going to be a drop in the number of contracts. I think that what we can say with certain caveats, because we don't know the situation and because our customers don't know their situation. They don't know what their budgets are going to be like, what their financial situation is going to be like. Therefore, it's difficult to really say anything with any certainty.
I think that what we can say is that with what we have seen at the end of June and seeing how many projects stopped at the end of the half of the year and the number of paid -off times for Q3, which is higher than we saw in earlier years because there were a certain number during the summer, especially operating margin is going to lead us to a relatively unfavorable situation. I think we're going to see a drop in activity for the second half of the year, which is going to be very similar to what we saw in the first half of the year for 2020. That's going to lead us to a drop of activity of about 12% with constant scope and exchange. We'll go back over these figures, of course, when we have our meeting in September.
We'll have, I think, more recent information to provide you with at that point. For the time being what we've seen from the situation is that the situation is far from being terribly rosy. I'd like to now give the floor to any participants, because I imagine that many of you have questions, and I'll be happy to take any questions that you might have.
Ladies and gentlemen, if you have any questions, please dial zero one on your phone keypad. We have a question from Laurent Chauvier .
Good afternoon, Laurent Chauvier .
Just to try to understand what's going on better in Q2. At the end of June, you say that things are beginning to pick up. I think we need to look at that in more detail. I'd like to talk about the second half of the year. Some things are very difficult, but I think that there are also a number of positive points. What can we expect in telecoms? In terms of costs, I imagine that there are many consequences. Are prices going to be guaranteed through until the end of the year? What kind of measures do we have in terms of restructuring? What kind of measures are you thinking of taking in order to keep the margins at an acceptable level?
Okay. I'll try to answer that question as it was put to me. The utilization level was a bit lower than 70%, lower than what we saw for Q2 at the end of June. We are up to 81%. That wasn't a very strong uptick. We expect an increase in the rate between 87% and 89% at the end of Q4.
There are two ways to do that, and they're not mutually exclusive. The first is the most virtuous, which is to increase the number of projects and try to increase our activity. The second possibility is to reduce our costs and to reduce our headcount. We've been able to improve things primarily by reducing our headcount so far. We've dropped down to below 20% turnover. We've also been able to increase our activity, which means that we've been able to increase the number of projects that have been undertaken. Now, I'd like to move on to the third part of the question, because that'll make it possible for me to bring this all together. We thought, and this is what we saw, in fact, back in April. We were perhaps a bit naive back at that point. We had very good activity in terms of the second quarter.
We thought that people would be looking much more closely at their projects and their budgets. Especially in the two sectors that were the most affected, aeronautics and then auto. That's not in fact what happened. There are a number of projects that have started back up again, unfortunately. The sales activity still remains fairly flat. Interviews are not done face-to-face. There are some customers in some sectors who have still not come back to work. They're still doing their work at a distance. They're having video conferences, things of that nature. A number of technical consultants are still looking at their budgets. They're trying to figure out what they're doing, and so it's very difficult for us to know what they're going to do and what they're going to be doing in Q4.
What we've done today is to make a decision. While I'm sure this will be the case when we come back after summer, what we're going to do is to try to maintain our headcount for the time being. We're going to try to continue to benefit from subsidies from the government, primarily here in France, in order to try to offset things as much as possible. In terms of our strategy, there are two ways to look at it. Either we can say that we have 1,000 people more than we need. In which case, it makes no point to have people working on a part-time basis. We can come up with some kind of layoff plan.
This, of course, is going to have a cost, the consequences are usually very heavy. The situation's going to depend on what country, but it can take as long as nine months if you take the French case, for example. We're currently talking with the authorities in France to try to receive some kind of assistance from the government, as was the case for the aeronautics sector. This will make it possible for us to not lay anybody off. Once again, that's because we're going to have to have a higher subsidy from the state at 35%-36%, as it was back in June. We're going to have to have it for several months as well. We might build these projects that use new technologies. That might make it possible for us to keep costs low for these sorts of things.
This, of course, is going to have an effect on our margins. In any event, in terms of cash, it's going to be lower. It's going to also make it possible for us to maintain expertise within the company. We're trying to determine what solution is the best adapted to our situation, but we don't yet have all the information necessary to make that decision for the time being. The hypothesis that we have been looking at least from now until the end of the year is going to be we haven't budgeted for part-time work. We're going to try to keep people at work, even if we have to keep them on partial layoffs. Even if we have to furlough them. There are some sectors where the situation is much better than the others.
Life sciences, for example, banking, insurance, and some industries as well. Our customers have anticipated the crisis, they have reduced their budgets. They did that once again by reducing their expenses. Even if there are sectors that have continued to grow, you might not think this would be the case, but there's nuclear, for example, which has continued to grow. Nuclear always includes several different projects. These projects can't be stopped overnight. They can perhaps be downscaled a bit, but this is a sector that shows that things can be done. There's also the banking sector. This is not all based on precise information we've gotten from our clients, where they say they want to reduce their budget by 20%. We know that there are going to be a number of scenarios that are going to be very similar to this.
We know that there are going to be customers who are going to either retain their headcount or perhaps lay a few people off. That basically is the kind of situation that we're in now. That's why we decided to adopt a cautious outlook.
Thank you very much.
Thank you. Next question from Alexandre Plaud from CIC Market Solutions .
Good evening. I have a question about the things that you have put in place in order to deal with the crisis. I'd like to hear a bit more about exactly what's been set up.
There are a certain number of costs that we're going to have to bear. A certain number of transactions, also transactions related to partial layoffs. All the costs related to partial layoffs or furloughs, additional costs that Alten is having to bear because the fact is that the state is not covering all of the workers' benefits. The first thing we adapt to ourselves is whether this is recurrent or not. What we want to do is to leave this in the gross margin.
We're not usually confronted with pandemics, not on a regular basis. We're not going to put this in recurring costs. We do have a number of other costs related to sanitary reasons, individual protective equipment, for example. This is something which can be very expensive according to the site that you're talking about. I don't have a list, but a number of different sites, of course, need to have this kind of equipment. This costs, I think, something like EUR 4 million, at least in France.
I have another question. That's quite a high figure then, EUR 4 million. Two other questions. There are also seasonal activities. Can we have a bit more information about that? Also a point on the acquisitions.
The two companies that we have acquired this year, the first was consolidated on the 1st of April. The second, if everything works out as it's supposed to, should be consolidated on the 1st of July.
The first one is communications?
Yes.
The first seasonality and the margins?
Our initial scenario is that there would be many more people who are leaving right away in a more organized manner. Given the level of activity, and especially, we had thought that we would have a much clearer idea, much more quickly, of the projects of our customers. Now, let me correct what I said earlier.
When I said there'd be no partial layoffs in France, what I mean is that we're not going to be doing that for the time being. We had two in other countries. There's one that is underway in Sweden. Because of Scania, Volvo Trucks, and Volvo Cars, there are a number of projects that have been definitively stopped and that are never going to start up again. That means that there are a number of people who are not going to be working anymore. There's also been an impact in the U.K. as well because for aeronautics and automobiles, we've had a number of projects that have also been definitively stopped. That's going to be recurring. This is not going to lead to very high sums. It doesn't concern millions of millions of people or thousands of thousands of people either.
Seasonality in terms of the margins. As to [inaudible], compared with RS1, I think that we're going to be looking again at what kind of resources we have and what kind of resources are necessary to deal with the activity in a much more rapid manner.
We will look at the consequences of fewer contracts and part-time work. It does seem that there will be less recurrent cost that we will see in terms of the decisions that are being taken. At the moment, we have a fairly good view of what the margin will be, possibly just over 5%, maybe even closer to 6%. It will be lower than H2 in the second half of the year.
Thank you very much for these answers. I will now hand over to any others.
If you have any further questions, please dial zero one. If you have any further questions, dial zero one on your handset. From Societe Generale, there is a question.
Hello. Thank you for these questions. I have three. Firstly, on furlough part-time working, have you negotiated the agreement covering the period from July to the end of September? Has that been finalized, or is that still being discussed? Will this be the same as the one put in place for April to June? I don't know if you want me to ask all of the questions first.
Yes, please go ahead. I will do what the politicians do. I will make a note of your questions, then I'll answer all of them together.
The second question relates to the mechanisms for the Social Security payment, the national insurance payments, how that is going to work, and sort of anticipating what you're going to say for September. Do you foresee a gap between customer payments and a PSO that will be in a less strong position than what you foresaw in June?
Firstly, on part-time work and furlough schemes, we submitted this. There will be a check later on. We have an agreement, taking us through to the end of September for France and wherever this has been possible, in fact. For all of the companies in the group, including Alten SA, which is the biggest company in the group, this is already in place, and this is very good. The rate of indemnity for this, as you know, in France, has been reduced by 60% of the growth. This has been scaled down. Residual costs are increasing 10% higher, an increase of 10% in residual costs. This means that we are forced to maintain 75% of the gross cost. We will also have to submit another plan in order to have this prolonged.
This will have to be done by the end of September because it goes by a period of three months. There is a 36% indemnity of the gross. Obviously the costs there are even more significant at that point. There's no reason we shouldn't get these compensatory measures because obviously a lot of people are facing unprecedented situations. In terms of taxes and costs and everything else, we haven't delayed any payment. We have paid all of our national insurance contributions and taxes as planned. Given the cash flow situation, I didn't want to delay any of our obligations. There was no reason to increase cash availability when it's not really bringing us anything back at the moment. Clients, as regards the statement, are in a different position. They are requesting extensions in their deadlines.
This will not, I don't think, be seen in terms of an impact in the first half of the year, but in the second half of the year, I think there will be sort of payment delays, which are going to significantly increase. We will have exceptional conditions that we're faced with in all aspects. This could increase significantly the consolidation in terms of the number of days. Obviously, for customers who today have postponed a lot of payments, this will be an impact on 2020, but not recurrent.
If I can just add a further question about just the logic. The partial unemployment, when you took that 13%, is that an average for Q2, or is that where we are at the end of June?
Yes, that's an average for Q2.
Can you give us the figure for the end of June? Just so that I understand your reasoning, what is this figure going to be at the end of September? If we extend this partial unemployment furlough scheme.
Well, for obvious reasons, I would prefer not to give any detailed figures in this regard. The number of people in partial unemployment schemes is going down. The 13% that I mentioned is obviously an average for Q2. This is to give you an idea. It's not that we haven't given any information on this, but it is falling. This is an average for Q2 across the whole group. This is not just for France. It is rather high in France.
Do you agree that by the end of September, you're looking not to have 10% in this prolonged situation?
Yes, absolutely. In September, there will be fewer people in partial unemployment furlough schemes than there are at the moment. I cannot tell you exactly what proportions this will be, but there will be fewer staff. I just wanted to have an order of magnitude, 5%, 10%, or 1% residual. There's clearly not going to be 1% residual. Between auto and aerospace, they're looking at thousands because if you're looking at more than 2,000, I don't think we will be done with partial employment by the end of next quarter.
Okay. Thank you.
Well, I have to say, when I mentioned the margins for Q2, I was taking into account the fall in terms of state contributions and state assistance, state funding for these employment protection plans.
Very good.
Okay.
Next question from Stephan, BNP Paribas.
Yes. Hello, good evening, Bruno. I have a question about the customers in sectors; we're continuing to see very low activity. How do you see their market share evolving? Are projects going to be relaunched in the second half of this year, the beginning of next year? Can we see an increase in market share here in terms of our competitors? How are things going? Are we going to be seeing losses in market share in this regard? Are you referring to major accounts or to customers in activity sectors that represent a significant proportion of our activity?
Well, both of these. Are there opportunities if our customers are looking to reduce the number of suppliers, for example, can we increase our market share and customer base?
Well, there are a number of customers in a number of countries and/or a number of sectors who are going to look to reduce their panel, because if they try to avoid outsourcing, given that they're going to maintain the number of references to suppliers, that doesn't make sense. There's probably going to be a concentration, a reduction in the range of suppliers that initially does seem favorable to us in a number of sectors, at any rate, for a number of customers. There is also an opposing risk, and I'm thinking specifically of an auto client, where the panel could be even more significantly restrained and the number of service providers could be reduced, I don't know, to three instead of six, and there will be significant cuts there.
Here, there is a risk that we may not be ranked tier one, or we could even go down to tier two or three, specifically where the margins are lower than average. There are a few risks outstanding, but obviously, where we have a strong market position because we are leaders or because we are in sectors that I'm sure you will be aware of, it is small -scale actors that are going to be hardest hit by this rather than us. Is this something that we will start seeing this year already or next year? I think this will be for the rankings for 2021.
Okay, noted. Thank you.
Thank you very much.
Next question from Gilles Dupont. You have the floor.
Good evening, Bruno. I have a couple of questions. First, on prices. You said that in this period of the end of lockdown, do you have a little bit more visibility in the auto and aero sectors? I think if I heard you correctly, you spoke about an attrition of around 20% in Q2. How do you explain that this rate is not a little bit sharper? Have you not analyzed what happens to engineers that leave you and where they're going?
Yes. In terms of prices, customers have asked for tariffs to be reduced. Either this has led to discounts with customers or if their activity has taken a tumble significantly, this is not unexpected. The only mechanism that can be put in place, because even though there have been requests for tariffs to be reduced, is incentive mechanisms.
Discounts based on targets and conditional targets based on turnover and sales. For 2020, we will see what the impact of this is in rankings in terms of 2021, but we have not acted on any price reductions. With the attrition and any resignations, we will see the impact of this in Q3. Q2, the resignations here, we were notified of this several months earlier, so there is a lag to be taken into account. Here, once again, are customers or companies in other sectors, we don't have much detail about these departures in Q2, but it's pretty much the same pattern. Attrition, obviously, has fallen in June, but we'd have to look at the resignations for Q2 to see what this is going to lead to in terms of impact in Q3. Okay.
Thank you very much. Charles Petit from BASF. Good evening. My question has to do with aeronautics, with the panels. Could you talk to us a bit more about what's going on in that sector? Exactly what the situation is like, whether or not that can mitigate the global R&D loss. Can you also go back over the activity rate? Because I'm not sure that I noted it down correctly.
77.5% was the activity rate for Q2. We anticipated 70%, so we weren't very far off. Now, for the panels, for aeronautics, for making the panels smaller, I suppose. There are a number of things we might decide to put off until later. Referencing, we might put off until later because it costs a great deal in terms of effort and in terms of work, and there's a great deal of management that has to be done.
There's also a great deal that has to be done in terms of RFI. Our major customers in aeronautics are in the process of reorganizing themselves. The rumors of things are going to be offset a bit. The referencing, in an event that should have been launched for 2021, we're dealing with triannual referencing, and we're coming up to the time when we need to do that, but we might decide to put it off. Alten, in an event, is one of the largest players. I don't think they were faced with any particular risks. There might be some tier twos that are not quite as used and that are going to have an impact on the purchases of tier one. Everyone's going to lose a fairly large part of their activity.
I don't think that any of the major players are going to be leaving. I don't think there's going to be any major changes in what's going on. Nothing that we won't be able to handle. No major projects are going to be stopped in any event.
Just a follow-up for aeronautics. We saw the French government support plan. Is this having any kind of effect on you? I'm thinking in particular of the fact that Airbus, for example, has decided to reduce its social plan. Is there going to be any kind of re-internalization for this particular sector, do you think?
I don't really think so. The projects that we lost were not lost because they were re-internalized. The projects were suspended because Airbus is having cash problems. Because they need to balance things.
I don't think it's going to have a major impact. Especially since I don't know how much the plan is reduced in France. I think that if we look at everybody, I don't think that it's going to concern an extraordinarily large number of people. We've done reverse engineering, and we've tried to transfer the knowledge to the teams working at the internal level.
One last question then. Concerning the trend to offshore things. We hear from time to time that this might be a solution for the major purchasers to reduce their budgets in terms of engineering and things of that nature. Is there any kind of investment plan that you're looking at?
We've heard the same rumors. For the time being, this isn't anything that is having an impact on the ground. When you offshore things, you have to know what you're offshoring, and there are a number of activities that cannot be sent out of the country, which cannot be offshored. Design, 3D part design, and those kinds of things can be offshored, but there are other things that cannot be offshored. It also depends on the size of the project, and it depends on how industrializable, between quotation marks, the projects are that we offshore. In IT, for example, you can offshore things very easily because it's the kind of thing that depends a great deal on knowledge and experience. It depends on the kind of projects. You can even utilize a number of teams to work on different customers. It's nothing that is particularly complicated in terms of design.
What I'm trying to say is if you want to offshore things, you need to be able to offshore major projects because this has to be something that makes sense in terms of the cost. You're going to have to manage the pilot. There's going to be a front office and a back office. All this is going to have to be managed. There are also reworking costs, which occur very often. They can be as high as 30%. This is going to make the cost of the project higher. It might make sense to offshore things, but you have to ensure that your project has a certain critical size. You have to make sure that the project is adapted to being offshored. I think the offshore is going to increase in number in a number of our activities.
Over the short term, there are no particular projects where Alten has decided to transfer our base to an offshore site. For example, we have no new projects or no other projects that are handled in Toulouse or Hamburg or Seville that are going to be transferred to Bangalore, for example, nothing like that. At the same time, we're also going to look at all this in the light of productivity. We have to look once again at the nature of the project, and we have to give some thought to whether or not we're going to increase the amount of offshore projects that we will have in the future.
Okay. Thank you very much, Bruno.
Thank you. We have another question from Eric from Societe Generale. You have the floor, sir.
I just have a follow-up question. When you talk about the car makers, you said between 15% off and 35% off, aside from Chrysler. You talked about Daimler, for example, and Tata. Can you talk about the percentages of 35% off and 15% off?
We wanted to show an exception here. Daimler in Germany and Tata in the U.K. did not drop off to the same levels as other carmakers. They dropped off, but they dropped off much less than other carmakers. They're negative, but they're between 0% and -5%, is the answer.
Second question. Can you talk to us about what was said by the supervisors in engineering and the panel, which was redefined or which can be noted in any event in the Tier one supplier?
As far as I know, no definitive decision has been taken. We have a new engineering supervisor. The DG stepped in in July. There are going to be a number of presentations, which will be made at the end of the summer, I think. Renault asked us to take into account their desire to try to reduce engineering costs to the same level that it is at PSA. I can't give you the exact figures because they're confidential, and it also depends on the kind of services that are being provided. They want us to reduce these costs. This is going to lead to an increase in the number of services, both onshore and offshore. We're going to come up with a plan, which we'll present to the working teams, and which they will take a closer look at when we come back to work after the summer.
I think Renault is very clear. I'm not sure if they're going to do this, but they said that they wanted to reduce their panel. Now that doesn't mean that those who are not in tier one are going to leave definitively. They might move to tier two. It better be tier one, but moving to tier two is not the end of the world either.
This hasn't been acted upon yet?
No, the final decision hasn't really been made. There are going to be a number of presentations, which will be made. The new engineering supervisor for PSA is going to be there as well. It's going to be the same thing at PSA, more than likely, I would say. This is going to be done at the end of September or the beginning of October. Not everybody has the same capabilities either, in terms of engineering.
Let's admit that they reduce by three, for example. That there are former tier ones who become tier two, concerning their activity and activities in which they're very capable. They're not going to be tier one. This is one of the possibilities, basically.
For Germany, a follow-up question, given the difficulties that the major European actors have had in the German market and also the fact that domestic actors are suffering quite a deal, are we going to look at a change in the market? Are we going to look at what we're doing in the future? Is everybody just going to wait for things to blow over, basically?
I think that everybody's basically going to hunker down, and they're going to wait for things to pass. I don't know if that's really credible, but I think that we can probably expect investments to pick back up before the end of the year in Germany. Germany has a lot of Airbuses. They have a lot of the surrounding activities as well, and there's also the automobile sector to take into account. If it's possible, I think that we need to accelerate things. We've talked about accelerating the transformation process for a long time. If that's possible, then we need to do that. But I don't see any major decisions that have been made on the market as it is today, which are going to have a major impact on the situation.
And in terms of investments taking back off before the end of 2020, do you think that that's something that is actually going to happen? You said that you don't think that there'll be any recovery for automotive before 2021, but you think that Germany might take off faster than the rest of Europe.
That's what we're hearing. That's what we're hearing from the people who are on the ground, from the supervisors who are on the ground in the south of Germany. They've provided us with a number of hypotheses about the activity taking back off during the fourth quarter. It's not going to be anything earth-shaking either. I'm a bit skeptical, to be honest with you. In the car sector, you can put cars and aeronautics in the same bag. Aeronautics depends completely on airlines and on air traffic picking back up. Today, there are a number of hypotheses in terms of traffic picking back up.
We can imagine that's going to happen in the civil air sector in 2023, I would say. There are a number of projects concerning new -generation airplanes. I'm not sure that they have the means to invest the billions in a hydrogen plane. There are a number of architecture studies that are underway in order to begin fleshing out the subject. I think that's probably going to begin moving more quickly beginning next year. In the auto sector, even if there are bicycles everywhere, we are still going to need to try to comply with European regulations about reducing emissions. We don't know if these are going to be maintained in the future. There are more and more hybrid cars.
We're beginning to read, this is what I was saying earlier, in any event, even if there's a great deal of technology that is being used right now for electric cars and hybrid cars, that's not the same technology that will be used in the future. It's still very expensive. It's still polluting a great deal. I think we're going to need to look at the technology.
We're not going to be moving away from the thermic completely. We have to be looking at hybrid and hydrogen-based for urban vehicles. Clearly, there are investment needs that are very real. I'm not even talking about driverless self-driving cars or anything like that for the moment. The question is really one of revenue. If there is a need for colossal investments, auto manufacturers are not going to be investing vast amounts of their turnover in R&D, 6%-7% at the most. Without taking into account all of the bonuses there, the transition towards hybrid could be a factor for an uptick in the auto sector much earlier. We're talking about the beginning of 2021, not tomorrow morning. As regards the aerospace and aeronautics sectors, we have to be rather significantly more cautious, I would say.
Thank you very much. We have a final question from Matthew. You have the floor.
Good evening, Bruno. I just have a quick question to try and better understand what you were saying about an increase in activity. Are you looking to transfer engineers from one sector to another? More generally, is there a kind of mobility in terms of skills and talent across sectors or across the geographical zones? If you have engineers in Toulouse, if they're stuck there, can you move them elsewhere? Is this one of the levers that you're looking at to try and increase the activity levels?
Well, yes, indeed. There is potential for staff mobility in both of the areas that you mentioned. Firstly, in terms of skill sets, so people who were working on projects with Amadeus could well be moved into the tertiary sectors of banking, insurance, retail, or possibly even soft projects.
The auto sector is perhaps not a great example, why not life sciences and certain types of projects, for example? Competent skills mobility: lots of people with softer skills onboarded in real-time and in development could relatively swiftly be shifted over to other sectors. This is rather more difficult for those who are only motors or only mechanics. Especially for Alten, where a lot of our know-how is historically and statistically linked to high activity rates. This relates to mobility and skills internally to a group with a compensation system linked to the management hierarchy. They're not limited. Anyone can contact them. They're not limited to the business unit to which they are affiliated at any particular time. The limit for this is obviously demand. In order for this to function, to operate, there has to be demand for this work and mobility.
For geographical regions that are relatively close to one another, this is possible. If you're looking further afield, for example, between Toulouse and Paris or between Aix-en-Provence, the south of France, and Paris, closer to the north. If looking at sending people to Lille, far in the north, then it's very difficult. There are issues with work contracts. As a services company, we have to go where our clients are. That's a fact. A lot of people are refusing to be moved in this way because they live in places. It's not necessarily that they own a house and have a family and kids, whatever, they just don't necessarily want to move. In terms of geographic mobility from the south to the north, the success in this area is relatively low.
Right. If I could follow this through, would this be a significant lever, or would this be purely anecdotal?
It's not significant, I would say. I don't think it's anecdotal either. It's not a significant lever, I wouldn't say. It's sort of in between the two. Obviously, management levers are being activated to optimize all of our contracts, obviously, this is a part of it. Depending on which direction the mobility is going, I would not describe it as significant.
Okay. Thank you very much. That's clear.
Thank you very much. There are no further questions for the moment. If you have further questions, please dial zero one on your dial pad. Zero followed by one on your dial pad. I cannot see any questions waiting. This is the final call for any further questions, please dial zero one. You now have the floor for the conclusion. Thank you.
Thank you very much for taking part in this teleconference. I know that the holidays are just around the corner, so enjoy the holidays. I can tell you that our meeting for the half -yearly results will be on the 22nd of September, and that this will be a remote meeting, given the current situation. Thank you all very much. Have a wonderful evening. See you all soon.
Thank you very much, ladies and gentlemen. Thank you for your attention. The conference has now ended.