May 6, 2024
Operator
Good morning, and welcome to Indra's First Quarter 2024 Results Presentation. I now hand the conference over to Mr.
Ezequiel Nieto, Head of Investor Relations. Please go ahead.
Ezequiel Nieto
Good morning, and welcome to our first quarter results 2024 presentation. I'm Ezequiel Nieto, Head of Investor Relations.
And as usual, let me refer you to disclaimer on Slide number 3 that shows the legal framework under which this presentation must be considered. First, let me introduce the participants of this call, Jose Vicente Los Mozos, CEO of Indra; Antonio Mora, Chief Control Officer; and Luis Abril, Managing Director of Minsait.
Jose Vicente, the floor is yours.
Jose Vicente Los Mozos
Thank you, Ezequiel. Ladies and gentlemen, good morning, and welcome to our conference, and thanks for being with us this morning.
I think it's fair to say that our first quarter results have been very strong and positive, I try never go back, and are a great starting point for our strategic plan leading the future and the right first step to achieve this target. Let's start with Slide #5, where we display our main business achievements for the quarter.
First of all, we have taken our first step to deliver on our strategy presented in the Capital Market Day by creating our Space Subsidiary with the aim of making it the cornerstone of our business activity in the coming years. As we said, we had the commitment of becoming a Tier 1 European player in the space.
We have also carried out the acquisition of the whole capital of Global Training Aviation to reinforce our position as one of the world's leading simulation company. With this operation, Indra now covers the entire value chain of the business for the manufacturers leading a simulator to the provision of training services for pilots.
Another very important milestone has been the joining of NAV CANADA into the iTEC Alliance, where Indra is a major player in the global air traffic ecosystem. With this important partnership, iTEC has reached beyond the European border for the first time.
We have also signed several agreements with top players of defense industry such as the next-generation radar in Emirates with EDGE Group. The new industrial collaboration agreement signed with Lockheed Martin or the collaboration agreement signed with Thales to boost the joint development and commercialization of Vanguard defense systems.
And finally, we have achieved 2 new relevant milestones in ESG, which are the best score in the technology sector in the S&P yearbook and the renewal of our Top Employer certification for the sixth consecutive year as one of the best companies to work for. In Page 6, we can see the headline of our financial results for the first quarter of 2024.
Just let me highlight the following. First, the double digit growth achieved in the order intake, revenue, EBIT and EPS.
Second, the size and quality of our backlog, which grew 6.3%, providing good visibility for our near future growth. Third, the commercial momentum that the company is going through with revenues growing at 22% rate, strongly backed by all our divisions, among which it stands out the global resister by defense plus 56% and ATM plus 63%.
Besides that, this growth combined with our cost measure and driving -- are driving our improvement in profitability as our EBITDA and EBIT margins show and cash generation, allowing us to maintain financial leverage at a very low level of just 0.2x. On the Slide #7, just let me remark the strength of our organic growth, 90%, when removed the ForEx impact and the inorganic contribution.
In terms of EBITDA distribution, defense, air traffic management and mobility represents 53% of the total for the first quarter of the year. On Page #8, we display the evolution of our headcount.
Let me highlight here that we have improved our revenue per employee by 14% while our workforce has always increased by 2% compared to March '23. The productivity become also a key element in our performance.
Now, once the big picture has been present, let's dive into the performance of each of our 4 divisions, starting in Page 10 with Defense. In Slide 10, this has been a very strong quarter for Defense, as you can see in the key figure on the slide.
Order intake grew by 4%, mainly due to the Eurofighter project and despite the worst FCAS project comparable. More important are the very strong figure upsell, which grew 56% in first quarter '24, mostly driven by the contribution of the FCAS project.
Excluding this contribution, sales will have increased by 10%. On top of this solid revenue growth, EBIT margin grew from 15.7% in first quarter '24 to 16.4% last year same quarter, improvement explained by the increasing contribution of the FCAS project.
In air traffic management, also delivered very strong performance, as you can see on Slide 11. The positive performance showed by order intake plus 83% growth was mainly due to the contract signed in Canada and Colombia as well as some other in Europe and EMEA.
It is worth noting, as we mentioned before that NAV CANADA joined the iTEC Alliance. Sales in third quarter '24 grew by plus 63% driven mainly by contracts carry out in Belgium and Spain as well as the inorganic growth from the acquisition of Park Air in the UK and the Selex business in the U.S.
And finally, EBIT margin was in the double digits range of 13.8%. If we move to the Mobility division, backlog and order intake fell slightly, minus 3% -- minus 1%, respectively, after sales grew plus 19%, driven by double-digit growth in all geographies except for Spain.
The EBIT margin in first quarter '24 was 3.2%, slightly higher than 2.7% recorded in first quarter '23. But frankly, a big job done deeply in Mobility section to prepare for the future.
About Minsait, now, in Slide 13, Minsait also painted a very positive quarter. The good commercial momentum goes on with a plus 7% increase in order intake in first quarter '24.
For -- as for revenue in third quarter '24 grew by plus 12%, driven by the strong performance of improved administration and healthcare, which grew plus 35%, thanks to the positive activity with the public administration in Spain, while Energy & Industry reported plus 8% growth and Financial Services registered a plus 3% increase. Finally, EBIT margin in first quarter '24 improved to 5.5% versus 5.1% in first quarter '23, thanks to higher operating leverage from a steady sales growth as well as improved revenue mix, and therefore, then with efficiency initiatives.
When we compare the concurrence of Minsait, you can see the good job done in first quarter for the team. On Page 14, the breakdown of Minsait revenue by horizontal, where you can see that we have improved our mix with Digital & Solutions growing by 15% compared to first quarter '23 and now representing 50% of our sales.
And finally, on Page 15, we saw our order intake and revenue breakdown of Minsait. First quarter '24 order intake was up 7% with double-digit growth in 3 of the verticals, except for Energy & Industry with decline by minus 8%.
On the right-hand side, revenue in first quarter '24 grew by plus 12%, driven by public administration and healthcare, plus 35%; Energy & Industry, plus 8%; on financial services, plus 3%. On the contracted revenue in Telecom & Media decreased 4%.
Now I leave the floor to Antonio Mora for the financial review.
Antonio Mora
Let's start with the financial review with the evolution of the free cash flow on Slide 17. That amounted to EUR 68 million, an excellent figure taking into account business seasonality and considering that we are more than doubling the already good figure for the same quarter last year.
This level of cash generation, as we will see below, has allowed us to maintain our financial leverage in a very low level. Now in Page 18, we see how days of sale improved compared to both March '23 and the end of last year.
The good performance versus March '23 can be explained by the improvement of accounts receivable minus 2 days and accounts payable minus 5 days. Page 19 shows the net debt evolution of the quarter.
The first step is strong operational cash flow of EUR 108 million due to the excellent performance of the business. As mentioned, the net working capital stood at minus EUR 15 million, well below the minus EUR 34 million posted in first quarter '23.
Other financial liabilities stood at EUR 9 million, similar figure as the previous year. Net interest, at EUR 4 million, slightly higher than third quarter '23.
With all this, we have closed this third quarter with net debt at EUR 89 million and a leverage ratio of 0.2 net debt to EBITDA, as you can see in Page 20, slightly above the figure we presented in March 2023, but still at a very low debt levels. And now to finish my speech, a quick look to the debt structure in Page 21.
In first quarter '24, gross debt remains stable in EUR 697 million. Average maturity, below 2 years, and cost of debt at 4.2%.
The cash position at the end of March was EUR 608 million, and we also have EUR 748 million of undrawn credit facilities so that we maintain liquidity while considering gross debt with cash. Now, let me turn the call to Jose Vicente for the final slides.
Jose Vicente Los Mozos
Well, as you can see, that's beginning of the -- our strategic plan "Leading the Future" with result. First, I want to congratulate the team.
I think this transformation of Indra will start to see the result. I'm very proud of my team.
We are working very -- in solid way, and as you can see the speed of the transformation. In 6 months, we'll launch Capital Market Day, but we don't sleep.
Now I want to show you the 8 workstreams to implement Leading the Future. As we advance our Vision 2024 -- 2026, a strategic plan Leading the Future, and aiming to present to you how we have structured the implementation around 8 critical workstreams.
The first workstream or control tower and operating model is designed to oversee the overall structure of the plan's implementation and to deploy key organizational and operating model changes, and it will be chaired by the Chairman and myself. Second, the transformation workstream is set to drive improvement across several fronts, accelerating our business topline, boosting industrial and software development productivities and laying the groundwork for the newly announced Indra Technology Hub expected in 2026.
These initiatives are crucial for our growth and efficiency. The focus of the Strategic Corporate Operation workstream is to oversee the creation of the Space NewCo, including the carve-out of current capability and leading the shares for global long-term partners and new companies to be incorporated.
Additionally, this workstream will guide us in the portfolio rotation process, which includes the divestiture of noncore assets and the acquisition of Defense & Aerospace target. It will also lead to the shares for new key strategic partnerships and alliance.
Our Geographic Expansion workstream aims to position Indra as a stronger multinational company, enhancing local positioning and customer proximity by deploying 3 new clusters or home market as announced in our Capital Market Day. The Group-wide Digital Capabilities workstream is focused on expanding midsize digital capabilities across the organization.
The Technological R&D workstream will prioritize investment in digital and cutting edge technologies as part of our commitment to invest plus the EUR 3 billion in technology development up to 2030. Our Corporate Enablers workstream is taken with supervising the implementation of our new talent plan, which include the deployment of the new Indra work culture, an initiative in all the key areas such as ESG, branding and digitalization or corporate system.
Lastly, the Boosters workstream is where we will explore additional opportunities to further accelerate Indra's growth. If we go to the next slide, turning on the implementation phase of our strategic plan, we are currently in the activation period.
Our focus is on making critical organizational adjustment and laying a robust foundation for our subsequent options. Since the Capital Market Day, we have been structuring and planning meticulously all the subjects.
New committees have been established, and we are implementing advanced monitoring tool to ensure transparency and control. We have also kickstarted priority workstream with dedicated sponsor.
It's for that, we have defined the first 100 days that we have the action, that we have the responsibility for any committee deletion or insider team with related data to be implemented. Looking ahead, we anticipate the rollout and execution phase of our strategic plan to commence by the third quarter of this year.
This phase of course ensure that we are not only adequately prepared for the strategic plan's launch, but also proceed in a manner that guarantees success. As you can see first, we have defined the Chief Transformation Officer that he was responsible to monitoring, following, supporting the team in its action.
Also, we had defined ACO to leading a strategic corporate transactions workstream end-to-end. Control Tower, I explained before, and they kickstart with a plus 15 priority workstreams to first 100 days with assigned sponsor.
And the immediate priority activity to define is new top management mid-term incentive scheme linked to guide and release on Capital Markets Day, that need to be approved in the next shareholder. And Space NewCo created as part of Indra's core priorities.
I remind why we go to develop the space because communication is -- part of those business is country needs to be autonomous, they need to control the communication if for that made sense, and we developed this new space co. That's all for the first quarter.
We continue to work. Thank you all for being here today and for your time, and thank you to the -- that are making this plan a reality.
I see you at the end of July. Thank you very much.
And now we are open to the Q&A.
Operator
[Operator Instructions] Our first question comes from the line of Nicolas David from ODDO.
Nicolas David
Yes. Congrats for this very impressive set of Q1 earnings.
Just maybe talking about the outlook in the press release you just reiterated annual guidance for this year. How should we read that?
Should we read that as a way you expect a way softer growth in the coming quarter? Or is it just your internal processes, which makes you push you not to upgrade it while you see a better -- actually a better outlook than what is in your guidance?
And we understand that Q1 was probably the strongest quarter of the year, but notably because FCAS comps are going to be tougher going forward. But could you please highlight some other potential exceptional item, which pushed the growth in Q1, and we shouldn't see in the rest of the quarter, notably air traffic management?
How sustainable is the growth -- the organic growth you have now notably in those countries you mentioned? And when the big contracts you signed in Canada and Colombia are going to ramp up?
And I have a second question is, could you please update us on the process to dispose a stake in Minsait? Where do you stand now?
There were some rumors in the press that you were more open to sell a majority stake. And when should we expect an update on that official?
Jose Vicente Los Mozos
Thank you, Nicolas. About your 3 questions, first one about the guidance, it's just 1 quarter, and we prefer to be conservative.
Bear also in mind, we have the positive delta of FCAS EUR 56 million in the quarter. This delta disappear to the remaindering quarter.
But I explained before, I don't want -- never go back, okay? I think the key point is they split the team to improve.
This year is the first year to implement the plan. I think for the moment, I prefer to be conservative.
About air traffic management, frankly, to put air traffic management as a clear division has been very good input for all the customer and shareholder because before air traffic management, as I remember, we are the second company in the world and maybe we are the most advanced solution for the airports worldwide. They put in relevance air traffic.
I can tell you, for example, when I visit Geneva in the air space position that Indra today is a reference in this domain worldwide that I am very confident about air traffic management. Now -- and that we explained in the Capital Market Day, for us, the key point is to entry in the U.S.
market that in the following years, the airport will be renewed. But also, I can tell you in the last month, we have won a small project for [indiscernible] small airport for [indiscernible] plane in the U.S.
That's the beginning that we are confident. About Minsait, frankly, after 1 year, if I listen all the rumors, I never can work, okay?
We have the commitment. I think step by step I explained you we have more than 50 -- actually in the 100 days, we are looking for a partner for Minsait.
We are studying noncore business, expect to be a little patient. We don't stop, but I think we have clear direction where we want to finish.
Nicolas David
Understood. And on the inside beyond the rumors, I mean, is it true that you are in the phase of receiving offers yet or it's really too early in the process?
And -- yes.
Jose Vicente Los Mozos
Give us time, please. Give us time.
Okay. It’s under control.
Also, this project is led by Luis Abril, that you know is the Head of Minsait Division. And we have the schedule, and we know how to do in the following months.
Operator
The next question comes from the line of Laurent Daure from Kepler.
Laurent Daure
Yes. A couple of questions from me as well.
Starting with Minsait. Could you give us an update on what you see on the market on your key region in Spain and LatAm as you probably saw most of your competitors are not growing anymore and you are still delivering a 10% organic growth?
So I know Spain has been more resilient. But do you see the first sign of weakness?
And more particularly, you were boosted by the public sector. Do you expect the same inflows of revenue from a large government contract for the rest of the year?
So that's the first point. Second question is on the election business.
It's always very hard for us to forecast. So if you could give us your best guess for 2024 versus 2023 on this business?
And my final question is back to your -- the good working cap control in the first quarter. I was wondering if the shift towards more defense business can have an impact going forward, not only this quarter but for the next years.
On the speed of cash collection in other words, the receivables, I think there's quite a difference between IT and defense. So if you could clarify a little bit on the topic that would be useful as well.
Jose Vicente Los Mozos
Before to give the floor to Luis Abril, about the election, election, we expect lower contribution, around EUR 55 million to EUR 60 million versus EUR 69 million in 2023. But we are in May.
We don't know political overview in the following months, maybe it will be lower, maybe it will be higher because you know more and more we are invited to more Air Rescue to prepare election worldwide. Now, Luis will answer you about Minsait.
Luis Abril
Yes. Thank you, Jose Vicente.
Yes -- I mean, just to complement on election, election shouldn't be -- this year shouldn't be very different from 2023. 2022 was quite good for elections.
'23 and '24 should be similar. And on Minsait, effectively, as you've seen the numbers, we still see no significant signs of a slowdown.
It is true that in this quarter, the fastest-growing vertical has been public administrations. In public administrations, not only we do have the Spanish public administration, we have many other things, we have health, we have actually elections and some other things.
But as you can see, with the exception of telco and media, there is growth. There is what we consider solid growth in all the verticals.
So overall, we see -- as I was saying, no signs of a slowdown. It is true that some of our peers have been more pessimistic in the last months, and actually, some of them have been having some problems.
It's not our case. And for the future, we are still cautiously optimistic.
We have a good pipeline. We have -- we are seeing solid demand from our customers.
It is true that we probably do have some advantages versus our most relevant peers such as the fact that most of our customers are large customers who are suffering the crisis less or the fact that many of our contracts are multi-annual contracts which give us some baseline, which is interesting from a growth perspective. We are typically in very core activities of our customers.
We are relatively confident with the fact that we can keep on growing. It is true that public administration in this quarter has been relevant from a growth perspective.
We keep underlying not only in public administration, but in all the sectors that compose Minsait. And as I was saying, we are cautiously optimistic.
Still, given that we are cautious, what we see for this year, for the end of the year in Minsait, is still growth figures of mid-single digit and no more. But we feel that we can comfortably fulfill that kind of figures.
Laurent Daure
Okay. And the last point was on the working cap.
Antonio Mora
Yes. Regarding your question about the working capital, we’ll be better in Defense and ATM, thanks to the prepayments and very good collection during first quarter ‘24.
Operator
The next question comes from the line of Carlos Iranzo from Bank of America.
Carlos Iranzo
I actually have three questions. The first one on free cash flow, very strong quarter, your regulated guidance.
So I just wonder how should we think about free cash flow generation in the next 3 quarters. Is 2024 a year in which you are not going to generate most of your free cash flow in the last quarter of the year?
Then second question on defense, 70 bps of margin expansion at the EBIT level despite the strong contribution from FCAS. So just wonder if you can give a bit of color on the revenue mix and how have you been able to increase margins despite the strong contribution from FCAS.
And then last one, if you can help me in terms of modeling on air traffic management? Could you please give us the inorganic contribution from Selex and Park Air, please?
Jose Vicente Los Mozos
Carlos, first, before to give the floor to the -- to Antonio answer you about the free cash flow and the contribution for Selex and Park Air, in Defense, I request to monitoring defense with our Eurofighter and with our FCAS, okay? Defense, we have increased 10% with our FCAS revenue, okay?
About the EBIT, our margin EBIT in defense has been 16.4% versus 15.7% improvement, thanks to operating leverage and FCAS contribution. I can explain to you, for example, cost reduction in manufacturing has been important.
We are improving efficiency. And now we are forecast to establish the second shift in September, that this operation are a point also supporting us to improve our EBIT margin.
Antonio?
Antonio Mora
Okay. We rated our guidance in EUR 250 million for the total year in free cash flow, and we'll hope the fourth quarter will be the stronger origination of free cash flow.
Jose Vicente Los Mozos
Carlos, is your question answered or shall I answer?
Carlos Iranzo
Very clear. And on ATM and the inorganic contribution?
Antonio Mora
The contribution from Selex and Park Air has been EUR 9 million for this first quarter. For Selex – EUR 7 million for Selex, and EUR 2 million for Park Air.
Operator
[Operator Instructions] And our next question comes from the line of Michael Briest from UBS.
Michael Briest
Congratulations as well from me on the strong start. On Space, what's the significance of creating the stand-alone company?
And can you make any comments on the press speculation regarding Hispasat? And secondly, on Minsait, the revenues are obviously strong, but headcount was flat year-on-year.
Does that suggest a lot of the growth was products, subcontracting, maybe the election business? Because normally, we'd see a stronger margin drop-through if headcount was flat on that sort of growth rate.
Jose Vicente Los Mozos
Space, when we have explained our concept in new space to the shareholder consultant, there has been very open interest in it because we have in mind a very agile space NewCo that each company will have his autonomy. In some case, we can buy also, but also for maximum the synergy and the same potential sale strategy that today, for example, we have a -- we are in the process to affiliate our communication growth.
We are in the discussion of different companies around the value chain that for the moment I can't give you the name. And Hispasat, that I explained, it's an option.
But it's not the only option, okay? Because we want to become a European partner that Hispasat can be in the operator, part of the NewCo.
Yes. Can be other non-Spanish company?
Yes. It depends in the following months that the discussion we have with a different company in Europe and also in some case in -- with U.S.
companies.
Luis Abril
And I take the one on Minsait. Michael, thank you for the question.
You mentioned the headcount, which is constant, effectively it is constant despite the growth. And this has to do not that much with extraordinary effects or picks of things like the election business.
It has to do basically with the fact that sales are more high-quality sales than before. We are selling more digital.
We are selling more projects and services, which are less intensive in people. We are selling less BPO and things like that.
And this allows us to grow without significantly increasing headcount.
Michael Briest
But wouldn't that create a bigger margin benefit? I know margins were up, 10% growth.
Without any headcount, it should have a bigger effect than reported.
Luis Abril
Well, actually, if you take a look at the operating margin and EBIT, the margin is better than in the first quarter of 2023. It is significant -- actually significantly better.
It's like 4, 5 or 6 percentage points better.
Jose Vicente Los Mozos
Any other questions?
Operator
There are no further questions at this time.
Jose Vicente Los Mozos
Okay. Thank you, ladies and gentlemen.
And I hope to see you at the end of first -- at the end of the second quarter. Thank you.
Have a nice day, nice week.