Indra Sistemas, S.A. (ISMAF) Q1 2024 Earnings Name Transcript

Indra Sistemas, S.A. (OTCPK:ISMAF) Q1 2024 Outcomes Convention Name Could 6, 2024 3:00 AM ET

Firm Contributors

Ezequiel Nieto – Head of Investor Relations
Jose Vicente Los Mozos – CEO
Antonio Mora – Chief Management Officer
Luis Abril – Managing Director of Minsait

Convention Name Contributors

Nicolas David – ODDO
Laurent Daure – Kepler Cheuvreux
Carlos Iranzo – Financial institution of America
Michael Briest – UBS

Operator

Good morning, and welcome to Indra’s First Quarter 2024 Outcomes Presentation. I now hand the convention over to Mr. Ezequiel Nieto, Head of Investor Relations. Please go forward.

Ezequiel Nieto

Good morning, and welcome to our first quarter outcomes 2024 presentation. I am Ezequiel Nieto, Head of Investor Relations.

And as typical, let me refer you to disclaimer on Slide quantity 3 that reveals the authorized framework below which this presentation have to be thought-about.

First, let me introduce the members of this name, Jose Vicente Los Mozos, CEO of Indra; Antonio Mora, Chief Management Officer; and Luis Abril, Managing Director of Minsait.

Jose Vicente, the ground is yours.

Jose Vicente Los Mozos

Thanks, Ezequiel. Girls and gents, good morning, and welcome to our convention, and thanks for being with us this morning. I believe it is truthful to say that our first quarter outcomes have been very robust and optimistic, I strive by no means return, and are a fantastic place to begin for our strategic plan main the long run and the fitting first step to realize this goal.

Let’s begin with Slide #5, the place we show our major enterprise achievements for the quarter. To start with, we now have taken our first step to ship on our technique introduced within the Capital Market Day by creating our House Subsidiary with the intention of constructing it the cornerstone of our enterprise exercise within the coming years. As we mentioned, we had the dedication of changing into a Tier 1 European participant within the house.

We now have additionally carried out the acquisition of the entire capital of World Coaching Aviation to bolster our place as one of many world’s main simulation firm. With this operation, Indra now covers all the worth chain of the enterprise for the producers main a simulator to the availability of coaching companies for pilots.

One other essential milestone has been the becoming a member of of NAV CANADA into the iTEC Alliance, the place Indra is a significant participant within the world air visitors ecosystem. With this essential partnership, iTEC has reached past the European border for the primary time.

We now have additionally signed a number of agreements with high gamers of protection business such because the next-generation radar in Emirates with EDGE Group. The brand new industrial collaboration settlement signed with Lockheed Martin or the collaboration settlement signed with Thales to spice up the joint improvement and commercialization of Vanguard protection techniques.

And at last, we now have achieved 2 new related milestones in ESG, that are the perfect rating within the expertise sector within the S&P yearbook and the renewal of our High Employer certification for the sixth consecutive yr as among the finest corporations to work for.

In Web page 6, we will see the headline of our monetary outcomes for the primary quarter of 2024. Simply let me spotlight the next. First, the double digit progress achieved within the order consumption, income, EBIT and EPS. Second, the scale and high quality of our backlog, which grew 6.3%, offering good visibility for our close to future progress. Third, the business momentum that the corporate goes by way of with revenues rising at 22% fee, strongly backed by all our divisions, amongst which it stands out the worldwide resister by protection plus 56% and ATM plus 63%.

In addition to that, this progress mixed with our value measure and driving — are driving our enchancment in profitability as our EBITDA and EBIT margins present and money era, permitting us to keep up monetary leverage at a really low degree of simply 0.2x.

On the Slide #7, simply let me comment the power of our natural progress, 90%, when eliminated the ForEx affect and the inorganic contribution. By way of EBITDA distribution, protection, air visitors administration and mobility represents 53% of the full for the primary quarter of the yr.

On Web page #8, we show the evolution of our headcount. Let me spotlight right here that we now have improved our income per worker by 14% whereas our workforce has at all times elevated by 2% in comparison with March ’23. The productiveness turn out to be additionally a key factor in our efficiency.

Now, as soon as the large image has been current, let’s dive into the efficiency of every of our 4 divisions, beginning in Web page 10 with Protection. In Slide 10, this has been a really robust quarter for Protection, as you possibly can see in the important thing determine on the slide. Order consumption grew by 4%, primarily because of the Eurofighter mission and regardless of the worst FCAS mission comparable.

Extra essential are the very robust determine upsell, which grew 56% in first quarter ’24, principally pushed by the contribution of the FCAS mission. Excluding this contribution, gross sales can have elevated by 10%. On high of this strong income progress, EBIT margin grew from 15.7% in first quarter ’24 to 16.4% final yr identical quarter, enchancment defined by the rising contribution of the FCAS mission.

In air visitors administration, additionally delivered very robust efficiency, as you possibly can see on Slide 11. The optimistic efficiency confirmed by order consumption plus 83% progress was primarily because of the contract signed in Canada and Colombia in addition to another in Europe and EMEA. It’s price noting, as we talked about earlier than that NAV CANADA joined the iTEC Alliance.

Gross sales in third quarter ’24 grew by plus 63% pushed primarily by contracts perform in Belgium and Spain in addition to the inorganic progress from the acquisition of Park Air within the UK and the Selex enterprise within the U.S. And at last, EBIT margin was within the double digits vary of 13.8%.

If we transfer to the Mobility division, backlog and order consumption fell barely, minus 3% — minus 1%, respectively, after gross sales grew plus 19%, pushed by double-digit progress in all geographies aside from Spain. The EBIT margin in first quarter ’24 was 3.2%, barely increased than 2.7% recorded in first quarter ’23. However frankly, a giant job achieved deeply in Mobility part to arrange for the long run.

About Minsait, now, in Slide 13, Minsait additionally painted a really optimistic quarter. The great business momentum goes on with a plus 7% improve so as consumption in first quarter ’24. For — as for income in third quarter ’24 grew by plus 12%, pushed by the robust efficiency of improved administration and healthcare, which grew plus 35%, because of the optimistic exercise with the general public administration in Spain, whereas Power & Business reported plus 8% progress and Monetary Providers registered a plus 3% improve.

Lastly, EBIT margin in first quarter ’24 improved to five.5% versus 5.1% in first quarter ’23, because of increased working leverage from a gentle gross sales progress in addition to improved income combine, and subsequently, then with effectivity initiatives. After we evaluate the concurrence of Minsait, you possibly can see the great job achieved in first quarter for the workforce.

On Web page 14, the breakdown of Minsait income by horizontal, the place you possibly can see that we now have improved our combine with Digital & Options rising by 15% in comparison with first quarter ’23 and now representing 50% of our gross sales.

And at last, on Web page 15, we noticed our order consumption and income breakdown of Minsait. First quarter ’24 order consumption was up 7% with double-digit progress in 3 of the verticals, aside from Power & Business with decline by minus 8%.

On the right-hand facet, income in first quarter ’24 grew by plus 12%, pushed by public administration and healthcare, plus 35%; Power & Business, plus 8%; on monetary companies, plus 3%. On the contracted income in Telecom & Media decreased 4%.

Now I go away the ground to Antonio Mora for the monetary evaluate.

Antonio Mora

Let’s begin with the monetary evaluate with the evolution of the free money movement on Slide 17. That amounted to EUR 68 million, a superb determine taking into consideration enterprise seasonality and contemplating that we’re greater than doubling the already good determine for a similar quarter final yr. This degree of money era, as we are going to see beneath, has allowed us to keep up our monetary leverage in a really low degree.

Now in Web page 18, we see how days of sale improved in comparison with each March ’23 and the tip of final yr. The great efficiency versus March ’23 might be defined by the advance of accounts receivable minus 2 days and accounts payable minus 5 days.

Web page 19 reveals the online debt evolution of the quarter. Step one is powerful operational money movement of EUR 108 million because of the wonderful efficiency of the enterprise. As talked about, the online working capital stood at minus EUR 15 million, properly beneath the minus EUR 34 million posted in first quarter ’23. Different monetary liabilities stood at EUR 9 million, comparable determine because the earlier yr. Web curiosity, at EUR 4 million, barely increased than third quarter ’23.

With all this, we now have closed this third quarter with internet debt at EUR 89 million and a leverage ratio of 0.2 internet debt to EBITDA, as you possibly can see in Web page 20, barely above the determine we introduced in March 2023, however nonetheless at a really low debt ranges.

And now to complete my speech, a fast look to the debt construction in Web page 21. In first quarter ’24, gross debt stays secure in EUR 697 million. Common maturity, beneath 2 years, and value of debt at 4.2%. The money place on the finish of March was EUR 608 million, and we even have EUR 748 million of undrawn credit score amenities in order that we preserve liquidity whereas contemplating gross debt with money.

Now, let me flip the decision to Jose Vicente for the ultimate slides.

Jose Vicente Los Mozos

Nicely, as you possibly can see, that is starting of the — our strategic plan “Main the Future” with consequence. First, I wish to congratulate the workforce. I believe this transformation of Indra will begin to see the consequence. I am very happy with my workforce. We’re working very — in strong method, and as you possibly can see the velocity of the transformation. In 6 months, we’ll launch Capital Market Day, however we do not sleep.

Now I wish to present you the 8 workstreams to implement Main the Future. As we advance our Imaginative and prescient 2024 — 2026, a strategic plan Main the Future, and aiming to current to you ways we now have structured the implementation round 8 crucial workstreams.

The primary workstream or management tower and working mannequin is designed to supervise the general construction of the plan’s implementation and to deploy key organizational and working mannequin modifications, and it is going to be chaired by the Chairman and myself.

Second, the transformation workstream is ready to drive enchancment throughout a number of fronts, accelerating our enterprise topline, boosting industrial and software program improvement productivities and laying the groundwork for the newly introduced Indra Expertise Hub anticipated in 2026. These initiatives are essential for our progress and effectivity.

The main focus of the Strategic Company Operation workstream is to supervise the creation of the House NewCo, together with the carve-out of present functionality and main the shares for world long-term companions and new corporations to be included. Moreover, this workstream will information us within the portfolio rotation course of, which incorporates the divestiture of noncore belongings and the acquisition of Protection & Aerospace goal. It should additionally result in the shares for brand spanking new key strategic partnerships and alliance.

Our Geographic Enlargement workstream goals to place Indra as a stronger multinational firm, enhancing native positioning and buyer proximity by deploying 3 new clusters or residence market as introduced in our Capital Market Day.

The Group-wide Digital Capabilities workstream is targeted on increasing midsize digital capabilities throughout the group. The Technological R&D workstream will prioritize funding in digital and leading edge applied sciences as a part of our dedication to take a position plus the EUR 3 billion in expertise improvement as much as 2030.

Our Company Enablers workstream is taken with supervising the implementation of our new expertise plan, which embody the deployment of the brand new Indra work tradition, an initiative in all the important thing areas similar to ESG, branding and digitalization or company system. Lastly, the Boosters workstream is the place we are going to discover further alternatives to additional speed up Indra’s progress.

If we go to the subsequent slide, turning on the implementation part of our strategic plan, we’re at present within the activation interval. Our focus is on making crucial organizational adjustment and laying a sturdy basis for our subsequent choices.

For the reason that Capital Market Day, we now have been structuring and planning meticulously all the topics. New committees have been established, and we’re implementing superior monitoring software to make sure transparency and management. We now have additionally kickstarted precedence workstream with devoted sponsor. It is for that, we now have outlined the primary 100 days that we now have the motion, that we now have the accountability for any committee deletion or insider workforce with associated knowledge to be applied.

Trying forward, we anticipate the rollout and execution part of our strategic plan to start by the third quarter of this yr. This part in fact be sure that we’re not solely adequately ready for the strategic plan’s launch, but in addition proceed in a way that ensures success. As you possibly can see first, we now have outlined the Chief Transformation Officer that he was accountable to monitoring, following, supporting the workforce in its motion.

Additionally, we had outlined ACO to main a strategic company transactions workstream end-to-end. Management Tower, I defined earlier than, they usually kickstart with a plus 15 precedence workstreams to first 100 days with assigned sponsor. And the rapid precedence exercise to outline is new high administration mid-term incentive scheme linked to information and launch on Capital Markets Day, that must be accepted within the subsequent shareholder. And House NewCo created as a part of Indra’s core priorities.

I remind why we go to develop the house as a result of communication is — a part of these enterprise is nation must be autonomous, they should management the communication if for that made sense, and we developed this new house co.

That is all for the primary quarter. We proceed to work. Thanks all for being right here in the present day and in your time, and thanks to the — which can be making this plan a actuality. I see you on the finish of July. Thanks very a lot.

And now we’re open to the Q&A.

Query-and-Reply Session

Operator

[Operator Instructions] Our first query comes from the road of Nicolas David from ODDO.

Nicolas David

Sure. Congrats for this very spectacular set of Q1 earnings. Simply perhaps speaking concerning the outlook within the press launch you simply reiterated annual steerage for this yr. How ought to we learn that? Ought to we learn that as a method you count on a method softer progress within the coming quarter? Or is it simply your inner processes, which makes you push you to not improve it when you see a greater — really a greater outlook than what’s in your steerage?

And we perceive that Q1 was in all probability the strongest quarter of the yr, however notably as a result of FCAS comps are going to be harder going ahead. However may you please spotlight another potential distinctive merchandise, which pushed the expansion in Q1, and we should not see in the remainder of the quarter, notably air visitors administration? How sustainable is the expansion — the natural progress you could have now notably in these international locations you talked about? And when the large contracts you signed in Canada and Colombia are going to ramp up?

And I’ve a second query is, may you please replace us on the method to dispose a stake in Minsait? The place do you stand now? There have been some rumors within the press that you simply had been extra open to promote a majority stake. And when ought to we count on an replace on that official?

Jose Vicente Los Mozos

Thanks, Nicolas. About your 3 questions, first one concerning the steerage, it is simply 1 quarter, and we choose to be conservative. Bear additionally in thoughts, we now have the optimistic delta of FCAS EUR 56 million within the quarter. This delta disappear to the remaindering quarter. However I defined earlier than, I do not need — by no means return, okay? I believe the important thing level is that they cut up the workforce to enhance. This yr is the primary yr to implement the plan.

I believe for the second, I choose to be conservative. About air visitors administration, frankly, to place air visitors administration as a transparent division has been superb enter for all the client and shareholder as a result of earlier than air visitors administration, as I bear in mind, we’re the second firm on the planet and perhaps we’re probably the most superior resolution for the airports worldwide. They put in relevance air visitors.

I can inform you, for instance, after I go to Geneva within the air house place that Indra in the present day is a reference on this area worldwide that I’m very assured about air visitors administration. Now — and that we defined within the Capital Market Day, for us, the important thing level is to entry within the U.S. market that within the following years, the airport can be renewed.

But additionally, I can inform you within the final month, we now have gained a small mission for [indiscernible] small airport for [indiscernible] aircraft within the U.S. That is the start that we’re assured.

About Minsait, frankly, after 1 yr, if I hear all of the rumors, I by no means can work, okay? We now have the dedication. I believe step-by-step I defined you we now have greater than 50 — really within the 100 days, we’re in search of a companion for Minsait. We’re finding out noncore enterprise, count on to be just a little affected person. We do not cease, however I believe we now have clear path the place we wish to end.

Nicolas David

Understood. And on the within past the rumors, I imply, is it true that you’re within the part of receiving provides but or it is actually too early within the course of? And — sure.

Jose Vicente Los Mozos

Give us time, please. Give us time. Okay. It’s below management. Additionally, this mission is led by Luis Abril, that you understand is the Head of Minsait Division. And we now have the schedule, and we all know easy methods to do within the following months.

Operator

The following query comes from the road of Laurent Daure from Kepler.

Laurent Daure

Sure. A few questions from me as properly. Beginning with Minsait. Might you give us an replace on what you see in the marketplace in your key area in Spain and LatAm as you in all probability noticed most of your rivals are usually not rising anymore and you’re nonetheless delivering a ten% natural progress? So I do know Spain has been extra resilient. However do you see the primary signal of weak point? And extra notably, you had been boosted by the general public sector. Do you count on the identical inflows of income from a big authorities contract for the remainder of the yr? In order that’s the primary level.

Second query is on the election enterprise. It is at all times very arduous for us to forecast. So in the event you may give us your finest guess for 2024 versus 2023 on this enterprise?

And my closing query is again to your — the great working cap management within the first quarter. I used to be questioning if the shift in direction of extra protection enterprise can have an effect going ahead, not solely this quarter however for the subsequent years. On the velocity of money assortment in different phrases, the receivables, I believe there’s fairly a distinction between IT and protection. So in the event you may make clear just a little bit on the subject that will be helpful as properly.

Jose Vicente Los Mozos

Earlier than to present the ground to Luis Abril, concerning the election, election, we count on decrease contribution, round EUR 55 million to EUR 60 million versus EUR 69 million in 2023. However we’re in Could. We do not know political overview within the following months, perhaps it is going to be decrease, perhaps it is going to be increased as a result of you understand an increasing number of we’re invited to extra Air Rescue to arrange election worldwide.

Now, Luis will reply you about Minsait.

Luis Abril

Sure. Thanks, Jose Vicente. Sure — I imply, simply to enhance on election, election should not be — this yr should not be very totally different from 2023. 2022 was fairly good for elections. ’23 and ’24 must be comparable.

And on Minsait, successfully, as you have seen the numbers, we nonetheless see no important indicators of a slowdown. It’s true that on this quarter, the fastest-growing vertical has been public administrations. In public administrations, not solely we do have the Spanish public administration, we now have many different issues, we now have well being, we now have really elections and another issues.

However as you possibly can see, aside from telco and media, there may be progress. There may be what we take into account strong progress in all of the verticals. So general, we see — as I used to be saying, no indicators of a slowdown. It’s true that a few of our friends have been extra pessimistic within the final months, and really, a few of them have been having some issues. It isn’t our case.

And for the long run, we’re nonetheless cautiously optimistic. We now have a very good pipeline. We now have — we’re seeing strong demand from our prospects. It’s true that we in all probability do have some benefits versus our most related friends similar to the truth that most of our prospects are giant prospects who’re struggling the disaster much less or the truth that a lot of our contracts are multi-annual contracts which give us some baseline, which is fascinating from a progress perspective.

We’re usually in very core actions of our prospects. We’re comparatively assured with the truth that we will carry on rising. It’s true that public administration on this quarter has been related from a progress perspective. We preserve underlying not solely in public administration, however in all of the sectors that compose Minsait.

And as I used to be saying, we’re cautiously optimistic. Nonetheless, provided that we’re cautious, what we see for this yr, for the tip of the yr in Minsait, continues to be progress figures of mid-single digit and no extra. However we really feel that we will comfortably fulfill that type of figures.

Laurent Daure

Okay. And the final level was on the working cap.

Antonio Mora

Sure. Relating to your query concerning the working capital, we’ll be higher in Protection and ATM, because of the prepayments and superb assortment throughout first quarter ‘24.

Operator

The following query comes from the road of Carlos Iranzo from Financial institution of America.

Carlos Iranzo

I even have three questions. The primary one on free money movement, very robust quarter, your regulated steerage. So I simply marvel how ought to we take into consideration free money movement era within the subsequent 3 quarters. Is 2024 a yr by which you aren’t going to generate most of your free money movement within the final quarter of the yr?

Then second query on protection, 70 bps of margin growth on the EBIT degree regardless of the robust contribution from FCAS. So simply marvel in the event you may give a little bit of colour on the income combine and the way have you ever been in a position to improve margins regardless of the robust contribution from FCAS.

After which final one, in the event you may also help me when it comes to modeling on air visitors administration? Might you please give us the inorganic contribution from Selex and Park Air, please?

Jose Vicente Los Mozos

Carlos, first, earlier than to present the ground to the — to Antonio reply you concerning the free money movement and the contribution for Selex and Park Air, in Protection, I request to monitoring protection with our Eurofighter and with our FCAS, okay? Protection, we now have elevated 10% with our FCAS income, okay?

Concerning the EBIT, our margin EBIT in protection has been 16.4% versus 15.7% enchancment, because of working leverage and FCAS contribution. I can clarify to you, for instance, value discount in manufacturing has been essential. We’re bettering effectivity. And now we’re forecast to ascertain the second shift in September, that this operation are some extent additionally supporting us to enhance our EBIT margin. Antonio?

Antonio Mora

Okay. We rated our steerage in EUR 250 million for the full yr in free money movement, and we’ll hope the fourth quarter would be the stronger origination of free money movement.

Jose Vicente Los Mozos

Carlos, is your query answered or shall I reply?

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 primary quarter. For Selex – EUR 7 million for Selex, and EUR 2 million for Park Air.

Operator

[Operator Instructions] And our subsequent query comes from the road of Michael Briest from UBS.

Michael Briest

Congratulations as properly from me on the robust begin. On House, what is the significance of making the stand-alone firm? And may you make any feedback on the press hypothesis relating to Hispasat?

And secondly, on Minsait, the revenues are clearly robust, however headcount was flat year-on-year. Does that counsel plenty of the expansion was merchandise, subcontracting, perhaps the election enterprise? As a result of usually, we might see a stronger margin drop-through if headcount was flat on that kind of progress fee.

Jose Vicente Los Mozos

House, when we now have defined our idea in new house to the shareholder guide, there was very open curiosity in it as a result of we take into account a really agile house NewCo that every firm can have his autonomy. In some case, we will purchase additionally, but in addition for optimum the synergy and the identical potential sale technique that in the present day, for instance, we now have a — we’re within the course of to affiliate our communication progress.

We’re within the dialogue of various corporations across the worth chain that for the second I can not provide the title. And Hispasat, that I defined, it is an possibility. But it surely’s not the one possibility, okay? As a result of we wish to turn out to be a European companion that Hispasat might be within the operator, a part of the NewCo. Sure. Will be different non-Spanish firm? Sure. It relies upon within the following months that the dialogue we now have with a unique firm in Europe and in addition in some case in — with U.S. corporations.

Luis Abril

And I take the one on Minsait. Michael, thanks for the query. You talked about the headcount, which is fixed, successfully it’s fixed regardless of the expansion. And this has to don’t that a lot with extraordinary results or picks of issues just like the election enterprise. It has to do mainly with the truth that gross sales are extra high-quality gross sales than earlier than. We’re promoting extra digital. We’re promoting extra initiatives and companies, that are much less intensive in individuals. We’re promoting much less BPO and issues like that. And this permits us to develop with out considerably rising headcount.

Michael Briest

However would not that create a much bigger margin profit? I do know margins had been up, 10% progress. With none headcount, it ought to have a much bigger impact than reported.

Luis Abril

Nicely, really, in the event you check out the working margin and EBIT, the margin is best than within the first quarter of 2023. It’s important — really considerably higher. It is like 4, 5 or 6 share factors higher.

Jose Vicente Los Mozos

Another questions?

Operator

There are not any additional questions presently.

Jose Vicente Los Mozos

Okay. Thanks, girls and gents. And I hope to see you on the finish of first — on the finish of the second quarter. Thanks. Have a pleasant day, good week.