Ladies and gentlemen, welcome to Indra's nine-month 2021 results presentation. I would like now to hand over to Mr. Ezequiel Nieto, Head of Investor Relations. Please, sir, go ahead.
Thank you. Good evening, ladies and gentlemen. Thank you, everyone, for joining us today on our third quarter results presentation. I'm Ezequiel Nieto, Head of Investor Relations, and as usual, let me refer you to the disclaimer on slide number three that sets out the legal framework under which this presentation must be considered. The conference call will be led by our co-CEOs, Cristina Ruiz and Ignacio Mataix, and our Corporate General Manager and CFO, Javier Lázaro. The entire presentation will be around one hour. Now let me turn the call to Ignacio Mataix, co-CEO of Indra. Ignacio, the floor is yours.
Thank you, Ezequiel. On behalf of Cristina and myself, good evening, everybody. Welcome to our conference, and thanks for being with us this evening. Let's turn to slide number four for the review of our main highlights for the third quarter of the year. Let me start by saying that our nine-month 2021 results have been very strong, with a significant acceleration of growth and profitability, both in Minsait and transport and defense, which are clearly exceeding the pre-pandemic first nine months of 2019 levels. On slide number four, you can see the main highlights of the first nine months' results. Our net profit reached EUR 115 million, which is 77% more than in the first nine months of 2019.
The first nine months of 2021, revenues are growing in double digits across the board, both in reported and absolute terms compared to the first nine months of 2020. Our reported nine months of 2021 EBIT stood at EUR 188 million, vis-à-vis -EUR 9 million in the first nine months of 2020, and EUR 127 million for the first nine months of 2019. In local currency, revenues in the first nine months grew by 12%, both versus the first nine months of 2020 and the first nine months of 2019, with a nine months 2021 clean EBIT margin of 5.4%, excluding the capital gain from the sale of the facilities.
Meanwhile, transport and defense sales increased by 12% and 3% compared to the first nine months of 2020 and the first nine months of 2019 respectively. With the first nine months of 2021, EBIT margin clearly above the double digits, it was 10.8%. Free cash flow generation in the first nine months of 2021 was EUR 5 million, EUR 15 million excluding the cash outflow for the workforce transformation plan and the capital gains of the facilities, compared to -EUR 75 million in the first nine months of 2020. Our leverage decreased again, now at 1.7 x in September 2021, compared to 2.8 x in September 2020.
Finally, our backlog grew by, again, 5.3% in local currency, totaling EUR 5,362 million. All in all, the continued improvement of our results and balance sheet allow us to upgrade our 2021 guidance for the second time and to announce the restatement of the dividends. Now let me turn the call to Cristina to follow on the presentation.
Thank you, Ignacio. Thanks for the highlights review, and good afternoon to everyone. If we move to slide five, we saw our revenues performance both for the first nine months and the third quarter period of 2021. On the left side of the slide, nine months 2021 revenues went up by 10% in reported terms and 12% in local currency, boosted up by the growth registered in both divisions. In organic terms, we also grew 10%. Forex impact was -EUR 41 million in the accumulated period. On the right hand, the third quarter 2021 revenues growth 11% in reported terms versus third quarter 2020 and 12% in local currency. Forex minus EUR 2 million, a better behavior compared to the second quarter 2021.
Now moving to slide six, we see the group's operating margins and EBIT evolution in both periods. On the left graph, we display margins for the first nine months of the last three years. Operating margins is widely above 2020 and 2019, amounting EUR 201 million in the nine months 2021 versus EUR 87 million in the nine months 2020 and EUR 152 million in the nine months 2019. Same happened with EBIT, with EUR 188 million, 171 excluding the capital gain of EUR 17 million from the sales of San Fernando and other facilities in nine months 2021 versus minus EUR 9 million in the nine months 2020 and EUR 127 million in the nine months 2019.
Moving to the graph on the right, we can see that the margin stats are better for the third quarter on a standalone basis. Operating margins for the third quarter 2021 reached 10.2% versus 6.6% in the third quarter 2020, and versus the 8.1% in the third quarter 2019. EBIT from the third quarter 2021 was EUR 88 million, EUR 71 million excluding the capital gain of EUR 17 million from the sales of the facilities already mentioned. This is 11.8% EBIT margin, 9.5% excluding the capital gain versus EUR 59 million in the third quarter 2019, which was a 10.3% EBIT margin. As you can see, we improve again our profitability, chiefly thanks to the revenue growth, very tight cost control and
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We're starting again with the guidance in the slide eight. After this solid third quarter 2021 print, we have decided to upgrade our 2021 guidance for revenue in constant currency, reported EBIT and free cash flow before cash outflows for workforce transformation plans and the sale of San Fernando and other facilities. On revenue, we upgrade to more than EUR 3,300 million in constant currency versus initial target of more than EUR 3,200 million. In the same way, we upgrade reported EBIT figures to more than EUR 230 million versus the initial target of more than EUR 220 million. On cash flow before the workforce cash outflows and sale cash inflows, we raise our target to more than EUR 140 million versus the previous more than EUR 330 million.
Now, I'll turn the call to Ignacio again.
Thank you, Cristina. Now let's look into slide number nine, where you can see the backlog and order intake evolution of our transport and defense division. On the left-hand side, backlog in transport and defense went up by 7% in reported terms, while backlog over the last 12 months revenues ratio stood at 3.10 x compared to 3.12 x in the first nine months of 2020. On the right-hand side, order intake in the first nine months went down by 17% in reported terms, posting declines across all the business lines. However, it is worth highlighting the order intake growth registered in both defense and security, 24% in local currency, and air traffic management, 23% in local currency, in the third quarter of the year. That has continued the improvement of the second half of the year.
If we move into slide number 10, we show our revenues breakdown and the two businesses of our transport and defense division. The graph on the left shows the evolution of our nine months of 2021 revenues, which went up by 12% in local currency, pushed by the growth registered in both divisions. Defense and security which was 16% in local currency, and transport and traffic 8% in local currency. Compared to the nine first months of 2019 before the pandemic, revenues have grown by 3% in local currency during the first nine months of the year.
On the right graph, we display the evolution of our third quarter revenues, which increased by 3% in local currency compared to the third quarter of 2020, boosted by the growth recorded on defense and security. Compared to the third quarter of 2019, revenues have fallen by 6% in local currency compared to the third quarter of 2021. Now, please find on slide 11 the operating margin and the EBIT for transport and defense.
On the top left graph, the operating margin in the transport and defense division in the first nine months of the year reached EUR 98 million compared to EUR 57 million in the nine months of 2020 and EUR 96 million in the first nine months of 2019, equivalent to 11.8% margin compared to a 7.7% margin in the first nine months of 2020 and 11.8% in the first nine months of 2019.
Moving to the top right graph, the operating margin in the third quarter of 2021 stood at EUR 42 million compared to EUR 27 million in the third quarter of 2020 and beating the levels of the third quarter of 2019, which were EUR 35 million. Equivalent to a 17.2% margin compared to our 11.6% margin in the third quarter of 2020, and 13.3% margin in the third quarter of 2019.
On the bottom left graph, EBIT in the first nine months of the year was EUR 96 million, which is compared to EUR 89 million, excluding the capital gain from the sale of San Fernando and Algete facility, compared to EUR 43 million in the first nine months of 2020, and EUR 81 million in the first nine months of 2019, which is equivalent to 11.6% margin, vis-a-vis 5.8% margin in the first nine months of 2020 and 10% in the same period of 2019. EBIT margin in the Transport and Defense division before the capital gain from the sale of the facilities mentioned above stood at 10.8% in the first nine months of the year. Moving to the bottom right graph, EBIT in the third quarter stood at EUR 49 million.
EUR 42 million excluding the capital gain of the facilities, compared to EUR 60 million in the third quarter of 2020 and EUR 30 million in the third quarter of 2019, equivalent to 20.1% margin, vis-a-vis 25.5% in the third quarter of 2020 and 11.4% in the third quarter of 2019. EBIT margin in the Transport and Defense division before the capital gain from the sale of the facilities stood at 17.4% in the third quarter of 2021. I again turn the call to Cristina.
Thank you, Ignacio. Now, let's move to the slide 12, where we can see the backlog and order intake evolution of our Minsait division. On the left-hand side, backlog in Minsait went down 2% in reported terms, while backlog over the last 12 months revenues ratio stood at 0.8 x compared to 0.86 x in nine months 2020, which implies 7% decline versus last year's same period. The graph on the right shows the evolution of our nine month 2021 Minsait order intake, which remained stable in local currency. Energy and Industry, 50% in local currency, and Public Administration and Healthcare, 2% in local currency, posted growth. While Financial Services, -5% in local currency, and Telecom and Media, -20% in local currency, showed decline.
Moving now to slide 13, we show the revenues breakdown of Minsait. On the left hand, we display the evolution of our nine months 2021 revenues. Sales went up 12% in local currency, standing at Public Administration and Healthcare 33% in local currency due to the higher activities with the Spanish administration and Italian subsidiaries and the Elecciones business. With all the verticals showing growth, Financial Services sales increased by 7% in local currency, both the banking and insurance sector growing. Energy and Industry revenues went up 7% in local currency, with growth both in Energy segment with the inorganic contribution of SmartPaper and Industry segment. Telecom and Media revenues went up by 3% in local currency, boosted by Telecom.
Compared to nine months 2019 before the pandemic, nine months 2021 revenues has grown by 12% in local currency. On the right-hand side, we display the evolution of our third quarter 2021 revenue sales went up 17% in local currency, showing all the vertical solid growth. Compared to the third quarter 2019, revenues has grown 13% in local currency in the third quarter 2021. Let's move now to slide 14 to present Minsait profitability. On the top left graph, the operating margins in Minsait in the nine months 2021 reached EUR 100 million compared to EUR 30 million in nine months 2020 and EUR 66 million in nine months 2019, equivalent to 6.7% margin compared to 2.2% in nine months 2020 and 4.5% in nine months 2019.
Moving to the top right graph, the operating margins in the third quarter 2021 stood at EUR 34 million compared to EUR 17 million in the third quarter 2020, and EUR 25 million in the third quarter 2019, equivalent to 6.8% margin compared to 3.9% in the third quarter 2020, and 5.3% in the third quarter 2019. The increase in profitability is explained by the higher level of sales, the efficiency measures and savings delivery for the action plan, turning into the improvement of margins in all the verticals.
On the bottom left graph, the EBIT in the nine months 2021 was EUR 92 million, 82 excluding the capital gain from the sales of San Fernando facilities, compared to EUR 52 million in the nine months 2020, and EUR 45 million in nine months 2019, equivalent to 6% margins versus -3.7% in the nine months 2020 and 3.1% in the nine months 2019. EBIT margins in Minsait before the capital gain from the sale of facility mentioned above stood at 5.4% in nine months 2021. Moving to the bottom right graph, EBIT in the third quarter stood at EUR 39 million. 29, excluding the capital gain from the sale of facility already mentioned, compared to EUR 9 million in the third quarter 2020, and EUR 18 million in the third quarter 2019.
Equivalent to 7.7% margin versus 2.1% in the third quarter 2020, and 3.8% in the third quarter 2019. EBIT margins in Minsait before the capital gain from the sale of facility stood at 5.7% in the third quarter 2021. Now, I leave the floor to Javier for the financial review.
Thank you, Cristina, and good evening, everyone. Let's start the financial review with the evolution of free cash flow. If we please can move to page 15. On the top part of the chart, you can see free cash flow for the third quarter standing at EUR 55 million, which includes a negative cash outflow related to the workforce transformation plan, but also a EUR 22 million cash inflow from the sale of San Fernando de Henares facility. Adjusting for this one-off items, free cash flow for the quarter would have showed a net improvement of EUR 26 million if we compare quarter-on-quarter, or actually EUR 90 million, so short of a EUR 100 million improvement of the whole nine-month period of this year versus the same period last year.
The main drivers of this positive performance were on the one hand, the improvement of the profitability of the underlying operations, with some help from slightly lower CapEx versus last year, which basically more than compensated the higher consumption of working capital linked to higher sales that we will discuss a bit later. Now, on the slide, cumulative free cash flow for the last 12 months stood at EUR 163 million or over EUR 211 million to be precise, if we exclude the EUR 70 million outflow associated to the workforce transformation plan and the EUR 22 million inflow from the sale of the facilities that we have already mentioned.
This figure is consistent with previous record years of cash generation at the group, and is a testament of the strength of the underlying operational trends, even more so if we consider the increase in working capital that we'll discuss later. Let's now move, please, to slide 16 for an analysis of the net debt, which stood at EUR 503 at the end of the period, September, compared to EUR 481 in December. If we break down the different components, we can see how operating cash flow contributed positively with EUR 227 million to cash generation, with net working capital moving in the opposite direction with a negative contribution of EUR 149 million. We'll talk about it a bit later on the following slide.
If we continue moving through the bridge, CapEx, you see, was EUR 1 million. This is obviously taking into account the negative CapEx, so to speak, of the disposal that we did, EUR 22 million. The reality is that this was EUR 23 million CapEx and EUR 22 million coming from the disposal that we discussed. Also, it takes into account when we compare to the numbers last year, the fact that we have a lower tangible investment coming after the disposal of Metrocall, and lower tangible investment derived from the action plan and the, as well as the higher levels of grants that we have received in this period.
Taxes stood at EUR 22 million, in line with last year, and the variation of other liabilities, which is the cash payment associated to IFRS 16, so the payment of the rent of the buildings mostly, is also in line with stood at EUR 25 million, in line with last year. Cash payments linked to our financial facilities were at EUR 27 million, in line with the year before. Finally, financial investments and other non-cash flow items was EUR 26 million. That includes some minor M&A deals, earn out from previous years, as well as share repurchases or share purchases related to medium-term compensation plan, which we included at the beginning of the year.
If we now move on to slide 17, let's analyze the evolution of the three main building blocks of our working capital, which stands at 15 days of sales compared to minus nine days of year-end in December and 13 days of sales in September last year. Most of the difference is explained during the first nine months of the year. You see that our working capital has increased by 24 days of sales. Most of this difference is explained by the increase in accounts receivable, which is partly seasonal. Lots of payments from public administrations at the end of the year.
We use that figure at the end of the year in December as well, but partly, it's also specific to this year, and basically responds to the fact that there was a speed up of the sales towards the end of the period. Inventories and accounts payable, they show small variations versus December, even though we do see a meaningful shift from inventories to accounts receivable versus September 2020, and this is mostly influenced by some very specific projects in the Middle East, where we managed to invoice to our clients in some meaningful amounts that we were carrying as inventories on our balance sheet. As we anticipated, that would happen and that we've been flagging over the last few quarters.
If we now move on to slide 18, there we show the evolution of our net debt and leverage ratios. These figures, for comparison purposes, we have eliminated the impact of IFRS 16, both in the numerator as well as in the denominator. Net debt, as we said, amounted to just over EUR 500 million. This level translates into 1.7 x net debt to EBITDA, compared to 2.8 x a year ago or 2.5 x in December. As you can see, leverage in September 2021 is at the lowest level in the last six years, for any third quarter, and it's also very close to the absolute minimum of 1.6 x in December 2019.
We expect this ratio to continue to improve as we approach year-end, where we should stand below 1.5 x. As always, the non-recourse factoring stays constant at EUR 187 million for the quarter. Just on slide 17 to finish the presentation, you can see the nature of our capital structure on the liability side. On the left-hand side, as you can see, the composition of our gross debt, well-diversified, as we've always mentioned. In addition, we have against this debt just shy of EUR 1 billion of cash on the balance sheet, plus available liquidity facilities.
You will notice that we have reduced the amount of our gross debt, but by around EUR 200 million, reverting to more normalized levels of cash once the main uncertainties on liquidity created by the pandemic start to disappear from the background. We will continue this trend over the next few quarters, and you will see the effect later on. Regarding the put option that you know we had on the convertible bond, it just worth mentioning that this put option was only exercised by a negligible amount, around EUR 4 million, asked to be repaid. The bulk of the bond remains outstanding for a further two years.
On the right-hand side, you can see the cost of our gross debt that remains stable, 1.9%. Finally, at the bottom, you can see the maturity profile with not really meaningful maturities until 2023. You will see that the maturities on 2023 have come down significantly. We basically reduced them in half since December. This is being achieved either by paying down some of the facilities maturing there, but also refinancing some of our facilities and kicking the can down the path for future years. With that, we finalize the results presentation. Thank you very much for your attention, and let's move on to the Q&A session.
Ladies and gentlemen, the Q&A session starts now. If you wish to ask a question, please press zero one on your telephone keypad. The first question comes from Stacy Pollard from JP Morgan. Please go ahead.
Oh, yeah, thanks very much. A few questions for Minsait. Good revenue growth, but a little bit of weakness in order intake and backlog. Can you just explain those dynamics? Can you guys hear me? Can you hear me? Hello?
Yes, Stacy, we are hearing you. Stacy, yes, we are listening to your question.
Hello?
Stacy, yes, we-
Oh, sorry.
Yes, we are listening.
Sorry about that. Someone just said that they couldn't hear me. Let me start over. For Minsait, good revenue growth, but a little bit of weakness in order intake and backlog. Just asking if you could explain those dynamics. I mean, I noticed the. Was it a particularly tough year on your comps in Telecom and Media? You mentioned some renewals in the text, maybe just a little extra commentary there, and then what you would expect going forward. That was one. Second question, can you remind us what are the sustainable margins that you target for each division?
T&D, I mean, is it more like the 11% that you have for the nine months, or do you think that 17% is something that is, you know, could be an aspiration as well, that you had in Q3? The same on the Minsait side, kind of where do you see that medium term? Third question, just what are you seeing on the hiring side? I think we did miss the commentary on page seven. I think the line dropped. Any thoughts from you on attrition rates, wage inflation, or pressures there?
Order intake in Minsait. As you can see, we expect to perform a very good year in order intake too, but more or less remain the similar level of the last year that it was a good level for all the verticals. In particular, we have very good performance in Energy and Industry, and we expect this trend will be the same for the next month. In Public Administration, we have also very good performance, and we hope that the last quarter, last part of the year will be maintained also the same trend. We have some more difficulty in Financial Services.
For instance, in Spain, you know that some banks are in merger process, so we have more tension there in Financial Services. Although in LatAm, it's going very well, so we will try to compensate one for the other. In telecom media, we have a difficult comparison because last year was very good, and we have different cycles of order intake each year, and this year is going to be a little bit down. In general terms, we have very good expectation in terms of order intake. Okay, that was the first question. The second was about margins in the medium term. We have been talking about having around 6% in the medium term for Minsait.
That was ambitious that we think that we can get because we have in place efficiency plans, and we are growing enough, and that give us some leverage. In the meantime, we can reach 6% without problem, and even to reach 7% EBIT margin, that is more around what is the our comparable has as today. I would like to remind that our. We talk about EBIT, reported EBIT, and our comparables are talking about operating margins, and we are more or less in the same range of them. Okay. Then the last one was about attrition and inflation in salary. We have some problem on attrition. It is a problem that is structural for the sector at this moment.
In some profiles as digital division, we have more attrition and more inflationary salaries that we have in the past. We are trying to cover the demand of these professionals with juniors, with trainers, and we are doing more or less since I think that's in a good way. Inflation in salary is also suffering for all our competitors. We expect that it's going to remain because we don't have enough technicians, technical people who know about digital things and transformation. We are trying to manage the attrition and the inflationary salary with hiring juniors and trainees for cover our growth in sales. Okay?
Okay. Stacey, if we look into the transport and defense, I think the dynamics for the people are similar to Minsait. If we look into margins, I know we are in the double digits this year, which we are currently, and I think looking long term, we should be above 11% if you look medium term. Okay. That-
Is that okay, Stacey?
Very useful. Thank you.
Okay. Next question, please.
Thank you. The next question comes from Nicolas David from ODDO BHF. Please go ahead.
Yes. Good evening. Can you hear me well?
Yes.
Yes. Thank you. I have three questions from my side, and also, congrats for this very strong quarter. Those questions are, first, coming back on the T&D profitability in Q3, you reached obviously an impressive profitability at 17%. Did you benefit from any specific positive item like positive business mix or exceptionally profitable contracts here? And do you think that this profitability is sustainable for Q4 and going forward? My second question is again on T&D, but more on the transport division here. I mean, we can see that the transport division is still down year-on-year in Q3 despite relatively easy comps. I remember that you were quite positive on ATM recovery for H2. So is this something you are seeing, or do you see some delays regarding this recovery?
Any color would be helpful there. My last question is regarding your EBIT guidance. Does it include the capital gain on the disposal of your facility data center facilities or not? In any case, I mean, even if it's done with that, it seems a bit implying a relatively weak Q4 EBIT margin compared to what you were able to deliver in the last years, maybe not last year, but before, in 2019 or before. What should we take into account, and what should we be cautious regarding this Q4 EBIT? Thank you.
Okay. Thank you. Thank you. Let's see if I can answer your question. First of all, regarding T&D profitability in the third quarter, unfortunately, I think it's not sustainable. We would love that it would be sustainable. I think there are two factors here. I mean, sales are slightly lower, and therefore, profitability is slightly higher. We have, I would say, some catch-ups in the quarter, which are not one-offs. Things that should have happened in the previous quarters, and we've been able to catch them up in the third quarter. Therefore, they are not extraordinary, but we have some catch-ups in ATM, in defense, I would say across all the markets.
We've placed a very strong third quarter in profitability because of catching up things that we were working on throughout the year. Regarding sales of the division, yes, I think we're expecting a stronger recovery on air traffic management and I think like the rest of the world probably is not coming so strong and therefore we have here a weaker quarter in terms of ATM. Mainly, I would say, I think it's really strong in Europe. We are doing well in Europe, in our business in Europe. We are seeing a more slowdown in Latin America and the Middle East and so on.
Take into account that some of our business we can do remotely, but some of our business we need to get into the country. We need our clients to visit our facilities, and still there's a lot of difficulty with people flying and sending people around, so on and so. With some of that is also having an impact on the ability of executing some ATM contracts.
It's that mainly because the rest of the business, I think are within what we thought would happen, yeah. Regarding EBIT guidance, it does not include the capital gain. That's excluded of the guidance maybe, but maybe I will ask Cristina to elaborate more on that.
Okay. Having said that, our guidance is more than EUR 230 million, which includes the possibility of doing EUR 240 million or close. But we are sticking to more than EUR 230 million. And the main levels to explain that we expect for the fourth quarter are more or less the following. The fourth quarter 2020 was already a strong fourth quarter, which was the strongest of the last year, and we will not have easier comparison for the last quarter as we had in the second quarter and the third quarter. That's one of the reasons where the difficult comparison was fourth quarter of 2020.
The other reason, as you have seen, we have increased our workforce significantly during the second and the fourth and the third quarter to cover the underlying business. We are seeing a slight salary inflation. Moreover, we have also the bonus that we have to pay at the end of the year, and this year will be higher than the last year for obvious reasons. Most likely personnel expenses are going to be higher than the last quarter last year. Okay? Martin said about Eurofighter was a very strong quarter last year and 2019 too, so we have another thing that we have to recover in the last quarter. As Ignacio has explained, we have still some impact for the COVID, and we are cautious on that.
We have some delays in the supply chain, mainly for T&D business. Because of this reason, we are cautious in the guidance and we say what we say. Okay?
Okay.
Is that okay?
Very clear and useful. Thank you very much.
Thank you. Next question, please.
Thank you. The next question comes from Bosco Ojeda from UBS. Please go ahead.
Hi, good afternoon. I would like to ask about the receivables increase. I think you mentioned it was seasonal and was it public administrations causing the delays in payments? I wonder if you could give us a bit more color on who is delaying payments and whether that could persist. I also want to ask you about the European funds. I mean, Spain is about to receive quite a lot of money and a lot of that is dedicated to digitalization. Are you already seeing large contracts coming in? Are your clients involved? Are you gonna be directly involved? When could you give us more color about the potential impact of those funds? Thank you.
Bosco, on the receivables, there's two main reasons. One is as sales accelerate, what the clients owe you is larger than they was at in a comparable period with lower sales. That is that translation effect and the fact that you grow, you consume working capital. That's one impact. Another very meaningful impact is the fact that we have invoiced some of our clients, mostly in Saudi Arabia, high-speed train and the ticketing program for Riyadh, the capital of the kingdom. We have invoiced them a meaningful amount that we highlighted in the second quarter that actually has an impact, a material impact. This is a few tens of millions EUR of increase in accounts receivable.
That actually is being reduced from inventories. It's a bit of a transfer from inventories to accounts receivable when you compare with the year before.
Okay. For the next generation funds, I will have some good news because we hope to sign a significant contract in the next days, maybe next week. That will contribute to our revenues in 2022. We think that we are well-positioned to get the first of these funds, and the Public Administration in general is moving on this kind of digitalization project that we can win in the next months. We have great expectation on seeing growth, profitability and revenues in the next year.
Thank you.
Okay, Bosco.
Thank you.
Next question.
Thank you. The next question comes from Manuel Lorente from Mirabaud. Please go ahead.
Hi, good afternoon. My first question probably is on T&D profitability improvement. I think that Ignacio was mentioning that a significant part of that improvement comes from some catching up of projects, right? However, when I see the top line evolution of the T&D on the third quarter standalone, I don't see any catching up, right? Revenues on the third quarter was roughly EUR 242 million versus a run rate on the first half of roughly EUR 270-something million. I mean, my point probably here is that I don't see any correlation between the catching up in revenues and the profitability increase. Any help here will be more than welcome.
Manuel, okay. That's the question. No, sorry, because we thought you were maybe making some more, but that's.
That's my first question, yeah.
Okay. Okay, Manuel, thank you for the question. No, maybe I was not, I didn't explain myself enough. No. I mean, when we talk about catch up, it's catch up on EBIT, so on profitability, not on the revenues, which you are absolutely right. It's not a catching up quarter compared to previous quarters. The thing is, I mean, the revenues in transport and defense, mainly, I would say in transport and air traffic management are several contracts, you know? A number of contracts.
Sometimes you cannot 100% correlate revenues and profitability in some of the contracts because you have, I would say, things that you expected to go right in the first half of the year and is delayed to the next quarter. It's catching up in profitability on the projects rather than on the sales of the projects. Sometimes you have also in some projects extraordinary costs that you cannot invoice and you can invoice later.
I mean, it's an addition of a number of projects, so an addition of things that should have happened in the first half of the year in terms of profitability that did not happen in the first half of the year because we could not sometimes fulfill any with the client, a milestone or whatever. Therefore, we could not give the profitability of that contract. I would say it's small things, which all in all add up to a good quarter, which did not happen in the first half or should have happened in the first half. That's why we saw lower profitability in some of the quarters of the first half.
So, so-
If you remember, we were in the 7%-8% in the first half, and we are 17% here. I mean, we had projects that could not reach the profitability that we were expecting because milestones were not done, because people could not fly, and so on.
This catching up, it's in relatively large number of small projects? Or is they are coming mainly for, I don't know, two, three, four, five big projects?
No, it's a fairly large number of projects. That's why I would say it's not an extraordinary. Maybe if it was in a project or a couple of projects, you consider that more extraordinary. It's a number of projects that we've been able to, I mean, materialize milestones on the third quarter, which we could not materialize on the first half of the year.
Okay, great. My second question is on the dividend policy. Can you share with us any idea about timing, how you are going to approach this issue, et cetera, et cetera?
Well, we are announcing Manuel, that the board will propose in due time the payment of EUR 0.15 , sorry. The payment will be done in July, and this will be proposed to the shareholders meeting that will happen, like, as usual, sometime in June. Okay. That's the announcement. That is the firm intention to actually move on and go and do that. Going forward, we will intend to maintain the dividend going forward, make it grow to extent we can, et cetera, et cetera. That will depend on what happens every year, how things evolve and how things move, et cetera. I think it's a good sign, and it really signals the.
Not just the back to normality, but the good operational condition of the company, the fact that we can commit to a dividend, or at least at point in time. At the same time, you can see how leverage is going down quite strongly. The convergence of all these things is what makes the board comfortable stopping with this six-year drought.
Okay. Cheers.
Thank you, Manuel. Next question, please.
Thank you. The next question comes from Fernando Lafuente from Alantra Equities. Please go ahead.
Hello. Good afternoon. A couple of questions for me, please. Just a follow-up on Cristina's comments on the guidance. To confirm that the EUR 30 million-EUR 40 million EBIT is without the gain. I understood so, but just wanted to confirm. In this context, and probably with the comments made by Ignacio, should we expect, in terms of EBIT margins for the different divisions, something for the next couple of quarters, something in the region of 9%-10% or 9%-11% for transport and defense, normalizing and assuming no additional catch-ups, arriving to something in the region of 11% medium term? Something in the region of 5%-6% for Minsait.
I'm trying to more or less get a view of what should we expect now as a run rate for the next few quarters that the situation is kind of normalized after this COVID outbreak. Then the second question, Javier, it's just a follow-up on the dividend. It's against 2021 results or should we consider it against 2022 results, like an interim for 2022? Thank you so much.
Thank you, Fernando. Hopefully we can answer all your questions, but if not, you request them. First of all, in terms of guidance, I think our statement is very clear, so it's above EUR 230. So that's our
Excluding the capital gain.
Excluding the capital gain for sure, no, as I mentioned. Hopefully I can understand your transfer on defense question. I think we expect to finish the year as we said, you know, in the double digits. Okay. We are at, if I recall properly, 10.8%. I mean, fourth quarter is going to be challenging. We'll be close to that. Okay. Close to that. If we look into longer term, I think our view is that we should be above that. As in the medium term, that's what I was saying, I think, in the first question that we should be above 11%.
That's the view that I would have for the next quarters.
Mm-hmm.
Okay. Maybe Cristina on Minsait.
For Minsait, we think that at least we will be in the range of 5%-5.5%, more or less around that. I have explained the reason. Okay, that's for the fourth quarter. For the full year, we will also be around that 5.5% or something like.
The dividend.
The dividend, Fernando, will be against 2021 numbers. It won't be an interim dividend.
Great. Very clear both answers. Thank you so much, and congrats for the results.
Thank you.
Next question, please.
Thank you. The next question comes from Ben Castillo-Bernaus from Exane BNP Paribas. Please go ahead.
Good afternoon, thanks very much for taking my question. Couple from me. Firstly, in transport, you've seen your order intake improving specifically in Q3. We've seen deals announced in Poland, Hungary, Korea, Dubai, all sorts. Can you just talk about, you know, what's changed here in the quarter in terms of that pipeline conversion and deals being agreed versus prior quarters? Perhaps how you look at your pipeline opportunity, you know, towards the end of the year into 2022. Second question, again, in transport and traffic, you've mentioned before, I believe around EUR 100 million of projects or revenues that you weren't able to kind of execute or deliver on and finalize. Can you just remind us where you are on those, as a rough estimate that would help?
My final question was, Have you seen any impact so far from the supply chain disruptions to any of your contracts in terms of hardware components? I'm just curious if you're seeing any of that. Yeah. Thank you.
Ben, your line was terrible. I will try to see if I was able to understand the questions. First one, I think it was order intake. I mean, if we look into the year, we've had a couple of extraordinary very good years, 2019 and 2020, mainly backed on the Spanish large projects that we've been announcing. That has been very positive. We are now below 2020 in terms of our intake. Our expectation is that we will be above 2020, but that is also very much linked to a very large project which we are all working on, which is the Future Combat Air System.
That should happen before year-end, and if that happen, we'll be above what, how we closed in 2020. I think that was your question, but the line was very difficult. Is that an answer to your question?
I was mainly asking about Q3. We've seen a number of deals come through you've announced. I just wondered in transport specifically, what's changed there in the environment? What's changed to mean those deals are now being closed? First one.
Okay. In the third quarter, we announced a large contract for the Spanish MOD for the replacement of the 3D radar, which was roughly EUR 100+ million contract. Okay, we announced an air defense contract also in Rwanda. What we are seeing is good pipeline.
As I think I tried to explain, probably what is slightly still lower is the traffic management because, even if the European ANSPs or our clients in Europe have invested an anti-cyclical, in order to be prepared for the turnaround, we have not seen that in other clients in Latin America or the Middle East, and mainly Latin America because they, I mean, they don't have the funding. So, that's clear, no? I don't know if I did answer or not?
Yeah, perfect. That's helpful. My last question was on, have you seen any headwind impacts from just general supply chain disruption to any of the contracts you're working on?
Yeah, that's a good question. I think today that's not a big distortion, and it's not disturbing our supply chain, but we are starting to see that could have an effect on next year. You are seeing the effect it's having in the general industry, automotive and so on. We have a lot of chips, so that could affect us in next year production, no? So we are seeing a lot of difficulties in transportation of goods, and that's happening.
I mean, we are struggling a little with supply chain and that's happening in some of our consortiums in which we have partners and in the delivery. That's a risk that we are trying to manage, but for sure it's a risk. It's maybe a risk more for next year than for this year.
That's great. That's helpful.
We are monitoring-
Thank you very much.
We are working on that. We are monitoring that very closely, but it's a risk for next year.
Sure. Yeah. Great. Thank you.
Thank you. Next question, please.
Thank you. The next question comes from Carlos Treviño from Santander. Please go ahead.
Yes. Thank you. Yes, one question from my side, a follow-up on the good momentum in public administration. Year to date, this vertical has been very strong. In Q2 was positively impacted by elections. My first question will be if also election have an impact in this quarter? If not, I have listened to your comments, Cristina, before on you are expecting that the recovery funds could have an impact moving forward. My question would be if also you have seen a bit of impact in public administration year to date because of any kind of consultancy that you could be providing there.
For the election, we had a good year in election compared with the last, because the last one was nearly zero revenues. This year, we have had around EUR 40 million, more or less, EUR 35 million, 40, more or less. For the last quarter of the year, we will do around EUR 9 million, more or less, in election. For the Public Administration in general, we have already a very good performance in Public Administration in terms of revenues. We have had very good year in healthcare services, for instance. For the last part of the year, we hope to maintain this trend.
I mean, we will grow in Spain and also in Italy, where there are also funds for the European Union, and we have a very good team there that is working hard to win some contracts. We will maintain the growth in Public Administration for the last quarter and for the next year, of course.
Specifically in Q3, it wasn't relevant in the election business?
No, no, not really relevant. More or less the same performance that we have had in the last quarters, around EUR 10 million, 12 million, no more than that. Okay?
Okay. Thank you very much.
Next question, please.
Thank you. Ladies and gentlemen, just a reminder, in order to ask a question, please press zero one on your telephone keypad. The next question comes from Laurent Daure from Kepler Cheuvreux. Please go ahead.
Yes, thank you. Good evening, everybody, and congrats on my side as well. I have three questions. The first two are on the IT side. I was wondering if the shortage in labor in Spain is pushing customer to be a bit more open to offshore delivery, and if you are planning an acceleration of the investment in offshore headcount in the near term. My second question is back to the order intake question. I was wondering if the stabilization of the order intake in IT may be a risk when we start to look at 2022, or it's just about contract duration that have gone shorter or less renewal. Any additional clarification on the order intake and the impact it could have on sales going forward would be useful on my side.
The last question is on the fourth quarter implicit guidance. I know you gave some explanation, but it seems to be like the weakest fourth quarter for many years, implicitly on your guidance. I'm struggling a little bit with that, and especially you talked about the bonuses, but I thought they were provisioned all year long. Does it mean that you underprovisioned the bonuses in the first nine months, and that's why you are cautious for the fourth quarter, or am I missing something else? Thank you.
About the tendency in the people that we need to continue growing our revenues, we are thinking on. We have some measures in place already to improve our offshoring capabilities, mainly in Latin America where we have great teams and they are already working for some projects in Spain. It is the way to solve the problem that we have in Spain with the technical people around some kind of profile that we need for digital transformation. We are already putting in place measures to do more offshoring. Because if not, we will not be able to grow at the level that we hope.
We are also hiring a lot of juniors and seniors to trying to cover also the lack of of technical skills that there are in Spain. The other question was around order intake and the risk for the revenues in 2020. We think that it We will finish the year with a very good order intake improvement. We have some contracts that we have not recognized already in the third quarter, but for the fourth quarter, we will reach the levels that we need to cover the 2022 year without any problems. There is not a big issue for us at this moment. For the fourth quarter guidance, maybe Ignacio could give us more color.
Yes. Maybe I will turn back to the comments of Cristina at the beginning, no? Which is, I think we I mean, we are saying more than 30. Take into account that already the fourth quarter of last year was strong. Take into account that also we have starting to take the advantage of all the measures we took last year from the first of January. We had very strong 2019 and 2020 Eurofighter sales, so that was quite strong in the two previous years. Still, I mean, despite I think that the pandemic situation is much better, still we have difficulties, as I explained, to execute some of the projects because of the non-capacity of flying to the countries.
Also, I mean, looking to the results, we are going to have a higher bonus cost than we had in the previous years, and also some salary increases because of, you know, the strong competition for talent. All in all, I think the fourth quarter we need to see what happens. We are looking into reaching or increasing that to 30 number.
Thank you so much.
Yeah.
You worry is that the fourth quarter will be the worst fourth quarter ever. I mean, we are not red flagging here any major issue or anything like that.
You're just being a bit conservative?
We're just saying we're giving a guidance that has a minimum, so we have upside versus the number. We're just pointing out a number of items that this year are slightly more negative or a bit worse than they were in previous years because of the dynamics, the way this year, which is a particularly special year in a number of aspects that both Cristina and Ignacio have mentioned, because of those particular aspects and because how they work in the year. We are not intrinsically, there is no major disaster which can happen or anything like that.
Okay, fair enough. Thanks a lot. Good day. Have a good evening.
Thank you.
Okay.
Thank you, Cristina. Thank you.
Thank.
Thank you to all, and you have the team, the investor relations team is here for any other question you have or clarification you have on the documentation we have sent. Thank you so much on behalf of Cristina, Jaime, and myself, and goodbye.