Presentation. I would like now to turn over the call to Mr. Ezequiel Nieto, Head of Investor Relations. Please sir, go ahead.
Thank you. Good morning, ladies and gentlemen. Thanks everyone for joining us today on our 2022 first 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 up the legal framework under which this presentation must be considered. The conference call will be led by Indra's CEO, Ignacio Mataix, and our new Minsait Managing Director, Luis Abril, and our CFO, Javier Lázaro. The intended duration will be around one hour. Now let me turn the call to Ignacio Mataix, CEO of Indra. Ignacio, the floor is yours.
Thank you, Ezequiel. First of all, I'm delighted to introduce Luis Abril to all of you. The board appointed last week Luis as Executive Director and Minsait Managing Director. Luis has a long and successful track record in Minsait. He joined us, the company eight years ago, and he was Vice President of Minsait, and he led the energy and industry vertical before last week's appointment. Welcome, Luis.
Thank you, Ignacio.
Let's move now to slide number four for the review of our main highlights and results. Our 2022 first quarter results stand out for the strong demand and commercial momentum that both our business are enjoying. The solid commercial activity together with our record backlog and our already delivered efficiency plans have been clearly reflected in our P&L, which has posted double-digit growth in all items. As such, revenues increased by 13.3% in the first quarter of 2022, vis-à-vis the first quarter of 2021, with Minsait delivering 17.3% growth, while T&D posted 6%. Secondly, EBIT grew 54% year-over-year.
The first quarter of 2022 EBIT margin reached 7%, versus 5.2% in the first quarter of last year, with both divisions improving their margins at the same time. Net income reached EUR 39 million in the first quarter, which is 76% more than in the first quarter of 2021. The first quarter of 2022 was also positive in terms of free cash flow generation. In fact, the best first quarter in the last six years. In total, EUR 13 million positive in the first quarter versus EUR 17 million negative in the same quarter of 2021. As a consequence, we decreased again our leverage ratio to 0.7, compared to 2.4 x one year ago. In a nutshell, a pretty solid start for the year in line with our guidance and our 2021/2023 strategic plan.
If we turn to slide five, we show revenues performance for the first quarter of 2022. Reported revenues amounted to EUR 851 million in the first quarter, and were up by 13%, vis-à-vis the first quarter of last year. While revenues in local currency grew 12%, with Forex contributing positively with EUR 7 million because of the appreciation of some Latin American currencies. Revenues organic growth, excluding the impact of last year acquisitions and FX contribution, was up 11% compared to the previous year. On slide six, we display the revenue breakdown by region, where you can see that all revenues grew across the board. America printed a 5% increase in local currency, while Spain, Europe, and AMEA delivered double-digit growth.
If we turn now to slide number seven, we see the group's operating margin and EBIT evolution in the first quarter of 2022. On the left-hand side, you can see now how operating margin improved to EUR 72 million in the first quarter, compared to EUR 52 million in the first quarter of 2021, equivalent to an 8.5% operating margin, vis-à-vis a 6.9% operating margin in the same quarter of last year, thanks to the operating leverage due to the revenue growth and the benefits of our past efficiency plans. As such, both divisions improved their margins, as we will show later.
On the right-hand side, EBIT in the first quarter of 2022 was EUR 60 million compared to EUR 39 million of the same quarter of last year, growing 54% in reported terms, equivalent to 7% EBIT margin compared to 5.2% in the same quarter of 2021. Turning now to slide number eight, please find the evolution of our headcount with a breakdown by division. Our total final headcount at the end of March increased compared to both December 2021 and March 2021, explained by very strong levels of demand that we continue to see in our main markets, and the integration of the workforces from the bolt-on acquisition we did last year. At the bottom of the page, we display the evolution of the number of employees not assigned to projects, which remains very low for another quarter.
Now let me move into Transport and Defense results part on slide number nine. Here we show our order intake and revenues breakdown of the two businesses of our Transport and Defense division. In the first quarter of 2022, order intake was up 37% in local currency, backed by the strong performance of Defense and Security, which was 98% up.
Highlighting the contract of the MK1 radar of the Eurofighter project for Germany and Spain. On the right side of the slide, revenues in the quarter increased by 6%, both in local currency and in reported terms, pushed by the growth registered in transport and defense, which was 11%, with double-digit growth for both air traffic and transport. In air traffic management, this is explained by the higher activity with ENAIRE in Spain and the European programs in Sweden and Belgium. While in transport was due to the higher activity in the rail projects in Spain, interurban systems in Riyadh, and control and systems, and ticketing in Egypt. For this part, defense and security sales remained stable for the period. Now, if we go to slide number 10 on operating margin and EBIT for transport and defense.
The operating margin in the first quarter of 2022 reached EUR 30 million compared to EUR 24 million the same quarter of last year, equivalent to 10.7% margin versus 9.1% last year same period. This improvement was explained by the increase in profitability in transport and traffic. On the other side, EBIT in the first quarter of the year was EUR 27 million, up EUR 27 million compared to EUR 19 million last year same period, which translates into a 9.8% EBIT margin in the first quarter compared to 7.2% for the same quarter of last year. Now let me turn the call to follow the presentation to Luis.
Thank you, Ignacio. Thank you for your introduction, and good morning, everyone. I'm actually very happy to begin today my relationship with the financial community with this industry results call. You know, the fact is I think I know Minsait well because of my last eight years leading different areas within it, but this is my first call as responsible for the whole division. If you all let me start with the Minsait results presentation with this slide number 11, where we basically show our strong commercial push both in our order intake and also in revenues in the first quarter of 2022.
As you see on the left, on the left side graph, order intake increased by 44% in local currency in the first quarter of 2022 versus the first quarter of 2021. Basically backed by the double-digit growth delivered by all our verticals. Here among the verticals, it stood out the growth saw by public administration and healthcare, which amounted to 110% in local currency, mainly helped by the order intake of the elections project in Angola, while the rest of the verticals basically stay comfortably in the double-digit territory. If we go to the right side, here we see sales that grew 16% in local currency in an environment of very strong demand, actually with all verticals posting double-digit growth.
Here again, standing out public administration and healthcare, with an increase of 28% in local currency. Let's move now to the slide number 12 to present Minsait's profitability. On this page, what we see is a clear improvement in margins compared to the same quarter of 2021. And again, if we go to the left-hand side of the chart, we display our first quarter 2022 operating margin, which stood at EUR 42 million compared to the EUR 28 million in the first quarter of the last year, which is equivalent to an operating margin of 7.4% in 2022, versus the 5.8% in 2021.
If we move to the right-hand side of the chart, here we see EBIT, which in the first quarter of 2022, reached EUR 33 million versus the EUR 20 million in the first quarter of 2021. This is equivalent to an EBIT margin of 5.7% in this quarter versus the 4.1% of the first quarter of 2021. Basically, this margin boost is the result of different things. Here I would highlight first the revenue growth. That definitely helps. Also the steady improvement of our product mix and the ambitious efficiency measures we've been putting in place in the last two years, which are being fruitful. I think that that's it on Minsait. Now, I leave the floor to Javier for the financial review.
Thank you, Luis, and good morning, everyone. Let's start the financial review with the evolution of free cash flow on page 13. At the top of the page, you can see the strong cash flow generation for the first quarter this year, which was EUR 13 million, which was not just the strongest for the last six years, but also was unusually positive for the quarter, which has allowed us to continue reducing our financial leverage as we will see in a minute. The bottom of the page, you can see the cumulative free cash flow generation over the last 12 months, which is actually reaching a historical high of over EUR 300 million. This is obviously in terms that are consistent with our guidance.
I also note that this figure includes a number of positive working capital catch-up impacts that we had in 2021. This is not directly. You cannot extrapolate this as to a way to get a potential cash flow generation for the year. We're still influenced by those positive items that we discussed last year. If we move onto page 14, we can see the evolution of the net debt, which is basically driven down by the strong impact of the operating cash flow in connection with all the elements that both Nacho and Luis mentioned already. Slightly compensated by a working capital, which is typical adjustment for this part of the year.
I think the rest of the items are the usual ones. If you have any doubts on them, please talk to the IR department. Probably not worth spending much time discussing them in the call right now. If we move on to page fifteen.
Now let's look at the evolution of the three main building blocks of our short-term and long-term working capital. Remember that now we report those two elements together. We can see how there is a significant improvement versus March last year of 11 days of sales. This is mainly explained by the reduction of inventories, which it is 11 days of trading. The bulk of this reduction, by the way, has already taken place by the end of last year as we described. Other than that, if we just focus on what's happened in the last few months since the December, there is a worsening of this position of five days of sales, which is what you would expect for this part of the year.
If we analyze that in a bit more detail, you see that inventories go up by five days. This is the buildup of inventories that happened following the liberation of inventories at the end of the year with the recognition of milestones that normally concentrate around the few weeks of December. Accounts receivable worsened by four days of trading, and this is again seasonality and reflects a number of high payments that we received in the fourth quarter. Last year we received some advances in the fourth quarter that we should have we were expecting for the first quarter of this year. That creates a bit of an imbalance between one year and the other when we look at the quarterly basis.
With respect to accounts payable, you see that the position improves a bit by four days. We're managing payment to our suppliers a bit more aggressively this quarter. The reality is that this is mostly.
Ladies and gentlemen, please hold your lines while we reconnect our speakers. Thank you. Ladies and gentlemen, please hold your lines. Ladies and gentlemen, please hold your lines. Thank you.
Hello?
Please go ahead with the presentation.
Okay. We're waiting for the Q&A session right now.
Perfect.
Sorry.
Ladies and gentlemen.
Sorry. Yes, there's something.
What is it?
It seems we got interrupted. Can we check when we got interrupted exactly during the presentation? Do we need to go back to any of the points or did we finalize?
I believe you were on slide 15.
Slide 15.
Slide 15 when we got interrupted. Okay. Let's go quickly through that if you don't mind. Basically on slide 15, we're looking at the evolution of the working capital. Sorry. Apologies for that. Just let me make sure that we are live.
Yes, you are live.
Just going quickly through that, and I'll go very quickly. If you need any further comments, very happy to explain that later. Our team is at your disposal. Very quickly, our working capital position has suffered the typical worsening of this time of the year, less so than the year before. From December last year, we were worsening nine days of sales. This year it's only five days of sales. We continue to manage this very tightly. Most of the reduction versus the same period last year comes from the reduction on inventories. This we have discussed already, happened mostly at year-end. The rest of the positions for different items just reflects the typical seasonality of this part of the year.
I think we have discussed that online. You can see the figures are quite attractive and improving year-over-year. Quickly on page 16, our net debt position is at a record low, below the one at the year-end, which is the first time that happens, at least in recent history. The ratio stands at 0.7x , which again, as you can see on the page, compares very favorably with any other end of first quarter, i n the last six, seven, 10 years.
To finalize, on page 17, debt structure, you see the typical elements that we always mention, with no maturities that we have not covered in cash in the foreseeable future. The only point I'd say that it's worth noting is the reduction on the cash pile that we have. That has gone down by almost EUR 300 million. This is saving us a significant amount of cash, as well as not getting into any danger to our liquidity or our financial position. We still have shy of EUR 1 billion. That's it. Apologies for having to go again through this and sorry about the disconnection. If you agree, we can now move on to the Q&A session.
Thank you. 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 Bosco Ojeda from UBS. Please go ahead.
Hi. Good afternoon. Good morning. I would like to ask a couple of questions. The first one on your order intake. The quarter was really very strong and the question is whether you see clients as active at the moment. I would guess that with the European funds and the needs for more defense spending, it should continue to be very strong. Then your revenue, if I'm not wrong, you have kept your revenue guidance in line despite this very high order intake. Question on the recent trends and whether we should expect more to come? The second question is about these management changes and all these changes we're seeing in the company.
There's been quite a few over the past 12 months, and I wanted to ask specifically if that is going to lead to any sort of strategic changes, or are you expecting to come to the market and tell us something about these changes? Also specifically on whether you think about any acquisition, in particular ITP. Is that still rejected from you, or there's a possibility that you could proceed to a stake in ITP? Thank you.
Thank you, Bosco. Well, first of all, with regard to the order intake, I think it's been a strong quarter, but take into account also that we have had two very important orders, which is the Angola elections and one important contract also on defense, which is, as I think I mentioned in the presentation, the radar for the MK1, which is the Eurofighter, and the radar for Spain and Germany. We expect, and I think we see a good pipeline. We see good order intake. But also it's true that the first quarter has had two very important orders. We continue to see European plans and possibilities there. We expect that order intake will remain strong.
On top of that, we also should continue to look to the FCAS order, which, as you know, we did not sign last year, and we still expect to sign in the next months. Order intake remains strong. With regard to management changes, it's true that we have had some management changes in the last weeks. I think we have now a stable management team, which I don't see any change on the strategic plan we have for the company, which you know is 2021-2023. The management team is strongly supporting the strategic plan that we approved in the board late 2020.
With regard to ITP, we are not looking into the file. The file is not in our table, so that remains unchanged.
Okay. Perfect. Thank you.
Thank you. Next question please.
The next question comes from Manuel Lorente from Mirabaud. Please go ahead.
Hi. Good morning, everybody. Welcome, Luis, to this small Indra community. My first question is again on company changes, especially on the point of the stake of SEPI. Do we have any update of that? Because I believe it was last February when they announced the intention to reach roughly 28%, but do you have any update on that situation?
Okay. We don't have any additional comment on that. There is no news that we've seen, so we have no additional comment.
Okay. I believe, naturally, you have said that the company will stick to the 2021-2023 strategic plan that was approved from the board of the company. I don't know whether or not that was communicated to the market. Do you have an intention of highlight the nature of that strategic plan?
Okay. No, it's true. I mean, remember that the plan was approved by the board, you know, in the middle of COVID. At that moment, we did not have plans to communicate externally. We continue to work in the plan to deliver the plan to the board. Obviously we will, next year is 2023, so we will deliver next year the guidance for 2023. I mean, I don't think there will be any news on the plan in the next months. We continue supporting the plan and executing the strategy plan we have for the company.
Okay. One question now on defense. It has had a muted revenue performance in the quarter with a flattish evolution versus last year. I don't know, seeing your peers reporting and in the current geopolitical context, what do you expect of this division going forward? Because we have seen massive upgrades in terms of defense spending, especially in Europe, or at least announcement of that. Your number doesn't quite match those potential headwinds that we are seeing across the board.
Yes, Manuel. Yes, I think we are very bullish on defense expenditure. It's absolutely right what you say. Big announcements, massive announcements. A good momentum for the defense market going forward. You need to take into account that, I mean, that cannot be translated into orders immediately. There is a period of time needs time. Okay? We see the momentum, we see the increase in EDP percentage. We will see orders coming in the future, but we need some time. There is some time until we are able to see actual orders, and actually those orders converted into additional sales.
Time is important here. In our business, what we are seeing in the first quarter is, you are right, a flattish growth. We will see mid-single digit growth throughout the year. We will see additional growth depending on when we are able to sign the FCAS contract. That should happen by mid-year. Due to that, I think we will see growth, additional growth to that mid-single digit, through the second half of the year on the FCAS contract. In the long term, I think very, very good outlook. We see, I think, growth in the business.
In the short term, I think the year will deliver growth, and depending on FCAS, will deliver additional growth.
I see. My last question maybe on Minsait side. If I'm doing the math correct, top line revenue in local currency ex M&A, ex the positive contribution from the election business has been roughly +12% to 13% on the quarter. I was wondering whether you can give us some indication on the mix between price, volumes or any remarkable trends that you are seeing there, especially on the pricing regime that I believe that it might be something refreshingly new for your verticals.
Yeah, I mean, actually those calculations are correct. You know, it is true that we are optimistic in general with the outlook. Looking forward, still we see that sales growth in the year is still gonna be above mid-single digits, but the dynamics are different per division. Here we have the digital division and everything that has to do with proprietary solutions, which is, I mean, this is growing at a double-digit pace. As I was saying, the dynamics are very good. Services and other business lines, these are growing at a slower pace.
If you want from a vertical perspective, here what we can say is that, you know, all the verticals are growing very solidly. It is true that we have this election, few million elections that also affect the quarter, but all the verticals are growing well. That's on sales. On pricing, there are some dynamics on pricing here which are important. Here the main message is that we are relatively happy with these dynamics as well. Pricing trends are being positive.
You know, actually we are fighting against one of the problems that we are having in this quarter, which is salary inflation, with things like trying to increase prices. You know, even though this is something that we cannot do all across the board, you know, the truth is that we are achieving some price increases, which are having a positive impact in the margins. I mean, this pricing thing, as I was saying, this is something we cannot do all across the board. In some cases, in projects which are shorter, I mean, in digital projects, in property solutions, you know, in those cases of projects which are shorter in time, it is being possible to increase prices. Even in longer projects and services, what we are seeing is that we have more pricing power than before.
You know, because at the end of the day, you know, when the customers, for example, you know, want to achieve some yearly price reductions, you know, now in the context in which we are, we are able to say no to those price reductions, because actually, we can easily allocate the resources in other projects and services. You know, pricing is having a positive impact in the whole thing. You know, there are other elements that are impacting the numbers that you see, both in terms of sales and margins. You know, the efficiency measures in which we are working since some time ago.
You know, the mix evolution is also helping, you know. It is actually a mix of all these things.
You can say that, or it is fair to say that, the vast majority of the positive trends in revenue in Minsait is still coming from volume rather than pricing?
No, no. Volume is being important, but it's actually a mix of things. It is not only volume or pricing. You know, it is also efficiency. We keep on standardizing processes. You keep on doing many things from an efficiency perspective, which are helping. Also the mix, what I was saying. We are pushing heavily part of the strategic plan that we were talking about before, has to do with pushing high value-added solutions in Minsait.
You know, things like payments or things like cybersecurity, you know, things like data cloud, things like phygital, which is a new division we launched, where we basically aggregate all our activity that has to do with IoT, you know, and with the confluence and the physical and the digital world. You know, all those things, which is high value offering, and we are selling more and more, is having an impact as well. It's a mix of the four or five things I've been saying.
I see. Okay. Thank you, Luis, and welcome.
Thank you, Manuel. Next question, please.
Thank you. The next question comes from Laurent Daure from Kepler Cheuvreux. Please go ahead.
Yes, thank you. Good morning, gentlemen. A couple of questions on my side as well. The first one is on Minsait, and I understand most of the drivers of profitability. I just wondering if you could share with us maybe the difference between average prices and the average increase in cost per head, to see if your gross margin is on the way up, even excluding the mix. Also, wanted to be sure about the provisioning of the variable compensation, because last year in the fourth quarter, we had a slight negative surprise on that side. So are the bonuses this time well provisioned throughout the year? That's the first question. The second question is back to the question on the order entry and the two large deals.
Is it possible to share with us what would have been the order entry worth without those two deals? Third question is on the FCAS. Just checking that if the FCAS is signed, we're still talking about maybe EUR 30 million or EUR 40 million of sales during the second part of the year. The final question is for Javier, now that your balance sheet is strong, does it make any sense to keep the factoring? Is it still a very low interest way to finance your balance sheet? Or could you consider getting rid of factoring in the future? Thank you.
Okay, Laurent. Let me see if we can answer all the questions. If not, you come back with the ones we have not answered. First of all, regarding the compensation, I think we are accounting for what we believe is the bonus compensation of the year on a monthly basis. We believe that's accurate and well done. Okay? With regard to the order intake, as I said, there are two big orders. I think maybe we can give you later on some details. But because in some of them we don't deliver exactly the numbers of some of the order intake because of confidentiality reasons. Reflecting more on the defense order intake.
You know, Angola is, as we have mentioned before, north of EUR 130 million. That one is also a large order. Okay. Maybe I think I'll give you some detail thereafter. On FCAS, we expect to have, on the second half of the year, revenue on FCAS. You mentioned, I think, around EUR 40 million on revenue of FCAS. I think depending on when we sign, that is not, let's say, a number which is outside of what we may consider. Okay. We need to see when we sign and how is the ramp- up.
Remember that we are here also a coordinator for the program, so depends also on the ramp up of our partners in the rest of Europe. Okay? So that will depend very much on that. But that type of number sounds realistic.
I take that three.
I think there is.
Three things for me inside.
You take me inside. I don't know if there is anything else aside from that before we take the ones from inside. Compensation or intake FCAS. The factoring, you ask, you answer thereafter. Luis, you take the inside, the three sequences from inside.
Yes, a couple of things from inside. You talked about average costs. You know what part of the increase in average costs on salaries is compensated by price increases. This is not a number which is easy to calculate, okay? Here what we can say is basically that, you know, looking forward and thinking about the whole year, we keep on expecting that personal expenses will grow around 13%. You know, this quarter has been slightly higher, the increase. You know, on average, we believe that the year is gonna see an increase in personal expenses of around 13%. Around 8% out of those 13% will be linked to workforce increases, and the rest will be salary inflation. Okay?
Several points of those will be compensated by price increases. Again, here the impact, the positive impact that compensates the headwind of salary increases is a mix of different things. Okay? I don't know if you talked about the order intake of Indra.
Yes.
Okay. I think that's it. That's it from inside. We go to the financial.
Yeah. Laurent, your question on the factoring. Yeah, you're right. I mean, with this level of leverage, I think at some point we'll have to stop doing that. I think if only because this is one tool of financial flexibility that we cannot use at the moment. What we will probably do at some point, I would say probably coinciding with year-end, is reduce that to zero and then impose ourselves a maximum limit on that amount so that we can use that margin to normalize and make our quarterly cash generation less bumpy. But you're right.
Once you get to this point of leverage, maintaining that amount of factoring at that fixed level stops making sense for many reasons, including the fact that, as I said, we are precluding ourselves from using a very sensible and perfectly acceptable financial tool as long as it's done with a limit. We'll talk about that probably at the year-end.
The cost of the factoring fee was quite low when interest rates were low. Has it gone up quite a lot?
No, no.
It's negligible.
Less than EUR 1 million in factoring in the year. Don't forget that we set it up at the end of the quarter just for comparison purposes. We let it die very quickly. By a few weeks into the quarter, the factoring is close to nearly zero. Then we prop it up back at the end of the quarter so that we have at the end of the quarter exactly the same amount. It's actually something, the average, kind of if you were to weight that by the average standing balance over time. It is a very small balance at a very low cost. This is not a relevant cost point.
This was more something that we decided to do to increase transparency and to be able to make it clear, making it easier for people to compare the cash generation quote-unquote, at the expense of giving up on a tool, which is one of the reasons why our cash flow is so different from one quarter to another. Eventually we'd like to retain that tool, but obviously subjecting ourselves to limits so that there is no suspicion on the side of the market that we are using factoring to get more favorable terms or anything. We will do that if and when it's necessary, as opposed to making the same amount every month on a monthly basis.
This is probably something more for year-end, which is when cash flow is at the highest level and leverage more relevant for comparable purposes.
Thank you, Javier. Laurent, have we gone through all your questions?
Yes. Thank you. Everything was clear. Thanks a lot.
Thank you so much. Thank you so much.
Thank you. The next question comes from Nicolas David from ODDO BHF. Please go ahead.
Yes. Good morning, Ignacio, Luis, and Javier. Thank you for taking my question. I have two, actually. The first one is, regarding Minsait profitability. You've achieved a nice profitability improvement in Q1 already. While, as I remember well, you were quite cautious regarding the beginning of the year, given the timing, the phasing of salary increase versus price increase. Here, and I remember that you were expecting more, margin improvement, in the back half of the year than the beginning. What happened there? Should we think differently about the seasonality finally, or is it just because you are outperforming and so it will remain also back half, but the whole year will be better than what we are expecting initially?
The second question is regarding the defense MK1 radar contract. In which time frame do you expect it to generate revenue, and could you share also the magnitude of revenue of this contract? Thank you very much.
Okay. Luis,
I start on this side? Okay.
You-
On my side, I need it. It's true that the numbers this quarter, you know, have been solid. Actually looking forward to the rest of the year. Here, what we can say is that despite the headwinds from salary inflation, you know, we expect to improve and to be between 5%-6% for the whole year, 2022. Probably closer to 6%, actually, because it's true that, you know, the results in this first quarter, they have been good. So probably closer to 6% rather than 5%. Thanks to all the things that we've been discussing, you know? The revenue increases, you know, operating leverage, etc.
Thank you, Luis. MK1. Okay. What's it? Coming back to the order. That is, as I said, I mean, around EUR 100 million order. This will be delivered in the next year, so typically five to six year contract. We see that growth really in the first couple of years. Traditionally in this contract you see more the engineering phase, so lower revenues and ramping up to the production phase in that type of period. Okay. That's more or less the timeframe of the contract.
That's clear. Thank you very much. All the best, Javier, for your new project out of the company. Thank you.
Thank you.
Thank you. The next question comes from Carlos Treviño from Santander. Please go ahead.
Yes, good morning. Thanks for taking my questions. Two questions from my side. The first one, I would like to know if you have seen any impact with the current, generally speaking, supply chain situation and with the problems that we see due to some geopolitics or even, COVID-related lockdown in China. Have you seen any impact in your supply chain or any component shortage impacting to you this quarter, or do you think that you could suffer this in next quarters? My second question will be, for Javier regarding, free cash flow, specifically working capital.
Well, I would like to ask you for expected seasonality in working capital for next quarters, and if you identify any specific topic in whatever of the different metrics or working capital which should be significant and special over next quarters. Thank you.
Thank you, Carlos. Let me start with the supply chain. Obviously, we have daily issues now on supply chain. Things have become much more difficult. I think we have a very focused team on solving the day-to-day issues. I might say that, I mean, today we have impacts, you know, in some of our projects, but they are not relevant impact which are making today that we need to stop projects. This will continue to be the case, I think, throughout the year. We will have to continue focusing on the execution on the supply chain and suffering, you know, delays and managing the supply chain and having to expedite suppliers and so on, no? Is this going to get worse?
Well, you know, that's a big question mark, which we will need to see how we address. I think we have, you know, a strong supply chain management team, which is solving the issues. As I said, we do not expect, throughout the year, to have major stops on the programs. I mean, this is one of the risks that we are all looking, all the industry is looking and we need to be close to it. Javier, can you go through the cash flow?
Sure. With respect to working capital seasonality, nothing special for this year. I mean, we normally have second quarter, which is slightly negative, mostly because there are a number of things that happen that month. That's particularly the payments for the variable component of remuneration for employees. This year, that could be compensated somehow with some payments from some specific projects, like for example, the elections that we referred to. It could be a little bit less than some other years, but that won't be material. The third quarter tends to be kind of neutral. The fourth quarter is the one where all things happen.
We have an unusual concentration of both milestones and payments in that quarter, concentrated mostly in December as we normally do. We don't expect that to change in any material way this year.
Thank you, Javier. Thank you, Carlos.
Thanks. Thanks to all of you and all the best for the future, Javier.
Gracias.
Thank you. The next question comes from Fernando Lafuente from Alantra Equities. Please go ahead.
Two questions for me, please. The first one on the balance sheet. Congratulations for the evolution of net debt. What, Javier, is your view ahead of the end of the year? Where do you expect net debt to end the year, all-in included? Especially if you are considering this cancellation of the factoring in that dimension. The second question is, it's for Nacho. Sorry to come back, but I didn't understand correctly, or actually, I didn't hear correctly what you said about ITP. I understood that you said that it's not in the table and that you are not looking for it.
My question is, provided that this is actually the case, if you would consider small acquisitions as you've done in the past in IT, also in defense. If you could make kind of bolt-on smaller acquisitions that could, I would say, strengthen your product offering specifically in this sense. Thank you so much.
Javier, go on with.
On the leverage, I'm assuming that we keep factoring constant so that we don't mix things up. I mean, just by applying the math of the guidance we've given, both in EBIT plus cash flow, we should end that in 0.3 or thereabout. I mean, that could be moderated by some outperformance of either of the metrics that we have announced as guidance. Because remember our overall guidance is higher than. Or it could be modulated the other way by some small acquisitions that we may make, which, as usual, this year we have a few in the pipeline. That we should be around those levels.
If you take out the factoring, then that should add around 0.5x, 0.6x of leverage. It would be, in any case, it would be very manageable level, as you would expect.
Thank you, Javier. Manuel, regarding coming back to your question, to your first question. What I said is, regarding ITP, the file is not on the table. That's what it is. Regarding acquisitions, yes, I think we have an active pipeline, both in Minsait and in Transport and Defense, and we are looking at a number of bolt-on acquisitions, both in, I mean, I would say, a number of geographies. We will be actively looking into increasing our income with new acquisitions, which as we've been doing in the past.
Great. Thank you so much.
Thank you. Next question, please.
Thank you. The next question comes from Grégoire Ramirez from Bryan Garnier. Please go ahead.
Yes. Good morning, and thank you for taking my question. I will come back on the topic of the margin with the operating margin, and I talk about operating margin and not EBIT margin. Regarding Transport Defence, I think in the past you were referring to something around 12%, if I remember well. Maybe I'm wrong. Given the current margin, do you think that the 12% will be achievable? What would be, I would say, the levers to go there? Does it imply, I would say, the additional product revenues? Just a clarification regarding the margin expected for Minsait.
I think that the 5%-6% was referring to the EBIT margin, and you're, I would say, in the ballpark in Q1. Is there, I would say, are there reasons to believe that you could be above that ballpark, given the fact that it's Q1? I'm not sure that the election project in Angola is a huge boost to profitability. You have, I would say, the price versus salary inflation tough to manage.
Given all these moving parts, could you maybe elaborate a bit more on that and how to consider eventually that the 5%-6% margin scenario, EBIT margin scenario, could be cautious?
Yes, Grégoire. Thank you. Coming back to the questions. I mean, we always guide on EBIT, not in operating margin. Okay? Both the 12%, which is a mid-term, is 12% on EBIT, okay? Not on operating margin. That compares with the 5%-6% on Minsait on operating margin. On EBIT margin, sorry, not on operating. On EBIT margin on both numbers. Okay?
Yeah.
That's correct. We're looking to the 12% on Transport and Defense. Luis, you can come back on the 5%-6% on the EBIT margin.
Yeah.
from Minsait.
Yeah. It's EBIT. We believe given the numbers of the first quarter that we'll be closer to the 6% more than to the 5%. There's not much that we can say at this point only with one quarter. I mean, there are some effects that we'll have. The elections in Angola will have a bit and so on and so forth. Far and after one quarter, that's what we can say.
Okay, thank you. Just an additional and last question regarding your customers in manufacturing. Have you ever seen any, I would say, negative signs according to which they have started to be affected by the rising price of energy or things like that?
It doesn't have. I mean, we are seeing you know, a bit of impact in some of the clients, but actually we do not sell that much to those clients. Actually, those manufacturing clients would be within the energy and industry vertical. You know, and industry at the end is a small part of the whole thing.
Mm-hmm.
A few of them are slightly affected, but we are not noticing it in our figures.
Okay. Thank you. Clear one.
Thank you.
Thank you. The next question comes from Germán García from JB Capital. Please go ahead.
We don't listen. Maybe the line was cut or there's no question.
Yes. Good morning. Can you hear me?
You can now. Thank you.
Perfect. A follow-up on the previous answer. You mentioned to make it clear, midterm targets for transport and defense in terms of EBIT margin around 12%. In the case of Minsait, I didn't get it. You mentioned 5%-6% in the year 2022, but what would be your midterm expectation? Thank you very much.
Okay.
I will go.
Okay. Midterm, yes, 12% on Transport & Defence. Midterm in Minsait, Luis, 6%-7%, no?
Yeah. six to seven, more seven than six if things continue in the direction we are.
Okay. Is that clear?
Thank you very much. Very clear.
Thank you. Ladies and gentlemen, there are no further questions. I will now give back the floor to the speakers. Thank you.
Thank you. Thank you very much to all of you for being present on the conference call and for all the questions you made. Looking forward to seeing you all in the next conference call in the end of July. Thank you so much for the support and for the follow-up on behalf of Indra team. You have investor relations team at your disposal to any other additional questions you may have and any clarifications or whatever. Thank you so much to all of you.