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Good afternoon, and welcome to Indra's first quarter 2023 results presentation. I now hand the conference over to Mr. Ezequiel Nieto, Head of Investor Relations. Please go ahead.
Thank you. Good evening. On our 2023 first quarter results presentation. I'm Ezequiel Nieto, Head of Investor Relations, and as usual, let me refer you to disclaimer on slide number three that sets up the legal framework under which this presentation must be considered. Conference call will be led by our CEO, Ignacio Mataix, our Minsait Managing Director, Luis Abril, and our CFO, Borja García- Alarcón. The duration will be around one hour. Now let me turn the call to Ignacio Mataix, CEO of Indra. Ignacio, floor is yours.
Thank you, Ezequiel. Good evening, everybody. Welcome to our conference. Thanks for being here with us this evening. We will proceed through the agenda now on our screen and look forward to addressing your questions following that. Let's move now to slide number six, where I will begin today's presentation with the main first quarter results highlights. As you see, the results for the first quarter of 2023 have been very solid, delivering growth in all items of the income statement, among which it excludes our net income, showing double-digit growth. We have achieved all-time high levels of backlog, thanks to a strong market demand, especially in transport and defense, and the solid commercial performance of our business, which improves our growth expectations for the next few years.
Both Indra revenues and EBIT experienced a strong growth that almost reached double-digit rates, showing the fast conversion of these commercial achievements into project execution and keeping up EBIT margin similar than in the first quarter of 2022, despite the context of a strong wage inflation pressure in the main markets where we operate. Cash generation once again showed a very positive performance, the best for the past six years, more than doubling the favorable execution posted in the first quarter of 2022 and reducing financial leverage to 0.1x over again. This strong first quarter financial performance allows us to reiterate our guidance for the end of the year. Let me turn to the highlights of our first quarter 2023 financial results on slide seven.
Backlog and order intake, the drivers of future revenues, increased by 13.1% and 4.2% respectively, with backlog reaching EUR 6.8 billion. This translated into revenue growth of 7.7% and EBIT growth of 8.4%, managing to maintain EBIT margin at similar levels that in the first quarter of 2022 and resulting in a financial growth of 11.1% in our earnings per share. A strong cash flow of EUR 27 million, more than double the positive execution posted in the same quarter last year, reducing financial leverage over again. On slide number eight, we show our strong revenue growth and margin performance for the quarter.
On the left-hand side of the slide, reported revenues amounted to EUR 917 million in the first quarter, up 8% vis-a-vis the same quarter of 2022, while revenues in local currency grew by 7% and also revenues organically grew by 5%. On the right-hand side, the first quarter 23 operating margin was up 6% and reported EBIT reached EUR 65 million, up 10 basis points to 7.1%, a figure that we have improved despite the context of growth of a strong wage inflation pressure. On slide number nine, we highlight how Indra's group workforce has evolved over the previous year, supporting our strong revenue growth in the period. This headcount growth has been achieved, improving our revenue per employee by 6% compared to March 2022, and 2% compared to December 2022.
At the same time, we have kept the workforce at the bench at a very low level, only 207 employees out of a total of more than 56,000 employees, which means less than 0.5%. On slide number 10, we reiterate the guidance provided for the end of the year, given the solid results of the first quarter, which represent an unbeatable starting point for this goal. Let me turn now to the transport and the defense division and to slide number 12, which shows the strong results in this division, which has achieved all-time high in terms of backlog, allowing us to position a backlog to revenues ratio above 3.6x compared to 3.1 x last year in the same period.
Order intake also posted a strong growth, 31%, while revenues declined by 4%. This has translated into an EBIT margin at double-digit levels, improving from 9.8% to 11.7% of EBIT margin. On slide number 13, as mentioned before, transport and defense backlog is all-time high. For this part, order intake in the transport and defense division in the first quarter of 2023 was up 31% in local currency, with a strong growth reported in transport and traffic, 60% in local currency, boosted by both the air traffic segment with higher activity in Spain and in the projects that air traffic management has in Honduras and Belgium, and in transport with rail projects and ticketing projects in Spain.
Furthermore, defense and security posted a 16% growth in local currency, backed also by Spain. The remaining amount of the first Phase 1B of FCAS projects and some other projects related to the F/A-18 and also air defense systems in Rwanda. On the slide 14, you can see that the first quarter 2023 revenues in the transport and defense division decreased by 4% in local currency with both transport and traffic and defense and security posting 4% decline, sorry. Regarding EBIT, well, sorry, this decline, I would say is due to one of effects which have been a lower contribution of Eurofighter and the fact that FCAS will not be contributed during the quarter.
FCAS will contribute in the second quarter of the year. We expect a catch-up of Eurofighter in the second quarter of the year, and we expect also a strong contribution of FCAS that will contribute more than EUR 100 million during the year. In addition to this, transport had an extraordinary contribution last year with the REAC project. Regarding EBIT, it improved to 11.7% versus 9.8% in the first quarter of 2022, mainly backed by the increase in profitability of transport and traffic. Now I will hand over to Luis to cover Minsait's performance.
Thank you, Ignacio, and good evening, everyone. First on slide 16, we display the key figures of this first quarter delivered by Minsait. I'll start with the order intake, down 6%, as you can see, in a context in which we have offset most of the extraordinary effect in the first quarter of 2022 of our elections business, when, as you know, we had the Angola project. Actually, in fact, if we exclude elections, order intake would have grown +9% in reported terms in this first quarter of 2023. Sales or revenues reported a very strong growth of +13% thanks to the solid performance showed in all our verticals.
In terms of profitability, we've been able to maintain the EBIT margin above 5% despite the context of a strong salary inflation, which has been higher than any other year in the recent past. These profitability levels are in part here due to the fact that we have kept on improving our product mix with digital and solutions growing 20% compared to the first quarter of 2022 and now representing 56% of our total sales. Let's move on to slide number 17, where we display the backlog and the order intake evolution of our Minsait division more in detail.
As you see, backlog went down -2% in the first quarter 2023 versus the same quarter last year and totaled EUR 1,970 million. You know, this is actually a slight decrease that has to do with the fact that last year we had around EUR 100 million of the elections Angola project in backlog, and that this year is not there and is offset with other non one-offs contracts.
On the right-hand side, order intake decreased 6% in reported terms, mainly affected by the decline again, posted in public administrations and healthcare, which is a minus 34% in reported terms due to the order intake of the elections project in Angola, in the first quarter of last year, as mentioned in the previous slide. On the same graph, it stood out the double-digit growth finally registered in the order intake of energy and industry, which was plus 16% due to the positive performance showed by this vertical in Spain, in the Philippines, in Brazil and in Peru. Moving now to slide number 18, more detail in revenues. Revenues increased by 13% in local currency in the first quarter of 2023, with all verticals registering very positive performance.
Here it stood out the double-digit growth posted in financial services, which was +15% in local currency, mainly due to the increased activity of this vertical with large banks in Spain and Mexico, as well as the inorganic contribution of the Chilean company Nexus that we acquired in the second half last year, and is specialized in payment systems. Regarding the other verticals, energy and industry and public administrations and healthcare also showed double-digit growth. Telco and media, telecom and media revenues registered solid growth, +4% in local currency due to the high activity with the main telecom operators in Spain and America.
This on revenues. If we go to the right-hand side of the chart, we see, at the bottom, that the first quarter of 23 EBIT margin stood at 5.2% compared to the 5.7%, in the first quarter of 22. This is a slightly lower profitability, basically due to the lower contribution of the elections project. As well as most importantly, the impact of salary inflation, that we are working on offsetting through different methods. I think quite successfully actually, because salary inflation, this year has been quite high.
Finally, I will not spend time on the slide number 19, where you can check the improvement in the product mix more in detail, and that I already mentioned at the beginning, with digital and solutions growing 20% in the quarter and representing already 56% of our total sales. That's it from me. Now I leave the floor to Borja for the financial review.
Thank you, Luis. Good evening to everyone. As you can see in page 21, the free cash flow generated in the first quarter of 2023 amounted to EUR 27 million. This is an excellent figure, taking into account the seasonality of the business and considering that we are more than doubling the figure already posted in the first quarter of 2022. In page 22, we see how working capital remains at a very good level in the Q1, despite the seasonality of the business. The variation in 2 days compared to the first quarter of 2022 is explained by different factors. The first one is the improvement of 11 days in the accounts receivables, thanks to a very good level of collection from clients.
This improvement compensate the increase in nine days in inventories due to work in progress and stock building that will be naturally absorbed over the next quarters. Finally, a reduction in four days in the accounts payable. Page 23 shows the debt bridge in the quarter. Going step-by-step, the most relevant one is the first, as it comes from the excellent performance of the business in the first quarter of 2023 that has generated EUR 81 million of operating cash flow. Working capital somewhat negative, as is always the case in the first quarter, for the reasons commented in the previous page. CapEx at minus EUR 0.3 million, lower than previous year, explained by higher subsidies, although in those terms, the amount is similar to the first quarter of 2022. Taxes is slightly above 2022 due to the higher results.
Finally, net interest reduced to EUR 0.3 million, below EUR 4 million registered in 2022 due to the higher cash remuneration together with the reduction in gross debt. In page 24, we set out the evolution of the leverage since 2019. As you can see, we closed March 23 with leverage ratio of just 0.1 net debt to EBITDA and with a material improvement compared to March 22. As in previous year, factoring stands at EUR 187 million to make figures comparable, and we exclude the impact of IFRS 16. Now just to finish my part, a quick look to the debt structure in page 25. In Q1, gross debt was EUR 975 million.
As you can see, we have a strong cash flow position to afford the maturity profile. That includes EUR 247 million from the convertible bond this December 2023 and EUR 153 million from our corporate bond in the first half of 2024. Thank you very much for the attention. Now we are ready for your questions.
Thank you. Ladies and gentlemen, the Q&A session starts now. If you wish to ask a question, please press star followed by five on your telephone keypad. Our first question comes from Bosco Ojeda from UBS. Please go ahead.
Hi, good afternoon. Hey, wanted to ask you first about the, whether you're planning to publish a strategic plan and also on the timing for the substitution of the CEO, when would you expect that to take place? Also wanted to ask you about the IT activity, whether you're starting to see any sort of pressure from the macro situation or slowdown or also the, I mean, the prospects for pricing, where you are passing on the higher inflation to customers comfortably or how is the situation over there? Thank you.
Okay. On IT, I will take the second part. Okay, Bosco? On IT, well, the growth of the 1Q, you see that it's been quite good. We're growing revenues at 13%. Actually we continue to see good demand from our clients. There are actually no signs of a slowdown. You know, it is true that IT companies are typically, as you know, late cyclical. You know, it is true also that some of our peers are pointing out that in the second half of the year, things can be tougher. Actually so far we don't see anything, okay? That's on the pressure from the macro.
You also mentioned something about how difficult it was seen to transfer the salary inflation to clients. You know, here, you know, what we think is, as you see the margins that we've achieved in the first quarter, I think that they are quite good. This is partially because we've been able to transfer part of the impact of the salary increase to customers. Salary increases, salary inflation this year has been quite relevant in the range of 6%. Part of that increase has been transferred to new contracts.
Even though there are other measures that we or other levers that we pull for achieving these levels of markets. You know, we keep on working on efficiency, we keep on working on the product mix, and these kind of things. Okay?
Okay.
Thank you, Luis. Bosco, this is Ignacio. Well, regarding your two first questions, I think, you know, the board is working hard on this topic, on the succession of the CEO. It will be announced when the process is, you know, finished. I don't think we can disclose details at this point of time. The process is driven by the Remunerations Committee, led by an independent director. I would say process is ongoing and when we have news, we'll come back to the market and deliver the news. That's regarding your first question. Regarding the strategic plan.
Well, as you know, we have our current plan which ends by the end of the year, so end of 2023. Meanwhile, I mean, you know, the board is working on a strategy and, again, when we have some news, we'll come back to the market. Also, I mean, that's also related to the incorporation of the CEO and so on. I think, we'll come back, when we have the news.
Gracias, Ignacio. Next question, please.
The next question comes from Nicolas David from ODDO BHF. Please go ahead.
Yes. Good evening. I have a few questions from my side. The first one is regarding the reduction of headcount at Minsait in Q1. What is the logic behind that? Is it something you are controlling or is it something that surprised you because of maybe of attrition or some issues to hire? I mean, what should we expect in the quarter? Should it be a headwind for your capacity to deliver on the backlog if you fail to increase headcount? That's my first question. My second question is really again Minsait. Given the lower margin in Q1, are you still comfortable to, you know, to reach a stable margin for this year compared to last year?
Thank you very much.
Okay. I will take the 2 questions, Nicolas. You know, on the reduction on headcount, I think that this is something punctual. Basically it has to do with the completion of a data center outsourcing contract with a telecom client in Colombia that has nothing to do with the dynamics of the market. You know, the, you know, sales are growing. It is true that the backlog has slightly decreased, you know, because last year we had the Angola project in the backlog. As I was saying, we see nothing that has to do with the slowdown. You know, we expect that the workforce will keep on growing in parallel with our revenues in the next quarters. Okay.
That's on your first question. Then on the second question, you know, we think that the margins achieved in this first quarter are quite good because basically we've been able to offset a relevant part of the salary increase. For the end of the year, we stick to the guidance of EBIT margins, equal or above 5.0%, because we have the challenge in the next three quarters, of setting the impact of the positive margin, brought by the Angola project in the last three quarters of last year, which, as you know, you know, was a quite profitable project.
Okay. That's, that's it. Thank you for that.
The next question comes from Carlos Treviño from Santander. Please go ahead.
Yes. Good afternoon. Thank you for taking my question. My question is related to the FCAS project. You are expecting a significant contribution in revenues starting in Q2. Should we expect that this contract is going to be at the normal run rate in Q2, or this perhaps is something to be reached more in Q3? I would like to ask you also on the profitability expected for this contract, across this year. Should we assume the normal profitability levels of your typical large defense projects or profitability perhaps the beginning could be a bit lower? Thank you.
Thank you, Carlos. I think we should expect, taking into account we've been working during the first quarter, and we will get revenues of the first quarter in the first days of the second quarter because the contract invoices after you close each quarter. Okay? We should expect, and we are now in April, we are there now. We should expect, or we have the contribution of FCAS in April for the first quarter. I would say you should expect, very similar. Maybe slightly increase from the second quarter to the third quarter to the next quarter, so.
I would say, more, as I said, more than EUR 100 million in revenues in net cash on the year and increasing a little bit, but a good contribution already in the second quarter from the first quarter. Regarding profitability, I think a lower contribution or lower profitability than Eurofighter, and therefore, an average of the good defense contracts. Is that clear?
Thank you. Thanks a lot, Mataix.
Ladies and gentlemen, please be reminded that in order to be able to ask a question, you must press the star key followed by five on your telephone keypad. The next question comes from Laurent Daure from Kepler. Please go ahead.
Yes, good evening, gentlemen. I have a couple of question as well. The first one is on the transport and defense margins, which went up despite the lower sales. I understand the improvement in transport margin. At the same time, you have less Eurofighter that are high margin business, less defense in the mix. Does it mean that the transport margin had a real surge in the first quarter? Where do you stand on that? My second question is that on the Angola contract last year, highly profitable. Can you share with us the dilution on your IT margin that will come from the end of the revenue with that contract?
My final question would be on the discussion and the rumors on the spin-off, potential spin-off of the IT unit. It's hard to understand what is the board position on that. There are some press articles. If you could share the view of the board and maybe the view of the management as well, on this specific topic. Thank you, guys.
Okay, Laurent. Okay, in the third question, I think we have no news on that. I think, as I said, the board is working on the strategy, and when we have news, we will deliver that. Regarding the transport and defense, I think, well, I think on air traffic management, I think we had a good first quarter on air traffic management with good margins. I think transport also contributed positively compared to the first quarter of last year. As you say, we had a little bit less defense with a little bit less Eurofighter contribution, which has higher margins.
I mean, with only one quarter and depending on also how you have your revenues on, for example, things like aftermarket, which has higher margins, well, it can vary a little bit. I think we are on track on the transport and defense margins for the year, on good track, which, as you know, is 12% as the figure for the year. Yes, I mean, we have had a good first quarter, boosted by air traffic and transport and with a little bit more aftermarket. I think it's a good start in that sense. Luis, maybe on the Minsait.
Yeah, I take the Angola one, Lohan. Here, apologize, but we cannot give specific information on margins per contract or per client for obvious reasons. Here, you know, I think that we could say, you know, first, as you know, the Angola project has above-average margins, that's a fact. Also, you know, if we exclude Angola project, we expect to slightly improve margins in 2023 vis-à-vis 2022. I don't know if that's enough.
Yeah, that's enough. On the transport side, to clarify a little bit, I remember a couple of years back when you were still loss-making, the long-term ambition was to get the margin maybe to 6% or 7%, operating margin. Are you getting already near that level?
Yes, Lohan. I think that continues to be our aim. I think we are close, okay? I would say we are not there yet, but we are starting to get closer to that.
Okay, understood. Thanks so much.
A little bit more work.
Yeah.
A little bit more work in some of the subcontracts, but you know, we are getting there. I think, I think the performance of transport, I mean, in the last couple of years with strong collections, as you know, from a cash point of view, and also the recovery of a number of contracts we have, mainly international contracts. I think that has been a complete turnaround for the transport business.
This business remains strategic in the group to be here.
That's a strategy, Lohan. This is I think it's a very relevant business for the company with a lot of interactions, and I think we are still improving the business. I think we will continue improving the business. I think we have a good order intake, a good backlog, and we need to continue executing those contracts, which, I mean, starting to get good profitability in the business.
Okay. Thank you.
The next question comes from Bruno Bessa from CaixaBank BPI. Please go ahead.
Hello and good afternoon, everyone. I have some questions if I may. The first one on cost inflation. You mentioned an around 6% cost inflation for from Minsait. Just wondering if you could provide us some color also on the wage inflation in the transport and defense division you are expecting for this year. This will be the first one. The second one, if you could provide us some visibility or an update on the Selex acquisition. The third question regarding the convertible bond that you have maturing in the 3rd quarter of this year.
While the share price is approaching the strike price of the convertible, just wondering if you could provide us an update on what are your intentions about this debt instrument, and what will you be doing in case the share price is above the strike when the bond matures. Thank you very much.
In R&D? You know, cost inflation.
No.
I mean, in Minsait, the salary inflation was 6%, that was it. The question was more on the P&D, right? Okay. Yeah. We couldn't hear you at the beginning, so we're not, we were not listening if you were also asking in Minsait. In P&D, you know that inflation is relevant, but it's not as relevant as in Minsait because like 30% of the cost is on salaries. I mean, salary increase is around 6%, similar as of the total of the company. Okay, you know, representing less of an issue, as we are executing contracts that we've signed in the last couple of years, no.
With regard to Selex, I think we are, I would say almost there in getting the authorizations. It should be in the next days. Okay? Little bit, it's been a little bit a slow process, we should be, as I said, in the next couple of weeks, we've been able to close down and close that position. Regarding the convertible bond, I think, you know, our intention is that we will pay that in cash when it's due in September, I think it's around September and October. We'll pay that in cash and, I don't know, Borja, you want to make any comment regarding... I think we are far from a strike, and we will pay in cash.
Is that, okay in terms of...? You have any other which we didn't get because the line was not that good?
No, it's fine. Thank you very much for your answers.
Thank you.
Thank you very much. There are no further questions.
Okay. Thank you so much to everybody for the questions. We look forward to seeing you in the next conference call end of July. Thank you so much.