Good morning, ladies and gentlemen, thank you everyone for joining us today on our 2023 H1 results presentation. I'm Ezequiel Nieto, Head of Investor Relations, and as usual, let me refer you to disclaimer on slide number 3 that sets up the legal framework under which this presentation must be considered. First of all, let me introduce the participants of this call. Marc Murtra, Chairman of Indra, José Vicente de los Mozos, CEO of Indra, Borja García-Alarcón, our CFO, and Luis Abril, Managing Director of Minsait, available for the Q&A session. The presentation will be around 1 hour. Presentation will start with an introduction of Marc, then José Vicente will present its coming perspectives and the 2023 H1 results highlights, following Borja, who will explain the quarterly results in detail, and then we will move to the Q&A session.
Let me turn the call to Marc Murtra, chairman of Indra. Marc, the floor is yours.
Thank you, Ezequiel. Good morning, everyone. As we see it, we are at a time of transformation and opportunities in our key markets. The world continues to change. The war has dramatically accelerated the concern and focus on defense and security in the European Union and its allies. We expect defense spending to grow by nearly double digits in the coming years. Air traffic recovery has been surprisingly swift after COVID. We are now in 2019 traffic levels. Growth for 2024 is expected to be above 4%. Mobility's new paradigms are reaching maturity, like pay-as-you-go or mobility-as-a-service, opening up a new world of opportunities. Technology has changed the playing field significantly, with a growing demand for cybersecurity and generative artificial intelligence. In this context, our company is well positioned to succeed.
We have a strong track record of innovation and agility, and we are focused on high-value segments that are growing rapidly, such as defense, Internet of Things, cloud, digital payments, and Combat Clouds. We want to become the Spanish defense and tech leader and a relevant international player. How are we going to achieve this? We will prioritize: working closely with our clients to develop the necessary capabilities that we'll demand in the future, collaborating with the defense industry and value chains in Spain to build an ecosystem with the right scale to compete globally, achieving operational improvements in order to successfully implement larger and more numerous European defense programs, increasing our capabilities, investing in R&D, and selecting carefully our opportunities to become a technological leader. Our client's priorities and strategic needs will provide us with a framework to evolve and transform our offering.
We have already commenced the transformation of our company. Over the past few months, the board has engaged in continuous strategic reflection, providing us with a solid starting point for a new strategic plan. Additionally, we welcomed new board members who share our common vision and strategic focus for our company. The appointment of our new CEO, José Vicente de los Mozos, a strong leader with a proven track record, will drive the necessary changes and technological evolution to propel our company forward. Finally, we have reorganized our key management team by incorporating new members with renewed motivation, drive, and in line with our objectives. We believe that these changes will allow Indra to achieve its full potential of growth and value. Now, José Vicente will explain this in more detail.
Thanks, Marc. Good morning, everyone. It's my pleasure to present to analyst and investor on my first results call as Indra CEO. I want to start to thanks the Chairman, Marc Murtra, and all the member of the board of director for their support in my appointment at Indra's recent general shareholders meeting. I will start my presentation on slide nine, sharing with you my initial observation so far. I arrived to Indra the 18th May. From this day, I have immersed myself in all aspects of the company. I met the first and second line company management. I have liaised with Indra main customer. I have visit all factory and technology center. My high-level view is that, looking forward, there is a significant opportunity for Indra to deliver and create value for all the stakeholder.
I will now summarize how I have come up with this view. Number one, Indra is exposed to market with significant structural, long-term, positive economic growth driver, example, defense, air traffic management, and mobility. Second, Indra is strongly positioned to serve, support, and develop Spain industrial and technology capabilities, while acting as an enabler for many value chains. Third, I see the group possesses the the required capability, talent, and capacity necessary to deliver on all of our existing and future opportunities. Last one, Indra is a group that owns unique asset driven by a lean capital management strategy and increasing profitability. Indra also has a strong balance sheet with almost zero net financial debt, which unveil multiple future strategic growth option. In conclusion, I see Indra is strongly positioned for future growth and future leadership.
I will now move to slide 10, where I set out Indra's guiding principle. As we head into the next step of Indra journey, I have identified three key strategic challenge to sustain our leadership positioning and ensure operational excellence across the company. Number one, we need to grow. We need to grow to compete in a more complex and sophisticated arena with player with higher scale. Therefore, we must control a higher stake of our value chain going forward. For example, in system, we control only 10% of our value chain. We need to become contractor. A good example is FCAS. For that purpose, we need to be more ambitious in M&A strategy, as well as strategy, alliance, and partnership. Third principle, we need to simplify.
In order to compete more effectively in all our core division, we should evolve our current broad legacy product portfolio in a simple and more streamlined one, based on digital and other disruptive technology. In fact, Indra must seek ground in segment with higher added value, shifting its revenue mix in this direction over the next few years. Additionally, we should focus on driving more agile and efficient operation to support our growth expectation and respond to all customer expectation. I will give you an example. When I check radar manufacturing, with my background, I think we have a big opportunity to standardize the back office of the parts, and we can reduce the lead time 50% and reduce the cost 30% with more agile and more organized manufacturing. Number three, we need to invest.
I see a major opportunity for Indra to enhance the company performance by investing further in technology and operation, to ensure that our programs are delivered at the right quality, cost, and time. Likewise, we have the balance sheet strength to support our future strategic growth option, but we will remain financially disciplined and focused on delivering attractive return for our shareholders. For this, we have four priority to lead this journey. Number one, traction. We must leverage our unique assets to become the prime national defense and technology contractor in Spain. Spain needs to lead the ecosystem, technological, with all the industrial capability, because today, defense industry is fragmented and subscale compared to the remaining European country. Indra needs to lead this Spanish integration through both acquisition and strategic partnership.
In the future, we will also explore international expansion opportunity, but we need to become first, the leader in domestic market. Second pillar, transformation. Indra must transform the company operating model to meet new industry challenge, while maintaining the financial discipline. Transformation will come through two levels: adaptation of the company's structure to be able to develop its leading role, and simplification of our internal operation to be able to respond to our customer in more agile way. Third, talent. We find ourselves in a situation of fierce competition among all players in the industry for the recruitment of highly qualified and specialized professional. To carry out our transformation, we need to attract and retain the best national and international talent in an industry whose main asset is people. We must create a differentiated work environment that make our employees feel proud of the company they work for.
Fourth pillar, technology. We need to invest more in technology in a sustainable, focused, and customer-oriented way. Most of our portfolio are a reference product for the industry. However, technology is progressing at an even faster rate, and hence we need to define and execute a long-term roadmap, investing and developing the technological capability that adequately address the needs of our customer. If we go to the next slide, to reinforce our role as a prime contractor, we have already signed 2 memorandum of understanding with the Spanish player, Navantia and Tecnobit. Nonetheless, we want to double down our effort in that sense, and therefore, we expect to sign new MOUs in the coming months with national and international players. As a consequence, this will enhance our international positioning in the European market to pursue more sophisticated opportunities. It's very simple.
Navantia manufacture ships, thus we can integrate our system with Navantia system, and we can go international to take new offer that today we are limited. When we discuss with Tecnobit, they can become our photonics supplier in our Electronic Warfare System. That is an example, that we can reduce our R&D, and we can accelerate the development on new products. To implement all of this, we need a new organization. For that, for the first July, we have announced new organization. This organization rely in four business division, all reporting directly to me with end-to-end P&L responsibility, which will drive the day-to-day operation and steer the company as a whole. The division are Defence & Security, Air Traffic Management, Mobility and Technology, and Minsait, which will remain a high degree of management, of autonomy, and the leadership of Luis Abril.
We are working, and this afternoon, we'll announce the new defense organization, and will we organize by business unit. It's very important, this accountability in all the levels of the company. Additionally, the technology, the operation, and the other business support, such as human resource, legal, or finance, will sustain the four business division. The function will manage the mid to long-term vision of the company and ensure that the day-to-day operation have the necessary capability to achieve the business goal. If I remember my last story in the car industry, in the front wheels is the business. The rear wheel, the function, support the movement of the car. This organization structure will allow us to ensure greater collaboration between business and business support function, and to enhance agility, flexibility, which is extremely relevant to ensure operational excellence.
Of course, we will continue our focus on ESG leadership. We are a true leader in ESG, as shown by our continuous strong ESG performance over 2022. Indra was ranked for the second consecutive year as the most sustainable company in the sector, and among the 1% more sustainable in the world, according to The Sustainability Yearbook 2023, elaborated by the S&P Global agency. It has also been rated as best practice by the prestigious CDP Climate Change Index, with recognizing Indra as one of the companies with the best environment practices. The very strong 2023 Q2 result, we have posted at a very solid starting point of our strategic plan going forward. We go to the result, the highlight of H1 2023.
Before to give the floor to Borja, I want to move, if we move to slide 16, that you can see the result for the H1 of 2023 has been very positive, with improved commercial momentum reflected in growth in order intake, and the rapid conversion of the backlog into the revenue growth, leading to a spectacular growth in the net income, which grew 35% compared to the H1 of 2022. We have achieved all-time highest level of backlog once again, thanks to the strong commercial performance of our business. Both Indra's revenue and EBIT has experienced an acceleration in growth, which has enabled them to post double-digit rate increase.
This increase in the level of revenue, led by Defense, mainly FCAS and air traffic, together with our ability to grow while maintaining our operating profitability, result in the spectacular net income growth discussed above. Cash generations, once again show an historical performance, being the best H1 figure ever, reducing financial leverage to 0.1% over again. This strong H1 financial performance and the start of the transformation journey allow up to up- upgrade our guidance for the end of the year, as I will elaborate later. Now, for all the detail, I give the floor to Borja.
Thank you, José Vicente. I'm in page 17, where you can see the headlines of the H1 results. Let me start with the backlog that grew 12.8% in the H1 of the year, reaching EUR 6.8 billion, and order intake that grew 8% in the same period. These two figures are very relevant, as they give us visibility and comfort about the future of the business. Double-digit growth in revenues and EBIT. What is more important, as you can see in page 18 and 19, growth rates, in both cases, improved in the Q2 compared to the first one. Margin-wise, EBIT and EBIT margin was 6.9%, slightly above the EBIT margin of the H1 of 2022.
We believe these are good news, as it means that we have been able to offset some of the headwinds we had as inflation and other impact, such as the election in Angola in the Q2 of 2022. Notice that we have recognized in the Q2 the impact of the contract resolution of the previous CEO. Growth rate accelerates when we dive into the bottom of the P&L, as net income grew in the H1 of 2023, 35%. This is explained by the acceleration of the level of revenues and EBIT, together with an excellent financial result due to the high remuneration of deposit, reduction of gross debt, and the cost of the liability management done in the H1 of 2022.
Regarding workforce evolution, as you can see on page 20, we have managed to improve our revenue per employee by 10% compared to June 2022, keeping the headcount almost stable compared to December 2022. Let me now move to Transport and Defense results, present in page 22 to 25. On top of the backlog of more than EUR 4.8 billion, order intake grew by 7% in the H1 of the year. Remember that order intake grew by 32% in the H1 of 2022. Again, very solid and high figures that give us visibility for the future. By division, strong growth in air traffic management, +49%, supported by the tailwinds in the sector that keeps growing on the back of the recovery of the investment after COVID.
After intake, order intake in transport grew at 20%. As commented, order intake declined by 7% in Defence in the H1 of 2023. Remember that it grew 64% in the H1 of 2022, when we included, among others, the modernization of the helicopter Tiger. Going to revenues of D&D, as you can see in page 24 and 25, Defence posted a strong growth on the back of the contribution of close to EUR 50 million of excess in the Q2, and Eurofighter that also had more revenues than in 2022. That said, even taking out the contribution of these two programs, Defence will have shown growth compared to 2022, as it has a good mix of different products.
Same thing applies for ATM, that grew 18% in the H1, evenly distributed among the two quarter, and with Selex contributing for the first time with EUR 3.5 million. In contracts, mobility didn't go well due to the lower contribution from sizable contracts, such as the train Mecca-Medina, T-mobilitat, and the inter-urban project in Riyadh. Nevertheless, we expect to catch up in the H2, with a view to grow at mid-single digit in transport in 2023. All in all, very strong revenue growth in the division of 12%, with EBITDA growing even faster, and therefore improving the margin compared to the H1 of 2022. As you can see in page 25, the margin in the Q2 is impacted by the contract resolution of the previous CEO.
If we take out this impact, EBITDA margin in the Q2 would have been 10.8% above the 10.6% registered in the Q2 of 2022. Moving now to Minsait in page 27, let me start highlighting the excellent evolution of order intake, that once more, is a good signal for the future. As you can see in page 28, order intake grew at 10% in local currency, with excellent behavior in all sectors, with public administration growing at 12%, despite the fact that it included €130 million from Angola in 2022. Telecom and media decreased by 8% due to the strong activity registered in Colombia and Spain in the H1 of 2022, when order intake grew by 24%.
In terms of revenues, Minsait has reported double-digit growth, 12% in local currency, with all vertical registering very positive performance, in line also with the healthy evolution of the order intake. It's important to mention, this growth rate is well distributed among the different sector, with financial services and energy industry growing more than 15% in local currency, public administration at 7%. If we exclude the election business due to the impact in Angola in 2022, it will have grown at 19%, and telecom and media growing 1% due to the strong growth posted in 2022. EBITDA also grew at 11% in the H1, growing faster in the Q2, and maintained the margin above 5%, despite the context of a strong wage inflation.
By horizontal, we have improved our mix with digital and solution, growing more than 13% compared to the H1 of 2022, and now registering 56% of total sales, as you can see in slide 37. Luis Abril can give you more color about all this in the Q&A session. We move now to page 33, with a review of the financial section. As in the past, let me start with the free cash flow generated in the H1, that amounted to EUR 54 million, which is, as you know, an excellent figure, given the seasonality of our cash flow. Moving to page 34, we see how working capital needs increased by 10 days compared to June 2022, due to the increase in inventories and trade receivables, despite the improvement in account payable.
Like for like, excluding the collection of the Angola project in the Q2 of 2022, net working capital will have improved in three days of sales. The increase in six days of trades receivable is related to the milestone pending to be approved by our customer, that it will be naturally absorbed in the coming month, together with the increase in inventories due to higher level of work in progress and stock building, in order to avoid problems in the supply chain. We expect this figure to decline by year-end. The worsening in accounts receivable is related to the extraordinary effect of the collection from the election in Angola in the Q2. Like for like, excluding this effect, days of account receivable will have improved in seven days.
Finally, all these impact are partially offset by the improvement in accounts payable, as we increase the level of purchase due to the increase of activity. Page 35 shows the net debt evolution in the H1 of the year. The first step is a strong operating cash flow of EUR 183 million, due to the excellent performance of the business. Net working capital needs of EUR 69 million, above the 52 posted in the H1 of 2022, and as I have commented in the previous page, we expect this figure to be absorbed in the H2 of the year, with a view to close 2023 with a slightly negative working capital needs. Net interest at EUR 7 million, posting a very relevant improvement compared to the EUR 22 million registered in the H1 of 2022.
Remember, that we're registering the cost of the repurchase of the bond that matures in 2024, and that we have less gross debt and better remuneration of the deposit. Finally, we paid EUR 45 million related to the acquisition of Selex. In page 36, I mean, as you can see, we have closed the H1 of 2023 with net debt at €47 million, and a leverage ratio of 0.1 net debt to EBITDA, representing a material improvement compared to June 2022. Now, to finish my speech, a quick look to the debt structure in page 37, where I will highlight two things.
First, we have a very strong liquidity position of more than EUR 1 billion, if we add cash and undrawn credit facilities, and we will naturally reduce our gross debt levels in the coming month, as the convertible bond matures in October, and we plan to cancel it with cash. The same thing applies for the bond that matures in early 2024, together with some bank loans. Now, I hand over to José Vicente de los Mozos, who will address the financial guidelines and the closing remarks.
Thank you, Borja. As you can see, H1 results are good. Our portfolio increase, our results are solid. I decided to increase our guidance by 4%. That revenue from EUR 4 billion to EUR 4.150 million, EBIT from EUR 315 to EUR 335, and cash flow from EUR 200 to EUR 10. This company has the capability, but we need to be more ambitious, and now is the right time to accelerate our performance, because frankly, I have confidence that the company can become the leadership in Spain in technology and defense. Next question is, okay, the strategic plan.
Today, I can announce, thinking our ambition to become the leading Spanish multinational in defense technology, today I will announce a new plan focused on growth in three phases: focus from 2024-2026; scale up from 2027-2030, that will give our vision; and lead, that will see our purpose from 2031-2035. Focus, where the ambition will be defined and addressed. Scale up, vision for the new ambition, and lead, the purpose at the Spanish multinational in the defense and technology sector. The new strategic plan will address the main challenge that the company is currently facing to achieve the full potential, identifying with their KPIs and clear accountabilities to ensure proper implementation and to achieve the objective that will be defined.
The main areas that will be discussed in the preparation of the plan are: portfolio rotation and development based on clear M&A rule, product simplification and creation from a value-based perspective, development of growth vector across the different division of the company, geographic footprint optimization, considering also impact in the go-to-market and operational models, creation of a technology ecosystem, leveraging startups, universities, and research centers, and evolution to the new Indra 4.0, both in terms of commercial and operational processes. However, as cross-cutting capability and best practice have not been tackled up to the moment, in this strategic plan, we will address development and implementation of digital cross-cutting capability, talents initiative intended to become top of mind employer for digital and engineering, and ESG commitment.
The end-to-end process to prepare the strategic plan will last from September to December 2023, and will ensure the participation and commitment on the entire organization. I know I honestly believe that power came from the inside, and therefore, fresh talent will be involved to secure the new ideas and bottom-up initiative are properly captured in the plan. Our objective is that we communicate the strategic plan in our 1st Investor Day, in the 1st quarter of 2024. Previously, the preparation will have 3 phases. 1st one, definition of ambition and strategic guideline from a top-down perspective will be aligned with the top management of the company. 2nd, identification of the action plan by division and cross-cutting initiative. 3rd, approval of the strategic plan by the board of director and elaboration of the equity story to the market.
Slide number 42, our new strategic plan for Indra will be leading the future. In summary, I arrived 18 May. We have observed, I have been appointed by the shareholder. In every moment, thanks to the support of the chairman, we create a new organization. We start to develop the Spanish ecosystem. We'll increase our guidance, and we announce our strategic plan, that our story is robust, is ambition, and you will see our strategic plan will be top level. Thank you, and now we are ready for the Q&A session.
Ladies and gentlemen, we are now going to start the Q&A session. If you would like to ask a question, please press star followed by five on your telephone keypad. If you change your mind, please press star followed by five again. Our first question comes from Bosco Ojeda, from UBS. Now your line is open.
Hi, good morning. I have a couple of questions. The first one is on the strategy. You mentioned quite a few times about M&A, which seems to be a priority. If you could let us know a little bit about which is the criteria for those sort of deals. I think Indra has done, like, maybe EUR 500 million of deals over the past five years. It's always difficult to track the profitability of those deals. Maybe that's gonna change in the future, or what areas are you gonna be looking or opportunities, or maybe you already have something in mind. If I'm correct, from your comments, it looks like that the M&A might be prioritized over dividends, if that is the case or is not the case?
The second question for Borja, I wanted to ask about the outlook for working capital and CapEx. It's been doing quite well in the H1, and the outlook for the H2. Thank you.
Well, starting M&A. I think first we need to focus on product. We need to simplify, and we'll need to focus in more high-value products. That is the priority. When we'll be ready, we need to study also our value chain ownership. For this, our priority first is create and expand the ecosystem, because we have resources limited. We can, you know, for technology company or defense, are limited for the government, or in some cases are very expensive. That first, in domestic, we are going to create the ecosystem, we are going to take the lead. Second, it depend, after optimization of the footprint and the products, we'll start to think which company can be interesting to improve our portfolio, increase sale, or reduce our R&D.
That's with the two metrics, is how we can improve our turnover or how we can reduce our CapEx or R&D. About working capital and CapEx, please, Borja.
Thank you, José Vicente. Good morning, Bosco. With regard to working capital, as I explained during the presentation, we are expecting to be absorbing the increase in the working capital days in the H2, due to the natural evolution of the business. With a view, answer your question, to close 2023 with a slight negative working capital, in line with the one that we had in the past. With regard to CapEx, remember that we have EUR 53 million in 2022, and the plan for 2023 is EUR 60 million.
Thank you.
The next question comes from Carlos Treviño from Santander. Please go ahead.
Good morning. Thanks for taking my questions. My several from my side. The first one will be: you have highlighted in tech world a strong focus on high-value segments moving forward, highlight the cybersecurity, cloud world. I would like to ask you if you think that these businesses could weigh more in the business in Minsait moving forward, and which are your plans to reach and perhaps a higher weighting of those businesses? I would like to ask for profitability in Transport and Defence. We have seen a very strong quarter in Defence. That is a very profitable business. However, perhaps this has not gone down so directly to the EBIT line. I would like to ask you specifically of the drivers in the EBIT margin or in adjusted operating margin in Transport and Defence this quarter.
I would like to ask about the total expected work in Defence over the next quarters. I think you have highlighted that the EBIT, EUR 50 million, if I am not wrong, from the current projects. Very strong quarter in the Eurofighter. Any reference on which kind of expected work we could expect there would be helpful. Thank you.
Great. About high-value business, I will start, and maybe Luis can support me. First, under leadership from Luis, we are mapping all the resources we have in the company in the technology. We see in all the division, we have operation. Second exercise to do is, what will be the disruptive technology will lead in 10 years? You talk about cybersecurity, we can discuss quantum, the impact in tech, artificial intelligence. When we study in the strategic plan, the disruptive technologies will take the current technology we have, and how do we come from the current to project the future? That's the idea that I explained before. We are going to push with university, with... We want to put, work with the startup, why no M&A?
Also, it's an collaboration between division and that technology. Maybe, Luis, you can explain how you have mapping, this, technology roadmap that we have today?
Yes. Thank you, José Vicente. Carlos, let me elaborate a little bit more on that, okay? Because it is true that we have to keep in mind that long-term vision on what technologies are gonna be top-notch in the future, you know, in 10 years or so. But in the short, mid-term, there is also work to do. And here, as you see in the results that we're presenting, what we are doing basically is to push the acceleration vectors that you've mentioned some of them. That this is data cloud, this is cybersecurity, this is phygital, this is also payments.
You know, there are a few technologies that we have identified and that we keep on pushing, and that actually, that they are actually being quite relevant in terms of helping us improving the margins. You know, these areas of business are currently the ones that grow more. They are growing everything that has to do with digital and proprietary solutions, and so on and so forth. You know, these kind of things are growing at the double digit very solidly. You know, the idea is to take that starting point, make this reflection, thinking on the long term and how these technologies are gonna be evolving. You know, this is gonna be the strategy in technology.
You know, in Minsait, there are high value-added technologies and also services. The idea is to push the first ones. This is the way of increasing margins, and, you know, that's gonna be part of the strategy.
Thank you, Luis. About profitability, maybe Borja, you can explain all the details.
Thank you, José Vicente. Good morning, Carlos. Well, you referred to the bit of Transport and Defence. Remember that we closed the H1 of 2022 with 10.2%. H1 of 2023, 10.5%. If we take out the remuneration to the CEO, to the agreement with the CEO, it will have been instead of 10.5%, 11.1%. You see here the profitability. Your question about the FCAS, for 2023, we are expecting more than EUR 130 million in revenues.
Thank you very much to all of you.
Ladies and gentlemen, I would like to remind you that in order to be able to ask a question, you must press the star key, followed by five on your telephone keypad.
We're very happy. Not too many questions. Thank you. Thank you, all of you, for this conference call. I wish all of you very good summer, and we will see again in late October in our nine months results. Thank you. Have a nice day.