Indra Sistemas, S.A. (IDR) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to Indra'a 9-month 2021 results presentation. I would like now to hand over to Mr. Ezequiel Nieto, Head of Investor Relations. Please, sir, go ahead.

Thank you. Good evening, ladies and gentlemen. Thank you, everyone, for joining us today on our third quarter results presentation. I'm Ezequiel Nieto, Head of Investor Relations. And as usual, let me refer you to the statement on Slide #3 that sets up the legal framework under which this presentation must be considered. The conference call will be led by our Co-CEOs, Cristina Ruiz and Ignacio Mataix; and our Corporate General Manager and CFO, Javier Lazaro; and the intended duration will be around 1 hour. Now let me turn the call to Ignacio Mataix, Co-CEO of Indra. Ignacio, floor is yours.

Thank you, Ezequiel. On behalf of Cristina and myself, good evening, everybody. Welcome to our conference, and thanks for being with us this evening. Let me -- let's turn to Slide #4 for the review of our main highlights for the third quarter of the year. Let me start by saying that our 9-months 2021 results have been very strong with a significant acceleration of growth and profitability, both in Minsait and Transport and Defense, which are clearly exceeding the pre-pandemic first 9 months of 2019 levels. On Slide #4, you can see the main highlights of the first 9 months results. Our net profit reached EUR 115 million, which is 77% more than in the first 9 months of 2019. The first 9 months of '21, revenues are growing in double digits across the board, both in reported and absolute terms compared to the first 9 months of 2020. Our reported 9 months of 2021 EBIT stood at EUR 188 million vis-a-vis minus EUR 9 million in the first 9 months of 2020 and EUR 127 million for the first 9 months of 2019. Minsait local currency revenues in the first 9 months grew by 12%, both versus the first 9 months of 2020 and the first 9 months of 2019, with 9-month 2021 clean EBIT margin of 5.4%, excluding the capital gain from the sale of the facilities. Meanwhile, transport and defense sales increased by 12% and 3% compared to the first 9 months of 2020 and the first 9 months of 2019, respectively, with the first 9 months of 2021 EBIT margin clearly above the double digit, which was 10.8%. Free cash flow generation in the first 9 months of '21 was $5 million, $15 million excluding the cash outflow for the workforce transformation plan and the capital gains of the facilities compared to minus $75 million in the first 9 months of 2020. Our leverage decreased again, now at 1.7x in September 2021 compared to 2.8x in September 2020. Finally, our backlog grew again 5.3% in local currency, totaling EUR 5,362 million. All in all, the continued improvement of our results and balance sheet allow us to upgrade our 2021 guidance for the second time and to announce the restatement of the dividend. Now let me turn the call to Cristina to follow-on the presentation.

Thank you, Ignacio. Thanks for the highlights review, and good afternoon to everyone. If we move to Slide 5, we saw our revenues performance both for the first 9 months and the third quarter period of 2021. On the left side of the slide, 9 months 21 revenues went up by 10% in reported terms and 12% in local currency, [indiscernible] up by the growth registered in both divisions. In organic terms, we also grew 10%. ForEx impact was minus EUR 41 million in the cumulate period. On the right hand, the third quarter '21 revenues rose 11% in reported terms versus third quarter 20% and 12% in local currency. ForEx subtracted minus EUR 2 million, a better behavior compared to the second quarter '21. Now moving to the Slide 6, we see the group's operating margins and EBIT evolution in both periods. On the left graph, we display margins for the first 9 months of the last 3 years. Operating margins is slightly above 2020 and 2019, amounting EUR 201 million in the 9 months '21 versus EUR 87 million in the 9 months '20 and EUR 162 million in the 9 months '19. Same happened to EBIT with EUR 188 million, EUR 171 million excluding the capital gain of the EUR 17 million from the sales of San Fernando de Henares facility in 9 months '21 versus minus EUR 9 million in the 9 months '20 and EUR 127 million in the 9 months '19. Moving to the graph on the right, you can see that the margin trends are better for the third quarter on a stand-alone basis. Operating margin for the third quarter '21 is 10.2% versus 6.6% in the third quarter '20 and versus the 8.1% in the third quarter '19. EBIT from the third quarter '21 was EUR 88 million, EUR 71 million excluding the capital gain of EUR 17 million from EUR 2 million from the sale of the facilities already mentioned. This is 11.8% EBIT margin, 9.5%, excluding the capital gain compared to EUR 59 million in the third quarter '19, which was at 10.3% EBIT margin. As you can see, we improved again our profitability. Chiefly thanks to the revenue growth, very tight cost control and…

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Okay. Well, start it again with the guidance in Slide 8. After this solid third quarter '21 print, we have decided to upgrade our 2021 guidance for revenue in constant currency, reported EBIT and free cash flow before cash for workforce transformation plans and the sale of San Fernando de Henares facility. On revenue, we upgrade to more than EUR 3,300 million in constant currency versus initial target of more than EUR 3,200 million. In the same way, we upgrade the profit EBIT figure to more than EUR 230 million versus initial target of more than EUR 2,020 million. On cash flow before the gross cash outflows and sale cash inflows, we raised our target to more than EUR 140 million versus the previous more than EUR 330 million. Now I turn the call to Ignacio again.

Thank you, Cristina. Now let's look into Slide #9, where you can see the backlog and order intake evolution of our transport and defense division. On the left-hand side, backlog in transport and defense went up by 7% in reported terms, while backlog over the last 12 months revenues ratio stood at 3.10x compared to 3.12 in the first 9 months of 2020. On the right-hand side, order intake in the first 9 months went down by 17% in reported terms, posting declines across all the business lines. However, it is worth highlighting the order intake growth registered in both defense and security, 24% in local currency and air traffic management, 23% in local currency in the third quarter of the year that has confirmed the improvement of the second half of the year. If we move into Slide #10, we show our revenues breakdown and the 2 business -- of the 2 businesses of our transport and defense division. The graph on the left shows the evolution of our 9 months of 2021 revenues, which went up by 12% in local currency, pushed by the growth registered in both divisions. Defense and security, which was 16% in local currency and transport and traffic, 8% in local currency. Compared to the 9 first months of 2019, before the pandemic, revenues have grown by 3% in local currency during the first 9 months of the year. On the right graph, we display the evolution of our third quarter revenues, which increased by 3% in local currency compared to the third quarter of 2020, boosted by the growth recorded on defense and security. Compared to the third quarter of 2019, revenues have fallen by 6% in local currency compared to the third quarter of 2021. Now please find on Slide #11, the operating margin and EBIT for transport and defense. On the top left graph, the operating margin in the transport and defense division in the 9 first months of the year reached EUR 98 million compared to EUR 57 million in the 9 months of 2020 and EUR 96 million in the first 9 months of 2019, equivalent to 11.8% margin compared to 7.7% margin in the first 9 months of 2020 and 11.8% in the first 9 months of 2019. Moving to the top of the -- to the top right graph, the operating margin in the third quarter of 2021 stood at EUR 42 million compared to $27 million in the third quarter of 2020 and beating the levels of the third quarter of 2019, which were EUR 35 million, equivalent to a 17.2% margin compared to 11.6% margin in the third quarter of 2020 and 13.3% margin in the third quarter of 2019. On the bottom left graph, EBIT in the first 9 months of the year was EUR 96 million, which is compared to $89 million, excluding the capital gain from the sale of San Fernando de Henares facility compared to $43 million in the first 9 months of 2020 and EUR 81 million in the first 9 months of 2019, which is equivalent to 11.6% margin vis-a-vis 5.8% margin in the first 9 months of 2020 and 10% in the same period of 2019. EBIT margin in the transport and defense division before the capital gain from the sale of the facilities mentioned above stood at 10.8% in the first 9 months of the year. Moving to the bottom right graph, EBIT in the third quarter stood at EUR 49 million, EUR 42 million excluding the capital gain of the facilities compared to EUR 60 million in the third quarter of 2020 and EUR 30 million in the third quarter of 2019, equivalent to 20.1% margin vis-a-vis 25.5% in the third quarter of 2020 and 11.4% in the third quarter of 2019. EBIT margin in the transport and defense division before the capital gain from the sale of the facilities stood at 17.4% in the third quarter of 2021. I again turn the call to Cristina.

Thank you, Ignacio. Now let's move to Slide 12, where we can see the backlog and order intake evolution of our Minsait division. On the left-hand side, backlog in Minsait went down 2% in reported terms, while backlog over the last 12 months, revenues ratio stood at 0.8x compared to 0.86x in 9 months '20, which implied 7% decline versus last year same period. The graph on the right shows the evolution of our 9 month '21 Minsait order intake, which remained stable in local currency. Energy & Industry, 50% in local currency and Public Administration & Healthcare, 2% in local currency, posted growth. While financial services, minus 5% in local currency and Telecom & Media, minus 20% in local currency shows declines. Moving now to the Slide 13. We show the revenue breakdown of Minsait. On the left hand, we display the evolution of our 9 months '21 revenues. Sales went up 12% in local currency, standing at Public Administration & Healthcare, 33% in local currency due to the higher activities with the Spanish administration and Italian subsidiary and the Election business, with all the verticals showing growth. Financial services sales increased by 7% in local currency, both the banking and insurance sector growing. Energy & Industry, revenues went up 7% in local currency, with growth both in Energy segment with inorganic contribution of SmartPaper and industry segment. Telco and media revenues went up by 3% in local currency, boosted by telecom compared to 9 months '19 before the pandemic 9-month '21 revenues has grown by 12% in local currency. On the right-hand side, we display the evolution of our third quarter 2021 revenue sales, went up 17% in local currency, showing all the vertical solid growth. Compared to the third quarter '19, revenues have grown 13% in local currency in the third quarter '21. Let's move now to Slide 14, to present Minsait profitability. On the top left graph, the operating margins in Minsait in the 9 months '21 reached EUR 100 million compared to EUR 13 million in 9 months '20 and EUR 56 million in 9 months '19, equivalent to 6.7% margin compared to 2.2% in 9 months '20 and 4.5% in 9 months '19. Moving to the top right graph gap, the operating margins in the third quarter '21 stood at EUR 34 million compared to EUR 17 million in the third quarter '20 and EUR 25 million in the third quarter '19, equivalent to 6.8% margin compared to 3.9% in the third quarter '20 and 5.3% in the third quarter '19. The increase in profitability is explained by the higher level of sales, the efficiency measures and savings delivery for the action plan turning into the improvement of margins in all the verticals. On the bottom left graph, the EBIT in the 9 months '21 was EUR 92 million, EUR 82 million excluding the capital gain from the sales of San Fernando facilities compared to EUR 52 million in the 9 months '20 and EUR 45 million in 9 months '19, equivalent to 6% margin versus minus 3.7% in the 9 months '20 and 3.1% in the 9 months '19. EBIT margins in Minsait before the capital gain from the sale of facility [indiscernible] stood at 5.4% in 9 month '21. Moving to the bottom right graph, EBIT in the third quarter stood at EUR 39 million, EUR 29 million excluding the capital gain from the sale of facility already mentioned compared to EUR 9 million in the third quarter '20 and EUR 18 million in the third quarter '19, equivalent to 7.7% margin versus 2.1% in the third quarter '20 and 3.8% in the third quarter '19. EBIT margins in Minsait before the capital gain from the sale of facility stood at 5.7% in the third quarter '21. Now I leave the floor to Javier for the financial review.

Thank you, Cristina, and good evening, everyone. Let's start the financial review with the evolution of free cash flow. If we please can move to Page 15. On the top part of the chart, you can see free cash flow for the third quarter is standing at EUR 55 million, which includes negative cash outflow related to the workforce transformation plan, but also a EUR 22 million cash inflow from the sale of San Fernando de Henares facility. Adjusting for these one-off items, free cash flow for the quarter, we have showed a net improvement of EUR 26 million if we compare quarter-on-quarter or actually EUR 19 million, so short of EUR 100 million improvement of the whole 9 month period of this year versus the same period last year. The main drivers of this positive performance were, on the one hand the improvement of the profitability of the underlying operations, with some help from the slightly lower CapEx versus last year, which basically more than compensated the higher consumption of working capital linked to higher sales that we will discuss a bit later. Down on the slide, cumulative free cash flow for the last 12 months stood at EUR 163 million or over 200 million, EUR 211 million to be precise. If we exclude the EUR 70 million outflow associated to the workforce transformation plan and the EUR 22 million inflow from the sale of the facilities that we have already mentioned. This figure is consistent with previous record years of cash flow generation at the group and is a testament of the strength of the underlying operational trends, even more so if we consider the increase in working capital that we discuss later. Let's now move please to Slide 16, for an analysis of the net debt, which stood at EUR 503 million at the end of the previous September compared to EUR 481 million in December. If we break down the different components, we can see how operating cash flow contributed positively with EUR 227 million, the cash flow generation with net working capital moving in the opposite direction with a negative contribution of EUR 149 million, we'll talk about it a bit later on the following slide. If we continue moving through the [indiscernible], CapEx, you see was EUR 1 million. This is obviously taking into account the negative CapEx, so to speak, of the disposal that we did, EUR 22 million. So the reality is that this was EUR 23 million CapEx and EUR 22 million coming from the disposal that we discussed. The -- but also, it takes into account when we compare to the numbers last year, the fact that we have a lower tangible investment coming after the disposal of Metrocall and lower tangible investment derived from the action plan and as well as the higher levels of grants that we have received in this period. Taxes stood at EUR 22 million, in line with last year. And the variation of other liabilities, which is the cash payment associated to IFRS-16, so the payment of the rent of the buildings mostly, is also in line with -- stood at EUR 25 million in line with last year. Cash payments linked to our financial facilities were EUR 27 million, in line with the year before. And finally, financial investments and other noncash flow items was EUR 26 million. That includes some minor M&A deals, earn out from previous years as well as share purchases related to medium-term compensation plan, which we included at the beginning of the year. If we now move on to Slide 17, let's analyze the evolution of the 3 main building blocks of our working capital, which stands at 15 days of sales compared to minus 9 days of '20, in December and 13 days of sales in September last year. Most of the difference is explained. During the first 9 months of the year, you see that our working capital has increased by 24 days of sales. Most of this difference is explained by the increase in accounts receivable, which is partly seasonal, loss of payments from public administrations at the end of the year, we used that figure at the end of the year in December as well, but partly it's also specific to this year and basically responds to the fact that there was a speed up of the sales towards the end of the period. Inventories and accounts payable, there were small variations versus December, even though we do see a meaningful shift from inventories to accounts receivable versus September 2020, and this is mostly influenced by some very specific projects in the Middle East, where we managed to invoice to our clients in some meaningful amounts that we were carrying inventories on our balance sheet. So as we anticipated, that will happen and we've been flagging over the last few quarters. If we now move on to Slide 18. There we show the evolution of our net debt and leverage ratios. These figures, for comparison purposes, we have eliminated the impact of IFRS-16, both in the numerator as well as in the denominator. Net debt, as we said, amounted to just over EUR 500 million. This level translates into 1.7x net debt-to-EBITDA compared to 2.8x a year ago or 2.5x in December 2020. As you can see leverage in September '21 is at the lowest level in the last 6 years for any third quarter, and it's also very close to the absolute minimum of 1.6x in December 2019. We expect this ratio to continue to improve as we approach year-end, where we should be -- should stand below 1.5x. As always, the nonrecourse factoring stands constant at EUR 187 million for the quarter. And just on Slide '17 to finish the presentation. You can see the nature of our capital structure on the liability side. On the left-hand side, you can see the composition of our gross debt, well diversified, as we always mention. In addition, we have, against is that we have just shy of EUR 1 billion of cash on the balance sheet plus available liquidity facilities. You will notice that we have reduced the amount of gross debt by around EUR 200 million, reverting to more normalized levels of cash, once the main uncertainties on liquidity created by the pandemic start to disappear from the backdrop. And we will continue this trend over the next few quarters and you will see the effect later on. Regarding the put option that we had on the convertible bond, just worth mentioning that this put option was only exercised by a negligible amount, around EUR 4 million, ask to be repaid. So the bulk of the bond remains outstanding for further 2 years. On the right-hand side, you can see the cost of gross debt that remains stable, 1.9%. And finally, at the bottom, you can see the maturity profile with no really meaningful maturities until 2023. You will see that the maturities on 2023 have come down significantly, and we basically reduced them in half since December and this has been achieved either by paying down some of the facilities maturing there, but also refinancing some of the facilities and keeping the count down the path for future years. So with that, we finalize the results presentation. Thank you very much for your attention. And let's move on to the Q&A session.

[Operator Instructions] The first question comes from Stacy Pollard, JPMorgan.

A few questions for Minsait, good revenue growth, but a little bit of weakness in order intake and backlog. Can you just explain those dynamics? So for Minsait, good revenue growth, but a little bit of weakness in order intake and backlog. Just asking if you could explain those dynamics. Was there, I mean, I noticed the -- was it a particularly tough year-on-year comp in Telecom & Media. You mentioned some renewals in the text. Maybe just a little extra commentary there. And then what you would expect going forward? That was one. Second question, can you remind us what are the sustainable margins that you target for each division? So T&D, I mean, is it more like the 11% that you have for the 9 months? Or do you think that 17% is something that is -- could be an aspiration as well that you had in Q3? And the same on the Minsait side, kind of where do you see that midterm? And third question, just what are you seeing on the hiring side? I think we did miss the commentary on Page 7. I think the line dropped. And so any thoughts from you on attrition rates, wage inflation or pressures there.

Okay. Order intake in Minsait, as you can see, we expect to perform a very good year in order intake too, but more or less remain the similar level of the last year that it was a good level for all the verticals. In particular, we have very good performance in Energy & Industry, and we expect this trend will be the same for the next month. And in Public Administration, we have also very good performance, and we hope that the last quarter -- last part of the year will be maintained also the same set. We'll have some more difficulty in financial services. For instance, in Spain, you know that some banks are in merge process. So we have more tension there in financial services. Although in LATAM is going very well. So we will try to compensate one for the other. And in Telecom & Media, we have a difficult comparison because last year was very good, and we have different cycles of order intake each year, and this year is going to be a little bit down. But in general terms, we have very good expectation in terms of order intake. Okay. That was the first question. The second one was about margins in the medium term. We have been talking about having around 6% in the midterm for Minsait is that was ambition that we think that we can get because we have in place efficiency plans, and we are growing enough and that gives us some leverage. So in the meantime we can reach 60% without problem and even to reach a 7% EBIT margin, that is more around what is the -- our comparable half today. I would like to remind that we talk about EBIT -- reported EBIT and our comparables are talking about operating margins, and we are more or less in the same branch of 10. Okay? And then the last one was about attrition and inflation in salary. We have some problem with attrition. It is a problem that is structural for the sector at this moment. And some profiles as digital division, we have more attrition and more inflationary salaries than we have in the past. And we are trying to cover the demand of this professional with juniors, with trainees, and we are doing more or less the thing, I think that's in a good way. And inflation in salary, it's also suffering for all our competitors. And we expect that it's going to remain because we don't have enough technicians, technical people who knows about digital things and transformation. So we are trying to manage the attrition and inflationary salary with hiring juniors and trainees for a -- cover our growth in sales, okay?

Okay. Stacy, if we look into the Transport and Defense, I think the dynamics for the people are similar to Minsait. If we look into margins, we are in the double-digit this year, which we are currently. And I think looking long-term, we should be above the 11% if you look mid-term.

The next the next question comes from Nicolas David, Oddo BHF.

I have 3 questions from my side. And also congrats for this very strong quarter. First question, first, coming back on the T&D profitability in Q3. You reached obviously an impressive profitability at 17%. Did you benefit from any specific positive item like positive business mix or exceptionally profitable contracts here? And do you think that this profitability is sustainable for Q4 and going forward? My second question is, again, on T&D, but more on the transport division here, I mean, we can see that the transport division is still down year-on-year in Q3 despite relatively easy comps. I remember that you were quite positive on ATM recovery for H2. So is this something you are seeing? Or do you see some delays regarding this recovery? So any color would be helpful there? And my last question is regarding your EBIT guidance. Does it include the capital gain on the disposal of your facility, that is in the facilities or not? And in any case, I mean, even if it's done to that, it seems a bit implying a relatively weak Q4 EBIT margin compared to what you were able to deliver in the last years, maybe not last year, but before, '19 and before year, what should we take into account? And why should we be cautious regarding this Q4 EBIT?

Okay. David, thank you. Let's see if I can answer your questions. First of all, regarding T&D profitability on third quarter. Unfortunately, I think it's not sustainable. We will laugh that we will be sustainable. I think there are 2 factors here. I mean, sales are slightly lower, and therefore, profitability is slightly higher. We have -- I would say we have some catch-ups on the quarter, which are not one-offs, things that should have happened in the previous quarters, and we've been able to catch them up in the third quarter. And so therefore they are not extraordinary, but we have some catch-ups in ATM and defense, I would say, across all the markets. So we placed a very strong third quarter in profitability because of catching up things that we were working on throughout the year. Regarding sales of the division, yes, I think we're expecting a stronger recovery on air traffic management. And I think like -- I think the rest of the world probably is not coming so strong. And therefore we have here a weaker quarter in terms of ATM. Mainly, I would say, I think it's pretty strong in Europe. We are doing well in Europe in our business in Europe. We are seeing more a slowdown in Latin America and the Middle East and so on. And taking into account that some of our business we can do in remote, that some of our business we need to get into country. We need our clients to visit our facilities. And still there's a lot of difficulty on people flying and we're sending people around and so on. So in some of that, that is also having an impact of the ability of executing some of ATM contracts. So it's that mainly because the rest of the business, I think, are -- we think what we thought will happen. Regarding EBIT guidance, it does not include the capital gain. So that's excluded of the guidance, but maybe I will ask Cristina to elaborate more on that.

Okay. Having said that, our guidance is more than EUR 230 million, which includes the possibility of doing EUR 240 million or close. But we are sticking to more than EUR 230 million. And the main levels to explain that, we expect for the fourth quarter are more or less is the following. The fourth quarter '20 was already a strong fourth quarter, it was the strongest of the last year, and we will not have this year comparison for the last quarter as we had in the second quarter and the third quarter. So that's one of the reasons, the difficult comparison was fourth quarter '20. The other reason, as you have seen, we have increased our workforce significantly during the second and the third quarter to cover the underlying business, and we are seeing significantly slightly salary inflation. Moreover, we have also the bonus that we have to pay at the end of the year, and this year will be higher than the last year for obvious reasons. So most likely, personnel expenses are going to be higher than last quarter last year. Okay. [indiscernible] about Eurofighter, was a very strong quarter last year and 19.2%. So we have another set that we have to recover in the last quarter. And as Ignacio has explained, we have still some impact for the COVID, and we are cautious on that. And we have some delays in the supply chain, mainly for T&D business. So because of this reason, we are cautious in the guidance, and we say what we say.

The next question comes from Bosco Ojeda, UBS.

I would like to ask about the receivables increase. I think you mentioned it was seasonable, and was it public administrations causing the delays in payments. But I wonder if you could give us a bit more color on who is delaying payments and where that could persist? And also I want to ask about the European funds. I mean, Spain is about to receive quite a lot of money and a lot of that is dedicated to digitalization. Are you already seeing large contracts coming in, are your client involved? Are you going to be directly involved? And when could you give us more color about the potential impact of those funds?

Bosco, on the receivables, 2 main reasons. One is sales accelerate, as sales accelerate, what the -- the clients OU is larger than it was at -- in the comparable period with lower sales. So that is that translation effect and the fact that you grow, you consume working capital. So that's one impact. And another very meaningful impact is the fact that we have invoiced some of our clients, mostly in Saudi Arabia, high speed train and ticketing -- under ticketing program for Riyadh, the capital of the kingdom. We have invoiced them a meaningful amount that we highlighted in the second quarter. That actually has an impact -- a material impact. This is a few tens of millions of increasing accounts receivable, that actually is being reduced from inventories. So it's a bit of transfer from inventories to account receivable when you compare with the year before.

Okay. For the new generation of funds, we will have some good news because we hope to sign a significant contract in the next days, maybe last -- next week. And that contribute for our revenues in 2022. We think that we are well positioned to get to a fair share of these funds and the public administration in general is moving on this kind of digitalization project that we can win in the next months. So we have great expectation on being growth and profitability and revenues in the next year.

The next question comes from Manuel Lorente, Mirabaud.

My first question probably is on T&D profitability improvement. I think that Ignacio was mentioning that a significant part of that improvement comes from some cashing up of projects, right? However, when I see the top line evolution of the T&D, on the third quarter standalone, I don't see any catching up, right? Revenues in the third quarter was roughly EUR 242 million versus a run rate on the first half of roughly EUR 270 million something. I mean, my point probably here is that I don't see any correlation between the catching up in revenues and the profitability increase. So any help here will be more than welcome.

Manuel, okay. That's the question, sorry, because we thought you were maybe making some more, but that's it.

That's my first question, yes.

Okay. Manuel, thank you for the question. No, maybe I was not -- I didn't explain myself enough. No, no. I mean, when we talk about catch up, is catch up on EBIT, so on profitability, not on the revenues, which you're absolutely right, is not catching up quarter compared to previous quarters. The thing is, I mean, the revenues in Transport & Defense mainly, I would say, in transport and air traffic management is -- are several contracts, a number of contracts. And sometimes you cannot 100% correlate revenues and profitability in some of the contract because you have, I would say, a sales that you expect to go right in the first half of the year and is delayed to the next quarter. So it's catching up in profitability on the projects rather than on the sales of the projects. So sometimes you have also some extraordinary costs that you cannot invoice and you can invoice later. So I mean, it's an addition of a number of projects. So in addition of sales that should have happened in the first half of the year in terms of profitability, that did not happen in the first half of the year because we could not sometimes fulfill with a client, a milestone or whatever. And therefore we would not give the profitability of that contract. So I would say its small things, which all in all, are up to a good quarter, which did not happen in the first half, still haven't happened in the first half. And that's why we saw lower profitability in some of the quarters of the first half. We were in the 7% to 8% in the first half, and we are 17% here. I mean, we had projects that could not reach the profitability that we were expecting because [indiscernible] were not done because people could not fly and so and so on.

And this catching up, it's in a relatively large number of small projects? Or is -- they're coming mainly for, I don't know, 2, 3, 4, 5 big projects?

No, it's a fairly large number of projects. Sorry, that's why I would say, it's not an extraordinary. If it was in a project or a couple of projects, you consider that more extraordinary. It's the number of projects that we've been able to, I mean, materialize milestones on the third quarter, which we could not materialize in the first half of the year.

Then my second question is in the -- on the dividend policy. Can you share with us any idea about timing, how you are going to approach this issue, et cetera, et cetera?

Well, we are announcing, Manuel, that the Board will propose in due time the payment of EUR 0.15 per share. And that payment will be done in July and this will be proposed to the shareholders' meeting that will happen like, as usual, at some point in June. Okay. So that's the announcement that is the firm intention to actually move on and go and do that. And going forward we will intend to maintain that dividend going forward, make it grow to the extent we can, et cetera, et cetera. But that will depend on what happens every year, how things evolve and how things move, et cetera. But I think it's a good sign, and it really signals the, not back to normality, but good operational condition of the company, the fact that we can commit to a dividend or at this point in time. And at the same time, you can see how leverage is going down quite strongly. And so the convergence of all these things is what makes the Board comfortable stopping with this [indiscernible].

The next question comes from Fernando Lafuente, Alantra Equities.

A couple of questions for me, please. Just a follow-up on Cristina's comments on the guidance. It's that to confirm that from EUR 230 million to EUR 240 million EBIT, it's without the gain. I understood so, but just wanted to confirm. And in this context, and probably with the comments made by Ignacio, i.e., should we expect in terms of EBIT margins for the different divisions, something for the next couple of quarters, something in the region of 9% to 10% or 9% to 11% for Transport & Defense, normalizing and assuming no additional catch-ups for arriving to something in the region of 11 medium-term and something in the region of 5% to 6% for Minsait. I'm trying to more or less get a view of what should we expect now as a run rate for the next few quarters that the situation, it has kind of normalized after this COVID outbreak? And then the second question, Javier, it's just a follow-up on the dividend. It's against 2021 results? Or should we consider it against 2022 results like an interim for 2022?

Thank you, Fernando. Hopefully, we can answer all your questions. But if not, you re-question. First of all, in terms of guidance, I think our statement is very clear. So it's above EUR 230 million. So that's our…

Excluding the capital gain.

Excluding the capital gain, for sure, as we mentioned. Hopefully, I can understand your Transport & defense question. We expect to finish the year, as we said, in the double digit, okay? So we are -- if I recall, probably at 10.8%. So I mean, fourth quarter is going to be challenging. So we'll be close to that, okay, close to that. If we look in the longer term, I think our view is that we should be above that in the mid-term, that's why I was saying, I think in the first question that we should be above 11%. So that's the view that I would have for the next quarters. Maybe Cristina on Minsait.

For Minsait, we think that at least we will be in the range of 5%, 5.5%, more or less around that. I have explained the reason, okay? That's for the fourth quarter and for the full year, we will also be around that 5.5% [indiscernible].

And the dividend, Fernando, will be against 2021 numbers. It won't be an interim dividend.

Congrats for the results.

The next question comes from Ben Castillo-Bernaus, Exane BNP Paribas.

A couple from me. Firstly, in transport, senior order intake improving specifically in Q3. We've seen deals announced in Poland, Hungary, Korea, Dubai, all sorts. Can you just talk about what's changed there in the quarter in terms of pipeline conversion and deals being agreed versus prior quarters? And perhaps how you look at your pipeline opportunity towards the end of the year into '22? Second question, again, in Transport & Traffic, you mentioned before, I believe, around EUR 100 million of projects or revenues that you weren't able to kind of execute or deliver on or finalize. Can you just remind us where you are on those as a rough estimate, that would help? And then my final question was, are you seeing, have you seen any impact so far from the supply chain disruptions to any of your contracts in terms of hardware components? I'm just curious if you're seeing any of that yet.

Ben, your line was terrible. So I will try to see if I was able to understand the questions. First one, I think it was order intake. So I mean, if we look into the year, we've had a couple of extraordinary very good years, 2019 and 2020, mainly backed on the Spanish large projects that we've been announcing. So that has been very positive. So we are now below 2020 in terms of order intake. Our expectation is that we will be above 2020, but that is also very much linked to a very large project, which we are all working on, which is the future combat aircraft project. So that should happen before year-end. I mean, if that happens, we will be above how we closed in 2020. I think that was your question, but the line was very difficult. Is that an answer to your question?

I was mainly asking about Q3, we've seen a number of deals come through that you've announced. I just wondered in transport specifically, what's changed there in the environment? What's changed? I mean, those deals are now being closed?

Okay. Yes, okay. We had -- I mean, third quarter, we announced a large contract for the Spanish MoD for the replacement of the 3D radar, which was roughly EUR 100-plus million contract, okay? We announced an air defense contract also in Uganda and what we are seeing is a good pipeline. And as I think I tried to explain, probably what is slightly still lower is air traffic management because this -- even if the European ANSP, so our clients in Europe have invested anti-cyclical in order to be prepared for the turnaround. We have not seen that in other clients in Latin America or the Middle East, mainly Latin America because they -- I mean, they don't have the funding. So that's clear. I don't know if I -- did I answer it now?

Yes. Perfect. That's helpful. And then so my last question was on, have you seen any headwind impacts from just general supply chain disruption to any of your contracts you're working?

Yes, that's a good question. I think today, that's not a big distortion and it's not disturbing our supply chain. But we are seeing -- we are starting to see that, that would have an effect on next year. You are seeing the effect it's having in the general industry, automotive and so on. We are -- we have a lot of chips, so, in our products. So that could affect us in next year production. So we are seeing a lot of difficulties in transportation of goods. And that's happening. So I mean, it's -- we are [indiscernible] supply chain, and that's happening in some of our consortiums in which we have partners and in the delivery. So that's a risk that we are trying to manage. But for sure, it's a risk, is maybe a risk more for next year than for this year. But we're monitoring -- we are working on that. We are monitoring that very closely, but it's a risk for next year.

The next question comes from Carlos Trevino, Santander.

Yes, one question from my side, a follow-up on the good momentum in Public Administration. So year-to-date, this vertical has been very strong. In Q2 was positively impacted by elections. And my first question will be, if also election has an impact in this quarter. And if not, I have listened to your comments, Cristina, before, and you are expecting that the recovery times could have an impact moving forward. But my question will be, if also, you have seen a bit of impact in Public Administration year-to-date because of any kind of consultancy that you could be providing there.

Okay. For election, we have a good year in election compared with the last because the last one was nearly zero revenues. This year, we have had around -- we will finish the year around EUR 40 million, more or less, EUR 35 million, EUR 40 million more or less. So for the last quarter of the year, we will do around EUR 9 million, more or less in election. And for the Public Administration, in general, we have already a very good performance in Public Administration in terms of revenue. We have had very good year in Healthcare services, for instance. And for the last part of the year, we hope to maintain this trend. I mean, we will go out in Spain and also in Italy, where there are also funds for European Union, and we have a very good team there that it is working hard to win some contracts. We will -- so we will maintain the growth in Public Administration for the last quarter and for the next year, of course.

And specifically in Q3, it was relevant, the election business?

No, not really relevant, more or less the same performance that we have had in the last -- in the last quarter, around EUR 10 million, EUR 12 million, no more than that.

[Operator Instructions] The next question comes from Laurent Daure, Kepler Cheuvreux.

And congrats on my side as well. I have 3 questions. The first 2 are on the IT side. I was wondering if the shortage in labor in Spain is pushing customer to be a bit more open to offshore delivery? And if you're planning an acceleration of the investment in offshore headcount in the near term? My second question is on the -- back to the order intake question. I was wondering if the stabilization of the order intake in IT, maybe a risk when we start to look at 2022? Or is it just about contract duration that have gone shorter or less renewal? So any additional clarification on the order intake and the impact it could have on sales going forward would be useful in my side. And the last question is on the fourth quarter implicit guidance. I know you gave some explanation, but it seems to be like the weakest fourth quarter for many years, implicitly on your guidance. So I'm struggling a little bit with that. And especially, you talked about the bonuses, but I thought they were provisioned all year long. So does it mean that you under-provisioned the bonuses in the first 9 months, and that's why you are cautious for the fourth quarter? Or am I missing something else?

About the dependency in the senior people that will lead to continue growing our revenues. We are thinking on -- and we have some measures in place already to improve our off-shoring capabilities, mainly in Latin America, where we have great teams, and they are already working for some projects in Spain and is a way to solve the problem that we have necessarily with technical people, around some of the profiles that we need for digital transformation. So we are already taking -- putting in place measures to do more of, sorry, because we -- if not, we will not be able to grow at the level that we hope. And we are also hiring another juniors and trainees trying to cover also the lack of technical skills that are in the same. The other question was around order intake and the risk for the revenues in 2020. We think that we will finish the year with a very good order intake improvement. So we have some contracts that we have not recognized already in the third quarter. But for the fourth quarter, we will reach the level that we need to cover the 2022 year without any problems. So it is not a big issue for us at this moment. For the fourth quarter guidance, maybe Ignacio could add more color.

Yes, I will turn back to the comments of Cristina at the beginning, which is -- I think we -- I mean, we are saying more than [indiscernible]. Taking into account that already the fourth quarter of last year was strong. Taking into account that also, we have -- starting to take the advantage of all the measures we took last year from the 1st of January. We had very strong 2019 and 2020 Eurofighter sales. So that was quite strong in the 2 previous years. Still, we -- I mean, despite, I think that the situation -- the pandemic situation is much better. Still we have difficulties, as I explained, to execute some of the projects because of the non-capacity of flying to the countries. And also, I mean, looking to the results, we are going to have a higher volumes, probably cost than we had in the previous years and also some salary increases because of the strong competition for talent. So all in all, I think the fourth quarter, we need to see what happens. But we are looking into reaching or increasing that to 30 number.

And Laurent, if I may add, you worry that the fourth quarter will be the worst fourth quarter ever. I mean, we are not red flagging here any major issue or anything like that.

So you're just being a bit conservative?

We're just saying, we've given a guidance that has a minimum. So we have upside versus that number. And we're just pointing out a number of items that this year are slightly more negative, but these are worse than they were in previous years because of the dynamics, the way this year, which is a particularly special year, a number of aspects that both Cristina and Ignacio have mentioned because of those particular aspects and because how they work in this year. Okay. But we are not -- implicitly there is no major disaster waiting to happen or anything like that.

So thank you to all, and we have the team, the Investor Relations team is here for any other question you have or clarification you have on the documentation we have sent. So thank you so much on behalf of Cristina, Javier and myself, and goodbye.