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

Ladies and gentlemen, welcome to Indra's Full Year 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. Thanks, everyone, for joining us today on our 2021 full year results presentation. I'm Ezequiel Nieto, Head of Investor Relations. And as usual, let me refer you to the disclaimer on Slide #3 that sets up the legal framework under which this presentation must be considered. 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 Internet duration will be around 1 hour. Now let me turn the call to Cristina, co-CEO of Indra. Inertia yours.

Thank you, Ezequiel. On behalf of Indra Sistemas, good evening, everybody. Welcome to our conference, and thanks for being with us this evening. Let's move to Slide 4 for the review of the main highlights of the results. I would like to start by saying that our 2021 result has been historical. We have set a number of record highs, mainly in backlog revenues and free cash flow, and we have managed to upgrade our guidance twice for all our targets, finally delivering well ahead on all metrics. Both Transport & Defence and Minsait revenues -- 2021 revenues are at historical highs, both showing double-digit growth versus 2020. 2021 EBIT margins reached 7.5%, surpassing the 2019 level of 6.5% before the pandemic, while 2021 net income grew 18% versus 2019, also before COVID. Free cash flow totaled EUR 289 million, a new record level, well above our 2021 guidance of more than EUR 114 million. Javier will elaborate on this at the final part of the presentation. As a consequence, net debt has been reduced to EUR 240 million, a 10-year low, bringing net debt/EBITDA ratio down to 0.8x versus 2.5x in December 2020. Finally, as you know, we have a restatement of dividends after 7 years without any shareholder remuneration. Now I turn the call to Ignacio to follow with the presentation.

Thank you, Cristina, and good afternoon to everyone. If we turn to Slide #5, we show our revenues performance both for the full year and for the fourth quarter of 2021. On the left side of the slide, 2021 revenues went up by 11% in reported terms, 13% in local currency and 11% in organic terms, up by the strong growth delivered by both divisions. Forex tracked down EUR 41 million in the cumulative period. On the right hand, fourth quarter '21 revenues grew both 15% in reported terms and local currency vis-a-vis the fourth quarter of 2020. Organic growth was 14%, and there was no forex impact in the quarter. Now we move to Slide #6, we display the revenue breakdown by region, where you can see that we grew all across the board with Spain representing 15% of revenues. Spain and Latin America 9% increase in local currency, while Europe and EMEA delivered a double-digit growth. Now turning to Slide #7, we see the group operating margin and EBIT evolution in both periods. In this slide, it is worth noting the improvement in margins compared to 2019, thanks to the revenue growth and efficiency measures put in place despite the impact that the pandemic is still having in the recognition of milestones in some projects and the negative effects on the supply chain. Our 2021 reported EBIT reached EUR 246 million, excluding the capital gain from the sale of the facilities and the provision of the real estate plan compared to EUR 221 million in 2019 before the pandemic, equivalent to 7.2% EBIT margin in 2021 versus 6.9% in 2019. For its part, EBIT in the fourth quarter reached $74 million, excluding the provision of the real estate plan versus EUR 70 million in the fourth quarter of 2020, excluding the action plan provisions and vis-a-vis EUR 94 million in the fourth quarter of 2019, equivalent to 7.2% EBIT margin in the fourth quarter of 2021 vis-a-vis 7.9% in the same quarter of 2020 and 10.3% in the same quarter of 2019. This lower profitability in the fourth quarter was explained by the higher annual variable remuneration linked to the achievement of the targets, the increase in the total workforce associated with higher activity in both divisions and some salary inflation, as well as by occasional lower contribution for Europe. Now I turn back to Cristina to follow on the presentation.

Thank you, Ignacio. Turning now to Slide 8, please find the evolution of our headcount with the breakdown by division. Our total final headcount at the end of December '21 increased compared to the both June '21 and December '20, backed by the strong level of demand that we are seeing in our main markets and the integration of the workforce from the bolt-on acquisitions. At the bottom of the page, we display the evolution of the numbers of employees, nonassignment at projects with low -- very low at this moment. As you already know, we managed to reduce it compared to December '20, thanks to efficiency plan that we successfully put in place. Moving to Slide 9, we have comprised the main highlights regarding to the ESG performance, which has showed a strong performance. You can see several achievements, let me highlight most of the relevance. First, we have been named at the world's most sustainable company in the technology sector according to the Dow Jones Sustainability Index, with companies with [indiscernible] world leaders in sustainability in the software and services technology and is not -- is the only company in the sector that has managed to remain in the Dow Jones Sustainability Index for 15 consecutive years. We have also become one of the leading companies against change according to the Carbon Disclosure Project Index, which recognize Indra as one of the most transparent companies and with the best environmental practices. Finally, we have renewed our Top Employer Institute certificate, which includes as among the companies providing the best work environment, achieving the highest rating in terms of workplace ethics and values and making considerable progress in several aspects of this attractiveness. Now on Slide 10, let's talk about the delivery of the guidance 2021 and our outlook for 2022. As you can see, we clearly overachieved twice the revised guidance in all metrics, well ahead of the target set in September, especially in cash flow, which stood at EUR 307 million compared to more than EUR 140 million expected. For the revenue achieved, some EUR 3,471 million in constant currency, more than EUR 3,300 million forecasted and our reported EBITDA stood at EUR 246 million, excluding the capital gain from the sale of the facility and the provision of the real estate plan, compared to the more than EUR 230 million. On the right side of the slide, you can -- we saw our guidance for the 2022 based on the same metrics as last year. We expect revenue in constant currencies to be about EUR 3,550 million. Reported EBIT about EUR 270 and 2022 free cash flow of more than EUR 170 million. Now I turn the call to Ignacio to follow up with the presentation.

Thank you, Cristina. Now on Slide #11, let me present the main highlights of Transport and Defence. As we have already said, 2021 has been a very strong year for the division. Our backlog is now at all times high, pushed mainly by defense, thanks to all multiyear contracts in Spain, international and new push in Eurofighter, and a new set of ATM contracts. Revenues were also at historical highs with a very strong contribution of defense, which grew 22%, while we started to see the recovery of both Air Traffic Management and Transport. We also delivered on our commitment to achieve double-digit EBIT margins for the full year despite the impact that the pandemic is still having on the supply chain and the milestones recognition of some international projects. Finally, let me mention the significant derisking of 3 problematic projects in Transport, where we managed to achieve sizable collections, approx EUR 100 million, that has impacted very positively the free cash flow generation of the fourth quarter, as Javier will mention later on. Now let's move to Slide #12, where you can see the backlog and order intake evolution of our Transport and Defence division. Backlog in Transport and Defence went up by 6% in reported terms, while backlog over the last 12 months revenue decreased to 3.7x in 2021 vis-a-vis 3.25x in 2020. Order intake in 2021 were down by 15% in local currency, dragged by the declines registered in Defence and Security, 23% in local currency, explained by the strong order intake that took place in 2020, where we signed sizable contracts like the Lanza 3D Radar, the F110 Frigates, 8x8 Vehicle, Helicopter NH90 and some others. And also because finally the future compact aircraft Phase IB was not signed before the year-end. For its part, order intake in Transport and Traffic remained stable at 2020 levels. If we move to Slide #13, we show revenue breakdown of the 2 business of our Transport and Defence division. 2021 revenues went up by 12% in local currency versus 2020, pushed by the growth registered in both Defence and Security, which was 22% in local currency and Transport and Traffic, which was 4% in local currency. It is worth mentioning that both Air Traffic Management and Transport grew by 4% in the year. Compared to 2019 before the pandemic, revenues have grown 7% in local currency in 2021. In the quarter, we also posted some growth, increasing by 13% in local currency vis-a-vis the fourth quarter of 2020, boosted by the growth recorded in Defence & Security, which was 34% in local currency. Compared to the fourth quarter of 2019, revenues have grown 16% in local currency in the same quarter of 2021. If we move now please to Slide #14, the operating margin and the EBIT on Transport and Defence. The profitability in the Transport and Defense division stood close to pre-pandemic levels, thanks to the sales growth and the efficiency measures of the action plan. Although it continued to be affected by the COVID impact in the recognition of milestones in some projects as well as some delays in the supply chain. Therefore, 2021 EBIT was EUR 141 million, excluding the capital gain from the sales of San Fernando de Henares' facilities and the provisions of the real estate plan compared to EUR 145 million in 2019, equivalent to 11.2% in 2021 vis-a-vis 12.2% in 2019. On the bottom of the right graph, EBIT in the fourth quarter stood at EUR 52 million, excluding the provision of the real estate plan already mentioned, compared to EUR 64 million in the same quarter of 2019, equivalent to 12.1% margin vis-a-vis 17% in the same quarter of 2019. This lower profitability in the fourth quarter was explained by the higher annual variable remuneration linked to the achievement of the target, the increase in the local workforce and some salary inflation, as well as by an occasional lower contribution of Eurofighter. I turn now again the call to Cristina.

Thank you, Ignacio. On the Slide #15, you can see the main highlights of [indiscernible] finite. I think that it's fair to say that our 2021 results are historical and has been a year with remarkable achievements. Result-wise, our backlog and revenues were at record highs. We managed to grow organically our revenues at 11% versus 2020. Meanwhile, our EBIT margin has been the highest in our history, almost 5% and is the result of the entire transformation of the division posted by the equation of all our existing plants, the chain of mix and the revenue growth. At the same time, we went on managing very actively our pyramid, keeping a very low number of an assignment employees. We have also been proactive in M&A in 2021 with 6 bolt-on acquisition that will reinforce our key strategy for cybersecurity, payments means digital and data analytics. Good news also that we have signed 2 first -- the 2 first contracts coming from the net generation European firms, and we expect some more in the coming next quarter.\And finally, on the cost side, we have increased our ambition and we have launched an additional real estate plan that I will explain in the following slides. In summary, 2021 has been a great year and an excellent starting point to 2022, where we expect more profitable growth backed by the strong level of demand that we are seeing in our main markets where macro recovery is already taking place. On the Slide 15, we displayed a new real estate plan launched during the fourth quarter of 2021. This plan is more ambitious than the initial one. A sizable part of our employees are going to partially work from home remotely because of the new post-COVOD working habit. The new plan together with the former one will allow us to reduce more than 100,000 square meters between 2021 and 2023. Most of this transformation is mainly focused in Spain, but also includes some contribution from Latin America. For this new plan, we provisioned with EUR 7 million in the fourth quarter of '21 and expect a rate savings of EUR 11.5 million from 2023 onwards. Both plans together and when complete will deliver a total saving of EUR 24 million per year. Now let's move to Slide 17. Backlog in Minsait went up 1% in reported terms, while backlog over the last 12 months revenue ratio stood at 0.75x in the 2021 compared to the 0.83x in 2020. Order intake increased 8% in local currency with all the vertical slowing growth, energy and industry 22%, public administration and healthcare 7% and Financial Services 6%. Except for telecom and media, minus 13% due to the renewal of the contract in America that took place in 2020. Now moving to Slide 18, we'll show the revenue breakdown of Minsait. Sales grew by 13% in local currency with all the verticals registering growth due to the good moment of the demand that we are experiencing in the current environment. It stood out the strong growth posted in the public administration and healthcare, 28% in local currency, and Energy & Industry 13% in local currency. In the fourth quarter, demand also remained very strong and we grew 17% in local currency with solid growth in all the verticals compared to the fourth quarter of '19, revenues have grown 17% in local currency in the fourth quarter '21. Let's move now to Slide 19 and to present Minsait profitability. On this page, we can see the clear improvement of margin versus the 2019, thanks to the higher level of sales, the efficiency measures and the savings delivery from the action plan, mainly to the improvement of margins in all the verticals. This is reflected in our 2021 EBIT, which stood at EUR 104 million and the capital gain from the sales facilities and the provision of real estate plan, compared to the EUR 76 million in 2019 before the pandemic equivalent to an EBIT margin of 4.9% in 2021 versus 3.8% in 2019. EBIT in the fourth quarter 2021 reached EUR 22 million, excluding the provision of real estate plans versus EUR 13 million in the fourth quarter '19, equivalent an EBIT to -- an EBIT margin of 3.7% in the fourth quarter '21 versus 5.6% in the fourth quarter '19. As we said before, this lower profitability in the fourth quarter as explained by the higher annual variable remuneration linked to the achievement of the target that -- and increase in the workforce and some salary inflection. 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 the cash flow, Slide 20, please. On the first strip of the slide you can see the very strong free cash flow generation during the fourth quarter 2021 with a total of EUR 284 million, which includes, by the way, around EUR 100 million received from delayed payments associated to some of the more problematic projects of our T&D division, namely the high-speed train from Medina to Mecca and the Riyadh Underground ticketing system among [indiscernible]. Down on the slide, you can see the cumulative free cash flow for the last 12 months, which reached historical levels of over EUR 300 million, excluding the extraordinary items that we take into account when giving the guidance. If we exclude the extraordinary inflows that coming from the delayed collections, which actually we should have received in previous years are, let's call it, underlying free cash flow, we have stood at around EUR 180 million, EUR 190 million for the year, which is on the high end of the 50% to 60% EBITDA conversion ratio that we believe our free cash flow should tend to over time. If we move to Slide 21, we wanted to spend a couple of minutes on analyzing the return on capital of our operations. We have discussed in the past, Indra runs a very tight ship when it comes to capital deployment. If we consider the position at the end of 2014, we had a total capital gain of EUR 1.6 billion and add to that, the almost EUR 600 million that we have employed in acquisitions since the day, you can clearly appreciate the effort that the company has done during the subsequent period. Even if we take into account the write-offs that we did in 2015 and also in 2020 in the context of COVID. Of the less than EUR 1.1 billion of total capital employed today at the end of last year, at the end of December, Intangible assets did goodwill from acquisitions or intellectual property make up the bulk of it, with working capital, including both trading as well as public entities receivables contributing negatively to the equation. This strict capital management policy, together with the growing profitability of the group is pushing our total return -- return on capital employed to levels in the mid-to-high teens, which is remarkable due to the still relatively low levels of profitability in relation to our peers and provides obviously room for further improvement as our profitability continues to grow. On Page 22, we have a bridge for the net debt, which I think is self-explanatory and we can skip. And I would like to spend a couple of minutes on Page 23, analyzing the evolution of working capital. First of all, on the left-hand side of the chart, we have included our usual analysis of the 3 main components of our trade working capital items. Sticking to the usual accounting definition, which limits working capital to those items with an expected life of 12 months or less. December 21 figures for accounts receivable are affected in this case by a large reclassification of around EUR 150 million of advanced payments that have moved from short term to long term, reflecting the fact that some of the customer advances in our balance sheet correspond to work that will be carried out over a period of time, which is longer than 12 months, as is typically the case, for example, in some of the larger defence contracts. This reclassification is not entirely consistent with the criteria that we have been using in the past and follows a recommendation from our auditor. So we have followed the same criteria, total net working capital as a multiple of digital sales, we have shown a slight improvement in the year, standing at minus 10 days of trading or sales in 2021 versus minus 9 at the end of last year. To avoid confusion with any potential future reclassifications of any of the different components of working capital, we will also provide for now on the aggregate of both the short and the long-term elements of our working capital. Here, we show that at the right-hand side of the page. We will also, please we can also look at the results presentation for the historical series of this short plus long-term aggregation. You will appreciate that there are very similar patterns, whether you look at short term only or both short term, long term, with in any case is a moderate improvement in 2021 versus 2020 versus 2020. If we move to Slide 24, we show the evolution of net debt and leverage ratios. You can see that net debt amounted to EUR 240 million, which is the lowest in the last 10 years, as we have already said. The level of that translates into a net debt-to-EBITDA ratio of 0.8x compared to 2.5x in December 2020. And this is, again, the lowest in a long period of time as you can see on the page out there. As always, we maintain a level of nonrecourse factoring at EUR 187 million. And now just to finish to finalize this presentation, let's look quickly at our debt structure on the Slide 25. On the left hand side, as normal, you can see the composition of our gross debt. We have a wide variety of financial sources, so financial instruments, corporate compatible bonds on facilities, and the loans, etc., etc. In addition, we have in total around EUR 1.2 billion of cash on the balance sheet. Or actually, we can also look at EUR 600 million if we put aside the cash that we need to eventually repay the corporate and convertible bonds that are maturing in a relatively short period of time in late October 2023, October 2024. We also have available facilities of EUR 86 million, which aren't drawn and we could use to complement our cash needs if needed, which obviously doesn't seem to be the case. On the right-hand side, you can see cost of debt stabilized and the rest of the metrics that we normally discussed, including we have added for this presentation the average life at the beginning of -- at the end of 2021 -- at the end of 2020 of our debt if we were to exclude the bonds, which, as we said, we have enough cash to kind of put aside to pay for. And you can see how despite the fact that the year has combined since 2020, the actual numbers are actually show a moderate improvement. So that is a testament to the efforts in refinancing the debt and maintaining longer maturity. So that's pretty much it. Thank you very much for your attention, and let's move on with the Q&A session.

[Operator Instructions] The first question comes from Varun Rajwanshi from JPMorgan.

I have 2 questions. First, on your growth expectations by different segments for 2022. So by defence, Air Traffic Management, Transport and Minsait divisions. Can you give us some qualitative expectations for this year? And secondly, on margin evolution, what impact from the pandemic in terms of delays and milestone recognitions and supply chain issues, are you modeling for 2022 because these issues should reverse at some point in time?

Okay. Thank you. I mean, looking 2022, I think for Transport and Defence we expect to grow mid-single digit. On Defence and Security, I think we expect to grow more than mid-single digits. But I think we have a very relevant contract, which is the future combat aircraft system, which we were not able to sign at the end of the year is still pending. And I would say final growth will depend slightly on that. So it could be double digit depending on how we sign or when we sign that contract, which we expect to do that by, I would say mid in the year. On Air Traffic Management, we expect to post at least low single digits, continuing the growth we had in 2020, which was around 4% and hopefully growing ahead pre-COVID levels. I think we have a strong contract signed in the year with EUROCONTROL and also with [indiscernible]. And I think, I mean, things have started to be normalized in the Middle East and also while expecting this in Latin America. And on Transport, I think we expect to be more or less flat. We are maybe slightly growth. I think we are posting a slow growth because we are looking more to still growing profitability and looking very, very carefully into the margins of that vertical. I mean, coming back, I think to the second question, I think we have modeled certain milestones, still things are not as smooth as pre-pandemic. So still we are having some issues on projects on a daily basis. And yes, we have some headwind on supply chain with some increased costs, which we are trying to offset as much as possible.

Okay. In the Minsait side, we expect to grow at least mid-single digits with more or less the following dynamics in Digital division double-digit growth due to the very strong demand that we have today in this kind of project. Besides, we have done several small bolt-on acquisition.

The next question comes from Laurent Daure from Kepler Cheuvreux.

I have a couple of questions. The first is, if there was, again some news about the government possibly increasing its stake. Could you remind us about the Board composition between independent and non-independent? And following the changes in shareholders, how the Board could look post the next AGM? My second question is on the IT side. You did very well last year in proprietary solutions and digital. So first, I'd like to know which solutions are really driving the growth? And I would expect that this business has carried much higher margin than the other part of IT and I would have expected your -- maybe your IT margin to move up further. So do you manage to offset wage inflation with prices? And my final question will be, again, on the impact of COVID. Do you have an update on the business in Transport & Defence that have not been recognized yet because of international air traffic at the end of December and that we could see in the coming releases, maybe this year or next year? Thank you.

[Technical difficulty] Ladies and gentlemen, please hold your lines. We are reconnecting our speakers. Please, Mr. Laurent, hold your question and you will be reminded to ask it again, okay? Thank you. Please, Mr. Laurent, Go ahead with your question.

Okay. Okay. So I'm going to ask again the 3 question I had. The first was on the Board composition. At this point of time and maybe how it will look after the different moves in your shareholder structure to be sure that independent Board member, we still have the control or if there's a risk of the government taking the control of the company? The second question is on the good growth you had in proprietary solution. I was wondering which solutions are really driving the growth? And I would have expected digital and proprietary solution to drive your IT margin higher than what you have recorded as it is said to be carrying higher margin than the rest of IT. And my final question was on Defence side. At the end of 2021, was just wondering if you have the figures of the business that could not have been recognized yet because of the pandemic and the venerability to travel, if you were to expect this to be recognized in 2022 or later on? Thank you.

Yes, while trying to answer your question on the Board. There is, as you know, one seat, which is free. So on available seat and the normal procedure is that a shareholder which has a percentage which is more than 7% or 7.0 something percent could ask for a board seat. So we will see in the next weeks if we raise for that. And after that, the CNR which is the committee of the Board will have to assess that and present to the Board and a candidate for that.

Sorry, potentially, do you see a risk of the independent board member to be losing the control of the Board and that maybe the government comes again with the ITP risk. I mean, this is a major concern for investors at the moment.

Well, I think nothing changed. There is a majority of independent board members and there is a board seat available and nothing changed therefore.

Okay. The second question about proprietary solutions, we have payment system and we have some solutions around IoT in Energy and Industry working really well in the market with double-digit growth. And in general, what we call digital and proprietary solutions have more or less 4 points, 5 points about in markets and the rest of the services that we have today in inside. So a good evolution in terms of growth and also in terms of margins and that help us to put a chain of mix that we are working on it in the last year. And the third question.

On the milestone on defence. I think -- I mean, I think my colleagues have sometimes said around EUR 50 million to EUR 100 million, maybe on delays. The issue here Laurent is that it's difficult to recover, things tend to drive to the left. It's very difficult to recover milestones and continue the following milestones. So things unfortunately slip a little bit and you are not able to recover 100% of that, okay? So we do not expect that we are going to recover a lot of that during the year that will lead to 2023 and so on. But we will recover some. Difficult to say because still, as I was saying, we still have issues in a number of countries in which it will have a milestone we cannot fulfill because people cannot fly.

Okay. Maybe just a clarification, that will be the last one for me, for Cristina. I understand your comments on digital and proprietary solution. So it has been the rest of IT is barely making money still today?

No, no, no. We will win money in all the verticals and all the segment of offers that we have today in sourcing and services and also in digital, but in digital and proprietary solutions we have better margins than the other. But as today, we win money in all the line of offering that we have at today.

Thank you. The next question comes from Bosco Ojeda from UBS.

If I could come back to the situation of the Board and the strategy. I mean, there is that you have seen speculation of descent in the board, the speculation on M&A. I wonder if you could clarify your M&A strategy, whether possibilities of acquiring assets like ITP are still in the table or not? Maybe [indiscernible] will also ask may I, at some point we could have the presence of the Chairman given all the situation around the investor call. On operations, I wanted to ask more about the inflation impact, what do you see at the moment and what happened next year? And also the next-generation funds, what could be the size in the long run of these funds?

Okay. Bosco, I think, again, we have to say that there is no big change. I think we'll continue to do M&A on bolt-on acquisitions. In meantime, we will continue looking into possibilities in Transport and Defence, which are not that easy and slightly different type of acquisitions, but I don't think nothing changed from yesterday. And our strategy continues the same.

Okay. About the net generation funds, we have some good news that we have signed already 2 contracts recently. One is about to digitalize the consulate with the Minister of Foreign Affairs and the other with implementation of service security center with Telefonica for the central administration in Spain. But during the 2022, we have very good expectation to win more contracts around these discounts. Please bear in mind that the [indiscernible] there are always competition in this contract and is moving slower than we expected. I mean, there are some delays in the EBIT and the government are going slower than we expected at the beginning of the year before. In test of inflection, we are a little bit worried about inflection, but we have the element to manage it. So we have an inflection in cost of salary, cost of 3%, but we have had already this inflection in salaries in 2019. We have more or less the same rate of increase in salaries and we manage it to the end of the year to save this situation. First of all, we are increasing prices for the -- for our clients because we have a high demand on certain kinds of profiles. And we are increasing the price in some projects that we have a very good demand. Revenue growth also held up with operating leverage to manage the situation. And in the cost side, we have put in place some measures that we have been doing during the last years, managing the parameter with understood during all the times, the profile that we cannot assign to the projects. If we have improved also increase our pressure to [indiscernible] is working better than in the past, and we are hiring a lot of vocational trainers and juniors that we have just seen at the university. So we are trying to manage the parameter as we are going in the last -- in the past. So we expect to manage the situation without impacting the P&L.

The next question comes from Carlos Trevino from Santander.

I have 2, if I may. The first one was, you have just commented, Cristina, that you are expecting a 3% increase in salaries costs this year. I would like to ask, well, for the company as a whole, how much do you expect the workforce could grow this year? And my second question is related to the Eurofighter project. One of the top is impacting profitability in Q4 was a lower contribution from Eurofighter. How do you expect Eurofighter contribution in 2022 related to 2021? And also, I would like to ask you for the FCAS projects. How do you think that this could impact for revenues this year, even assuming the contract is still to be signed? And also if the profitability in the projects could be compared to the profitability -- profitability in the Eurofighters in this first stage of the project.

Carlos, I'll let Cristina start, but we couldn't follow you too much on the final part of your question after Eurofighter contribution in 2022 compared to 2021.

Yes, there was a follow-up also on the expected contribution from the FCAS projects in 2022. And even assuming that, as you have commented before, you are still claiming on signing a contract. And also on the profitability of these projects, if we can compare the FCAS profitability at these earlier stages of the project with the historical profitability of the Eurofighter or still will be well below those levels?

Okay. Thank you. Understood. I will let Cristina start.

Okay. As I said, we estimate more or less an inflection of 3% in salaries. And the growth of the employers will be around in the budget, it will be around to 2,000 people more or less, okay? But in any case, it depends on the demand. I mean, and the kind of the demand that we get during the year, but we will grow less than the revenues. That's for sure, okay?

So coming back to the question of Eurofighter, I think we expect 2022 lower contribution than '21. We are -- we have always delivered the units for the Middle East. So we have a little bit of a value in 2022, and we'll have to catch back with the orders in Germany and Spain, which, I mean, since you sign until you start delivering the unit, you have a couple of years delay. So we have a little bit of a value in 2022. Regarding FCAS, as I was saying, we were expecting to sign FCAS by the year end. There is a, let me call it a dispute between Dassault and [indiscernible] on certain agreements. And so we have now French elections. So we expect that to happen in the second quarter. And therefore, I mean, the contribution of FCAS will be lower than we were expecting a few weeks ago. On profitability on FCAS, I would say, in the initial phases of these programs, which are more engineer-oriented have traditionally lower margin that you would expect in the manufacturing project in which you have a stable production of units. So because you get at the end, your learning curves in manufacturing allow you to have better margins. So I would say you would expect less of a margin on FCAS on the engineering phases compared to production on Eurofighter. Is that a fair answer?

The next question comes from Ben Castillo from Exane BNP Paribas.

Just to come back on Minsait, strong into the year in Q4 with revenues up in the mid-to-high teens, but the operating margin well below your recent run rate. I know you said some of that is due to variable comp. I just can get your sense on how much that was variable, how much of that is a higher fixed cost base? And does this inflationary environment that we're now in also the midterm profitability ambitions of the Minsait business? Any commentary there would be helpful. And then lastly, on the potential increase of the state's involvement to the extent you can, how do you communicate that message to your investors? And how do you view potential additional involvement or higher investment fee?

Okay. So in Minsait, in the last quarter we have what the margins compare with the fourth quarter of '20 due to the -- as I explained, the higher annual variable remuneration, the bonus that we have to the employees this year because they have hit the target in this year. We have also an increase to workforce due to the acquisition and due to the higher activity that we had at the end of the year. And the revenues have been very good, but in line with the rest of the year. So due to the demand, we don't have any problem on that. I mean, the big difference in margins is the high level of remuneration model that has been a very good year and we have paid more to the employees for that, okay?

Okay. Coming back to the second question, if we understood well. I think we are giving the official message, which is what we know, which is a message that I delivered to the CNMV, which is while we are going to increase the stake by 10%, which is not done, but reaching up 28%. And according to the statement, which was filed, this confirms the government support of all Indra business, not only the defense business as well as the current corporate governance. But is the official message we are delivering to the investor, which is what we know.

The next question comes from Nicolas David from ODDO BHF.

Yes. Good evening, and thank you for taking my questions. First one would be a very quick follow-up on the previous question regarding Minsait profitability. I appreciate the detail. I mean, if you take Q4 margin, it's down 240 bps year-on-year. Could you give us a sense of if this bonus variation was maybe costing 2/3rd or 90% of that or 50% of that would be a really appreciate to have some color regarding that? And also regarding the trend for H1 versus H2 '22 profitability from Minsait, do you expect it I would say, the salary inflation, this underline inflation trends to impact or negatively your profitability in H1 and in H2? Or do you expect it to be to be even during the year? Second question regarding Minsait is should we be aware of some exceptional revenue in Q4 because Q4 was really, really strong in terms of top line. Should we be aware of some exceptional revenues that boosted the growth? Or it's really an underlying performance and you are embedding to some very strong growth in Q1. And I have then another question. I'm trying to reconcile your revenue growth guidance at group level for 2022. I mean, your guidance is above 3.5% growth at constant currency, while you seem to expect above 5% growth both for T&D and Minsait. So what kind of buffer are you taking there? Is it only the FCAS contract? Or do you have something else in mind? And last question is just a housekeeping question is, what will be the level of exceptional charges to expect in 2022?

Okay. The higher level of variable bonds for the whole company, not only for Minsait, but mainly for Minsait because it's where we have more employees in total in the year for the annual plus long-term bonus is around EUR 35 million, EUR 14 million, okay? So it's very important for the last quarter, not only for Minsait, but for the whole company, but mainly for Minsait, okay. So does the bigger impact for -- in the revenues of the last quarter of the year, okay? EBIT guidance for insight in 2022 means that we are expecting both to be between 5% and 6%, okay, for the whole year, but it's important to highlight that the profitability will start low levels in the Q1 due to a workforce increase plus salary that we have already done, okay? But along the year, we will expect this with a fixing plan execution with managing and the growth leverage that we get, we will be around 5% to 6%, but we states lower. As we happened before in 2019, it was the same case. And at the end of the year, we get a very good result. So for 2022, we expect more or less the same, okay? And the last question was around...

Revenue guidelines. I think you're probably looking at numbers on current currency for the previous year. The actual difference for the actual growth for current currency for this year is around 5%. So we are guiding for 5% growth.

Okay. That's clear. And if a question regarding exceptional items.

No, no, there is nothing exceptional was -- is the underlying performance is good and there is nothing exceptional in the last period. The demand is good and we expect the same kind of level of revenues for the next quarters this year.

Is that okay, Nicolas?

Yes. And I had a last question regarding the exceptional item below the line. I mean, at first level.

No, nothing, nothing. It was...

For '22, it's like should we expect traditional restructuring like the EUR 20 million to EUR 30 million restructuring below operating profit -- sorry, my question was not clear. Should we expect at group level to have some exceptional charges below the operating profit and leading to your EBIT guidance?

In 2022, we don't have any, consider any I've seen in below EBIT, I mean, around EBITDA because all the current business, I will say there's nothing exceptional. We have the resulting level of that we have done before at the level, the same level that is here and there is nothing exceptional for 2022.

If there is anything exceptional [indiscernible]...

Okay. Congrats for the very strong results.

[Operator Instructions] The next question comes from Manuel Lorente Mirabaud.

My first question is on the [indiscernible] situation. I was wondering whether you have managed to talk with [indiscernible] in order to address how are they going to proceed in the coming weeks, months, especially regarding as they were stated in the statement that they were planning to build the stake without any meaningful impact on share price, which intrigues me.

Okay. That's the only question or...

That's my first question.

Okay. I'll -- well, I mean we have -- I mean, this is an official statement. We have no knowledge of how it's going to be done. So we have had no contact on that. So I think we basically don't know.

We don't know. We don't have that information, I mean, we don't know.

Are you planning to ask them?

Okay. That's the second question. I would try to ask them.

I believe it was implicit in the first one, but...

Okay. I mean we will have to make up our mind and the Board will have to think through this and take whatever decisions we need to take. But I think that's the next days or weeks to work. I'm sorry not to answer your question, but we don't have an answer for that.

Okay. So my second question is on guidance. I believe that Cristina was saying that you expect margins on Minsait to be the on the 5%, 6% range this year. So assuming the low range of the guidance, which implies roughly 40 basis points of margin improvement versus 2021. That will imply that TMD will be roughly stable this year. That's the correct way to see the guidance, all the margin improvement for this year should come from Minsait?

I think that's absolutely right. I think we are looking into a stable margins for defence for 2022.

Okay. And so on Minsait then, how are you modeling this year? I mean, the majority of the margin improve comes exclusively from the [ Angola ] elections. We have any other moving part to bear in mind or does the guidance itself reflects Angola anyway?

Okay. As you know, we win the contract of Angola and it's a relevant contract, but it's a multiyear contract. It's not like the last year -- the last one that we win before. So we will have 2, 3 years of contract with an important amount meaning, if I remember well is EUR 120 million in 2, 3 years, okay? With a very good margin states not secular. I mean, we are not going to move only based on Angola contract, we have to continue doing in of mix, increasing price of our best offer to clients. We will manage the costs and the dynamics, and we have to get the efficiency every year to get to manage the increase of salaries. So it will be a result of everything, I mean, is not only Angola.

So probably my final question on guidance then. So it is fair to say then that from the very key relevant aspect that the market was expecting for this year, we have Eurofighter with lower contribution versus 2021. FCAS, we have very limited contribution this year because of delays, next-gen -- generation projects, very limited contribution this year because of delays and elections, very limited confusion this year because of the multi-annual nature of the contract. That should be the correct way to analyze this very relevant moving parts and key drivers for the profitability of the group for this year?

I think it's correct your 3 first statements are correct. I mean, with the caveat that FCAS can be anything, it's not dependent on us. So we might see better than we expect or worse. So it can be anything and Cristina maybe on elections.

And elections will be better than the year before because of Angola, that is clear and not only -- we are not going to improve only due to elections that I said. And we expect the leverage because of growth in public administration due to the next generation funds. But again, it's not easier. It's something that we have to win during the year. So good expectations, but we have to done it. I mean it's not assigned directly to Indra or something like that. The amount it would be significant, but it's not huge. I mean, that's my point, but we some of our roles and some of the leverage that we get come from next generation Angola elections, that's clear, okay?

And remember, we still have -- remember, we still have some restrictions in 2022. So -- and that will continue to affect revenue.

Okay, and just my final question, sorry. Given the pretty strong free cash flow generation and with the current net debt levels, why are you not launching any more, let's say, friendly shareholder remuneration type of plan? I mean, you are saying that on the M&A front, we shouldn't expect nothing relevant, just bolt-on. So I don't know, with the current capital structure, don't you think that there is room for being a little bit more friendly on this to shareholders?

Okay, if we have a good year in 2022, we will consider it. I mean, it's something that we have in mind. I mean, would be possible if we have a very good year.

But it's not a matter of having a very good year. It's a matter that you already have had a very good year this year.

You are also referring that part of the margin erosion this year has come because extremely a very significant increase on the buyable of size remuneration of the projects of Indra, which is great, and I'm very happy for that, what about the shareholders?

We have considered it, okay? We think on that and the Board will take this into account and consider it very clearly.

Is that okay, Manuel? We are considering it.

The next question comes from German Garcia from JB Capital.

Yes, good afternoon, and thank you for taking my questions. I'd like to know what are your midterm expectations in terms of margins, EBIT margins. In the past, you stated that for Transport & Defense 12% would be reasonable and in IT 6% to 7%. I would like to know if you can reconfirm those midterm targets? Thank you.

Okay. Yes, in Minsait, we think that in the medium term we can hit 7% EBIT doing the things that we are doing today. I mean, C&D.

Yes. And I think in Transport and Defence 12% should look reasonable.

The next question comes from Fernando Lafuente Sesena from Alantra Equities.

Just one quick question for me, please. Can you give us, maybe this one is for Javier, the gross CapEx figure for the quarter, pre any potential cash in from disposals? And also in relation to your net debt position and your expectations of free cash flow, the working capital, what do you -- what should we expect from working capital in 2022 if there's going to be any reversion from the positive impact that we've seen in 2021? And maybe linking this with previous question on the solid financial position, you said you were considering a potential improvement in shareholder remuneration, whatever it could be done in terms of buybacks or higher dividends. Would you also be considering making acquisitions, both bolt-on acquisitions as you have done recently or bigger ones? Thank you so much.

Fernando, CapEx was EUR 18 million for the fourth quarter. Working capital for 2022 should worsen a little bit. I think this year we were lucky that it got a bit better than the year before. We were expecting a bit of a worsening of the situation. This improvement was mostly done on the back of the clean up of all that capital that we have tied up with a problematic project. So we think that is done already. There is a bit of -- a bit more that could come, but probably not that very material. So in 2022 we should expect a reversal of that position and a slight worsening of the situation. With respect to shareholder remuneration. As you said, we are actively considering as Ignacio and Cristina mentioned a before, actively considering other voice of remuneration, namely obviously to ensure share buyback. The dividend we already announced where it was going to be, and that is more complicated for a number of reasons to change. And we are considering that actively. And when it comes to M&A, we are continuing to look at M&A in the same way that we've always done, mostly bolt-on acquisitions. Last year, we did a total of around 9 transactions. And I say around because there were a few minor investments in little stakes of companies that were around EUR 1 million. So it much nothing. But that was the kind of the deal that we do, those are the leads that we're looking at. And we're looking at a number of them. We always have a portfolio as you know well. And this year we will execute on a number of the other situations, but we don't have anything on the table at the moment that is material from a leverage point of view, for example. Sorry. And then just to clarify, I said EUR 18 million CapEx for the fourth quarter, its actually EUR 7 million. Apologies for that.

The next question comes from Carlos Trevino from Santander.

Just for, Ignacio, follow up on your comment that you are expecting in T&D stable margins in 2022. So if we consider that you are expecting higher growth in Defence than in Transport and traffic, and that transport some problematic problems with low profitability are now over. Well, perhaps I was expecting to see a bit of improvement, which will be the reason for these stable margins with this business means it will be the lower contribution for Eurofighter or anything else we will have to consider?

No, no. I think you are right. I think, first is lower contribution from Eurofighter, okay? So that is probably the bulk of the difference. And it's true that transport projects in that are improving. I mean, we had a lot of collections, cash collections, but still we have some issues on some projects that are not finished. So I think they have improved, but they are not completely finished. So I think we have some headwind on that on a number of transfer projects, which are finishing or we are trying to finish during 2022 and maybe some of them '23. I mean, these projects sometimes are long term, 5, 6, 7 years. And so despite I think the portfolio has improved substantially and a lot of collections from Saudi Arabia, from Mecca, Medina projects and some others. Still, we are working in the portfolio to improve or to close those projects that don't give profit at least, but they don't rain profit, but they don't bring profitability. I think there is no more questions. So thank you, thank you very much to all of you on behalf of the Indra team, on behalf of Javier, Cristina and myself and looking forward to the next one. Thank you very much and good afternoon.