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

Welcome to Indra's First Half 2022 Results Presentation. I would like now to hand over to Ezequiel Nieto, Head of Investor Relations. Please go ahead.

Good afternoon, ladies and gentlemen, and thank you for joining us today on our 2022 first-half result presentation. I'm Ezequiel Nieto, Head-Investor Relations. And as usual, let me refer you to disclaimer on the Slide #3, that sets up little bit framework under which this presentation must be considered. Conference call will be led by Indra's CEO, Ignacio Mataix; our Minsait Managing Director, Luis Abril; and our new CFO, Borja Garcia-Alarcon. And the duration will be around one hour. Now let me turn the call to Ignacio Mataix, CEO of Indra. Ignacio, the floor is yours.

Thank you. Ezequiel. First of all, I'm delighted to introduce our new CFO, Borja Garcia-Alarcon Altamirano. Borja has a very strong professional track record in finance, developed in listed company like, Telefonica and Enagas, where he has been the CFO for the last 9 years. Welcome Borja. And now let me move to Slide #4 for the review of the main highlights of the results. Our 2022 first-half results confirm the trends we saw in the first quarter of the year, which translate into the solid growth of our backlog, order intake and revenues, combined with the improvement of the company's profitability. As such, revenues increased by 12% in the first half of the year, mainly boosted by Minsait which delivered 17% growth while Transport & Defence posted a 2% increase. Secondly, EBIT grew by 22% year-on-year, thanks to the improvement in profitability in Transport & Defence. And thirdly, net income reached EUR 66 million in the first half of 2022 which is 20% more than in the first half of last year. Cash-wise, the first half of 2022 has been also very strong in terms of free cash flow generation. In fact, the best first half of the year in the last 6 years. It totaled EUR 24 million positive in the first half compared to EUR 50 million positive -- EUR 50 million negative, sorry, in the first half of last year. As a consequence, our leverage ratio decrease again to 0.6x compared to 2.1x one year ago. This positive performance of our operations during the first half of the year allows us to increase our 2022 revenues, EBIT and free cash flow guidance despite the worsening macroeconomic outlook all across the board, which we think might have a limited impact in the second half of the year. Now in the Slide #5, let me speak about the recent events around corporate governance. As you know, our Board met on the 6th of July and reached the agreements you can see on the slide in order to restore the corporate governance of the company as fast as possible. As such, Indra will call for an Extraordinary General Shareholder Meeting to appoint the new independent board members around end of October. These shareholder meeting will propose; first, to set the number of members of the Board of Directors at 14, for which at least half of them will be independent. Following the recommendation, 17 of good governance and also complying with gender diversity best practices. Second, to eliminate the provision on the quality vote of the Chairman from the company's Bylaws. The search process for the new board members will be led by the current independent directors, supported by Korn Ferry. In addition, despite the separation between the Non-Executive Chairman and the CEO is consolidated and the role of the coordinating independent board member will also be maintained. As you can guess, my main priority as CEO of Indra is now this, to bring back a good corporate governance and restore market confidence with this process, while continue delivering on our financial targets on our strategic plan 2021-2022. Now coming back to our financial results in Page 6 to show our revenues performance for the first half of the year and the second quarter of 2022. On the left side of the slide, reported revenues amounted to EUR 1,805 million in the first half of 2022 and were up 12% compared to the first half of last year, was revenues in local currency grew by 10% with ForEx contributing positively with EUR 28 million because of the appreciation of some Latin American currencies. Last year, this contribution was EUR 39 million negative. Revenues, organic growth, excluding the impact of last year, acquisitions and the ForEx contribution was 9% up in the first half of 2022. On the right-hand side in the second quarter of 2022 revenues grew by 10% in reported terms and 8% in local currency compared to the first half of last year -- the second quarter of last year, sorry. Organic growth for the quarter was up 7% and the ForEx contribution possibly we think EUR 1 million for the reasons already mentioned. Now on the Slide #7, we display the revenue breakdown by region, where you can see that all of them grew across the board. Europe grew by 3% and same printed a 9% increase in local currency, while America and EMEA delivered double-digit growth. The latter is showed outstanding growth driven by the Elections project in Angola. Now turning to Slide #8. We see the group's operating margin and EBIT evolution in both periods. On the left graph, we display margin for the first half of the year. You can see our operating margin improved to EUR 149 million compared to EUR 125 million of last year, equivalent to 8.3% operating margin in the first half compared to 7.7% in the first half of last year, thanks to the operating leverage and improvement in profitability in both divisions as we will show later. Same happened to EBIT, with a EUR 123 million compared to EUR 100 million of last year, mainly explained by higher profitability in the Transport & Defence division, despite the increase in amortization of EUR 6 million in the first half of this year compared to last year. Moving to the class, on the right you can see that operating margin in the second quarter amounted to EUR 77 million compared to EUR 73 million, equivalent to 8.1% margin in the second quarter compared to 8.4% margin in the second quarter of last year. For its part, EBIT for the second quarter was EUR 63 million. This is 6.6% EBIT margin compared to EUR 61 million of last year, which was 7.1% EBIT margin. Turning now to Slide #9, please find the evolution of our workforce with a breakdown by division. Our total final headcount at the end of June 2022 increased compared to both December and June, explained by a very strong levels of demand that we continue to see in our main markets and the integration of the workforce of over last bolt-on acquisitions. At the bottom of the page, we display the evolution of the number of employees not assigned to project, which remains very low for another quarter. Now let's talk about the 2022 guidance in the Slide #10. After the solid second quarter print, we have decided to upgrade our 2022 guidance or revenues in constant currency. reported EBIT and free cash flow. Revenues in constant currency will rise to more than EUR 3.6 billion versus the previous guidance or more than EUR 3.550 million. On the reported EBIT, we upgrade to more than EUR 280 million compared to EUR 270 -- more than EUR 270 million that we had previously and on free cash flow, we increase our ambition to more than a EUR 175 million compared to the previous more than EUR 170 million. If we move to Slide #11, let's check out how the outlook for the Defence sector has changed because of the outbreak of the war in Ukraine. And how this is going to impact on Indra Defence businesses. All major neighborhood countries have announced an increase in Defence spending, where it's worth highlighting the commitment of Germany with an additional program of EUR 100 billion. At the same time, many European countries have stated the willingness to support the development of future European Defence program. Spain has also announced its commitment to reach 2% of GDP in Defence spending no later than 2029 in the last NATO Summit in Madrid, with an immediate first step which is to increase the EUR 1 billion the Defence spending in 2022. For Indra, we expect that all these announcements will mean an acceleration of the existing national and European progress and the launch of new one, both in the Navy and the Air Force in Spain. As such, we believe that we will hope to close the international agreement of FCAS Phase 1B and will accelerate the signing of new Eurofighters for Spain as early as 2022 or 2023. We'll also expect the renewal of more air Defence systems. The acceleration of the Santiago 2 Electronic-Intelligence Program and the new Command and Control terrestrial assistance, all of them in this phase. All in all, the devastating war in Ukraine has turned European Defence landscape upside down and opened a new frontier possibilities for Indra in the medium term. Now let me move to Slide #12, where you can see the backlog and order intake evolution of our Transport & Defence division. Backlog in Transport & Defence amounted to EUR 4,067 million and increased by 13% in reported terms in the first half of 2022. Standing out Defence and Security which amounted to EUR 2.667 million while backlog over the last 12 months' revenues increased to 3.21x in the first half of 2022 compared to 3x in the first half -- in the same half of last year. Order intake in the first half went up by 31% in local currency, boosted by the strong activity recorded in Defence and Security, 64% in local currency. Thanks to the order intake registered in the MK1 rollout of the Eurofighter projects in Germany and Spain, as well as the contract for the modernization of the Tiger MKIII helicopters in Spain. For its part, order intake in Transport & Traffic declined by 4% due to relevant contracts that took place in the first half of last year, both in Air Traffic and Transport. If we move to Slide #13, we show revenue breakdown of the 2 businesses in Transport & Defence. First half of 2022 revenues slightly increased by 1% in local currency, pushed by the growth registered in Transport & Traffic about 3% in local currency, due to the higher activity with ENAIRE in Spain, and T-mobilitat and in several rail projects. For its part, Defence and Security sales slightly decreased 1% in local currency, as a consequence of the lower activity of the Eurofighter project and the lack of contribution from the FCAS project. In the quarter, revenues decreased by 3%, showing declines both in Transport & Traffic 4% in local currency, with 5% declines in Traffic and 4% decline in Transport with the lower activities in both segments in international projects. And in Defence and Security, their reduction was by 2% due to lower contribution of the Eurofighter project. Now please let me go to Slide #14 of the operating margin and EBIT for Transport & Defence. On the top of the left graph, operating margin on the first half reached EUR 65 million compared to EUR 56 million in both in the first half of last year, equivalent to 11% margin compared to 9.6% last year in the same period. Moving to the top right graph, operating margin in the second quarter stood at EUR 35 million compared to EUR 32 million in the same quarter last year. It's translating to 11.3% margin compared to 10% margin in the same quarter last year. As you can see on the bottom left graph, EBIT in the first half of the year was EUR 61 million compared to EUR 47 million last year in the same period, which translate into a 10.2% EBIT margin compared to an 8% margin in the first half of last year. But by increase in profitability in Transport & Traffic, both in Air Traffic and Transport segment. And if we move into the bottom right graph, EBIT in the second quarter stood at EUR 33 million compared to EUR 28 million in the same quarter '21, clearly the 10.6% margin compared to 8.7% margin in the same quarter last year. With this, I finalize the Transport & Defence, and I turn the call to Luis to follow on the presentation.

Thank you, Ignacio. And good evening, everyone. Now let's move to Slide #15, where you can see the backlog and the order intake the rules in the Minsait division. First of all, this page on the left-hand side of the slide, backlog in these had went up by 11% in reported terms and totaled EUR 1,977 million while the backlog revenues ratio over the last 12 months is stood at 0.86x compared to 0.90x in the first half of '21, which implies minus 5% decrease versus last year same period. Second, the graph on the right shows the evolution of our first half '22 Minsait order intake, which went up by 21% in local currency, boosted by the solid growth showed in all verticals among which stood out public administration and healthcare, that grew by 51% in local currency helped by the order intake of the elections for Angola. Then moving now to Slide #16. Here we show the revenue breakdown of Minsait. Sales in the first half of '22 grew by 15% in local currency, with all the verticals registering a strong growth, standing out again the growth posted in public administration and healthcare which was plus 31% in local currency, driven by increased contribution from the Election business and also in energy and industry with growth of plus 12% in local currency. On the right-hand side of the chart, we see the second quarter figures. Here we see that revenues went up by 14% in local currency, in a market environment where customer demand continues to be strong. And also with solid growth in all verticals, I mean with Public Administration and Healthcare stood out once again. And then finally on Minsait, let's move to Slide #17 to operating profitability. Here on the top left graph we display our first half of '22 operating margin, which stood at EUR 84 million compared to the EUR 69 million in the first half of last year. This is equivalent to an operating margin of 6.9% in the first half of '22 versus 6.7% in the first half of '21. And moving to the top-right graph and there we see operating margin in the second quarter of '22 that stood at EUR 42 million versus EUR 41 million in the second quarter of '21. And this translates into a 6.6% operating margin in the second quarter of '22 versus 7.5% last year. And then going to the bottom of the slide, as you can see on the left graph, EBIT in the first half of the year was EUR 62 million compared to the EUR 54 million of the last year same period, which translates into a 5.1% EBIT margin this year, slightly lower than the 5.2% recorded in the first half of '21, despite the sales growth, which is mainly explained by higher indemnities plus EUR 5 million as well as higher amortizations the plus EUR 3 million in the first half of '22 versus the first half of '21. Moving to the right, in the bottom -- in the bottom right graph, we see EBIT in the second quarter of '22 that stood at EUR 30 million versus the EUR 33 million of the second quarter of '21. This is equivalent to an EBIT margin of 4.7% in the second quarter of '22 versus 6.1% in the second quarter of '21, explained by the same reasons: high indemnities and high amortizations and also salary increase. And that's it for Minsait. So now I leave the floor to Borja for the finance to begin.

Thank you, Luis. Thank you, Ignacio, for your friendly introduction and good evening to everyone. It's a pleasure for me to address again the financial community, but now for the first time as CFO of Indra. On top of the strong business performance presented to you by CEO Luis Abril, let me now guide you through the financial section where you will see how the operative improvement are converted into a strong cash flow generation. Having a look to Page 18, there are 3 main messages that I would like to highlight. The first is on the top strip of the page on the right-hand side. As you can see here, the free cash flow generated in the first half of 2022 amounted to EUR 24 million, and this is the best figure reported for the first 6 months in the period 2017 to 2022. Second, it is important to mention that free cash flow is usually negative in the first semester. In this sense, figures for 2022 was driven by the performance of our 2 divisions and the improvement in the working capital needs as you will see now. And finally, same comment applies to the cumulative free cash flow that for the last 12 months reached our highest historical level at EUR 356 million. As you know well, consistent with our guidance from the figures reported in the previous year, cumulative free cash flow excludes extraordinary items related to employees' restricted plans as well as cash income from asset disposal. Now going to the main components of the free cash flow, page 19 contains the working capital evolution in the first half 2022. First compared to the first half of '21 and then with December '21. Compared to June '21, there is a relevant improvement in 19 days explained by the production receipt in the second quarter from the Elections project in Angola, plus a long list of small clients. Inventories and accounts payables remain almost payable in terms of these results. Compared to December '21, working capital increased by 4 days in line with the seasonality of the business, as we accommodate work in progress through the year and built up restockpiling. In line with seasonality, inventories increased by 7 days in the first half of 2022 while other items remained almost stable. Page 20, so a reduction in EUR 30 million in our net debt between December '21 and June '22. Starting at EUR 240 million at the end of December '21, the first aspect is a positive contribution of operating cash flow of EUR 163 million due to this strong performance of our 2 divisions. As mentioned in the previous page, working capital reflects the seasonality of the business in the first part of the year and even with the strong revenue growth delivered, it only increased by EUR 52 million, compared to EUR 128 million in the first half of 2021. CapEx stood at EUR 18 million, above EUR 11 million of capital reported in the same period of 2021 due to higher investment in tangible assets as well as lower subsidiary productions. Next block is the bridge. In this bridge are taxes, EUR 30 million compared to EUR 15 million in the same period of 2021. EUR 5 million of this variation comes from the higher profit before taxes in the period, EUR 3 million due to the accounting recognition of the tax inspection in Spain related to the period 2015 to 2018. And the last part of the increase comes from different countries mainly from Mexico where tax assets available in the past were already mentioned. Variation of other financial liabilities amounted to EUR 17 million, the same figures ran in 2021. Net interest, EUR 22 million, below EUR 25 million registered in the same period of 2021. The savings in EUR 3 million is a combination of lower interest payments related to the reduction in gross debt partially offset with the payment derived from the partial repurchase of the bond executed in the second quarter. And finally financial investment, FX impact and other of minus EUR 7 million includes M&A and other small items for EUR 13 million all of them compensated by EUR 20 million of positive contribution of the FX, mainly because of the real in Brazil. Now Page 21 shows the evolution of the leverage since 2016. We closed June 2022 at 0.6x net debt-to-EBITDA with a significant improvement compared to June '21. As in the past, factoring stand EUR 187 million at the end of the quarter to make figures comparable and we have eliminated the impact of IFRS 16 in unextraordinary items related to employee restructuring plans and asset disposals. Now just to finish the presentation, let's have a look to the debt structure on Slide 22. Gross debt amounts to EUR 972 million, is well diversified around 50% fixed and 50% floating. Its average maturity exceed 2.5 year and cost of debt remained stable at 1.9%. As you can see, we have reduced our gross debt by 30% in the last 6 months due to the report just in May of some of the EUR 300 million corporate bonds with maturity in 2024 as well as the cancellation of bank debt. Total cash position in June was EUR 762 million and we have also -- and we also have EUR 183 million of undrawn credit facilities. All these financial position together with the strong performance of the business compared to the well with the maturity profile shown in the page. So with that, we finalize our presentation. Thank you very much for your attention. And let's now move on to the Q&A session.

[Operator Instructions] Your first question comes from Bosco Ojeda from UBS.

I wanted to ask first on the IT division on the cost front. If I'm not wrong, your costs are up something like 19% year-on-year. So you had a good revenue for this quarter. But the cost seems to be escalating. If you could give us a bit of detail on what's going on? Second question on the Eurofighter, I mean you have a very good backlog, a number of things on the Defence side, but if you could give us a bit of detail on how is the timing for revenues on the Eurofighter over the next quarter or years? And all I think you mentioned you have very positive expectations for FCAS. If you could also give us a bit of color on what could be the timing for that? And finally, a question once again if you don't mind on ITP it was early this morning also the news on the potential investment from Indra, if you continue to think that, that is not the base case for your investment?

Okay. Bosco, could you please repeat your questions. We have the 2 questions. I don't know maybe you may get that third question or just 2 questions?

Yes, I do, I mean first on IT costs, the second was on the Eurofighter and the third question was about the ITP. The company, if you could give us also some reassurance if you continue to think that that's not potential investment for Indra. I'm asking because this morning, there was news saying that you could take a stake on the company?

Okay, thank you, Bosco. I can start with IT right on the cost side. Okay here, effectively, there are some costs that increased higher -- that increased this year in this quarter, the most relevant figures that increased in terms of cost are, we've mentioned some already, indemnities, which are higher in the second quarter than in the second quarter of last year by around EUR 3 million. Then in this quarter, we also have higher amortizations like plus EUR 2 million or something like that. Also salary inflation is higher than what we had last year. Even though looking forward what we see is that, you know, the salary inflation is starting to slow down. And then there is another relevant thing which is that in the Angola project, we have -- we are starting to have relevant sales around EUR 40 million in the first half but they brought quite low margin for different reasons. We are being conservative here basically. Basically for the last year, there are guarantees, there are some costs which are not easy to estimate until the elections take place and this will be in August and therefore we're being conservative here. Probably with these 4, 5 things, we can explain the slight drop in the percentage margin that you see in this second quarter, but still here we are confident, the messages that we are confident that we will be meeting the target of EBIT and margin that we've stated for Minsait by the end of the year.

Thank you, Luis. Bosco, regarding the Eurofighter, we are having a lower contribution in the year clearly compared to last year. And I think all the news are positive in Eurofighter you've seen the signature of new Eurofighter in ELA Germany a few weeks ago. You've seen, we signed a large contracts on the radar. So we look forward into 2023 and onwards on increasing our Eurofighter business. How that goes through the P&L, difficult to show because you know that Eurofighter takes 2 or 3 years to be delivered because of the time of the supply of the different components on the aircraft. So that's more difficult to give you some more flavor. But obviously strong demand on the product, need upgrades on the product. So I would say good tailwind on Eurofighter for the next years. And regarding the ITP news this morning, okay, and those are news on the newspapers we can reassure you as you asked that we are not looking into ITP and that in minority stake for us on -- or a financial investment is not what we would seek in ITP, nor in any other company we would look into.

Your next question comes from Carlos Treviño from Santander.

Mainly 3, you are increasing the guidance by EUR 10 million in EBIT. However, free cash flow increases by EUR 5 million. I would like to ask you for the moving parts in the figures flow, it could mean that you are expecting this volume increase in the guidance as lower free cash flow level of that EBIT? As a follow-up to the previous question on the Eurofighter I would like to ask you how do you see the contribution from the FCAS projects during the second half of the year. And finally your comment in your earnings report, very likely that you're going to put out on your backlog the contract with the Lockheed Martin or the [indiscernible] F110. I would like to ask you for this topic how it's evolving? And you expect that you can recover some additional -- as part of this business or part of this contract, if you could have additional business from their [indiscernible] program in your backlog over next year?

Borja, on the cash conversion.

Okay Carlos, well initially our guidance was as you know, EUR 170 million for free cash flow with EUR 270 million for EBIT. So the cash conversion was 60% and that's what we have maintained it. So now for EUR 175 million, we'll go to EUR 280 million that's an average behind this figure growth guidance.

Okay. Carlos, regarding the 2 difficult questions on FCAS, but we were expecting to have signed FCAS throughout the first half of the year. That has not happened, and therefore now -- with how you were transform a contract into actual sales and you need to -- for the people to work and so on, we will see fewer, contribution or very, very limited contribution on FCAS on the second half of the year. We still expect to sign FCAS in the last quarter of the year and we still expect that, that will contribute from 1st of January onwards. So we are positive on that but I think, we expect very, very limited contribution on FCAS if any in the last half of the year. Regarding the F110, I think that these are pointing in the sense that we have, let's say close a contract. We will continue negotiating with Lockheed Martin on having a scope on the contract. Okay so we expect to manufacture and hover in a scope that we'll have to work on that throughout the second half of the year and next year. And I cannot tell you, I mean, how much we are going to able to recover. That has been a large contract for us in which okay we expect some contribution but far away of the EUR 150 million plus we had on the contract initially. Okay, but we will continue to have other contracts with F110 so this is only the contract we had with Lockheed Martin, but we have other direct contract with Navantia on the program and we'll deliver a lot of other sensors on the program, which we'll continue on and which we are working on. Next question please.

The next question comes from Ben Castillo from BNP Paribas.

Can I come back to the cost base in IT. To the point earlier, I think it looks like costs were up around 20% year-over-year in Q2 despite IT revenues up around 14% constant currency. So I guess if this cost base we are seeing in Q2 with salary increases and so forth is that what we should be looking out for the rest of this year? And I guess, is there any change to your confidence in achieving those margin targets for the IT business? And I have a follow-up on the guidance?

Okay I mean there is part which has to do with salary increases. But we are quite optimistic with the evolution of salaries looking forward. Because we are starting to see some slowdown regarding this matter and here in this context, what we can say that we maintain the items that we've given in terms of EBIT for IT addition which is keeping figures which are above 5.5%. So probably the next 2 quarters will be better in terms of salary increases and plus we have good things for the remaining -- for the rest of the year.

Got it. And then just to follow-up on the guidance raise on the top-line I guess, it seems to imply the revenue growth would slow down to sort of around 3% giving you just growing 10% in H1. I guess, what are your assumptions in their -- the baking in that slowed down in H2? And perhaps expand that to the macro, those assumptions things remain the same, improving from here or some deterioration. Interested to hear what you're baking in there?

Okay I don't think we see major change is going in the second half. So, I think obviously, that the some of the growth we've had in winter, will be reduced slightly and we think that obviously there is going to be some difficulties on the 2 quarters, and will not affect that in the short-term, but in terms of the longer view of uncertainty. So I think we are growing at a good path, we are growing more than 6% in constant currency.f So remember that we say more than. So we will need to see how we develop through the second half of the year but we are staying -- I think we are quite keen on the backlog we have the business performance -- the evolution and the profitability of the business. So despite of the uncertainty in the market, we are quite confident on our guidance, and in all the lines, in growth, in EBIT and in cash flow generation.

Next question please.

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

Just have 2 question. The first is on the balance sheet. So you are now almost fully deleveraged. My question is more on capital deployment. And so, what happened if you still consider bolt-on deals in terms of acquisition in the IT side or if you really want to refocus much stronger towards the Defence sector? And my second question is on the global environment. I understand that this time you're still enjoying strong growth in IT, but do you start to see your lengthening sell cycle slight delays in closing deals in any of the verticals or any of the regions or at this stage you do still -- do not see any sign of slowdown anyway. And your granularity on the, what could happen in next 3 months would be very useful.

Okay. Laurent, I think regarding M&A, I think we will continue looking into bolt-on acquisition on both segments, both in IT and in Transport & Defence. And we will continue applying our very, very strict policies - for been conservative on what we look at and looking at them very closely. So we are not going to change our policy there and I think there are good deals and we have a good pipeline on M&A on the table and we will continue with that. And regarding Luis, IT…

And that's -- I mean so far basically, we haven't seen anything weird here, any slowdown in the demand despite the macro trends which are over there, is to that we have to consider that IT companies are like cyclical. So basically, we'll have to keep an eye everything that is happening, but for the coming 2 quarters, we expect to continue to perform well and to achieve our new guidance for 2022 and we are quite comfortable with that. For what is going to happen in 2023, we will see probably we'll decide that we have an eye on everything so that we can react if it's needed.

I have -- Luis strong pipeline of good opportunities ahead of us. So we are not seeing any slowdown in that sense.

And maybe a follow-up on, assuming 2023 was to be tougher than we think on the macro side, you compared to previous cycles, where it took quite sometimes given the location of your headcounts where just your headcount with a weakening top-line. Do you believe that today the company is in better position to react faster? And then just a cost base when you compare with 2020 or even in previous years?

Yes, I think we are better positioned than while ago. If you take a look at the growth of our workforce in the last month, around one part of that growth comes from Latin America. That gives us a view to how the different human resources markets behave. We have now more flexibility than what we have before.

I think in terms of the flexibility of our workforce is more flexible for the skilled with more possibility. So we can move more workforce than maybe we could 3 or 4 years ago. We've been working in the pyramid in hiring young people so I think the flexibility of the workforce itself is larger. So we can meet people, I think quicker than we were able to do it 3 or 3 or 4 years ago.

Your next question comes from Manuel Lorente from Mirabaud.

My first question is on security and the plans right. I believe that among the companies that I'm follow you are the exception in terms of no growth on security and especially in the current backlog. So do you see there is something wrong in your commercial front, in your go-to-market strategy, in your portfolio mix or this is just a material demanding comps to the escalation in backlog? So look strange, these mute performance in security and Defence in the current backdrop. And as you were saying, there is some massive improvement in Defence batches so why you have not been able to jump into this new trend?

I mean, let me say first of all there is nothing wrong. Again, we have a very strong backlog. If you look into last year, the growth was 22%, so very strong growth. I mean the Defence projects which are 5 to 7 years average I mean unfortunately they don't grow the same every year. So, sometimes you have ifs and bottoms and that's what is coming this year in terms of Defence. We have lower contribution from Eurofighter as we mentioned. We have no contribution in FCAS. But we are continuing to increase our backlog, which will produce revenues along the road. So there is nothing negative. We have peaks and valleys. I think we have a very strong -- looking forward, with the growth in spending in Defence, I think will benefit very much from that, but takes time unfortunately. So I think we need to be patient there. It takes time for you and for us. So nothing wrong in the pace of the business and this is a number of projects that some of them are slower as you can imagine with engineering taking place in the beginning with lower amount. And if you look at into the production, you get as much volumes. So I would say the normal pace of the business and would you have of this analysis.

I see. So just a follow-up then on margins on T&D, right, you were mentioning that Eurofighter the contribution is lower than in previous year. My understanding is that Eurofighter is one of the largest contributors in terms of profitability of the division. So, how do you explain then the increasing in EBIT quarter-on-quarter or versus last year in the context of milled sales evolution and lower contribution from Eurofighter?

3 questions here I mean, remember, we've been saying in the last, I would say a couple of years that we had a number of projects in Transport that were dragging on that we have issues [indiscernible], normally that we have a number of them now. So I think one of the efforts in the last couple of years has been, okay, to remove from the problems we had in those projects, I put in profitability as, and I think that has happened now. And what we see in the first half is that projects in Transport, that were driving results are contributing, It is a big move from negative results to positive results in those projects. So we have stemmed them around, they've been very large projects, that happened already last year. There is, Saudi Arabian projects it has happened we think we do that in Spain this year. So I think -- I mean, the difference is that positive contribution that was negative in the past of those Transport projects. Because as you mentioned, the lower -- I mean, we have lower contribution of Defence or especially Eurofighter project.

I see so just moving then to Minsait. Can you give us the revenue and operation margin contribute from Angola. And free cash flow, if it is possible as well? It was EUR 40 million that was correct?

Yes the amount accounted in this first half of the year is around EUR 40 million. Sorry?

Mainly in Q2?

Mainly in Q2, yes, right. Mainly in Q2 and then for the second half of the year, we're still around half -- around EUR 60 million or something like that in terms of revenues. In terms of free cash flow, well, this -- remember that this is a multi-year project. So there is a piece of the revenue that may come next year. Regarding cash flow, a relevant part of the project has been testing already. And on margins for confidentiality reasons with customer and so on and so forth, we cannot talk much, right. It should be a good project. But we cannot say much.

Yes okay, I understand that. You were mentioning that these EUR 40 million revenues on Q2 was at low margin. So it is fair to assume that the EUR 60 million revenues from the second half of the year is going to be with let's say nice margin because my understanding was that previous election in Angola was a very relevant project revenues and profitability wise.

Yes, that's exactly right.

Next question please.

Your next question comes from Nicolas David from ODDO BHF.

I would like to come back on the ITP story. You mentioned that you're not interested in the minority you're financial investment into ITP. Does it mean that -- would you be interested in kind of a more strategic investment like, I mean investing 30% having Board member as -- at the Board or would you only be considering maybe a majority investment of 51%. So it will be interesting to understand how we define what, is a minority investment for you and would you be interested in a more strategic or even a majority investment there?

Okay, I understand that this is not on the table. So there is an agreement which needs to be approved according to public information by the Spanish government with and therefore this possibility is not on the table.

Okay. And how do you find minority investments from your standard for instance. Maybe just to understand better, what we're talking about, I understand that you can't comment and you put your interest for that, but how do you define financial investment?

Well, I mean, difficult to define, but you know what, we've been talking and will be saying, which is 15%, what is in the table, again, to public information is not something that -- is something which is for us an investment which is appealing at all.

Okay. And my second question is regarding mid side backlog and order intake. H1 has been solid, but nevertheless backlog is going down. What do you see currently in terms of commercial activity for H2? Do you think that backlog as a specific of revenue which -- could you put down or do you think that you can fuel again this metric and to fuel the growth for '23?

We're comfortable with the figures that you see there, and we believe that the order intake is going to grow at double-digit for the whole year. And that's it. No, you see -- you know, minor drops in some figures but you know, the overall feeling and the overall numbers are this -- we see clear, strong growth for the year.

Specifically for Minsait right?

Yes right.

Okay any more questions?

[Operator Instructions] There are no further questions. Dear speakers, back to you for the conclusion.

So, thank you so much, again for attending the call. Thank you for the questions. Hopefully, we have answered all the questions. In any case, our Investor Relations team led by Ezequiel is responsible to answer other questions if you have. So, thank you very much for attending the call and for the ones that are going to have some days, have a good break and into the summer. Thank you.