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

Good morning, ladies and gentlemen. Welcome to our Capital Markets Day. I'm Ezequiel Nieto, Head of Investor Relations. Just before all, let me introduce the agenda for today. We'll start with the presentation of our strategic plan leading the future, which is going to be led by our Chairman, Marc Murtra; and also by our Chief Executive Officer, Jose vicente Los mozos. After this, we are going to have a Q&A session. And finally, we will close the event with a cocktail with the management. So thank you very much. And now let me turn the call to Marc and Jose Vicente. Please, floor is yours.

Good morning. We are delighted to welcome you to our Capital Markets Day. Today marks a significant milestone in our journey, reflecting our collective commitment to growth, innovation and excellence. This session is designed to offer a detailed look into our future covering the essence of our purpose, the strategic pillars for 2024, 2030 and the financial projections, defining our goals. Our strategic plan unfolds across 2 horizons, a near-term focus up to 2026 and the vision that extends to 2030. Each phase is crafted with precise goals to ensure a strategic path towards our long-term objectives. This plan has been conceived in alignment with the Board of Directors, our stakeholders and shareholders underscoring a unified strategy to ensure our goals are both ambitious and within reach. The synergy between our vision and governance reflects our commitment to a transparent and achievable road map. Our strategic plan will be executed under growth market conditions in 2 of the most relevant sectors for us. The defense and the technology sectors. In defense, particularly among European NATO member states, there is a more pronounced focus on increasing defense budgets to meet strategic commitments. Here, defense procurement spending is set to rise by 7% to 8% annually until 2030, driven by the alliances guideline to allocate budgets equivalent to 2% of GDP to defense. Spain stands at the forefront of this defense trend with its spending projected to surge by 11% to 12% annually to achieve that commitment. In technology, the global IT services market is expected to grow at 4% to 6% rate, driven by digital technologies that are expected to grow at a much faster rate of 15% to 20% until 2030. The expected growth in the defense and the technology sectors is underpinned by distinct drivers, reflecting the current global landscape, the increase in international conflicts such as an ongoing war in Ukraine and the Israeli Palestine conflict, has highlighted concerns over surveillance and security, leaving to an increase in military expenditure. Europe is entering a new major defense investment cycle after more than 30 years characterized by a significant shift in focus towards technology, a greater share of defense systems and the expansion of multidomain capabilities, notably with the integration of new space and cyberspace domains. The future combat air system, FCAS program serves as a major example of this shift. In parallel, the technological landscape is being transformed by a new wave of digitalization, spearheaded by advancements in artificial intelligence, cloud capabilities, and cybersecurity. These advancements are set to revolutionize society and economy, emphasizing the critical role of extended ecosystems in acquiring essential capabilities. These trends signal a pivotal moment for the defense and technology sectors, offering unique opportunities for strategic growth and innovation. With this context in mind, our purpose is to secure the future powering tech progress -- secure the future powering technological progress. In pursuit of this purpose, we will focus on defense, aerospace and advanced digital technologies, aspiring to embody for critical roles, a national defense and technology strategic autonomy guarantor, ensuring Spain's influence in both military and civilian domains at global scale and guaranteeing our nation strategic resilience on autonomy over communication, navigation and positioning capabilities. A defense programs coordinator, assuming a pivotal role in safeguarding security and sovereignty, a technology ecosystems coordinator driving innovation, stimulating economic growth and enhancing competitiveness. And preferred employer for high-value technology, talent as key for sustaining our strategic capabilities. Some of our NATO allies within Europe, such as the U.K., Italy and France have already made significant strides in consolidating defense and aerospace sectors fostering integration under their own national champions through processes spanning over 10 years. This process is crucial to achieve strategic autonomy in Spain and to guarantee its influence at the global scale. With our strong positioning and capabilities, we aspire to lead the Spanish national ecosystem in less than 10 years. To realize this endeavor, we will build on our solid foundations and proven track record. Our century long history attests to our leadership in technological equipment, manufacturing assembly and service delivery. With approximately 57,000 employees, including 15% with advanced digital skills, our workforce is a testament to our robust digital talent baseline. Our financial resilience is evident in our successful turnaround of our IT business, which has evolved from negative EBITDA margins to current 7% margin in a 10-year time frame. A healthy balance sheet with strong financials with EUR 600 million in cash and low debt levels, maintain our net financial debt-to-EBITDA ratio below 0.3%. Going forward, to fully align with our strategic objectives and ensure our leadership in Spain's defense and aerospace sector, we should accelerate the adoption of an international mindset, enabling us to think globally and act locally. Increase client proximity to design needs-based solutions enhancing client satisfaction, embrace a more proactive commercial role with an ambitious and risk-taking mindset to stimulate our growth. Refocus our brand architecture to attract and retain talent and ensure a clear communication with our clients. In this context, the Board of Directors has given the mandate to launch leading the future, our new strategic plan with 5 clear long-term strategic guidelines. First, to accelerate the transition to a multi-domain national reference in defense, aiming to increase our relevance as a global systems integrator as well as a domestic coordinator of the ecosystem in Spain, in air and land programs. This transition also contemplates a strong push to develop the space domain, by creating a European Tier 1 business with end-to-end capabilities. Second, to develop and keep pushing our strong position in air traffic management to achieve a global leadership in the sector. Scaling up strategic geographies, such as North America and Asia Pacific and expanding in key segments of the sector like unmanned traffic management. Third, to become the advanced technology and services ecosystem coordinator across industries in Europe and Latin America, fostering the development of the most advanced digital technologies and capabilities in artificial intelligence, cloud and cybersecurity. Fourth, to divest noncore assets and proactively boost acquisitions, partnerships and alliances that will help us achieve the ambition of our businesses. Finally, to reinforce Indra's brand to keep our current status of preferred employees for high-value technological talent in priority geographies, ensuring our strong critical capabilities. Now our CEO, Jose Vicente Los mozos, will explain in detail our new strategic plan.

Thank you, Marc. Ladies and gentlemen, good morning, and welcome today with us. As you have explained, this plan source our ambition for our future and for the strategic autonomy of Spain. This is why leading the future was conceived from our core, leveraging our best talent and involving more over 200 people across multiple layers and areas of the organization as well as key external stakeholder. This methodology guarantees that the plan is deeply rooted in our organization and reached by multiple perspectives and insights. Next, we will show the video of our plan. [Presentation]

When I joined Indra as CEO last May 2023, as Marc has summarized, I found a company with solid foundation, but with clear areas to evolve to the Indra that I believe we can all build together. Our ambition at Indra with a recognized and shared culture with a closer collaboration, highlighted by a commitment to full accountability over processes and product ensuring that every aspect of our business operate with integrity and transparency. We will foster an agile decision maker and serve leadership model to adapt swiftly to market changes and drive innovation. A diverse multinational and multi-business culture does value our differences will also be one of our priorities in reaching our perspective and promoting inclusiveness. Our culture will nurture a sense of belonging empowering individuals to become brand ambassador who embody and promote all value. Collaboration will be sanely with external partners and within our organization, encouraging unity and strengthening our responsiveness to challenge and opportunities. To support our ambition, a strong program management capability will be essential, ensuring that our projects are delivered with quality, on time and cost competitiveness. Excellence in risk return management will underpin our [ action ], giving us to make informed decisions that balance potential rewards with appropriate risks. The pursuit of a standardized and scalable product design and production will be at the core of our operation. Our product offering will be simplified and focused directly aligned with client needs and market demand. Finally, our commitment to innovation will be evident through significant sale funded. R&D investment in cutting-edge technology ensuring that we remain at the forefront of our industry and continue to break new ground. Now Marc will communicate our vision.

To guide our evolution, we have decided to launch this long-term plan with the ultimate goal of becoming the Spanish multinational of reference in defense and aerospace and advanced digital technologies. Let me repeat that again, become the Spanish multinational of reference in defense and aerospace and advanced digital technologies.

Our long-term plan leading the future is carried around 3 phases: focus, scale up and lead. By 2026, during the focus phase of the plant, our goals are to achieve EUR 6,000 million in sales, with over 12% EBITDA margin and 10% EBIT margin, generating EUR 900 million in cumulative free cash flow. After '26 during the scale-up phase, we expect to create a EUR 10,000 million company, with over 14% in EBITDA margin and 12% in EBIT margin, which should generate over EUR 2,000 million in the period. That's ambition, so allow us to generate over EUR 3,000 million in cumulative free cash flow by 2030.

To articulate this transformation, we will evolve towards a more flexible group structure, featuring first, reinforced defense and aerospace businesses. Second, a new space division. Space is a segment that is becoming more and more relevant in Europe to guarantee its strategic autonomy and sovereignty over communications. The satellite communications are becoming mission-critical for governments in both defense and nondefense applications. Third, incorporation of mobility as one of Minsait's market segments to leverage Minsait's technological capabilities and commercial reach. Fourth, the entry of a new strategic shareholder or shareholders in Minsait, to boost its strategic plan. Finally, a lean corporate center to enable more flexible operating model in order to allow the inclusion of potential new industrial businesses. Jose vicente will now explain our strategic lines.

Leading the future, we bought around 7 strategic lines: one, we will focus on defense and aerospace, where we will complement our existing technological capabilities to become our European reference in defense and will expand our current European leadership, an alliance in air traffic management into North America, Middle East and Asia Pacific, India. Two, we will boost grow in the Spain domain by building an end-to-end dual civil military value proposition through a NewCo, partnering with long-term minority shareholder. Three, we will increase Minsait's autonomy inside the group to support its ambitious growth plan, partnering with strategic shareholders. Fourth, we will strengthen presence in new home market to boost local positioning and increase proximity to our clients in key ratio. Five, we will activate portfolio rotation, including the divestiture of noncore assets and expand our ecosystem to consolidate our footprint in Western Europe, Middle East and North America. Six, we will increase investment in technological R&D, securing core critical capabilities within our portfolio. As such, we plan to invest more than EUR 3,000 million up to 2030. Lastly, we will double down effort on critical talent, implementing the Indra way, filter and revamping our employee value proposition. Now we will deep dive on the business strategy lines. Let's start with defense, where Marc will explain our vision for this business.

The vision for our defense business is to evolve into a land, air and cyberspace Spanish coordinator in European programs to become a defense system integrator of reference to transform the Indra defense business from national to international.

As such, the lead in the future plan will transfer our defense business from a probable supplier to a defense ecosystem. Coordinator such as in the FCAS program with an expanded international ecosystem leveraging alliance and M&A, from a mostly scattered [indiscernible] portfolio to a company focused on high-value and tried focused solution built around key technology categories. From an industrial average value proposition to afford running in cutting-edge technology, incorporating them across all product and maintenance services. From [ tailor made ] a project based on generating an operation to platformize and standardizes more modern focus on excellence and scalability. With the defense domain, in air, we aim to consolidate our position as national coordinator in European program and to be an international defense system integrator. In land, we aspired to be a national coordinator in European programs, an assistant integrator of reference at the European and international level. In Sea, our ambition is to become an integrator of a specific naval system at national and European level. In Cyber space, our vision is to consolidate our server as a national and European cooperation program coordinator. With regard to space, we aspire to be a national leader in Europe Tier 1 company. However, we will deep dive later on this specific domain. To achieve our vision, we will leverage the ecosystem, planning to carry out acquisitions in Europe and key strategy alliance in Europe, Middle East and the U.S. Regarding our organic growth, we already have 50% of our 2026 organic sale committed, with over 70% of them originating from 8 key programs. In the fixed-wing air platform category, this includes the Eurofighter, the A-400M and the FCAS, where we are national coordinator for the next-generation, with persistent program an international leader for a Sensors pillar. In the rotary-wing air platform category, we will mainly integrate mission and electronic defense system for NH-90 Tiger and Chinook. In land domain, we will integrate mission and situational awareness system in around 350 [Pizarro] AACR vehicle. Lastly, we will integrate electronic defense system and next-generation sensor in the F110 Frigate. We need to have increased control over the entire value chain. However, our existing portfolio of over 100 million customized products behind this objective. To address this, we will externalize and simplify our offering into 11 client-focused solution, build around 6 technology categories. This will radar, electronic, common control, computational and intelligent, communication, electronic defense and simulation. To materialize this transformation, we will leverage our ecosystem to complete our portfolio of client-focused solution, developing clear alliance. Let's see how innovation can positively impact our portfolio, for example, through ISS technology. Here, you can see how our final simplified portfolio will look like with our 11 client-focused solutions within the 5 defense domain. Let's move now to our traffic management vision, which Marc will explain.

In the realm of air traffic management, our vision is to maintain leadership in air traffic management in Europe, Middle East and Latin America to reach the #1 position globally by strengthening our core presence in North America and Asia Pacific. And to extend the automation, technological solution to Middle East, Latin America and Asia.

To materialize this vision, we will consolidate our leadership in Europe, our key recurrent geography, pushing for our new automation solution within the iTEC alliance and capturing surveillance system renewal programs. In North America and more specifically in the U.S., we will work on the integration of our acquisition that is SELEX and the scale-up our business through alliance and bolt-on to strengthen our positioning for our future infra renewal programs. In Asia Pacific, we plan to capture large system renewal opportunities and to develop Single Sky program and technology-partner-like Alliance. Additionally, we will expand our managed traffic management business through the development of the platform and new opportunities. As far as our 2026 organic ambition is concerned, we expect around 80% of the revenue to come from backlog and high probability pipeline. As part of our strategic focus on defense and aerospace, our operation will undergo a comprehensive transformation aim at enhancing efficiencies. This transformation will be stricter around 5 master plans. Firstly, the standardization and modernization of our production model and footprint will be a priority. This included a sharper focus on production planning and control, along with the establishment of flexible multiproduct station designed to adapt to the varying demand of our project. Secondly, our advanced engineering model and processes will emphasize security by design principle, ensuring robust verification and validation. We will also improve fast track prototyping and standardized design to streamline development cycle. Thirdly, we will foster an agile and resilient supply chain by embracing a closer integration, coupled with the adoption of lean, agile methodologies to respond swiftly to market demand and supply chain dynamics. Probably our approach to effective quality management will entail the development of more efficient processes, better quality control and refined category management to uphold the higher standard of excellence. Finally, the digitalization and securitization of our operation will reinforce our evolution for our Indra 4.0 with initiatives like the implementation of a digital threat in design and strategic planning. This will be focused on PLM test automation, maintenance 4.0 and digital twin technology to secure our position at [indiscernible] or industry innovation. The combination of this transformation will be our new Indra technology hub expected by 2026, which will be focused on the R&D of cutting-edge technology for all defense and aerospace businesses. This correspondent global vision will be developed along with key stakeholder as social agent from tomorrow. The following video will illustrate how our new industrial flagship, the Indra technology hub will look like. [Presentation]

Let us show you how this transformation translate into a real impact in one of our 6 defense technology categories. Example, the Radars. We will more than triple our volume of annual units in production before 2030. We will focus on increasing standardization targeting more than 60% of commonalities between market for the main Radar families before 2030, which will also enable us to simplify the portfolio from 18 to 13 Radar families started on 2025. For each of these families, we will reduce 30% designed time production, 50% production life time and 20% costs reduce. You can see it's a big transformation in manufacturing in our operation to become a real competitive level. Let's proceed now with something new. Space back to you, Marc.

We have an ambitious vision for our space business, aspiring to become a Tier 1 European player with a global footprint and presence in main European programs to develop a dual civil military offering with end-to-end capabilities alongside the value chain. To leverage an international ecosystem of shareholders and partners to accelerate growth.

As Marc has already explained, space is a segment that is becoming more and more relevant with the development of key space program in Europe, aiming to guarantee strategic autonomy and sovereignty over communication within -- in both military and civil applications. This dual role position on satellite communication as an indispensable technology breathing both defense and civilian sector. This space impact stands across all our businesses, making it a much focus for us in order to become leading defense and aerospace company. The domain is important, is also evident among our international peers, as they establish a relevant dedicated space division reinforced by a strong M&A activity. With this vision of becoming a European defense and aerospace company or reference, and ensuring Spain's sovereignty over communication, our space business will be the cornerstone of a NewCo with end-to-end capabilities. We have already started the identification of national and international target to integrate capabilities around the value chain and cover our gap. Custodian value involves [indiscernible] segment. The key point is to control the value chain. We have laid out a path to boost growth in Spain through the creation of this NewCo. We will start by aggregating Indra current capabilities in Spain under this NewCo. And then incorporate long-term global partners to integrate our financial capacity and help us accelerate through inorganic growth in Europe. With the ultimate goal of becoming a Tier 1 European player with global presence, reaching more than EUR 1,000 million revenue by 2030. With this ambition in mind, we can wrap up space, and Marc will continue with Minsait.

Our vision for Minsait is to become one of the main European and Latin America IT services players, to aggressively rebalance the portfolio towards the most advanced digital business lines, to accelerate expansion into higher value geographies. There are 5 key actions surrounding Minsait futures. We will give Minsait higher operating autonomy inside the group with dedicated governance. We will partner with strategic shareholders to boost the ambitious growth plan set out from Minsait. We will incorporate mobility as a new business to leverage Minsait's capabilities. We will divest noncore business. And lastly, we will reinforce group-wide digital capabilities to provide services to other Indra businesses. Jose Vicente will now provide details on Minsait's plan.

Minsait's ambitious plan will be materialized through our 4 power plant. This plan will be supported by a partner to help fund acquisition accelerating the shift for a digital offering and strategic vision and excel in business and touch talent management. The plan set out to capture efficiencies through GenAI rollout and optimize unitary cost of production pyramids. Deploy a proactive commercial model around priority, offering and target clients and develop joint sell plant with large touch. Evolve for a digitally focused portfolio, integrating capabilities in artificial intelligence, cloud, cybersecurity and other high potential technology to establish an industry-leading offering. Consolidated presence in high-value geographies such as Europe and the Middle East and scale up Latin America operation. In order to maximize the value of this offering, Minsait is set to evolve into a digital focused portfolio. We are targeting 55% of 2026 organic sales to come from high-value digital segment compared to our current 40%. Looking ahead, we're embedding sophisticated artificial intelligence into our business, developing and implementing the most transformative use case. Our cloud strategy will go beyond migration with a focus on modernizing the traditional application with cutting-edge architecture and technology. On cybersecurity, we want to set the standard with advanced services and next-generation solution. As we solidify these pillars, we also plan to extend our growth into other promising field and other high potential technologies, reinforcing our position as coordinator of the digital ecosystem in our priority regions. [Presentation]

We are approaching the final part of the presentation. Framing the vision of all 4 businesses, and as preview explained, our strategy plan also encompass cross growth strategy initiatives. I will now provide the trial on this. In order to accelerate evolution for what a multinational company, we will roll out 3 new cluster of home markets. This being North America and Center and North Europe, Middle East and North Africa and Latin America and South Europe. This cluster will strength local positioning and proximity to customers in the focus region. The rest of the world will, however, operate under a sport model. This internationalization will be supported by a portfolio rotation strategy as well as by the expansion of our ecosystem from key alliance. All acquisition will be accretive for shareholders. And our focus will be on defense and aerospace as we have already explained. In defense, M&A will help us round force. Capabilities in land domain expand our footprint in Western Europe and strengthen our sensor, Edge avionic and Counter-UAS capabilities. In air traffic management, we plan to formalize bolt-on to develop the North America market to reinforce the tower business capabilities. In the space, M&A will help pass a scale up the [ Newco to Global Escal ] as well help us integrate capabilities through the value chain to develop an end-to-end offering. In Minsait, we will leverage new strategic partners to increase our M&A firepower to rebalance our portfolio forward a digital offering and to expand our business in high value geographies. Lastly, we have already identified noncore assets to the best at the group level. Regarding our ecosystem, we will maintain our momentum in stabilizing collaboration agreement and fostering alliance in defense, building on a system partnership with Navantia, Escribano, Tecnobit, [ Talent ] and Lockheed Martin to cultivate next-generation capability alongside or alliance. This last Monday, we have included a new strategic alliance. We have signed an MOU to create a joint venture with Edge group for the development and manufacturing of next-generation radar to be marketed in non-NATO territories. In realm of air traffic management, we aim to force key alliance in the U.S. and with air navigation service provider in the Middle East. For Minsait, we have a structure and management and improvement process for our relationship with all top partners. With hyperscalers, we aim to deepen and leverage our collaboration to develop joint business plan and evolve our digital offering. Furthermore, with SAP and Salesforce, we aim to build upon our status of top partners to continue implementing software solution in multiple business areas. But we won't limit our cash spending to M&A purpose. As part of our commitment to R&D, we plan to invest more than EUR 3,000 million in technology up, development for 2030, including the new state-of-the-art Indra technology hub. Out of this EUR 3,000 million, approximately, EUR 1,000 million will be self-funded. Our R&D spending will be focused on digital technologies to expand and improve our current offering and in cutting edge technology with the ultimate goal of becoming for running in new technological development. We must not forget about our most important asset, our people. The talent at Indra is central to materialize our purpose. For this, we will double down our efforts on critical talent by deploying a truly differential Indra way culture, pivoting around 5 major pillars: a culture of diversity, multinational and multi-business, we preserve our value or differences, culture with a recognized and sheer leadership style with embedded agile decision-making, a culture of commercial and operational excellence that convey our imprint and foster accountability. A culture of development where we can grow professionally and personally and fill encourages to push forward our ambition, a culture that translates into a [indiscernible] that we convey as ambassador of our brands. As part of this plan, we will create more than 5,000 high-value technology and digital work worldwide by 2026. From tomorrow on, we will begin discussion with the work council this project and globally, the implementation or leading the future for our employees. With regard to ESG, we will reaffirm our service as a market reference for ESG. We have set out a comprehensive ESG plan to materialize or '24, '26, ESG commitment, this vein, for example, accelerating decarbonization road map targeting net 0 across all value chain by 2040, adopting ecodesign criteria in all new products, increasing diversity of leadership and management levels. Lastly, we will now provide details into how our strategy transfer into tangible financial outcome. Reflecting on our previous strategic cycle, we can probably say that we have surpassed our 2023 guidance. Last year, remarkable outcome, feature dual digit grow in net order intake, revenue, EBIT and EBITDA. We generated more than EUR 800 million in free cash flow and maintain low debt level within the '21, '23 period. Looking ahead, we aim to boost this growth trajectory. By 2026, our goal are to hit EUR 6,000 million in sales, and sell it a 12% EBITDA margin, reach a 10% EBIT margin and generate EUR 900 million in cumulative free cash flow. Before we move into the organic aspect of our plan, let's look at the broader picture. On the one hand, surpassing EUR 6 billion in sale by 2026 means keeping our current high yearly growth rate. On the other hand, achieving EUR 700 million in EBITDA and reaching EUR 600 million in EBIT mark a significant acceleration in our efficiency metrics compared to the previous cycle. Turning to organic growth. We expect a robust double-digit revenue increase in our defense and aerospace businesses, bringing the group's revenue from EUR 4.3 billion to EUR 5.3 billion, [indiscernible] compound annual growth rate. EBITDA and EBIT are expected to grow at 13% and 13% per annum, twice the revenue growth rate, achieving EUR 650 million and EUR 525 million, respectively, highlighting significant efficiency gains. Minsait aims to improve both EBITDA and EBIT margin by 2 percentage points aligned with industry pair, while defense and [indiscernible] continue -- will continue to lead with best-in-class margins. Finally, we expect to generate EUR 800 million in organic free cash flow in the period. Our capital allocation will prioritize. First, accelerated M&A dedicating over 75% to defense and aerospace. With Minsait fire power increasing upon the entry of a new partner. Our M&A focus will be on Spain, Western Europe, the Middle East and North America. All M&A operation will be aligned with the strategy and growth story and accretive for shareholders. Second, boosting technology investment to EUR 1.2 billion by 2026, comprising EUR 0.7 billion from program funded R&D EUR 0.4 billion from self-funded R&D and EUR 0.1 billion from our new Indra technology hub. Third, ensuring financial stability and retail shareholder return with a 2026 net financial debt to be the ratio at 1, better than industry peers and maintaining a dividend payout ratio around 20%, aligned with current level and consistent with company strategy. As we unfolded in the future, will focus on responsible growth and financial health. Despite significant investment, we expect in 2026 similar cash level to [indiscernible] at the end of 2023, while maintaining reasonable debt levels. Starting with a current cash base of EUR 600 million, our strong organic growth and a careful increase of all debt leverage ratio, so allow us to have over EUR 1.5 billion in firepower while keeping a stable dividend flow. Dassault Power will expand for the thorough divestiture of noncore assets and will help us finance transformational M&A transaction to capitalize system or growth profile. We anticipate, however, that this transaction will maintain a net financial debt-to-EBITDA ratio of 1, demonstrating all commitment to sustainable growth and financial stability. Organic EBITDA is expected to reach EUR 650 million primarily throw and generating operational efficiencies, offsetting negative inflation impact on salaries and supply chains. With Minsait focusing on technology development efficiencies and the first and air space on industrial efficiencies. Sales grow a strategic shift for our high-value segments and geographies. G&A costs over revenue rate improvement, particularly through indirect and structural cost optimization. Beyond organic growth, we anticipate an additional EUR 100 million in EBITDA from inorganic activities, including divestiture and acquisition. Additional asset rotation will only be considered under similar or better 2026 EBITDA levels. By 2026, the space and aerospace contribution to EBITDA will significantly increase, accounting for 2/3 to 3/4 of the total, highlighting our group profile [indiscernible] defense and aerospace. To summarize our finance outlook or 2026 guidance project, an EBITDA of over EUR 750 million and an EBIT of EUR 600 million, with margins extending 12% and 10% respectively. Additionally, we aim for a cumulative free cash flow generation of EUR 900 million divestiture of assets on top of noncore ones already considered, will only be executive if guidance targets are met.

In addition, all top management midterm incentive scheme will be linked to this guidance. We hope we have been able to convey our vision and our ambition for Indra with our plan, leading the future. We will now move on to the Q&A. Thank you very much.

We'll start the Q&A session right now. We will start with the audience here in the floor. [Operator Instructions] So we have first question here. It's microphone number 1 -- yes, Beatriz.

Beatriz from Bestinver. Thank you for your presentation and for taking my questions. Two on my side. According to the 2026 organic guidance, do you expect Minsait to reach an EBIT margin of 7%. It makes sense to estimate EBIT margin excluding mobility of 7.5% in the medium term. So far, you were in for an EBIT margin of 7% in the mid term, which levers will lead you to this target? And the other one, as for the Space division, space media continued to place [indiscernible] as a possible company to be acquired. Do you have any information on this?

Well, about Minsait, okay, that is the direction, interim Minsait. I think the [indiscernible] Luis Abril, first question for Minsait, can answer you the first question, and I'll come back for the second question.

Okay. Thank you, Beatriz. On Minsait, on the margin, I wouldn't say 7.5%. That's probably too aggressive. We have plans for mobility that also consider increasing the margin. I would say that taking out mobility, probably in Minsait, it would be in 7.1, 7.2, okay? And the different levers that we'll pull for achieving that increase in margins are the typical ones that we've been discussing with you recently. They have to do with increasing efficiencies, rotating pyramids, automation, AI. There are things also on the commercial side, things on commercial effectiveness, pricing, I mean, of course, AI, we bet on AI for improving margins very significantly in the future. There are things also on the mix change, on the offering mix, these kind of things.

To finish this question, I came from mobility war. When I study Minsait, I think together, we can go -- we have the same customer, and we can go for some business higher and more complete, that is #1. And #2, there are the synergies. The best way is to work together and accelerate the synergy [indiscernible]. We know this question will come today, okay? But for us, important is you understand the concept of the Newco. In the world of invest $360 billion okay, Spain invest $400 million. That's -- we are the niche around the value chain, but in Spain, we don't control the value chain of the space. The idea of this Newco is great. They control the value chain from Spain. In this value chain, of course, [indiscernible] can be a candidate. But it's not the only one. We are targeting when we look is the satellite manufacturing, the payload, the communication ground for the application cyber military, there are too many possibilities. Of course, space will be another, but is not the only one, okay? That's less as great. What will be the ecosystem? The important is the spend can have that Tier 1 that we control the value chain to go to European and international program.

Thank you, Beatriz. Next question, microphone #1. Laurent.

It's Laurent from Kepler Cheuvreux. Three questions for me. The first one is you alluded to partnership from Minsait. Are you looking more at an industrial partner or [ PE ] and have you already started negotiations? The second one is on margin efficiency. I mean, you focused on better productivity in your factories. And still your defense margin long term is quite stable. So do you expect to pass on most of the efficiency gain to the customer? And my final one is on Minsait. I understand some of the productivity gains. But when I look at the last 2 years, you had very strong growth, and the margin stabilized at around 5%. So what will be different in the next 2 or 3 years versus the last 2 years with your growth decelerating from the current levels?

So thanks, Laurent, for your questions. Regarding the first question. So our priority is the strategy we have set. and we would be looking for a partner that helps boost Minsait's business plan. And in that aspect, we are open to considering different types of partners could be an industrial partner or it could be a private equity partner. What we would look is for a partner that helps boost that means accelerate the growth of Minsait.

Well, about productivity. Everybody knows I was [indiscernible] a plant, okay, in car industry. When I visit the plant in the [indiscernible], frankly, we are far from car industry. To give you one example, last year, we have produced 30% more radar than the past. And I arrive in May, okay, that we have potential. For that when we study quality, we need to control the traceability, the agile supply chain, the localization. We need to have very clear process, standardize, digital and efficiency. And that is not complicated, frankly speaking, the workstation in the space industry are easier. I need to manufacture a car by minute. Here, I have a little more time. The key point in defense is reliability and quality and time delivery. Of course, cost is important, but frankly, is less important than current, but reliability, quality and delivery time are the key drivers to become excellence in manufacturing defense system. Yes about Minsait...

Yes. The answer to that question is probably that margins look stable, but they are not stable, mainly because if you take a look at the last 3 years and you eliminate the effect of the one-offs coming from electoral processes. And here, bear in mind that -- the 2022 results are heavily affected by the Angola project. If we take out that effect, the truth is in the last 2, 3 years, the evolution of margins has really been very positive. And we are starting to see the impact of all these levers that we are pulling for improving margins in general that they have to do with efficiencies, operational efficiencies, commercial effectiveness, the mix change, not that far away 3, 4 years ago, the offering, the mix of products that we're selling, we're like 30% digital and the rest [indiscernible] services. Now we are in 40% digital, the aim is to achieve 55%. That's a path that we are working on, and that is already having an effect. So it's just an appearance, margins are not stable. If you take out elections, margins are actually not stable. They are improving.

Next question on this side, microphone #2, Carlos Trevino here.

Carlos Trevino from Santander. Two from my side. You have been very clear with your target on net debt over EBITDA for M&A. Do you consider any kind of capital increase to finance M&A? And my second question in defense, are you expecting significant new contracts of the strategic projects for 2026 or all the main contracts that you are expecting from those projects has been now signed.

So thanks. Whilst we are always open to flexibility going forward, with regards to the plan we have presented, we haven't considered a capital increase.

Yes. About the defense, today, the visibility is 50% of the sales, okay, with 7 main programs. There are some programs, there are no signs. I have explained we have 7 [indiscernible] sign, but the other are in the pipeline. And in some cases, we think we have high probability to be taken by ourselves.

Thank you, Carlos. Now on the other side, Mohammed, microphone #1.

Great. I have 2 questions. First, on Minsait. I think you alluded to 40% of the portfolio being digital. Could you expand a bit on where kind of the current capabilities are -- and then as you think about expanding the mix, which is the key kind of priority growth areas. And related to that, I don't know if you disclosed gross margin within Minsait as we think of those margin levers, how much more headroom is there on the gross margin? Secondly, on M&A, which clearly is a key part of the plan going forward. How do you look at kind of the evaluation of M&A? Can you talk us through the kind of criteria from a kind of financial and operational perspective?

Luis, maybe he knows in detail on Minsait, if you can answer you. And later, Marc will answer you about M&A filter.

Thank you for the question on digital. The areas of capabilities that we are creating, and this comes again from 2, 3 years ago. It's a journey. They have to do with what we call acceleration vectors, which are basically 4, okay? One is data cloud. And this sector, we are evolving it towards AI, which we think is going to have a huge impact, both in our customers because we are developing use cases which are very interesting and that we will sell our customers based on AI, but also internally because through AI, we will transform our internal process of developing software, okay? So this is one acceleration vector, data cloud and AI, there is a second area of capabilities, [indiscernible] that basically has to do with cybersecurity. Then the third one has to do with payments. This is very specific. It's just vertical. It does not affect all customers, but margins are very good, and we want to keep on pushing on that as well. And then the fourth one has to do with everything which is in the link between the digital and the physical world, what we call phygital, okay? Everything that has to do with IOT, IT, OT, edge computing, 5G, 6G, all that kind of things, okay? So -- and that's the idea. The idea is to keep on pushing that to improve margin significantly. And we firmly believe that the 7% EBIT is reachable.

Yes. With regards to your second question, so any potential M&A operation has to have, of course, a strategic fit and needs to add financial value for our shareholders on our company. So we will analyze it step-by-step, opportunity by opportunity, but by strict financial valuation that makes sense strategically and adds financial value to our shareholders.

Next question, microphone #2 here at the center, Nicolas.

Yes. Nicolas David from ODDO BHF. I have 3 questions from my side. The first one is regarding noncore asset disposals. Could you elaborate a bit on the discussion you may have already and the timing for those kind of asset disposals and the volumes of revenue and cash in you expect. My second question is also a question around phasing and timing. What is your view regarding the most important strategic move regarding Minsait finding a partner, creating the new cover space. What is -- what will come first. And my last question is regarding the free cash flow. Your guidance is solid, but it implies an EBIT to free cash flow conversion of 60%, while the company has been generating more than 70% in the recent past. So what should we consider here is an increase in CapEx or some working cap needs.

Okay. About the noncore -- of course, we have identified what is the impact in the turnover and EBIT. But you can imagine, we cannot disclose with you today because we have customers and we have employee that the assets are identified and now we'll start the processes in the software.

With regards to timing, we have a plan and we have ideas that we want to maintain some flexibility because not everything depends on us. So it will have to do with the opportunity, the options on our decisions when we bring things into details. But we wanted to put it within the specific time frame of the strategic plan. With regards to the cash flow. As we are setting guidelines, we wanted to make sure that these guidelines are going to be specific and you know transformation from EBITDA to cash flow does not -- has to do a lot also with working capital, and it has to do with the portfolio of products, which will be different in 3 years' time to today. So the conversion has to do with those 2 factors.

Thank you, Nicolas. Yes, Alvaro.

[ Alvaro [indiscernible] ] from Alantra Equities. Congrats on the presentation. I think it's ambitious and very clear. My first question would be regarding the execution of the brand? It seems that you have a lot of food on the table in defense, you are optimizing the product offering, executing a large backlog, capturing new clients than in ATM, expanding into North America and Asia. It means about this M&A, it seems like quite a lot to chew. I don't know if -- are you concerned about being able to execute on so many different fronts? My second question would be on consolidation. You are taking the example of Bay Systems, Thales and Leonardo and expect to consolidate the Spanish defense industry as well. But when I look at the Spanish industry, it seems like you already have a partnership with almost all the main players, and there are not many significant players to consolidate. So maybe you could turn these partnerships into full-on acquisitions. How do you think what consolidating the Spanish defense industry means?

Thank you, Alvaro, and thank you to congratulate us. My professional career, they keep on has been [indiscernible] and an industrial guide. That -- if you can imagine what the team has done in these 9 months is huge that when you generate this plan is 360 degree, okay? We are hiring the talent, the product, the technology, the process, the region. And only this plan is 5% will lead in the future. 95% we need to start tomorrow with the key leaders with a clear road map, I don't worry about this. Now we have the mountain. The mountain is identified -- now we are going with the team and with the Chairman support to contest the mountain. Of course, when you contest something, will be successful and no successful moment, but this is life, that today, I'm very happy because the mountain is identified. Now we are going to contest. I think this plan and now I let Marc, this plan we have shown today is the more ambitious plan, never explained in Spain about Industrial Defense. And that's system for Indra. And this is the beginning

Regarding the second question, and thanks, Alvaro, for the congratulations. I've taken note -- but there are many ways to develop the term, consolidate. And we have used specifically leadership to lead the defense industry market in Spain. So our priorities are -- how to do with our technological path, clients and our programs. That is the priority. And what we aim is to help rearrange the defense sector, so that it is most efficient to give service to those clients, to those projects and to that technological development. And that will and may include M&A, and we've been clear about this within Spain and maybe and outside of Spain, partnerships and alliances, but we can't be more specific at this time because this, of course, it takes 2 to tango. So we have different options and different scenarios. Thanks.

Okay. I have another question here.

This is Javier from Santander Asset Management. Also congratulations for the ambitious targets. I know that currently, you are very focused on the 2024, '26 plan, but I would like to spend a minute on the next step, the scale-up phase because it was quite interesting to see that sales growth even was showing some acceleration versus the previous years with additional EBIT margin improvement. So you were aiming to -- I think it's like multiplied by 4, the EBIT figure from now to 2030. I don't know if you can give any details there if you see more organic growth on that phase. Is it more driven by M&A if -- in which areas really good the growth and the operating margin efficiency come, [indiscernible] more vision on the 2030 period.

Well, it's for the plan, first, the priority is to focus. And for that, not only for the plan, also for the budget this year, we have made initiatives with the year and roll out 3 years. For me, 2024, 2023 is 80% execute. Okay? But we cannot forget that at the same time, we need to look about the future because technology [indiscernible] ratio, a big program with its time to mature. For that today, we can now embed today, but also we know what is the road map. As you can imagine, with the continued growth, you can imagine until we're going to grow in organic and you can identify the gaps. And in this gap, we are working in M&A that Marc will explain a little more how to achieve more than EUR 10,000 million.

Yes. Thanks, Javier, for your comments also. So one of the characteristics of the defense and the air traffic management sector is that a lot of its programs are very long term and have different phases, and that's including FCAS or many of the projects and programs we've shared with you where there is a part of developing technology and then there's a part of production. So whilst we can't go into the specifics, we don't imagine within the plan, a sharp difference in the new phase. It's not over leveraged on M&A. It has a strategic continuity and logic. Also, with regards to the specifics and the visibility we see with regards to sales and commercial opportunities.

Okay. So before opening the external line, we have one question here on the floor.

Yes, Ivan San Felix [indiscernible] and let me add myself to the congratulations for Indra on its strategic plan. You've guided towards $700 million revenue contribution from M&A by 2026. What about by 2030? Does that EUR 10 billion revenue number includes further acquisitions? And if so, what would be the expected contribution from M&A by 2030?

Well, we are not to embed today, but Marc will give more data. I think the most important is focus. I say I don't want to start to brink about 2030. If we don't achieve 2026, [indiscernible], okay? The first plant is focused to '24, 2026. At the same time, we don't know this cover in 2026 is that we have lost opportunity. It's not easy, but we implement this exercise for focus in materialization and from '27 to 2030 and thus, we have some criteria and some ideas.

Yes, Ivan, and thanks also for your remarks. We can't get into specifics, so we'd rather not get into specifics. But what I can say or what we can say is the same we said to Javier. With regards to this plan and how it is constructed bottom up, with regards to the second phase, there is a strategic continuity. So there's no acceleration in M&A ambition or a sharp change after 2026. So what I can say -- what we can share is that there is strategic continuity within the logic and the orders of magnitude.

Thank you. We are going to open the external line right now -- for us -- at the moment, please, for the external -- we're still not with it -- we're going to have a question coming from the outside. It's Michael Briest at UBS.

Two questions. Firstly, on the linearity of the 2026 migration, will margins and growth progress linearly throughout? Secondly, on the Minsait's partnership search, can you explain why someone would take a minority stake in the business and why you would retain a minority stake in the business if someone owned over 50%. Surely, a full exit would be preferable to the second situation for you. Would you consider a full exit of insight?

Two questions. That's -- I will start and later Marc will finish. About margin evolution 2026 clear that the evolution of margin will continue because our portfolio also, we were to rotate. You can -- today, when we look at the other peers today, we are the best in class in the fence about EBIT. But it's clear that now we are focused less than Eurofighter and net cash to increase the quantity of the system and control and that the margins are not the same that we need to look in defense and aerospace margin, integrating this mix rotation product portfolio. About ATM that it is to continue in this way to become the best of the best in margin in air traffic management.

Thanks for the question. So with regards to the second question that has 2 parts. Regarding why would anybody consider a minority investment that would require for me to make an exercise on different potential investors. But we would need to see, but it might be interested as a financial investment or as a strategic partnership with a strong hold on the company or we should see. With regards to the second part of the question, we are, in all cases, considering -- in all cases, we will keep a significant stake in Minsait because we believe there are strategic synergies to be had with regards to air traffic management and defense in all cases. There is a convergence with regards to digitalization. We are observing that in the defense industry and know-how and technological inputs are being created in the civil area, in digitalization that are being used and leveraged within defense. So we do see a strategic fit ultimately. And that is why we would always maintain a relevant investment in Minsait. Thank you.

Thank you. We have time for the last question here.

It's [ Mark Hyatt ] from Morgan Stanley. Most of them have already been answered, but just 2 final ones, please. Firstly, you said that the Spanish defense spending is set to double by 2030 according to your estimates. What's your assumptions around how much of that incremental spend is addressable and what are you baking into that organic growth target that you've outlined to '26, like how much is Spain's defense spending contributing to that? And then finally, maybe this is 1 for Luis as well just on Minsait. You mentioned around the AI efficiency benefit. What investments have you made there already? And what's the time line between now and when you start to see tangible benefits from those investments?

Yes. So with regards to the first question, Mark, -- we haven't said specifically double. We've said there's a 2% -- a public 2% GDP target that has been made, and we see ample consensus to reach that and we see ample strategic pressure to make sure that is -- that happens. We have a very clear understanding, we think of what the breakdown will be with regards to procurement, what will the breakdown be with regards to existing assets and maintenance. But what we have done with regards to the organic growth is built a bottom-up approach with specific programs, which we know very well and with what we believe are highly likely programs. So there is a top-down approach and a bottom-up approach. But with regards to the organic growth the specific numbers, which include, of course, EBITDA margins. We have built that based on the programs we know -- I think we know very well.

About artificial intelligence investment, Luis?

Thank you, Mark. We've been working already for probably more than 1 year in exploring what's the potential of AI. As I was saying before, in 2 fronts. On the one hand, we're investing something in creating use cases for customers, okay? And this an investment -- it's more co-investment, if you want, sometimes with customers. And we have said already a diverse set of use cases, which are quite interesting. And basically, it is a set that it reaches our portfolio. And then most importantly, it is the second part, which is that we are initially 1 year ago, testing now starting to use heavily different tools, which are in the market basically for increasing efficiency in software development. You know the useful ones. We work with Microsoft, our partners. And we are basically testing all the tools available. And we are starting to use them significantly. We have thousands of licenses already that our developers are using for improving our internal processes. And in that front, we are already starting impact. And we believe that the next couple of years are going to be quite relevant in terms of keeping on achieving efficiencies from this level.

Thank you. So before closing remarks, I just recall that we will have an informal cocktail here when you can follow up with your questions. And now, Marc.

So we have an exciting ambitious and demanding plan ahead of us. We understand, of course, that this plan is not risk-free. We will manage, monitor and write these risks together. Now, these are our margin orders. We now know what to do and what we need to do is execute. It's -- now, it is time to focus on the implementation and execution of this plan. The Board and the executive committee will supervise the plant closely and will report on its progress regularly to capital markets. Thank you all for being here. Thank you, Jose Vicente. Thank you to the Board. Thank you to the executive team, and thank you for those that are making this plan a reality, and thank you all for your quality time here. [Presentation]