Indra Sistemas SA

MAD:IDR

Earnings Call Transcript 2022-Q3

[Operator]

Welcome to Indra's 9 Month 2022 Results Presentation. I would like now to hand over to Ezequiel Nieto, Head of Investor Relations. Please go ahead.

[Ezequiel Baquera, executive]

Good afternoon, ladies and gentlemen, and thank you, everyone for joining us today on our 2022 third quarter results presentation. I'm Ezequiel Nieto, Head Investor Relations. And as usual, let me refer you to the disclaimer on Slide #3 that sets up the legal framework under which this presentation must be considered.

The conference call will be led by Indra's CEO, Ignacio Mataix; our Minsait Managing Director, Luis Abril; and our new CFO, Borja Altamirano. And the expected duration will be around 1 hour.

Now let me turn the call to Ignacio Mataix, CEO of Indra. Ignacio, the floor is yours.

[Ignacio Mataix Entero, executive]

Thank you so much, Ezequiel. Good evening, everybody. Welcome to our conference and thanks for being with us today.

Let me move to Slide #4 for the review of the main highlights of the results. Our third quarter 2022 results bring an acceleration, improving our revenue growth and free cash flow of the 9 first months of the year. Profitability improved 15% in the third quarter compared to the third quarter of last year.

Let me start by saying that we are not seeing any weakness in our customer demand. The strength of the commercial activity is well reflected in the double-digit growth of our backlog and our order intake, the latter with double-digit growth both in Minsait and in the Transport & Defence division. As such, revenues increased by 14% in the first 9 months of the year compared to the same 9 months of 2021, mainly boosted by Minsait, which delivered 19% growth, while Transport & Defence posted a 5% growth.

The third quarter revenues accelerated through a 19% increase growth versus the same 3 months of 2021 -- 3 quarters, sorry. EBIT grew 19% year-on-year, driven by revenue growth, the improved mix and the efficiencies achieved and despite the environment of strong wage inflation in the businesses and markets where we operate.

Cash-wise, 9 months 2022 was also very strong in terms of free cash flow generation, in fact, the best first 9 months period of the last 10 years. We totaled EUR 54 million in the first 9 months compared to EUR 5 million in the same 9 months of 2021. And as a consequence of this, our leverage ratio decreased again to 0.6x compared to 1.7x 1 year ago. In short, the positive trend seen in the first quarter of the year continued.

Now on Slide #5, let me speak about the recent events around the corporate governance in the company. Extraordinary Shareholders' Meeting held on October 28 delivered on the commitment of the Board to restore Indra's corporate governance in accordance with best practices. Let me summarize those. The number of members of the Board of Directors has been set at 14, of which half of them are independent, following the recommendation 17 of the Code of Good Governance. All of the Board is now in place since last Friday. It has been eliminated, the provision of the quality vote of the Chairman from the company's bylaws. The role of the lead independent director is maintained and the separation between the Non-Executive Chairman and the CEO is consolidated. With this agreement, we think we have taken the decision -- steps to restore good governance -- good corporate governance and provide market confidence.

Now coming back to our financial results in Slide #6 to show our revenue performance for the first 9 months of the year and the third quarter of 2022. On the left side of the slide, reported revenues amounted to EUR 2.694 million in the first 9 months of the year and were up 14% vis-a-vis the first 9 months of 2021, while revenues in local currency grew 12%, with ForEx contributing positively EUR 50 million because of the appreciation of some Latin American currencies. Last year, this contribution was EUR 41 million negative.

Revenues, organic growth, excluding the impact of last year's acquisitions and the FX contribution was 11% in the first 9 months for the year compared to the same months of 2021. On the right-hand side, the third quarter revenues grew by 19% in reported terms and 16% in local currency. Organic growth for the quarter was 15%, and ForEx contributed positively with EUR 22 million for the reasons already mentioned.

Now on Slide #7, we display the revenue breakdown by region where you can see that we grew across all the board. Europe grew by 5% and Spain printed a 9% increase, while Americas and EMEA delivered double-digit growth in local currency. The latter showed outstanding growth mainly driven by 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 9 months of the year. You can see how operating margin improved to EUR 243 million compared to EUR 101 million in the first 9 months of 2021 equivalent to 9% operating margin compared to 8.5% operating margin in the same period of the year. Thanks to the operating leverage and improvement in profitability in both divisions as we show later.

Same happened to EBIT with EUR 204 million compared to EUR 188 million in the same period of last year, which is EUR 171 million in the first month of 2021, excluding the capital gain from the sale of San Fernando de Henares facilities. Mainly explained by higher profitability in both divisions and despite the decrease in amortization of EUR 9 million and indemnities of EUR 7 million in the first 9 months of 2021, which did not happen in the same month of 2020.

Moving to the graph on the right, you can see the operating margin in the third quarter, which amounted to EUR 92 million compared to EUR 76 million in the same quarter of 2021 equivalent to 10.5% margin compared to 10.2% in the same quarter of 2021. For its part, EBIT for the same quarter -- the same third quarter was EUR 81 million compared to EUR 88 million in the same quarter of 2021, EUR 71 million, excluding the capital gain, equivalent to 9.1% EBIT margin in the third quarter compared to 11.8% in the third quarter of 2021. And if we exclude the capital gain, it would be 9.5% excluding the capital gain.

[indiscernible] profitability is flat despite including high indemnities, as I said before, EUR 7 million and amortization costs in the same quarter -- in the same third quarter of 2022.

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 September 2022 increased compared to both September '21 and June '22, explained by the very strong levels of demand that we continue to see in our main markets and the integration of the workforces from our last bolt-on acquisitions. At the bottom of the page, we display the evolution of the number of employees not assigned to projects, which remain very low for another quarter.

Now let me move to Slide #10. You can see the backlog and order intake evolution of our Transport & Defence division. The backlog in Transport & Defence amounted to EUR 4.129 billion, an increase by 11% in reported terms in the first 9 months of 2022 compared to the same period of '21, expanding out the Defence and Securities, which amounted to EUR 2.622 billion, while backlog of the last 12 months revenues increased to 3.19x in the first 9 months compared to 3.10x in the same period of 2021.

Order intake in the first 9 months went up by 12% in local currency, registering both Transport & Traffic, a 22% increase; and Defence & Security, a 5% increase in local currency. And that is thanks to the MK1 rollout of the Eurofighter project in Germany and Spain as well as a contract for the modernization of the Tiger MKIII helicopters in Spain in Defence & Security.

Also in Transport & Traffic, there was a contribution with the contract of Avinor in Norway, a new contract with ENAIRE in Spain as well as a sizable collection system process in Spain and a communication systems in Lima airport.

We will move to Slide #11, which shows the revenue breakdown of the Transport & Defence division. In the first 9 months, revenues increased by 4% in local currency, 5% in total terms pushed by a growth registered in Transport & Traffic, which was 6% in local currency, same growth as Air Traffic & Transport segments, both due to the higher activity with ENAIRE in Spain and T-Mobilitat and several rail projects. For its parts, Defence & Security sales increased by 2% in local currency, mainly boosted by platforms, naval systems in Saudi Arabia and Security Systems, the Kuwait project, which implies a positive performance taking into account the 16% growth for this vertical in the first 9 months of 2021 and a small contribution from FCAS projects in the same 9 months of 2022.

In the quarter, revenues accelerated our 11% up local currency, showing Transfer & Traffic increasing by 14%, registering both verticals double-digit growth. Transport grew 15% with higher activity in Americas and EMEA and Air Traffic up 13%, thanks to the general recovery in air traffic sold in all geographies. For its part, Defence & Security also showed 8% growth, mainly pushed by higher one-off activity from the Eurofighter project in the quarter.

Let me move now to Slide #12 of the operating margin and EBIT for Transport & Defence. On the top left graph, operating margin in the first 9 months reached EUR 105 million compared to EUR 98 million in the same period of last year, a 12.2% margin vis-a-vis 11.8% margin of last year in the same period.

Moving to the top right graph, operating margin in the third quarter stood at EUR 40 million compared to EUR 42 million in the same period of last year, which translates into 14.7% margin in the third quarter of this year compared to 17.2% margin in the same period of last year. Margin was extraordinarily high as the recognition of several sizable project milestones and Transport & Defence was concentrated in the third quarter of the previous year as well as the associated profitability to the growth projects.

As you can see on the bottom left graph, EBIT in the first 9 months of the year was EUR 98 million compared to EUR 96 million last year in the same period, and EUR 89 million if you exclude the capital gains, which translates into 11.3% EBIT margin in the first 9 months of the year compared to 11.6% in the same 9 months of last year, although it was 10.8%, excluding the capital gain, backed by increasing profitability of Transport & Traffic.

Moving to the bottom right graph. EBIT in the third quarter stood at EUR 37 million compared to EUR 49 million in the same quarter of last year, EUR 42 million if we exclude the capital gain, equivalent to 13.7% margin compared to 20.1% margin in the same quarter last year. It is 17% if we exclude the capital gain. The margin in the previous quarter was extraordinarily high for the reasons explained before as well as the highest indemnity of EUR 3 million and amortization cost of EUR 3 million in the third quarter of the year compared to the third quarter of 2021.

Now I finalized the Transport & Defence numbers, let me turn to Luis to follow on the presentation.

[Luis Abril Mazuelas, executive]

Thanks, Ignacio. And good evening, everyone. So let's move on to Slide #13, where you can see the backlog and the order intake, evolution of our Minsait division. So here in this chart first, on the left-hand side, backlog in Minsait went up by 13% in reported terms and totaled EUR 1,853 million, while backlog over the last 12 months revenues ratio stood at 0.76x compared to 0.80x in the first 9 months of '21, which implies a minus 4% decrease versus last year same period.

And then second, in this chart, the graph on the right shows the evolution of our first 9 months of 22 Minsait's order intake, which went up by 23% in local currency, boosted by the solid growth we saw in all verticals, among which stood out public administrations and Healthcare that grew plus 50% in local currency, partially helped by the order intake of the Elections project in Angola.

Then moving now to Slide #14. Here, we show the revenues breakdown of Minsait. And here on the left-hand side, sales in the first 9 months of '22 grew by 16% in local currency, with all the verticals registering very strong growth, standing out the growth posted in public administrations and healthcare which was plus 35% in local currency, driven by the increased contribution from the elections business and also standing out the growth in Energy & Industry which was plus 14% in local count. Here in any case, what you can see is that all verticals grew double-digit rate in both the terms.

And here, on the right-hand side of the chart, we see that on the third quarter, and this is only the third quarter sales accelerated to plus 19% growth in local currency, in a market environment where customer demand continues to be strong, and again, with solid growth in all verticals, and where public administrations and healthcare also stands up.

Finally, let's move to Slide #15, where we summarize Minsait's profitability. And here on the top left graph, we display our first 9 months of the year, 22% operating margin, which stood at EUR 137 million compared to the EUR 103 million in the first 9 months of '21. And this is equivalent to an operating margin of 7.5% in '22 versus 6.7% in '21.

If we move to the top right graph, here we see operating margin in the third quarter of '22, that stood at EUR 53 million versus EUR 34 million in the third quarter of '21, which translates into an 8.6% margin in the third quarter of '22 versus a 6.8% margin in '21.

Let's go now if you want to EBIT margins. As you can see on the bottom of the graph, EBIT in the first 9 months of the year was EUR 106 million compared to EUR 92 million last year same period, which was actually EUR 82 million if we exclude the capital gain. This translates into a 5.8% EBIT margin in the first 9 months of '22. That is a 6.0% in the first 9 months of '21, which would be 5.4%, excluding the capital gain. This improvement is explained by a combination of several factors, being one of them the contribution of the Election business.

And now if we move to the bottom right graph, here we see EBIT in the third quarter of '22 that stood at EUR 44 million versus EUR 39 million in the third quarter of '21, which if we exclude the capital gain would have been EUR 29 million. This is equivalent to an EBIT margin of 7.1% in the third quarter of '22 that compares to a 5.7% margin in the third quarter of '21, if we exclude the capital gains. And this is backed by the elections project in Angola. But it is this way despite the higher indemnities of EUR 4 million and the higher amortizations of around EUR 0.5 million in the third quarter of '22 versus the third quarter of '21.

As you can see then, we are in line with our target of achieving more than a 5.5% EBIT margin for the year, as we said in our previous conference call. And with this, I leave the floor to Borja for the financial results.

[Borja Altamirano, executive]

Thank you, Luis. Good evening, everyone. On top of the strong business performance presented to you by our CEO and by Luis Abril, let me now guide you through the financial section, where you will see how the operating improvements are converted into a strong cash flow generation.

Having a look to Page 16, 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 9 months of 2022 amounted to EUR 64 million. And this is the best figure reported for the first 9 months in 10 years. [Technical Difficulty]

[Operator]

You are now connected.

[Borja Altamirano, executive]

Well, I was saying that in Page 16, there are 3 main messages. The first was on the top strip of the page. On the right-hand side, the free cash flow generated in the first 9 months amounted to EUR 54 million, which is the highest figure for the first 9 months in 10 years. Second, free cash flow, but this is, as you know, negative in the first 9 months of the year. In 2022, this figure are driven by the performance of our 2 divisions and the improvement in the working capital needs. And then the same comment applies to the cumulative free cash flow in the last 12 months that has reached the figure of EUR 336 million.

And now going to the main component of the free cash flow in Page 17, contains the working capital evolution first compared to 2022 -- to the first 9 months in 2022 and then to September '21. Compared to September '21, there is a relevant improvement of 12 days explained mostly by the better behavior of the accounts receivable due to the collection received in the second quarter from the Elections projects in Angola, plus from a long list of small clients.

Inventories and accounts payable remain almost stable in terms of these results. And compared to December '21, working capital increased by 14 days, in line with the seasonality of the business due to the higher level of inventories, which increased by 11 days in the first 9 months of 2022 as well as higher level of account receivable, which also grew up by 8 days. However, accounts payable contributed positively to the working capital, increasing by 64 days -- sorry, by 6 days.

Page 18 shows a reduction in EUR 20 million in our net debt between December '21 and September '22, starting at EUR 240 million at the end of December '21, the first debt with a positive contribution of operating cash flow of EUR 283 million due to the strong performance of our 2 divisions.

As mentioned in the previous page, working capital reflects the seasonality of the business in the first half of the year. And even with the strong revenue growth delivered, it only increased by EUR 114 million compared to EUR 159 million in the first 9 months of 2021.

CapEx stood at EUR 30 million, above the EUR 21 million of CapEx reported in the same period of '21, excluding the collection from the first payment of the sales of the facilities, and this difference is due to the lower subsidies collection in the period.

Next block in this bridge are taxes, has been EUR 8 million compared to EUR 22 million in the same period of '21. EUR 3 million of which variation comes from the higher profit before taxes in the period, EUR 3 million due to the accounting recognition of tax on the higher profit before taxes in the period, EUR 3 million due to the accounting recognition of the taxes 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 related to IFRS 16 amounted to EUR 24 million in the level done in 2021. Net interest was EUR 22 million, slightly below the EUR 27 million registered in the same period of '21, mainly due to lower repayments on financing explained by lower gross debt volumes together with a slightly higher cash remuneration, partially offset by the payment derived from the partial repurchases of the bond executed in the second quarter.

And finally, financial investment, FX impact and other of minus EUR 34 million includes M&A and other small items for EUR 28 million and minus EUR 26.5 million of dividend paid to our shareholders, all of them compensated by EUR 25 million of the contribution of the FX, mainly because of the Latin American currencies.

Page 19 shows the evolution of the leverage since 2016. We closed September '22 at 0.6x net debt-to-EBITDA with a significant improvement compared to September 2021. As in the past, factoring stand at EUR 187 million at the end of the quarter to make figures comparable. And we have eliminated the impact of IFRS 16 and extraordinary items related to the employee restructuring plan and asset disposals.

And now just to finish the presentation, let's have a look to our debt structure on Slide 20. Gross debt that amounts to EUR 973 million is well diversified, around 50% fixed and 50% floating. Its average maturity exceeds 2 years and cost of debt remained stable at 1.9%. As you can see, we have reduced our gross debt by 30% in the last 9 months due to the repurchases in May of part of the EUR 300 million of corporate bond with maturity in 2024 as well as the cancellation of bank debt.

Total cash position in September was EUR 752 million, and we also have EUR 186 million of undrawn credit facility. All this financial acquisition together with the strong performance of the business compared well with the maturity profile shown in the page.

So with that, we finalize our results presentation. Thank you very much for your attention, and let's now move to the Q&A session.

[Operator]

[Operator Instructions] The first question comes from Nicolas David from ODDO BHF.

[Nicolas David, analyst]

Yes. I have 3 actually. The first one is regarding Minsait operating profit, which has been quite strong this quarter and congrats for that. Should we understand that it benefited from the underlying contract, which was kind of dilutive in H1, but accretive in Q3. And what should we expect for Q4?

My second question is regarding the Air Traffic Management business. It seems that you see some -- an exceptional recovery or at least you mentioned some new contracts you are delivering, but how does it translate in numbers? Do you see an extraction of growth? And should we expect this growth also to get firmer and firmer as air traffic recovers going forward? And my last question is now that the Board is elected, what should be according to you the 2 or 3 key strategic topic you would have to address in the short term?

[Ignacio Mataix Entero, executive]

Nicolas, thank you for the questions. And I was -- when I was hearing myself, I was thinking that we are delivering too many numbers and boring you all, but sorry for that. And coming back to your question, first of all, let me start by the last one, the strategic topic. I think that's something that we are going to start very quickly with the Board. And let me not answer that today because I think we need to have some time on the Board discussions before we are able to have that discussion. So I will avoid the dialog on that one. I'm sure you have clear mind and we will address those in the Board, but I think will be served some time to the Board to think about it and come back.

Regarding Traffic Management, I think we have seen recovery. We will be very close to EUR 300 million we had in 2019 before COVID. I think it's been a strong recovery. I think we are very positive on new contracts. And actually, we will be announcing an important contract in the next phase, which I cannot disclose today. And we continue to be very positive on our very large contracts like EUROCONTROL and so on. So all in all, I think we are very positive in Traffic Management. We are having a strong recovery, and we see traffic coming back, as you see -- as you all see, and we think that will be very relevant for our business.

And maybe Luis can come back on the operating -- Air Traffic at Minsait.

[Luis Abril Mazuelas, executive]

Yes. Thank you, Nicolas. On the profit for Minsait, we have some help from Angola in this quarter. But still, we have to bear in mind that this is not only Angola. We've been able in this quarter, we've been able to compensate the impact not only of salary inflation but also higher indemnities and higher amortizations and so on and so forth. So if we have to estimate where we will stand by the end of the year, we would say that basically we stick to our guidance of 5.5% EBIT that we've stated in the past. That's at least the number we see, okay? We may be above that, you never know. So the guidance is at least 5%.

[Nicolas David, analyst]

Okay. That's clear. And maybe a follow-up on Minsait. So you mentioned that you are able to reflect a salary increase into prices. Should we understand that the price increase effect accelerated a bit in Q3 compared to H1? And any details again the numbers would be good for us.

[Luis Abril Mazuelas, executive]

We've been -- there's been salary inflation that we've been able to compensate, not only with price increases, it's a mix of things, okay? You know that salary inflation not only for us, for the sector is relevant, and we've been able to compensate that through different measures. One is increasing prices to our clients, but there are lots of efficiency measures we've implemented. You know that we are adjusting the mix of products and services that we are selling towards a set of -- towards a set of high value-added offering and so on and so forth.

We are also playing with the pyramid. We are actually applying lots of measures for compensating the salary inflation. Salary inflation, which we believe that will not be higher in the future -- in the fourth quarter. We believe that the peak of salary inflation has probably taken place this quarter.

[Operator]

The next question comes from Laurent Daure from Kepler Cheuvreux.

[Laurent Daure, analyst]

I also have 3 questions. The first one, I'm sure you were expecting it is you have not changed your guidance both in revenue and profit. Is it just cautiousness or when I look in the last couple of years, you had except for us here, your Q4 margins were generally higher than the other quarters. Has something changed in the seasonality of profits?

I remember last year, in Q4, you had to provision more bonuses. Shall we expect the same going forward? Or can we expect your full year achievement to be relatively significantly higher than your guidance? So that's the first point. The second point is, you've done quite a lot of small M&A this year. I think most of them were in IT. Going forward, do you expect a change in strategy and to be much more cautious regarding IT M&A and to focus much more on the Defence side?

And my last question is on Defence. I remember more than a year back, you had a number of contracts that you could not deliver and you had delays. I was wondering if now by the end of Q3, most of the milestone and delivery of product have been done? Or if you have some catch-up to do?

[Luis Abril Mazuelas, executive]

Okay. Thank you, Laurent. First of all, let me start with the guidance. Okay. First of all, there is no change, okay, on the way we look at things. Yes, I think that -- I mean, if the performance is good, we should expect the bonuses in the fourth quarter at the same time last year. So that's unchanged also, but we need to finish the year and see that we meet the numbers very clearly. I think when we look into the guidance, we are always saying more than, okay?

And we are going to grow in the fourth quarter of the year in both divisions. It is true that we have some milestones in Transport & Defence, mainly Defence. By some I mean 2 or 3 very large milestones that are expected to happen in December. So if they happen -- if those milestones happen, we will comfortably beat our revenue guidance. But how much will depend if we are able to achieve those milestones, and we are just in the back of December. So we need to work very strongly on that.

And mainly I refer to question 3 there. So yes, in the past, and it depends, we had some delays on milestones. I think that is improving, but continues to happen because it's still on supply chain issues. So that's not completely fixed for annual past in the market as you've seen in the market. So we still have to work very strongly in the supply chain. But coming back to the guidance, we might sound conservative as maybe many times in the past, okay? But you need to take into account that last year fourth quarter was very strong in revenues also. And you need to take into account that we've had very strong growth also in the previous year in Defence. So I think we are positive. The guidance is more than, and we will work strongly in the fourth quarter to do more than, okay?

M&A, we will continue looking into acquisitions -- bolt-on acquisitions in both in Minsait and Transport & Defence. As you said, in the past, we've been growing more in Minsait. Maybe in the Transport & Defence is more difficult to find the target, but we are looking intensively into Transport & Defence and probably we would expect some news in the coming weeks. So we haven't changed our policy, and we are looking in the way of the company.

Does that answer your question?

[Laurent Daure, analyst]

Yes. Perfectly.

[Operator]

The next question comes from Fernando Lafuente from Alantra Equities.

[Fernando Lafuente, analyst]

I'm going to take 2, please. The first one is on the -- well, the first one is on the evolution of Minsait. This gave us already kind of addition in -- for margins in Q4, and also not so on the fact of growing in Q4. I was wondering if you could be a little bit more specific on the expected performance in Q4 in top line for Minsait? Seeing how backlog is as of the end of September, should we expect kind of a deceleration compared to the plus 23% that we've seen in Q3? Or are these levels still reachable during the last quarter?

The second question is on cash. The evolution has been quite good on the working capital side as well compared to last year. What should we expect in Q4? Should we expect a big recovery in working capital like other quarters? And as a result, how do you expect the net debt in the year?

And the third question is on the FCAS. I was wondering if you could give us some -- I mean, actually some information or how negotiations to go ahead with the next phase are as of today?

[Ignacio Mataix Entero, executive]

Thank you, Fernando. So we'll try to do it in your order. So first Luis on Minsait, then Borja on debt side, and I will come back on FCAS. Luis?

[Luis Abril Mazuelas, executive]

I will take the Minsait one. Now here, the main message is that as we were saying, we see that the demand is solid. We do not expect changes in that in the short term. So basically, if we think about the numbers for year-end, what we would say is that we are expecting basically double-digit growth in sales, highlighting probably the higher growth in some specific pieces of offering, being the most relevant ones, our digital division and basically digital solutions. I mean hear what we call acceleration vectors will probably play a role or are playing a role already. Cybersecurity, phygital, data cloud, all those pieces of offerings that are explained quite intense growth. So for the year-end, we expect double-digit growth and we highlight these divisions.

[Ignacio Mataix Entero, executive]

Okay. Borja?

[Borja Altamirano, executive]

Fernando, in terms of debt, as you know, we expect to collect in the first quarter almost same figure that we have been collecting in the past that was something close to EUR 150 million. It may be higher. We maintain, for the time being the same guidance that we have given more than EUR 175 million, which is also consistent with the guidance at the level of EBIT. And with this, net debt-to-EBITDA by the end of the year will be below 0.4x net debt-to-EBITDA.

[Ignacio Mataix Entero, executive]

Thank you, Borja. So I'll take it Fernando on FCAS. So I think I have been very positive on FCAS. I think I'm happy to say that things are moving fast in the right direction. All the industrial partners have achieved significant progress to sign the contract in the next weeks. As of today, I don't think we see any blocking points in the horizon coming from the industrial partners. And therefore, as I said, we expect to start signing the signing process in the following weeks.

I think you need to take into account that the process is long because it requires not only signature of the industry, but also a formal acceptance from the 3 nations, and at the end of the day ending with the signature of the DBA, which is the French [indiscernible], okay, so [indiscernible] director that will sign on behalf of the 3 nations, okay? SO we all remain confident in the process, and we expect the process will finish by year-end.

[Operator]

The next question comes from Carlos Treviño from Santander.

[Carlos Javier Treviño Peinador, analyst]

The first one would be on Defence, specifically in Q4. You had commented that you had a stronger contribution from the Eurofighter project this quarter. And in the first 9 months, activity from Eurofighter has been flat on an annual basis. And before July commented that we are expecting lower revenues from Eurofighter in this year. So I would like to ask you specifically on this for Q4. Do you expect also a higher contribution from Eurofighter or not?

With a much long-term view, I will at least looking at 2023, I would like to ask you for -- with current business dynamics that you see in your different businesses for next year, if you could give us a bit of visibility on that? And my third question will be on Minsait. You have a very strong new orders figure in Q3, growing more than 30% of total currencies. I would like to ask you if this is partially driven at least by some specific large contracts that you have signed? Or is it because of general business demands?

[Ignacio Mataix Entero, executive]

Okay, Carlos, thank you for the questions. Unfortunately, I would say that we see a slightly lower contribution of Eurofighter in the whole year, okay? So I mean this quarter has been strong, but in the whole year, we see a slightly lower number.

When we look into dynamics on 2023, okay, I think I will continue to say that dynamics are good for our businesses in general, in the different business lines. So we are not in a position. And as you know, we're looking to -- we disclosed numbers in February when we closed the year on budget. And we are in the process, okay? But as we've been saying, I think our backlog is not in this quarter record high. But if we continue with a good order intake, it will be record high probably or close to that at the end of the year. That should give us solid growth for the future.

As you know, we have different business dynamics in the Minsait on the Transport & Defence. On the Minsait, it is a shorter period in which you take sales to revenues. In Transport & Defence that's quite longer. But I think we'll have positive news in all the markets, a strong order intake. And as I said, we have excise on the Defence business that will be extremely strong. But I think we are looking positive all the way, I mean the growth in all the markets. So that's what we can say as of today. Luis, maybe you can comment on...

[Luis Abril Mazuelas, executive]

And the same for me actually, linking this to the last question that we posted. I would say that the order intake evolution is quite good all across the board in all verticals and in all business lines with Minsait. Probably the largest contract that you can see there in the numbers that we are posting with the Angola one, but it is not that relevant. I mean I would say that the good numbers are a consequence of the general dynamics, positive dynamics of all the verticals and all the markets where we are.

[Operator]

[Operator Instructions] The next question comes from Ben Castillo from Exane BNP Paribas.

[Ben Castillo-Bernaus, analyst]

Two for me. Firstly, just on hiring in Minsait. It looks like the quarterly net additions are roughly half over the last 12-month average. How should we think about that slowdown in hiring in relation to the demand environment and your expectations into next year? The second question on FCAS, obviously, encouraging update on your expectations of the signature in the coming weeks. Could you tell us on thinking about timing on revenue ramping up from that? Is that something that starts right away? Or is that for 2023 or late 2023 time frame?

[Ignacio Mataix Entero, executive]

Thank you. Let me come on FCAS first, and I will pass on to Luis. Okay. Remember that the contract is above EUR 500 million, which needs to be executed in the fourth [indiscernible] and there is a period in which the contract needs to ramp up. So we sign by the end of the year. We will not be able to ramp up the contract resources and so on more straightforward. So we have 3, 4 months of ramping up the contract, okay? But if you look into the numbers above EUR 500 million in around 4 years. So that's the type of number we should look at.

And in 2023, I mean, you will have a slower amount at the end and at the beginning of the contract because you need to put the people in place. We need to put everything in place in, kind of, structures and so on. So it will be a slower ramping up, let me say, in the first quarter of next year, and then we will stabilize throughout 4, 5 years. Okay. That makes sense?

[Ben Castillo-Bernaus, analyst]

Yes, that's very helpful.

[Ignacio Mataix Entero, executive]

Okay. And then, Luis, maybe on the people side.

[Luis Abril Mazuelas, executive]

Yes. The workforce basically here, the message is that the workforce is growing because the demand is growing significantly. It is true that quarter-on-quarter, we see that the number of filings have decreased a little bit. You probably see there that work force increased around 1,000 -- in around 1,000 employees in September '22 versus June '22. And this number in June '22 versus March '22 was slightly higher, was around 1,600. So workforce has grown a lot. It is still growing because demand is very solid, and we are preparing for that solid demand in the future. Basically, that's it.

[Operator]

The next question comes from Manuel Lorente from Mirabaud.

[Manuel Lorente, analyst]

My first question is on working capital trend. There has been roughly EUR 60 million of working capital consumption in this quarter with a meaningful improvement in inventories. So can you give us a little bit more indication on the quarter-on-quarter consumption on working capital is either top line support or is there a reversal of previous down payment or -- Hello?

[Operator]

Yes, dear speaker, you're connected back.

[Ignacio Mataix Entero, executive]

Manuel?

[Manuel Lorente, analyst]

Yes.

[Ignacio Mataix Entero, executive]

Sorry, our line was cut, could you start from, I am afraid, the very beginning?

[Manuel Lorente, analyst]

Okay. Okay. All right. Now my question is on working capital trend. There has been a consumption of working capital of approximately EUR 70 million on quarter-on-quarter. So any color on that, whether it's the logical evolution of the business regarding the top line evolution or is it more a reversal of previous down payments? Or what is the movement?

[Ignacio Mataix Entero, executive]

Okay. Well, the reason is that -- first of all, the strong performance of the business. That is more inventories as is normal. Then as you have seen in the presentation, we have improved with regard to the figures that we reported last year, EUR 148 million compared to EUR 114 million. And also, we have improved in terms of base of sales. So basically, the trend of the working capital is improving with regard to the figure that we have been presenting in the past, and we -- and there will be an important also collection in the first quarter, -- it has to involve in the case.

[Manuel Lorente, analyst]

Okay. My question was more from quarter-on-quarter rather than year-on-year. But anyway, my second question is on the Angola elections. There has been certainly some impact on the third quarter. Is the Angola project finally ends, both in terms of on revenue contribution and cash collection, or is there any last tail in the coming quarters?.

[Luis Abril Mazuelas, executive]

Okay. Thank you, Manuel. I will take that one. You know that the elections took place in August, okay, from probably the most intense quarter in terms of revenue recognition for the Angola project has been the one, in the third one. You have the numbers there. I think that in the first 9 months of the year, we've already seen EUR 92 million in terms of revenues, out of which half of them, as you know, have been recognized in this third quarter, okay.

And looking into the future, there are still a few millions pending. We have associated to guarantees and knowledge transfer and so on and so forth. But the majority of the contract has already taken place, and that's it.

[Manuel Lorente, analyst]

Okay. And the vast majority of the contract has already taken place, both in terms of revenue recognition and cash flow?

[Borja Altamirano, executive]

In terms of cash flow, I mean, it's still all recognized already. They already paid revenue. In terms of revenue recognition, there is still some missing amounts.

[Manuel Lorente, analyst]

Okay. And just my final question, sorry to come back again on Defence trends going forward. But with the FCAS Phase 1 that Ignacio was telling, it will probably design at some point in either Q4 or Q1 next year and the massive increase in the Defence basket. Yearly -- next year should be a wonderful year in terms of the Defence vertical because again, in the current backdrop, it remains strictly the fact that Defence is the worst performing infrastructure.

[Luis Abril Mazuelas, executive]

Okay, Manuel, yes, I think we will have very positive news on FCAS, as I said. I think also in terms of -- you've seen the growth of the budget, the standard budget on Defence, which is above 25%, which is expected and very well done. I think the market and the citizens looking into the Defence, Security & Defence in a different ways. So that's all the positive. And I will continue to be positive. But you know that the projects generate a lot of time to -- I mean they take a lot of time to generate revenue.

That's probably the only not positive thing, I would say, because we are -- and maybe that is slightly different because it's very much a technology project. But if we look into a new project in which we deliver goods, I mean, how the project goes through the revenue recognition is very small revenue recognition in the first year because we are doing the engineering work, and therefore, that's man-hours, while the bulk of the revenues is when you deliver the goods. And that's usually in the second half -- towards the mid of the prohibited, how much evaluation you need to do, okay?

So I think, in general, very positive. We'll be very positive for the backlog. We are saying that we have 2019 terms of backlog now that will increase substantially. We see revenue increase, okay? But I mean, to be, let's say, cautious, I think we will always believe that this type of queries, I mean, have a period of between 5 to 10 and 15 years. And we are talking of very long projects. But in any case, I think, Manuel that we will be in a much better position to give you details, both on which kind of projects we think Indra can benefit on the budget and on revenues in February and we have this more of details.

[Manuel Lorente, analyst]

I mean my only -- it's not a question of numbers. It's a question of how we look at the things because when I see your answer, it's kind of multiannual type of answer. I understand that perfectly in the context of the standard type of Defence project. But for next year, we are already talking about a specific amount of above it.

So either you think that, let's say, 50% or 60% of that budget is not going to be implemented, which in Spain is not a very unlikely scenario or otherwise, that is something that should flow to the sector, not in a multiannual stand, but in 1 year, in 2023. I mean, we are not talking about a multiannual project. We are talking about the amount of a specific budget for next year.

[Ignacio Mataix Entero, executive]

Yes. I think, Manuel, it's partly what you say. So part of the budget of next year will be expanded in the year, okay? So that's partly -- but when we talk of the large projects, we have annual projects, okay. So you might book in the year, and we will execute throughout the period. I mean for example, we've booked this year Eurofighters -- we booked the Eurofighter, but unfortunately, delivers of the Eurofighter we booked this year in the budget are going to be delivered in 2025 or '26.

So maybe -- I mean, and there is a mix shift here between what you spend in the year and what you book in the year, and sometimes and maybe we will Indra is less benefited there from the expenditure in the year because, I mean, if you talk of munition, you talk of very short-term deliveries, maybe we are not the most benefited company there because any type of delivery we have, it has appeared a longer-term period, okay. But maybe we can try to get some more details for you on that. And as I said, giving more details on [indiscernible] see how the budget is coming through revenues, okay, in terms of the pricing which we are going to be involved.

I don't sound very convincing to you but I've tried, Manuel.

[Operator]

There are no further questions. Dear speakers, back to you.

[Ignacio Mataix Entero, executive]

Okay. So thank you very much to all of you for the 1 hour being together. And obviously, our Investor Relations team is at your disposal for further question you may have, and we look forward to seeing you in our February call. Thank you so much.