- Excluding this seasonality impact, the underlying revenue growth is +2%. Revenues in Spain increased by +7%, and accelerates vs. the first quarter of 2015 (+5%); which implies fourth consecutive quarters with positive growth achieved. Growth of +8% in 2Q15.
- Revenues in Latam kept similar levels compared to the first semester of 2014.
- Better levels of orders. Order intake down by -5% yoy (-12% in 1Q15) despite a more selective commercial policy. It is important to highlight the improvement of the order intake in Security and Defence (+48.5%).
- Recurring EBIT margin falls 9.5 pp. to -1.8% (vs. 7.7% 1H14), basically because of the overruns in specific projects in Brazil (Financial Services and PPAA) and Lithuania (Railway Traffic), the calendar effects associated with the Elections, (that justified 5 pp. of the margin deterioration vs last year); together with additional costs, and the lower contribution of the vertical Transport & Traffic and the Eurofighter project in Defence (that, among others, explain the remaining 4.5 pp.).
- During the second quarter, the Company has registered a number of non-recurrent items for a gross amount of €422M, which implies a negative impact of €390m in the operating profit. Of the total amount, only €89M would have an impact in cash which €35M would impact before December 31st of 2015; leaving the remaining amount distributed over the next eight years.
- Indra’s 2014-2018 Strategic Review that establishes as financial targets a Revenue growth rate between +2.5% and +4.5% per year (CAGR 2014-2018); Recurrent EBIT margin between 10%/11% by 2018; a free cash flow generation of around 200 €M in 2018; and a net debt to EBITDA ratio of around 1x by 2018. To achieve these objectives, and among other measures, the company has put in place an efficiency plan that is expected to generate approximately savings between 180 and 200 €M.
Indra’s revenues were €1,409m, decreasing by -5% in local currency and in reported terms, negatively affected by the seasonality of Elections, with a strong impact during the first half of the year, which will improve in the second half of the year. Excluding the impact of the Elections Business in 1H14 (basically in AMEA and Latam), revenues would have increased by +2%. Revenues in 2Q15 fell -6% vs 2Q14, affected by the seasonality mentioned above as well as the more selective commercial policy of the Company.
Other income stands at €47.7m vs €46.3m of 1H14, growing +3% due to the accounting of the R&D subsidies for finalized projects.
Operating expenses (OPEX) reached €1.437m, growing +5% over 1H14 (€1,374m), due to the increase of Supplies and Other operating expenses (+5%) and the Personnel expenses, which grows +5% in line with the increase of the global headcount (+5%).
OPEX rose due to, basically, the overruns in verticals markets such as Financial Services, Public Administrations & Healthcare, and Transport & Traffic.
Contribution margin of 1H15 (6.6%), decreased -8.4 pp. vs 1H14:
- Contribution margin in Solutions (7.2%) has decreased -9.6 pp. vs the same period of the previous year because of the deterioration of the activity in Latam (especially in Brazil because of the overruns incurred in certain contracts in FFSS and PPAA), the lower component of Elections, the specific problems in Lithuania, and the lower contribution of the own property solutions of the vertical Transport & Traffic, and Defence & Security because of the Eurofighter project, among other things.
- Contribution margin in Services was 5.6%, -6.0 pp. lower vs 1H14, mainly as pricing pressure in some verticals and geographies (mostly in Spain and Latam) remains.
D&A reached €45m in 1H15 vs €35m in 1H14 (+27%) because of the application and amortization of the corresponding subsidies to R&D finalized projects. Excluding this impact, D&A would have reached similar levels as of 1H14.
Recurrent operating profit (EBIT before non-recurring costs) accounted for -€25m vs €113m in 1H14, with a recurrent operating margin of -1.8% (vs. 7.7% in 1H14). This fall of 9.5 pp. in the profitability of the company has been caused, among other things, by the following issues:
- Seasonality of the Elections Business, with a relevant positive contribution to the profitability during the 1H14 (especially in Latam and AMEA). This impact will be mitigated during the second half of the year because there was no electoral business in 2H14, and we expect contribution during 2S15 (Spain and Latam).
- Overruns in Brazil, basically in verticals such as Financial Services and Public Administrations, in certain projects of some implementations of third-party solutions in Financial Services, and the project management of ERP implementation. As a result of the review already done, the future overruns of these projects from June 30th onwards are already provisioned in this quarter; thus, we do not expect more losses from now until its termination.
- Recently incurred overruns in a specific railway traffic management project in Lithuania, already mentioned in the previous quarter, where the changes in the initial terms of the contract have produced a relevant drop in the associated profitability of the project. The overruns of this project (which ends in September 2015) are also provisioned in this quarter.
- The increase in the Structure and Operative costs and the worse contribution of the vertical Transport & Traffic and Defence & Security (lower contribution due to the Eurofighter project).
Financial expenditures remains practically stable (€27.2m vs €26.9m 1H14) despite of the rise in Net Debt, mainly due to the reduction of the average cost of debt of 0.5 pp until 4.4%.
Share of profits of associates and other investees reached -€3.6m vs €3.9m in 1H14. The difference is explained by the extraordinary result of +€3.9m that happened in 1Q14 regarding a more favorable agreement reached with Indra Italia’s minorities related to the final payment to be paid in May 2016 (€3.7m) for its 22.5% stake.
The tax expenses rises to -€9.4m (income) vs €17.4m (expenditure) as a consequence of the fiscal income that takes place in Spain because of the losses of the semester and the R&D deductions, which is partially compensated by the endowment of provisions corresponding the non-recurrent effects of -€32m of the impairment tax credit of Brazil.
Net Profit reached -€436m basically due to the non-recurrent effects.
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