Indra Sistemas, S.A. (OTCPK:ISMAF) Q2 2024 Earnings Conference Call July 30, 2024 3:00 AM ET
Company Participants
Ezequiel Nieto – Head, Investor Relations
Marc Murtra – Executive Chairman
Jose Vicente Los Mozos – Chief Executive Officer
Antonio Mora – Chief Control Officer
Luis Abril – Managing Director, Minsait
Conference Call Participants
Beatriz Rodriguez – Bestinver
David Sanchez – JB Capital
Nicolas David – ODDO
Alvaro Lenze – Alantra Equities
Carlos Iranzo Peris – Bank of America
Laurent Daure – Kepler
Ezequiel Nieto
Good morning and welcome to our 2024 First Half Results Presentation. I’m Ezequiel Nieto, Head of Investor Relations. And as usual, let me refer you to disclaimer on slide number three that shows the legal framework under which this presentation must be considered.
First, let me introduce the participants of this call. Marc Murtra, Executive Chairman of Indra; Jose Vicente Los Mozos, CEO of Indra; Antonio Mora, Chief Control Officer; and Luis Abril, Managing Director of Minsait.
Marc, the floor is yours.
Marc Murtra
Thank you, Ezequiel. Good morning to everybody. Welcome to this conference call in which we are pleased to present our results for the first-half of 2024. I extend my thanks to all of you for your attendance. It is an honor for me to address you today in my capacity as Indra’s Executive Chairman.
The first-half of 2024 has been important for Indra, focused on setting us on the right implementation of our new strategic plan for 2024, 2026 Leading the Future, unveiled in March of this year. That is our focus, execution. As defined in our strategic plan, Indra’s vision is to become the Spanish multinational of reference in Defense & Aerospace and Advanced Digital Technologies.
Over the last three months, since the announcement of the plan, we have seen good progress, acting as a driver to build a path that will meet our Leading the Future strategic plan targets. Our double-digit growth in revenues, EBITDA, net income and free cash flow compared to the first half of 2023 is, in our view, a good headline of our performance.
Our increased operational profitability, evidenced by improved EBIT and EBITDA margins demonstrate the impact of the actions and initiatives we have executed over the past months, some of which we will discuss today. The financial performance is a testament to the work we have made in each of Indra’s businesses.
In our efforts to develop a defense ecosystem around Indra, we follow a collaboration on cooperation strategy with stakeholders in the sector. As part of it, Indra invested in ITP in the third quarter of 2023 and has now received a EUR59.6 million dividend payment, representing the first returns on its investments. Please remember, ITP is not a financial investment for us. It is an industrial investment, but it has given us a good first return.
In Air Traffic Management, we’re focused on maintaining our leadership position in Europe, Middle East, and Latin America, ultimately aiming to become the number one player globally, reinforcing our position in North America and Asia-Pacific. We are making progress in these new priority geographies; North America and Asia Pacific, leveraging key collaborations to access major renovation programs.
In Minsait, we are working hard to evolve towards a digitally-focused portfolio, integrating capabilities in artificial intelligence, cloud, cybersecurity, and other high-potential technologies to establish an industry-leading offering. In fact, Digital and Solutions joint sales accounted for 50% of Minsait sales.
Integration of Mobility into Minsait, as laid out in our strategic plan, is set to further drive our digital-focused offering. Also worth highlighting are the advancements made over the last months in our technology road map. We are immersed in a process to identify the key future technologies, capabilities, and productions in which to invest. This initiative builds upon previous tech developments Indra has been working on and its progress until 2030 will be closely monitored by a tech control tower.
We’re strengthening our organization with new appointments. We have recently appointed Miguel Forteza, formerly Deputy CFO and Investment Director of the Nortia Group, as our new Chief Financial Officer, also joining Indra’s Executive Committee. Additionally, we are launching a new geographical organization, which our CEO will detail later on, resulting in the appointment of new regional directors.
Latin America and South Europe will be led by Pedro Rodriguez Veiga, previously in charge of Minsait’s International business. Middle East will be headed by Luis Permuy Munoz-Rivero, who has been responsible for Indra’s business in Asia, the Middle East, and Africa since 2016. United States, United Kingdom, and Northern Europe will be overseen by Jose Jacinto Monge Bravo, who joins the Indra Group. The rest of the world will be coordinated in an export mode — model by Jose Luis Gasco, formally responsible for the Asia-Pacific region.
Thank you for your attendance and attention. I will now give the floor to our CEO, Jose Vicente Los Mozos.
Jose Vicente Los Mozos
Thank you, Marc. Good morning, everybody, and welcome to our first semester ‘24 conference call, and thank you for being with us here this morning. Let me begin by providing you all with Indra’s main highlight for the first-half of 2024.
In terms of financial headline, these results are a clear sign of a successful kickoff of the implementation of our strategic plan. Our revenues, EBITDA, net income, and free cash flow in first half of 2024 continued to grow at double-digit rate. Backlog and order intake grew by 5% and 7%, respectively, showing our strong ability to generate business. This strong growth is accompanied by improvement in operating profitability, proved by increased EBITDA and EBIT margin across all our businesses.
Given the seasonal traction, our Leading the Future strategic plan, and the resulting financial result, with the Chairman, we have decided to increase all our 2024 guidance metrics. In addition to these financial results, we are also proud to announce some or most significant implementation milestone for our Leading the Future strategic plan during this first half of the year. We have successfully launched an automatic scorecard tool, focused on granular monitoring of the strategic plan’s KPI at all level of the organization. This tool act as an enabler for the company to not only follow the achievement, our Leading the Future up close, but to work together with a common goal in mind.
We have also launched our new geographic model at around three focus regions with 11 home markets to ensure we are closer to our customer. During this past six months, we have also focused on one of our most important strategic lever, inorganic growth. With an ambitious M&A target in mind, we are already working with a broad and deep pipeline of target companies with advanced conversation being held with a significant number of them. As for joint venture and strategic alliance, we have engaged in partnership with key players such as Lockheed Martin or Middle East top player, EDGE Group.
Turning back to our financial results, let me highlight the following. The double-digit growth achieved across our main metrics together with both the volume and quality, our backlog, accounting for 3x of revenue, which grew 4.8%, proved to be a good indicator to the near future growth of Indra. The commercial momentum that the company is going through with revenue growing at 15%, is strongly backed by all our businesses.
Most notably, growth registered by Air Traffic Management at plus 33% and by Defense at plus 31%. All this has also allowed us to improve our margin and cash generation, empowering us to maintain financial leverage below our target of 0.2 per net debt ratio EBITDA.
If we look at the picture for our second quarter of 2024, we see trend as positive as those of the first half. Revenue grew a plus 8% rate and EBITDA and EBIT margin improved by almost 1 percentage point to 9.6% and 7.5%, respectively. Despite higher structural costs, given the implementation of the strategic plan and one-off costs due to potential acquisition and disinvestment under analysis.
Net profit grew by plus 15% and free cash flow stood at plus EUR1 million, a very positive figure considering the seasonality of this parameter and the inclusion of a one-off income tax payment of EUR41 million. As already mentioned, this first-half result has allowed us to upgrade our guidance for the end of the year, improving all of the previously announced guidance metric by plus 4%. That is to deliver revenue of more than EUR4,800 million, EBIT above EUR415 million, and free cash flow over EUR260 million by the end of 2024.
One of the main levers behind this result, of course, the acceleration of the strategic plan, is monitorization through our scorecard tool. Designed specifically for the rigorous monitoring and acceleration of the strategic plan, our scorecard tool operates under the guidance of dedicated [Technical Difficulty] committees, ensuring that every aspect or plan is thoroughly overseen and analyzed by business and initiative leaders. The tool logic is structured to provide different level of capital visualization tailored to meet the needs of various stakeholders with our organization.
At Level 1, we present the key KPIs at the Indra group level, offering a comprehensive overview of our overall progress. Level 2 break this down further, showcasing the key KPI for each of our division: Defense, Air Traffic Management, Space, and Minsait. This level of detail ensures clear visibility and accountability for every division across the company. Level 3 provides an in-depth view within each division, allowing us to pinpoint specific areas needing improvement.
Finally, Level 4 offer detailed insight at the initiative level, such as radar design and manufacturing, providing a granular view that help us fine-tune our action plan accordingly. Across all these levels, we monitor four type of KPIs: financial, commercial, operational, and talent. This comprehensive approach ensures that we are not only tracking our financial health, but also our operational efficiency, such as use of IE tool and the development of our talent, such as top talent recruitment and attrition.
In summary, with this robust tool and structured approach, we are confident in our ability to steer our plan, Leading the Future, successfully, making informed decision that drive us all as a company forward our strategic goal, allowing us to continue producing the kind of financial result we are seeing here today. If somebody has doubt about the implementation of Leading the Future, please don’t think more, Leading the Future will be implemented at the right time, at the right moment.
Now let’s shift our focus toward our new geographic model, which was introduced during our Capital Markets Day last March. In the last month, we landed this model, guided by 3 key principles. First, to increase local presence in high-value countries and regions, allowing us to be closer to our customers with local production capacity and attracting local talent.
Second, the implementation of clear and standardized mechanisms to assign operating models to countries based on a set of positive parameters. And third, the rationalization of legal entities and simplification of structures to increase focus, reduce costs, and reallocate more resources to our home market.
As a result, Indra group will concentrate on these three focus regions and containing several home markets, and maintain a pure international export business to ensure that we keep a broad and impactful presence worldwide. The three international focus regions are North America and Central and North Europe, Latin America and Southern Europe, and Middle East and North Africa. By focusing our effort on these key regions, we are better positioned to support our internationalization strategy, optimize our resources, and drive sustainable growth.
As a result of implementing this new geographic model, Indra group will significantly rationalize its international footprint. We will evolve from having a local structure in 45 countries to just 19, which accounts for more than 70% of our international sales. Of these 19 countries, 11 will be home markets with full structure and the remaining eight will have simplified structure. This strategic consolidation will streamline our operation and focus our resources more effectively.
Additionally, we anticipate a reduction of approximately 55 to 65 permanent legal entities in our international footprint. This simplification is a crucial step in optimizing our global operation and reducing complexity. This stance underscores our commitment to enhancing operational efficiency, maintaining a strong presence in key markets, and supporting our strategic goals.
After having reviewed some of our key financial and business highlights for the first half of the year, please allow me to dig deeper into our financial results. It is important to remark the strength of our organization once we remove the impact of ForEx impacts and inorganic contribution, 12% for the first-half of 2024 and plus 6% for the quarter.
On the right-hand side, we can see the breakdown of our revenue by region in the period, which are split across Spain, 50%; Europe, 21%; America, 20%; and the EMEA, 9%. Currently our international business accounts for 50% of our revenue.
In terms of EBITDA distribution; Defense, Air Traffic Management, and Mobility represent 52% of the total for the first half of the year. Here we can see the evolution of our workforce, broken down by business. Let me highlight here that we have improved our revenue per employee by 13%, while our workforce has only increased by 1% compared to June ’23. As you can see, we follow also our productivity.
Now I will leave the floor to our Chief Control Officer, Antonio Mora, for an in-depth review of this performance of the division. But before all this, the Chairman has announced a new CFO. I want to thank Antonio Mora for his interim during this month.
Antonio, the floor is yours.
Antonio Mora
Thank you, Jose Vicente. Good morning, everyone. Now once the big picture has been presented, let’s dive into the performance of each of our four divisions, starting in page 19 with Defense. This has been a very strong first half for Defense, as you can see in the key figures on the slide.
Order intake grew by 6%, mainly thanks to the integrated system and simulation areas and despite the decline shown in both the FCAS and Eurofighter projects. More important are the various strong figure at sales, which grew 31% in one-half ‘24, with double-digit growth posted both in Spain and Europe, mostly driven by the contribution of the FCAS project.
Excluding this contribution, sales would have increased by 5%. On top of this solid revenue growth, EBIT margin stood at 15.5% in first half ’24 from 15.9% last year same period. Quarter-wise sales grew by 17%, also driven by the FCAS project.
EBITDA margin stood at 16.3% versus 17.6% in two quarter ‘23, mainly due to higher structural costs derived from the implementation of the strategic plan and one-off costs related to potential acquisitions that are under analysis, as we mentioned before. For this part, EBIT margin was 14.9% for the quarter compared to 16% in two quarter ’23.
Air Management also delivered very strong performance, as you see on slide number 21. The positive performance, shown by the order intake, 57% growth was mainly due to the contracts signed in Canada and Colombia. Aimed on the new contracts, it’s worth noting that NAV CANADA has joined the iTEC alliance, thus extending its membership beyond European borders for the first time.
Sales in first-half ‘24 grew by 33% with all geographies posting growth, mainly driven by contract carryout in Belgium, Azerbaijan, China and Spain, as well as the inorganic growth from the acquisition of Park Air in the U.K. and the Selex business in the U.S. And finally, EBIT margin was in double-digit range of 11.9%.
If we move to slide 22, we show the performance of the quarter starting by 8% revenue growth bolstered by Azerbaijan, U.K. and Norway projects. EBITDA margin stood at 13.3% compared to 13.4% in 2 quarter ’23, implying 7% growth in absolute terms. While EBIT margin posted 9.4% versus 10.2% in two quarter ’23.
If we move to the Mobility division. Order intake fell 9%, explained by the difficult comparable due to the tunnel management system contract in the U.K. recorded in 2023. Sales grew 13%, driven by the growth posted in all geographies, especially bolstered by America. The EBIT margin in one-half ’24 improved to 3.8% from minus 3.2% recorded in first-half ’23.
On slide 24, we show the evolution of the division in the quarter. Revenues increased 9%, boosted by Mexico, Spain, and U.K. projects. EBITDA margin improved to 5.3% from 6.6% in two quarter ’23 and EBIT margin also went up to 4.3% from minus 7.8%.
Now, on page 25. Minsait also printed a very positive first-half of the year. The good commercial momentum goes on with backlog growing at 17% and order intake 3% in one-half ’24. For this part, revenues in first-half ’24 grew by 9%, driven by the strong performance shown in Public Administration & Healthcare, which grew 18%, thanks to the positive activity with the public administration in Spain and the election project in El Salvador [Indiscernible].
Energy & Industry posted 7% growth and Financial Services registered a 6% increase. Finally, EBIT margin in one-half ’24 improved to 5.3% versus 5.2% in one-half ’23, thanks to higher operating leverage from a steady sales growth, as well as improved revenue mix towards Digital & Solutions and the ongoing focus on cost efficiencies.
On slide 26, in the quarter, Minsait posted 6% revenue growth, showing all verticals good performance. Financial Services 10%; Energy & Industry 5%, and PPAA & Healthcare 4%, except for Telecom & Media, which declined 3%. Regarding profitability, operating margin stood at 6.9%, same level, the 2 quarter ’23. For this part, EBIT margin printed 5.2%, same level than in the second quarter of 2023 as well.
On page 27, the breakdown of Minsait revenues by horizontal where you can see that we have improved our mix once again with Digital & Solutions growing by 13% compared to first-half ’23, and now representing 50% of our sales.
On page 28, we show our order intake and revenues breakdown of Minsait. First-half ’24 order intake was up 3%, standing out Financial Services 19%, and Telecom & Media 3% growth. Moving to the middle of the slide, revenues in first-half ’24, grew by 9%, driven by Public Administration & Healthcare 18%, Energy & Industry 7%, and Financial Services 6%. On the contrary, revenues in Telecom & Media decreased 4%.
On the right-hand side, revenues in the quarter increased 6%, showing growth in all verticals: Financial Services 10%, Energy & Industry 5%; and PPAA & Healthcare 4%; except for Telecom & Media which posted 3% decline.
Let’s start the financial review with the evolution of the free cash flow on slide 29. That amount EUR69 million, an excellent figure taking into account business seasonality, the inclusion of the income tax payment of EUR41 million, corresponding to the availability of shares of the medium-term remuneration plan for the period ’21, ’23 and considering that we are comfortably exceeding the figure for the first half of the previous year. This level of cash generation, as we see below, has allowed us to maintain our financial leverage in a very low level.
Now, in page 30, we see how days of sale improved compared to the same period of 2023. The good performance versus June ’23 can be explained by the improvement of accounts receivable, minus six days and accounts payable minus five days.
Page 31 shows the net debt evolution of first half of 2024. The first step is a strong operating cash flow of EUR225 million due to an excellent performance of the business and the resulting higher operating profitability. As mentioned, net working capital stood at minus EUR69 million, same figure as in 1 half ’23. Other financial liabilities stood at EUR16 million, similar figure as the previous year and net interest of EUR14 million, EUR7 million more than in first-half ’23.
With all this, we have closed this first-half with net debt of EUR93 million and a leverage ratio of 0.2 times net debt to EBITDA, as you can see in page 32, slightly above the figure we presented in June 2023, but still at very low debt levels.
And now to finish my part, a quick look to the debt structure in page 33. In one-half ’24, gross debt has been reduced to EUR582 million, average maturity below two years and cost of debt at 4.3%. The cash position at the end of June was EUR489 million, and we also have EUR680 million of undrawn credit facilities. So that will maintain liquidity, while canceling gross debt with cash.
With this, we finish the presentation. Let’s move on to the Q&A session. Today, we will take first the question from the analysts that are physically here with us, and then we will answer the question of the audience in the conference call.
Jose Vicente Los Mozos
Thank you, Antonio.
Question-and-Answer Session
Operator
Q – Beatriz Rodriguez
Good morning. Beatriz Rodriguez from Bestinver. And thank you for taking my question. I was wondering if you could give us some color on Minsait’s performance. Taking into account that some competitors have lowered their estimates for 2024, how do you see the evolution in the second-half of the year? Are you seeing a slowdown in demand?
Luis Abril
I was expecting this question actually. No, actually not. We are relatively confident with the guidance that we’ve given for the second — I mean, for the end of the year 2024, which basically in terms of the top line is to be in levels of growth of — I mean, which are higher than mid-single-digit. We see no significant slowdown. We acknowledge that there is some uncertainty actually because we see what our competitors are saying.
But to be honest, we see a solid pipeline. We see interest in our customers on what we are doing. We are relatively confident with potential additional growth in the future. This may have to do with many things, actually. I think that we are doing things right. We are implementing several internal measures for improving commercial practices. We are adding new profiles of salespeople to our staff. We are redefining some processes.
We are adjusting the incentive systems for our commercial people and this probably is affecting the fact that we’re growing. Also the nature of our activity probably also helps. And by the nature of our activity, I mean, the fact that we are typically large customers more than in SMEs, which are more resilient. I mean helping them in core activities, which give us some resilience as well.
But as you’ve seen, I mean, all the sectors are tractioning well, and growth is being solid. And probably, we expect a better growth in the second half of the year than what we’ve seen in this quarter. As I was saying, the guidance, we maintain the guidance of growing at least at mid-single digit, and we are relatively confident that we’ll achieve that.
Beatriz Rodriguez
Thank you.
David Sanchez
Hi, good morning. This is David from JB Capital. Thank you very much for taking my question. I have two. The first one is on the Defense division. EBIT margin came 1 percentage lower in Q2. Could you give more color on the reason of the decline in EBIT margin in Defense? How do you expect this trend in the coming quarters?
And the second question is on the outlook for Defense. Can you maintain double-digit growth in sales in the coming years? Are there any bottlenecks in the supply chain or any delays? What is your view on the downside risk? Thank you.
Jose Vicente Los Mozos
About 1% EBIT, I think we have explained is the mix, okay? I think we need to refocus more to increase the sale of the systems. But in spite of this, when we compare our competitor, we are in the best-in-class in Defense that we are not worried about this. About the portfolio and the sales, I think we need to push the internationalization and the sport. If we take, for example, Latin America, in the past, last year, we have sold EUR9 million in Defense that we have the potential in security modernization. The implementation of the plan, for example, is the first region that we are working that show us a potential growth.
If we take Middle East, that also it was international by sport. We have a potential with TESS group business that we are going to develop. That all these items, the region’s implementation will help us. If we take U.S., for example, our agreement with Lockheed Martin also will give us the fruit in the future. That is for that.
One of the KPIs we request to the Defense team is outside FCAS, outside Eurofighter, we need to grow EUR1,000 million sales. With this indicator at the end of June, we have achieved more than EUR400 million in the plan. That people are focused in the system to sell and to sport, not only in Spain, but also that all relevant role in the defense industry in Spain, but also internationalization.
About supply chain, well, I came from an industrial war. I think to put the order, we need to work by order. The first action has been engineering. Today, we can monitor 100% of the project. We’ll be on time. We’ll be delayed three months. We’ll be delayed more. Okay, that we know. We know the profitability of the project in granular mode. That is done. Now, industry. Now, we are working in the supply chain processes. And also, we are analyzing all the bottlenecks in manufacturing.
For example, last year, we increased 38% in the production. And this year, we’ll continue this growth because we see a potential. The idea behind this is to reduce the order intake of the production to accelerate in the future new possibilities of the production. That is in process. I am confident. I think people are very motivated and also study very deeply. I can give you one example that our Defense Director for 8×8, we have daily monitoring QRQC in [Indiscernible] plant to monitor the 8×8 [Indiscernible] deliveries. That is a revolution in industry. And that is done in Indra. It is one of the samples we are starting to monitor around the company.
David Sanchez
Okay, thank you.
Operator
Ladies and gentlemen, the conference call Q&A starts now. [Operator Instructions] Our first question comes from the line of Nicolas David from ODDO. Please go ahead.
Nicolas David
Yes, good morning. Thank you for taking my question. Actually, I have three. The first one is regarding FCAS. You recorded strong revenue in Q2, higher than the trend we probably initially imagined. Is it a pull-forward revenue or is it a higher run rate, including for the next quarters, this strong revenue you had in Q2?
My second question is regarding the one-off cost. Could you detail a bit the amount you recorded in Q2? And are they all recorded in Q2 or do you expect more in the rest of the year? And if we look at this in the perspective of the annual guidance that you increase, where does this cost vary? Also, in the guidance perspective, did it increase or lower than what you initially expected? That is my second question.
And my last question is regarding the space business. Could you comment, please, what could be the implication for your space M&A strategy regarding the recent announcement from Thales and Airbus Space potential merger? Does it change something for you? Does it prompt you to wait a bit more? Any color would be helpful. Thank you.
Jose Vicente Los Mozos
Thank you for your question about FCAS. Okay, we have much invoice than we expected in H1. We have received EUR137 million in H1 ’24 versus EUR49 million in 2023, and we expect for 2024 EUR220 million versus EUR139 million in 2023. About one-off, we don’t give details about this. Second-half, yes, it’s possible. About business space, we have announced in our Capital Markets Day that for us it’s important space because all the communication will go through the space. To secure communication, we need to develop this business.
And we are working in the new core space around the value chains, and we are looking all the opportunities in the market and excluding different companies. And also, we follow very carefully Thales, Airbus, and all the movements in the market. That we are studying when we have informal revelation, we’ll anticipate, but we are following carefully. And when we look that’s happened in space business in Europe and worldwide, I think we are confident that it was the good moment to enter in this business space from Indra.
Nicolas David
Thank you. Jose Vicente Maybe regarding the one-off cost, just in the guidance perspective, is it something, even if you have costs in H2, is it perfectly in line with your initial plan? Or should we understand that you managed to increase annual guidance despite maybe higher exceptional costs, or is nothing related to that? And maybe, if I can, a very quick follow-up on Air Traffic Management. Could you give us some color about the decline in Q2? What do you expect in H2 there? Is it just a small slowdown and you still have a good prospect? Or is it more structural?
Jose Vicente Los Mozos
You know me, guidance includes everything, okay? Don’t worry. I think we don’t find excuse, okay? We think we are in a solid moment and we need to continue to grow and improve our performance. But don’t worry, everything is included in the new guidance.
Operator
Our next question comes from the line of Alvaro Lenze from Alantra Equities. Please go ahead.
Alvaro Lenze
Hi, thanks for taking my questions. The first one is on the geographic restructuring that you presented today. Just wanted to know whether this is mostly an attempt to improve your commercial performance. I don’t know if your previous structure was a hurdle from a marketing standpoint, or whether this is mostly to simplify the structure and save costs, and in that case, how much could be the potential savings?
My second question would be on the development of the 8×8 Dragon program. You mentioned that you are increasing the monitoring. I don’t know if you have seen an acceleration of the production schedule. At the beginning of the year, we saw some pushback from or some criticism from the Spanish government regarding the delays. I don’t know if the situation is improved. And also, as you know, it has made the press your interest on TESS Defence, which is the company that organized the 8×8 program. I don’t know if you could comment on your interest there, or lack of interest, in the SPV? Thank you.
Jose Vicente Los Mozos
About geography, it was mainly from export, instead of inside in Latin. I think we have copied Latin America main site, and from this experience, we are developing all the companies. But when we have analyzed the three regions, first, we need to start by the country, okay? We need to be focused in the country that we think we can be relevant. If we take, for example, Latin America, in Defense, the key country is Brazil that we have monitored the key countries that we think will have potential business.
And also, we have studied how to improve our businesses in this country. That can be, in some countries, organic, and others, inorganic. All this description has been done. And that we have analyzed that we have a structure in 45 countries. I think, for me, generalization is not to go to the country, put the flag, and go back. For me, it’s to study the country, and minimum is to have EUR200 million business. That is, for me, a home country. And that, we have studied the 11 countries that we think we are very close of this.
And we are, in the same way that we have the project Leading the Future, we are deploying Leading the Future in each country. For example, if we take Middle East, we have three countries. We have Emirates, Arabia, and Morocco. Each country, we are working in this strategic plan for this home market or simplified market. Success tool is a scorecard, okay? And this is very important because we need to find the coherence between objective deployment and the Leading the Future result. And with this scorecard, it’s very easy to analyze the different indicator. Not only financial, but we need to have also process indicator.
Process indicator become from sales, become from industrial, become from engineering. That is very important to find the coherence between process indicator and result indicator. And that has been done in this tool scorecard. And we follow with the Chairman and myself every two weeks. And we’re monitoring. And that is very easy tool because now when we start, we have started to prepare the — by 2025. It will be very easy because we know where we are about the process and the result. And that will be very easy to implement the result. About this, I leave the floor to the Chairman.
Marc Murtra
Yes, with regards to our TESS Defense and different rumors and different information that have appeared, we have to, of course, refer you to our strategy, our defense strategy, on our objectives in the different dominions, including the land dominion. And if there is anything for us to announce, we will announce it in due time. Thank you.
Alvaro Lenze
Okay, thanks. And yes, on the performance of the 8×8 program, if you could indicate whether there has been an acceleration on deliveries and whether the client is happier with the evolution of the project or if things continue to struggle.
Jose Vicente Los Mozos
I think it never has been said that Indra is delayed in [Indiscernible]. The delay has become by TESS, okay? I don’t want to disclose what has been the reason of the delays, okay? But the announcement has been TESS delay, no Indra delays.
Alvaro Lenze
Okay. Thank you for the clarifications.
Operator
Next question comes from the line of Carlos Iranzo Peris from Bank of America. Please go ahead.
Carlos Iranzo Peris
Hey, guys. Good morning. Thanks for taking my questions. I actually have three, if I may. So the first one on Defense margins. Obviously, it’s been impacted by the one-off. So could you please give us some color on this one-off to try to understand what was the underlying margin in Defense in the second quarter?
And just following up here, any update you can provide in terms of cap allocation, particularly regarding Hispasat? And the last one, are there any potential cost savings related to the rationalization of the international footprint? Thank you.
Antonio Mora
Regarding higher structural cost of implementation of a strategy plan and the one-off specific cost due potential acquisition, and divestitures and an analysis, sorry, but we don’t disclose this figure. But enough, more than enough, to suit the trend from negative to positive regarding EBIT revenues ratio and the comparison between years.
Jose Vicente Los Mozos
About productivity, we monitor the cost saving, okay? You can see the ratio for performance by employee that we have increased 13%, but also we’re monitoring by cost. And also including, we are studying what is the effect of the AI implementation in the productivity, okay, that we are in these processes. About Hispasat, I think we have answered many times. We are interested in space division. We are studying different options, different companies around the value chain. And when we have some relevant information, we will inform you.
Carlos Iranzo Peris
Very clear. Thank you.
Operator
Our next question comes from the line of Laurent Daure from Kepler. Please go ahead.
Laurent Daure
Yes, thank you. Good morning, gentlemen. I also have three questions. The first is also on Defense. I was more interested in the outlook between 2025 and 2027. Basically, if you were to break down the Defense business in three, FCAS, Eurofighter and the other programs, if you could share your view on those three sub-segments to help us to build our model on the Defense growth for those years?
And my second question is on Minsait. If you could share with us your exposure to ERP and more particular to SAP and rise with SAP?
And my final question is on the EU projects for Minsait that have been helping the revenue in past quarters. How much further additional business are you expecting from the EU in the next quarters or next two or three years? Thank you.
Marc Murtra
Okay. So with regards 2025 and 2026 defense prospects, we won’t go into the specifics regarding FCAS or Eurofighter up and above what has been told by official sources in these projects. But what we do see is a consolidation and more strength in the trends we have identified these last few years. Higher defense investment, higher investment in transnational programs and growing importance in the command and control systems that are Indra’s core.
So I think that all the news we have and that we have been seeing in these last two, three months reinforces with specific data and with political will and with budgets and what we see. So if anything, we see much stronger signs than we did three, four months ago. But we haven’t translated into specific changes up and above the changing guidance for 2024.
Laurent Daure
Marc, sorry to interrupt. But I understand you don’t want to share everything, but my worry is that it seems like the FCAS is a trough — at the peak, sorry, in revenue terms. I don’t think you have to expect too much from Eurofighter. So I’m just trying to see the growth in Defense is going to come from these spaces specific program you will rely on or just multiple sources of small contracts. Any granularity will be helpful on this question.
Jose Vicente Los Mozos
Yes, okay. You know, in Defense, we are a system supplier, okay? In spite of what happened with FCAS, we are working in the system, okay? This system, electronic warfare and other systems will be implemented in different programs. Thus, for us, this project is a buster to reinforce our position or system. Thus, for that, we are not pessimistic about this independent of the program.
And Eurofighter, you know we have Eurofighter LT. Thus, we have additional business in the following years. We think in spite of these two programs, the rest we will increase in a strong way. Not only in Spain because I repeat, we are focused in export internationalization on some key countries. We need to understand the total overview of the business and the geography.
Marc Murtra
And you can see our order intake and our backlog, which will affect ’25 and ’26. They’re doing very well.
Jose Vicente Los Mozos
The other two questions were Minsait.
Luis Abril
Thank you, Laurent, I can take Minsait if you want. I will ask you to repeat the second one, okay, because I didn’t take it. On the third one, well, the fact is that if we look at the future, we are expecting growth from all geographies and from all verticals. It is true that Europe and specifically EU funds probably will help and have been helping in the past as well, but as you’ve seen in the presentation, growth is all around. And there are no specific projects which are actually moving the needle significantly.
Actually, if we take a look at the second quarter of ’24, it is more the opposite. I mean, if you take a look, for example, at elections figures, the revenues coming from elections in the second quarter have been extremely low, EUR9 million, I think, or something like that, which is probably a sign of this message about our confidence in future growth. Because as I was saying, all verticals and most geographies are growing. We have good prospects for Europe, but also for other geographies. And you said…
Laurent Daure
The last question was on SAP.
Luis Abril
SAP, we see good prospects as well for SAP in the next at least two, three years. I think that SAP is doing things well. I mean all this movement to HANA and with the RISE initiative, I think that it is showing good demand from customers. We are well-positioned, I think, there, at least in some geographies and in some segments. As you know, we have something like 2,000 SAP consultants, and as I was saying, we expect good growth. This should be one of the digital offering lines that should help us keep on growing, not only in this second half of the year, ’24, but probably in ’25 and ’26.
Laurent Daure
Okay, thank you so much.
Jose Vicente Los Mozos
Okay. I want to thank everybody today to participate and listen to us. Leading the Future is on track. That I told before, some doubt about implementation. Leading the Future will be implementation at the right time with the right performance. Indra is growing in all the divisions. I want to take this opportunity to thank all the employees in Indra and all the board support for us, and also the President for the conference, because Indra [ go back ]. Thank you.
Marc Murtra
Thank you, Jose Vicente, and thank you, everybody. [Indiscernible] Bye-bye.
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