Indra posted net profit of 11.8 million Euros and free cash flow of 46.6 million in the first quarter of 2016

- Madrid, Spain.

Indra’s net profit reached €11.8m in 1Q16 vs. losses of €-19.6m in 1Q15.

Revenues reached €628m, declining by -6% in local currency (-11% in reported figures), mainly due to a stricter policy in the bidding process, a difficult macro situation in Latam and some delays in some countries more dependent on oil and commodity prices. The drop in sales in local currency was similar to the previous quarter. IT verticals (-8% in local currency; -14% reported) recorded worse performance compared to T&D (-4% in local currency; -5% in reported figures).

In contrast with the drop in sales, order intake in 1Q16 increased by +2% in local currency (-2% in reported terms) with better performance in IT (+5% in local currency).

Other income totaled €8.9m compared to €33.2m in 1Q15 as a consequence of the lower consumption of subsidies in the period and less R&D capitalization. Excluding both effects, other income would have been similar to that recorded in 1Q15.

OPEX fell by -15% vs. 1Q15 to €594m mainly due to the ongoing restructuring initiatives and lower sales:
• Materials consumed and other operating expenses were down by -21% to €263m as a result of fewer subcontractors, savings linked to the cost optimization plan, the decline in sales and the provisions related to onerous projects.

• Personnel expenses stood at €331m, down by -10% as a consequence of the decline in the average workforce in the period (-6%).

Contribution margin in 1Q16 reached 13.2% vs. 9.0% in 1Q15 (+4.2pp):
• T&D contribution margin (Transport & Traffic and Defence & Security verticals) up by +4.0pp to 19.0% in 1Q16 (vs. 15.0% in 1Q15). It should be noted that the improvement in Transport & Traffic was related with the adjustments made in certain problematic projects last year (mainly in Lithuania), which offset the lower contribution from the Eurofighter program.

• IT contribution margin (8.9%) was +4.2pp higher vs. 1Q15 (4.7%) due to the provisions made last year in connection with some Brazil’s projects (mainly in Financial Services and Public Administrations & Healthcare) and the ongoing optimization plans. Energy & Industry also contributed positively to the margin improvement.

D&A reached €14.5m compared to €30.9m in 1Q15 (-53%) due to lower recognition and amortization of the corresponding subsidies related to R&D projects (a difference of €-19m between 1Q16 and 1Q15). Excluding this impact, D&A would have increased vs. 1Q15.

Direct Margin in 1Q16 increased mainly thanks to an improvement in the problematic projects provisioned in 2015 and higher profitability of ongoing projects. This, in addition with the positive impact of the optimization plan and lower overhead costs, contributed to the improvement in the contribution margin. As a result, recurrent EBIT (before non-recurring costs) reached €29m in 1Q16, equivalent to a recurrent EBIT margin of 4.6% (vs. 0.5% in 1Q15), absorbing the negative impact of lower sales in the quarter.

Financial Result decreased to €11.2m (vs. €12.9m in 1Q15) as a result of the decline in the average net debt in the period (around €25m in 1Q16 vs. 1Q15) and the reduction in average borrowing costs of -1.22pp to 3.1% (mainly due to the lower weight of the debt in Brazil).

Profit/loss of equity-accounted investees declined to €-0.1m vs. €-1.7m in 1Q15.

Tax expenses reached €5.4m in the quarter, equivalent to a tax rate of 31%. Despite the operating pre-tax losses reported last year, expenses reached €4.1m in 1Q15 due to certain limits in the application of the negative tax credits generated in Brazil.

Balance Sheet and Cash Flow Statement

Free cash flow in 1Q16 was €47m vs. €-79m in 1Q15, mainly as a consequence of the improvement in profitability and net working capital. Excluding the impact of the redundancy plan in 1Q16 (€17m), the cash outflow linked to the onerous projects (€21m) provisioned last year and considering the same level of factoring as recorded in FY15, free cash flow would have amounted to €110m.

Net Working Capital decreased to €154m vs. €232m in December 2015, which is equivalent to 20 days of sales vs. 30 DoS in FY15. This reduction is associated with both the decrease in Receivables and lower volumes given the negative sales evolution.

Other operating changes cash outflow was €-20m, a decrease of €10m vs. 1Q15, thanks to a higher level of Prepayments in certain projects in Defence & Security and lower bonuses.

Taxes totaled €9m, similar to the same period of last year.

Intangible investments (net of subsidies) were €3m vs. €7m in 1Q15 as a consequence of lower R&D investments. Tangible investments reached €1m, slightly below than last year, €2m.

Net debt amounted to €659m (vs. than €700m in FY15), equivalent to 4.7x LTM recurrent EBITDA (vs. 5.4x in December 2015). Average cost of net debt stood at 3.1%, an improvement of +1.2 pp vs. 1Q15.

Non-recourse factoring lines in 1Q16 amounted to €162m vs. €173m in 1Q15 and vs. €187m in FY15. Considering the same level of factoring recorded in FY15, net debt would have reached €634m.



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