RoIC (%) 23.8 18.7 15.0 13.4 Ratios 3 RoE (%) 19.6 17.8 12 ...that Indra’s midterm targets...

All prices are those of the end of the trading session unless otherwise indicated. For important Disclosure and Disclaimer go to the second last page.

Indra Valuation update

Spanish outlook sets a more cautious view

Alexandra Delgado, CFA +351 21 003 7827

[email protected]

Buy (High Risk) TargetYE13 (€): 12.25 Price (€): 10.22

Upside: 20%

No. Shares (mn): 164.1

Financials Market Cap (€ mn): 1,677.4

Turnover (€ mn) 2,688.5 2,941.0 2,950.3 3,021.1 Avg Daily Vol 3m (k): 892.0

EBITDA (€ mn) 313.4 299.9 281.8 296.7 Reuters: IDR .MC

Net Income (€ mn) 181.0 132.7 122.7 142.6 Bloomberg: IDR SM

EPS (€) 1.10 0.81 0.75 0.87 Prices as at 06-05-2013

CEPS (€) 1.38 1.32 1.14 1.20

Ratios

RoIC (%) 23.8 18.7 15.0 13.4

RoE (%) 19.6 17.8 12.4 10.9

Net Debt/EBITDA (x) 1.6 x 2.1 x 2.2 x 2.0 x

Net Debt/EV (%) 0.2 x 0.3 x 0.3 x 0.3 x

Valuation

P / E (x) 8.9 12.4 13.7 11.8

EV / Revenues (x) 0.8 0.8 0.8 0.8

EV / EBITDA (x) 6.9 7.7 8.3 7.8

Dividend Yield (%) 6.9 6.7 3.3 3.3

Source: Millennium investment banking

2011 2012 2013E 2014E

60

70

80

90

100

110

120

130

140

May-12 Jul-12 Sep-12 Dec-12 Feb-13 Apr-13

Indra

Ibex 35

We have fine-tuned our estimates for Indra. We value Indra at €12.25 per share (YE13),

downwards revised from our previous calculation of €12.40 (YE13), meaning a 1 .2%

downward revision. Given the 19.9% upside on the stock we rate it as Buy (High Risk).

The revision of WACCs applied to our valuation (decrease of the Spanish Sovereign yield,

decrease of Risk Free rate & decrease of Beta) resulted in a €1.45 upward revision of our

price target. Estimates revision led to a €1.60 downward revision of our price target; this

resulted mainly from lower revenue growth in Spain allied to a slower EBIT margin recovery.

Spanish economy woes are taking its toll on Indra performance , particularly on profitability,

so we’ve decided to be more cautious in our estimates. Revenue estimates were lowered by

an average of 4% in the explicit period on the back of a weaker domestic market. We’re now

incorporating in our model that EBIT margin will be 8% this and the next year, o nly

approaching 10% in 2017 (9.5% in 2017 vs. previous estimate of 9.6% in 2015).

We remain concerned about Indra’s debt, which decreases financial flexibility. Net debt has

reached €633 mn in the end of last year, 2.1x EBITDA (2.4x if we include payment related to

Politec acquisition due in FY14). The Board is now more sensitive to this question, a s

demonstrated by dividend cut (and lower payout) and the commitment to adapt shareholder

remuneration in order to maintain current leverage. We would like to see a more aggressive

dividend cut though and a more pronounced deleverage: considering a €0.34 DPS in both

2013 & 2014 only reduces Indra’s net debt to 2.0x EBITDA by YE14.

Bottom line, we continue to see value in Indra’s business because of its proprietary

solutions and diversified business profile. However, we are now more concerned regarding

the evolution of margins, as we believe the company’s capacity to recover profitability is

very tied to the Spain’s macro performance. In addition, we believe overhang risk and debt

concerns (to a lesser extent) may overshadow fundamentals and hinder performa nce in the

short term.

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Millennium investment banking Indra 7 May 2013

Index

Investment Case 3

Valuation changes breakdown

Revenue growth rate revisions

Revenue by geographical market

Key valuation drivers

Estimates vs. guidance 2013

1Q13 Consolidated Income statement Highlights

Valuation Update 8

DCF Model

DCF assumptions

Sensitivity analysis

Quarterly actuals vs. regression estimates (Spain)

Quarterly actuals vs. regression estimates (EU)

Revenue forecast for 2013 and beyond

Regression results

Regression results vs. estimates

Estimates revisions 12

P&L and Cash Flow

Revenue Screening

Financial Balance Sheet

EBIT margin

Financial Statements 15

Income Statement

Margin per Segment

Margins

Revenue Screening


FCF map

Dividends & Net Debt

Efficiency / Returns Ratios

1Q13 Earnings Preview 18

Income Statement Highlights

Revenue Screening

Margin per Segment

Consolidated Income Statement

Seasonality

Quarter schedule

Sector Multiples 21

Consolidated Figures 22

Disclosures and Disclaimer 23

of 24


Investment Case

Summary

Spanish economy woes are taking its toll on Indra performance. The Spanish company is well geographically

diversified, with the domestic market now accounting for only a little over 40% of revenues, but a weak Spain is

affecting profitability. Indra’s historically fat margins have been hit by a weak Defence segment and the

consolidation of lower margin businesses (e.g. Politec), but the difficult environment in Spain now seems the

decisive factor on how much time it will take to recover profitability.

Following the release of 2013 guidance last February which set a dimmer outlook, we’ve decided to be more

cautious in our estimates. Revenue estimates were lowered by an average of 4% in the explicit period on the back

of a weaker domestic market. In addition, we’re now incorporating in our model that EBIT margin will be 8% this

and the next year, only approaching 10% in 2017 (9.5% in 2017 vs. previous estimate of 9.6% in 2015). We remind

that Indra’s midterm targets released in February 2012 said EBIT margin should be close to 10% already next year.

Our DCF-based valuation is based on a CAGR of 2012-2022 of 4.2%, a stable 10% EBIT margin beyond 2018

and a 2.8% capex on revenues beyond 2015.

We remain concerned about Indra’s debt, which decreases financial flexibility. Net debt has reached €633 mn in

the end of last year, 2.1x EBITDA (2.4x if we include payment related to Politec acquisition due in FY14). The

Board seems more sensitive to this question, stating that the level of company’s net debt at c. 2.0x EBITDA should

not be increased due to the remuneration policy. Dividend on 2012 Earnings was set at €0.34/ share, which

represents a payout of 42%; we were forecasting a more pronounced dividend cut (to €0.20/ share, 25% payout)

that would allow a more aggressive deleverage in the next years. Considering a €0.34 DPS in both 2013 & 20141

only reduces Indra’s net debt to 2.0x EBITDA by the end of 2014.

Another important topic in the short term is the share overhang risk. Bankia is Indra’s leading shareholder with

20%2 of capital and Liberbank3 has 5%. Both are expected to sell their stakes in order to reinforce capital ratios,

and therefore there is a risk of share overhang (25% of its capital) that could pressure the stock.

Bottom line, we continue to see value in Indra’s business because of its proprietary solutions and diversified

business profile. However, we are now more concerned regarding the evolution of margins, as we believe the

company’s capacity to recover profitability is very tied to the Spain’s macro performance. In addition, we believe

overhang risk and debt concerns (to a lesser extent) may overshadow fundamentals and hinder performance in the

short term.

Our valuation

We have fine-tuned our estimates for Indra. We have also decreased the Spanish sovereign yield, decreased Risk

free rate and decreased Beta used to calculate WACC. Since 2012 has been closed we also added a new forecast

year, 2022.

We value Indra at €12.25 per share (YE13), downwards revised from our previous calculation of €12.40 (YE13),

meaning a 1.2% downward revision. Given the 19.9% upside on the stock we rate it as Buy (High Risk).

1 Indra’s release issued on March 21st 2013 informing of proposed €0.34 DPS on 2012 Earnings said that dividend on 2013 Earnings should be “similar or greater than the one proposed for the current year”. 2 Holding BFA holds 20% of Indra’s capital. 3 Cajastur (Caja de Ahorros de Asturias) merged with Caja Cantabria and Caja Extremadura to form Liberbank in September 2011.

of 24


Main changes in our estimates

12.40 €

+1.45€ -1.60€

12.25 €

7.0 €

8.0 €

9.0 €

10.0 €

11.0 €

12.0 €

13.0 €

14.0 €

15.0 €

Original PT YE13

WACC revision Estimates revision

PT YE13


The revision of WACCs applied to our valuation resulted in a €1.45 upward revision of our price target. WACC

revision resulted from the decrease of the Spanish Sovereign yield to 5.0% from 6.0% in the explicit period, by the

decrease of the Risk Free rate to 2.0% from 2.5% throughout the whole model (German 10-year sovereign rate is

c. 1.3%) and by the decrease of levered beta to 1.35 from 1.414 (less cyclical due to higher geographical

diversification). The decrease of the Sovereign yield led to the decrease of WACC applied to the explicit period, the

decrease of the Risk free rate led to the increase of WACC applied to perpetuity (higher country risk premium

applied to Spanish assets, which is further multiplied by levered beta), while the decrease of beta decreased both

WACCs. We are now considering: a WACC of 12.38% applied to the explicit period (previous WACC was 14.51%)

and a WACC of 9.40% in perpetuity (previous WACC was 9.04%). Please refer to page 8 to see the revision of

parameters used in WACC calculation.

We have also fine-tuned our operating estimates. Estimates revision led to a €1.60 downward revision of our

price target. This revision was driven mainly by lower revenue growth (weaker Spain) allied to a slower EBIT

margin recovery.

On the revenue side, estimates were lowered by an average of 4% in the explicit period on the back of a weaker

domestic market. Our model now entails 4.2% revenue CAGR 2012-22E. In what EBIT margin is concerned, we

have lowered margin in 2013 to 8.0% to follow company guidance, and assumed no recovery in 2014. We are still

maintaining that the company should recover margin to close to 10%, but we’re now considering that the recovery

will take more time.

In terms of Working Capital, we are now estimating Days-of-sale to deteriorate in 2013 (107.5 DOS vs. 103.5 in

2012) and then improve in the following years until it reaches 90.5 Days of Sales in perpetuity (as previously).

In what investment is concerned, we have broadly maintained our estimates in 2013 & 2014, and then kept

assuming capex will increase to more normalized levels in the following years (2.8% of revenues, in line with last 10

years’ average).

Please refer to tables in pages 12 to 14 for a detailed analysis of our estimate revisions.

4 Unlevered beta revised to 1.15 from 1.20.

Valuation changes

breakdown

of 24


Valuation drivers

Our valuation is based on the following key valuation drivers:

4.2% revenue CAGR 12-22E. Revenue growth was decreased: 4.7% CAGR 11-21E vs. previous 5.3%.

The table below shows the main changes in revenue growth per geographic market. Please note that 2012 and

2013 have been adjusted to show organic revenue growth rates, i.e., excluding impact from acquisitions. Our

forecast for the domestic market has worsened considerably5, between 2013 and 2015, given the worsening macro

conditions.

New estimates

Revenues 2.8% 0.3% 2.4% 4.7% 5.4% 5.4% 4.3% 4.3%

Domestic Market -17.6% -10.0% -3.0% 2.0% 4.1% 3.9% 3.9% 3.9%

International Market 26.1% 8.0% 5.8% 6.2% 6.2% 6.1% 4.5% 4.5%

Europe 0.6% -0.9% 2.0% 5.0% 6.9% 6.7% 5.9% 5.8%

North America -10.9% -8.8% 0.0% 3.0% 3.0% 3.0% 3.0% 3.0%

Lat Am 24.4% 16.5% 8.0% 7.0% 6.0% 6.0% 4.0% 4.0%

Other 96.4% 0.5% 6.0% 6.0% 6.0% 6.0% 4.0% 4.0%

Revisions

Revenues 1.1pp -3.4pp -1.3pp -0.8pp 0.0pp 0.0pp -0.9pp

Domestic Market -1.6pp -5.0pp -3.0pp -2.2pp 0.0pp -0.2pp 0.0pp

International Market 4.1pp -2.5pp -0.4pp -0.1pp -0.1pp 0.0pp -1.4pp

Europe 1.1pp 0.0pp -1.0pp -2.0pp 0.0pp 0.2pp 0.1pp

North America -40.9pp -22.3pp -6.0pp -3.0pp -3.0pp -3.0pp -3.0pp

Lat Am -6.6pp 3.0pp 0.0pp 1.0pp 0.0pp 0.0pp -2.0pp

Other 49.4pp -13.8pp 0.0pp 0.0pp 0.0pp 0.0pp -2.0pp

2012 2013E 2014E 2015E 2016E 2017E2

0

2

0

2

02021E 2022

Source: Company data and Millennium investment banking

Note: 2012 and 2013 growth rates are Like-for-like (adjusting for Galyleo, Politec and Park Air Norway acquisitions)

In terms of geographical markets, Spain’s weight has come down significantly in the last years as the

domestic market contracted and other geographies posted strong growth (organic and through acquisitions in

the case of Latin America). This trend will continue to be observed, although at a much slower rate. This year,

Spain’s weight on consolidated revenues should be below 40%. Indra’s emerging market exposure has

increased significantly; we expect revenues generated outside Europe and North America to reach 44% this

year.

5 We highlight that we use regression analysis to forecast Indra’s future revenue streams in the domestic market and in the rest of the Europe. However, we have decided to consider lower YoY growth in our model in 2013, 2014 and 2015 vs. estimates provided by the two regressions. Please refer to section Valuation Update of this report for a detailed analysis of regression analysis.

Revenue growth rate revisions

of 24


66%

33%

16%

2%1%

10%

32%

6%

15%

0%

20%

40%

60%

80%

2008

2009

2010

2011

2012

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

2021

E

2022

E

Spain EU North America Lat Am Other


We estimate EBIT margin to bottom out in FY13 & FY14, at 8.0%, on the back of a pretty harsh environment

in the domestic market. After that, we estimate margin to gradually recover reaching close to 10% in 2017. We

also assume that margin afterwards will be kept at the 10% level, thus never recovering to the previous level,

above 11% (11.2% in 2010). Margin decline in the last years is driven by pricing pressure, increased global

competition, Spain weak economy and consolidation of acquired companies that deliver lower margins but

also by a change in business mix. Efficiency improvements in acquired companies and recovery in the

domestic market should bring an improvement in margin, but new business mix limits that expansion (lower

Defense weight, higher Solutions’ weight).

Revenue 2,688.5 2,941.0 2,950.3 3,021.1 3,161.8 3,334.0 3,512.5 4,416.9 3.6% 4.2%

EBITDA 313.4 299.9 281.8 296.7 332.5 372.8 411.0 560.1 6.5% 6.4%

Mg 11.7% 10.2% 9.6% 9.8% 10.5% 11.2% 11.7% 12.7% 0.3pp 0.2pp

EBIT 267.8 248.8 236.8 242.9 269.8 301.5 332.6 440.7 6.0% 5.9%

Mg 10.0% 8.5% 8.0% 8.0% 8.5% 9.0% 9.5% 10.0% 0.2pp 0.2pp

Investments 125.1 114.9 69.3 65.0 88.5 93.4 98.4 123.7 -3.1% 0.7%

As % of revenues 4.7% 3.9% 2.4% 2.2% 2.8% 2.8% 2.8% 2.8% -0.2pp -0.1pp

EBITDA - Investments 188.2 185.0 212.5 231.7 244.0 279.5 312.6 436.4 11.1% 9.0%

As % of revenues 7.0% 6.3% 7.2% 7.7% 7.7% 8.4% 8.9% 9.9% 0.5pp 0.4pp

Working Capital Changes (IDR) 102.0 77.9 35.5 -16.9 14.0 31.0 32.9 34.0 -15.9% -7.9%

As % of revenues 3.8% 2.6% 1.2% -0.6% 0.4% 0.9% 0.9% 0.8% -0.3pp -0.2pp

Net Working Capital (IDR) 755.9 833.8 869.3 852.4 866.4 897.4 930.3 1,095.3 2.2% 2.8%

As % of revenues 28.1% 28.4% 29.5% 28.2% 27.4% 26.9% 26.5% 24.8% -0.4pp -0.4pp

NWC as Days of Revenue 97.7 103.5 107.5 103.0 100.0 98.2 96.7 90.5 -1.4% -1.3%

2022ECAGR

12-22E2015E 2016E

CAGR

12-17E2017E

2

0

2

0

2

02013E2011 2014E€ million

2

02012


Note: Working Capital changes as reported by Indra; figures differ from Change in Working Capital considered in Cash Flow

Statement because we consider Other current liabilities and Other current assets in the Net Working Capital calculation.

In what working capital is concerned, we are now estimating Days-of-sale to deteriorate in 2013 (107.5 DOS

vs. 103.5 in 2012) and then improve in the following years until it reaches 90.5 Days of Sales in perpetuity

(NWC of 24.8% of revenues), as previously. We remind that deterioration of Working Capital in the last years

is a reflection of tough market conditions in Spain, but also a reflection of a changing business mix (lower

weight by Security & Defense segment) and therefore should not be entirely reversed (80 Days of sales by

YE09).

Revenue by geographical market

Key valuation drivers

of 24


We have broadly maintained our investment estimates in 2013 & 2014, as well as our assumption that

thereafter capex will increase to 2.8% of yearly revenues, in line with last 10 years’ average. Indra’s business

model relies in proprietary solutions in key areas which require significant R&D as we saw in the last years,

and so we assume capex will eventually increase to more “normalized” levels.

Estimates vs. Guidance

Indra disclosed guidance for 2013 when it disclosed 2012 results back in the end of February. Our estimates for

2013 are broadly in line with guidance as depicted in the table below.

Guidance 2013 Mib estimate Comment

Revenue growth* >0% 0.3% In line with guidance

EBIT margin** 8.0% 8.0% In line with guidance

WC objective 110-100 DOS 108 DOS In line with guidance

Capex (tangible+ intangible) €70 mn €69 mn In line with guidance

* Reported revenue growth

** EBIT margin excluding integration costs

Source: Company and Millennium investment banking

1Q13 Preview

Indra will disclose its 1Q13 Earnings on May 9th 2013, after the market close.

We estimate revenues will grow by 0.3% YoY in the quarter, on the back of a stable solutions segment and slowly

growing services. In terms of geographies, we expect performance in Spain to remain weak (-14%) and to be offset

by strong growth in Latin America (+11%) and Asia/ Africa (+68%). In what vertical markets is concerned, Energy &

Industry should deliver the strongest performance of all on the back of significant growth in international markets.

We expect EBIT margin in 1Q13 to drop by 0.4pp YoY to 8.0%, impacted by pricing pressure (in Spain).

Please refer to Section 1Q13 Earnings Preview of this report (pages 18-20) for a more detailed view of our

quarterly estimates.

€ million 1Q12 1Q13E YoY 1Q12 2Q12 3Q12 4Q12 1Q13E YoY QoQ

Revenues 714.3 716.5 0% 714.3 754.4 652.1 820.2 716.5 0% -13%

EBITDA 70.8 67.3 -5% 70.8 74.3 68.3 86.5 67.3 -5% -22%

Margin 9.9% 9.4% -0.5pp 9.9% 9.9% 10.5% 10.5% 9.4% -0.5pp -1.2pp

EBIT 59.7 57.0 -5% 59.7 63.2 56.3 69.5 57.0 -5% -18%

Margin 8.4% 8.0% -0.4pp 8.4% 8.4% 8.6% 8.5% 8.0% -0.4pp -0.5pp

Net Profit 32.0 27.7 -13% 32.0 29.4 31.9 39.4 27.7 -13% -30%

Margin 4.5% 3.9% -0.6pp 4.5% 3.9% 4.9% 4.8% 3.9% -0.6pp -0.9pp


1Q13 Consolidated Income statement

Highlights

Estimates vs.

guidance 2013

of 24


Valuation update

We have fine-tuned our estimates for Indra. We have also decreased the Spanish sovereign yield, decreased Risk

free rate and decreased Beta used to calculate WACC. Since 2012 has been closed we also added a new forecast

year, 2022. We value Indra at €12.25 per share (YE13), downwards revised from our previous calculation of

€12.40 (YE13), meaning a 1.2% downward revision. Given the 19.9% upside on the stock we rate it as Buy (High

Risk).

Operating Income 217.2 216.8 242.9 269.8 301.5 332.6 440.7 8.9% 7.3%

(+) Non-Cash Items 51.2 45.0 53.8 62.7 71.4 78.4 119.4 8.9% 8.8%

(-) Taxes -49.3 -37.5 -47.5 -63.1 -78.2 -88.1 -120.5 12.3% 9.3%

(-) Tax Shield on Interest -14.7 -13.8 -13.7 -13.2 -13.4 -12.8 -13.1 -2.7% -1.2%

(-) Capital Expenditure -127.3 -69.3 -65.0 -88.5 -93.4 -98.4 -123.7 -5.0% -0.3%

(-) Working Capital Changes -55.9 -32.7 35.9 -4.6 -4.9 -5.2 -15.3 -37.7% -12.2%

Free Operating Cash Flow 21.2 108.4 206.4 163.0 183.1 206.5 287.6 57.7% 29.8%

Discount Factor 1.0 0.9 0.8 0.7 0.6 0.3

Discounted Cash Flow 108.4 183.7 129.1 129.0 129.4 100.6

PV FCFF 1,263.3

Terminal Value 1,495.5

Enterprise Value 2,758.8

(-) Net Debt (YE12) 633.3

(-) Dividends to be paid in 2013 55.8

(-) PV of Liability Politec & Galyleo acqs 79.1

(-) Market Value of Minorities 24.8

(+) Financial Investments 48.0

(+) Own shares (1) 0.1

Equity Value 2,013.8

Price Target 12.25

€ million 2015E2012E 2017E2016E2013E 2014ECAGR

12-22E

CAGR

12-17E2022E


(1) 11k own shares by YE12 at market price

Risk-Free Rate

Country Risk Premium

Market Premium

Levered Beta

Cost of Equity*

Cost of Debt**

Corporate Tax Rate

After-tax Cost of Debt

Leverage

WACC

Perpetuity Growth Rate

Real perpetuity growth rate

LT Inflation

WACC - G

PBV of Minorities

PBV of Financial Investments

Explicit period

1.2 x

2.00%

1.5%

4.00%

New

Terminal Value

1.50%

2.00%

5.00%

3.85%

5.50%

1.351.35

10.78%14.16%

20%

9.40%

5.25%

20%

1.0%

30.00%

2.5%

6.9%

5.00%

2.5%

0.7 x

14.51%

Terminal Value

2.50% 2.50%

5.00% 0.50%

5.00% 5.00%

1.41 1.41

9.04%

Old

1.2 x

0.7 x

1.0%

1.5%

Explicit period

10.26%

8.75% 6.00%

30.00% 30.00%

6.12% 4.20%

16.60%

12.38%

7.50%

30.00%

6.5%

20% 20%


*Cost of equity is calculated as the sum of the risk free rate plus country risk premium and market risk premium, the latter two

multiplied by the levered beta. Risk free rate is the German 10-year Government bond yield. Country risk premium results from

the difference between the local Sovereign yield and the German 10-year Government bond yield multiplied by a volatility factor

(ratio that relates equity with bonds volatility). For country risk premium in perpetuity, we assume that the German and local 10-

year sovereign yields will converge to respective last 10-year averages. Market risk premium is set at 5%.

**Cost of debt before tax is the debt spread (long-term issuances) over the German 10-year sovereign rate.

DCF Model

DCF assumptions

of 24


We have also produced a sensitivity analysis for the key DCF assumptions of our valuation: terminal value WACC

and perpetuity growth rate.

Perpetuity Growth Rate

1.5% 2.0% 2.5% 3.0% 3.5%

8.90% 11.55 12.20 13.00 13.85 14.90

9.40% 11.05 11.60 12.25 13.05 13.90

9.90% 10.55 11.10 11.65 12.30 13.10

€ per shareT

erm

ina

l

Va

lue

WA

CC


The performance of the IT industry is strongly correlated to GDP growth, as the state of the economy is and has

been the key driver of business and government purchases of technology. Given the geographical profile of Indra’s

revenues, we have chosen to use regression analysis to forecast Indra’s future revenue streams in the domestic

market and in the rest of the Europe, which together account to circa 59% of FY12 consolidated revenues.

Accordingly, we selected Spain GDP6 as the explanatory variable to forecast revenue in the domestic market and

EU27 GDP as the explanatory variable to forecast revenues in the rest of the Europe. We assume both Spain

nominal GDP and EU27 nominal GDP reach an annual steady-state growth of 3% in 2015.

In order to predict revenue evolution we performed two regressions, one on revenues in Spain and other on

revenues in the rest of Europe, using Nominal GDP as the independent variable7. As a seasonal quarterly pattern

was detected, a linear regression with a multiplying seasonality correction, through the use of dummies was

applied. After performing serial correlation tests we concluded that we are in the presence of white noise residuals,

meaning no corrections had to be made to the residuals. The equations chosen seem appropriate:

Regression of Spain GDP on Spain revenues has a R2 of 97%, i.e., the change of GDP explains 97% of the

changes in revenues;

Regression of EUR27 GDP on revenues in the rest of Europe has a R2 of 93%, i.e., the change of GDP

explains 93% of the changes in revenues.

0

100

200

300

400

500

4Q01

4Q02

4Q03

4Q04

4Q05

4Q06

4Q07

4Q08

4Q09

4Q10

4Q11

4Q12

€m

n

Actual revenue Estimated revenue


6 EUR27 GDP and Spain GDP estimates by the European Commission outlook, updated twice a year (Spring and Autumn outlooks). 7 We have adjusted figures to account for Azertia and Soluziona integration in 2007, as we’re trying to estimate organic growth.

Sensitivity analysis

Quarterly actuals vs.

regression estimates (Spain)

of 24


0

20

40

60

80

100

120

140

160

4Q01

4Q02

4Q03

4Q04

4Q05

4Q06

4Q07

4Q08

4Q09

4Q10

4Q11

4Q12

€m

n

Actual revenue Estimated revenue


0

500

1,000

1,500

2,000

2,500

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

€m

n

Revenue Projection - Spain Revenue Projection - EU


The estimated model forecasts that revenues will grow 0.4% in Spain and 4.6% in the rest of the Europe in 2013.

In 2014, it estimates a 2.9% growth of revenues originated in Spain and 8.3% growth of revenue from rest of

Europe. After that, annual growth estimates will be circa 4.0% in Spain and decline in Europe to circa 6.1% in

perpetuity (2022) from next year’s 8.3%.

Spain

Spain GDP YoY growth -1.1% 0.3% 2.1% 3.0% 3.0% 2.9% 3.0% 3.0% 3.0% 3.0% 3.0%

Revenue Spain YoY growth -1.6% 0.4% 2.9% 4.1% 4.1% 3.9% 4.1% 4.0% 4.0% 3.9% 3.9%

Europe

EU27 GDP YoY growth 2.1% 1.8% 3.3% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

Revenue EU YoY growth 5.7% 4.6% 8.3% 7.3% 6.9% 6.7% 6.5% 6.3% 6.1% 6.1% 6.1%

2012 2015E 2016E2013E 2014E 2017E 2018E 2019EYoY growth 2022E2020E 2021E


Quarterly actuals vs.

regression estimates (EU)

Revenue forecast for 2013 and beyond

Regression results

of 24


Given the dim expectations for next years, we have decided to consider lower YoY growth in our model in 2013,

2014 and 2015 vs. estimates provided by the two regressions. In the following table, we summarize these

differences:

Revenue Spain

Regression YoY growth -1.6% 0.4% 2.9% 4.1% 4.1% 3.9% 4.1% 4.0% 4.0% 3.9% 3.9%

MiB YoY growth -17.6% -10.0% -3.0% 2.0% 4.1% 3.9% 4.1% 4.0% 4.0% 3.9% 3.9%

Delta -16.0pp -10.4pp -5.9pp -2.1pp 0.0pp 0.0pp 0.0pp 0.0pp 0.0pp 0.0pp 0.0pp

Revenue Europe

Regression YoY growth 5.7% 4.6% 8.3% 7.3% 6.9% 6.7% 6.5% 6.3% 6.1% 5.9% 5.8%

MiB YoY growth 0.6% -0.9% 2.0% 5.0% 6.9% 6.7% 6.5% 6.3% 6.1% 5.9% 5.8%

Delta -5.1pp -5.4pp -6.3pp -2.3pp 0.0pp 0.0pp 0.0pp 0.0pp 0.0pp 0.0pp 0.0pp

2022E2021E2020E2017E 2018E 2019EYoY growth 2012 2013E 2014E 2015E 2016E


Note: Europe MiB YoY growth in 2013 is Like-for-Like, thus accounting for consolidation of Park Air Norway.

Regression results vs.

estimates

of 24


Estimates revisions

New Estimates

Revenues 2,941.0 2,950.3 3,021.1 3,161.8 3,334.0 3,512.5 4,235.6 4,416.9 3.6% 4.2%

EBITDA 299.9 281.8 296.7 332.5 372.8 411.0 535.6 560.1 6.5% 6.4%

Margin 10.2% 9.6% 9.8% 10.5% 11.2% 11.7% 12.6% 12.7% 0.3pp 0.2pp

EBIT 248.8 236.8 242.9 269.8 301.5 332.6 421.8 440.7 6.0% 5.9%

Margin 8.5% 8.0% 8.0% 8.5% 9.0% 9.5% 10.0% 10.0% 0.2pp 0.2pp

Net Profit 132.7 122.7 142.6 162.2 182.0 205.2 267.8 280.4 9.1% 7.8%

Margin 4.5% 4.2% 4.7% 5.1% 5.5% 5.8% 6.3% 6.3% 0.3pp 0.2pp

Investments 114.9 69.3 65.0 88.5 93.4 98.4 118.6 123.7 -3.1% 0.7%

As % of Revenues 3.9% 2.4% 2.2% 2.8% 2.8% 2.8% 2.8% 2.8% -0.2pp -0.1pp

EBITDA - Investments 185.0 212.5 231.7 244.0 279.5 312.6 417.0 436.4 11.1% 9.0%

As % of Revenues 6.3% 7.2% 7.7% 7.7% 8.4% 8.9% 9.8% 9.9% 0.5pp 0.4pp

Revisions

Revenues 1% -2% -3% -4% -4% -4% -6%

EBITDA 2% -13% -16% -13% -10% -7% -5%

Margin 0.1pp -1.2pp -1.5pp -1.0pp -0.7pp -0.4pp 0.1pp

EBIT 0% -13% -18% -15% -11% -9% -6%

Margin -0.1pp -1.0pp -1.4pp -1.1pp -0.7pp -0.5pp 0.0pp

Net Profit 2% -20% -22% -18% -14% -11% -12%

Margin 0.1pp -0.9pp -1.1pp -0.9pp -0.6pp -0.4pp -0.4pp

Investments 54% -2% -1% -4% -4% -4% -6%

As % of Revenues 1.3pp 0.0pp 0.0pp 0.0pp 0.0pp 0.0pp 0.0pp

EBITDA - Investments -16% -16% -20% -15% -11% -8% -5%

As % of Revenues -1.3pp -1.2pp -1.5pp -1.0pp -0.7pp -0.4pp 0.1pp

2021ECAGR

12-22E

CAGR

12-17E2022E2014E2012 2016E 2017E€ million 2015E2013E


Results by division

P&L and Cash Flow

P&L and Cash Flow

of 24


New estimates

Revenues 2,941.0 2,950.3 3,021.1 3,161.8 3,334.0 3,512.5 4,235.6 4,416.9 3.6% 4.2%

Revenue by Segment

Solutions 1,881.1 1,881.1 1,899.9 1,988.4 2,096.8 2,209.0 2,663.7 2,777.8 3.3% 4.0%

Services 1,059.8 1,069.2 1,121.1 1,173.4 1,237.3 1,303.5 1,571.8 1,639.1 4.2% 4.5%

Revenue by Vertical Markets

Transport & Traffic 667.1 663.8 683.7 731.6 782.8 837.6 1,097.9 1,174.7 4.7% 5.8%

Security & Defense 463.2 465.8 475.9 492.9 530.5 566.5 620.3 608.2 4.1% 2.8%

Telecom & Media 369.0 371.0 378.4 389.8 405.3 421.6 486.1 503.1 2.7% 3.1%

Public Adm. & Healthcare 516.9 506.6 506.6 516.7 527.1 537.6 608.0 629.3 0.8% 2.0%

Financial Services 464.4 459.7 468.9 487.7 507.2 527.5 608.2 629.5 2.6% 3.1%

Energy & Industry 460.4 483.4 507.6 543.1 581.1 621.8 815.0 872.1 6.2% 6.6%

Revenue by Geographical Markets

Domestic Market 1,257.8 1,132.0 1,098.1 1,120.0 1,166.1 1,211.4 1,417.2 1,472.6 -0.7% 1.6%

International Market 1,683.2 1,818.3 1,923.0 2,041.8 2,167.9 2,301.1 2,818.4 2,944.3 6.5% 5.8%

Europe 490.2 495.1 505.0 530.2 566.6 604.8 769.4 813.8 4.3% 5.2%

North America 33.9 31.9 31.9 32.8 33.8 34.8 39.2 40.4 0.5% 1.8%

Lat Am 745.0 867.9 937.4 1,003.0 1,063.2 1,127.0 1,363.2 1,417.7 8.6% 6.6%

Other 414.1 423.4 448.8 475.7 504.3 534.5 646.6 672.4 5.2% 5.0%

Revisions

Revenues 1.1% -2.2% -3.4% -4.2% -4.1% -4.1% -5.9%

Revenue by Segment

Solutions 2.8% 0.8% -3.9% -4.7% -4.6% -4.6% -6.4%

Services -2.0% -7.2% -2.6% -3.3% -3.3% -3.3% -5.1%


Transport & Traffic 1.6% -3.8% -5.6% -5.6% -5.6% -5.6% -5.6%

Security & Defense -4.8% -0.9% 1.5% 0.0% 2.3% 4.2% -5.9%

Telecom & Media -6.1% -7.4% -8.3% -9.2% -9.2% -9.2% -9.2%

Public Adm. & Healthcare 17.2% 10.4% 6.1% 4.1% 2.1% 0.1% -1.8%

Financial Services 0.2% -6.5% -8.7% -9.1% -9.1% -9.1% -9.1%

Energy & Industry -1.8% -4.6% -4.6% -4.6% -4.6% -4.6% -4.6%


Domestic Market -1.9% -7.0% -9.8% -11.7% -11.7% -11.8% -11.8%

International Market 3.4% 1.0% 0.6% 0.5% 0.5% 0.5% -2.6%

Europe 1.1% 1.1% 0.1% -1.8% -1.8% -1.6% -1.1%

North America -31.5% -44.4% -47.6% -49.0% -50.5% -51.9% -57.1%

Lat Am -5.0% -2.5% -2.5% -1.6% -1.6% -1.6% -5.7%

Other 33.6% 16.8% 16.8% 16.8% 16.8% 16.8% 11.9%

2021ECAGR

12-22E

2

0

2

02013E 2014E 2021E

CAGR

12-17E

2

02012 2015E 2016E 2017E€ million


Revenue Screening

of 24


New Estimates

Fixed Assets 1,160.5 1,184.9 1,196.0 1,221.9 1,243.8 1,263.8 1,297.3 1,301.6 1.7% 1.2%

Working Capital 582.4 615.1 667.2 671.8 676.6 681.9 720.4 735.7 3.2% 2.4%

Invested Capital 1,742.9 1,800.0 1,863.2 1,893.6 1,920.5 1,945.7 2,017.8 2,037.3 2.2% 1.6%

Net Debt 633.3 624.0 600.4 539.8 497.8 463.0 449.4 455.7 -6.1% -3.2%

Minority Interests 20.7 20.1 20.1 20.3 20.6 21.0 23.5 24.2 0.3% 1.6%

Equity 1,088.9 1,155.8 1,242.7 1,333.6 1,402.1 1,461.6 1,544.8 1,557.5 6.1% 3.6%

Capital Employed 1,742.9 1,800.0 1,863.2 1,893.6 1,920.5 1,945.7 2,017.8 2,037.3 2.2% 1.6%

Revisions

Fixed Assets -1.4% -0.9% -0.6% -0.9% -1.1% -1.4% -2.4%

Working Capital 8.9% 10.5% 5.6% 5.3% 4.3% 3.6% 3.4%

Invested Capital 1.8% 2.7% 1.5% 1.2% 0.7% 0.3% -0.4%

Net Debt 1.3% 14.6% 24.3% 31.5% 40.9% 64.1%nm 476.0%

Minority Interests -4.4% -7.7% -7.7% -7.0% -5.1% -2.4% 13.4%

Equity 2.3% -2.6% -6.6% -7.3% -8.5% -10.7% -27.3%

Capital Employed 1.8% 2.7% 1.5% 1.2% 0.7% 0.3% -0.4%

2021ECAGR

12-22E2022E

CAGR

12-17E2012 2016E 2017E2014E2013E 2015E€ million


New estimates

Contribution Margin 467.1 462.8 473.4 504.9 542.4 582.0 721.7 752.6 4.5% 4.9%

Solutions 331.3 327.9 332.0 353.4 378.9 405.8 492.0 513.1 4.1% 4.5%

Services 135.8 134.9 141.4 151.5 163.5 176.1 229.7 239.5 5.3% 5.8%

Margin 15.9% 15.7% 15.7% 16.0% 16.3% 16.6% 17.0% 17.0% 0.1pp 0.1pp

Solutions 17.6% 17.4% 17.5% 17.8% 18.1% 18.4% 18.5% 18.5% 0.2pp 0.1pp

Services 12.8% 12.6% 12.6% 12.9% 13.2% 13.5% 14.6% 14.6% 0.1pp 0.2pp


Other non-distributable corp exp -218.3 -225.9 -230.5 -235.1 -240.9 -249.4 -299.9 -311.9 2.7% 3.6%

Consolidated EBIT 248.8 236.8 242.9 269.8 301.5 332.6 421.8 440.7 6.0% 5.9%

EBIT margin 8.5% 8.0% 8.0% 8.5% 9.0% 9.5% 10.0% 10.0% 0.2pp 0.2pp

Revisions

Contribution Margin 1.8% -5.1% -8.6% -7.6% -5.8% -4.1% -3.1%

Solutions 3.7% -1.6% -7.6% -6.7% -5.1% -3.5% -4.7%

Services -2.7% -12.7% -11.0% -9.6% -7.4% -5.4% 0.5%

Margin 0.1pp -0.5pp -0.9pp -0.6pp -0.3pp 0.0pp 0.5pp

Solutions 0.2pp -0.4pp -0.7pp -0.4pp -0.1pp 0.2pp 0.3pp

Services -0.1pp -0.8pp -1.2pp -0.9pp -0.6pp -0.3pp 0.8pp

Contribution Margin 1.8% -5.1% -8.6% -7.6% -5.8% -4.1% -3.1%

Other non-distributable corp exp 3.7% 4.8% 3.7% 2.7% 2.2% 2.7% 1.2%

Consolidated EBIT 0.1% -12.9% -17.9% -15.0% -11.4% -8.6% -6.0%

EBIT margin -0.1pp -1.0pp -1.4pp -1.1pp -0.7pp -0.5pp 0.0pp

2021ECAGR

12-17E

CAGR

12-22E2013E 2014E 2015E 2016E 2017E2012 2022E€ million



EBIT margin

of 24


Financial Statements

Net Revenues 2,688.5 2,941.0 2,950.3 3,021.1 3,161.8 3,334.0 3,512.5 4,416.9 3.6% 4.2%

Operating Costs 2,420.7 2,692.2 2,713.5 2,778.2 2,892.0 3,032.6 3,179.9 3,976.2 3.4% 4.0%

Supply costs & oper exp 1,282.4 1,335.0 1,305.5 1,367.0 1,462.3 1,541.5 1,623.5 2,038.4 4.0% 4.3%

Personnel costs 1,194.0 1,397.9 1,438.3 1,442.6 1,478.1 1,525.3 1,571.9 1,886.8 2.4% 3.0%

Other revenues -101.3 -91.8 -75.3 -85.2 -111.2 -105.6 -93.8 -68.4 0.4% -2.9%

D&A and provisions 45.6 51.2 45.0 53.8 62.7 71.4 78.4 119.4 8.9% 8.8%

EBITDA 313.4 299.9 281.8 296.7 332.5 372.8 411.0 560.1 6.5% 6.4%

Income from Oper (EBIT) 267.8 248.8 236.8 242.9 269.8 301.5 332.6 440.7 6.0% 5.9%

Financial Revenues 4.2 13.3 2.1 2.1 2.2 2.2 2.2 2.2 -30.5% -16.3%

Financial Expenses -41.9 -67.1 -58.9 -54.8 -47.2 -44.6 -42.7 -43.6 -8.6% -4.2%

Equity accounted profits 3.2 -0.2 -0.3 0.0 0.7 1.5 1.7 2.1 nm nm

Goodwill amortisation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 nm nm

Extraordinary Results 0.0 -31.6 -20.0 0.0 0.0 0.0 0.0 0.0 nm nm

EBT 233.3 163.3 159.7 190.2 225.5 260.5 293.8 401.5 12.5% 9.4%

Taxes -52.2 -35.7 -37.5 -47.5 -63.1 -78.2 -88.1 -120.5 19.8% 12.9%

Minority Interests -0.1 5.1 0.6 0.0 -0.1 -0.3 -0.5 -0.7 nm nm

Net Income 181.0 132.7 122.7 142.6 162.2 182.0 205.2 280.4 9.1% 7.8%

CAGR

12-22E

2

0

CAGR

12-17E2022E2017E2014E 2015E

2

0

2

0

2

02013E2011 2016E2012€ million



Solutions 337.9 331.3 327.9 332.0 353.4 378.9 405.8 513.1 4.1% 4.5%

Services 126.5 135.8 134.9 141.4 151.5 163.5 176.1 239.5 5.3% 5.8%

Weight 100% 100% 100% 100% 100% 100% 100% 100%

Solutions 73% 71% 71% 70% 70% 70% 70% 68%

Services 27% 29% 29% 30% 30% 30% 30% 32%

% Growth -1% 1% -1% 2% 7% 7% 7% 4%

Solutions -5% -2% -1% 1% 6% 7% 7% 4%

Services 13% 7% -1% 5% 7% 8% 8% 4%

Margin 17.3% 15.9% 15.7% 15.7% 16.0% 16.3% 16.6% 17.0% 0.1pp 0.1pp

Solutions 18.7% 17.6% 17.4% 17.5% 17.8% 18.1% 18.4% 18.5% 0.2pp 0.1pp

Services 14.4% 12.8% 12.6% 12.6% 12.9% 13.2% 13.5% 14.6% 0.1pp 0.2pp


Other non-distributable corp exp -196.7 -218.3 -225.9 -230.5 -235.1 -240.9 -249.4 -311.9 2.7% 3.6%

Consolidated EBIT 267.8 248.8 236.8 242.9 269.8 301.5 332.6 440.7 6.0% 5.9%

EBIT margin 10.0% 8.5% 8.0% 8.0% 8.5% 9.0% 9.5% 10.0% 0.2pp 0.2pp

CAGR

12-22E

2

0

CAGR

12-17E2022E2012 2017E

2

0

2

0

2

02013E 2016E2015E2014E€ million 2011


EBITDA 11.7% 10.2% 9.6% 9.8% 10.5% 11.2% 11.7% 12.7% 0.3pp 0.2pp

EBIT 10.0% 8.5% 8.0% 8.0% 8.5% 9.0% 9.5% 10.0% 0.2pp 0.2pp

EBT 8.7% 5.6% 5.4% 6.3% 7.1% 7.8% 8.4% 9.1% 0.6pp 0.4pp

Net Income 6.7% 4.5% 4.2% 4.7% 5.1% 5.5% 5.8% 6.3% 0.3pp 0.2pp

Effective Tax Rate 22.4% 21.9% 23.5% 25.0% 28.0% 30.0% 30.0% 30.0% 1.6pp 0.8pp

CAGR

12-22E

2

02022E

CAGR

12-17E

2

0

2

02013E 2014E 2016E2015E

2

02017E2011 2012%


Income Statement

Margins

Revenue screening

Margin per Segment

of 24


Revenues 2,688.5 2,941.0 2,950.3 3,021.1 3,161.8 3,334.0 3,512.5 4,416.9 3.6% 4.2%

Revenue by Segment

Solutions 1,811.0 1,881.1 1,881.1 1,899.9 1,988.4 2,096.8 2,209.0 2,777.8 3.3% 4.0%

Services 878.0 1,059.8 1,069.2 1,121.1 1,173.4 1,237.3 1,303.5 1,639.1 4.2% 4.5%


Transport & Traffic 597.2 667.1 663.8 683.7 731.6 782.8 837.6 1,174.7 4.7% 5.8%

Security & Defense 509.8 463.2 465.8 475.9 492.9 530.5 566.5 608.2 4.1% 2.8%

Telecom & Media 396.8 369.0 371.0 378.4 389.8 405.3 421.6 503.1 2.7% 3.1%

Public Administration & Healthcare 390.5 516.9 506.6 506.6 516.7 527.1 537.6 629.3 0.8% 2.0%

Financial Services 386.4 464.4 459.7 468.9 487.7 507.2 527.5 629.5 2.6% 3.1%

Energy & Industry 407.8 460.4 483.4 507.6 543.1 581.1 621.8 872.1 6.2% 6.6%


Domestic Market 1,525.7 1,257.8 1,132.0 1,098.1 1,120.0 1,166.1 1,211.4 1,472.6 -0.7% 1.6%

International Market 1,162.8 1,683.2 1,818.3 1,923.0 2,041.8 2,167.9 2,301.1 2,944.3 6.5% 5.8%

Europe 446.2 490.2 495.1 505.0 530.2 566.6 604.8 813.8 4.3% 5.2%

North America 35.9 33.9 31.9 31.9 32.8 33.8 34.8 40.4 0.5% 1.8%

Lat Am 484.7 745.0 867.9 937.4 1,003.0 1,063.2 1,127.0 1,417.7 8.6% 6.6%

Other 196.0 414.1 423.4 448.8 475.7 504.3 534.5 672.4 5.2% 5.0%

Weight

Revenue by Segment

Solutions 67% 64% 64% 63% 63% 63% 63% 63%

Services 33% 36% 36% 37% 37% 37% 37% 37%


Transport & Traffic 22% 23% 22% 23% 23% 23% 24% 27%

Security & Defense 19% 16% 16% 16% 16% 16% 16% 14%

Telecom & Media 15% 13% 13% 13% 12% 12% 12% 11%

Public Administration & Healthcare 15% 18% 17% 17% 16% 16% 15% 14%

Financial Services 14% 16% 16% 16% 15% 15% 15% 14%

Energy & Industry 15% 16% 16% 17% 17% 17% 18% 20%


Domestic Market 57% 43% 38% 36% 35% 35% 34% 33%

International Market 43% 57% 62% 64% 65% 65% 66% 67%

Europe 17% 17% 17% 17% 17% 17% 17% 18%

North America 1% 1% 1% 1% 1% 1% 1% 1%

Lat Am 18% 25% 29% 31% 32% 32% 32% 32%

Other 7% 14% 14% 15% 15% 15% 15% 15%

% Growth 5.1% 9.4% 0.3% 2.4% 4.7% 5.4% 5.4% 4.3%

Revenue by Segment

Solutions -0.9% 3.9% 0.0% 1.0% 4.7% 5.4% 5.4% 4.3%

Services 20.3% 20.7% 0.9% 4.9% 4.7% 5.4% 5.4% 4.3%


Transport & Traffic 7.6% 11.7% -0.5% 3.0% 7.0% 7.0% 7.0% 7.0%

Security & Defense -14.2% -9.1% 0.6% 2.2% 3.6% 7.6% 6.8% -2.0%

Telecom & Media 23.5% -7.0% 0.6% 2.0% 3.0% 4.0% 4.0% 3.5%

Public Administration & Healthcare 9.5% 32.4% -2.0% 0.0% 2.0% 2.0% 2.0% 3.5%

Financial Services 5.1% 20.2% -1.0% 2.0% 4.0% 4.0% 4.0% 3.5%

Energy & Industry 12.4% 12.9% 5.0% 5.0% 7.0% 7.0% 7.0% 7.0%


Domestic Market -2.6% -17.6% -10.0% -3.0% 2.0% 4.1% 3.9% 3.9%

International Market 17.4% 44.8% 8.0% 5.8% 6.2% 6.2% 6.1% 4.5%

Europe 4.9% 9.9% 1.0% 2.0% 5.0% 6.9% 6.7% 5.8%

North America 26.2% -5.7% -6.0% 0.0% 3.0% 3.0% 3.0% 3.0%

Lat Am 30.5% 53.7% 16.5% 8.0% 7.0% 6.0% 6.0% 4.0%

Other 18.3% 111.3% 2.3% 6.0% 6.0% 6.0% 6.0% 4.0%

CAGR

12-22E

2

0

CAGR

12-17E2022E2016E2011 2014E

2

0

2

02013E2012 2017E

2

02015E€ million


Revenue Screening

of 24


Fixed Assets 1,106.2 1,160.5 1,184.9 1,196.0 1,221.9 1,243.8 1,263.8 1,301.6 1.7% 1.2%

Working Capital 474.7 582.4 615.1 667.2 671.8 676.6 681.9 735.7 3.2% 2.4%

Invested Capital 1,580.9 1,742.9 1,800.0 1,863.2 1,893.6 1,920.5 1,945.7 2,037.3 2.2% 1.6%

Net Debt 513.7 633.3 624.0 600.4 539.8 497.8 463.0 455.7 -6.1% -3.2%

Minority Interests 21.4 20.7 20.1 20.1 20.3 20.6 21.0 24.2 0.3% 1.6%

Equity 1,045.8 1,088.9 1,155.8 1,242.7 1,333.6 1,402.1 1,461.6 1,557.5 6.1% 3.6%

Capital Employed 1,580.9 1,742.9 1,800.0 1,863.2 1,893.6 1,920.5 1,945.7 2,037.3 2.2% 1.6%

CAGR

12-22E

2

0

CAGR

12-17E2022E2011€ million 2012 2015E

2

02017E

2

02013E 2014E 2016E

2

0


EBITDA 313.4 299.9 281.8 296.7 332.5 372.8 411.0 560.1 6.5% 6.4%

Capex -111.2 -74.4 -69.3 -65.0 -88.5 -93.4 -98.4 -123.7 5.7% 5.2%

EBITDA - Capex 202.2 225.5 212.5 231.7 244.0 279.5 312.6 436.4 6.7% 6.8%

Working Capital change -102.0 -77.9 -32.7 35.9 -4.6 -4.9 -5.2 -15.3

Net interest paid -31.0 -47.5 -56.8 -52.7 -45.1 -42.4 -40.5 -41.3

Taxes paid -75.2 -49.3 -37.5 -47.5 -63.1 -78.2 -88.1 -120.5

Other -27.0 -19.1 -20.3 0.0 0.7 1.5 1.7 2.1

FCF -33.0 31.7 65.1 167.4 131.9 155.5 180.4 261.5

Dividends -110.9 -109.3 -55.8 -55.8 -71.3 -113.5 -145.6 -267.8

FCF after dividends -143.9 -77.6 9.3 111.6 60.6 42.0 34.8 -6.3

Consol. of Galyleo & Politec Net Debt 95.0

Consol. of Park Air Norway Net Debt 4.0

Cash outflow w/ Park Air Norway acq. 38.0

Change in Net Debt 238.9 119.6 -9.3 -23.6 -60.6 -42.0 -34.8 6.3

Net Debt 513.7 633.3 624.0 600.4 539.8 497.8 463.0 455.7

Liability w/ Galyleo & Politec acquisition 89.1 -88.0 -1.1

Change in Net Debt 328.0 119.6 -9.3 -111.6 -60.6 -43.1 -34.8 6.3

Net Debt + commitments 602.8 722.4 713.1 601.5 540.9 497.8 463.0 455.7

€ million 2011 2012 2013E 2014E 2022ECAGR

12-17E

CAGR

12-22E2015E 2016E 2017E

2

0

2

0

2

0

2

0


DPS 0.67 0.34 0.34 0.43 0.69 0.89 1.13 1.71 27.0% 17.5%

DPS YoY growth -1% -49% 0% 28% 59% 28% 27% 5%

Dividend payout 60% 42% 45% 50% 70% 80% 90% 100%

Net Debt (€ mn) 513.7 633.3 624.0 600.4 539.8 497.8 463.0 455.7

Net Debt/ EBITDA 1.6x 2.1x 2.2x 2.0x 1.6x 1.3x 1.1x 0.8x

Net Debt + commitments (€ mn) 602.8 722.4 713.1 601.5 540.9 497.8 463.0 455.7

Net Debt + commitments/ EBITDA 1.9x 2.4x 2.5x 2.0x 1.6x 1.3x 1.1x 0.8x

2022ECAGR

12-22E2015E 2016E 2017E

2

0

2

0

CAGR

12-17E2011 2012€

2

0

2

02013E 2014E


RoCE 19% 15% 13% 13% 14% 16% 17% 22%

EBIT / Revenues 10% 8% 8% 8% 9% 9% 9% 10%

Revenues / Capital Employed 187% 177% 167% 165% 168% 175% 182% 218%

RoCE (after tax) 14% 12% 10% 10% 10% 11% 12% 15%

RoE 18% 12% 11% 12% 13% 13% 14% 18%

Net Margin 7% 5% 4% 5% 5% 5% 6% 6%

Asset Turnover 83% 81% 78% 79% 81% 82% 84% 91%

CAGR

12-22E2015E2013E 2014E

CAGR

12-17E

2

0

2

02022E2016E

2

0

2

020122011 2017E



Efficiency / Returns Ratios

FCF Map

Dividends & Net Debt

of 24


1Q13 Earnings Preview


Revenues 714.3 716.5 0% 714.3 754.4 652.1 820.2 716.5 0% -13%

EBITDA 70.8 67.3 -5% 70.8 74.3 68.3 86.5 67.3 -5% -22%

Margin 9.9% 9.4% -0.5pp 9.9% 9.9% 10.5% 10.5% 9.4% -0.5pp -1.2pp

EBIT 59.7 57.0 -5% 59.7 63.2 56.3 69.5 57.0 -5% -18%

Margin 8.4% 8.0% -0.4pp 8.4% 8.4% 8.6% 8.5% 8.0% -0.4pp -0.5pp

Net Profit 32.0 27.7 -13% 32.0 29.4 31.9 39.4 27.7 -13% -30%

Margin 4.5% 3.9% -0.6pp 4.5% 3.9% 4.9% 4.8% 3.9% -0.6pp -0.9pp


Note: Please note that growth rates include impact of Park Air Norway acquisition in May 12 and therefore are not Like-for-Like.


Revenues 714.3 716.5 0% 714.3 754.4 652.1 820.2 716.5 0% -13%

Revenue by Segment

Solutions 461.4 461.4 0% 461.4 444.2 408.3 567.3 461.4 0% -19%

Services 252.9 255.1 1% 252.9 310.3 243.8 252.9 255.1 1% 1%

Revenue by Vertical Market

Transport & Traffic 133.4 132.8 0% 133.4 186.7 136.2 210.8 132.8 0% -37%

Security & Defense 137.4 131.9 -4% 137.4 108.0 78.7 139.1 131.9 -4% -5%

Telecom & Media 101.1 99.1 -2% 101.1 113.9 71.4 82.5 99.1 -2% 20%

Public Administration & Healthcare 107.4 111.7 4% 107.4 108.8 161.5 139.3 111.7 4% -20%

Financial Services 115.0 113.9 -1% 115.0 123.0 103.2 123.2 113.9 -1% -8%

Energy & Industry 120.0 127.2 6% 120.0 114.0 101.0 125.3 127.2 6% 1%

Revenue by Geographical Market

Domestic Market 355.6 306.5 -14% 355.6 359.9 237.1 305.2 306.5 -14% 0%

International Market 358.7 410.0 14% 358.7 394.5 415.0 514.9 410.0 14% -20%

Europe 134.4 138.4 3% 134.4 112.2 92.7 150.8 138.4 3% -8%

North America 10.8 9.4 -13% 10.8 9.1 6.6 7.5 9.4 -13% 25%

Latin America 169.1 187.5 11% 169.1 184.5 179.0 212.4 187.5 11% -12%

Other 44.4 74.7 68% 44.4 88.7 136.7 144.2 74.7 68% -48%




Contribution Margin 110.8 109.4 -1% 110.8 121.3 104.8 130.2 109.4 -1% -16%

Solutions 81.7 80.8 -1% 81.7 81.4 75.5 92.7 80.8 -1% -13%

Services 29.1 28.6 -2% 29.1 39.9 29.3 37.5 28.6 -2% -24%

Margin 15.5% 15.3% -0.2pp 15.5% 16.1% 16.1% 15.9% 15.3% -0.2pp -0.6pp

Solutions 17.7% 17.5% -0.2pp 17.7% 18.3% 18.5% 16.3% 17.5% -0.2pp 1.2pp

Services 11.5% 11.2% -0.3pp 11.5% 12.9% 12.0% 14.8% 11.2% -0.3pp -3.6pp

Consolidated Contribution Margin 110.8 109.4 -1% 110.8 121.3 104.8 130.2 109.4 -1% -16%

Other non-distributable corp exp -51.1 -52.4 3% -51.1 -58.1 -48.4 -60.7 -52.4 3% -14%

Consolidated EBIT 59.7 57.0 -5% 59.7 63.2 56.4 69.5 57.0 -5% -18%

EBIT margin 8.4% 8.0% -0.4pp 8.4% 8.4% 8.6% 8.5% 8.0% -0.4pp -0.5pp



Income Statement Highlights

Revenue Screening

Margin per Segment

of 24



Net Revenues 714.3 716.5 0% 714.3 754.4 652.1 820.2 716.5 0% -13%

Operating Costs 654.5 659.5 1% 654.5 691.2 595.8 750.7 659.5 1% -12%

Supply costs & oper. expenses 306.7 299.9 -2% 306.7 366.3 287.1 374.9 299.9 -2% -20%

Personnel costs 357.0 365.9 2% 357.0 349.3 319.2 372.4 365.9 2% -2%

Other revenues -20.2 -16.6 -18% -20.2 -35.5 -22.5 -13.6 -16.6 -18% 21%

D&A and provisions 11.0 10.3 -6% 11.0 11.2 12.0 17.0 10.3 -6% -39%

EBITDA 70.8 67.3 -5% 70.8 74.3 68.3 86.5 67.3 -5% -22%

Income from Oper (EBIT) 59.7 57.0 -5% 59.7 63.2 56.3 69.5 57.0 -5% -18%

Financial Results -10.6 -14.8 40% -10.6 -15.6 -12.9 -14.6 -14.8 40% 1%

Equity accounted profits 0.1 0.2 nm 0.1 -1.7 2.6 -1.1 0.2 nm nm

Extraordinary Results -9.9 -6.3 nm -9.9 -10.2 -7.1 -4.4 -6.3 -37% 43%

EBT 39.3 36.1 -8% 39.3 35.7 39.0 49.4 36.1 -8% -27%

Taxes -8.2 -8.5 4% -8.2 -7.4 -8.2 -11.9 -8.5 4% -29%

Minority Interests 0.9 0.1 -89% 0.9 1.2 1.1 2.0 0.1 -89% -95%

Net Income 32.0 27.7 -13% 32.0 29.4 31.9 39.4 27.7 -13% -30%



1Q12 2Q12 3Q12 4Q12 1Q13E 2Q13E 3Q13E 4Q13E

Weight in FY

Revenues 24% 26% 22% 28% 24% 26% 22% 28%

Opex 24% 26% 22% 28% 24% 26% 22% 28%

EBITDA 24% 25% 23% 29% 24% 25% 22% 28%

EBIT 24% 25% 23% 28% 24% 26% 22% 28%

Growth Rates YoY

Revenues 9% 8% 13% 8% 0% 0% 0% 0%

Opex 11% 11% 16% 8% 1% 1% 1% 1%

EBITDA -10% -11% -7% 11% -5% -4% -7% -7%

EBIT -13% -13% -7% 6% -5% -4% -7% -4%

Growth Rates QoQ

Revenues -6% 6% -14% 26% -13% 6% -14% 26%

Opex -6% 6% -14% 26% -12% 6% -14% 26%

EBITDA -25% 19% -22% 31% -20% 19% -22% 31%

EBIT 10% -2% -9% 17% -2% -2% -9% 19%



Seasonality

Consolidated Income

Statement

of 24


1Q12 2Q12 3Q12 4Q12 1Q13E 2Q13E 3Q13E 4Q13E FY11 FY12 FY13E

Revenues 714.3 754.4 652.1 820.2 716.5 757.2 654.3 822.4 2,688.5 2,941.0 2,950.3

Solutions 461.4 444.2 408.3 567.3 461.4 444.2 408.3 567.3 1,810.8 1,881.1 1,881.1

Services 252.9 310.3 243.8 252.9 255.1 313.0 246.0 255.1 877.7 1,059.8 1,069.2

Contrib. Margin 110.8 121.3 104.8 130.2 109.4 119.4 104.4 129.6 464.5 467.1 462.8

Solutions 81.7 81.4 75.5 92.7 80.8 80.0 75.1 92.0 337.9 331.3 327.9

Services 29.1 39.9 29.3 37.5 28.6 39.4 29.3 37.6 126.5 135.8 134.9

Margin 15.5% 16.1% 16.1% 15.9% 15.3% 15.8% 15.9% 15.8% 17.3% 15.9% 15.7%

Solutions 17.7% 18.3% 18.5% 16.3% 17.5% 18.0% 18.4% 16.2% 18.7% 17.6% 17.4%

Services 11.5% 12.9% 12.0% 14.8% 11.2% 12.6% 11.9% 14.7% 14.4% 12.8% 12.6%

EBITDA 70.8 74.3 68.3 86.5 67.3 71.2 63.3 80.0 313.4 299.9 281.8

Margin 9.9% 9.9% 10.5% 10.5% 9.4% 9.4% 9.7% 9.7% 11.7% 10.2% 9.6%

EBIT 59.7 63.2 56.4 69.5 57.0 60.6 52.5 66.7 267.8 248.8 236.8

Margin 8.4% 8.4% 8.6% 8.5% 8.0% 8.0% 8.0% 8.1% 10.0% 8.5% 8.0%

Net Profit 32.0 29.4 31.9 39.4 27.7 30.6 26.1 38.3 181.0 132.7 122.7

Margin 4.5% 3.9% 4.9% 4.8% 3.9% 4.0% 4.0% 4.7% 6.7% 4.5% 4.2% Source: Company data and Millennium investment banking


Quarter Schedule

of 24


Sector Multiples

Market EV/EBITDA EV/EBIT PE 11-13 CAGR Dividend Yield Net Debt

Cap (€ mn) 2012 2013 2012 2013 2012 2013 EPS EBITDA 2012 2013 2012 2013

European IT Services

Atos Origin 4,548 5.0 x 4.2 x 7.5 x 6.5 x 14.7 x 11.5 x 20.1% 24.5% 1.1% 1.3% -0.3 x -0.5 x

Cap Gemini 5,592 4.7 x 4.5 x 6.0 x 5.6 x 11.8 x 12.0 x 6.0% 9.2% 2.9% 3.0% -0.9 x -1.0 x

Devoteam 94 3.7 x 3.3 x 5.2 x 4.1 x -133.6 x 8.2 x -11.3% -11.5% 1.1% 3.4% -0.1 x -0.7 x

Novabase 89 3.7 x 3.8 x 5.1 x 5.4 x 11.9 x 12.1 x 116.9% 12.0% 3.2% 2.9% -1.7 x -1.7 x

Altran Technologies 866 7.4 x 6.1 x 8.5 x 7.0 x 13.4 x 11.1 x 23.9% 13.1% 0.0% 0.0% 1.2 x 1.0 x

Computacenter 811 5.6 x 5.4 x 7.9 x 7.8 x 12.4 x 12.3 x -1.0% -0.4% 3.5% 3.6% -1.3 x -0.9 x

Tieto 1,189 5.3 x 5.4 x 8.9 x 8.3 x 12.2 x 11.0 x 16.6% 7.4% 5.1% 5.5% 0.1 x 0.0 x

US IT Services

Accenture 42,773 12.4 x 11.5 x 14.3 x 13.4 x 21.1 x 18.9 x 12.2% 9.9% 1.7% 2.0% -1.5 x -1.5 x

IBM 170,163 9.1 x 8.8 x 10.9 x 10.5 x 13.1 x 12.0 x 11.5% 2.8% 1.6% 1.8% 0.8 x 0.8 x

Median Europe 866 5.0 x 4.5 x 7.5 x 6.5 x 12.2 x 11.5 x 16.6% 9.2% 2.9% 3.0% -0.3 x -0.7 x

Average Europe 9,295 5.6 x 5.2 x 7.5 x 7.0 x 11.8 x 11.6 x 10.5% 12.1% 2.5% 2.7% 0.0 x -0.1 x

Indra 1,676 7.8 x 8.0 x 9.4 x 9.8 x 11.0 x 11.6 x -11.0% -3.3% 4.0% 4.1% 2.1 x 2.1 x

Indra (Mib) 7.8 x 8.3 x 9.4 x 9.8 x 12.6 x 13.7 x -17.7% -5.2% 3.4% 3.3% 2.1 x 2.2 x

Indra to Sector 40% 53% 26% 39% -7% 0% -21.4% -15.4% 1.5% 1.4% 210% 223%

Indra (Mib) to Sector 40% 58% 25% 41% 7% 18% -28.1% -17.3% 0.9% 0.7% 210% 231% Source: Factset and Millennium investment banking

Comparables and Multiples

of 24


Consolidated Figures

Operating Revenues 2,688.5 2,941.0 2,950.3 3,021.1

EBITDA 313.4 299.9 281.8 296.7

D&A -45.6 -51.2 -45.0 -53.8

Net Financials -37.7 -53.8 -56.8 -52.7

Taxes -52.2 -35.7 -37.5 -47.5

Minority Interests -0.1 5.1 0.6 0.0

Net Income 181.0 132.7 122.7 142.6

Margins (%)

EBITDA 11.7 10.2 9.6 9.8

EBIT 10.0 8.5 8.0 8.0

EBT 8.7 5.6 5.4 6.3

Effective Tax Rate 19.6 22.4 21.9 23.5

Net Income 7.4 6.7 4.5 4.2

€ million 2011 2012 2014E2013E


Fixed Assets 1,106.2 1,160.5 1,184.9 1,196.0

Working Capital 474.7 582.4 615.1 667.2

Invested Capital 1,580.9 1,742.9 1,800.0 1,863.2

Net Debt 513.7 633.3 624.0 600.4

Minority Interests 21.4 20.7 20.1 20.1

Equity 1,045.8 1,088.9 1,155.8 1,242.7

Capital Employed 1,580.9 1,742.9 1,800.0 1,863.2

€ million 2011 2012 2014E2013E


Cash Flow from Operations 165.8 76.1 135.0 144.3

Cash Flow from Investing -253.8 -116.7 -69.3 -153.0

Cash Flow from Financing 40.9 28.5 -71.2 12.2

EBITDA - Capex 156.8 172.6 212.5 143.7

€ million 2011 2014E2013E2012


EBITDA 313.4 299.9 281.8 296.7

Capex 156.6 127.3 69.3 153.0

EBITDA - Capex 156.8 172.6 212.5 143.7

EBITDA - Capex - Dividends 47.5 116.8 156.7 72.4

Financial costs, Net -37.7 -53.8 -56.8 -52.7

Net Debt 513.7 633.3 624.0 600.4

Net Debt / EBITDA 1.6x 2.1x 2.2x 2.0x

Net Debt / Equity 0.5x 0.6x 0.5x 0.5x

Net Debt / Capital Employed 0.3x 0.4x 0.3x 0.3x

EBITDA / Financial costs 8.3x 5.6x 5.0x 5.6x

€ million 2011 2014E2013E2012


Income Statements

Financial Balance Sheets

Cash-Flow Statements

Leverage indicators

of 24


DISCLOSURES

This report has been prepared on behalf of Millennium investment banking (Mib), a registered trademark of Banco Comercial Português,

S.A. (Millennium bcp).

Millennium bcp is regulated by Comissão de Mercado de Valores Mobiliários.

A draft of the report was shown to the company. Neither the company was aware of the recommendation nor was it changed.

Recommendations:

Buy means more than 10% absolute return;

Neutral means between 0% and +10% absolute return;

Reduce means between -10% and 0% absolute return;

Sell means less than -10% absolute return.

Unless otherwise specified, the time frame for price targets included in this report is current year-end or next year-end.

Risk is defined by the analyst’s view in a qualitative way (High, Medium, Low).

Usually we update our models and price targets in between 3 and 9 months.

Millennium bcp prohibits its analysts and members of their households to own any shares of the companies covered by them.

BCP group may have business relationships with the companies mentioned in this report.

Millennium bcp, expects to receive or intends to seek compensations for investment banking services from the companies mentioned in

this report.

The views expressed above, accurately reflect personal views of the authors. They have not and will not receive any compensation for

providing a specific recommendation or view in this report. There were not any agreements between the companies covered and the

analysts regarding the recommendation.

Analysts are paid in part based on the profitability of BCP group, which includes investment banking revenues.

(Unrated)Sell

ReduceNeutral

Buy5.75

6.71

7.67

8.63

9.59

10.54

11.50

12.46

13.42

May

/12

Jun/

12

Jul/1

2

Aug

/12

Sep

/12

Oct

/12

Nov

/12

Dec

/12

Jan/

13

Feb

/13

Mar

/13

Apr/1

3

May

/13

Jun/

13

Indra

Recommendation Stock Price Price Target

DISCLAIMER

This information is not an offer to sell or a solicitation to enter into any particular deal or contract. It consists of data compiled by or

of opinions or estimates from Banco Comercial Português, S.A. and no representation or warranty is made as to its accuracy or

completeness. This information is merely an auxiliary means of analysis to be used by its recipients, who will be solely responsible

for its use, including for any losses or damages that may, directly or indirectly, derive from it. Its reproduction is not al lowed

without permission from the BCP group. The data herein d isclosed are merely indicative and reflect the market conditions

prevailing on the date they have been collected. Thus, its accuracy and timing must absolutely be confirmed before its usage. Any

alteration in the market conditions shall imply the introduct ion of changes in this report. This information / these opinions may be

altered without prior notice and may differ or be contrary to opinions expressed by other business areas of BCP group as a result

of using different assumptions and criteria. The analysis contained herein is based on numerous assumptions. Different

assumptions could result in materially different results.

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Portugal

Telephone +351 21 003 7811

Fax +351 21 003 7819 / 39

Equity Team

Luis Feria - Head of Equities

Equity Research +351 21 003 7820

António Seladas, CFA - Head (Industrials and Small Caps)

Alexandra Delgado, CFA (Telecoms and IT)

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Prime Brokerage +351 21 003 7855

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Equity Sales/Trading +351 21 003 7850

Paulo Cruz - Head

Gonçalo Lima

Jorge Caldeira

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Equity Derivatives +351 21 003 7890 Jorge Pina - Head

Ana Lagarelhos

Diogo Justino

Marco Barata

Maria Cardoso Baptista, CFA

RoIC (%) 23.8 18.7 15.0 13.4 Ratios 3 RoE (%) 19.6 17.8 12 ...that Indra’s midterm targets...

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Transcript of RoIC (%) 23.8 18.7 15.0 13.4 Ratios 3 RoE (%) 19.6 17.8 12 ...that Indra’s midterm targets...