Spain’s Indra Eyes Foreign Markets as Home Economy Falters

Indra Sistemas SA (IDR), Spain’s largest computer services company, is betting on foreign markets, especially in Latin America and Asia, to offset domestic economic woes and government austerity measures.

“We were expecting a reduction in Spain, but the financial crisis accelerated it,” General Director Emma Fernandez said in an interview at Indra’s headquarters in Madrid. “We’re still growing very fast, especially in Latin America and Asia.”

The former state-owned company, whose offerings range from systems for defense, transportation and air-traffic control to health, security, ticketing and elections, is targeting surging infrastructure investments in countries such as Brazil, China and Vietnam. Indra this year agreed to buy Brazil’s Politec Tecnologia da Informacao SA, increasing the share of international sales to 47 percent from 40 percent and making the country its second-largest market with 10 percent of revenue.

Indra, whose competitors range from France-based Thales SA (HO) and Italy’s Selex Sistemi Integrati SpA to International Business Machines Corp. (IBM) of the U.S., said July 29 that sales climbed 2 percent in the first half. Revenue in Europe dropped 6 percent, while Latin America sales advanced 16 percent. Revenue in Asia, Pacific and Africa rose 17 percent.

“The company’s track record and management is very respected and they’re doing a great job abroad, especially in Latin America and the Middle East,” Ignacio Ortiz de Mendivil, an analyst at Banco BPI in Madrid, said by phone. “Indra usually meets guidance and market expectations, even if last year’s margins were worse.”

Outperforming the Market

Indra fell 0.3 percent to 13.40 euros at 9:45 a.m. in Madrid trading. The stock has gained 4.8 percent this year, valuing the company at 2.2 billion euros. The Spanish benchmark Ibex 35 index declined 5.8 percent in the same period.

Indra’s 2010 net income dropped 3.6 percent to 188.5 million euros ($271.4 million), while sales rose 1.7 percent to 2.6 billion euros.

The company also benefitted as some of its Spanish customers expanded in Europe, including Telefonica SA (TEF), Europe’s second-largest phone company and Banco Santander SA (SAN), Spain’s biggest bank.

“The biggest risk for the company is its exposure to the domestic market,” Ortiz de Mendivil said. “We can expect new budget cuts in the coming months, which won’t be positive for them.”

Spanish Budget Cuts

Spanish Prime Minister Jose Luis Rodriguez Zapatero called early elections July 29 after austerity measures eroded support for his Socialist Party. Spain, the euro area’s fourth-largest economy, seeks to convince investors it can control the budget deficit as it faces a possible downgrade by Moody’s Investors Service.

Europe’s debt crisis forced Zapatero to ditch pledges for more social spending and replace them with public-sector wage cuts as he struggled to tackle unemployment of more than 20 percent.

As companies adjust to forecasts of slower growth in Spain after a decade-long boom, Norsk Hydro ASA, Europe’s third- largest aluminum maker, said on July 26 that it is cutting jobs and capacity at its operations in Spain and Portugal because of lower demand from builders. Vodafone Group Plc (VOD), the world’s largest mobile-phone company, on July 22 reported slowing service revenue growth for the fiscal first quarter, citing “challenging” conditions in southern Europe.

“Indra will get more revenue from abroad in coming months and that will continue to be the trend, although Spain is still our main market,” Fernandez said. “We are concerned about the evolution of Spain but we see it as an opportunity because the economic model of Spain needs to move towards technology and more productivity.”

To contact the reporter on this story: Manuel Baigorri in Madrid at mbaigorri@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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