ARCADIS DELIVERS GOOD FOURTH QUARTER AND STRONG YEAR

• Annual gross revenues up +5%, net revenues +7% higher with organic growth at +1%
• Operating EBITA up +8% leading to a full year operating margin of 10.1% (2013: 10.0%)
• Net income from operations up +11% at €123.6 million for the year
• ONEurope achieves target, generating 10.2% operating margin in Q4
• Free cash flow for the year of €103.4 million, exceeds net income of €91.6 million
• Net debt/EBITDA ratio at year-end was 2.0
• Dividend proposal €0.60 per share, an increase of 5%
• Overall backlog up +41%, organic increase +7% well spread across all business lines and regions
• Outlook: ARCADIS expects 2015 revenues and profit to increase significantly from recent acquisitions, organic growth, and performance excellence initiatives 

February 19, 2015 - ARCADIS (EURONEXT: ARCAD), the leading global natural and built asset design & consultancy firm, today announced that it has achieved net revenue growth of +7% for the full year 2014, of which +1% was organic growth. The company delivered +11% growth in net income from operations. With a good finish for the year and some positive currency effects ARCADIS overachieved its guidance on both metrics. The acquisitions of Hyder Consulting and Callison and various smaller transactions completed during the year in review contributed 6% to revenue growth for the year. Organic growth was strong in particular in the Middle East and Asia, while the UK and Continental Europe were also on positive trajectory, demonstrating the success of the investments in organic growth. As anticipated, revenues declined in North America and Chile. The operating margin improved to 10.1% (2013: 10.0%) helped by higher profitability in the UK and especially Continental Europe (excluding Hyder), which at 10.2% reached its fourth quarter target of 10% margin. Lower revenues weighed on the operating margin in North America, while also margins in Emerging Markets declined due to Latin America and Hyder. The overall backlog jumped +41%, reflecting the impact of acquisitions, while the organic backlog growth was strong at +7%, with all business lines and regions contributing. In line with last year, cash conversion was good with free cash flow at €103.4 million, exceeding net income of €91.6 million.

Proposed dividend
ARCADIS proposes a 5% increase in dividend to €0.60 per share. The proposed dividend reflects a payout of 40% of net income from operations based on 82.0 million outstanding shares at year-end 2014. Shareholders will again be offered the choice between receiving the dividend in cash or in shares.

ARCADIS CEO Neil McArthur said: "The positive development of revenues, margin, cash flow and backlog indicate that we are on track with implementing our strategy. 2014 was a year of investment in sustainable growth. We have completed two major transactions - Hyder Consulting and Callison - thereby strengthening our engineering and design capabilities. We have further expanded our core business by niche acquisitions in Asia (inProjects) and Canada (Franz). We have made significant investments to drive organic growth, including City Executives in our Big Urban Clients program, Global Market Sector Leaders in our Multinational Client program and Core Value Proposition leaders in our four Global Business Lines. We have also completed the diagnostic phase of our global performance excellence program and have launched initiatives to expand our margin. With respect to collaboration, our pan-European operating model has demonstrated its effectiveness, as we improved the operating margin from 3.2% to 10.2% in just 18 months. Meanwhile we have put in place regional operating models in the UK, Middle East, Latin America, Asia and Australia Pacific. North America has underperformed versus expectations during 2014, however, we have started to implement a new market model, evolved the operating model, made leadership changes and are confident to see a return to growth in 2015. With our strong market positions, strategic progress, recent acquisitions, and record backlog, we expect 2015 revenues and profit to increase significantly."

Key figures fourth quarter

¹ Excluding acquisition, restructuring and integration-related costs

Review of performance for the fourth quarter

Acquisitions contributed 21% to the 26% increase in gross revenues, while currencies had a positive effect of +5%, driven by the depreciation of the euro against the US Dollar and other currencies. The slight decline in organic gross revenue growth (-1%) versus the prior year period can be primarily attributed to North America, as all the other regions posted improved revenues. Net revenue growth was +30%, of which +24% from acquisitions, and a positive currency effect of +5%. Organic growth was +1%. The Middle East, Asia and the UK reported the strongest performance, while organic growth in Continental Europe was +3%. In North America, the organic net revenue decline resulting from continued tough market conditions was -7%. Overall organic growth of net revenues excluding North America was +5%. 

Reported EBITA increased by +13% to €50.6 million including the impact of acquisitions and positive currency effects. Reported EBITA includes €2.1 million of costs related to the Hyder acquisition completed in October 2014 as well as restructuring and integration charges of €8.0 million (Q4 2013: €5.6 million).
Operating EBITA grew by +20% to €60.7 million and was primarily driven by Continental Europe and acquisitions. The operating EBITA margin in the fourth quarter was 10.0% (Q4 2013: 10.8%), diluted by Hyder and costs related to our global performance excellence initiatives.

Key figures full year

¹ Excluding acquisition, restructuring and integration-related costs
² Before amortization of identifiable intangible assets and acquisition-related costs (net of income taxes)
³ Cash flow from operating activities minus investments in (in)tangible assets

Review of performance for the full year

Full year gross revenues increased +5% of which +6% from acquisitions including SENES (Canada), inProjects (Asia), Franz (Canada), and Hyder and Callison, offset by a slight decline caused by currency effects, organic development was flat. Net revenues increased by +7%, of which +6% from acquisitions. There was a slightly negative currency effect, while organic growth was +1% resulting from increases in Continental Europe, which together with Emerging Markets and the UK helped offset a -5% decline in North America. Organic growth outside North America was +5%. Within Emerging Markets, good growth was achieved in the Middle East and Asia, while Latin America declined, mainly due to reduced capex spend in the mining sector.   

Reported EBITA increased +4% year-on-year to €174.5 million. The currency effect was limited at -1%. Excluding restructuring and integration charges of €15.1 million (2013: €19.6 million) and acquisition-related costs of €13.3 million (2013: €1.1 million), operating EBITA increased +8% to €202.9 million (2013: €188.4 million). The operating margin slightly improved to 10.1% (2013: 10.0%) aided by the strong margin performance in Continental Europe and the UK, but offset by margin declines in especially North America, dilution from Hyder and costs related to our global performance excellence program.

At 29.0% the effective tax rate was slightly lower than last year (2013: 29.4%), resulting from changes in the geographic mix. Despite higher debt levels related to acquisitions we were able to reduce financing charges to €17.4 million (2013: €18.1 million) helped by improved financing conditions. Income from associated companies was a small loss attributable to the energy assets in Brazil versus a considerable gain last year (2013: €5.5 million).
Due to acquisition-related charges, net income declined -5% to €91.6 million or -8% to €1.23 per share compared to €96.6 million or €1.34 per share in 2013. Net income from operations, which excludes amortization of identifiable intangible assets and acquisition-related costs (net of income taxes), increased +11% to €123.6 million or +8% to €1.66 per share (2013: €111.1 million or €1.54 per share).

Cash flow, investments and Balance sheet
At €139 million, cash flow from operating activities was stable. Working capital at year-end was 18.8% of gross revenues, compared to 15.7% for year-end 2013. The main reason for the increase was the higher working capital needs of Hyder and Callison, while working capital was also impacted by a slowdown in payments from clients in the natural resources sector. Free cash flow amounted to €103.4 million (2013: €109.0 million).

Acquisitions and currency related effects resulted in an increase of balance sheet total to €2,608 million (2013: €1,680 million) and of net debt (interest-bearing debt minus Cash and cash equivalents) to €522.4 (2013: €194.8 million). In November, ARCADIS issued new shares and raised €171.3 million (net proceeds) to partially refinance the bridge facility that was arranged for the Hyder acquisition. Balance sheet ratios remained strong: the net debt to EBITDA ratio at the end of the year was 2.0 (2013: 1.1), while the interest coverage ratio was 9 (2013: 10). Return on invested capital, excluding the impact of acquisitions made during the year, was 13.7% (2013: 13.3%).

 Developments by business line
Figures below are for full year 2014 compared to the same period last year, unless otherwise stated

¹ Rounding and reclassifications may impact totals
² Organic development compared to year-end 2013

• Infrastructure (25% of gross revenues)

Infrastructure benefited from the acquisition of Hyder which drove growth in the UK, Continental Europe, Asia, the Middle East and Australia Pacific. Organic net revenue growth in Infrastructure was essentially flat, with the UK, Continental Europe and North America generating growth, while Latin America suffered from lower levels of capital investment by mining clients.

• Water (14% of gross revenues)

Very strong organic growth in Latin America was the main driver behind the overall performance in Water. During the year no improvement in demand was seen in the municipal market in North America, while revenues were slightly down in Continental Europe and flat in the UK. Hyder contributed to growth in the UK and Middle East.

• Environment (29% of gross revenues)

Despite the contract wins in the third and fourth quarter, revenues in North America declined, as market conditions in the US federal market remained soft and competition in private sector remained strong. Continental Europe was relatively stable, however in the UK revenues declined. As a result of strong growth in Latin America, Emerging Markets performed well.

• Buildings (32% of gross revenues)

In Buildings, Callison, Hyder, and inProjects, contributed to overall revenue growth. Strong organic growth was achieved in the Emerging Markets. Good growth was also achieved in Continental Europe and in the UK, where growth outside of London increased, while demand in the capital held up. In North America, good organic growth was also achieved in architecture where revenues in commercial, healthcare and workplace picked up.

 ONEurope progress update

The introduction of the pan-European operating model in 2013 has proven to be very successful. In 2014, we achieved organic net revenue growth in Europe of +3% and we achieved 10.2% operating margin in the fourth quarter, reaching our target of 10%.

North America

Given the continued tough market conditions, particularly in environment and water, ARCADIS announced it has started a two-year improvement program for its North American business, the region that represents 35% of its 2014 net revenues and 39% of its profits. The main goals of the program are a return to growth, while improving margins.
The program comprises three strategic levers for change. The first is to continue implementation of a new market approach which was formulated in 2014 and has already delivered results in the form of backlog improvements.
Secondly, performance excellence will focus on implementing best practices across five performance drivers: resource optimization, use of global design centers, project management, procurement and workplace & collaboration.
Thirdly, the operating model for our North American operations will be fully aligned with ARCADIS' global model to help drive organic growth. Strengthening the leadership team and renewed focus on people development is an essential part of the program.

Record backlog, +41%

Backlog increased organically by +1% in the fourth quarter, with water and buildings leading the increase. The full year backlog increase amounts to +41% including +11% from currency effects, +7% organic backlog growth while the remaining increase comes from acquisitions. All business lines and regions achieved organic backlog increases in the year.

Outlook by business line

In the Infrastructure market, strong overall growth is expected. Activities in the UK, Middle East, Continental Europe, Asia and Australia Pacific will benefit from growth through the Hyder acquisition. In Latin America, we expect the mining sector to remain soft. In North America we expect growth. For the UK we foresee increased government spending, while Continental Europe may see increased infrastructure spending.

In Water we expect to achieve growth in all regions. In Latin America we have a strong backlog, mostly in municipal water work. In North America we expect a return to low growth as municipal spending picks up and from water related work by Big Urban Clients. In Continental Europe we expect low growth, and in the Middle East/UK we expect to benefit from the addition of Hyder's water capabilities.

In the Environmental market, we expect a return to low growth. For North America we expect a return to low growth later in the year, aided by the backlog that was built up over 2014. In Latin America our strategic environmental consulting value proposition creates additional growth opportunities. In the UK and Continental Europe, we expect to achieve growth.

In the Buildings market, strong growth is expected to continue, in Asia and the UK resulting from strong capital expenditure by Big Urban Clients. In architecture we expect an increase in demand in North America, helped by Callison. Also in Continental Europe we expect to see good growth driven by the private sector and business advisory. Given the uncertainties regarding oil prices, in the Middle East, growth will be country specific, but opportunities remain favorable.

Outlook

With our strong market positions, strategic progress, recent acquisitions, and record backlog, we expect 2015 revenues and profit to increase significantly, barring unforeseen circumstances.

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For more information, please contact Joost Slooten of ARCADIS at +31-202011083 or outside office hours at +31-627061880 or e-mail joost.slooten@arcadis.com

About ARCADIS: ARCADIS is the leading global natural and built asset design & consultancy firm working in partnership with our clients to deliver exceptional and sustainable outcomes through the application of design, consultancy, engineering, project and management services. ARCADIS differentiates through its talented and passionate people and its unique combination of capabilities covering the whole asset life cycle, its deep market sector insights and its ability to integrate health & safety and sustainability into the design and delivery of solutions across the globe. We are 28,000 people that generate €3 billion in revenues. We support UN-Habitat with knowledge and expertise to improve the quality of life in rapidly growing cities around the world. Please visit: www.arcadis.com    

The condensed full year 2014 numbers are derived from the 2014 financial statements. The financial statements have not yet been published and still have to be adopted by the Annual General Meeting. KPMG Accountants N.V. has issued an unqualified auditor's opinion on these financial statements. The financial statements will be published on 9 March 2015. The figures for the fourth quarter are unaudited.

Statements included in this press release that are not historical facts (including any statements concerning investment objectives, other plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto) are forward looking statements. These statements are only predictions and are not guarantees. Actual events or the results of our operations could differ materially from those expressed or implied in the forward looking statements. Forward looking statements are typically identified by the use of terms such as "may," "will," "should," "expect," "could," "intend," "plan," "anticipate," "estimate," "believe," "continue," "predict," "potential" or the negative of such terms and other comparable terminology. The forward looking statements are based upon our current expectations, plans, estimates, assumptions and beliefs that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward looking statements.