Arcadis reports second quarter and first half year results 2018

Organic revenue growth, margin improvement and strong cash flow

Second quarter highlights:

• Organic increase operating EBITA of 6% to €45 million, resulting in operating EBITA margin of 7.4% (Q2 2017: 7.0%)
• Strong free cash flow of +€54 million (Q2 2017: € +34 million)
• Substantial cash collection of €19 million from overdue receivables in Kingdom of Saudi Arabia

Half-year highlights:

• Net revenues €1,202 million; organic growth +2%, currency translation effect -7%
• Operating EBITA of €88 million; organic growth +2%, currency translation effect -6%
• Operating EBITA margin increased to 7.3% (H1 2017: 7.2%); improvement in the Americas compensates lower results in Asia and CallisonRTKL
• Average net debt / EBITDA 2.2 (H1 2017: 2.5)
• Confirms revenue growth and improved operating margin in 2018

     
Amsterdam, 26 July 2018 - Arcadis (EURONEXT: ARCAD), the leading global Design & Consultancy for natural and built assets, reported a +2% increase in organic net revenues for H1 2018. Operating EBITA margin increased to 7.3% (H1 2017: 7.2%); improvement in the Americas compensated for lower results in Asia and CallisonRTKL.

Peter Oosterveer, CEO Arcadis, comments: "I'm pleased with the implementation of the actions underpinning our strategic priorities for 2020. Our net revenues continue to grow organically, the operating margin improved and we collected cash from long overdue receivables in KSA. Our focus on disciplined project management and client selection is starting to yield results. We will continue to prioritize businesses that meet our criteria and improve our operating margin, while addressing activities that underperform. I look forward to working with Greg Steele in his new role as Group Executive for Asia Pacific to improve our focus and performance in the region. The renewable Natural Gas plant, part of the ALEN joint venture in Brazil, is now technically operational and long-term gas off-take contracts are currently being negotiated. We are preparing for and planning to divest all the clean energy assets in 2019. Following a strategic review we decided to operate CallisonRTKL as a separate division within Arcadis and the focus is now on delivering on the business plan, which was developed during the strategic review.

We continue to increase our investments in people and digitization to develop our capabilities for future needs. In June, we initiated the "Arcadis City of 2030 Accelerator, powered by Techstars" aimed at identifying and developing innovative start-ups.

The underlying progress of our strategic priorities in the first half year provides us with the confidence that we will further grow our net revenues and improve our operating margin in 2018.
I am convinced that we are on the right track to deliver our financial objectives set for 2020."

Review of Performance

¹⁾ Excluding restructuring, acquisitions & divestments costs
²⁾ Cash flow from operating activities minus investments in (in)tangible assets

Revenues and Income

REVIEW OF PERFORMANCE FOR THE second QUARTER
Net revenues totaled €602 million for the second quarter, organic growth was +1%. The currency translation effect was -5%, due to a stronger Euro. North America, Continental Europe, the UK, and Australia continued to deliver organic growth compensating for other regions.

Operating EBITA improved organically by +6% to €45 million (Q2 2017: €44 million), the currency translation effect was -5%. The operating EBITA margin improved to 7.4% (Q2 2017: 7.0%) driven by Americas, Continental Europe, the UK and Australia. The reported net revenues and EBITA were positively impacted by an average of one more working day.

EBITA increased by 11% to €42 million (Q2 2017: €38 million). Non-operating costs were €3 million (Q2 2017: €6 million).

REVIEW OF PERFORMANCE FOR The first half year
Organic net revenue growth was 2% in the first half year. North America, Continental Europe, the UK, and Australia delivered organic growth compensating for other regions.

Operating EBITA increased organically by 2% to €88 million (H1 2017: €90 million). The currency translation effect was -6%.The operating EBITA margin increased to 7.3% (H1 2017: 7.2%).The improvement in the Americas, including Brazil, compensated for lower results in Asia and CallisonRTKL, as well as for the increased investments in people, digitization and the Arcadis Way implementation. Non-operating costs were lower at €8 million (H1 2017: €10 million).

The tax rate was 26.3% (H1 2017: 29.9%) mainly due to lower US tax rates. Financing charges were up €2 million at €14 million (H1 2017: €12 million) due to higher interest rates on US Dollar bank loans and the impact of IFRS 9. The loss from associated companies was €5 million (H1 2017: -€2 million), mainly related to the results of the non-core clean energy assets in Brazil.

Net income increased 4% to €35 million or €0.41 per share, compared to €34 million or €0.40 per share in the first half of 2017.

REVIEW of performance for the first half year BY Segment

americas

¹⁾ Excluding acquisition, restructuring and integration-related costs

Organic net revenue growth of 2% included 3% growth in North America and 3% decline in Latin America. The currency translation effect on net revenues was -11%.The operating margin improved significantly from 5.9% to 7.7%, with North America at 8.8%, through strong results in the water business and continued solid results in Environment and Infrastructure. Operating EBITA in Latin America improved by €5 million due to a close to break-even result this half year (H1 2017: -€6 million).

Europe & Middle East

¹⁾ Excluding acquisition, restructuring and integration-related costs

Organic net revenue growth of 3% included an increase of 3% in Continental Europe and 15% in the UK, which more than compensated for an 8% decrease in the Middle East. In Continental Europe revenues grew in almost all countries. The currency translation effect on net revenues was 3%. The strong growth in the UK was driven by large infrastructure projects, such as Highways England and Network Rail, but other business lines contributed as well. Continued selective bidding in the Middle East resulted in lower revenues.

Operating EBITA declined slightly, mostly driven by higher investments in people, digitization and the implementation of the Arcadis Way. The operating margins in Continental Europe and the UK are compensating for the lower margin in the Middle East, where we are adjusting the organization to the new revenue profile. 

Asia Pacific

¹⁾ Excluding acquisition, restructuring and integration-related costs

Organic net revenue growth in Asia Pacific was 5%, driven by continued strong growth in Australia of 20%, resulting from diversification into infrastructure, more than compensating for a 3% decline in Asia. The currency translation effect on net revenues was -8%. Operating EBITA declined due to lower revenues and €2 million write downs in Asia in Q1 2018. The operating EBITA margin in Australia improved compared to last year.

On July 16, Arcadis appointed Greg Steele to the Executive Leadership Team in the role of Group Executive for Asia Pacific. Over the past eight years as Australia Pacific CEO, Mr. Steele transformed the organization into an agile, client focused and high performing business, that doubled in size under his leadership and opened new markets.

CallisonRTKL

¹⁾ Excluding acquisition, restructuring and integration-related costs

Organic net revenues declined by 7% driven by lower activity levels across all practices. The currency translation effect was -8%. After a slow start of the year, the results improved in the second quarter with an operating EBITA margin of 11%. Exceptionally strong order intake in the second quarter was driven by the commercial and workplace practices.

CASH FLOW and WORKING CAPITAL
Free cash flow in the second quarter was +€54 million (Q2 2017: +€34 million) leading to a free cash flow of -€6 million in the first half (H1 2017: -€28 million). In H1 2018 €25 million was collected on overdue receivables in the Middle East (KSA) of which €19 million in the second quarter. EBITDA in H1 was €100 million (H1 2017: € 100 million), including a -5% currency translation effect. Net working capital as a percentage of gross revenues improved to 18.8% (H1 2017: 19.3%), days of sales outstanding decreased to 91 days (H1 2017: 95 days). Net debt of €468 million showed the seasonal increase during the first half year but was clearly lower year-on-year (H1 2017: €514 million), due to cash generation and a lower US Dollar. The covenant leverage ratio improved to 2.2 (H1 2017: 2.5).

Backlog
Backlog at the end of H1 2018 stood at €2.1 billion (H1 2017: €2.2 billion), representing 10 months of net revenues. Backlog was organically flat; the currency effect was -2%. The backlog improved in Continental Europe, Australia and CallisonRTKL compensating for a 20% organic decline in the Middle-East due to continued selective bidding.

non-core clean energy assets brazil (ALEN)
The renewable gas plant at Seropédica (Rio de Janeiro) is now technically operational and estimated to produce approximately 70 million m³ of renewable natural gas annually. Long term renewable natural gas off-take contracts are currently being negotiated. For the gas-to-power plants delivery contracts are in place. The last gas-to-power plants are scheduled to be in operation in the next six months. The loss from this associate in H1 was €4.7 million. The intention is to divest all plants once in operation, this process will be initiated in the second half of 2018 and we expect a divestment in 2019.

priorities 2018
We will execute our strategy against the background of a positive market outlook. Based on the underlying progress on the strategic priorities in the first half year we expect to grow net revenues and further improve operating margin in 2018.

Our priorities are:

• Deliver financial objectives as per the strategic framework 2018-2020
• Select projects, businesses and geographies where we can lead
• Improve project delivery
• Continue to invest in people and culture to build the workforce of the future
• Innovate to become a digital frontrunner in the industry
• Contribute significantly to the United Nations Sustainable Development Goals
• Initiate the divestment process of all clean energy assets in the second half of 2018

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Financial Calendar 2018
24 October 2018 - Trading update Q3 2018

For further information please contact:
Arcadis Investor Relations
Jurgen Pullens
Telephone: +31 20 2011083
Mobile: +31 6 51599483
E-mail: jurgen.pullens@arcadis.com

Arcadis Group Communications
Joost Slooten
Mobile: +31 6 27061880
E-mail: joost.slooten@arcadis.com

About Arcadis
Arcadis is the leading global Design & Consultancy firm for natural and built assets. Applying our deep market sector insights and collective design, consultancy, engineering, project and management services we work in partnership with our clients to deliver exceptional and sustainable outcomes throughout the lifecycle of their natural and built assets. We are 27,000 people, active in over 70 countries that generate €3.2 billion in revenues. We support UN-Habitat with knowledge and expertise to improve the quality of life in rapidly growing cities around the world. www.arcadis.com.

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