Arcadis Trading Update Q1 2019

Continued progress on key strategic metrics

Operational

• Continued solid results in majority of the business, particularly strong performance in North America
• Good progress made in the improvement areas
• Further strengthening digital capabilities by continued investments and acquisition of EAMS

Financial

• Operating EBITA margin improved to 7.5% (Q1 2018: 7.2%)
• Organic net revenue growth of 2% to €628 million (gross revenues: €829 million)
• EBITDA increased by 20% to €56 million (Q1 2018: €47 million)
• Net working capital improved to 17.4% (Q1 2018: 19.5%)
• Net debt reduced to €409 million (Q1 2018: €474 million)
• Organic backlog growth at 4% quarter-to-date

Amsterdam, 18 April 2019 - Arcadis (EURONEXT: ARCAD), the leading global Design & Consultancy organization for natural and built assets, reports 2% organic increase in net revenues for the first quarter of 2019. Operating EBITA margin improved to 7.5% (Q1 2018: 7.2%); driven by continued solid results in the majority of the business and god progress made in the improvement areas.

CEO STATEMENT
Peter Oosterveer, CEO Arcadis comments: "I am pleased with the profitable growth, margin improvement and disciplined working capital management. These efforts contributed to a further strengthening of the balance sheet. The performance in the majority of our business, and especially North America, continues to be solid and we progressed our actions to further improve our performance in Asia, the Middle East and Latin America.

Good progress was made in the restructuring of the Asian business, with the completion of the simplified organizational structure and the planned exit from underperforming markets. Our continued selectivity in the Middle East positively contributed to our margin percentage and reduced net working capital. In Latin America our earlier actions, and a slightly improved business environment, led to a profitable quarter.

As part of our broader innovation and growth agenda we strengthened our digital offerings by acquiring a majority stake in EAMS Group, an enterprise asset management company. It follows the launch of our Digital Innovation Hub in Amsterdam and the City of 2030 innovation accelerator in March of this year.

Our strategic priorities for 2019 remain clear. Based on the progress made in the first quarter we are confident that our efforts will further contribute to the targets set for 2020."
  
KEY FIGURES

¹⁾ 2019 Q1 figures based on IAS 17 (excluding the impact of IFRS 16 Leases)
²⁾ Excluding restructuring, acquisition & divestment costs

REVIEW OF PERFORMANCE

IFRS 16: approach and impact
IFRS 16 'Leases' replaces the existing standard IAS 17 'Leases' and significantly changes how Arcadis, as lessee, accounts for its operating lease contracts from 1 January 2019. Arcadis has decided to apply the 'modified retrospective approach', and will not restate comparative amounts for the year prior to adoption. The 2019 figures in this trading update are based on IAS 17 and therefore comparable; the interim and full year statements will also be reported based on IFRS 16, including transition disclosures.

Revenues by segment

Americas
(32% of net revenues)

Organic net revenue growth in North America of 8%, driven by all businesses, but especially Environment. In Latin America organic net revenue growth was 5%, as a result of strong order intake in Q4 and slightly improved business conditions.

Europe & Middle East
(46% of net revenues)

Organic net revenue growth of -1% driven by a 15% decrease in the Middle East, which is a result of our continued selective bidding. In Continental Europe the organic growth was flat, partly impacted by one less working day in the Netherlands, while the order intake in the first quarter was strong. Net revenues in the UK increased organically by 3%, due to growth in our Buildings business, which more than offset a slowdown in Infrastructure.

Asia Pacific
(13% of net revenues)

Organic net revenue decline for Australia was 5%, driven by timing of large projects' ramp-up, while the order intake in the quarter was strong. Organic net revenue growth in Asia of 2%, driven by China.

CallisonRTKL
(9% of net revenues)

Organic net revenue increase of 1% mostly driven by higher revenues in Europe, compensating for lower revenues in Asia. 

Operating EBITA
Operating EBITA increased by 10% to €47 million (Q1 2018: €43 million), including a currency impact of 4%. The operating EBITA margin increased to 7.5% (Q1 2018: 7.2%); driven by margin improvements in the majority of our business and especially North America. Non-operating costs amounted to €2 million (Q1 2018: €6 million), relating to restructuring and acquisitions & divestments. EBITA at €45 million (Q1 2018: €37 million).

CASH FLOW and WORKING CAPITAL
EBITDA in Q1 increased to €56 million (Q1 2018: €47 million). Net working capital as a percentage of gross revenues improved to 17.4% (Q1 2018: 19.5%), days sales outstanding decreased to 86 days (Q1 2018: 94 days). The free cash flow improved due to a higher EBITDA and an improved working capital balance, offset by a higher other working capital outflow. Net debt of €409 million showed the seasonal increase during the quarter, but was sharply lower year-on-year (Q1 2018: €474 million) as a result of cash generation. In Q1 2019 Arcadis collected US$24 million (€21 million) on overdue receivables after a settlement with an insurance company, which has led to a further improvement of the quality of trade receivables.

Backlog
Backlog at the end of Q1 2019 was €2.1 billion (Q1 2018: €2.1 billion), representing 10 months of net revenues. Backlog increased organically year-to-date by 4%. In all segments the year-to-date backlog growth was positive, with a particularly strong increase in Continental Europe and Australia.

non-core clean energy assets brazil (ALEN)
The gas-to-gas plant is operational, and contracts are now signed for 50% of the capacity with two industrial buyers and options for another 20% with one of the buyers. The delivery of the gas will start next month and will further increase in the coming quarters. Discussions are ongoing with other industrial gas consumers for the remaining capacity. The largest gas-to-power plant is in full operation and delivers power to the grid. The third and last plant is on track to become operational in the course of 2019.

The divestment of these assets remain a top priority and Itaú bank has been appointed as financial advisor for the divestment process. They will start with a market consultation process in the second quarter. The intention is to divest the energy assets in 2019.

The operating loss in the first quarter was €3 million. As the assets start generating cash, we expect the loss to decline over time in 2019 and anticipate to be break-even in the second half of the year.

Strategic priorities 2019
Our strategy is based on three pillars: People & Culture, Innovation & Growth, and Focus & Performance. In 2019, our objective is to make further progress towards our strategic targets set for 2020:

• Further margin improvement
  • Rigorous adherence to actions identified for the Middle East and Asia to improve performance
  • Leverage of "Make Every Project Count", growth of the Global Excellence Centers
• Revenue growth
  • Build on growth momentum in North America, Continental Europe, the UK, Australia and CallisonRTKL
  • Leverage streamlined client portfolio and digital solutions
• Further cost optimization
• Non-core clean energy assets Brazil
  • Complete last gas-to-power facility, finalize remaining gas off-take contracts, intend to divest all assets in 2019
• Continue strong cash collection and further strengthen the balance sheet

Financial Calendar 2019
25 April 2019                    Annual General Meeting of Shareholders
25 July 2019                   First half year results 2019
24 October 2019            Trading update Q3 2019

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

Arcadis Group Communications
Jochem Binst
Mobile: +32 471202679
E-mail: jochem.binst@arcadis.com

analyst meeting
Peter Oosterveer (CEO) and Sarah Kuijlaars (CFO) will host a conference call for analysts and institutional investors at Thursday 18 April, 2019 10:00 a.m. CET to discuss the first quarter results. A live audio webcast of the conference call can be accessed via the investor relations section on the company's website at https://www.arcadis.com/en/global/investors/.
  
About Arcadis
Arcadis is a leading global Design & Consultancy organization 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 €3.3 billion in revenues. We support UN-Habitat with knowledge and expertise to improve the quality of life in rapidly growing cities around the world. www.arcadis.com.

REGULATED INFORMATION
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FORWARD LOOKING STATEMENTS
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.