Arcadis delivers an 11% increase of net income from operations to €137 million in 2015

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Algemeen advies 18/02/2016 07:07
Full year:
Gross revenues €3.4 billion +30% (organic +1%), net revenues €2.6 billion (organic flat)
Operating EBITA €250 million +23%, EBITA of €209 million +20%, reflecting €40 million of integration and restructuring costs
Operating EBITA margin of 9.6%, underlying 10.1% (2014: 10.1%); benefitted from Performance Excellence and synergy capture, offsetting challenging market conditions
Backlog €2.3 billion, representing 11 months of revenues
Free cash flow €121 million (2014: €103 million), aided by working capital reduction to 17.1% (2014: 17.4%)
Net debt/EBITDA ratio at year-end 1.9 (2014: 2.0)
Dividend proposal €0.63 per share (2014: €0.60); a 5% increase

Fourth quarter 2015:
Organic net revenue decline of -4% due to more challenging conditions in Emerging Markets and North-America
Operating EBITA margin increased to 10.8% (2014: 10.0%)
EBITA margin 9.4% (2014: 8.3%)

Key figures
Amounts in € millions unless otherwise stated
Period ended December 31 Full Year Change Fourth Quarter Change
2015 2014 2015 2014
Gross revenues 3,419 2,635 +30% 873 808 +8%
Net revenues 2,597 2,016 +29% 636 609 +4%
EBITA 208.8 174.5 +20% 59.8 50.6 +18%
EBITA margin 8.0% 8.7% 9.4% 8.3%
Operating EBITA1) 250.3 202.9 +23% 68.5 60.7 +13%
Operating EBITA margin 9.6%2) 10.1% 10.8% 10.0%
Net income 98.7 91.6 +8%
Net income per share (in €) 1.19 1.23 -3%
Net income from operations 137.1 123.6 +11%
Net income from operations per share (in €) 1.66 1.66

Avg. number of outstanding shares (millions) 82.6 74.5 +11%
Free cash flow3 120.6 103.4 +17%

1) Excluding acquisition, restructuring and integration-related costs 2) Excluding one-off project cost overruns in H1, operating EBITA margin was 10.1% 3) Cash flow from operating activities minus investments in (in)tangible assets

Amsterdam, 18 February 2016 - Arcadis (EURONEXT: ARCAD), the leading global Design & Consultancy firm for natural and built assets, reports net income from operations in 2015 of €137 million, an increase of 11% versus 2014. While the company is confronted with challenging conditions in Emerging Markets and North America, Arcadis has adapted its organization to the current market reality. Net income from operations improved, margins are at healthy levels, and free cash flow was strong. The proposed dividend is 5% higher. The outcome of a financial review of the Hyder and Callison acquisitions was disappointing. At the same time the Hyder business delivered strong growth and margin improvement. With regard to the Brazilian investigation, Arcadis can confirm it has received no further requests for information.

Arcadis CEO Neil McArthur: "2015 was a challenging year in several of the markets where Arcadis operates. A deep recession in Brazil, a slowdown in Asia and sustained low oil prices impacted our Emerging Markets business and our global business lines, Infrastructure and Environment. In parallel we integrated two large acquisitions, comprising approximately 30% more people, launched the turnaround of our North American business and effectively implemented restructuring and Performance Excellence programs.

Arcadis faced some specific issues during the year for which we had to do two announcements, shortly after each other. The request of Brazilian authorities to our Brazilian subsidiary company to provide information was one. The January 25, 2016 announcement of a lower profit outlook for 2015, and the disappointing outcome of the final purchase price allocation of Hyder and Callison, was another. We understand that these announcements raised questions in the market.

On the Brazilian investigation there is little more to say. As of today, we have not received any further requests for information and our internal assessment continues. There is more to say about the financial review of the Hyder and Callison acquisitions. As we had run a thorough and solid acquisition process, the fact that we had to make the adjustments was not what we expected at the time of acquisition. This has led to an evaluation and clear learnings.

More than ever, we remain focused on ensuring that we are able to adapt to changing market circumstances. Our Performance Excellence program generates greater efficiency and cost reduction through sharing of best practices and has delivered a 1.1% improvement in operating EBITA margin. During 2015 we invested €40 million in restructuring and integration costs associated with Hyder/Callison and Performance Excellence to build an integrated Arcadis and in the fourth quarter the benefits are beginning to show through with an operating EBITA margin of 10.8% and reported EBITA margin improving to 9.4%.

Our free cash flow was strong, 1.2 times net income. We reduced our net debt, bringing the ratio net debt to EBITDA to 1.9 at year-end. We strengthened our financing position, taking advantage of attractive rates, through transactions in the Schuldschein market and by renewing and expanding our revolving credit facility in December for a period of five years.

Consequently, given our strong financial position and cash flow we are proposing a 5% increase in our dividend to €0.63 per share."

Hyder and Callison review

With the acquisitions of Hyder and Callison in October 2014, we made important steps in our strategy to build sustainable top 5 leadership positions in our key markets, creating a truly global platform and we are now able to deliver solutions to our clients in six out of seven continents. We have made good progress: both businesses are fully integrated, and synergy capture is on track. At the end of 2014, the purchase price allocation was included on a provisional basis, in line with common market and accounting practice. In 2015, these balance sheet positions were thoroughly reviewed, during which it became clear that the Arcadis approach for revenue recognition and valuing debtors and claims was more prudent than within Hyder and Callison. A full review of projects, debtors and claims led to an update of the provisional purchase price allocations, referred to under IFRS 3 as measurement-period adjustments.These adjustments resulted in restated consolidated balance sheet positions as at 31 December 2014 and subsequent 2015 quarterly financials. These restatements which were reported on January 25, led to questions but were necessary to reflect the actual situation at the time of acquisition.

It is important to note that these restatements do not deter from the forward earnings capacity of the acquisitions through synergy capture plans and implementation of Performance Excellence and Arcadis management practices.

Hyder delivered good growth, +8% on a stand-alone basis and improved operating margin to 9.2%. Hyder together with Arcadis creates a top-five leadership position in the U.K., strengthens Arcadis' position in the Middle East, Continental Europe and Asia while providing a good starting position in Australia Pacific. Hyder also provided access to an at-scale Global Design Excellence capability which allows Arcadis to be more cost competitive in how it delivers engineering solutions around the world, helping to drive growth. By acquiring Hyder, Arcadis accelerated building this capability organically by 2-3 years. Progress in Global Design Excellence was strong, growing this capability by 24% in one year with 5% of Arcadis people now active in the Global Design Excellence centers, up from less than 1% in Arcadis prior to the acquisition. This contributed to some important projects wins such as the Port of Calais, Crossrail 2, Qatar Rail and Jeddah Metro.

Callison together with RTKL has a top-five positioning in Architecture & Design and a global leadership position in retail and mixed use design. Revenues were impacted by strong decline in China, operating margin was somewhat lower at 12.5%.

In September we successfully launched our new positioning and brands Arcadis and CallisonRTKL building on our rich heritage of 11 legacy brands. Our positioning as the leading global Design & Consultancy for natural and built assets and our passion to Improve Quality of Life resonates well with our clients, our people and stakeholders around the world.

Market developments and restructuring program

2015 was a challenging year in several markets, requiring the Company to be agile in steering its local businesses. This was especially the case in North America, where we introduced a program to improve growth and maintain margins, while appointing a new management team and changing the way we operate. In Emerging Markets, where Arcadis has gone through several years of rapid growth, it applied the same level of flexibility to adjust where necessary to market declines, while maintaining margins. This applies for Brazil where the company is faced with a deep recession, for China and parts of Asia where we faced slowing demand, and for the Middle East where the lower oil price affected spending on social infrastructure as the year progressed.

While acquisitions boosted overall net revenue growth by 20%, despite the challenging market developments, we achieved flat organic growth for Arcadis in 2015. Arcadis management has taken several actions to, in this market environment, sustain the margins including the Performance Excellence program in North America, Continental Europe, the UK and Australia, which delivered significant margin improvement of +1.1%. The program will be expanded to the remainder of Arcadis in 2016.

Brazil: internal assessment update

Arcadis announced in December that its Brazilian company was asked by Brazilian Federal Authorities to provide information in support of a broad investigation into a number of construction companies which are active in a large water management project in northern Brazil. As member of a 50/50 consortium Arcadis fulfills the role as program manager on behalf of the Brazilian Ministry of National Integration.
Arcadis can confirm it has not received further requests for information. In December, Arcadis immediately started a diligent and thorough internal assessment with support of a forensic expert and external legal advisors. Arcadis expects to be in a position to provide an update on the internal assessment in Q2.

Proposed dividend

Arcadis proposes a dividend of €0.63 per share, a 5% increase to 2014. The proposed dividend reflects a payout of 38% of net income from operations based on an average of 82.6 million outstanding shares in 2015. Shareholders will be offered the choice between receiving the dividend in cash or in shares.

Review of Full Year performance

Gross revenues were up 30%, while net revenues increased 29% both as a result of the acquisitions of Hyder, Callison and Franz. Of the net revenue increase 20% came from acquisitions, 10% from currency effects, while organic growth was essentially flat. Organic development was driven by growth in Continental Europe, mainly from the private sector and the UK, where also infrastructure performed well. This was offset by Brazil, where a deep recession caused a severe revenue decline. Growth slowed in the Middle East as market conditions toughened and Asia was slightly negative driven by the strong decline in architecture & design in China.

EBITA was up 20% and was impacted by €40 million in restructuring and integration costs related to capacity adjustments in North America and Emerging Markets as well as the impact from implementing our Performance Excellence program and the integration of Hyder, Callison and Franz. This and the one-off project cost overruns in North America which were disclosed in the second quarter, impacted the EBITA margin, which was 8.0% (2014: 8.7%). Operating EBITA (which excludes acquisition, restructuring and integration-related costs) was up 23% at €250 million and the operating EBITA margin was 9.6% (2014: 10.1%). Corrected for the one-off project cost overruns in North America, the underlying operating EBITA margin was 10.1%, in line with 2014.

Higher restructuring costs towards the end of the year impacted net income development. Also, as announced earlier, the intended sale of energy assets in Brazil was not yet realized and continues to be pursued. Income from associates was a loss of €3 million from the energy assets in Brazil. Interest charges were higher, as a result of the extension and optimization of our debt until 2020. The effective tax rate was 23% (2014: 29%). The lower effective tax rate is mainly caused by the geographical mix of taxable income and positive settlements relating to prior years. Net income from operations was up 11%. On a per share level, net income from operations is stable at €1.66.

Review of performance for the Fourth Quarter

Good revenue growth in Continental Europe, UK and Australia was offset by declines late in the quarter in North America and the Emerging Markets, due to challenging market conditions. Overall, net revenues increased by +4%, with currency effects +7% and organic development
-4%. Operating EBITA was €69 million with an operating EBITA margin of 10.8%. Despite the €5 million in extra restructuring charges taken in the quarter, EBITA was 18% higher than 2014, EBITA margin was 9.4%.

Infrastructure (25% of gross revenues)
Infrastructure benefited from strong growth resulting from the addition of Hyder across the UK and Middle East, and the synergy wins derived from our strengthened market position. In Continental Europe, where the public market was flat, greater use of our Global Design Excellence Centers allowed us to win important projects. Strong growth was achieved in Australia Pacific, while North America remained steady. In Latin America market conditions worsened driving overall negative organic growth.

Water (13% of gross revenues)
Growth in Water was driven by the addition of Hyder and synergy effects. Organic development originated mainly from North America in conveyance, program management, business advisory (consulting) and water for industry. Organic growth was also achieved in the UK and the Middle East, while Continental Europe declined due to low public sector spending. Due to budget constraints of municipal water companies, Brazil experienced a strong decline.


Environment (25% of gross revenues)
The developments in North America drove an overall organic decline. Our focus has been on protecting margins. While the complex remediation market is slowing, we have launched our new approach in the market for simpler remediation and environmental business consulting. Strong infrastructure investments in the UK drove our environmental impact assessment work. Continental Europe was essentially flat while in Brazil a severe slowdown in investment caused a strong decline in our activities in environmental planning.

Buildings (37% of gross revenues)
In Buildings, overall revenue growth was driven by the addition of Hyder and Callison. In Continental Europe, Middle East, Australia Pacific and UK - especially outside of London - strong organic growth was achieved. In China lower demand particularly in architecture and design necessitated capacity adjustments, while project and cost management across Asia were slightly up. In North America, good growth was delivered through the year.

Working capital

Net working capital was 17.1% of gross revenues (2014: 17.4%), reflecting the effects of the working capital reduction plan. Most progress was made in the legacy Arcadis business, where day sales outstanding dropped by 2 days, while work in progress for milestone-based contracts was invoiced faster. Payables were higher as we further professionalize our procurement processes.

Refinancing

During the year, Arcadis took advantage of attractive markets rates to refinance some of its debt facilities. It refinanced the remaining part of the bridge financing that was in place for Hyder via two separate placements in May and October, raising nearly €300 million by issuing Schuldschein loans with maturities of 5, 7 and 8 years. At the end of 2015 Arcadis also announced the extension and increase of its syndicated Revolving Credit Facility (RCF) until 2020 as the previous arrangements were nearing expiration. The new 5+1+1 syndicated RCF of €300 million replaced the previous RCF of €150 million and will provide Arcadis with the possibility to extend the RCF until December 2022. The improved liquidity matches the increased size of Arcadis' global business. Our sources of funding are now well diversified, with 55% of available loans from banks, down from 85% in 2011.


Cash flow, investments and Balance sheet

At €170.9 million, cash flow from operating activities was up (2014: €139.5 million). Free cash flow amounted to €120.6 million (2014: €103.4 million).


Balance sheet total was €2.8 billion (2014: €2.7 billion), impacted by currency effects. Despite a stronger USD, net debt (interest-bearing debt minus cash and cash equivalents) was lower at €494 million (2014: €522 million) as a result of improved free cash flow. Balance sheet ratios remained strong: net debt to EBITDA at the end of the year was 1.9 (2014: 2.0). Return on invested capital was 9.3% (2014: 13.7%) due to investments in acquisitions and lower profits in North America and Brazil.

Backlog

Current backlog is €2.3 billion, representing 11 months of revenues. Backlog in revenue declined organically by -7%. All regions except Australia show a backlog decline. On a business line basis, the decline was highest in Water and Buildings, followed by Environment; Infrastructure was positive. Due to our Performance Excellence and restructuring efforts during the year backlog per FTE increased by +2%.

Leadership priorities 2016

For 2016 we expect continued tough conditions in Emerging Markets, and for our business in North America as it goes through its transformation. More favorable conditions exist in a number of our end markets including the UK, Continental Europe and Australia. Management remains agile in taking measures to be competitive and our financial priorities are: improving EBITA, and generating a strong free cash flow.

Our leadership priorities for 2016 are:

Delivering acquisition synergies: Complete the synergy capture plans
Performance Excellence: Deliver 2016 savings and extend the program to remaining businesses
Transform North America: Stay the course
Reduce working capital: Improve and sustain benefits
Planned strategy update for beyond 2016

END -


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Arcadis nominates Stephanie Hottenhuis for reappointment in its Executive Board

(February 18, 2016) Arcadis (Euronext: arcad), the leading global Design & Consultancy firm for natural and built assets, today announced that Ms. Stephanie Hottenhuis, Executive Board member of Arcadis since May 2012, has been nominated for re-appointment by the Supervisory Board of Arcadis NV.

Stephanie Hottenhuis (1965), who holds a degree in business management, has worked for Arcadis since 1995 in several positions in market development, project management and general management, gaining extensive international experience, especially in Asia, United Kingdom and Europe. In May 2012 Ms. Hottenhuis was appointed as a member of the Executive Board of Arcadis. From her appointment until 2015 she was responsible for EC Harris and Langdon & Seah and successfully led their transition and integration into Arcadis. From 2015 onwards she took on responsibility for Arcadis in Asia. During the second half of 2014 she became responsible for RTKL and in October 2014 she took on responsibility for Callison and successfully led the 'Design to Lead" integration process and launch of CallisonRTKL. Following the Hyder acquisition in October 2014 the Australia Pacific region was added to her responsibilities.

tijd 09.09
24,21 +69ct vol. 84.000



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