- Organic net revenue growth at 4%, driven by all regions except Continental Europe
- Operating margin comparable to last year despite margin decline in Continental Europe
- Net income from operations up 2% in the quarter and 5% for the first half year, reflecting growth of revenues and margin during the first half year
- $90 million US private placement completed to replace maturing bank debt; average net debt to EBITA ratio improved to 1.5
- Project Europe achieved cost savings of €5.1 million in the first half year and is at annual run rate of €12.9 million with cost actions ahead of schedule
- 2013 outlook updated: a further increase of revenues, and a profit growth of 0% to 5%, barring unforeseen circumstances

July 31, 2013 - ARCADIS (NYSE EURONEXT: ARCAD), the leading pure play global engineering and consultancy firm, today reported results for the second quarter and first half year ended June 30, 2013.

Key figures
Amounts in € millions unless otherwise noted
Second Quarter
First half year
2013 2012 Change 2013 2012 Change
Gross revenues 638 633 1% 1,240 1,225 1%
Organic gross revenue growth 1% -1%
Net revenues 484 463 5% 950 906 5%
Organic net revenue growth 4% 2%
EBITA 36.8 32.8 12% 76.4 70.6 8%
Operating EBITA 43.4 42.3 3% 86.2 81.5 6%
Operating margin 9.0% 9.1% 9.1% 9.0%
Net income 19.6 16.2 21% 41.4 37.9 9%
Ditto per share (in €) 0.27 0.23 17% 0.58 0.54 6%
Net income from operations 1) 24.1 23.6 2% 49.5 47.2 5%
Ditto per share (in €) 1) 0.34 0.34 0% 0.69 0.68 2%
Average # of shares outstanding (million) 71.9 70.6 2% 71.5 69.7 3%
Before amortization and non-operational items


Commenting on the results CEO Neil McArthur said: "Our strategy to expand into Emerging Markets continues to pay off in growing our revenues and profit. Implementing our new operating model in Continental Europe is on plan. We accelerated our cost actions, increased backlog by 7%, and expect a positive margin effect in the second half of the year. Firm wide backlog in the quarter was stable and is still ahead 5% compared to the end of 2012. Major wins included global frameworks for multinational clients and the Zuidas project in Amsterdam. We continue to look at acquisitions with a focus on strengthening our leadership positions. Barring unforeseen circumstances, we expect for full year 2013 a further increase of revenues and a profit growth of 0% to 5%."



Review of performance

Second quarter

Gross revenue development benefited from the acquisitions of BMG, ETEP, Geohidrología and SENES, which together contributed 2% to growth. The currency effect was a negative 2% as the euro strengthened against our major currencies. Organically, gross revenues rose 1% with double digit organic revenue growth in Emerging Markets being the strongest contributor. Growth was also achieved in the UK market, while North America slightly declined due to less outsourcing. Revenues were down in Continental Europe, albeit at a slower rate than in the first quarter.



Net revenues (revenues generated by own staff) rose 5%. The currency effect was a negative 2%, while acquisitions contributed 3%. Organic growth improved to 4% with Emerging Markets leading. The UK and North America also realized organic growth. The organic net revenue decline in Europe decelerated from 10% in the first quarter to 4% in the second quarter.



Operating EBITA increased 3% with stronger margins in Emerging Markets and acquisitions contributing to the increase. The acquisition impact was 5%, the currency effect was 3% negative. At +1%, the second quarter saw a reversal of the downward trend in organic operating EBITA seen in the first quarter (-1%) thanks to a robust performance in Emerging Markets. Restructuring, integration and acquisition related costs during the quarter were €6.7 million (2012: €9.4 million) and were mainly related to adjusting activities in Continental Europe to a more challenging business environment.



At 9.0%, operating margin (operating EBITA as a percentage of net revenue) was comparable to last year's level (9.1%) despite the continued margin pressure in Continental Europe. In North America, higher legal expenses and salary increases weighed on margin performance. Further margin gains were achieved in Emerging Markets.



Financing charges were €4.7 million (2012: €5.6 million), as financing terms were improved, resulting in lower fixed rate debt. At the end of the quarter ARCADIS announced that it had completed a 5-year U.S. Private Placement (USPP) of $90 million issued at 5%. The USPP proceeds were used to replace maturing bank debt.

The tax rate was 28% (2012: 30%). Net income from operations was 2% higher at €24.1 million (2012: €23.6 million), almost in line with the operating EBITA growth.



First half year

Gross revenues in the first six months of 2013 rose 1% with acquisitions contributing 4%, while the currency effect was a negative 2%. Growth was aided by projects executed for multinational clients, which were up 15%. Organically, revenues declined 1% mostly as a result of lower Continental European revenues.



Net revenues rose 5%, of which 5% can be attributed to acquisitions and 2% to organic growth, the currency effect was a negative 2%.



Operating EBITA increased 6% with acquisitions contributing 9% to the increase. The currency effect was 3% negative. Organic development was flat. Restructuring, integration and acquisition costs totaled €9.8 million (2012: €10.9 million).



Operating margin in the first half year was 9.1%, compared to 9.0% in 2012 reflecting a strong contribution from Emerging Markets and improved margins in the UK, offsetting margin declines in Europe and North America.



Financing charges were €10.1 million (2012: €10.4 million) and at 28% the tax rate was in line with last year. Net income from operations was 5% higher.



Cash flow and balance sheet

Net working capital at the end of the quarter was at 18.4%, which was higher than last year (2012: 17.9%), but lower than at the end of the first quarter (19.9%) as we continue to execute our working capital reduction program. The reduction in operating cash flow to minus €40.6 million compared to €4.9 million in the first half of 2012 can be mainly explained by timing differences in salary and tax payments and payment of obligations related to prior year acquisitions.

Net debt was €401 million and flat with last year (2012: €402 million) despite the acquisitions that were completed in the past 12 months. The net debt to EBITDA ratio at the end of the second quarter amounted to 1.5, as calculated per our bank covenants.

Infrastructure (25% of revenues)

The decline in organic gross revenues results in large part from lower subcontracting activities in Continental Europe. Emerging Markets and the UK contributed most to the increase in net revenue. Growth was also achieved in North America. The operating margin was 7.0% and below 2012 due to fierce competition in Continental Europe.

Water (15% of revenues)

The acquisition of ETEP in Brazil delivered most of the revenue increase. Organic development was positive in the UK, but negative in Continental Europe, with austerity measures impacting the business environment, particularly in water management. The operating margin was 8.3%, lower mainly due to lower volumes affecting utilization rates.

Environment (33% of revenues)

Increases in Emerging Markets and parts of Continental Europe offset a decline in North America, resulting from reduced subcontracting. Organic net revenue growth improved versus the prior year. The acquisitions of SENES and BMG also contributed to growth. At 11.8% operating margin was essentially flat compared to last year as a decline in North America was compensated by improved profitability in Emerging Markets.

Buildings (27% of revenues)

Strong revenue growth was achieved in Emerging Markets but was somewhat offset by declines in Continental Europe and the US. In the first quarter Langdon & Seah still counted towards acquisition growth, as of the second quarter it contributes to organic growth. Architectural unit RTKL improved its commercial revenues in North America and Asia. Net revenue developments were in line with those in gross revenue. Operating margin improved to 8.8% especially in Emerging Markets and at EC Harris.

Progress in Project Europe

Implementing our new operating model in Europe is on plan and we are ahead of schedule with accelerated cost measures. Year-to-date savings reached €5.1 million at the end of the second quarter, and were at an annualized run rate of €12.9 million. Restructuring charges to date are €6.5 million. Operating margins are expected to improve in the second half of 2013 from their first half levels.

Backlog

Backlog was flat for the quarter despite the high level of organic growth and for the first half grew organically by 5% compared to year-end 2012. The Buildings business line saw the highest backlog increase, followed by Infrastructure. Environment was flat, while Water saw a small decrease.



Outlook

In the infrastructure market, good opportunities for further growth exist with clients in Brazil, where ARCADIS has a strong market position. The Middle Eastern market also offers good growth potential. In Chile, the slowdown in the mining market and increased competition from Spanish companies in public sector infrastructure cause revenue and price pressure. Higher government spending in North America and the UK is likely to stimulate demand. We expect a stabilization of activities in Continental Europe in the second half of 2013.

In the water market an improvement is anticipated as the North American market is expected to pick up, while Emerging Markets, including Brazil and the Middle East also offer growth opportunities. During the second quarter, ARCADIS launched water activities in Asia. A decline in the water business in Continental Europe is expected, but opportunities from the recent flooding events in Central Europe could first lead to projects from private sector companies seeking to protect assets and at a later stage, from public sector river planning projects. We continue to see good growth opportunities from our Water for Industry initiative with our multi-national clients.

In the environmental market, ARCADIS expects to maintain momentum and organic net revenue growth, driven by the private sector and especially by multinational clients. Also, in mining, good growth opportunities are presenting themselves as evidenced by the strong synergy pipeline with SENES. We believe that growth could be generated in North America, the UK and Emerging Markets, mainly Brazil. Higher utilization and rate increases are expected to improve margins in North America.

In the buildings market, ARCADIS' strong presence and synergies with acquired companies will lead to further growth. Combined revenue synergies with EC Harris and Langdon & Seah in the first half year of 2013 amounted to €70 million of newly booked work, already equaling the amount achieved in full year 2012. This will generate growth in Emerging Markets and the UK while a further decline of activities is likely in Continental Europe. Built Asset Consultancy, ARCADIS's offering aimed at maximizing value throughout an asset's lifecycle, is creating new opportunities for growth globally.