ARCADIS delivers strong growth in H1 2015
ARCADIS delivers strong growth in H1 2015, good progress on leadership priorities, profitability impacted by Brazil and one-off US project cost overruns.
First half-year highlights
- Gross and net revenue growth +41%; organic net revenue growth +2%; organic backlog up +1%
- Operating EBITA up +22%, positively impacted by Performance Excellence program but negatively impacted by one-off -€13.9 million US environmental project cost overruns, and Brazil
- Operating EBITA margin of 8.6% (H1 2014: 10.0%), excluding one-off project cost overruns 9.5%
- Integration of Hyder on track with synergies captured faster than with previous acquisitions and operating EBITA margin improving to 8.1% in Q2 from 5.3% in Q1 2015
- Net income from operations up +3% to €57.3 million
- Working capital improving to 20.2% of gross revenues vs. 22.3% in Q1 2015
- Free cash flow improved by €38 million to -€30 million (Q1 2015: -€68 million; H1 2014: -€12 million)
Full year outlook
We expect to benefit from strong revenue growth from acquisitions for the full year and from positive currency effects. In the second half of the year, we expect operating EBITA margin to improve to 10.5 – 11% supported by increased contribution from Performance Excellence program and by our actions to expand margins from the acquired companies. As a consequence, ARCADIS expects 2015 revenues to grow by about 30% and anticipates net income from operations to increase by approximately 20%.
ARCADIS (EURONEXT: ARCAD), the leading global natural and built asset design & consultancy firm, 29-07-2015 announced that in the first half year of 2015 ended June 30, the Company grew net revenues by +41%, mainly driven by acquisitions and favorable currency effects. Organic net revenue growth was +2%, reflecting the combination of an 8% growth created in rest of the world and an organic decline in North America of -2.5%, and -16% in Brazil where tough market conditions persisted. Overall, the operating EBITA increased by +22%, helped by our Performance Excellence program, in spite of one-offs and Brazil. The operating EBITA margin was 8.6%. Net income from operations grew +3%.
ARCADIS CEO Neil McArthur commented: “We made good progress on our leadership priorities for 2015. However, our Q2 results have been impacted by continuing poor market conditions in Brazil and cost overruns on four environmental remediation projects in North America.
Brazil: Due to the recession, lower spending by mining clients and the national slowdown in procurement processes triggered by the integrity issues in the oil & gas industry, led to an organic decline in revenues of -17% in the second quarter. We expect the tough market situation to continue also in the second half of this year and anticipate a decline of -25% to -30% in our revenue in the second half of 2015 compared to 2014. Maintaining our operating EBITA margin above 10% is a key priority consequently we are adjusting our capacity by -25%. In the longer run, as these integrity issues subside, we are well positioned to benefit from our long standing presence and reputation.
North America: During the second quarter we recognized a €9 million cost overrun on a ten-year old lump-sum environmental project. Based on a subsequent review of the US environmental lump-sum project portfolio, cost overruns estimated at €4.9 million across three other projects were recorded. Having completed the review, we are confident these adjustments are one-off in nature.
Working capital: We were successful in reducing working capital, now 20.2% of gross revenues versus 22.3% end of Q1 2015. We expect further improvements as ARCADIS processes are rolled out in the acquired entities.
Leadership priorities: We are making good progress on our three leadership priorities:
- 1. Acquisition synergies: with Hyder, our targeted £15 million operating EBITA run rate synergies by Q4 2016 will be achieved through cost out actions only. Revenue synergies through contract wins are tracking faster than for previous major acquisitions, partially driven by increased use of Global Design Excellence Centers. Hyder’s operating EBITA margin in Q2 increased to 8.1% from 5.3% in Q1. Synergy initiatives with Callison are also on track with an operating EBITA margin of 13%, reflecting good revenue growth globally except in China.
- 2. Performance Excellence: the first results from the program are visible contributing +0.6% to ARCADIS’ operating EBITA margin, ahead of plan.
- 3. North America turnaround: on track, organic revenue decline slowed to -2.5% and operating EBITA margin improved to 11.5%, excluding environmental project cost overruns.
Looking forward: Growth will be strong this year driven by acquisitions and aided by currency effects. Organically, net revenue growth is expected to fall short of our strategic goal of 5% as increases in UK, Continental Europe, Asia and the Middle East are offset by declines in Brazil and North America. I am confident that our profitability will increase in the second half of this year as we see increasing benefits from our Performance Excellence program and the impact of actions taken to further enhance the margin contribution from acquired companies.”
