Second Quarter & First Half Year Results 2015 Neil McArthur, Chief Executive Officer Renier Vree, Chief Financial Officer July 29, 2015

Transcription

1 Second Quarter & First Half Year Results 2015 Neil McArthur, Chief Executive Officer Renier Vree, Chief Financial Officer July 29,

2 Disclaimer Statements included in this presentation 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. 2

3 Burj Khalifa, Dubai Agenda Second Quarter & First Half Year Results 2015 Neil McArthur, CEO First Half Year overview Renier Vree, CFO Q financial results First Half Year 2015 financial results Neil McArthur, CEO Strategic Progress Performance Excellence North America Outlook Questions & Answers Burj Khalifa, Dubai 3

4 Burj Khalifa, Dubai Agenda Second Quarter & First Half Year Results 2015 Neil McArthur, CEO First Half Year overview Renier Vree, CFO Q financial results First Half Year 2015 financial results Neil McArthur, CEO Strategic Progress Performance Excellence North America Outlook Questions & Answers Burj Khalifa, Dubai 4

5 ARCADIS delivers strong growth in H1 2015, good progress on leadership priorities, profitability impacted by Brazil and one-off US project overruns Gross revenues ( billion) 1.7 (Organic: +3%) Operating EBITA ( millions) (H1 2014: 92.7) Net income from operations ( millions) 57.3 (H1 2014: 55.8) Net revenues ( billion) 1.3 (Organic: +2%) Operating margin (% net revenues) 8.6% (H1 2014: 10.0%) Free cash flow ( millions) -30 (H1 2014: -12) First half-year 2015 highlights Gross and net revenue growth +41%; organic net revenue growth +2%; organic backlog up +1% Operating EBITA up +22%, aided by Performance Excellence program, negatively impacted by one-off 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, synergies captured faster than previous acquisitions and operating EBITA margin improving to 8.1% in Q2 from 5.3% in Q Net income from operations up +3% to 57.3 million Working capital improving to 20.2% of gross revenues vs. 22.3% in Q Free cash flow improved by 38 million to - 30 million (Q1 2015: - 68 million; H1 2014: - 12 million) 5

6 Strategic highlights H Leadership Priorities 1. Deliver acquisition synergies: - Hyder : Synergies on track : Operating margin improved to 8.1% in Q2 - Callison : Synergies on track : Decline in China, good growth elsewhere 2. Performance Excellence: - First results visible: +0.6% contribution to operating margin - Significant restructuring spend, benefits as of H2 H1 Headwinds 1. Brazil: - YTD organic revenue decline -16% - 25% capacity reduction underway 2. Environmental one-offs: - 4 remediation projects required one-off adjustments million EBITA impact 3. North America turnaround: - Organic revenue decline slowed - Turnaround on track 6

7 Burj Khalifa, Dubai Agenda Second Quarter & First Half Year Results 2015 Neil McArthur, CEO First Half Year overview Renier Vree, CFO Q financial results First Half Year 2015 financial results Neil McArthur, CEO Strategic Progress Performance Excellence North America Outlook Questions & Answers Burj Khalifa, Dubai 7

8 Portfolio delivers mixed returns H Performance Summary Net revenues Operating margin Net revenues Operating margin North America 33% 8.8% 1) Decline slows, growth in water Margin impacted by oneoff project cost overruns Infrastructure 27% 9.9% Good growth from Hyder, Latin America decline Margin stable Emerging Markets 32% 8.0% High growth Middle East & Asia, Brazil worsened Margin diluted by Hyder Water 14% 8.6% Organic growth North America and UK Margin improved in N. America, ROW lower Continental Europe 19% 8.6% Good organic growth Margin improved Environment 20% 4.7% 2) North America decline Margin impacted by oneoff project cost overruns United Kingdom 16% 9.6% Strong growth Margin improved Buildings 39% 9.7% Strong organic growth across all regions Margin improved in UK, N. America and Europe 8 1) Adjusted for one-off project cost overruns: 11.5% 2) Adjusted for one-off project cost overruns: 9.4%

9 Q2 financial results millions Q Q Change Gross revenues % Operating EBITA Q millions Organic gross revenue growth +5% Currency 7.9 Net revenues % Acquisitions 11.5 Organic net revenue growth +2% EBITA % Operating EBITA 1) % Organic Project cost overruns Operating EBITA margin 8.2% 10.3% Operating EBITA Q Currency effects: Gross revenues +15%; Net revenues +14%; EBITA +18% Acquisitions related to Hyder, Callison and Franz Restructuring and integration costs: 11.5 million (Q2 2014: 3.2 million) Acquisition-related costs: 0.8 million (Q2 2014: 3.6 million) Operating EBITA margin adjusted for one-off project cost overruns: 10.0% 1) Excluding acquisition, restructuring and integration-related costs 9

10 Q2 and H1: Organic net revenue growth +2% H1: Excluding North America and Brazil +8% Organic growth (NR) Organic Growth H1 (% NR) 4% 8% 3% 2% -2.5% 1% -16% 2% 0% -1% Q Q Q Q Q Q Q Q Q ARCADIS ROW North America Brazil Organic Growth H

11 Q2: Weak market conditions in Brazil, project cost overruns in North America Brazil US environmental project cost overruns -25%/-30% Organic net revenue growth -17% -15% Q1 Actual Q2 Actual H2 Forecast North American environmental business has a long track record of high margin lump-sum remediation projects (GR >$1 billion to date) Developments on a ten-year old lump-sum project result in estimated 9 million cost overrun Market conditions remain challenging - reduced spend by mining clients - slowdown in public and private procurement processes resulting in severe downturn - NR decline of -16% in H1, outlook H2-25%/-30% decline - book to bill ratio of 0.8 for H1 and restructuring of our operations - Capacity reduced by August > 700 (25%) from Dec Operating margin >10% maintained Outlook 2016: revenues stabilizing at least at H2 levels - extensive investigation on alternative remediation options - rejection of alternatives by regulatory authorities (poor contract) - necessitating additional costs over and above prior estimates and insurance coverage Consequently, initiated a review of US environmental lump-sum project portfolio leading to additional cost overruns estimated at 4.9 million across three other projects Net revenue backlog of 64 million in US on 37 environmental lump-sum projects with insurance and 48 million on ~2,000 other lump-sum environmental projects Confident adjustments are one-off in nature 11

12 H1 financial results millions H H Change millions Gross revenues 1,691 1, % Organic gross revenue growth +3% Net revenues 1, % Operating EBITA H Currency Organic net revenue growth +2% Acquisitions 21.8 EBITA % Operating EBITA 1) % Organic -0.4 Operating EBITA margin 8.6% 10.0% Net income from operations 2) % EPS (in ) 2,3) % Project cost overruns Operating EBITA H Currency effects: Gross revenues +14%; Net revenues +13%; EBITA +15% Acquisitions relate to Hyder, Callison and Franz Restructuring and integration costs: 23.3 million (H1 2014: 5.5 million) Acquisition-related costs: 1.0 million (H1 2014: 3.9 million) Operating EBITA margin adjusted for one-off project cost overruns: 9.5% 1) Excluding acquisition, restructuring and integration-related costs 2) Before amortization of Identifiable intangible assets and acquisition-related costs (net of income taxes) 3) 2015 based on 82.0 million average outstanding shares (H1 2014: 72.7 million) 12

13 Organic growth (NR) Organic net revenue growth driven by Buildings and Water 15% All regions 10% 5% North America & UK 0% -5% Latin America -10% North America -15% H1 H2 H1 H2 H Infrastructure Water Environment Buildings Total 13

14 Operating margin: Improvements by Performance Excellence visible, ahead of plan Operating EBITA margin: Historical Operating margin: H % 0.9% Q1 9.2% 9.6% 9.1% 1) Q2 9.0% 10.3% 8.2% 2) 0.4% 0.5% 0.6% 0.2% 8.6% Q3 10.9% 10.4% Q4 10.8% 10.0% Year 10.0% 10.1% 1) Operating EBITA margin is 9.7% excluding Hyder/Callison H Project cost overruns Brazil Hyder Callison Performance Excellence Other H ) Operating EBITA margin is 10.2% excluding one-offs and Hyder/Callison H outlook One-offs, no impact in H2 Stabilized Synergies at >10% will improve margins Impact increases, full year +0.8% 14

15 Working capital improves to 20.2% from 22.3% end Q1 millions H H FY 2014 H Net working capital 1) 18.4% 18.4% 18.8% 20.2% Free cash flow ) End period 25% 20% 15% 10% Net working capital as % of gross revenues Good progress made in working capital to 20.2% (Q1 2015: 22.3%) Still impacted by higher working capital needs of Hyder, Callison Strong free cash flow of + 38 million in Q2 (Q2 2014: 22 million) H1 cash flow - 30 million (H1 2014: - 12 million) Focus on further roll-out of ARCADIS cash management processes towards Hyder and Callison Outlook: Net working capital % by end 2015 below end % 0% Q Q Q Q Q Q Q Q Q

16 Balance sheet remains solid. Well diversified sources of funding 2.5 Average Net debt / EBITDA 1) 2.4 Net debt level June 2015: 623 million (H1 2014: 284 million) Net debt reduced in Q2 by 35 million through reduced working capital June 2015 net debt / EBITDA is 2.6 (Q2 2014: 1.2) Q June 2015 average net debt / EBITDA of 2.4 (Q2 2014: 1.1) millions Maturity Profile of Committed Facilities Term Loans USD 357M & EUR 24M RCFs EUR 175M USPPs USD 200M Schuldschein EUR 170m ) Calculated using bank covenants methodology Well diversified sources of funding Good spread of loan maturities Debut German bond (Schuldschein) raised 170 million mainly to refinance acquisition bridge debt

17 Business lines INFRASTRUCTURE WATER ENVIRONMENT BUILDINGS 17

18 Solid performance across three business lines Infrastructure millions H H H Gross revenues Net revenues Operating EBITA Operating margin 7.0% 10.0% 9.9% Water millions H H H Gross revenues Net revenues Operating EBITA Operating margin 8.3% 9.9% 8.6% Environment millions H H H Gross revenues Net revenues Operating EBITA Operating margin 11.8% 10.9% 4.7% 1) Buildings millions H H H Gross revenues Net revenues Operating EBITA Operating margin 8.8% 9.1% 9.7% 1) Adjusted for one-off project cost overruns: 9.4% 18

19 Infrastructure Infrastructure World-class intelligent and integrated road and rail transport solutions Specialties: stations, ports, airports, tunnels, bridges, large projects Paddington Bridge, London, UK Rotterdam Central Station The Netherlands 19 Tower Bridge, London, UK

20 Infrastructure (25% of gross revenues) H1 revenues ( millions) Strengthened market position in the Middle East and UK through the combination with Hyder Growth in North America remained steady at good levels, while Continental Europe further improved 0 H H H H Gross revenues Net revenues Latin America market conditions worsened driving overall negative organic growth Key Financials H Gross revenue growth 1) 46% Organic -5% Acquisitions 47% Currency impact 5% Net revenue growth 1) 45% Organic -5% Backlog 2) 4% Nanterre Station, France 20 1) Rounding and reclassifications may impact totals 2) Organic development compared to year-end 2014

21 Water World-class water supply and waste water treatment system consultancy and design, also for Industry Leading heritage in water management The Big U, flood protection New York, US 21

22 Water (14% of gross revenues) H1 revenues ( millions) 300 Overall growth driven by the addition of Hyder H H H H Gross revenues Net revenues Organic growth driven by North America UK and Middle East also performed well Municipal water companies in Brazil suffering from budget constraints Key Financials H Gross revenue growth 1) 33% Organic 2% Acquisitions 15% Currency impact 16% Net revenue growth 1) 37% Organic 5% Backlog 2) -1% 22 1) Rounding and reclassifications may impact totals 2) Organic development compared to year-end 2014 Thames Weirs Gates Replacement, UK

23 Environment World-class remediation consulting and technologies Compliance management, impact assessments, climate adaptation Mining remediation Canada Murray Darling Basin, Australia 23

24 Environment (24% of gross revenues) H1 revenues ( millions) Decline in North America continues driving overall negative organic growth Competition from smaller market participants underlines need for simple solutions: FieldTech Solutions launched H H H H Gross revenues Net revenues UK and Continental Europe essentially flat, decline in Brazil Key Financials H Gross revenue growth 1) 9% Organic -8% Acquisitions 6% Currency impact 16% Project cost overruns -5% Net revenue growth 1) 7% Organic -7% 24 Backlog 2) 3% 1) Rounding and reclassifications may impact totals 2) Organic development compared to year-end 2014 Environmental Impact Assessment, A28 Hoevelaken, The Netherlands

25 Buildings Retail for schools London, UK Burj Khalifa, Dubai Plan, design, create, operate and regenerate buildings Sustainability by design, built asset consultancy, large scale program, project and cost management 25

26 Buildings (37% of gross revenues) H1 revenues ( millions) Overall growth driven by both Callison and Hyder Good organic growth achieved across all regions H H H H Gross revenues Net revenues North America and Middle East also doing well in architecture Good growth Asia despite slowdown China Key Financials H Gross revenue growth 1) 73% Organic 21% Acquisitions 34% Currency impact 18% Net revenue growth 1) 67% Organic 13% Backlog 2) 0% 26 1) Rounding and reclassifications may impact totals 2) Organic development compared to year-end 2014 Program management for HSBC s global capital expenditure program

27 Regions NORTH AMERICA EMERGING MARKETS CONTINENTAL EUROPE UNITED KINGDOM 27

28 Strong growth across all regions during H North America millions H H H Gross revenues Net revenues Operating EBITA Operating margin 10.9% 11.0% 8.8% 1) Emerging Markets millions H H H Gross revenues Net revenues Operating EBITA Operating margin 12.1% 10.6% 8.0% Continental Europe millions H H H Gross revenues Net revenues Operating EBITA Operating margin 3.2% 7.8% 8.6% United Kingdom millions H H H Gross revenues Net revenues Operating EBITA Operating margin 7.6% 9.4% 9.6% 1) Adjusted for one-off project cost overruns: 11.5% 28

29 Burj Khalifa, Dubai Agenda Second Quarter & First Half Year Results 2015 Neil McArthur, CEO First Half Year overview Renier Vree, CFO Q financial results First Half Year 2015 financial results Neil McArthur, CEO Strategic Progress Performance Excellence North America Outlook Questions & Answers Burj Khalifa, Dubai 29

30 Strategic targets: on track but organic growth likely to be missed Strategic targets H Target Comments Growth Organic revenue growth >5% CAGR 2% North America -2.5%, Brazil -16%, rest of world +8% Inorganic revenue growth >5% CAGR 28% Acquired ~ 500 million in gross revenues during Q Margin Operating EBITA margin >11% Cash Free cash flow > Net income 9.5% 1) n.a. Clear path to improve margins through merger synergies and Performance Excellence Cash management best practices program will enhance cash flow Return Return on invested capital >13% n.a. Hyder and project cost overruns impacting ) Adjusted for one-off project cost overruns July2015

31 2015 Leadership priorities aligned with our strategy 1. Deliver acquisition synergies through co-creation processes Design to Lead: Callison Evolve to Win: Hyder Canada: Combine SENES and Franz into ARCADIS Canada 2. Performance Excellence Deliver quick wins Design changes required to further drive performance 3. Return North America to growth, improve margins July2015

32 1. Acquisitions: Callison Go to Operating Organization / Synergy Capture Ongoing Market Strategy Model Leadership Plan Operations Synergy capture plan: Cost out and revenue synergies in line with acquisition case Performance: Slowdown China, good growth elsewhere, operating EBITA margin 13% Synergy Wins US Middle East Asia 32 ZARA US Architect of record Architectural and construction administration Meraasland Development, Dubai Luxury Villa Interiors Interior & architectural design Furniture, fixture & equipment coordination 29 July2015 Shilla Duty Free Shops, Singapore Interior design

33 1. Acquisitions: Hyder Go to Operating Organization / Synergy Capture Ongoing Market Strategy Model Leadership Plan Operations Synergy capture plan: 15 million EBITA run rate Q will be achieved through cost out only Performance: Strong growth, operating EBITA margin: Q2 8.1% up from 5.3% Q1 UK Crossrail & Crossrail 2, London, UK London underground connection Feasibility study Crossrail 2 Synergy Wins Middle East Doha Metro, Qatar Detailed design Structural & landscape design Construction support Eurostar Depot Modification, London UK Concept & design Post construction and modification process management Al Rajhi Bank, Riyadh, KSA Program management Project management, cost management & claims management July2015

34 1. Acquisitions: Hyder, Global Design helps accelerate synergy wins 20% Major acquisitions synergy wins capture % of Acquired Net Revenue Global Design Excellence Gaining momentum in Continental Europe, US and across all business lines 15% Accelerating synergy capture Hyder Langdon & Seah 9% increase in headcount since year-end 2014 Continental Europe >70% win rate on pursuits using Global Design 10% EC Harris 5% 0% 0 Q1 Q2 Q July2015

35 2. Performance Excellence: Quick wins on track Performance Drivers Description H1 focus and results Project management Global design Resource optimization Procurement Standardized approach to project management based on best practice (Re)training of project managers Drive organic growth by scaling Hyder global design model Staff and manage design & engineering from most capable and cost effective design excellence center Improve flexibility and mobility of our people Create larger, more efficient resource pools Improve approach to sub-contracting and overhead Leverage scale of ARCADIS globally Implementing revised approach in US, UK and Continental Europe Improved project margins over Q in UK and Continental Europe Bidding new work using Global Design Headcount in Global Design Excellence Centers increased by 9% Ongoing implementation of quick wins in US, UK and Continental Europe, billability improved ~1% over Q Australia Pacific diagnostic complete, actions taken to impact H2 Established procurement capabilities in US, UK and Continental Europe Initial round of overhead purchasing negotiations complete Workplace & collaboration Apply global standards and improve footprint Improve collaborative tools Defined global standards for offices Initiated global office portfolio prioritization July2015

36 2. Performance Excellence: Savings ahead of target Diagnostic Quick Wins/ Design Implement Sustain Benefits Capture ~1.5+% Cumulative Operating Margin Improvement 0 ~0.5+% 0.6% 0.8% ~1.0+% (% NR) Target YTD FY Estimate Target Target ~25 ~20-25 ~25 Implementation Cost ( M) 5 16 Target YTD FY Estimate Target July2015

37 3. North America: Two year transformation on track GOAL: RETURN TO GROWTH, IMPROVE MARGINS >11% Implement growth strategy Maintain performance culture, improve global collaboration Strategic levers for change H1 Focus Implement revised market approach Environment: Launched FieldTech Solutions for simple remediation Water: Focus on growth in conveyance, industrial water and business advisory. Developing simple model for conveyance Sharpened strategies and pricing across all business lines Deliver Performance Excellence Implementing project management best practices Quick wins in resource optimization Plan to reduce office footprint by offices by end 2016, built procurement capabilities Evolve the operating model Streamlining operating model: Corporate and business lines New leadership enhancing accountability for growth and business results Increasing client development effectiveness and efficiency July2015

38 3. North America: Performance stabilizing Organic growth Net Revenue -4.0% H % H % H % 9.9% 11.5% 1) Operating EBITA Margin H H H ) Excluding one-off project costs overruns July2015

39 Outlook: Strong growth, improving margins Growth H Operating EBITA margin H Geography Growth Organic Growth Drivers Organic Growth North America ++ 0 Environment Emerging Markets ++ 0 / - Brazil Continental Europe + + Private sector 9.5% % UK Infrastructure, Buildings Total ++ + Adjusted H Actual 1) Performance Excellence Hyder North America H2 Outlook 1) Excluding one off-project cost overruns July2015

40 Outlook per business line Infrastructure Strong growth driven by acquisitions UK, Middle East, Continental Europe, Asia and Australia Pacific benefit from growth through Hyder UK, Continental Europe, North America good growth, Latin America further decline Water Growth in most regions North America return to growth, Continental Europe essentially flat, Latin America potential decline Middle East and UK benefit from Hyder Environment No growth North America unlikely to return to growth in 2015, slight decline in Continental Europe UK further growth in private sector work, Latin America impacted by slowdown Buildings Strong growth Architecture demand up in North America, down in China, Middle East strong Good growth in Continental Europe, UK. Asia slowing Backlog up 6% due to favorable currency effects; net revenue backlog at 2.5 billion, organically up +1% Outlook Revenues to grow by about 30% Net income from operations to increase by approximately 20% Barring unforeseen circumstances 40

41 Q&A 41

42 Strong growth in Buildings, Infrastructure and Water Gross revenues 6 months ( billion) CAGR 1) = 11% 1.69 CAGR 1) % % % 25% 14% + 9% + 9% 14% 15% 14% 24% - 1% 33% 33% 31% 26% 27% 30% 37% +27% H H H H Infrastructure Water Environment Buildings 1) Compound Annual Growth Rate 42

43 Strong growth in UK and Emerging Markets Gross revenues 6 months ( billion) Headcount at June 30 (thousands) CAGR 1) CAGR 1) CAGR 1) = 11% % 24% CAGR 1) = 9% % 21% % 24% % 21% % 23% 18% 1% % 26% % 24% % 24% 21% 23% 1% 1% 46% 44% 41% 38% 5% 29% 28% 27% 19% 23% 23% 28% 28% 35% 37% 39% 42% 16% H H H H H H H H United Kingdom Continental Europe North America Emerging Markets 1) Compound Annual Growth Rate 43