ARCADIS DELIVERS STRONG GROWTH OF REVENUE AND INCOME
Gross revenues Q2 and H1 2012 up 29%; net income from operations Q2 and H1 up 28%
Organic net revenue Q2 up 2%, H1 up 4%;
Growth driven by Infrastructure and Emerging Markets - now 24% of net revenue
Operational margin improved quarter over quarter to 9.2%, despite one-off charge Poland
Backlog 5% higher compared to year-end 2011, strong order intake Buildings and Water
Outlook 2012: higher revenues organic and from acquisitions, income 20 - 25% higher
August 2, 2012 - ARCADIS (NYSE EURONEXT: ARCAD), a leading international consultancy, design, engineering and management services company, realized a strong second quarter. Gross revenues rose 29% to €634 million, while net income from operations was 28% higher at €23.6 million. The strong results were aided by recent additions, including EC Harris and Langdon & Seah, as well as organic growth and were achieved despite a significant one-off charge in Poland. The underlying business is improving as evidenced by the rise of 30% in operational EBITA. Organic growth of net revenue came down from 6% in the first quarter to 2% in the second quarter, due to slower growth in mature markets, including Environment in the US. Strong organic growth in Infrastructure continued, mainly in emerging markets. In Water, the organic decline slowed while order intake was strong. In Buildings, acquisitions doubled revenues, although organic development was soft, despite good performance of RTKL.
For the first six months of 2012 growth of gross revenue was 29%, net revenue 30%, while net income from operations grew 28%.
Good strategic progress was achieved during the quarter. In early April, the merger with Langdon & Seah (L&S) added 2,800 employees in 10 Asian countries and US$125 million in revenues. With this major strategic step, the Company strengthened its position in Asia considerably and now has a solid platform for growth in that region. In the first half year, the integration with EC Harris in the UK and Europe was fully designed and planned. Integration investments will continue in the second half of 2012, supporting higher profitability of EC Harris in 2013. EC Harris revenue synergies are now at €18 million. Furthermore, in July, the acquisition of BMG in Switzerland added 50 people, and annual gross revenues in Environment of €8 million. This step is important because of the direct access to a number of large multinational clients, who we will be able to serve with a broader range of ARCADIS global capabilities.
ARCADIS CEO Neil McArthur: "We had a good second quarter, although organic growth slowed due to softer conditions in the mature markets reflecting the general economy. Our well-diversified portfolio, both geographically as well as by business line, helps to offset some of these local market pressures. High growth in emerging markets continued, including Brazil, Chile and China, while in Europe growth in private sector work held up. The profitability of our existing business improved, despite a one-off charge in Poland. The integration with EC Harris is going well and we are on track to meet the targeted margins. In Asia, the combination with L&S is already yielding synergy effects."
Gross revenues rose 29%, of which 23% resulted from acquisitions (EC Harris and L&S). The deconsolidation of the Brazilian energy business had a negative impact of 3%. The currency effect was 6%. Organically, gross revenues increased 3%, with strong growth in Infrastructure offsetting a decline in Buildings and slower growth in Environment due to reduced federal spending in the US.
Net revenues (revenues produced by our own staff) increased 31%. The currency effect was 6%; the deconsolidation effect -3%. Acquisitions contributed 26%. Organic growth was 2%, driven by Infrastructure in Emerging Markets, France and by RTKL in the buildings business. Reduced government spending affected revenues in the US, the Netherlands, Belgium, and Poland. EC Harris and L&S developed in line with expectations.
In the second quarter of 2011 a non-recurring gain of €7.4 million was realized related to the divestment of facility management activities (AAFM), while in the second quarter of 2012 acquisition costs related to L&S are included of €4.2 million. Both these items contributed to the EBITA decline of 23%. Excluding these items, recurring EBITA grew 5% to €37.4 million. The currency effect was 10%, especially due to a stronger US dollar. The acquisitions of EC Harris, and L&S, net of option costs related to these acquisitions, contributed 16%, while the deconsolidation of the Brazilian energy activities (a €9.5 million gain on the sale of two energy projects last year) had an impact of -27%. Following poor performance in 2011 and the appointment of a new Polish CEO earlier this year, a review of the Polish business resulted in a non-cash charge of €5.3 million. The non-cash charge was created for overstated work in progress, project cost overruns and re-scoping of road projects by the client. Organically, recurring EBITA rose 6%, mainly due to a strong recovery in the UK and higher profit contributions from Brazil, the US and the Netherlands. The costs for reorganization and integration projects amounted to €5.2 million (2011: €6.9 million) and were mainly related to the integration of EC Harris and capacity adjustments in the Netherlands. Operational EBITA rose 30% to €42.6 million (2011: €32.9 million).
The margin (recurring EBITA as a percentage of net revenue) was 8.0% (2011: 10.0%). Corrected for the impact of energy projects in Brazil and reorganization charges, the operational margin was 9.2% compared to 9.6% in 2011. Excluding EC Harris and L&S the operational margin in our underlying business improved to 9.7%, slightly ahead of last year.
At €5.6 million financing charges were below last year (€7.7 million), but last year included a non-recurring charge for the settlement of derivatives related to the debt refinancing. Higher interest charges resulting from acquisition-related debt and slightly higher interest rates were partially offset by the effect of deconsolidating the Brazilian energy business. The tax rate was 30% (2011: 21% - due to the non-taxable gain on the sale of the facility management activities). Net income from operations amounted to €23.6 million, an increase of 28%. This was clearly more than the increase in recurring EBITA and was due to the effect from the acquisition in mid-2011 of the remaining interest in ARCADIS Logos and comparably lower taxes, because the gain on the sale of AAFM is excluded from Net income from operations.