Key figures fourth quarter
| Amounts in € millions unless otherwise stated | Fourth quarter | |
| 2014 | 2013 | Change | |
| Gross revenues | 808 | 643 | +26% | |
| Organic gross revenue growth | -1% | | | |
| Net revenues | 609 | 468 | +30% | |
| Organic net revenue growth | +1% | | | |
| EBITA | 50.6 | 44.9 | +13% | |
| Operating EBITA1 | 60.7 | 50.5 | +20% | |
| Operating EBITA margin | 10.0% | 10.8% | | |
1 Excluding acquisition, restructuring and integration-related costs
Review of performance for the fourth quarter
Acquisitions contributed 21% to the 26% increase in gross revenues, while currencies had a positive effect of +5%, driven by the depreciation of the euro against the US dollar and other currencies. The slight decline in organic gross revenue growth (-1%) versus the prior year period can be primarily attributed to North America, as all the other regions posted improved revenues. Net revenue growth was +30%, of which +24% from acquisitions, and a positive currency effect of +5%. Organic growth was +1%. The Middle East, Asia and the UK reported the strongest performance, while organic growth in Continental Europe was +3%. In North America, the organic net revenue decline resulting from continued tough market conditions was -7%. Overall organic growth of net revenues excluding North America was +5%.
Reported EBITA increased by +13% to €50.6 million including the impact of acquisitions and positive currency effects. Reported EBITA includes €2.1 million of costs related to the Hyder acquisition completed in October 2014 as well as restructuring and integration charges of €8.0 million (Q4 2013: €5.6 million).
Operating EBITA grew by +20% to €60.7 million and was primarily driven by Continental Europe and acquisitions. The operating EBITA margin in the fourth quarter was 10.0% (Q4 2013: 10.8%), diluted by Hyder and costs related to our global performance excellence initiatives.
Key figures full year
| Amounts in € millions unless otherwise stated | Full year |
| 2014 | 2013 | Change |
| Gross revenues | 2,635 | 2,516 | +5% |
| Organic gross revenue growth | 0% | | |
| Net revenues | 2,016 | 1,893 | +7% |
| Organic net revenue growth | +1% | | |
| EBITA | 174.5 | 167.7 | +4% |
| Operating EBITA1 | 202.9 | 188.4 | +8% |
| Operating EBITA margin | 10.1% | 10.0% | |
| Net income | 91.6 | 96.6 | -5% |
| Net income per share (in €) | 1.23 | 1.34 | -8% |
| Net income from operations2 | 123.6 | 111.1 | +11% |
| Net income from operations per share (in €)2 | 1.66 | 1.54 | +8% |
| Average number of outstanding shares (millions) | 74.5 | 72.2 | +3% |
| Free cash flow3 | 103.4 | 109.0 | |
1 Excluding acquisition, restructuring and integration-related costs
2 Before amortization of identifiable intangible assets and acquisition-related costs (net of income taxes)
3 Cash flow from operating activities minus investments in (in)tangible assets
Review of performance for the full year
Full year gross revenues increased +5% of which +6% from acquisitions including SENES (Canada), inProjects (Asia), Franz (Canada), and Hyder and Callison, offset by a slight decline caused by currency effects, organic development was flat. Net revenues increased by +7%, of which +6% from acquisitions. There was a slightly negative currency effect, while organic growth was +1% resulting from increases in Continental Europe, which together with Emerging Markets and the UK helped offset a -5% decline in North America. Organic growth outside North America was +5%. Within Emerging Markets, good growth was achieved in the Middle East and Asia, while Latin America declined, mainly due to reduced capex spend in the mining sector.
Reported EBITA increased +4% year-on-year to €174.5 million. The currency effect was limited at -1%. Excluding restructuring and integration charges of €15.1 million (2013: €19.6 million) and acquisition-related costs of €13.3 million (2013: €1.1 million), operating EBITA increased +8% to €202.9 million (2013: €188.4 million). The operating margin slightly improved to 10.1% (2013: 10.0%) aided by the strong margin performance in Continental Europe and the UK, but offset by margin declines in especially North America, dilution from Hyder and costs related to our global performance excellence program.
At 29.0% the effective tax rate was slightly lower than last year (2013: 29.4%), resulting from changes in the geographic mix. Despite higher debt levels related to acquisitions we were able to reduce financing charges to €17.4 million (2013: €18.1 million) helped by improved financing conditions. Income from associated companies was a small loss attributable to the energy assets in Brazil versus a considerable gain last year (2013: €5.5 million).
Due to acquisition-related charges, net income declined -5% to €91.6 million or -8% to €1.23 per share compared to €96.6 million or €1.34 per share in 2013. Net income from operations, which excludes amortization of identifiable intangible assets and acquisition-related costs (net of income taxes), increased +11% to €123.6 million or +8% to €1.66 per share (2013: €111.1 million or €1.54 per share).
Cash flow, investments and Balance sheet
At €139 million, cash flow from operating activities was stable. Working capital at year-end was 18.8% of gross revenues, compared to 15.7% for year-end 2013. The main reason for the increase was the higher working capital needs of Hyder and Callison, while working capital was also impacted by a slowdown in payments from clients in the natural resources sector. Free cash flow amounted to €103.4 million (2013: €109.0 million).
Acquisitions and currency related effects resulted in an increase of balance sheet total to €2,608 million (2013: €1,680 million) and of net debt (interest-bearing debt minus Cash and cash equivalents) to €522.4 (2013: €194.8 million). In November, ARCADIS issued new shares and raised €171.3 million (net proceeds) to partially refinance the bridge facility that was arranged for the Hyder acquisition. Balance sheet ratios remained strong: the net debt to EBITDA ratio at the end of the year was 2.0 (2013:1.1), while the interest coverage ratio was 9 (2013:10). Return on invested capital, excluding the impact of acquisitions made during the year, was 13.7% (2013: 13.3%).
Developments by business line
Figures below are for full year 2014 compared to the same period last year, unless otherwise stated
| | Infrastructure | Water | Environment | Buildings |
| Gross revenue growth1 | +7% | 0% | -8% | +21% |
| Of which: | | | | |
| | 0% | -5% | -8% | +11% |
| | +10% | +2% | +2% | +9% |
| | -2% | -1% | 0% | +1% |
| Net revenue growth1 | +7% | +3% | -7% | +20% |
| Of which: | | | | |
| | -1% | -1% | -7% | +10% |
| Backlog development2 | +5% | +7% | +4% | +10% |
1 Rounding and reclassifications may impact totals
2 Organic development compared to year-end 2013
Infrastructure benefited from the acquisition of Hyder which drove growth in the UK, Continental Europe, Asia, the Middle East and Australia Pacific. Organic net revenue growth in Infrastructure was essentially flat, with the UK, Continental Europe and North America generating growth, while Latin America suffered from lower levels of capital investment by mining clients.
Very strong organic growth in Latin America was the main driver behind the overall performance in Water. During the year no improvement in demand was seen in the municipal market in North America, while revenues were slightly down in Continental Europe and flat in the UK. Hyder contributed to growth in the UK and Middle East.
Despite the contract wins in the third and fourth quarter, revenues in North America declined, as market conditions in the US federal market remained soft and competition in private sector remained strong. Continental Europe was relatively stable, however in the UK revenues declined. As a result of strong growth in Latin America, Emerging Markets performed well.
In Buildings, Callison, Hyder, and inProjects, contributed to overall revenue growth. Strong organic growth was achieved in the Emerging Markets. Good growth was also achieved in Continental Europe and in the UK, where growth outside of London increased, while demand in the capital held up. In North America, good organic growth was also achieved in architecture where revenues in commercial, healthcare and workplace picked up.
ONEurope progress update
The introduction of the pan-European operating model in 2013 has proven to be very successful. In 2014, we achieved organic net revenue growth in Europe of +3% and we achieved 10.2% operating margin in the fourth quarter, reaching our target of 10%.
North America
Given the continued tough market conditions, particularly in environment and water, ARCADIS announced it has started a two-year improvement program for its North American business, the region that represents 35% of its 2014 net revenues and 39% of its profits. The main goals of the program are a return to growth, while improving margins.
The program comprises three strategic levers for change. The first is to continue implementation of a new market approach which was formulated in 2014 and has already delivered results in the form of backlog improvements.
Secondly, performance excellence will focus on implementing best practices across five performance drivers: resource optimization, use of global design centers, project management, procurement and workplace & collaboration.
Thirdly, the operating model for our North American operations will be fully aligned with ARCADIS` global model to help drive organic growth. Strengthening the leadership team and renewed focus on people development is an essential part of the program.
Record backlog, +41%
Backlog increased organically by +1% in the fourth quarter, with water and buildings leading the increase. The full year backlog increase amounts to +41% including +11% from currency effects, +7% organic backlog growth while the remaining increase comes from acquisitions. All business lines and regions achieved organic backlog increases in the year.
Outlook by business line
In the Infrastructure market, strong overall growth is expected. Activities in the UK, Middle East, Continental Europe, Asia and Australia Pacific will benefit from growth through the Hyder acquisition. In Latin America, we expect the mining sector to remain soft. In North America we expect growth. For the UK we foresee increased government spending, while Continental Europe may see increased infrastructure spending.
In Water we expect to achieve growth in all regions. In Latin America we have a strong backlog, mostly in municipal water work. In North America we expect a return to low growth as municipal spending picks up and from water related work by Big Urban Clients. In Continental Europe we expect low growth, and in the Middle East/UK we expect to benefit from the addition of Hyder`s water capabilities.
In the Environmental market, we expect a return to low growth. For North America we expect a return to low growth later in the year, aided by the backlog that was built up over 2014. In Latin America our strategic environmental consulting value proposition creates additional growth opportunities. In the UK and Continental Europe, we expect to achieve growth.
In the Buildings market, strong growth is expected to continue, in Asia and the UK resulting from strong capital expenditure by Big Urban Clients. In architecture we expect an increase in demand in North America, helped by Callison. Also in Continental Europe we expect to see good growth driven by the private sector and business advisory. Given the uncertainties regarding oil prices, in the Middle East, growth will be country specific, but opportunities remain favorable.
Outlook
With our strong market positions, strategic progress, recent acquisitions, and record backlog, we expect 2015 revenues and profit to increase significantly, barring unforeseen circumstances.
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For more information, please contact Joost Slooten of ARCADIS at +31-202011083 or outside office hours at +31-627061880 or e-mail joost.slooten@arcadis.com
About ARCADIS: ARCADIS is the leading global natural and built asset design & consultancy firm working in partnership with our clients to deliver exceptional and sustainable outcomes through the application of design, consultancy, engineering, project and management services. ARCADIS differentiates through its talented and passionate people and its unique combination of capabilities covering the whole asset life cycle, its deep market sector insights and its ability to integrate health & safety and sustainability into the design and delivery of solutions across the globe. We are 28,000 people that generate €3 billion in revenues. We support UN-Habitat with knowledge and expertise to improve the quality of life in rapidly growing cities around the world. Please visit: www.arcadis.com
The condensed full year 2014 numbers are derived from the 2014 financial statements. The financial statements have not yet been published and still have to be adopted by the Annual General Meeting. KPMG Accountants N.V. has issued an unqualified auditor`s opinion on these financial statements. The financial statements will be published on 9 March 2015. The figures for the fourth quarter are unaudited.
Statements included in this press release 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.
ARCADIS DELIVERS GOOD FOURTH QUARTER AND STRONG YEAR
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Source: ARCADIS N.V. via GlobeNewswire
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