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Net income from operations up 12% to 70 million; per share to 1.16
Proposal to increase dividend by 10% to 0.45 per share
Gross revenue 15% higher to 1.7 billion, organic growth 6%
Margin improved further to 11.3% (2007: 10.5%)
All three business lines contribute to growth of revenue and profit
Short term outlook is mixed; longer term positive
ARCADIS (EURONEXT: ARCAD), the international design, consulting, engineering and management services company, today announced that in 2008, despite more difficult market conditions, it again performed well. Net income from operations rose 12% to 70.0 million. Per share, this is 1.16 against 1.02 in 2007. Gross revenue rose 15% to 1.7 billion, while organic growth was 6%. All three business lines contributed to the revenue and profit increase. The infrastructure market remained strong across the board, with solid margin improvement, also from the sale of some energy projects in Brazil. In the environmental market, a slight margin increase was realized, but growth weakened in the second half as industrial clients, particularly in the U.S., were affected by the economic crisis. In the buildings market, organic growth remained at a good level, but margins were under pressure as commercial real estate was hit by the recession.
It is proposed to raise the dividend by 10% to 0.45 (2007: 0.41) per share, to be distributed in cash. This represents 39% of net income from operations.
In 2008, six acquisitions were completed, adding 660 people and 100 million in revenues. American environmental firm LFR was the largest with 480 employees. The other, smaller acquisitions added special skills in local markets. They were Meander (water Netherlands), Elekol (rail experts Poland), VDS (infrastructure Belgium), SET (environmental consultancy Italy) and TGH Habitat (engineers Romania).
CEO Harrie Noy said: "Despite the more difficult market conditions, we have achieved almost all of our financial goals, while the margin improved for the fifth consecutive year. These excellent results were achieved by the strong commitment of our employees, focus on markets with growth opportunities, a strong client-focused approach and internal cooperation aimed at synergy. Early in 2008 we implemented stricter cost controls, especially in the U.S., in anticipation of changing markets. This created room for more intense market development activities and also contributed to margin improvement. Moreover, acquisitions performed well, especially RTKL and LFR."
Key figures
| Amounts in millions, unless otherwise stated |
Fourth Quarter
| Full year |
| |
2008 |
2007 |
D |
2008 |
2007 |
D |
| Gross revenue |
485 |
422 |
15% |
1,74 |
1,51 |
15% |
| Net revenue |
312 |
271 |
15% |
1.162 |
1.004 |
16% |
| EBITA |
44.6 |
32.7 |
36% |
131.8 |
107.2 |
23% |
| EBITA recurring |
44.6 |
31.4 |
42% |
131.8 |
105.9 |
25% |
| Net income from operations 1) |
22.2 |
19.2 |
16% |
70.0 |
62.3 |
12% |
| Ditto, per share (in ) 1) |
0.37 |
0.31 |
17% |
1.16 |
1.02 |
13% |
| Average shares outstanding (millions) |
60.2 |
60.7 |
|
60.5 |
61.0 |
|
1) Before amortization and non-operational items
Fourth Quarter
Gross revenue increased by 15%. Acquisitions contributed 7%, especially through the addition of LFR in early 2008. As a result of the strengthened U.S. dollar, the currency effect was 2% positive. At 6% organic growth was at a good level.
Net revenue (revenue produced by ARCADIS staff) grew 15%, of which 6% was from acquisitions. The currency effect was 3% positive, with organic growth at 6%.
In Central Europe, Brazil and Chile the high level of organic growth continued. In Brazil, ARCADIS Logos develops a portfolio of smaller energy projects of which two were sold in the quarter. Excluding this sale, organic growth was between 3 and 4%. In the U.S., growth recovered to 7% especially through an increase in Infrastructure and, to a lesser extent, Environment. RTKL also performed well, although the order intake declined due to the crisis. Activities in the U.K. real estate market declined. In the Netherlands, the municipal market weakened somewhat, but project management and consultancy services did well.
EBITA increased 36%. In last year's fourth quarter, real estate was sold in France. Excluding the effect of that transaction, EBITA on a recurring basis rose 42%. Acquisitions contributed 11%; the currency effect was 3%. The organic increase was 28%. This includes 6.8 million from the sale of energy projects in Brazil. Excluding this contribution EBITA organically rose by 6%. The contribution from the sale of carbon credits in Brazil was 0.6 million (2007: - 0.1 million). The margin (recurring EBITA as percentage of net revenue) rose to 14.3%, excluding the sale of energy projects to 12.5%, versus 11.6% last year.
Excluding the effects of derivatives that are used to hedge interest and currency risks, financing charges rose to 5.5 million (2007: 2.9 million). This was the result of investments in acquisitions, slightly higher market interest rates, and currency differences on loans in Brazil. Net income from operations rose 16%. Excluding the sale of energy projects of 2.2 million, the increase was 4%. This lagged the development in EBITA because of higher financing charges and higher taxes.
Full year
Gross revenue rose 15%. The contribution from acquisitions was 12%; the currency effect was 3% negative. Organic growth amounted to 6%. The development of net revenue was similar. The increase was 16%, of which 7% was organic.
Despite the more difficult market, organic growth was close to our strategic goal of 7.5%. In the Netherlands, Central Europe, South America and RTKL we overachieved our target. The U.K. was the only country where revenue declined as a result of the worsened market for commercial property. In the U.S., organic growth was 4%, with a weaker second half year.
Recurring EBITA rose by 25% to 131.8 million (2007: 105.9 million). The contribution from acquisitions was 14%, the currency effect minus 3%. The organic increase was 14%, and without the sale of energy projects in the fourth quarter, 8%. Main contributors were France, Central Europe, South America, the United States and RTKL. The contribution from carbon credits of 3.5 million was similar to last year ( 2.6 million).
The margin (on a recurring basis) increased to 11.3% and without the sale of energy projects, to 10.8% (2007: 10.5%). The strongest improvement took place in Infrastructure: growing to 11.4% and without the sale of energy projects increasing to 10.1% (2007: 8.8%). Also in Environment the margin improved to 13.7% (2007: 13.5%). In Buildings, the margin declined to 8.7% (2007: 9.9%) as a result of the bad U.K. property market and Dutch project losses.
Excluding the effects of derivatives, financing charges rose to 17.7 million (2007: 8.1 million). The causes were comparable with those mentioned for the fourth quarter. At 34.3% the tax pressure was considerably higher than the 32.8% in 2007, mainly due to geographic shifts in taxable income. The contribution from associated companies was better on the back of improvements in Brazilian energy projects. Minority interest saw a strong increase, especially as a result of the sale of two energy projects in Brazil in the fourth quarter (ARCADIS owns 50.01% of ARCADIS Logos).
Net income from operations rose 12%. Excluding the sale of energy projects it increased 9%.
Cash flow, investments and balance sheet
The cash flow from operating activities was at a good level at 81 million and was slightly higher than in 2007 ( 79 million). Investments in acquisitions amounted to 74 million, of which 35 million was for deferred payments on earlier takeovers. Goodwill amounted to 29 million and identifiable intangible assets amounted to 10 million.
Balance sheet total increased to 1,058 million (2007: 922 million). Despite the growth in activities, working capital as a percentage of gross revenue decreased to 11.2% (2007: 11.9%). Mainly as a result of investments in acquisitions, net debt increased to 184 million (2007: 155 million). The balance sheet ratios remained solid. The ratio of net debt versus EBITDA was 1.2 (2007: 1.0); the interest coverage ratio was 7 (2007: 14). The first redemption of long term debt is due in 2011.
Developments per business line
Figures noted below concern gross revenue for the full year 2008 compared to 2007, unless otherwise noted.
Infrastructure
Gross revenue grew 4%. The contribution from acquisitions and divestments on balance was zero. The currency effect was minus 2%. The organic growth of 6% was negatively impacted by the earlier decline in U.S. land development. Against this stood comparable gross revenue from the sale of energy projects in Brazil. Organic growth mainly originated from the Netherlands, Poland, Czech Republic, Brazil and Chile. Investments in rail, roads, water and energy are the drivers behind the activity growth. In the U.S., growth in the water market accelerated, mainly from work under the New Orleans contract.
Environment
Gross revenue grew 19%. The currency effect was minus 6%, the contribution from acquisitions (LFR, SET and Vectra) 17% and the organic growth 8%. After the high growth level in 2007 and the first half of 2008, organic growth declined in the second half, especially in the U.S. where some large projects were completed and companies were hit by the economic crisis. Net revenue growth in the second half amounted to 3 4%. In most European countries and Brazil organic growth stayed at a good level. Demand for environmental due diligence declined as merger and acquisition activity waned. In the U.S. $74 million worth of GRiPฎ work was won.
Buildings
Gross revenue increased 28%, of which 26% from the acquisitions of RTKL and APS mid 2007. The currency effect was minus 3%. The organic growth of 5% mainly came from Belgium, Germany and France, while in the Netherlands project management and consultancy grew. RTKL also had a solid contribution, resulting from growth in non commercial projects and in international markets. In the U.K., gross revenue declined due to the poor commercial property market. This was partly offset by work pursued in infrastructure and the Middle East. In the Netherlands two five-year facility management contracts were signed, with Philips (extension) and with Van Lanschot Bankers.
Outlook
The rapid deterioration of economic conditions is unprecedented. The extent to which this affects our activities is uncertain and differs for each of the markets in which we are active.
The infrastructure market is solid. Budgets are often based on long term investment programs. Moreover, governments in the United States and Europe intend to accelerate infrastructure investments to stimulate the economy. The stimulus package of the U.S. government is estimated to generate more than $125 billion in investments in our field of business. Due to climate change, attention for water management is growing, as is shown by the new Dutch Delta Plan. The New Orleans contract with more than $70 million in task orders provided a good basis in the rapidly expanding water market. In the Netherlands 4.5 billion will be invested in the further improvement of rail in the coming years, while at the same time the capacity of the road network will be expanded. In Central Europe, investments in infrastructure are expected to remain high, supported by European financing. The strong growth in South America may soften somewhat.
In the environmental market regulation and the drive towards sustainability provide a healthy foundation. In the short term the economic crisis may negatively affect demand for environmental services from private industry. Many of our environmental remediation projects are long term, based on regulation, and add value to assets. Starting early 2008 we switched focus to sectors where demand remains at a good level, like oil and gas industries and utility companies. Demand for cost effective solutions based on our advanced technology, as well as vendor reduction and outsourcing of environmental work by companies, provide an opportunity to increase our market share. Interest in GRiPฎ is on the rise, with the U.S. DOD but also with industrial clients in the U.S. and Europe. Energy is an important theme: carbon emission reduction, energy efficiency and (green) energy projects generate work.
The buildings market has been affected most by the credit crisis, especially the commercial property market. RTKL and the project management services in the U.K. were hit most. RTKL continues its focus on non-commercial projects in the U.S. and projects in international markets, while in the U.K. services are directed towards infrastructure and the Middle East. While successful, these initiatives may not be enough to compensate entirely for the decline in commercial property. The market for government buildings, schools, hospitals etc. continues to offer ample opportunities, also because stimulus programs contain considerable amounts for these areas. We may benefit from this in multiple countries, most certainly in the Netherlands and the U.S. where our project management services are mainly aimed at (semi-) public clients. As many organizations are looking for cost reductions, demand for facility management will increase.
In 2008 derivatives used for hedging interest rate and currency risks had a negative effect on financing charges of 5.9 million. Early January 2009 these derivatives were unwound. This yielded a book profit of 7.5 million which will be included in the first quarter 2009 results.
CEO Harrie Noy concludes: "ARCADIS has a robust portfolio of activities with a good spread geographically and towards market segments and clients. The backlog is healthy and grew slightly in 2008 especially as a result of high order intake in infrastructure. In all three business lines we benefit from government stimulus packages. The focus on further cost savings, intensified market development efforts and preserving our margins remains in place. We continue to look for acquisition opportunities to realize our strategic goals. Even though the short term outlook is mixed, themes like sustainability, climate change, urban renewal, mobility and energy offer good longer term prospects. Given the uncertainties in the market, it is too early to provide a tangible outlook for 2009."
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