Arcadis N.V.

Jurgen Pullens - Director, IR Peter Oosterveer - CEO Renier Vree - CFO

Philip Ngotho - ABN AMRO Quirijn Mulder - ING Joost van Beek - Theodoor Gilissen

Good morning everyone, my name is Jurgen Pullens, Director, Investor Relations for Arcadis. I’d like to welcome you to the Arcadis Q3 analyst conference call and webcast.

We’re here to discuss the company results for the second quarter and first half year hat were released this morning. With us during the call and the presentation are Peter Oosterveer, CEO; and Renier Vree, CFO.

We will start with a short presentation by Peter and Renier and then we will open up for the Q&A. You will receive the presentation this morning and that is also available through the Investor section of the Arcadis website for which the address is arcadis.com/investors.

Just a few words about the procedures before we start, we will begin with the formal remarks, we recall your attention to the fact that in today’s session management may reiterate forward-looking statements which were made in the press release. We would like to call your attention to the risks related to these statements which are more fully described in the press release and on the company website.

So, with these formalities altered away we will start the presentation. I’d like to hand over to Peter.

Thank you, Jurgen. Good morning everyone and thank you very much for your interest in Arcadis.

As your concept we’re going to go through the presentation fairly quickly in order to allow you the maximum amount of time to ask questions. Hopefully you had a chance to look at the presentation so I’m not going to hit each and every bullet.

Maybe a little bit of context before I go into some of the bullets here. As you’ve probably seen from the press release I’ve used the first three months since I joined largely to visit the various regions in which we operate.

I’ve been spending time in Middle East a full week, I’ve spent about two weeks in Asia, Australia, spend a week in the U.S. and then of course visited most of the countries in which we operate in Europe including of course the Netherlands, Germany, France, Belgium and U.K.

One more region to cover which is Latin America, I’m going to Brazil and Chile the week after next so that will then sort of wrap up the first 100 days and visits of our regions and meeting clients. So my perspective which I’ll share with you today is being added by because of all these visits talking to our own people but also talking to our clients.

So some of the bullets here, I think we’re starting to see the benefits of the initiatives near and the management team put in place in the early part of this year so that predates me, so I won’t take any credit for it, but I would like the fruits. The fruits being that we’ve I think a fairly good result.

The actions were to increase the focus on our clients, be much closer to our clients, try to really understand what our clients are trying to solve. Focus on reducing the working capital which you’ve seen and then of course the creation of a more simplified operating module which not only functions at lower lost which it does but also allows us to take decisions more quickly than I think we were able to do so before.

Clearly, one of the highlights I would say of the second quarter part of the first half of the year is the improvements we’ve seen in North America which is now returned to growth after a prolonged period of decline and that was as long as three years as you know. In talking to our clients and looking at our pipeline of opportunities I would certainly say that we’ve a positive outlook on the business in virtually all of our regions, but we remain cautious about the Middle East and Latin America for the obvious reasons not only economic issues but in the Middle East also political issues which tend to openly may be have an impact on the economy as well.

We did make progress in the Middle East, we received some payments on overdue receivables and we also reached the couple of important milestones which you have to go through in order to secure the payments particularly in Qatar and we might get into some more detail later. So when I kind of look back and take into account the results we’ve seen, but also then take into account what I’ve heard from clients and what we see in our pipeline, it gives me confidence that we will be able to progress in the second half of this year.

I wouldn’t be complete I think if I also illustrate some reasons will set you for projects we’re extremely proud of. I’ve seen most of these projects first hand or at least I did got an opportunity to meet with our project teams as I was making my visit.

So, the first one is actually a really great success story in Australia where we’ve won a substantial contracts on the Sydney Metro. Why is it significant?

Well, not only as significant in terms of its size but it’s also significant in terms of how we’ve been able to use our global capability, our global knowledge and our global experience for the benefit of the work in Australia. If you look back at Australia as I’m sure all of you know, our presence in Australia largely came with the acquisition of Hyder.

At that time we had no real experience to speak off in Australia and thanks to using experiences which we’ve got at the other places in the world which we brought to the pursuit, we’ve now been able to create a really strong position for ourselves through this project. Second one, I was in Paris a couple of weeks ago, I was really encouraged to see the large number of building as well as bridge opportunities we’re pursuing.

This is just a really good example of a fairly complex bridge structure. Maybe the section itself doesn’t look overly complex but the logistics around putting this bridge in place are definitely very challenging.

So, another great example of how global capabilities can be brought to a particular location for that location to benefit from. The next one is an environmental project and this one is interesting not so much because of the absolute size for us but more of what we’ve been able to do for our client here to secure a substantial amount of funding through our environmental and sustainability focus.

So, we brought environmental and sustainability capabilities to this particular client and in doing so we were able to allow them to secure a substantial amount of money. And the last one in this example, and this is only a snapshot of, of course the many projects we’re pursuing and have successfully pursued in this case is to what we do in Abu Dhabi, which brings master planning and water together in a really challenging project in Abu Dhabi.

So just wanted to give you bit of a flavor of the projects we’ve won. In fact, subsequent to closing out our second quarter we’ve seen some really positive additional developments on similar projects and as we go through Q&A we might touch on some of those as well.

So with that I’ll turn it over to Renier.

Yes, thank you Peter and good morning everyone. Just to look a bit in more detail at financial performance for the first half year and second quarter on the slide number 6.

Net revenue was 1.2 billion which were organically 1% down for the first half of the year and in the second quarter we had a flat organic revenue development. Our EBITDA at €100 million the same as in the second half of 2016, still down 8% on a year-by-year basis with an operating EBITDA of €90 million also down compared to a year before.

More positive sign around the cash flow, cash flow for the second quarter being up by €34 million and last year it was down and also means that for the half year the cash flow was negative €28 million significantly better than where we stood a year ago and also confirm lower working capital about which I’ll share some more details in a minute. And also because of the cash flow obviously the net debt developed positively, some positive currency movements also playing a role here and our debt is in U.S.

dollars with the weaker U.S. dollar to the UL means that the net debt was also in that sense positively impacted by that to bring the covenant ratio according to lending agreements with banks and other lenders to a ratio of 2.5.

Moving onto the next slide with some more insights in the P&L, finance expenses came down slightly compared to a year before to a €12 million. Income taxes were up and prudence with the side of not to take any tax assets for the loss generated in Brazil in the first half year and therefore the percentage of income tax is higher than it was a year ago.

Lot of the income of associates for the business we’re developing around energy assets with other asset owners and a royalty net income from operations to €47 million, 14% below the first half of 2016 on an earnings per share from operations at €0.55 also below last year by the effect that number of shares increased to somewhat given the number of people and investors decided to take a skip to dividend led to an increase in the number of shares outstanding. And when we look at quarter-by-quarter developments of revenues and EBITDA on slide number 8, we see there as I said before that there is a gradual improvement in how the organic revenues have been developing whereby North America, Continental Europe, U.K and Australia have delivered organic revenue growth over the first half of the year, while decline was realized in Latin America and in the Middle East.

And when we look at operating EBITDA that’s a 7% decline that I mentioned before and here we’ve seen an improvement in North America helped by the revenue development but the operating loss in Latin America was the offset to that and similar picture for the second quarter. Today more positive momentum we’ve seen in North America in CallisonRTKL and in Asia in terms of the revenue development while the Continental Europe, U.K.

and Australia sustained the growth sales they had already in the first quarter. The operating EBITDA at 7.2% in Q2 bit lower than the first quarter and the number of working days had an impact there.

One effect has been noted, Easter was in second quarter this year while last year it was in Q1 so it was a bit of shift in work and of course, for the half year it doesn’t matter, but a split between Q1 and Q2 is therefore slightly different this year then it was a year before. Then when we look at the cash flow statement, this is the half year picture, so that the change in net working capital very much in-line with the year before, the first half year there was a €70 million cash outflow typical seasonal pattern we have.

Other working capital moved in a more positive direction compared to a year before and has to do with focus on cash management that has been very strong in the company. The other elements more or less as we’ve seen in 2016 bringing the total free cash flow to a minus €28 million.

On slide 10, an overview we prepared to help you getting the view of how we calculate the covenant ratio on one hand to see that the cash flow and the EBITDA to the half year so we see the €100 million EBITDA for the first half of this year as well as for the similar periods years before and the development of net debt. And then, as explained we take the debt of December and June and take the average of those and relate that to the EBITDA over the last four quarters and it then comes to the net debt of EBITDA calculation at right bottom part of the slide.

You see that ratio of the 2.5 being the same that’s how we finished 2016. Moving onto the balance sheet on slide 11, balance sheet became slightly smaller compared to what we were in December also helped by cash collections from our receivables in the first part of the year.

I think another one to call out is the work in progress and we also made the calculation taking on the asset side work in progress but also on the liability side billing in excess of course. So work already invoiced to the client before it has been completed that amounts to that €295 million at the end of June higher than in December which is typical for the pattern of the work that would happen during the year.

But clearly, much lower than where it was in June a year ago and our working capital and work in progress was at pretty high level. Talking about working capital on slide 12, you see for the last six quarters the amount and the percentage of working capital from our gross revenues dropped in the second quarter which is not always the case, you see in 2016 it actually went up.

So right now we’re at the lower level then we were in March and also lower than we were in June a year ago and it has to do with the improvement that were visible in our receivables. Days of sales outstanding dropped to 95 days coming from 97 and helped us by the Middle East still a lot needs to happen there and we continue to be very focused on it but we did receive partial payments on overdue receivables and also we had significant progress on milestones for multiple contracts in the Middle East which will lead to cash inflow in the third and fourth quarter of this year.

When we look at the aging of our receivables the overall decline in comparison to 2016 there is bit of an increase of the receivables over than 120 days and the reason for that is oil and gas client in North America for which we do a larger project and the receivables will be paid partially by the client and partially by the insurance company and the discussions have happened about that at this point in time take some time and that’s the reason that it moved to the overdue bucket of more than 120 days. The provision also came down for receivables by a few million on one hand we used some of the provision to write-off some debt but also there was an addition to the provision of €4 million that went through that P&L.

Let’s talk about the performance of our four segments, the Americas, Europe and Middle East, Asia Pacific and CallisonRTKL. Starting with the Americas on slide 15, you will see that organic revenue declined by 1% in North America for the half year but there was plus 3% in the second quarter, while Latin America was 32% down in the first half year for our top line.

In North America particularly the environmental and the infrastructure businesses performed well and also helped improve our operating EBITDA which I referred to earlier. In Latin America there was a decrease of €7 million in EBITDA in combination of an operating loss of €6 million for the first half year, €4 million of restructuring charges.

And also last year there was a loss but then it was €3 million loss. What you do see in Brazil is some stabilization, our revenues in the second quarter almost flat with the first quarter so year-on-year there is still a decline sequentially it starts to stabilize.

But the market is still very tough with clients even if they award projects to complete like ourselves it is always kind of right away start to execute. So particularly in infrastructure business that makes it tough market while the environmental market is more stable.

And that’s also the reason why we decided to take additional restricting measures in the second quarter and some of it will take place this quarter for Brazil to make sure our cost are in-line with the reality of the market that we operate in. Moving onto Europe and the Middle East, here the organic growth consists of Continental Europe by 4% and 5% in the U.K.

while the Middle East is declining by 13% so a similar picture as you’ve seen in the first quarter. Continental Europe really strong with growth taking place in all countries.

In Europe where we’re active we see particularly the private sector remains very strong both in terms of the delivery of work but also in the order intake in Continental Europe. U.K.

similarly organic growth in all segments of the market where we’re active and not just the private sector and the public sector that are doing well and we were involved in quite some strategic pursuits and the ones that we’ve won contributed to our growth of backlog. In the Middle East we did see revenues come down that’s by design, [indiscernible] was too high so we’ve been selective in bidding for the work that’s available but also overall market circumstance in the Middle East have a lower demand then we’ve seen in the past.

When we look at the EBITDA for this segment there is a decrease and that’s the reason of the Middle East the lower revenues there impacting the profitability and also there is a translation difference from the profits made in the U.K. with weaker pound compared to a year ago also has impact there, while Continental Europe had a good operating EBITDA development in the first half of the year.

Moving onto slide 17 for Asia Pacific, here we see that overall the organic growth in the first half of the year is flat and that consist of a decline in Asia about 5%. But in the second that sharply improved in fact the first quarter had almost the 10% decline and then there was a slight growth in the second quarter and also a growth of backlog also helped by strong developments in China.

While in Singapore is not the reasons why our revenues were lower, buildings market there isn’t very favorable at the moment but also some activities we were doing at too low margins which we decided a few months ago to exit from. Then Australia Pacific what Peter already referred to were two of the projects we’ve won there and we see that back in our revenue development with a plus of 8% and also that’s helpful for the overall market and order intake in that region and that’s really a major infrastructure projects for the big urban areas of Australia.

And finally, CallisonRTKL, 3% decline in organic revenues for the first half of the year and that’s mainly because of the U.S. commercial real estate, the activities in the property developers in North America are slower than they were a year ago.

But in the second quarter we did see an improvement, we went back to organic growth in this business by 1 percentage point and real drivers of that are the retail business as well as the workplace practice. The work we do for large companies for their offices.

And also the EBITDA margin improved I think last time you may remember we spoke about cost actions we had taken for CallisonRTKL and they’re bearing fruit in the improvement of margin. Backlog was down and while 7% backlog decline doesn’t look very good, but is also because we’ve seen that our projects won – sometimes 3, 4, 5 years ago that was hardly any movement or no movement at all, those we’ve taken out of the backlog.

So, we’ve cleaned up that backlog, if we take out that one-off effect, actually the backlog was stable for CallisonRTKL for the first half of the year. And with that I’ll give it back to Peter.

Thanks again Renier. Trying to kind of close it out provide a little bit of insight into way forward, so what our priorities for the foreseeable future.

First talk a little bit about the business as a whole and why we remain confident and comfortable about our position. First of all, when you look at our markets, the markets in which we operate then I think you can safely say that we’ve really strong fundamentals.

Urbanization probably the single biggest one for us, but also mobility and sustainability and the concept which we use big urban cities, I think the ultimate form of flattery is when others copy you and that seem to have happened now with others using the same concept of the big urban cities and big urban cities the concept which we apply really brings the four major businesses in which operate together. So, water, environmental, building altogether in offering a client and into get it solution.

So, I really think that urbanization, mobility and sustainability and the obvious growth which we will see in those businesses position us really well for the future. I’ve already talked a little bit about the simplified structure and you will probably hear me talking about that a little bit more as we go through the Q&A and probably also in the future.

But again, the step which was taken in the early part of this year to simplify to be closer to our clients be more intimate with our clients is starting to pay off. Another opportunity I see based on my experience is the use of the global excellence centers which we have as you know in the Philippines and in India.

I think we’re still in the fairly early days of the utilization of the global excellence centers based on again my experience there is much more opportunity to push that harder and use them in a more extensive way then we currently do. In order to truly become the global company we want to become the implementation of the Arcadis Way or the article system of course is a crucial tool.

We’ve had two ways of implementation, in fact, this week we started the implementation of Way 3 two days ago in the Middle East so that’s the next one going onto the article system to really help us with some consistency across business processes across the globe. You might have seen the announcement we made around digitalization of the appointment of the Chief Digital Officer.

In my view clearly the single biggest opportunity in this business, if you look at business which have been disrupted by digitalization in the past and the many business have already had those significant impact but our business has so far not been impacted that much. So those who can be on the forefront of digitalization I think will automatically come out as the winners and it’s definitely my intent to make sure that Arcadis is on the forefront of digitalization.

Then lastly, and I’ll talk about project delivery maybe a little bit later but I see an opportunity for improved project delivery. We do many projects in many different places for our clients in the world.

A significant number of projects, but I’m really intent to improve the performance on our projects and again based on my experience, I see really good opportunities for improved projects of performance. You might have also seen today another announcement in addition to our first half year results which is an acquisition of an environmental company in the U.S.

E2 ManageTech and this really brings home a couple of things which I think you’ve heard us say before the importance of environmental work particularly in the U.S. but the opportunity it provides in other places in the world as well.

And in this particular case the importance of data and the ability to use data to manage compliance, to manage risk, which a lot of clients in the environmental sphere need from companies like us. So this acquisition brings our capabilities together with the capabilities this company has.

This company has been in existence for just under 20 years and we believe that together we will be able to create a fairly dominant position in what is a very promising market with an annual growth between 15% and 20%. So clearly something which is a nice compliment to our capability we’ve and propel us to become a bigger player in this market.

So let me wrap it up here, and then we’ll start into the Q&A. So already mentioned so when we look ahead for 2017, clearly positive business sentiment in most regions.

We remain cautious about the two which I’ve mentioned earlier again so, not to go into a lot of repeat here. Brazil and the Middle East obviously are those more challenged regions, but other than that we see a lot of positive signals, we see those when looking at our pipeline of opportunities, we also see it when talking to our clients and how they view the immediate future.

A lot of that is fueled by increased infrastructure spending in many countries, in fact, most of the places I visited so far our infrastructure business is already doing quite well and is expected to continue to improve. Then maybe looking at the leadership priorities so what can you expect from us in the remainder of this year needless to say that we will have to continuously focus on our clients because to them – then we might have been in the past ensure that we grow our backlog and grow our revenues.

I think we have an opportunity to simplify the structure further than we’ve done before and clearly have an opportunity to strengthen project management as well as utilization of GECs. I think some of the other side are pretty obvious when I sort of rapid up and think it about what it would mean to you, how you could see us in the future I was thinking about a couple of things.

So, the first one, I think we’ve started to create a stability and that’s an expectation you might have. Equally important is what I would consider to be predictability and certainty, so say what we’re going to do and then do what we said we would do and then lastly that will obviously it might will help with credibility as well.

So that’s at the fairly high level how would that translate to kind of the next level down. Focus on operational performance you can expect organizational effectiveness, I spoke about the simplification and of course looking at our portfolio and the strategy around our portfolio which has approached us, which we’ve started and will take the next roughly three months to be completed.

And then, maybe one level down even further selectivity and focus is probably something you’re going to hear from us. Project execution, stronger focus on project execution and be sure that the projects deliver, will be expect them to deliver and then again simplification with that clear lines of accountability in our organization as well.

So with that as an summary that concludes our presentation and that will get us to the point where your questions are more than welcome.

This is Thomas [Indiscernible] first a question before we dive into the numbers, you travelled most of your organization now, was this the biggest surprise, and what will be the biggest challenge for you?

That’s a question I’ve before so I’m going to be very consist here. There has been nothing which has really surprised and maybe that’s partially because of the on-boarding and education I was given by the supervisory board and orders before I joined, maybe also because of the fact that even though I came from not a company it still at least an adjacent industry.

So, I’ve seen a lot of recurring things actually. So, I’ve not seen anything which has greatly surprised me either disappointed me.

I’ve actually seen on the campus a lot of proud, passionate people which you might say well that’s a great statement why is that important. Well, the thing we do is executing services by our people, our people are the only asset we have.

And if our people are not engaged and known of proud what they do then I think you will the number one challenge. But our people notwithstanding that the last two years have been somewhat challenging, clearly this play with level of pride in what they do for our case.

So that’s a really good start in my view. The work we do in many different places are being, if you like may be a little surprise about the diversity from may be kind of disobeying or one end of the spectrum and running a really complex project management, construction management projects on the other side of the spectrum, so no surprises.

Challenges, there will always be challenges but the things I’ve seen and the way I look at the opportunities in relation to what I’ve seen in my prior life nothing [indiscernible].

Thanks. Then into the numbers, could you give us the number or the payment you receive from Saudi Arabia in Q2?

It was not necessarily the specific amount, but it was a couple of million we received on the amount outstanding in Saudi Arabia.

Okay, clear. And then on receivables in general, I mean, there was no improvement in long overdue.

What is your expectation there for the second half of the year?

Correct statement, indeed no improvement and definitely the drive is to see an improvement that’s very much the focus and nevertheless the improvements in working capital there is still a lot to be done when it comes to receivables long outstanding in the Middle East is also part of Asia and Latin America there is still collection there, drive to make progress there.

And then maybe, you realized now the payments in Qatar but how confident are you that will get the cash in, in the second half of the year?

We reached the milestone moments, milestone payments still have to follow and it is very important that both technically you reach a milestone and then after sign-off by the client on the work it has been performed and that’s the reason when you have all the signatures collected and approved that’s the moment you can send the invoice. So we passed that milestone which is very important one.

And then typically, cash payments happen relatively quickly thereafter so also from prior experience that’s definitely what we’re aiming for and are expecting. But we know for sure when the money is in the bank.

Okay, final one. Could you give a bit more color on your margin development in Europe and U.S.

or North American business so excluding the Middle East and Latin America. We’re talking about the inflection point you’re seeing there, but just to understanding the numbers a bit better?

Yes, both improved as I mentioned so North America moved to a higher level, higher than the average for Arcadis and in the second quarter even more so given the revenue development. Continental Europe had a strong hold here, second quarter actually was lower than the first quarter because of the less working days that had the biggest impact in Continental Europe.

But overall, in the first half of the year the margin development was also in the Continental Europe positive. And is both the Arcadis average to add to that.

Both of them, U.S. as well as.

And the, Peter how are you going to position the U.S. business it was always like largely been as oil and gas client, will that change in the future or will you change the mix or would like stay roughly the same?

No, I think the answer to the question is probably something which I’ve to differ till a later date and maybe this will allow me an opportunity to kind of outline what comes next because I’ve so far only give you an answer to what I’ve done so far. What comes next is that we’ve kicked off the strategy review process which is not because I can talk, it was already part of the normal process, the normal cadence if you like that process will culminate in couple of intermediate steps and ultimately in a capital markets day on November 21st which I think most of you are aware.

And so in that process which again is nothing extraordinary and is nothing to do with me coming, so I think prudent for every company to do that on a regular basis, we will look at our businesses. We will in a very open and constructive way challenge ourselves whether we are in the right place, whether we serve the right clients and so forth and so forth.

And at that point in time I’ll be able to give you more specific answer as to what we would do with North America. But let me use this opportunity to stress again that we’re very pleased with what the recent developments we’ve seen in North America has always been important but has been somewhat challenged in last three years.

And clearly because of I think more focus, leadership changes, I think we’ve seen the beginning of a turnaround.

Okay, thanks.

Philip Ngotho, ABN AMRO. My first question is on what you’re referring to during your presentation that you would also provide a bit more detail, so I’m curious by the improvements that there is possibilities for improvements in projects delivery.

If you can give bit more details on what exactly you saw that can actually will improve? And the other point that I have for now is also on the global excellence centers, you indicated that you see potential to use it even more.

Could you give us a bit of feeling like how, what do you envision in terms of maybe size, also which segments or regions do they mostly work for now and where do you see it developing through?

Yes, two really good questions. Let me start with project delivery first, that was your first question.

When I mentioned project delivery, I really meant everything from the early identification of a project until the point of time that you turnover the project to the client so that means that the sales and client development process but also the project execution process. Let me start with the first one without going into too much detail, but picking the right clients, clients who are credible clients who are known to peers, I think is the very first step before even decide that you want to pursue to work.

And I think there is probably an opportunity to shop and focus a little bit there. Making sure that you close contracts which adequately protects Arcadis, have the right protection measures in place, things such as getting paid when you deliver your services and if you don’t get paid have an opportunity to take corrective actions.

So that is in the sales, the upfront process before you decide that you pursue something. When you then look at what we do, why we execute projects and projects has been what I’ve been doing for the last 28 years, I think we can sharpen our execution so making sure that the projects deliver what we expected them to deliver from the beginning.

And to illustrate that maybe with an additional level of detail, needless to say that the work we do is obviously of technical nature and it is important that you find a balance between the technical delivery of the project and the commercial outcome of the project. And I think that balance probably have some area for improvement as well to not only focus on making a technically perfect product which might actually exceed the client’s expectation.

If you do so then you have to be sure that you also get paid for exceeding the expectations and that balance in my experience is not necessarily always there and I think has room for improvement. So it’s simply making sure that we take on the right projects with the right contracts which protect us in the right way and in the project execution deliver the projects ideally exceeding our expectations so that is something I was used to.

I was used to being fairly comfortable about the projects which were under my responsibility because they were typically by a margin exceed what we initially thought they would do. And I see no reason why we couldn’t create the same culture in Arcadis that’s not something which will happen overnight with the geographical spread we have.

But it’s certainly something which is very, very doable. Your second question was about the GECs, I have to then in answering the question as complete as I can again go back to my prior experience which is a time frame which spends about close to 25 years in my prior role, in my prior company GECs have been used for 25 years.

And Arcadis of course has started to use GECs with the acquisition of Hyder which is the last three years. So when you look at the timeframe it’s quite different.

And in the 25 years that I have seen the development you of course get through different stages of maturity to ultimately reach a point where a substantial amount of the work is being done in the GEC. And substantial means that in some cases it could be more than 50%.

We’re not at that point, we will not get to that point either it will take time, but it is certainly again a conceivable opportunity for Arcadis to improve our competitiveness, but also to improve our financial performance. And the competitiveness is relevant because this type of execution has the inherent ambiguity and threat that people say well, here you, but if a move over to Bangalore or Manila then it might actually lose your job here in the Netherlands or the U.K.

And my experience is the contrary that if you do it well you actually at the end of the day because of becoming more competitive you’re able to create jobs on both sides of the equation. So an opportunity which no surprise since Arcadis has only used it for three years has substantial upside.

Thanks very clear. Maybe two follow up questions on it.

On the first bit on the project execution, I don’t whether you already have view on that but how do you believe you can implement through the organization, are these trainings that you’re going to rollout through the organization or what kind of road showing? And the other thing on, you mentioned that you could envision that it has that the census would use 50% of the work would be outsourced.

Can you give us sort of ballpark figure on what percentage currently has within Arcadis?

Last one I can answer relatively quickly because if you look at the number of people in the GECs it’s roughly about just under 10% of the total population. So just in the bigger scheme of things, let’s assume it’s 10%.

So the first one that’s some more complicated answer because it has more components. Training is of course something which is part of that answer and training has already been rolled out in the past within Arcadis as well.

But I think it is also a substantial cultural component in that and I’ve gone through this in my prior life as well where you move from technical excellence to a healthy of balance where you deem technical excellence and commercial excellence. And training again is part of that but other things such as putting certain tools in place providing the right oversight and running this from the top are important things as well to change that part of the culture.

And I think everyone here realize that when you speak about the revision or change to the culture that those are not easy processes to implement. The training is the easy part, you can develop the training in the next month if it had to be developed, it’s already available and roll it out.

But the training in itself is just a relatively small component, I think we just have to create a much stronger focus on project management which by the way again does not include just a project execution but also the upfront selection of the right clients or right opportunities. So it is, I’m not going to under estimate that particular task because you talk about the big company, 27,000 people spread across the globe that’s a pretty substantial effort.

Okay, thank you, very clear.

Good morning, Quirijn Mulder from ING. Couple of questions.

First one with regard to the smaller services lower value you’re skipping that can you elaborate on that activity and then on your ideas about let me say your client, let me say being more focused on clients. Can you elaborate on that as well given the fact that – and what the consequences could be given the fact that counter you have couple of lost clients so it’s not very easy to say okay, these guys are not paying before two in a day so I’m going to skip them?

And my final question is about the organic growth, we’ve seen a very erratic pattern in the U.S. negatively for the last 10, 12 quarters, so how sustainable is this 3% growth in the second quarter?

Let me take the first one Quirijn. I mentioned the Singapore the low value added services and activities around contract solutions to be specific.

I met the team doing that activity but actually it wasn’t very good margins which it is all the parts of the world. So we decided to stop that activity and that’s I think 20, 30 people or so we had in that service line and they’ve left Arcadis and are helping the overall margin after that.

Yes, let me take the client focus question. Going back to the earlier question about project delivery, I included already the client component and I’m not sitting here and telling you that 50% of the clients we currently for will be eliminated from our work going forward that’s certainly not the message I want you to take away from this meeting.

But when we speak about client focus it does indeed include a component which is about that selectivity and focus making sure that you pick the right clients those who are known to be respectful of the service we provide and pay us. There is also and that’s probably a little bit of softer issue, but have been aligned between the values and that’s important in the way you ultimately execute projects.

But the real I think crux of why we added client focus is probably best explained by an example, a real life example which I came across as I was making my tours. And in talking to a client about what Arcadis does, the client was actually extreme to complimentary of what we were doing for him.

And this is the client we’ve been working for a long time but I wasn’t necessarily satisfied, we’re just hearing all the good news so I said which is what I almost as a standard question asked him, is there anything we can improve. And he said, yes, I think there is something you can improve.

I said, what is it? So well, I know exactly what you deliver to my company and he is responsible for all the projects we do, but I think with 27,000 people in total you probably have other service you can provide to me as well.

And I just want to sit with someone in your company to understand what other services you can provide. And so, this is probably a typical challenge for a company which grows the way we’ve grown is that people in our size of company don’t necessarily always exactly know what other services we can provide.

And so there is a risk that people just come in with what they know until the client hears what I can sell you and not necessarily considering anything else we can do in Arcadis or if you want to use it, a better word for that cross selling. So I think rather than trying to impose something on a client, what I really mean with client focus is, let the client first really describe to you what their business challenge is and then figure out how we can address those business challenge as opposed to coming with the preconceived idea about what you want to sell.

So that is really what I would describe as the ultimate client focus.

Then on the North America could I, so you mentioned the growth in the second quarter of 3% with the environmental business which is particularly in the private sector activity and infrastructure which more work for the public sector. I think the key drivers for that are strong and we expect those drivers to also be in place for the rest of the year.

Water business is always a bit a more challenging but I think also in water we see that the utilities have stronger spend, backlog has been going up in North America. I remember that we put in place a few years ago is Arcadis field tech solutions so a lower cost delivery model for remediation services for particularly oil and gas sector which is a competitive advantage that we have.

And we think also that will help us to have a good second half for North America. So without ending up with a number I think that would be too much of an outlook with the momentum, I think that’s absolutely applicable to what we’re seeing in North America.

[Indiscernible] KBC. I’ve got a few questions.

I’ll start with the Field Tech solutions, how big is that business currently for U.S. in terms of revenue or FDEs.

Secondly, if I’m correct that in Australia growth in the first quarter was around 15% and you report now plus 8 is there a slowdown of significance or can you shed some light on that? And thirdly, U.K.

is doing pretty well…

We won in Australia, but it just happen to be in July so not in June, so it’s more of a timing issue than anything else. With regards to the U.K.

let me kick that off and down last year to add to it. That’s of course something we’ve been very closely monitoring with our team in the team.

We don’t see as you can see from the numbers any immediate impact and when I say immediate it doesn’t mean the first half of the year, but we don’t foresee any substantial impact in the remainder of the year as well. Here everything thereafter is probably somewhat more uncertain, there is probably different schools of thought, one school of thought could be that that you will see an impact, but there is also I believe and I’m probably more in support of that belief is that if Brexit will happen and is likely that will happen it depends a little bit, how hard or how soft it will be.

But that it could lead to a more infrastructure spending by the government which is one of the tools that government would typically utilize in case of pressure on economic development. So that’s probably how I would see the U.K.

in the short term as well as in the mid term with the whole Brexit coming into play.

And for Field Tech Solutions it’s over 200 people that we have active here and maybe although interesting factors that because of the success of this concept we’ve implemented the same in Continental Europe and the U.K. So also there we’ve developed lower cost delivery model because of course, global clients also take note and then they’re also active in the U.K.

and Continental Europe, they expect to be sort of also different there and they have also there made the same moves with the same success.

And with regards to infrastructure in the U.K. how big is that business for Arcadis at the moment?

Well, infrastructure is about 40% of our U.K. business.

We’ve two large businesses in the U.K. buildings and infrastructure each about 40% and then the other 20% is between the environmental and water activities.

Thanks.

[Indiscernible] two questions left actually. Could you give some more color on the acquisition of E2 Manage Tech and maybe you also appointed a Chief Digital Officer so there is maybe clearly a way forward and new strategy for this type of activity.

Are you looking at same kinds of business, more project businesses or more consultancy kind of business or that those kind of color?

I will take the second question first and then I’ll ask Renier to comment on the first one. Not to make it habit to start with the second question but since you pointed at me, I think that digital and that’s not something I developed while I joined Arcadis.

The digital is going to be both the threat as well as opportunity. And it’s a threat because when you look at our industry as a whole and I’m just summarizing it as a construction industry.

When you look at research done on how many industries have been disrupted then we’re the least disrupted industry of all industries in the world except for hunting. So that’s probably not a favorable position to be in, but at the same time it clearly, it will say why it is an opportunity too, because the disruption in our industry as a result of data and digital sofa has been fairly limited.

Yes, data has been created and more and more data is being created at a rapid pace but the utilization of that data is probably not where other industries have seen it. So I really like to treat it as an opportunity more so than a threat, which is why I’m happy, and was happy to see when I joined Arcadis that there was so much focus on digital, which is also why the appointment of the Chief Digital Officer is an important step in becoming the digital company of the future.

So what does that mean for the work we do, I think there is probably two distinct opportunities, the very first one is to just improve our own delivery, the work we typically do today. So that’s not necessarily change of the business model, but if you can do it rapidly and you can be seen as a leader, it also gives you an opportunity to sell different models to our clients.

And it’s probably no secret at the end of the day those who actually own the data will be the people who if they have the data in a meaningful format will ultimately be able to use the data for analytics and so forth and so forth and that’s I think will be the people who actually will be the winner at the end of the day. So our first step is to make sure that our own delivery, the work we already do is at the level where I would expect it to be and we can be seen as a leader and then the second step would be to start offering different delivery models to our clients.

So that’s an addition to – and then collect the data and improve the products after. Okay.\

And on the E2 Manage Tech I think we’ve shed for a quite a while we’re nothing for large acquisitions while this company is a very nice addition to the work we do, but is not big from an investment point of view. As Peter already mentioned the opportunity for revenue growth that would come from that and the scalability because we think the technology they have and how they apply in fact, digital technology to environmental remediation project is scalable and that’s we were interested in this company.

More of those, well companies apply, in fact, you said it yourself that applied data in the way making solution for our clients better going beyond the standard solutions. This company, E2 Manage Tech does that and there are more of those companies in the world often spin from academia that people start to setup their own company, growth level and see that in order to grow further that they need to team with the larger firm that has more resources and global and these type of companies are really of interest for us.

That’s the way industry will develop.

And maybe as a follow up, so recurring question on the Brazil and Asia as such?

Not a lot to be shared there, maybe one thing that you may have seen when we announced sometime ago a new CEO for our Latin America business and the CEO who was there is dedicated on making sure that non-core assets are optimized in terms of value and being divested. And together with you other asset owners we decided to put some more emphasis on it to make sure that this happens in the ultimate way.

Okay, thanks.

Philip Ngotho, ABN AMRO. Two last questions from my side.

Maybe just on the net debts developments going through the second half of the year. Could you give us a little bit of guidance of what your expectation is given the fact that in Qatar you’ve had these work has been approved and if I look at last year we saw a bet debt improvement of around 100 million so significant cash inflow, should we expect something similar for second half of this year, if you can say something about that.

And then maybe my last question is to get a bit of better feeling on Brazil, there are some further restructuring taking place, can you give some indication how many FDEs are still in the business because that’s shrunk tremendously over the years. And also I was wondering what the nature of the operating loss is at the moment, is it really a effect that you’re not able to cover the overhead or other some project losses as well in that?

For net debt, if you look at the typical seasonal pattern of our cash flow for the second half of the year tends to beat alone where we generate significant cash flow, we did it well. At least for the last seven years that’s how long I can go back quarters, how long I’m with Arcadis and also in this year I would expect strong positive cash flow in the second half of the year bring down our depth further by year end.

We showed in the slides pictures for 2015, 2016 first half of 2017 so I think from that you can draw your conclusions. And the Middle East payments definitely will be an significant contribution to that in terms of overall movement.

In Brazil, I think it’s not almost three years ago at the peak we had the 3,200 people employed in Arcadis as a logo for our Brazilian entity. Right now, we’re just over a 1,000 people so it has already come down significantly.

Many of the people that left or often linked to individual project and in Brazil so with the labor laws it will project finishes and people don’t go to a new project is relatively easy to get them off the payroll. It’s more difficult for people that say employed for a longer term or in direct functions, those we also have addressed and are still addressing.

So if you ask me, linked to your final question the reasons for the losses, utilization is part of it, it’s indirect cost that need to come down and also on some of the projects which often see as an organization is not very busy, people try to stay on their projects bit longer than they should be which also is a factor that plays into the operating loss.

To follow up on that after the restruction how many of these do you believe will be there left?

I think by year end there will be more towards the 1,000 level.

What is your outlook for Brazil in terms of operations or in EBIT for the second half compared to the first half given the measures you’ve taken. Given the revenues at a certain level is that are we going to see some improvement year-on-year then, is that a correct conclusion?

Well, second half of the year for Brazil last year wasn’t great, I think you remember that particularly the last quarter. I think the actions we’re taking now should help because we’re reducing the cost and that revenues being stable and there is also some of the projects that I just mentioned being nearing the end as a new project being wormed, underlying factors and drivers of profitability are improving.

But it’s still a glittery market so I stay away from giving very say, clear guidance on how the second half will be because there are certainly still risks in that country also because of the behavior of clients that are just uncertain what to do given the economic and political environment. and we’ve examples where between projects mobilized the people and clients still on the Friday no.

We still wanted to write one or two months to start implementation of a project and then you have 50 people on the bench for one or two weeks or months till our clients move. And that situation is something I can’t predict so that therefore a risk I want to be clear about.

My final question about, let me say that breakdown of your DSO, can you give some flavor on it, about the developments there, Continental Europe or mutual market?

In general yes, we’ve made significant progress in most of our regions and that includes even countries in Europe where we did okay and starting doing even better. Improvements in North America consistently for quite some time.

The areas where the DSO is still high and driving up the average are particularly the Middle East and while I think we’ve spoken a lot about that so no surprise there from that statement. But also in Asia, it’s still above the average, so they also I think have an opportunity but they also agree themselves and are working with specific actions to reduce their DSO and finally also in the Latin America, we also have seen improvements in that region they’re not yet at the level where they want them to be.

So in that sense the emerging markets are still the crystal of countries where the DSO is too high. But I guess, is both average in emerging markets.

You have additional parts significantly above average so there is always the element of national culture and the way things happen in countries, so the emerging markets are both average I think as I given, I agree to that but it doesn’t mean that we should expect, and we don’t expect where some of them currently are. So that’s the improvement is still significant, we talk about tons of millions of cash to be generated from reducing that.

I would like to switch to the conference call to give people the opportunity to raise questions.

Good morning two questions left. Firstly, when you look at the U.S.

market data check is very positive on the U.S. federal and defense market.

What is currently your position towards let’s say the federal and defense market in the U.S. and do you see also say similar improvements that spending are increasing there.

And second it relates to some segments we’re seeing improving market circumstances and then there is always the risk that everybody start to demand higher wages. Maybe you can spend some words on the risk of above average wage increases if market indeed continue to improve?

If I start with the, the first question first, sorry you’re making reference to an optimistic statement about the increases in federal spending. I don’t think that we would necessarily make that same optimistic statement that doesn’t that it’s pessimistic statement, but I don’t think I want to let you leave with the idea that we see a significant increase in federal spending.

To the second point about the wages in fact that was something we did discuss quite a bit in our U.S. board meeting two weeks and a little to our own surprise and a little bit against what we’ve seen in the past that we don’t see a lot of wage increases yet.

You would expect that to indeed and I think that’s why your question is still valid. But it’s not something we’ve seen until this point in time.

Alright, thank you.

Yes, good morning gentlemen. Few questions on my side.

First of all, going back on the U.S., you have many changed there, so quickly maybe some flavor on the main changes you have implemented there and what you believe there that have been the biggest improvement you have seen due to those measures? And probably of course, you had the best – new CEO U.S.

is mainly in the federal side, so do you see already some benefits from that during the project? Then secondly on the CEO impact where you mentioned that gives some smaller mark, could you give some [indiscernible] that you believe is the seasonal impact or the working days impact in Q2 coming from the shows level and maybe also – on that would be great?

And then looking at on the receivables, you have despite affect that [indiscernible] days due have increased you’ve produced provisions, receivables you could give some word that’s vague, why do you do that and when largely on the – you had some issues [indiscernible] in Belgium could you give some feeling on how that utilization has developed and what the consequences?

I will take that first question, but I want to make sure that I’ve heard the question correctly. So, I think your first question was related to the management changes in the U.S.

what those changes are and what our expectations going forward, is that a good summary of the question?

Yes. And what’s you already have seen to the price, because you see now improvement in the self performance so could you give some feeling on what’s in the future?

Yes, okay. So, I’ll take that one first.

As I think you all know Mary Ann Hopkins came in September of last year to assume the responsibility for the Americas. Mary Ann comes out of an adjacent industry or you could say very similar industry largely indeed or in fact almost exclusively focused on North America in terms of her experience.

So I think her being added to the executive board and taking that responsibility has contributed to the improvement. Clearly, someone who understands the U.S market has worked in the U.S.

market, has the relationships, knows how to do work in the U.S. is of meaningful importance.

Changes made at the level below I think have also contributed to a better situation. So it is not just an individual, but it is certainly to a large extent the result of Mary Ann coming in plus some changes we made at the levels below and we’re not at the point where I can safely say we’ve made all the changes we want to make.

There is certainly a possibility that we would be looking at some more changes to further improve the business.

The seasonal impact Hans, we did some rough calculations about the number of the working days, first quarter, second quarter across the various geographies and we think roughly there is 1% of revenues that was recorded in the first quarter that you compare with 2016 was in the second quarter. So you could say take the half year of this lik3e-for-like there would have been 1% shift from Q1 to Q2 you not make it like-for-like.

And then the EBIT is about half of that so you talk about say 6 million revenues that would have been in Q2 if E would have been the same as 2016 and roughly €3 million would have moved from Q1 to Q2. So not very significant but maybe helpful to understand the performance development.

In terms of receivables, well this is an collection of many positions in many countries, we had some favorable developments and some of the receivables we had provided for that did paid in some of our geographies that was released to the P&L and therefore then also the provision came down. On the other hand we also added €4 million to the provision for new risks that we had identified.

So those are also making the development of the provision for receivables. And the last question on utilization in Europe, I think we mentioned earlier that particularly Belgium we were busy with some tenders for large infrastructure projects and in the meantime we did win them and that has led to a significant improvement of our performance in Belgium with a higher utilization.

In France is more from the other side where we’re reducing the staffing and there we’re having the restructuring program which is being implemented that set us on schedule and it’s also helping the French organization to stabilize.

So you’re already seeing the full impact from – back in Q2 in France?

We did see that because the restructuring program was designed more than a year ago and then it has to go through quite some discussions, meetings, approvals before you can start execution. So the execution is in full swing and with that it also helps to utilization of our staff in France.

Okay, thanks.

Are there any more questions?

Last question about Middle East, are you still picking up work in the Qatar given the political distress there?

So, let me talk about the political situation and the impact on us because it of course is a significant issue in lot of people’s mind. The impact on us so far has been relatively limited and that it largely impact the logistics, so people travelling in and out of Qatar.

Not really small but at the same time not of major impact either. In terms of new work, I think Renier has already mentioned a few times that we’re probably more selective than we’ve been in the past in assuming no work.

So the work we’ve taken on lately is more additional work on existing contents then a lot of new work.

Then if people cannot move in and out Qatar expect maybe for the western Europeans can you still execute at work then if you’re picking up work in Qatar?

Yes, so the limitation on moves is simply on flights between the Emirates and Doha as an example or Jeddah and Doha so it does limit movement of people but it’s not like our work is totally dependent on lots of movement of people. It’s one or two people who need to travel to a country now instead of going directly from Doha to Jeddah they have to go Doha, Dubai or another place and then ultimately to Jeddah.

So it’s not of, I wouldn’t over sell it as a major impact on the work we do. It’s just a hand full of people who are part of that travel.

Most people stay in Doha and just execute the work as they did in the past.

[Indiscernible] couple of questions. You mention that you expect major cash collections in Q3, Q4, if my memory says me well.

You even had a little bit hope that we would see some major cash collections in Q2 and otherwise would be Q3. Do I read some improvement in those cash collections or?

No I think we’ve been fairly consistent that we did expect to see cash collection and we did see that and that would also be in the second half of the year which we now call Q3, Q4, but we haven’t changed our stance on the timing of when we would expect the cash collection to receive. I think we said last time also we expect significant program on milestones in Q2 leading to cash flow in the second and is exactly what’s happening.

You discussed about the project execution, in due time do you expect again to achieve margins of 10%? Do you expect that’s a question?

I don’t think as Renier said that we won’t necessarily go into forecast on where we expect the margins to go. But it is my expectation that we will see an improvement because of better project execution.

But as I also explained I don’t want to over sell this as a quick fix which will be put in place next week and the results will automatically fold. It’s a fairly complicated issue in that it touches on the culture, it touches on lots of things which need to be put in place.

But I remain optimistic that there is opportunity.

And lastly, the simplification program. Can you inform us where you’re today and what kind of savings are still to be expected?

Yes, happy to do that you remember that we had two savings targets one was for more cultural activities, we had the saving target of €10 million and we said there is a €20 million target that’s agreed with the individual regions, how they will reduce that cost so in total €30 million. And in the first half of the year more than the half has already has already been achieved.

So, we’re well on track to deliver the €30 million and probably are doing a bit more than that.

I think there are no more questions so then I would like to thank you for your attendance and questions and will close this meeting. Thank you.