Arcadis sees double-digit growth in UK despite global set-backs
International engineering consultancy Arcadis enjoyed growth of 13% in the UK in 2018, but its global entity has reported a multi-million pound loss in its annual results. Despite strong performances in the UK, North America, Continental Europe and Australia, the firm was hit hard by a £35 million write-down in its Middle East division, as it looked to restructure its offering there.
Arcadis is a global professional services firm for natural and built assets, specialising in design and consultancy services. The company applies deep market sector insights and collective design, consultancy, engineering, project and management services to partner with clients, delivering sustainable outcomes throughout the lifecycle of their natural and built assets. The firm’s 27,000 people are active in over 70 countries, generating annual revenues of €3.2 billion.
At a time when the British construction sector has endured a tumultuous period, plagued by sluggish productivity and Brexit anxiety, some might have assumed that Arcadis’ services would have seen muted results in the UK in 2018. While outsourcer Carillion collapsed, and Capita and Interserve both witnessed share value slumps, however, Arcadis saw a year of bullish growth in its British wing.
Arcadis’ wing in the UK continued strong organic net revenue growth, with expansion of 13% for the year, and 9% in the fourth quarter – even as the UK economy saw its lowest level of growth since 2012. According to the company’s annual results report, this was mainly driven by large infrastructure projects such as High Speed 2 and Lower Thames Crossing. While operating EBITA margin fell to 8.7% from 9.2% in 2017, the attaining of many strategic pursuits contributed to a backlog growth of 13%.
Key contracts gained by the company, such as a new four-year role with Highways England, will likely see this positive performance continue in the UK in 2019 and beyond. The firm’s North American net revenues also increased organically by 6% and 11% in the fourth quarter, while its offices in Continental Europe saw a net revenue growth for the year of 3% – despite a 2% decline in the fourth quarter. The operating EBITA margin improved to 8.4% (2017: 7.3%) led by the Netherlands, Germany and Belgium. However, the news was not so positive for Arcadis across all of its outlets.
In the Middle East in particular, the consultancy took a big hit. The firm endured lower organic net revenues in the Middle East of -39% in the year’s final quarter and -17% in the year. This translated to a £35 million write-down in its Middle East division, meaning that overall Arcadis plunged to a £24 million credit loss. The firm cited a strategic re-orientation and various measures including higher selectivity of clients as being behind the massive dent in the income of its Middle Eastern region, adding that the operating loss was declining by the quarter, and as the assets start generating cash, the firm anticipates to be break-even in the second half of 2019.
In a statement on the results, Arcadis CEO Peter Oosterveer said, “We made significant steps in 2018 towards our 2020 targets in our key markets North America, the UK, Continental Europe and Australia… Overall, we generated strong cash flow from disciplined working capital management throughout the organisation… Earlier headwinds in the Middle East caused us to be more selective, in order to de-risk our portfolio. This resulted in lower revenues and, as a consequence, we impaired goodwill."
However, Oosterveer remained positive about the firm’s outlook going forward. He concluded, “There is no denying that 2018 has been a challenging year for Arcadis, but we are pleased with the growth in the majority of our business, the strengthening of our balance sheet, as well as with the actions taken to improve our performance. Our strategy towards 2020 is clear and we have confidence that our efforts in 2018 will further pay off in 2019."
