Good morning, everyone, and welcome to this Virtual Analyst Meeting. My name is Christine Disch, and I'm the IR director at Arcadis. We are here to discuss Arcadis' second quarter and half year 2022 results released this morning at 7:00 A.M. CET. With us on the call are Peter Oosterveer, our CEO, and Virginie Duperat-Vergne, our CFO. We will start with a presentation by Peter and Virginie, which will be followed by Q&A. For the analysts attending this call, in case you would like to raise a question, please notify us using the chat box, typing, "I have a question," or simply saying, "Question." Please do so after we've opened up for Q&A. Kindly keep it to a maximum of two questions at a time.
Lastly, we would like to call out your attention to the fact that in today's session, management may reiterate forward-looking statements which were made in the press release. Please note any of these risks related to these statements which are more fully described in the press release and on the company's websites. Now, with these formalities out of the way, Peter, over to you.
Yeah. Thank you very much, Christine. Good morning, everyone. Thanks for joining us on our Second Quarter and Half Year Results Call. Let me begin with saying that I'm pleased to report a solid set of results for the first half of the year, with accelerated organic net revenue growth and an improved operating EBITDA margin of 9.3%. Strong order intake and continued client demand across our three global business areas, Resilience, Places and Mobility, has resulted in organic backlog growth of 5.9% for the second quarter. This is obviously keeping the business firmly on track to deliver on our strategic targets for 2023, whilst also allowing for further investments in the retention, the development and hiring of key industry talent, as well as in the development of additional digital solutions.
That focus on digital solutions is also strongly supported by the recently announced intended acquisition of the Canadian IBI Group, which strengthens our digital capabilities while also significantly enhancing our footprint in North America, a key area of growth. Altogether, this is a significant milestone in our strategy. I will get back on the intended acquisition later on in the presentation. Okay, let's look at our three global business areas in a bit more detail now. Our Resilience business is focused on providing comprehensive, sustainable solutions for our clients. Obviously driven by the need to respond to the challenges climate change and water scarcity poses to societies across the globe. This builds on our heritage and expertise in, for example, environmental restoration, where tightening regulation around PFAS has seen us supporting more clients as they are obviously required to adhere to strict environmental obligations.
In addition, the current geopolitical tensions and ensuing economic challenges, as well as the continued extreme weather conditions, has created an accelerated focus from both public as well as private clients on investments in climate adaptation, energy transition, and energy independence, as well as water optimization. This altogether has created a healthy and growing pipeline of opportunities for both public and private clients in many of our regions, including North America, Europe and the U.K., Australia and Brazil. In the second quarter, we delivered solid organic net revenue growth of 8.5% in Resilience. Recent projects we won includes our further ongoing work to protect Lower Manhattan from rising sea levels and coastal storms.
Having worked with the New York City Economic Development Corporation to secure prior funding, we are now working on the next phase of the master plan, and this includes providing preliminary design services where we are developing an energy and sustainability vision and leveraging our digital tools to conduct risk assessments, stakeholder management, and design development as the city pursues its target to be carbon neutral by 2050. Next, our Places business area is focused on creating smart and sustainable places and communities. This was defined broadly for a good reason and goes well beyond just the more ordinary buildings. It includes, for example, also the work we do for a variety of clients who want to build gigafactories necessary to support the transition to electric vehicles, and that could be whether batteries or charging stations.
It also includes the work we do for clients who are looking to develop sustainable distribution centers, manufacturing facilities for the production of life sciences and data centers. It also includes the design and development of transit stations increasingly required to support new and more sustainable mobility. Whatever we do for these clients, our solutions are focused on production and energy efficiency, as well as on helping them to reduce the carbon impact of their assets and allow them to reach their net zero goals.
In our Places, the GBA, we have experienced good revenue growth of 5.1% in the second quarter, driven by the U.K., North America and Australia, and somewhat offset by ongoing lockdowns in China. A particular example of what we do in our Places business is the work we do for Wallbox to manage the design and development of its new electric vehicle charger manufacturing facility in Texas. By 2025, the 130,000 sq ft facility is expected to produce over 500,000 charging units every year. This is just an example of the requirements which come with the acceleration to EV adoption to support the reduction in global carbon emissions. Our mobility business area has a strong focus on creating greener and cleaner mobility solutions, drawing on Arcadis expertise in highways, rail, again, electric vehicle adoption and airports.
At 11.1%, our revenue growth was particularly strong for Mobility in the second quarter, and this was driven by public and private clients in the U.K. and Australia, as well as continental Europe and North America. The U.S. airports, which fared competitively well during COVID-19, are now actively investing in infrastructure. The latest example of this is the new $9 billion P3 terminal project in New York, where Arcadis advised Ferrovial on the transaction. We do see more airports who recognize the need for additional investments in order to be much more resilient than they have been, unfortunately, coming out of the pandemic. As already mentioned a few times, EV sales continue to grow around the world, and client demand for new mobility has also been a significant driver of growth. We're seeing increased investments in additional capacity for EV charging infrastructure.
As another example, we've recently scaled our fleet electrification knowledge to Australia through a partnership with the Shenzhen Bus Group. Together, we will be providing advisory service from planning and operational transition through to asset management, training and design and engineering to help Australian transport operators make the shift to electric vehicles. Summarizing what we have experienced since we created our new GBAs at the beginning of the year, we are pleased by the increased order intake from clients in support of their net zero ambitions. We're pleased with the increased focus on global electric vehicles and infrastructure rollout, and we're also pleased with the need for sustainable industrial manufacture solutions and the urgency displayed around energy transition and energy independence, all together creating a strong pipeline of opportunities across the three GBAs.
I'm also very pleased with the significantly increased global collaboration within Arcadis, the scaling and cross-selling of services, all dynamics we expected to see as a result of the creation of the GBAs. Dynamics which directly benefit our clients. Next, I'd like to talk a little bit more about our recently announced intended acquisition of the Canadian IBI Group, a forward-thinking, technology-driven design firm. As I touched on at the start of this presentation, this acquisition marks a significant milestone in our business strategy. The acquisition is fully aligned with the business strategy we rolled out back in 2020, when we announced the Maximizing Impact strategy for the next three years. This is definitely a transformational step in the development of new digitally enabled client solutions through the intended creation of a fourth Arcadis global business area called Intelligence.
Combining IBI Group's intelligence platform and digital capabilities with Arcadis Gen and all our digital solutions. IBI is highly complementary to Arcadis' own GBAs, particularly in North America, where Arcadis has a large presence in Resilience and relatively smaller footprints in Mobility and Places. It also will allow us to get a much strengthened position in the highly attractive Canadian market. This combination will definitely create the global leader for urban planning, designing and building the resilient cities of tomorrow. The combination of IBI and Arcadis will deliver material revenue and cost synergies. The combination of Arcadis Gen and IBI's intelligence portfolio will provide clients with a holistic suite of digitally enabled client solutions. It will allow us to drive efficiency and additional productivity and be a platform for innovation and create positive disruption with technology.
To recognize the full potential of a larger and more comprehensive digital platform, consolidate existing products and services and optimize future investments, we intend to create this fourth GBA, which will support Arcadis existing GBAs with technology-driven client solutions for Resilience, for Places, and for Mobility. It will deliver a wide range of services from tech-driven consulting, such as software and systems design and integration, to software as a service or software as a product. The intended new structure of the four GBAs will allow our combined client base to benefit from both Arcadis and IBI's groundbreaking expertise. That means that in Resilience, we will combine our climate change expertise, energy transition, and water optimization, and it will be complemented by IBI's expertise in wastewater engineering, land engineering, and environmental services.
In Places, our capabilities in the varieties of businesses I referenced before will be enhanced by IBI's unique expertise in urban planning, smart cities, and placemaking, and it will furthermore allow us to consolidate both of our complementary architectural capabilities. In Mobility, our experience in building intelligent rail and transit, connected highways, and resilient ports will benefit from IBI's experience in transport planning, engineering, and management. Finally, as I mentioned before, in our newly created GBA Intelligence, we will combine our respective portfolios to deliver a wider range of solutions from, again, software as a service, software as a product, to software and system design and systems integration.
By acquiring IBI, we will add material scale in North America, and the contribution of revenue from this region will, as a result, increase to 43% of our revenue, rebalancing the contribution from the North American region versus Europe. With that, I'll turn it over to Virginie for additional color on the financial results.
Thank you very much, Peter, and good morning, everyone. I'm pleased to provide you with some further comments on our performance in Q2. During the first half of 2022, we delivered a net revenue of EUR 1.4 billion, corresponding to a very solid net revenue organic growth of 6.9%. As per our definition for organic growth, the impact of currency movements, acquisitions, divestments, but also wind-downs of footprint reductions such as the Middle East are excluded. The operating EBITA was EUR 133 million, compared to EUR 116 million in the first half of 2021, and the operating EBITA margin increased to 9.3%, driven by the Places performance.
Our disciplined working capital management allowed to further improve our net working capital as a percentage of annualized gross revenues to 13.3% versus 14.3% in H1 2021, and to further decrease our DSO to 69 days versus 74 days end of H1 2021. Our balance sheet further improved year-on-year, resulting in a significantly lower net debt position of EUR 283 million, which includes leased liabilities of EUR 253 million. Revenue growth in the second quarter was supported by all of our three GBAs, which are increasingly collaborating on the scaling and cross-selling of our services, and in turn reflected in a very solid organic growth of 8.1%. The operating margin for the second quarter was 9.3%, and the year-on-year improvement was driven by Places.
In this quarter, we further invested in digital solutions for clients and in the attracting, retention, and development of key industry talent while starting to successfully absorb wage inflation. Furthermore, we saw a normalization of our operating expenses, where last year's margin was supported by lower costs related to, as an example, travel, housing or office-related items, driven by the abnormal circumstances that COVID-19 created. We were able to already pass on inflated salaries and operating expenses to our clients to some extent, and we are confident we will be able to agree on fair and competitive rates to our clients that are in line with wider economic circumstances and labor market dynamics. Net working capital percentage improved versus last year. The low starting point at 2021 year end of 10.7% caused a higher cash outflow during H1 2022 than we saw in H1 2021.
At the end of June 2022, our backlog was at EUR 2.3 billion versus EUR 2.1 billion one year ago. Organic backlog increased by 5.9% year-on-year with a positive contribution of all three GBAs. Turning now to the results by GBA. First, our Resilience business. We saw there very solid revenue growth driven by public clients as well as private clients, an increased amount of scaling and cross-selling between GBAs. An example of cross-selling is a sustainability advisory we do for a large mobility client like Los Angeles County Metropolitan Transportation Authority, helping them to meet increased sustainability and transit accessibility targets ahead of the 2028 Olympic Games. As part of this, we are delivering a wide range of projects, such as managing resources efficiently, minimizing waste, and reducing greenhouse gas emissions.
The margin for the half year was in line with our expectations and driven by good margin levels in North America and U.K. The margin decrease versus last year was to a large extent driven by increased investment in digital solutions and people as we continue to invest in attracting and retaining key industry talent to execute our growing backlog and expand our skill set while trying to pass the wage inflation. Moving now to our Places business. Good revenue and backlog growth was again driven by a strong U.K., North America and Australia, partially offset by COVID-19 lockdowns in China and CallisonRTKL and Arcadis getting back on track. The margin improved year-over-year, driven by higher contribution and very strong performance from U.K. and North America, while last year margin was impacted by losses on projects in Asia.
The project example of Birmingham City Council demonstrates the work we do for large public clients, supporting in shaping cities of the future. For Birmingham, we are to deliver the next phase of its Our Future City Plan, supporting the city's sustainable development for 2024 through strategic proposals that address different themes, ultimately promoting economic, social and environmental sustainability. The backlog growth was very strong for U.K. and Australia, with Continental Europe also contributing. Order intake was lower at Greater China, driven by COVID-19 lockdowns. All in all, we see a healthy pipeline of opportunities across a resilient client and solutions portfolio, with very strong demand and investment in EV gigafactory space for support in permitting D& E, and program management, but also increasing CapEx investments in industrial manufacturing, driving resource efficiency and productivity. Now, moving to Mobility results.
Revenue and backlog growth were very strong for the first half year, driven by a very strong U.K. and Australia, and with additional contribution from North America and Continental Europe. This was slightly offset by performance in Greater China caused by ongoing lockdowns. The margin development year-on-year was also driven by increased investment in digital solution people, and more than anything, as a result of the strong organic growth of the recent quarters, we saw high volume of large projects in their ramp-up phase. We increasingly apply digital solutions in the work we do, and as an example, we are delivering a project for Georgia Department of Transportation, with whom we have a long-standing relationship, like with a number of other state departments of transportation in the U.S.
We are designing and maintaining an intelligent transportation system for that client in Atlanta, using technology to manage traffic flow and create safer conditions for drivers, cyclists and pedestrians. Operational performance of the group. EBITDA improved by 14% from improved performance across the GBAs and partially helped by FX impact. Net finance expense decreased to EUR 6 million, versus EUR 13 million one year ago, from a lower net debt position. The effective income tax rate for the six months period ending 30 June 2022 was 28%, normalized compared to last year, as the latter was impacted by updates on prior tax positions before 2021. Net income from operation increased by 16% to EUR 93 million or EUR 1.04 per share. Turning now to the cash flow.
The change in net working capital of EUR 113 million since the start of the year was driven by the reversal of a relatively low net working capital position at the start of the year. End of 2021, we saw a significant cash inflow from large clients, leading to higher cash outflow for us in the first quarter of 2022 compared to the first quarter of 2021. Furthermore, June 2022 was a particularly strong month in terms of gross revenues, driving up the unbilled receivables, and with that, the net working capital position. Lastly, the lockdowns in China impacted our capability of issuing invoices and collecting cash for a number of weeks, slightly impacting our cash flow generation.
This resulted in a free cash flow of EUR 10 million for the first half of the year, roughly in line with our seasonality pattern, with cash consumption in H1 and a strong cash generation in the second half of the year. With this, I'd like to thank you and hand you back to Peter.
Thank you, Virginie. Let me wrap up our Q2 and half year performance with a few closing comments. I'm obviously, first of all, very pleased that we delivered a very solid set of results, fueled by sustained client demand despite geopolitical tension, inflation and somewhat uncertain economic outlook. Our GBAs are now firmly established and are creating the benefits we hope to see. This is contributing to the solid progress on the implementation of our strategic plan. Progress which will be further enhanced by the intended acquisition of the IBI Group, which will particularly strengthen our digital leadership, enhance our footprint in North America, and add complementary capabilities in Places and in Mobility.
Alongside revenue growth, margin improvement and a strengthened balance sheet, we have maintained our focus and continued with our investments in digital and people. In that context, I'm also pleased to share with you that our attrition has stabilized, that we're still an attractive employer and are able to attract the key talent industry we need. Finally, as another positive signal, our recent survey resulted in a substantial improvement in our internal engagement score. This all combined gives me the confidence to reiterate that we remain on track to deliver on our 2023 strategic targets. With that, I'd like to hand it back to Christine, who will open up the Q&A.
Thanks, Peter. Hereby, I would like to open up for Q&A. In case you have a question, feel free to use the text box saying, "I have a question," or "I have a question?" Please keep it to a maximum of two questions at a time. See that Martijn den Drijver has a question. Please go ahead, Martijn.
Yes, good morning, everybody. den Drijver, ABN AMRO- ODDO. My first question relates to mobility and resilience. That strong organic growth, yet the EBITA margin declined year-on-year. You mentioned that's due to investments in digital and people. The first question is, in this respect, is that an equal split between digital and people? With regards to people, we've talked about wage inflation on basically all calls in the last three quarters. Can you elaborate a little bit as to why it has impacted your quarterly results or semester results so much today, given that you've always indicated that you're able to pass on prices to raise tariffs? That would be question one, and I'll do them one by one, please.
Thank you, Martijn. Maybe I'll take this one. Yes, you're right. That is impacting us because in our mechanism, we generally generate salary increase in April every year. That's the moment that it goes into the P&L. I think it's a little bit, you know, easy to capture that that's not an immediate mechanical element that to pass that to clients. It takes a little bit of time. As we stated in the past, some of it is quite mechanical, and this is when we work in terms of cost-plus contract. For the rest, that requires, you know, to take your phone, call the client, discuss on like escalation clauses and start applying it. Potentially with some others, it's around the commercial negotiation.
I would say that we found ourselves in a positive situation where we've seen that getting quite faster. That has allowed us, you know, to go on maintaining the traditional investment that we make into digital and that we've been doing, let's say, since the beginning of this strategic plan. Going on investing in attracting new talents and especially expanding our skill set during the quarter. On top of some retention measures that we've been putting through as we wanted to fight the attrition rate. Sorry. That for us is quite a success. The performance and the growth has been giving us the possibility to do that in all our three GBAs.
While at the end of the day, yes, okay, year-on-year, it's decreasing a little bit in Mobility and in Resilience for that quarter. Overall, the Group operating margin is above last year. That has been our way of, let's say, go on investing and maintaining a significant investment while going on, you know, improving the margin we are delivering on a Group-wide basis, outside.
Are you saying that catch up in the second half, you're able to negotiate and raise tariffs?
Yeah.
that you should go back to previous levels in terms of EBITA margins? Is that what you're guiding for?
I'm just telling you that yes, you know, even, you know, in the IT systems, it's very. You push something, you know, in the salary system, that goes then in your ERP in terms of impacting your projects. Depending, you know, can be a few days or weeks and such. That can be seen by the project manager at the end of the month. You more or less have the first month that everyone is waking up. Second month start moving. We've seen that it goes potentially even faster as it has been in some previous year with more, let's say, traditional wage increase. We are quite pleased, you know, with the reactivity of our teams and also the support of the clients.
Just one final follow-up. What was the average salary increase for the Arcadis Group?
Oh, we're communicating on that one. That's not even on item.
I'll move on to my second question. The unbilled receivables. I understand that you're saying it was incredibly high in terms of the growth in June.
Mm-hmm.
When I look at the quarter, last year in the second quarter, you had 6% organic growth. That's pretty sound, pretty high as well. You didn't have the increase in unbilled receivables, and now it's EUR 130 million higher than year-end. Last year, you had 6% organic growth. It was EUR 75 million higher. Is there something that we should be aware about in terms of Oracle Cloud or is this really just a temporary June effect?
Yeah, it's the pace of the growth. Last year, I would say it was more something like steady. Here we really had a growth that really strongly accelerated in June. Some of those resulting from some wins also in terms of the balance of working days between the end of the quarter. There is a bit more unbalanced growth toward the end of the quarter. Very mechanically, if you have two fantastic last weeks, you don't have even the time to convert that in invoices or to start getting some cash in. That's exactly the picture, the balance sheet being the picture, the photograph that has been taken at a very particular moment from that one-year low, I would say.
Okay. For the second half, we go back to normal rates, levels of unbilled receivables, normally speaking.
Yeah. Even with that, you know, year-on-year, if you take the working capital ratio, this working capital ratio is improving. The cash management policy helps us also to go through this acceleration of the growth and, despite that, you know, maintain the cash management and the ability to manage our working capital.
Okay. Thank you very much, Virginie.
Thanks, Martijn.
Okay. We have a question from Quirijn. He's dialing in by phone. Quirijn, can you hear us?
I can hear you loud and clearly, I must say. Good morning.
Hey. Good morning.
Yes, we can hear you.
Good morning, everyone. Now, I limit myself to two questions. My first question, stabilization of attrition rate. Can you maybe give the numbers of this attrition rate at this moment? Let me say, the difficult April month is gone now. Maybe you can give us insight in that respect. Then, about the order book, the growth of the order book at the end of the first quarter was much higher than it is now. If I look at the inflation rates, et cetera, and the raised rates for wages, et cetera, it looks to me that the order book at this moment is somewhat at the low end. Can you maybe confirm that or say something about it?
Yeah, let me take the first one, Quirijn. In fact, you described April as a difficult month, and I think presumably you were referring to the fact that salary increases and potentially incentives are being paid out. In fact, we already saw the beginning of a stabilization in April, and I recall that in the last call we had, that we actually quietly made reference to the fact that we're beginning to see the stabilization. In the ensuing months, we have seen that continue. That gives us confidence to now claim, since we've seen it a couple of months, that it actually is stabilizing and the expectation is that it will then eventually, of course, turn into a decline.
It is still around the 15% for Arcadis as a whole. That is, you know, a little lower than the highest point. That was in the mid-15s. It is stabilizing and heading in the right direction for Arcadis as a whole. Then, of course, as always, you know, you see geographical differences depending on where in the world we operate.
Okay. With China at the top and, let me say, Continental Europe at the bottom.
Yeah, that's directionally about right. Yeah.
Maybe I'll take the one on the order book and on the increase. The pace of, let's say, the inflation rate being recorded in the order book gets exactly the same way as the negotiation with the clients. For sure, you know, inflation is not completely in the order book. That probably, you know, explains part of your observation. Traditionally, Q2 is also a quarter with quite a number of bank holidays in a number of countries and such. We generally see that has an impact in some of the signature of the contract and the moment order intake can be recorded.
The pipeline is really, really very good. We are quite pleased with the number of projects we've been signing. We have seen in the first week of July also quite a number of conversions of the discussions that were existing and that have been signed and potentially some of these projects might have been, you know, finalized and signed in June also. Okay, it's a question of timing in some respects. No specific worry on that aspect on our side. Again, you know, rather interesting on the U.K. side, the exceptional Jubilee of the Queen this year creating additional bank holidays also for these teams.
That has definitely an impact in terms of commercial concrete conversion.
Okay, maybe last question that is to be about our Callison RTKL. Is there some ramp-up, as I understand from the revenue side, but what about the profitability there?
Definitely a ramp-up on order intake and revenue side. They are suffering the same thing that the rest of Places, which is the Chinese lockdown has been, you know, seeing a decline in revenue and in order intake on that side. China for them is also quite a part of what they do. Contrasting pace in that respect, which is region-driven by the regions. It's catching up.
The profitability is, let me say, I understand the back office integration within Arcadis, et cetera. That should lower the cost base for Callison RTKL. Is that now materializing? Is that now visible or
It's materializing, but you have heard, you know, and we discussed that last week about IBI intended acquisition also. There's definitely also integration that needs to happen between the activity on the IBI buildings side and on let's say Callison RTKL and Places side. Knowing that this was coming, some of the things we've not been, you know, getting as fast as we could have because there is a clear interest on our side, you know, to make sure that these three part of our business in Places are fully integrated and work well together.
Okay, perfect. Thank you.
Thank you.
Okay. Next question come from Edwin de Jong. Hi, Edwin. Good morning. Please go ahead.
Good morning. Edwin de Jong from Edison Group. Maybe a couple of follow-ons also on the comments that Martijn made, and Quirijn as well. It's good to see that the volumes in the order book are going well. The question is how many people in the end are you going to have to attract to meet the high order levels and maybe also in connection with the utilization of staff? Because I can imagine that at this point, sick rates are quite high. That's what we hear at other consultancies as well. Maybe a few comments on that. I have a follow-up.
Edwin, you're right that, you know, typically the utilization of staff goes hand in hand with the order book, or to say it the other way around, employing more people typically creates a higher revenue. We still have opportunities to further optimize the efficiency of the utilization. In fact, that was also one of the reasons why we created the GBAs in the first place, so that we had a better handle on our global pool of resources as opposed to treating, you know, a pool of resources as a local pool. I'd also remind you that of course, we have the significant capability in the GECs which continue to grow, which gives us another opportunity to tap into a different resource pool.
Of course, at the end of the day, what makes this business model work in the most efficient way is to continue to attract more work and actually disproportionately attract new people. Or to say it differently, to better leverage the existing resource base and increase the billability of the people. We still think that we have opportunity within the current pool to create increased billability and not having to hire as much people, relatively speaking, as you attract new revenue, if that makes sense.
Yeah. That means probably that you're getting to higher margins as well.
That is the way this model works. Yes. Yes.
The second question is more general. It looks more and more that we're heading for a recession worldwide. The problem now is of course attracting staff, but at some point, yeah, you may be forced to cut some costs. How flexible is the cost base of Arcadis?
Yeah. The R word is now being used increasingly. I remember two quarters ago, people started to carefully or selectively use it, and then a quarter ago it was already used more. You know, when you look at our outlook and hopefully as you also digest our comments and our feedback, we're not ignoring that the economic conditions have become more challenged. The war in Ukraine was a contributor, inflation is a contributor, higher energy prices, and that all ties together. That makes the outlook, you know, obviously less rosy than it was probably a year ago.
You know, if you look at historically, to what extent our business is cyclical and completely in sync with growth in the world, then you will find that our business is typically much more resilient, and doesn't see the deep dips which economies in general see. All in all, you know, we have not even thought about the reference you made about cutting costs or to say it differently, reducing staff. We see plenty of opportunity to actually, as I mentioned in my response to your prior question, to increase the efficiency to get us through the work we already have in our order book.
That's a bit more anecdotal, of course, but when we talk to our clients, yes, there is clients who have also taken some steps. But most of the clients, in terms of prioritizing, you know, what is absolutely crucial for them, are definitely looking at ways to become more energy efficient. I think that is unfortunately what that terrible war has done. It has created an increased recognition that the energy dependence which we used to have is not what we want to continue to have.
If clients prioritize their investments and they need to choose between a new asset or optimizing the assets they have and making them less energy dependent on, for instance, Russian gas, then that choice is quickly made in favor of becoming much more energy independent. We don't see in our order book or in our conversations with our clients that the recession is hitting us or is about to hit us and would consequently result in having to let go of people. That is something we haven't even started to discuss internally, Edwin.
Okay. Maybe one follow-up and a completely different question that's more on IBI and the new GBA Intelligence. What kind of margin should we expect in that room? Maybe it's said in the previous call, but I missed that, so.
No, it's not specifically stated, but when you look at what you know, software as a service typically does generate-
Yeah.
It's safe to assume that they are in the more attractive region of margins. We have not commented, neither are we planning to do it here with any degree of specificity on the exact margins.
Okay. It is in line with market. Okay. That's great. Thanks.
Thanks, Edwin. Next question coming from Olivier Vandewoude from KBC. Go ahead, Kristof.
Yes, good morning. Thank you. My first question will be a little bit follow-up of the question of Edwin. Again, on execution efficiency, but specifically on third quarter. With the total turnover that was higher this year, and also I remember last year Q3 has a catch-up of holidays that was a bit of hampering execution, let's say. Do you expect a similar dynamics in the coming quarter of the summer holidays with both elements? And then my second question would be about the other operational expenses. You said you saw normalization, and I wonder how far are you in there? Do you expect other further normalization in Q3 and Q4, or is that all in the margins today already? Thank you.
All right.
Okay.
Starting with our outlook on Q3. We don't guide, and then that's not something that I guess we should start doing today based on just, you know, the economic conditions that we see at the moment and the uncertainty. We have no crystal ball on what things are going to happen. We have a very strong backlog to execute. We have teams that are, you know, ready to do so. We see a very positive start of the quarter, let's say. That's probably where I would start. On operational expenses, clearly, 2021 has been very different year, quite stuck in terms of lockdown and such.
We still have China and Southeast Asia, you know, which have been quite partially impacted in H1. That's why we talk about normalization. We also admit that we are not completely back to a totally, let's say, normal world, because some of our colleagues are quite still stuck with COVID-19. In the rest of the world, you know, it's more on our new way of working with quite a high part of that which still being done remotely and will probably remain that way. With travel which has restarted but will never be back again to the levels that we had pre-pandemic for various reasons.
One of those being also, you know, general consciousness of our clients and our teams on net zero implication and the commitment to reduce on that front. Let's say a different way of approaching the proper execution. That's where we are today.
Good. Thank you.
Thanks, Olivier. Next question comes from Hans Pluijgers. Yes, Hans, please go ahead. Good morning.
Yes. Good morning, all. A few quick questions.
Hans, I think it's breaking up slightly.
That's right. I will switch to.
Hans, you're breaking up. Maybe you can turn off your camera. Maybe that will work better.
Can you hear me now?
Yes.
Better. Yep.
Thank you.
Yeah, a few questions from my side. First of all, on, let's say the developments by client groups. You already mentioned it with Resilience, a good development both in private and in public. You also indicated that especially EV related news were in demand and orders were quite strong. Could you give maybe some feeling in other key trends you see changing over the last two quarters by client group, by sort of demand? Especially, do you see now already a significant increase from, let's say, some of the big plans that are there, the Green Deal and everything and in the U.S. coming through to the market? That's also giving a boost as you really now see that money flowing into the engineering business.
Secondly, more detailed, could you give maybe some feeling on in your organic growth, the component for price?
Hans, sorry, you're breaking up quite a bit, so maybe you should just.
Can you hear me still or not?
Maybe it's a good idea to turn off your camera, as sometimes the sound gets better. Then, the quality of the sound.
You get more bandwidth if you only use the voice, Hans.
Yeah. I think you were referring to big plans in the Green Deal, maybe.
From holiday.
We're sorry for that.
Can you hear me now?
Yeah.
I'm sorry if we lost Hans. Maybe we can.
No, it's.
You can't-
Yeah. We still see him on the screen.
I still can't hear me?
It's not very good. I understand that your question is around trend on client and what we've seen over the first six months or something like this. I understand that you wanted to discuss a little bit on organic growth. We'll try to cover that as much as we can, and hopefully we'll answer your questions.
Yeah. Hans, assuming that we've understood that correctly, you know, first on clients and I think the question was any, you know, significant changes in dynamics in terms of clients and/or any, you know, significant demand from clients in a particular area. You did indeed reference anything which has to do with EV, and that ranges from, you know, the creation of the gigafactories to actually build the charging stations to the ultimate infrastructure, which puts these charging stations on the road. And we see that of course across well, particularly in our case, Places and Mobility, because that's where it has the largest impact. Gigafactories in general is becoming much more of a trend.
We do see a pull from clients in the automotive sector, not necessarily related to EV charging stations per se, but for instance, batteries, also then of course associated with the introduction of EVs, and other facilities associated, for instance, with the creation of more capacity for fabrication of chips, and also a pull for more capacity to create additional life sciences production facilities, as I mentioned in my comment. What has changed probably more than anything else over the last, particularly quarter, because that I think is more a realistic reflection is the acceleration of the energy transition.
Not to say that we didn't know it, but I think, because of what happened to all of us, or at least, you know, people who follow the work closely, it became quite apparent to everyone that we can't be too dependent on one producer. The energy transition is probably what has impacted us the most. That, you know, fundamentally cuts across all of our businesses. That's not just limited to Mobility or Places, that is even something we actually see in Resilience as well. Because the energy transition as a function or let's say sustainability advisory actually resides within the Resilience GBA.
That probably is the biggest change, Hans, we've seen in the prior quarter, the acceleration of the energy transition and everything which is associated with that. You wanna handle the second one.
Yeah.
Question as we understood it?
I try to take what I think I understood around it. I think it was around the organic growth trend around the last H1, something like this. I'm not sure. I'll try to
Can you? It was around price and volume. Could you give maybe some indication on price versus volume and also on number of personnel?
Okay. Price and volume effect. That's what I catch. We are not, let's say, giving detail in that. I think that we've been seeing quite a decent absorption in terms of wages, so part of it for sure is definitely price, but there is a lot that still needs to be passed on, and definitely volume have been quite strong. Probably, you know, quite a balanced mix between the two in the quarter.
Thank you for your questions, Hans. Thanks for dialing in from your holidays. We do have a follow-up question from Quirijn. Quirijn, you had a follow-up question. Can you hear us?
Yes, yes. Quirijn again about the IBI. We are ten days later. Maybe you can update us, let me say, how were the reactions, let me say, like, at IBI for, like employees, or maybe you have spoken with the, with some large investors outside the partnership. Can you maybe update us on that, in that respect?
Yeah, I can, Quirijn, because after last Monday's announcement, I actually traveled to Toronto to address pretty much what you were just asking for. First of all, and probably more important than anything else, together with Scott Stewart, the CEO of IBI Group, address the IBI Group employees. We did that last Wednesday through a webcast, which I think was not only done quite well, but actually received quite well as well.
I think we were able to give the population at large, you know, the comfort that we look at this acquisition for a good reason because we see capabilities in IBI which we don't necessarily have in the same way as within Arcadis, that there is no concern about continued employment, because at the end of the day, that is what matters to most people the most, and rightfully so. You know, the question, what is the impact on me, not necessarily directly, but indirectly, came up quite a number of times. Based on the feedback we've received from IBI after the webcast, that is how the webcast was received.
Very positive, you know, seeing that this obviously has a lot of opportunity. That being said, of course, as always in a situation like that, there's always some anxiety as well. That is something we plan to continue to address. We had the webcast last week, and we will probably hold a few more to address any more questions before the close is upon us. I also had the opportunity to speak with a larger group of IBI leaders, larger than people I'd already met in the recent past. In the recent past, I'd met about the top 15, and now that was expanded to about 40 people.
There, I would say that the mindset has already moved from the anxiety, apprehension to opportunity. That is, of course, what we ultimately like people to actually go through. Yes, apprehension is understandable, but how can you as quickly as possible move them to looking at the opportunities? In that respect, we actually need to manage on both sides, our people. Because our people in Arcadis, but also people in IBI, you know, have a desire to reach out to their respective counterparts to look at opportunities to collaborate. Of course, we can't do that at the phase we're in. We actually have controlled our people.
We've provided them with some direction on the dos and the don'ts. Of course, in the interim, as we have not closed, it is fundamentally business as usual. Of course, we use the time to fully prepare ourselves for the integration. All in all, from an IBI perspective, and that includes, again, the 3,500 people we covered in the webcast, as well as the 40 leaders I was able to talk to. It's been quite well received, given, you know, that of course it came as a surprise to them as well. Expanding it a little broader, investors outside the partners, we haven't spoken with them extensively.
I have had a conversation with someone who's close enough to the market in Canada, actually resides in Canada while I was there. We don't necessarily expect any, you know, major challenges in bringing this to a close. It does seem, based on the feedback we've received indirectly, that people understand why this combination makes an awful lot of sense.
Okay, perfect. Neutral investors and positive employees. That's the conclusion I can draw from this.
That's a good summary.
I think also that lawyers would advise you not to reach out positively in such circumstances.
Okay. Thank you.
That's fine. Okay. We have time just for one more question. Martijn d en Drijver, you had some follow-up questions. Please go ahead.
Yeah. Thank you. Martijn den Drijver, ODDO. I wanna go back to Places because, you've mentioned Callison back on track. There's restructuring charges for the Middle East, so that's going to have a positive impact. The lockdowns in China are now over. Should we see the EBITA margin for Places, which is a significant uptick relative to last year, should we now see that as some sort of trough and it can only improve from here given these three factors that I just mentioned?
Thank you for your question, Martijn. I think that we've always been saying that there is not much difference, you know, in the margin capability of the three GBAs. That I think you know exactly should tell you where we expect Places, Resilience, and Mobility to be altogether.
Okay. Since I have one more minute left, there was a dividend that you received of EUR 10 million in your cash flow statement. From which where did that EUR 10 million come from? You also invested EUR 7 million in consolidated companies. What did you spend that EUR 7 million on?
So, um-
And, uh-
If you go back, you know, to our H2 2021, we have a joint venture where we said there was a positive, you know, closure of some discussion we had with the client. You have, let's say, the operating EBITDA elements that happened in H2 2021 in that line in the P&L. Then a lot of time you get the cash getting from the JV up to you in terms of dividend, and this is what happened. In terms of investment in consolidated entities, that's more around, you know, various elements and how, let's say, some accounting entries have been posted to get some divestment out of the company.
Well, that doesn't tell me much more, to be honest, but thanks.
If you like, Czech Republic, Slovakia and Thailand, that is in the first list.
Yeah.
A lot of time, you know, you have the.
That's. You sold those. This is a cash out.
Yes, but you know, we had to cash out some elements, and then you have the element of price, which is somewhere else. We have also acquired HydroNET in Q1, sorry.
Yeah, that would not be in consolidated companies, right? That would be in new acquisitions.
No, no.
These two elements explain the EUR 7 million. Okay.
No.
Thank you very much.
Thanks, Martijn. I believe we're right at the end of the conference call. I'd just like to give Peter the opportunity to give some closing remarks.
Yeah. Thanks, Christine, and thanks, everyone for your engagement and for your questions. Just in summary, I think we, with good reasons, have shared with you a relatively upbeat story today with strong performance. We also find ourselves in a really good spot in terms of what the needs of our clients are. If I just reflect on the internal side, real quick, you know, I'm really proud of what we have accomplished in the first six months in terms of setting up the global business areas. That was a significant undertaking, and I'm even more proud on the positive dynamics we are seeing.
These global business areas do bring what we expected they would bring, and I'm convinced that our clients will benefit from it. In a much more efficient way, we're now able to share global capabilities, global knowledge, global experience for the benefit of our clients. As we've commented several times, we will continue to invest in our growth, and I hope you don't blame us for that. We will invest in digital capabilities, and we will continue to invest in retaining the people we already have and hiring new industry talent, which we also need. Then from a more external perspective, Oh, no.
One more thing, before I forget, I also wanted to reiterate again that we're very pleased to see both the attrition tapering off or stabilizing, and actually the engagement going up at the same time as well, and that is definitely quite positive when we look at the retention of our people. Then finally, from an external perspective, we do indeed see really sustained strong demand from all our clients in all the three GBAs. We actually look at a very healthy pipeline of opportunities, notwithstanding the fact that that indeed the environment around us is somewhat uncertain in terms of economic development.
All in all, we're sitting here being pleased with what we have delivered in the first half and the second quarter of this year and positive about the outlook looking ahead of us. Thank you for your involvement today, for your interest in Arcadis, and I'm sure we'll talk soon and again in the near future.