Earnings Call: Q3 2020

Oct 29, 2020

Hello, and welcome to Arcadis MV Q3 Trading Update Call. My name is Val, and I will be your coordinator for today's event. Please note, this conference is being recorded. And for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the presentation. This can be done by pressing star one on your telephone keypad I will now hand you over to your host, Jurgen Thulen, Director, Investor Relations, to begin today's conference. Thank you. Good morning, everyone, and welcome to the Arcadis conference call and audio webcast regarding the trading update for the third quarter. I'm in the call together with our CEO, Peter Osterveer and our new CFO, Virgin Duplin, all working from home. We will start with, say, a short presentation by Virgeny du Perrin, and then we will open up for Q and A. You all received the presentation this morning, but it is also available through the Investors section of the Arcadis website for which we address the yes, just a formal remark before we start. We call your attention to the fact that in today's session, management may reiterate forward looking statements which were made in the press release. We'd 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's website. With these formalities out of the way, I would like to hand over to Peter. One moment, please. I have to reconnect Peter as well. Hello? Peter? Yeah. Something went wrong with my connection. My apologies. I think I can hear you now, Johan. Hopefully, you can hear me as well. I can hear you. I hope this works. So I apologize for this technical thing. But as mentioned before, we are all working from home and we have to deal with this situation. But I can hear you, Peter. I just made the introduction and I hope you can start right now. Okay, I will do. Good morning, everyone, and thanks very much on my behalf for joining us today. First and foremost, I truly hope that you're all staying safe and healthy throughout what are clearly still really unprecedented times. I'd like to start with the highlights of this quarter, and I will then hand it over to Virginie for some more financial details. And as I just spoke about safety, let me begin by reiterating that the safety and well-being of everyone we work with is still our number one priority. That is also why we're still strongly encouraging our people to work from home wherever possible, and the vast majority of our people are just doing that, even in cases where there's really no government requirements to do so. Even in those cases, we have our people working from home. And in working from home, our people continue to impress and amaze me with the flexibility and the adaptability during these challenging times, this has certainly contributed to what I believe are a set of strong results in this quarter. We are furthermore obviously benefiting from the actions we took in the early days of the pandemic, which was at the end of Q1, and specifically as it relates to cost containment and the ability to preserve and convert cash, which has again been a very strong quarter this year. And where we do see impact from the pandemic, it is largely with selected private sector clients and obviously in the retail business of CallisonRTGL. However, that is largely offset by the fact that public clients continue with projects to the maximum extent, which has actually enabled us to grow our backlog this quarter and actually has enabled us to grow the backlog for the year as well. As you will have seen from our release this morning, we have, furthermore taken the decision to significantly reduce our footprint in The Middle East through a process which will take, at least a couple of years to complete whereby we will obviously honor the contractual obligations we have a commitment for vis a vis our clients, and while we obviously will also balance the interest of our employees who are being impacted by this decision. So let's look at what this means in more detail on the next slide. I believe that our financial performance this quarter deserves to be called strong with an operating EBITDA margin of 10.9%, something we have not achieved in quite some time and therefore is a significant 2.5% improvement compared to Q3 of last year. Arguably even stronger is our free cash flow this quarter, following an already very strong Q2, and in my view also providing evidence that the global actions we took at the end of Q1 are paying off. With this strong performance and taking the challenging circumstances around COVID-nineteen into account, it is also very pleasing to see that we continue to win new work and are still growing our backlog. And the strong financial performance we are delivering has certainly also helped us in the successful refinancing of the €150,000,000 Schuldschein loans through a transaction which was oversubscribed multiple times. Finally, as a result of our decision to significantly reduce our footprint in The Middle East, as well as due to the difficult market conditions for CallisonRTKL, and particularly in the retail business, we have to take a noncash goodwill impairment. And for further financial details, I'd like to hand over to Virginina. Thank you, Peter, and good morning, everyone. I'm pleased to report today Arcadis third quarter results and would like first to thank the Arcadis finance team who did an excellent job in the last two quarters and has highly contributed to my almost entire virtual onboarding. Moving on to Slide eight, where you have the main financial highlights. In the third quarter, Arcadis delivered very strong operational results despite a modest organic revenue decline of 3% due to the impact of COVID-nineteen crisis, which was most severely felt in Callison Arctic Air. Operating EBITA was EUR 63,000,000, up €12,000,000 or 22% from Q3 twenty nineteen. The free cash flow was again very strong and led to a net debt of €195,000,000 at the end of the quarter. Together with a strong EBITDA of EUR74 million, this led to a covenant leverage ratio of 1.2 and a spot leverage of 0.8. Due to the strong cash collection, the net working capital percentage further improved to 16.6%. Organic backlog grew 6% year to date and 3% over the quarter, driven by good order intake in infrastructure and environment. Arcadis also booked €126,000,000 of goodwill impairment in the quarter corresponding to a €60,000,000 impairment for CRT KL reflecting the COVID crisis impact on the business and the €66,000,000 impairment for The Middle East following the group decision to reduce significantly its footprint in the geography. Turning now to Slide nine and to the detailed operational performance. Looking to the revenue development in the quarter, we see a continued strong performance in The Americas, which represents 36% of total net revenues. Net organic growth in this region was 8% year on year at constant exchange rate. Continued strong growth in Water and Infrastructure in North America is now also supported by growth in environment. In the third quarter, we also won several good projects in PFA remediation globally, while in Latin America, we saw a solid growth driven by infrastructure and environment in Brazil. Looking to Europe and to The Middle East, which accounts for 44% of net revenues, we see overall a revenue decline of 6% due to COVID-nineteen current crisis. The impact was felt in most countries except in Germany where we delivered strong growth. In The UK, we experienced some decline in buildings whilst we delivered growth in infrastructure and water. As an example, we signed a new contract for High Speed Railway 2, which brings significant workload for many years in infrastructure. In The Middle East, revenue slightly declined. We announced today that as part of our ongoing global strategy review, we decided to significantly reduce our footprint in this region. This decision will be implemented carefully, and we will ensure this will not impact our clients and the delivery of our ongoing projects. As a consequence of this decision, we impaired the related goodwill and identifiable intangible assets on our balance sheet for a total amount of €66,000,000 In Asia Pacific, 13% of our total net revenues, we faced an organic decline of 10% resulting from the COVID nineteen crisis contrasted situation where China is on the road up to recovery whilst other Asian countries face ongoing challenges. In Australia, we saw a moderate growth driven by major public infrastructure projects. Turning to Callison Arctic Air. Callison Arctic Air experienced a strong decline due to COVID nineteen crisis, especially in the retail practice Due to weaker than expected results and forecast for Calisthenia RTK, a non cash goodwill impairment of EUR60 million has been booked in 3Q financial statements. Overall, turning to Slide 10, we see a strong performance in the quarter despite a modest revenue decline. Quarterly operating EBITA improved to 10.9, reflecting the impact of the cost measures taken combined to a resilient revenue performance resulting from a continued focus on clients. The strong efforts made by our teams to reduce working capital proved to be successful and resulted in net working capital percentage of 16.6 and the DSO of eighty two days, not within the targets set for 2020. And with this, I would like to hand back to Peter for the closing remarks. Yes. Thanks, Virginie. Please allow me to wrap up our brief presentation with a couple of closing comments before we obviously will open it up for Q and A. I think it's fair to say that we're still finding ourselves in really uncharted territory. And I've actually described the current situation before as a bit of a large global experiment, an experiment no one really asked for. And it's probably also fair to say that the world as a whole was definitely ill prepared for that experiment. That being said, I really believe that we have demonstrated through our performance that the business in which we operate and the businesses in which we operate are very resilient and that we as an organization are equally resilient. It is this resiliency which has created a strong performance in the second quarter in terms of operating EBITDA margin percentage, free cash flow, as well as in growth of our backlog. As a result of all of this, excuse me, our financial position is very solid and better than it has been in a long time, which definitely provides comfort during these still really challenging times. However, as challenging as these times are, we also see that the necessity to invest in sustainable resilient solutions, which provide societies with the certainty they increasingly demand, is stronger and more widely supported than ever before. And that demand combined with our solid foundation gives me confidence in saying that we are really well positioned for the future. And we obviously look forward to further discussing this future with you during our Capital Markets Day on November 19. With that, Jochen, or the operator, I'll turn it back to you. Thank And we do have a few questions in the queue. The first one comes from the line of Henk Leumann from Kempen and Co. Congrats with the strong results. I have a couple of questions. So firstly, can you give an indication of organic decline in your activity across the private sector clients versus the public clients? Because you mentioned in the press release in one sentence that prices remains weak. And also when you look at the backlog, which is up strongly on an organic basis, is that also mainly driven by the public clients? Or do you see private client business already coming back strongly in the backlog? That's my first question. Okay. Let me provide an overall perspective, Henk, first, and then I'll ask Virginie to chime in as you see fit. The distinction we have made and continue to make between private and public, which on average is about fifty-fifty anyway, is a distinction, simply, because of the fact that we do see that a number of private clients are indeed becoming, more cautious about their investments. That being said, it may be a little surprising. We actually still see significant, wins, for work for clients in environment in the oil sector. And that might sound like, pretty unbelievable because not only are they dealing with COVID-nineteen, they're also dealing with the impact of low oil pricing. But as we've commented in the past, we do see that these clients do take the responsibility and most often the liability they have seriously and are actually still continuing. So the decline is mostly indeed for private clients and then even more specifically, actually in, what we describe as our buildings business, because that's obviously where a lot of people have some hesitation to see what the new normal will look like. In terms of winning new work, obviously with the opportunity to win more work for public clients, a larger opportunity than for private clients, our focus and emphasis is indeed probably a little bit more on the, public clients because we simply see more opportunities. Most governments and and, semi government entities in most countries, of course, are trying to advance their work and continue to do so. So it's, I wouldn't say it's material, the decline in private client, but that is where we see most of the impact and particularly in buildings. And our focus, consequently, is more on the public clients as opposed to the private. Right, right. Okay. That's clear. Second question would be on the EBITA margin. It's very strong this quarter. But can you give us a quantification of more or less the one off nature costs such as lower traveling expenses and lower consultancy expenses? To what extent did that have a positive impact versus more or less the more sustainable margin improvement given by pricing and contract terms? And then the question related to that would be, would you be able like, does the result today, does it make you confident that you will achieve the EBITA margin target of at least 8.5% this year and also next year? Okay. Let me take this one. Thank you for your question, Henk. So maybe just to go a little bit about how Imagine brings in this quarter. For sure, there is, let's say, a lot of the improvements that comes from the cost savings that we've been implementing since the beginning of the year. Let's say that probably half of this improvement and a bit more than the half has been offset by the fact that there is revenue decline and that for sure we are missing a bit of margin due to the fact that we do not have the same activity as we had one year ago. But with the cost savings, we we managed to to offset more than than that. Then you have another bucket for sure. We still have some some grants and some some support from government here and there for for followed people, and this has positive impact in in the p and l as well as some salary cuts that have been, let's say, given back by by the employees all over the world. So with that, we have a a real nice margin this year. And so can we sustain that in the future? Some of the the savings that we've been managing to do could become structural saving depending on how we decide to, let's say, work in the future. And it's not, let's say, idiot or it's it's not unexpected to say that the world will never be the same again and that the way we work today will considerably change the way we are going to work tomorrow and that we will probably embed part of the changes that we've been seeing in our ways of working in the future. To come back then on your question on margin for next this year and the next year, you've been saying that we've not been giving any guidance for the quarter. And as we say, we remain confident that the measures we have been taking are the right ones to bring the company further. Okay. Okay. Well, okay. Moving to the last question would be on on the working capital because there's also a very strong improvement there. And I believe on an absolute basis, you are at lowest point in in in many years. And when I'm looking at the breakdown of working capital, I see, for example, that payables is still quite low. So it feels to me like, optically, you could have stretched, you could have even reported a better working capital improvement upon the already strong improvement. So do you expect the working capital to improve further towards year end? And maybe so what has been the most important driving factor behind the strong improvement in trade receivables and net working progress on a sequential basis versus Q2? Okay. So as far as working capital is concerned, yes, you're right. It's a it's a low point in time, not maybe even the the lowest. At least, we've been already managing to to to reach the same point in q two or q three last year. But but for sure, in terms of accounts payable, we are low we are low because also in this complex timing, it's not the moment to delay the payments to your suppliers. You need to make sure that your suppliers, you know, are are still alive and that there is a decent way of of working. And as much as our clients are paying us, you know, on on due time and we chase the money on a on a strong basis as as you can be you can see on our figures. On the same time, we make sure that we pay our suppliers so that we do not create any issue for the future in our supplier chain. So this is a kind of sanitization of of of the working cap also. What impacts a lot the progress of the working capital is for sure of the cash collection, but also the acceleration of the conversion to from unbilled and work in progress to to effective billings. So that also has probably the interest impact in our improvement in working capital. And you expect to improve further towards year end on an absolute basis? We would like to to maybe to to maintain it. You know, it's we don't have exactly the same also of element of of working capital towards q four. We'll probably also start seeing some repayments here and there of some of the defaults that also impact positively our working capital throughout the year. And so there's no reason to expect the major changes. Okay. Thank you very much. You. The next question comes from the line of Luke Van Beek from Degroof Petercam. Please go ahead. Yes. Thank you for taking my questions. Well, first of all, a question on The Middle East where you indicated you want to reduce your footprint. Can you indicate if you have a target size of that operation in mind? And secondly, you say that it will take several years because you want to honor existing obligations. So can talk a bit about your backlog? To what extent there are long term contracts in it that will determine the pace? So how does the trajectory towards this lower size will look like? Yeah. Thanks, Luke. To answer the question, I'll probably take all of you back in recent history, not too far our recent history, but when we launched our current strategy back in late twenty seventeen, we introduced one of the well, actually we introduced three new pillars, and one of the pillar was focus and performance. And under that pillar, we already mentioned that we wanted to be more focused on where we would operate, to ensure that our performance would meet our expectations. And following that announcement, the late twenty seventeen in the 2018, we announced that we would be more selective in The Middle East. At that time, we also, I think, shared that the expectation of that more selective focus would be that we would see a lower revenue going forward, but hopefully with better performance on all of the key financial criteria, including DSO, including margin improvement. So we already took a step in 2018 and allowed ourselves more time to see if the improvement we could achieve was enough to satisfy our strategic framework. So what we are announcing today is a reduction, further reduction of our footprint, which in effect means that we are not focusing at all anymore on Oman, Bahrain and Qatar. We will, of course, honor our contractual commitments in all of these places, but they are not significant going forward. The most significant part of our backlog right now sits in Saudi Arabia and The Emirates, where we have actually done quite well over the last couple of quarters in maintaining that selectivity while still winning work. The announcement also included the statement that the reduction of footprint will take multiple years simply because we want to honor our commitments to our clients, contractual commitments. And the backlog, which we currently have is spending several years. And so we will continue to deliver on those commitments. Several years doesn't mean ten years. It means typically the backlog we see in those countries is multiple years. We will be very selective in case that would be the next question as to taking on additional work that would fundamentally be for existing clients and then largely relating to variations or change orders on existing projects. But it will take multiple years to completely reduce that footprint. That actually has an upside as well because we believe that if we take a controlled reduction of the footprint, we will better be able to control and manage the interest of our employees as well as of our clients and maximize our opportunity, to, collect, outstanding invoices, outstanding receivables. Okay. And can you indicate roughly how the split is between these three countries that you will exit in the two countries that will remain? Yes. So we will remain pretty quickly because the work in Oman, Bahrain is already down to a very low level. We are finishing a number of existing produce in Qatar. I think that that whole dynamic in Qatar was probably to be expected. That has all to do with getting the country ready for the World Cup, and and that was something we'd always expected to happen. So very soon, we will just be working on the backlog in, in The Emirates and Saudi. Okay. But it's not, just just maybe one final comment. Look, it's not going to be a sudden departure, with the closure of all our offices, at a particular date in the foreseeable future. It will be a controlled, managed reduction of the footprint. Okay. That is clear. Thank you. Another question on margin because year to date, you are already at 8.6%, so that's already at the low end of the 8.5% to 9.5% target range. And normally, Q4 is seasonally quite strong. So is there anything specific in q four that will make it more challenging to reach a similar margin level? Any government support that, it terminates or anything else that we should take into account for making, updating our models? No. This I think, Virginie, just addressed that question in maybe a slightly different way. You're right in that Q4 is, typically a strong quarter in our business for Arcadis. You know, we think that that we, are well on our way, in terms of delivering predictable performance, which meets our expectations. The fourth quarter is not expected to be any different than the prior quarters in terms of government support or anything like that. At the same time, though, we still live in a world which has fairly high degree of uncertainty, and that's probably why you sense a bit of a cautionary tone. Okay, that's good. Thank you. That's it for now. Thank you. The next question comes from the line of Hans Bjurgess from Kepler Cheuvreux. Please go ahead. Yes. Good morning, ladies and gentlemen. Through Kastner from my side, first of all, on the top line and the sales segmentation. You already indicated that Building, of course, is a lot more difficult, which is logical, I think. But within that commercial real estate, how much does that account for the total within Building? Could you give some feeling on that? And how do you see that developing, let's say, in the coming quarters? And then secondly, coming on the back on the backlog. Yes, you indicated especially, let's say, some public related contracts have been solid. And also, of course, in The U. K, a big contract has been signed. But could you give me some feeling on the duration of the backlog? Because it's growing quite significantly and better than normally you would expect in this time of the year. So it's also, let's say, a duration impact in that backlog. And then on The U. S. Sorry, first, on cost level. There, you indicated, of course, a part is structural. But of course, I also imagine that you have a benefit from furlough measures. So could you give some number on the impact on the cost from the furlough measures you have seen in Q3? And then indeed, going back on The U. S. On IT problems you had there, is everything now solved? So or is there still some impact we could expect from late receivables still outstanding there Q4? Okay. Let me take a few of your questions, Hans, first, and then I'll ask Virginie to to expand as she sees fit. I'll probably start where you finished, Hans. You know, we have sort of committed to ourselves from q two onwards that we wouldn't talk about the IT system in, The US anymore. And not because, you know, we felt that it was a sore point, but because we were hoping that it was actually behind us. But since you now raised the issue, it's given me an opportunity and a necessity to still talk about it. But the improvements in working capital, the improvements in unbilled receivables, the improvements in collecting cash have been across, the globe, but the impact in North America has been significant. And I think that is, to be interpreted as having resolved the issues with the Oracle system as we said we would do in Q2. We said by Q3, we will have caught up on unbilled receivables and would also contribute to an improvement in overdue receivables, and that has certainly happened. So the impact in that improvement in working capital is a significant impact from North America as well. So I really hope that going forward, we don't have to talk about the Oracle system in North America anymore because we have really been able to catch up on unbilled receivables and to an extent also on overdue receivables. So that is behind us. The question you had on the backlog and the duration of the backlog, the backlog growth is, of course, a very, very strong sign in a market which or in an environment which is probably seen as challenging. Not only are we delivering very solid operational performance, but we're still growing our backlog. In terms of the duration of the backlog, because that was any the specific question you had, it's not a significant impact. It's now slightly above ten months. But if you break it down, then, you know, you see differences by region, and that has all to do with, the type of work we perform, in certain parts of the world. In certain parts of the world, let's use Australia as an example, where we work on a number of large programs, that backlog typically stretches out over a longer period of time. But we're happy with the growth of the backlog and really also in terms of the duration, not a material impact, duration as in duration in backlog. So I'll ask Virginie to speak about the impact of things like furlough on our cost level. Yes. Okay. Thank you, Peter. So as we said earlier, yes, for sure, have some some furlough in the p and l as we had in q one and q two, and we don't have more than than what we had in the previous quarter. So more or less the contribution of that remains more or less steady quarter after quarter. And there's no reason for it to change, and it doesn't represent, you know, even a few basic points. It's it's really limited. What's more contributing to to to what we managed to to to deliver is a structural or, let's say, temporary cost savings that we've been putting in place, but that we can also look on a different way and and project on a more structural basis in the future because it's it's on our end. And on the second thing, more salary cuts that or cut off bonus that has been embedded in our P and L following the decisions made in Q1. And my last my first question was on commercial real estate, the impact there and also how much it is of the buildings part. I'm not sure that I know the exact percentage there, Hans, but in general terms, most of the impact in our business has indeed been in buildings, and that is both buildings as in buildings in Arcadis profile, which is the work we do typically for clients in buildings around quantity surveying. And then secondly, particularly buildings, but then more related to retail in CallisonRTKL, That is definitely the business most impacted. We do see some very early signs of potential improvement in retail and then more specifically in North America for CallisonRTKL, But it is still very early signs. So I'm fully expecting that buildings for the foreseeable future would still be the most challenging part of our business. That being said, I'm really encouraged by the growth we're seeing in environment and in infrastructure and also in water, particularly in North America. So it is an impact, but definitely, to a large extent, offset by the growth in the other regions the other businesses. Excuse me. I don't know whether Jochen you or Virginie have a, you know, a detailed number on the commercial real estate. I don't have that breakdown. No. We can still have a breakdown. Yeah. What we can add is, as you state, let's say, the decline in in Searthikal comes from from it, an investment already. Okay. Thank you very much. Thank you. The next question comes from the line of Martin Dendreiber from ABN AMRO. Please go ahead. Yes. Good morning, gents and lady. The first question that I have is on the dynamics in the Asia Pacific region, the minus 10% in the third quarter. At the Q2 call, you said, Peter, that you had a strong pipeline in Australia, that China had normalized. So I'm a little bit puzzled. Can you provide a bit more clarity on what's happening, what's explaining that minus 10%? That would be the first question. Yeah. So let me break thanks, Martin. Let me break it out by three different subregions. You already mentioned Australia, China, and then I'll add the other Asian countries in which we operate, which includes The Philippines, Malaysia, Vietnam, Thailand, Hong Kong. So let me start with Australia first. We actually had a modest, growth in Australia, but what we do see is, and I think you've seen it probably yourself as well, that Australia in this quarter was, I shouldn't say surprised, but at least hit by the second wave, of COVID, which, as a as an example, in Melbourne created a total lockdown, which lasted ninety plus days. So we did see, the government entities, would typically provide us with, with with additional opportunities, being much more focused on containing the second wave of the COVID crisis as opposed to letting go of new work. So in terms of new work, we do see some delay. That being said, terms of top line, we did actually have a modest, a very modest growth in Australia. China, actually China to an extent falls in the category I just mentioned in response to Hans' question about commercial real estate. Yes, China as a country is going back to a degree of normalcy in terms of having successfully contained the COVID crisis. But that doesn't necessarily mean that on all job sites where we operate, work has come back. So society is back, but clearly, we're not seeing necessarily that China is back to an overall level which we had prior to COVID. And then I think the biggest impact actually for us has been on those other Asian countries, The Philippines, Malaysia, Singapore, Thailand, Vietnam, which to an extent still are in pretty much of a full lockdown. I think The Philippines has, for instance, been in a lockdown for most of the seven months since it all started for them. And that doesn't necessarily impact the GEC work we do in The Philippines, but we also have a pretty substantial presence with work in The Philippines itself. So the impact is largely in Asia from the countries other than China. Understood. Move again to the second question. You already answered the, the question on support from furloughs, but you also solved the Allen issue. And I recall that there was a provision which may have been released. Was there any benefit from that release of provision of Allen in the in the third quarter? Is that something that will occur finally in Q4, even perhaps in Q1 twenty twenty one? Just wanted to understand that. No change on Alen over the quarter, so no accounting change either. And no release of provisions of Ireland in this quarter. Great. Okay. Thank you. Then moving on to the order intake. Can you say something about the quality of that order intake? Obviously, the backlog, as some analysts have already mentioned, the backlog is doing well. Can you talk a little bit about price discipline and other elements of that backlog in order intake? I think the Martin, that was actually a question which sort of came up prior, but we probably didn't answer it in the same specificity. You're now talking about, are you experiencing any significant price pressure in any of the regions because of COVID? And the plain and simple answer is no. You know, if we we are holding to our selectivity focus, and that means that we are not and don't feel a need at this point in time to lower our expectations in terms of the work we take in. Okay. Clear. Then moving on to the accounts receivables overdue, 100 more than one hundred and twenty days, magnificent performance there. How should we think about that category of overdue accounts receivables? Is it is it is it the same line that we've seen in the third quarter going to be what we can expect for the fourth quarter? Or is this really a one off which maybe contained a large project for which you finally got paid? How should we think about this particular category going forward? Sorry. Go ahead, David. That was why. So I think that in terms of receivable, we did really see a huge improvement in the quarter. So for sure, at one point of time, we might expect that this go a little bit slower because we might think that we've been able to to catch the the easiest overuse, but there's no particular big impact, you know, on a on a specific client or a specific project that was overdue that came in the quarter. As I said earlier, I think maybe by by by Peter, it's been coming from all all the regions, all the all the the the various clients and and projects. And we might also keep in mind that as we do for house supplier for the view, so how our clients keep more in mind than they were before that there is a need in these moments to take care of of the entire supplier chain. So so maybe this is one of the things that will benefit from on top of what we do if there is an effect, let's say, or kind of unusual effect that you you would want want to to highlight somewhere. But even that is difficult is difficult to say. I think it's more really the the dedicated effort of the teams on a day to day basis to be sure that they change the cash in such a moment. Okay. Thank you. Maybe maybe answer that if if you allow me to. It's a so your question is is it, you know, an incident or a release on a large project or a large payment on a project? No. This is the result of a global program which we kicked off at the end of Q1, and and so it is the contribution of of many people and many projects. And maybe as a final comment, it's not a program we obviously expect to stop now that we have been able to lower this particular category. We like the program. Yes. I think we like it too. Then the final question. If you look at the statements about Southern Europe, so then you can probably draw the conclusion that France is in negative growth territory. Margins are, at best, stable but probably declining. You you gave the management team quite a bit of time. So what's now? Is that a situation that you're going to address in the Capital Markets Day, or are you going to give them more time than that? Yeah. So Southern Europe, is, is not just France. It's actually a couple more countries, which coincidentally have all been hit by, more severe lockdowns than in most other places. You know, it started obviously in Italy and Spain, then France, and all of them sort of now being hit by a second one. You're right in that we asked the management team in France to get on with the party, so to speak, and improve the performance. And I would definitely say if I look at the underlying performance, not necessarily the amount of detail which is provided through the trading update, but the underlying performance on working capital as an example and margin, I wouldn't necessarily suggest that they failed in that effort. Were they less successful in fully neglecting or ignoring the impact of COVID? No. But I'd say that that's probably true for a lot of people. So I wouldn't necessarily, construe from the comment about Europe South that it was the result of a great effort in France but with no impact. That that probably is too too short, too quick. It it really has impact from other countries as well. And clearly, in France, you know, what the management team has been able to do in spite of COVID is definitely encouraging. Okay. Those were my questions. Thank you very much. Thank you. The next question comes from the line of Edward Donohue from One Investments. Please go ahead. Good morning, everybody. A few questions, if I may. I mean, just a starting point going through the backlog. At the first half, you gave some quite good detail on the breakdown. Can you say the sort of trends that you were seeing in the first half like your MA plus 11%, The Americas flat, etcetera? Have those trends continued through Q3? You want to answer this question first, Edward? We said you had a couple of questions. So why don't you follow-up? Yeah. Easier to go through them one by one. Yeah. Okay. Let me see if I can help you with that detail. Or at least sort of what is the acceleration geographic, to get an idea. I think that there's really not a significant material change effort compared to what we shared before. As I just mentioned in response to Martin's question about Australia, we see a bit of a slowdown there in order intake because of COVID and the government being focused on other things. Of course, The Middle East, we have been already more selective anyway. In other parts of the world, particularly the more mature parts for us, I think the trend is pretty much as it was when we spoke the last time. So no material change. Maybe where we did see, a bit of a change, but it's a positive one. But then again, from a small basis is in LatAm, where we have been quite successful actually in winning work in Brazil in particular. Yes. And that's why maybe in addition to that, we do see also that and that was also mentioned in the press release that, there was an increase in The UK due to also some signing of sizable infrastructure, say, projects. Right. Okay. Noted. And then just looking at, again, at the phasing of the new contract wins, how should we again, going back to Hunter's question with regard to the duration, when should we actually see those some of the larger projects on the public sector phasing in onto the revenue line? Yes. So what we typically do, Edward, is if we announce a win or if we announce order intake, then it typically means that the expectation is that you start working on it right away. I mean, if you, were given a contract, but the instruction that you can only start in a year and a half from now, so to speak, then we would be very cautious to actually take it into backlog. So these when we take something into backlog, there's an expectation that we can start with the work fairly quickly. Okay, fair enough. And then just on The U. S, The Americas, the pickup in revenue, was that driven by The U. S. Environmental restarts or was actually new wins coming through? Most of the growth actually in North America was in water and infrastructure and a little bit more this quarter than actually the last quarter in environment as well. And so it is a combination, of the existing client relationships. I mentioned, earlier in response to your question, a large win for a large oil company. That is more of the same in that we are working with this company and and get over time additional orders to be taken into backlog. So there's no significant change to the the dynamics there in terms of additional work on existing contracts and and new contracts. It depends a little bit how you formulate a new contract. I mean, we get a large new win for an existing client, it's still a new win, but it is fundamentally on an existing relationship. And that is what we actually get on most of our work. It's largely existing relationships, which allow us to win additional work. Okay. And that's just on the cost structure and the margins. I'm a little confused. If I look to Q1 in absolute numbers, revenue up 31, EBITDA plus one, Q2 minus 20 and then flat. Q3, got minus $38,000,000 on your revenues but plus 13,000,000 in absolute on the EBITDA at the operating level. Can you just explain how maybe cost savings are phasing through the year? On your commentary with the reduced salaries, bonuses, etcetera, and how that phases through this year and returning. And also I'm just if I look to your first half personnel costs, they were up nearly 2%. So I'm just trying to square in this kind of business to find that kind of operating leverage is spectacular. So could you just drill through what actually went on in q three, please? So, maybe as as we've said that, before, there's there's a lot of things you you can't do anymore. And and while the COVID crisis has been starting, you know, somewhere in in February, March in the world, it's not been hitting the entire world as it's been doing over q three. Over q three, you have the entire world more or less that cannot travel anymore or travel really on a very restricted basis. You have a lot of conferences that have been finally being being canceled. You have also all the the, etcetera, the thing you need to extend to have people be able to work from home at the beginning of the year, which was OpEx and which is absorbed over the the the first quarter. So then you only have the things that you do not do anymore rather than the things that change. So that's also why you get such a such a an impact in the p and l. And on top of that, compared to other types of of quarter, you maybe have also an impact of people maybe taking a bit less leaves because they don't they can't go anywhere. So it's additional, you know, availability and and and the percentage improvement and such that you find back in your margin construction. Okay. Yeah. That is very helpful. And then just a final question was with regard to, The Middle East. I mean, the actual cost of running that down and and the risk of maybe mismatch and therefore stranded costs? And what kind of margin should one be expecting, with regard to the going forward in The Middle East? Really depends on yeah. Sorry. Go on. Yeah. Go ahead, Sydney. Oh, I wanted to say that it for sure, we cannot say that, what we are going to do won't have an impact, in terms of of profitability of some of the project because for sure to do something like this, there are some costs that are going to be to be added to to what we do in The Middle East. But for sure, we've been setting up very carefully a project that encompasses a huge management of what's going to to happen and how we we measure the efforts we we put in place. So that that is carefully managed. We still, for sure, will be focusing on delivering quality projects to to our clients. So that may be, you know, need some involvement additional involvement on our side that we need to to to figure out. But then, you know, also, as we said earlier, if, you know, additional things are to be taken or signed such as version and such will be more selective than we've been ever been before. And, you know, there's no reason for for us to take something that does not improve the margin that that we we have in portfolio on a on a significant way. So that also would be way of balancing what's going to happen over there. Okay. I have two last questions. I sorry. I I I apologize for sort of drumming on about it. But, you know, if you go back again on the cost side, can you give me sort of just an absolute amount that bonus salary cuts that have benefited 2020? And will those actually return in 2021? I'm basically just trying to get an idea of the swing back as the business, you know, can you, you know, expands again and what you will actually think you would have to put back under whatever the new normal might be, of the the savings that you booked in '20 that could return in '21. So for sure, part part of this is the savings that I have to to return back to to the to the employees of of what at one point of time. But on the other side, you know, we expect that the the growth decline that we've been facing due to the crisis also revert. And for sure, all the additional margin points that you've been losing on one side because we didn't have the activity level that we could expect, and we've been a bit cautious in in protecting the the level of workforce and not adapting, you know, too much anticipating that it could restart. This, you know, should compensate part of of of the amount that that we will have to inject back at cost to support the bonuses employee increase Mhmm. Over the world and and maybe also a bit of rehiring. Is is it possible to give an absolute figure? I think, you know, we don't comment such in detail as this quarter. It's only q three. You'll have better view also, I think, with the with the full year on that one, and it would be far more meaningful, I think. Okay. Fair enough. And my my final question the final question yes? Just real quick, so obviously, can understand the interest in understanding what can be sustained in terms of contribution to the EBITDA margin. But let me reinforce and reiterate what we've been saying before that the real EBITDA sustained EBITDA margin percentage improvement can come from other things which we still have available such as, our Make Every Project Count program, such as a broader use of the Global Excellence Center. So I would just want to kind of restore the balance as to where are the bigger opportunities. Are they whatever can be sustained or not sustained resulting from COVID? Or are they in the other buckets, which are make every project count in GECs? Then the latter category is still the bigger opportunity. Okay. I take that on board as well. And my final question is just what is building as a percentage of group net revenues, just as a matter of interest, please? Is it about 20%, Jochen, if I'm not mistaken? Yeah. It depends whether you include Callison Hardtail. Yes or no. But it is about, say, 25. That's including, Callison? Yeah. You see, it's it's also, let me double check. It's close to that, that number indeed, around buildings. That's even a bit higher. I think it will be close to including CallisonRTL, it will be closer to 35. Brilliant. I understand there are also questions from Kuhay Miller in the call. That was the end for me, but thank you very much. Okay, thanks. Thank you. Thank you. Yes, we do have Kiri Mulder from ING. Please go ahead. Yes, thank you. This is Kiri Mulder. I would like to come back on the questions of Edward. Let me say, first quarter, you announced the COVID measures for second quarter. Third quarter, if I look at the second quarter, your margin was 7.5 and the third quarter, 10.9. If I look at the year over year improvement, the third quarter was especially the improvement and not the second quarter. And that cannot be related to the good execution, I think, in my view. It must be related to cost savings. So is it correct to assume that the let me say, the additional margin growth year on year is the effect of the ex let me say, the effect of the cost savings, which were bigger in the third quarter than in the second quarter? That's my first question. Maybe if you get the dynamics right, Christian. If we look if we go back to pre COVID, the beginning of the year, and without knowing what we now know, we said that we felt that we would actually be able to deliver on the commitment on EBITDA margin between 8.59.5%. And then, of course, COVID hit, and the first quarter where we reported the COVID hit was indeed at the end of Q1. That was largely at that time impact from Asia, it had an impact. And then following the whole trail and the timing in the second quarter, of course, the cost savings started to be implemented and contributed to what was roughly stabilization of their margin. And then cost savings, of course, are getting more impact as you go by in time. So in the third quarter, the cost savings, obviously, the impact thereof was larger than in Q2. But we were on track, before COVID to actually improve our margins through the means I just mentioned before, GECs and make every project count. And that has obviously not, been stopped because of of an emphasis on COVID. Okay. Perfect. And then a couple of other questions, small ones. Can you maybe give you an idea about your order intake in the CallisonRTKL? How the development is there with and what are you going to, let me say, besides 60,000,000 impairment, what are you going to do to improve the profitability and to return to the business there? Are you completely shifting now from retail into, let me, hospitals and museum, etcetera? That's my second question. And the third question is about the organic decline in the, let me say, Asia 3, I would say, Asia Pacific 3, that is Hong Kong, Singapore, Malaya, and Philippines. Was the organic decline in the range of 25%? Can you maybe confirm that? And my final question is about the dividend. If you look at the year 2020 now developing, is there any consideration about the dividend given the fact that the results in 2020 turn out to be maybe higher than 2019? Let me take CallisonRTKL first, Quirijn. And I'm going to also here go back maybe a little further in time because the retail business within all the practices CallisonRTKL operates in was already the challenging one anyway because of a tendency more and more people had to try and not necessarily go for everything they needed to a physical shop, but actually use online capabilities. And that has obviously been exacerbated by COVID to an extent that it really, really impacted the retail business in Kalesin RTKL. So we already had a focus on trying to move our focus from a lesser retail than in the past. Now that being said, we also at the same time see that the whole definition and function of retail was already subject to change, not in all places in the world, but certainly in some of the more significant places we deal with in California, that's North America and Asia, to a multipurpose type of retail environment, not just shops, but shops and other leisure opportunities. Now that is still being brought to a standstill because of COVID, but the early signs do suggest, particularly in North America, that will likely come back. But it's early signs. So we're not saying that all of a sudden we expect the business to significantly improve in calcimimetic L. We're probably at the trough, at the bottom at this point in time. And the expectation is that slowly in 2021, we'll see a bit of recovery in retail. But the focus away from retail was already a focus CallisonRTKL had prior to COVID, indeed into other things such as workplace, healthcare and support. But the crisis has, of course, exacerbated the necessity to do so. Then your question about organic decline in Asia category three. We have introduced a new category, realized. That actually is indeed growing because whereas in the past Asia was largely China and then a couple small bits and pieces. Because of the reduction of a footprint in the real small countries, which we did, what is it, about a year plus ago, the other countries remaining, particularly The Philippines and Malaysia and Singapore has been significant, but those happen to indeed be the countries which, have a very, very severe sustained lockdown. I used, Philippines already as an example, but I could say the same thing about Malaysia, which has some other challenges as well with the government. But, clearly, the decline in Asia in the third quarter has been, mostly in these category three countries. And then on the dividends, that's a question to be expected. You know, we believe that when we look at the world around us, and we look at the vulnerability and volatility of the business that it would not be prudent to come back from the decision we took two quarters ago and considered an interim dividend at this point in time. Considering everything, we want to continue to be prudent. We're pleased with our results, but we also want to be prudent. Okay. Thank you. Thank you. The last question for today comes from the line of Bart Coupers from KBC. Please go ahead. Hi. Yes, good morning. Yes, so two remaining questions. One coming back to to what was said elaborating a bit further on on on North America. So, yeah, in in terms of revenue development, as we discussed, it was a bit mixed across the regions in terms of revenue as carried by Americas. The order intake, the line from the backlog, I indicated that it remains good intake in Americas, which I assume is also internally comforting as the, yeah, the the stimulus package, is is uncertain. The timing and and, yeah, will depend on decisiveness of of the results, the election results, but also on the scope of the package as from what I understood in the initial Republican, yeah, plan, that there was little, provided support for for the cities and and the states, themselves. So does that line in in in on the backlog that there is good continued order intake in The Americas, should we interpret that so far, you have seen limited impact in in in states and cities being forced to scale down due to budgets? Or do they remain operational in in in the amount of projects that they are undertaking? Yeah. But, in a different conversation this morning, I described the upcoming US elections as one of the bigger events for the rest of the year, at least events I can see in addition to managing the pandemic, of course. And then, you know, when you think about this event and the impact it could have, you know, how would it impact our business? And I was actually commenting in that context that in the past four years, our impact the impact on our business from the outcome of the elections four years ago has been not at least negative, but has actually been quite positive. And and maybe even more striking in the view of many people is that we've actually seen a very steady growth in environment in North America, in spite of, you know, a government or an administration which was not necessarily seen as the most environmentally friendly. Now assuming that, the outcome of the elections, will be accepted and that there will be either a continuation or an orderly transition, either of the two, I'm not going to share what my preference is. But assuming that that will be the case, then the impact on our business will still be relatively low. Our business is resilient, much less prone to vulnerabilities other businesses might have because of either large events such as a pandemic or an election. If you look at the business in which we operate, no matter what government will ultimately take over or continue, I'm still pretty optimistic about our business in North America fundamentally because of what drives that business, which in North America will have to be eventually infrastructure investments, which in the past four years, in spite of all the rhetoric, came from states and not from federal. And that could change going forward and would only be a boost if that happens. And again, because of the necessity to also continue to invest in the environment, and that's where most of our clients recognize and accept the fact that they have liabilities they need to get rid of. And therefore, my overall comment would be that, our business is not going to be, very vulnerable to whatever election outcome they might be assuming that there will be, either an orderly transition or a continuation. Okay. That's clear. And and so also and then just returning real quick on on this the budgets of, cities and and states. So you're you're not, witnessing right now locally that that that they are becoming, let's say, scared, from from that perspective on on their budgets to to continue with projects, in in that part? No. Not it's a it's a it's a very valid question in light of the elections coming up and and budgets being, becoming tighter or budgets not being necessarily being released. But, no, nothing we have noticed which would all of a sudden make us see that the trend, which has been quite positive for us in North America, would all of a sudden change. All right. Thank you. That's very clear. And then your second question on The Middle East. So, Ayan, like, their working capital requirements are are are are are more and more intensive than than than a lot of the other countries that you are active in. I the question, naturally, the answer will depend on how much of the outstanding overdue receivables that you will be able to recover at the end of the line. But would it be possible to give a rough estimate on on how much, the selective, yeah, approach and the the exit, the relative exits there, selective exit there could free up in in your working capital going forward in next couple of years? So I think that, in terms of working cap, we should not expect a drastically change immediately because we still have some backlog to to execute over there, which is relatively significant. So for sure, I would expect, let's say, '21 to be still a year of of big execution in in Middle East. Okay. A bit too soon to to talk about 2022, let's say, on on the amount of working capital in in terms of group and percentages that that that you could free up from from that decision? No. I'm not yet having crystal ball. Would like to, Boris, but Okay. No. That's fair. Alright. Thank you for for the answers. Thank you. I'll hand the call back to our speaker to conclude today's conference. Thank you. Yes, let me offer some closing comments. First of all, thanks everyone for participation today. The fact that we ran over with fifteen minutes, I think, is a positive sign. I would actually also describe our performance in the third quarter as positive and strong in an environment as we commented several times is definitely challenging. And I would be lying if I suggested that this has been a walk in the park. But the way the organization has pulled together, the way the organization has remained focused on the things which matter, which are in order of sequence our clients so that we continue to win work, our cash collections so that we improve our balance sheet has been absolutely heartwarming and quite amazing as well. And I do realize that an extended period of time working at home, which we hoped a couple of months ago would be limited to, say, a couple of months, is going to easily be a year, if not more, by the time it's all said and done. And all of that has been taken by our people in strides. I think we've also demonstrated that not only is our business resilient, but our business model. How we work with our clients is quite resilient. And all of that does give me indeed the comfort and the confidence that that not only have we delivered a strong third quarter, but that the foundation we have provided combined with the strength of our people makes us set up for a future which is quite positive. And we hope that you either agree with us today or that you will agree with us when we share a new strategy with you on November 19. So thanks again, and please stay safe. Thank you for joining today's call. You may now disconnect.