Earnings Call: Q2 2020

Jul 28, 2020

Hello, and welcome to the Arcadis N. V. Q2 and Half Year twenty twenty Results Call. My name is Courtney, and I'll be your coordinator for today's event. Please note that 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 call. This can be done by pressing star one on your telephone keypad And I will now hand you over to your host, Jurgen Pullens, Director of Investor Relations, to begin today's conference. Thank you. Yes. Thank you, and good morning, everyone, to the Arcadis conference call for the Q2 results and the half year results. I'm here together with Peter Osevere, our CEO, and he will present the figures. As always, would like to remind you to the disclaimer as fully described in the presentation and in the press release regarding forward looking statements. Now with these formalities out of the way, I'd like to hand over to Peter to start with the presentation. Peter? Yes. Thanks, Jochen, and good morning also on my behalf. Thanks for joining us this morning. Probably the best way to start the conversation here is with the word resilient or resiliency, the ability to recover quickly from difficulties or change. And I suspect that that word will actually come back a few times. I'm actually pleased and proud to explain how resilient we as an organization have been. And I have to start with the resilience of our people. Our people have demonstrated through this quarter under extreme, difficult, unprecedented circumstances to be able to respond very well to these different circumstances. Resiliency also seen from our clients in trying to weather these unprecedented conditions as well as they could. And I think also resiliency in terms of our business and the diversity of our portfolio. And these factors together, I think have contributed to the delivery of solid performance in Q2, which I'm obviously pleased about. We've also seen that the measures we introduced towards the end of the first quarter, which we of course advanced and added to in the second quarter have also been an important contributor to our performance and also an important contributor to significantly improving our cash collection. Our EBITDA at €49,000,000 close to what we were this time around last year, I think is quite solid in spite of a revenue, a modest revenue decline of minus 3%. The operating margin for the second quarter was actually better than the second quarter of last year, which again, considering the circumstances is something to be proud of. And maybe the most significant measure and improvement is our free cash flow of $165,000,000 this quarter, which brings the year to date free cash flow at €81,000,000 versus €8,000,000 of last year. And I suspect that we will talk more about the contributing factors which helped us to create that free cash flow. Obviously, the significant reduction of working capital and the improved efficiency of invoicing in The U. S. Have been a significant contributor to that significant improvement. I think all in all, we have demonstrated as an organization that we have an ability to adapt to challenges, to changing circumstances. And we're now about four months into a totally new way of working, something which is about to create something of a new temporary normal, because I don't think that the normal we see today will be the normal we will see eventually. But I really think that we have demonstrated our ability to respond to the challenges as well as anyone could expect. I'm also pleased, as you've seen through a separate press release this morning, to announce the nomination of our new CFO, Virginie Duperin, someone with a very strong proven finance track record, someone with international experience, something we definitely wanted to see, and certainly also someone with proven project experience, which is something else we really felt was important in the profile. So this nomination will be put forward to the extraordinary general meeting, which is scheduled to be held in the September. And with hopefully an endorsement by our shareholders, we expect that Virginie will join us shortly thereafter. So moving on to the second slide, it's a slide which should be familiar to you. This is a slide we did present to you at the end of Q1. That slide reflects the actions we took in Q1 through eight different work streams, which we felt were appropriate to manage the COVID-nineteen crisis. And I can now say with another quarter benefiting from these work streams that these eight blocks, these foundational blocks have served us extremely well. And we still use these blocks today to get through the remainder of the crisis caused by COVID-nineteen. In particular, the safety and the stability we've been able to provide to our people, which in turns allows them to continue to serve our clients has been important. That includes actually that all our people in the global excellence centers in The Philippines, Romania, and India are also still working from home, which is something quite extraordinary because that is a principle which was not necessarily very common in places such as The Philippines, India, and Romania, but they are also still largely working from home. So these blocks have served us very well. We will continue to use these blocks as the foundation for continued performance going forward. And whereas at the beginning of the second quarter, we had about 90% of the people still working from home, that is largely still the case. We do recommend our people to work from home where possible. For those where it is not possible, for instance, people who work at job sites, of course, there is different circumstances, but our recommendation to people is to only come to office when there's an absolute need to come to an office. And our people are definitely following that advice. Moving on to the next slide, speaking about resiliency again. We issued a couple of weeks ago a white paper which I would really recommend you to take a look at if you have a chance. It does reflect our latest thinking about resiliency and how resiliency is going to be more intimately linked with sustainability, to allow societies to both be resilient against crises as the one we currently experience while at the same time also closely keep an eye on and take the necessary measures to make societies more sustainable. There's probably another reason why I would recommend you take a look at this white paper if you have a chance because it actually has some really interesting and telling stories from our own employees in different parts of the world, and it reflects how they have been able to cope with this crisis over the last four months. So with that as, my introductory comments, I'm turning it over to Jochen for a deeper look at the financials. Yeah. Thanks, Peter. Maybe before we start, you see also a nice slide about the HS2 project in The UK. I think this is a real example of a large infrastructural project. It connects the largest eight cities in in The UK, from London to the to the Midlands and to the North. But this is also a project. It's a long term project, and it will be open between 2029 and 2033. So it is really something, and a project that demonstrates the work we do for our clients, but also it reflects, that, we can continue to do this work. When we look to the results, overall, the results are, I think, pretty solid and demonstrates also the measures we took already, say, in Q1, but also the additional measures to improve the cash flow at the end of the first quarter. The operating EBITA margin is broadly in line with last year. Of course, we see a strong free cash flow of €81,000,000 in the first half and €165,000,000 in the second quarter, and later we'll come back to that. Also, when you look to the net debt, it's €360,000,000 which is clearly lower than last year, also significantly lower than Q1. At that time, it was €423,000,000 and it includes also a payment to Allen of €58,000,000 that was for the bank loans for which we provided the guarantee. All in all, this led to a leverage ratio of 1.3, which is I think a very sound leverage ratio. When we look a little bit more in-depth to the quarterly results, then we see solid results despite a modest 3% revenue decline. We have seen some regions like Australia, North America with revenue growth, but also some regions like CallisonRTL, Asia and some European countries where we have seen in the quarter compared to last year some revenue decline. But all in all, we are pleased with the results and also, and of course, especially with the net working capital reduction, it was 19.2% in the first quarter and it's now back to 17.7% and that is closer to the strategic targets of 17%, and we expect also that there is room for further improvement in the net working capital. Day sales outstanding, it's eighty seven days. It was ninety five days at the end of Q1. Compared to last year, it was eighty two days. And also here, the strategic target was eighty five days, and we believe also that there is further room for improvement in the days sales outstanding in the second half of the year. When we look a little bit further in the P and L and when you look to the net finance expenses, for instance, those are lower than last year, and that is due to lower interest rates, which are slightly lower than a year before. What you also see is that the expected credit loss on shareholder loans is a plus 70,000,000. The reason for that is that we have to repay an amount of approximately €75,000,000 which we provided the guarantee, but it was a strong devaluation of the Brazilian real, and that has led to a €70,000,000 gain in the second quarter. All in all, this leads to a 11% earnings per share increase compared to the first half in twenty nineteen. When we look to the cash flow statement, we really see that the measures we took, the additional measures we took at Q1 really paying off. For a large part, it is related to the increased invoicing efficiency in The US. We also implemented the Oracle functionality in May and June, but also we had, next to that additional measures to improve the invoicing in The US. But having said that, we still believe there is more room for improvement in, say, the coming quarters. When you look to the EBITDA, you first see the EBITDA according to IFRS 16, then we adjusted the lease expenses, and then you arrive at the adjusted EBITDA, which is also used for the calculation of the leverage ratio. Moving to the change in net working capital, later on I come back to a bit more in detail, which you see a plus of EUR 60,000,000 and last year it was a cash or an increase in working capital of 45,000,000. A change in other working capital, it's almost neutral, but as you are aware of, we had in the first quarter an additional engineering software license also described in the press release of an outflow of 24,000,000. And this quarter, we have also a VAT, a wage tax deferral, which is allowed under, say, government schemes in The US and in The UK. Ultimately, have to repay that that back, of course. That that will be ultimately in q one next year, but that is part of the order working capital. But taking everything into account, that leads to a cash flow for operating activities of 97,000,000. You see also the capital expenditures which are lower than last year, and that leads to a free cash flow for the first half of €81,000,000 A bit more in detail, when we look to the balance sheet and also to the positions of working capital and trade receivables, we clearly see that the trade receivables are in line with, say, a year ago, but clearly lower than, say, December 2019, but also clearly lower or say, more or less in line with, say, Q1 twenty twenty, so the last quarter. But especially the improvement you will see in the reduction of the network in process, you see that the €249,000,000 is in line with, say, last year and €50,000,000 better than at the end of the year. But in q one, the network in progress was 363,000,000. So compared to the end of q one, you see an improvement of a €114,000,000 in the network in progress. When you look at the accounts payables, it's now 208,000,000. At year end, it was 280,000,000, and a year ago was 228,000,000. So also here you see that accounts payables are lower, and ultimately that leads then to a net working capital amount of €588,000,000 which is also in line with, say, last year and an improvement compared to q one. When you look to the overdue receivables, then also more or less the same pattern as year ago with some improvement in the amounts over one hundred and twenty days, which are also, for the most part, provisioned, as you know. When you look to our balance sheet, and we discussed it before, you see the adjusted EBITDA margin, which is now 8.8, which is in line with last year. Free cash flow is pretty strong in the first half of this year with €81,000,000 compared to €8,000,000 a year ago and minus €6,000,000 in 2018. The net debt is $360,000,000, so significantly lower than a quarter ago and in line with last year, and that led to a leverage ratio of 1.3. So all in all, I think a strong financial flexibility that we have demonstrated in the second quarter and also improved balance sheet. With this, I'd like to hand over to Peter, who will comment on the operations in the segments. Yes. Thanks, Jochen. So a further breakdown, a bit more color on the performance by segment. So The Americas first, I'm going to make some comments with a year over year comparison. So the first half year twenty twenty compared to the first half year twenty nineteen. Then we've seen organic growth in The Americas, which is with contribution from both North America as well as Latin America. And we also actually see an improvement in operating EBITDA margin in the two regions combined as well. So clearly in the current situation, stellar performance from The Americas. In North America, most of the positive growth has been unlike maybe in the past delivered by water and infrastructure. Environment had some impact, but actually much less than we had expected it to be as a result of COVID-nineteen. So strong sustained performance in North America. In Latin America, we have been able to in the current situation stabilize the margins, have continued organic growth and actually have a strong backlog, which is being fueled by opportunities in infrastructure in addition to, of course, the typical opportunities in environment. And most of that significant backlog has been in Brazil. Moving on to the segment Europe, The Middle East. The performance in our larger markets, so that includes obviously The UK, The Netherlands and Germany has been very solid. The operating EBITDA margin has improved compared to last year. We didn't see growth in these markets, although we did see growth in some of the countries in these markets, in particular in Germany, which has had a very strong first half of this year. We had some revenue decline in the smaller countries, which includes for us France and Italy. Solid performance in The Netherlands as well. As you will probably note and remember from the past, we are no longer involved in the work which was done to remedy the damage done by the earthquakes in the North Of Netherlands. That work did go away as of the first of this year. However, we've been able to offset most of that by other work. And in fact, we're seeing a pretty healthy order intake for public clients in Europe North or more specifically The Netherlands. So marginal revenue growth in The UK, which is obviously still positive in the current environment, fueled by winds in infrastructure and water and obviously some declines in the buildings sector in The UK. Middle East is not only impacted obviously by COVID, but is also impacted by sustained relatively low oil price, albeit that it has recovered quite a bit, but that's not necessarily reflecting itself in significantly higher revenues. So the impact there is relatively modest and the actual performance on the lower revenue has actually been quite okay in The Middle East. Moving on to Asia, Asia Pacific, should say, starting with Asia. As you will remember from Q1, we had a significant impact from COVID at that time, largely in China, the first region to be impacted by COVID, that has stabilized itself. And in fact, the performance in Asia in the second quarter has improved compared to the first quarter. So over the first half a year, it is relatively stable compared to last year. In Australia, we've actually seen a significant improvement in the second quarter in particular compared to last year, resulting from the involvement we have in a number of large infrastructure projects. So Australia already, think notoriously outperforming many of the other regions in many aspects, continues to be on a really, really nice trajectory with further growth in the second quarter of this year. Then, calcined RTKL compared to the other segments more severely impacted by COVID than the other segments, which is not Arcadis specific issue. I think by and large, the architectural business has been impacted much more significant than our typical business anyway. And again, not just in Arcadis. We've seen a decline in our revenues, which is largely caused by a significant decline in the retail sector. As you all appreciate, those companies we typically work for who had plans to expand their retail footprint have put those plans on hold for now. That doesn't mean that we decided that we don't want to operate in retail anymore, but it will probably have a different focus, focus more on flagship stores than on the broader retail sector as we've seen in the past. The positive news is for KelsanRTKL that their presence in China, just like the Arcadis President in China, is starting to show some recovery from the COVID impact, which was felt in Q1. Needless to say that in CallisonRTKL as the organization impacted the most within Arcadis that we've taken additional measures to control and mitigate the impact of COVID-nineteen on their business. A quick word on ArcadisGen, which as you will recall, we launched as of the January 1. We're proud to actually announce that we launched our first product as a result of ArcadisGen, a product which is also being used by clients. I think it's also pleasing to see that the products we do deliver are products which really cover the entire asset life cycle. So the planning, planning for assets, but also the delivery of assets. And maybe most important in terms of delivering sustained revenue is the fact that these assets or these products also cover the operate and maintain part of the assets. So pleased to see that our fruits that the fruits are being delivered in the form of our first operational products to our clients. So to sort of wrap everything up and then allow you an opportunity to ask any questions, The actions we implemented to secure business continuity to reduce our costs and to preserve our cash have clearly paid off in the second quarter. Needless to say that we will continue with that focus on these categories to ensure that our performance will continue to be as strong as it was in the second quarter. COVID-nineteen has learned us a lot of new things, but it has clearly in our view also magnified the significant importance society's need to pay in becoming more resilient while at the same time keeping a very close eye on sustainability on taking necessary measures to impact, to reduce the impact of climate change. As I mentioned before, we increasingly see resiliency and sustainability be closely interlinked. We see it also as an opportunity for change both in how we work. It's already visible in how we have worked over the last quarter, and some of that change will be lasting. But it's also an opportunity for change in societies to look at how they really want to design the future societies in a way which makes them much more resilient. We will continue with our investments in our people, in delivering sustainable solutions, as well as in further digitizing what we do for a living and how we offer these solutions to our clients. We remain vigilant considering the health developments across the globe. And you only have to look at the most recent data to understand why that vigilance is important. But I also believe that it is fair to say that we have demonstrated the ability to adapt and quickly adapt to the circumstances created by COVID-nineteen resulting in delivering solid results in the first half of the year, which provides me with the confidence for our performance in the second half of the year. Our future position has strengthened, if you like. The quality of our people secures that. We have a very well diversified portfolio for public and private clients. And our recent experience has demonstrated that the diversity is absolutely key and we have further strengthened our financial position. So in closing, I look forward to what the next quarters will bring. I also look forward to Virginie Dupera joining us as the CFO once we have the approval from our shareholders in the September. And with that, Courtney, we are ready to take questions. Thank Our first question comes from the line of Henk Veerman calling from Kempen and Co. Please go ahead. Hi, good morning all. I have a couple of questions. Firstly, on the unbilled receivables, you had a €115,000,000 decline in unbilled receivables in Q2, which is obviously very strong. And you're back to a level seen. You're back to flat year on year on that position. So could you maybe explain, so why the clients not only received the invoice, but also paid within the quarter? I mean, I was quite surprised by that. Very strong, obviously, but but were there any effects that were driving that, especially because it was COVID 19 times? And if anything, you would expect people to pay due to defer a bit of, some payments. And maybe also in in North America, it's good that the cash came in, but have you also found a permanent fix for this billings issue? Because you also implemented some measures in the quarter. That's my first question. Yes. Thanks, Henk. Let me take them at an overall level and then Jochen can add on any details here. Thanks for the recognition that we made significant progress on unbilled receivables. That came from a number of actions, if you like. The resolution we put in place in May on the Oracle system, which I will speak about in a minute to answer your second question, was a contributor. But we were also clearly not happy with the situation at the end of the first quarter on free cash flow. So we actually launched a company wide program at the beginning of the second quarter, which had a focus on reducing our unbilled receivables as well as reducing our overdue receivables. And that program actually went as far as having my personal involvement. And I think we're starting to see that that program, which we're not done with, is going to also, has created actually some of the improvements which we have seen in unbilled receivables. So it is a combination of the solution on the Oracle system in North America plus improvements we've seen in virtually all of our regions, which contributed to the significant improvement. You made a point about a concern you heard about clients maybe paying slower than they would normally do given the circumstances. We certainly have a few clients who are using that card, but that is more than offset by other clients, particularly clients in the public domain who are actually paying faster than they would normally do, recognizing that we're all dealing with extraordinary circumstances. So whereas we have some clients who would use that excuse, it's more than offset by other clients who pay faster. But I will first and foremost look at ourselves and the opportunity we have to just make sure that we convert unbilled receivables into WIP and that we also pursue clients once the invoice has landed with them to ensure that they actually pay us. It is largely our own doing, so to speak. On the permanent fix, as you described it, which was the second part of the question, What we did implement in May is a permanent fix. We also mentioned at the end of the first quarter that we would implement that fix while at the same time we would not give up on the workaround just to be sure that we cover, and are completely covered. But as we, further fine tune the permanent fix, eventually that workaround will cease to exist. Jochen, anything you want to add? Yes. And maybe in addition to that, and I mentioned it before, that we made a significant improvement, which is not only in The U. S, it is in all businesses. And still, when we refer to The U. S, there is still some room for further improvement so we can further catch up. So we realized already a large catch up in the second quarter, but we can do a bit more also in the third quarter. Okay. That's very clear. And my follow-up on that would be, do you believe or is there a reason not to assume that the unbilled receivables could move back to about €200,000,000 at year end? Because that's approximately, on average, a level we've seen in two thousand sixteen, seventeen, and '18 before your problem started and would obviously imply a significant improvement even versus half year. And I have one one further question before I move back into the queue. No. I think it it is important that I think we can make further improvement. Of course, if you if you look to the network in progress, this is also a relation to the revenue growth. So if we see more revenue growth, then, of course, the absolute amount of work in progress is also a little bit higher. But as mentioned before, yes, there is still room to lower it. We will not guide on specific numbers, but that we believe that we can be even more efficient. That's that's clear. And maybe to add to that, Henk, this is not a fluke as far as we are concerned in that we have applied this focus once a quarter and then sit back, relax. This is an area of improvement for Arcadis, and the program will therefore absolutely continue. Okay. Very clear. So my last question would be, I mean, sales has been quite resilient in the core business apart from Callison, obviously. I mean, backlog is up. So if you sort of assume that in Q3, will be like very resilient as well. When you then look at margins and obviously, we've I mean, the rumors about like a second COVID wave currently in the media. So would you foresee any issues related related to your profitability margin if we sort of would have a prolonged stay at home phase? Or or do you for example, do you already see some projects going into difficulty because they would they they would need to be done largely digital? Is is that an issue within the company? No. We we don't see issues with the way we execute projects at this point in time. So it's not like working from home has caused a degree of inefficiency, is reflected and visible to our clients. That is absolutely not the case. I would say that in the context of the resiliency which we have demonstrated, we are already assuming that no earlier than maybe September and maybe even later, we will be able to get back to a degree of normalcy whereby more people will go to the office. So for us, the basic assumption is that until September, we will definitely continue with working from home. When you see the trends in some places that could easily be extended to beyond that point. So from a performance perspective, I don't have a concern that over time we would see a deterioration of our performance, which would be reflective in a deterioration of the profit. It is more a result of whether we will continue to win our fair share of work, whether our clients are willing to continue to put work on the market. And when we look at the the pipeline and the bidding and tendering activity at this point in time, that would also not be a great concern for me at this point. That's very clear. Thank you. Thank you. The next question comes in from the line of Luke Van Beek calling from Degroof Petercam. Please go ahead. Yes. Good morning. First, a question on CallisonRTKL. Can you give a brief indication how the revenues are split between retail offices, residential, and other sectors? So, Lucas, the question on specific revenue is on the sectors or how big retail is? For for CallisonRTKL. Yes. Yeah. The CallisonRTKL revenue is approximately between 20 and 25 percent of the the total revenue of of of CallisonRTKL. It's retail. It's retail. Yes. The retail business in the retail business, we have seen a significant decline this quarter. So that is actually, yeah, explains almost all the decline. Of course, we see also in the other sectors a little bit, but say most of the decline, came from the retail sector. And you mentioned that you want to focus more on flagship stores there in in retail. Do you expect that that will be sufficient together with possibly shifting people to to other segments within Callasan RTKL to keep everybody busy, or should we anticipate any restructuring there? We have reduced our workforce already marginally, and and that, given the fact that it is mostly in North America doesn't mess the retail business to other parts of the business. So I don't think that the expectation at this point in time is that we would see significant restructuring given our ability to redirect resources plus where we operate within calcineRTKL globally. Okay. And then a question on your DAC GECs. Can you update us on how the percent they are developing as a percentage of of revenues or workforce? Yeah. In the when when we started the year and before that had built a plan for the year, we had given all our regions an increased percentage of GEC compared to what they did in 2019. So all of them had a goal at the beginning of the year to further increase the utilization of GECs. By and large, we are actually on that plan. So in spite of the fact that we have challenges, challenges as in now everyone working from home, that we have a modest revenue decline. We're still holding in terms of utilization of the GECs to the plan we developed pre COVID. And can you give a number? No, I'd rather not give a number, but it is a, for some regions, a significant increase compared to what it was last year. You probably remember from the past that we said that Australia, The UK, and The Middle East were kind of leading in terms of utilization of GECs, percent, 25%, some projects 30%. And other regions were lagging, and we are particularly trying to move the other regions closer to that percentage of the leading countries in Arcadis. Yes. And my final question for now is that you reiterate that it's realistic to expect that not all targets, strategic targets will be reached at the end of the year. Is that just a a general, way to to highlight the kind of risk in in general, or are there any, any targets that you have in mind specifically where that may be more challenging? Because I think for most of them, you are well on track to to reach them despite all the additional challenges that nobody anticipated. It is it is largely a general comment, but your observation, Luke, is also correct that, most of them were kind of within the the goals we set in 2017. The one which we at the end of last year specifically said needed further improvement was the operating EBITDA margin. That, of course, is still the case because we committed pre COVID to be between eight point five percent and nine point five percent. Okay. Thank you. That's clear. That's it for now. The next question comes in from the line of Hans Pugas calling from Kepler Cheuvreux. A few questions from my side. First, coming back on the unbilled receivables. You'd mentioned you're taking company wide initiatives to reduce unbilled. Could you be a little bit more specific what kind of measures you were taking? Is it more or less, for example, more stringent contract conditions? So could you give some flavor on that? Secondly, on the tax deferred tax payments relating to some government support measures, did you understand well that you expect them to pay be paid next year so that we can still don't see a reversal in h '2, so we can take them for next year as a reversal. And then on the backlog, S. Australo Americas is stable, but you're talking about Brazil quite strong in infrastructure. Could you give maybe some more detail on the backlog in The U. S? And the same for Asia Pacific, minus five percent. At the same time, you're talking about an improvement in Asia in Q2. So is Australia then down in the backlog? Also, of course, maybe some bigger projects have started up. So could you give some more flavor on the breakdowns of the backlogs in those two regions? And lastly, on The Middle East and Asia, you already mentioned that at CallisonRTL, you little bit refocused activities, now with somewhat more difficulties in some maybe some also some smaller countries in Asia and again some difficulties related to oil price in The Middle East. Are you considering maybe some additional strategic reviews for those two regions? Could you give maybe some ideas on that? That will keep us busy for a couple of minutes, Salon, but we'll take them one at a time. Unbilled receivables, your question is what did you actually do? Did you do anything on contract terms? So starting at the highest level, we identified on the unbilled receivables and overdue receivables at the end of the first quarter by region an improvement we wanted to see in each and every region. We then embarked on biweekly calls with all the regions, particularly those regions which needed to see the improvement because we also, as you all know, have regions which are well within and actually much better than our stated strategic goals, so to speak. So it's not each and every region, but particularly those which require an improvement. The biweekly calls have a level of detail which includes in these conversations around contract terms, what do you do on future contract terms, but also includes conversations at what can you do today to ensure that clients are paying. So it is quite a granular approach by region with a list of projects to go through to see where we have opportunities to improve our unbilled receivables and our overdue receivables. We've also changed some parts of the remuneration to ensure that there is a stronger focus on free cash flow. So that is also a contributing factor in my view. The tax deferral, yeah, you're absolutely correct in that we do expect that that will be something we have to pay back in q one of next year. Ultimately, we have to pay it back in q one next year. So we can decide, of course, to pay back earlier, but but that is that is up to us. And then on the backlog, specifically, I think you mentioned North America and Asia Pacific, or I think you made an assumption that the backlog is probably declining in Australia. There's a very, very healthy growth in Australia. But Australia, as you'll recall, is also typically the region which focuses on the larger programs which tend to be lumpy. So the book to bill in Australia is indeed lower than one. But when we look at the bidding activity currently going on in Australia, when we look at the number of projects which are expected to be awarded in Q3 and Q4, And if we apply our normal win rate on these projects, there's no reason for us to be overly concerned about the book to bill being lower than one at this point in time. And actually, the expectation is that in the second half of the year, we will definitely catch up on that. So that observation is a correct observation. And then lastly, I think you asked a question about Middle East and Asia. Are we planning to do any additional strategic reviews? As you know, we are actually in the process as we speak to update our strategy, so we're not necessarily looking at additional strategic reviews. Maybe on The US, the breakdown between The US and South America Mhmm. Backlog. On the backlog? Yeah. You see in when you look to The US is is very, say, a modest decline in backlog and and a strong increase in in Latin America. So on average, is is flat or slightly positive, so 0.3%. So you see a couple of percentages decline in North America. What we do see is a good development in Water and Infrastructure and some impact in, say, the environmental business in The U. S. Okay. Maybe then one last question, but maybe also too early because of the strategic plans for the end of the year. On your past dividends, but now your for 2019, but now your cash flow remains very strong. Of course, you have, let's say, used some furlough measures. But, yeah, with this current very strong balance sheet position, any, let's say, indication maybe what you were planning to do with the dividend, maybe to reinstall it? Or could you give maybe some feeling on that? Yeah. When we took that decision a quarter ago, which, of course, was a difficult decision for our shareholders, we didn't take that very lightly. We considered all the options. We looked at the situation at that point in time. And whereas we've had a good quarter of solid performance, we think it is still prudent to remain vigilant in the current environment, which still has a degree of uncertainties. But it is something which has not dropped off our list as a topic for further evaluation, but we didn't think that it was prudent to revert a decision we made only a quarter ago at this point in time. Okay, thank you. Clear. Thank you. The next question comes in from the line of Martin Dundreiser calling from ABM AMRO. Martin, please go ahead. Yes, good morning, I was wondering if you could talk a little bit about the split between private clients and public clients and then to more specifically or as a second part to that, the behavior of the private clients going through the second quarter into July? That would be my first question. And then the second question regards personnel expenses. When we you talked about measures to contain cost or reduce cost, mentioned hiring freeze and normal there's also natural attrition. Personnel expenses increased plus 1.7%, so that's a plus. And tied up to that, the non operating costs, so are there any restructuring elements there even though you said no major ones? I just wanted to understand if some of the measures you've been you have taken will have an effect in the second half of the year? Those were the first two questions. Thank you. Okay, thanks Martin. I'll take the private and public first and then Jochen can answer on the second question. So our ratio between private and public at the highest level is roughly about fiftyfifty or close to fiftyfifty. That ratio is conceivably going to change because we are redirecting focus from private to public clients, so expect that ratio to change, but that's not going to be big jumps per month or per quarter. That will take time. But clearly, if we now look at our opportunities, we see most of the opportunities on the public side as opposed to the private side. I think your question was also in terms of what sort of behavior do we see from clients, particularly, I think you were referring to July and has it changed from Q2 to July? No, we don't see a change in such a short time frame. The changes or the behavior is still very much as I explained when I spoke in response to Hank's question that we see clients who are willing to actually pay faster than they normally would do or even faster than the payment terms would actually describe simply because they do recognize that we're all in a very challenging situation and cash is important for everyone. We at the same time also have, of course, as I mentioned in response to Heng's question, private clients who are trying to use that card to actually delay payments. At the end of the day, though, it is all upon us to make sure that we do pursue the payments which we're likely owed in an assertive way. And that is what we have tried to further enhance through the program I spoke about a couple of minutes ago to make sure that we don't necessarily lose our focus on getting paid simply because clients would argue that they might not have the money available. So in the bigger scheme of things, not a change compared to Q2 with some clients using the card, but then again offset by other clients who are saying, I'm willing to pay faster. Just tell me when you're ready to have the invoice. If I may provide a follow-up. I wasn't so much talking about the payment terms and more about how willing are they to look at new projects or how willing are they to continue with projects that they may put on hold during Q1? So to start with the not so positive news, the retail clients in Callasan RTKL really have stopped their projects on a moment's notice. But that is really an exception. By and large, all the other clients are and I think the advantage we have compared to maybe people who are actually in construction is that when you look at a total cost of a project, the expenses they have on the work we typically do compared to the expenses they would have if they would start construction are of a different nature, a different magnitude. So the temptation to stop projects is always there, particularly when the going gets stopped, but we have not seen, as we said in our press release, any material cancellations or stops of projects. We see a few, but again, that is also then offset by clients, particularly in the public space who are willing to look at projects taken a pull off even quicker than they would normally do. So not of any significant impact except for retail in Kalasnaitikau. Okay. Yeah. Maybe regarding your question around, say, restructuring costs. Restructuring costs in total for the first half year were about €5,000,000 which is lower than last year. And it was really spread across the regions, but we see some a bit more, say, still in Latin America and that was also related to Chile. We do see some impact in CallisonRTL and then a little bit across all regions, small amounts and the headquarters. So in total, close to €5,000,000 in the first half year. And the savings of that should be roughly €1,000,000 2,000,000 small amount. Yes, yes. Right. Those were the two questions that I had left. Thank you. The next question comes in from the line of David Tomic calling from VEB. This is David Tomic from VEB European Investors. Just wondering on your working capital initiatives. To start with, a question on the Oracle ERP system. You mentioned in today's release that you realized catch up in invoicing. So does this mean that all the necessary functionalities that you had to put into the system has have now been completed? And if not, what issues will still have to be resolved? Second question is on the company wide program that was touched upon several times earlier in this call. I was just wondering if you could elaborate a bit more on specific changes you made probably to project management when it comes to, for example, project administrations on cost incurred, claims variations, etcetera. So what specifically have you been doing over the past quarter to get a better grip on your unbilled receivables position? And the next question is on the trade payables, which showed a decline, and it's obviously negatively impacting your cash flows. But do you see this as a purely temporary issue, or do you foresee structurally shorter payment terms for the quarters to come? And my third question at this moment would be on the the goodwill impairment test, which there were of which there was no mentioning in the press release, does that mean that you did not con did did not consider the COVID nineteen developments to be a triggering event for the goodwill impairment testing? And a follow-up to that is, if not, apparently, then why do you consider, that no input variables have been changed so that, that would impact your headroom for your different CGUs? Thank you. Okay. I'll I'll start, David, and then, Jochen and Gannett. I'll start with the question on the Oracle EFP system, whether the functionality is now all being deployed in North America. The answer is yes. But you will probably also appreciate that any time you deploy a large piece of functionality that is tweaks and modifications to be made. So I wanna be specific by stating that the missing functionality, which we were lagging before has now been deployed in May, as we said before, but there will, of course, also be tweaks to be made to functionality as with any software system you would deploy and you would expect. The second question was on whether we made any changes to project management procedures, claims evaluation. The answer is no. The answer is that this was largely an issue of behavior. So being more assertive, being more expedient in making sure that we do get our bills out in combination with the functionality on the ERP system in North America, and also behavior as it relates to following up when an invoice is out to make sure that the client actually pays us. So no change to procedures. It is all behavioral issue. Then you have two questions on payables and then a question on goodwill, and I'll defer to Jurgen for those two. Yeah. Okay. Yeah. It's it's I heard you saying, David, the position of the accounts payable worsened. I'm I'm not sure how to read that because on the other hand, you can say we the the the payables are lower than, say, they were, at year end. And also when you express it in percentage of gross revenues, then it is now 6%. It was also 6% last year, and it was 8% at year end. So you can say that, yeah, the accounts payables are lower. Of course, it has an impact on your cash flow, but it means also that that we pay as normal the accounts, our, say, subcontractors in time, and and that that's what we are doing. So it's absolutely not an issue, and I think the 6% is is is pretty normal. Regarding your question about impairment testing, next to the press release, we issued also our interim statements, and probably you didn't have time to read it, but let's say in note 11, we fully describe, say, our considerations around the impairment testing. And yes, COVID nineteen is a triggering event, and we performed also an impairment test of the goodwill of June. What we consider that, let's say, the amounts of goodwill are recoverable as at June 30, but we see also that the headroom of The Middle East and Callison RTKL remain limited and even declined for Callison RTL since the 2019. We will continue to monitor the developments, of course, about the business forecast and the impact of devaluation of the goodwill. And of course, as as normal, if if there are any changes in economic climate or other outcomes that that might impact devaluation of the goodwill. But at June, we really considered the situation, and we believe that the amounts are considered recoverable. But you see it in the note 11 on the interim statements. Thanks. Our final question comes in from the line of Bart Kopas calling from KBC. Bart, please go ahead. Hi, good morning. Yes, just following up on what has been said on the backlog. So, yeah, it it remains relatively well filled on a group level, let's say. So just wondering even on the yeah. Is there has there been increased pressure from competition on on on lending to to yeah. On lending the available projects there? Or would you say that, yeah, the quality of the backlog and margin potential has remained relatively stable compared to, let's say, the start of the year? So that's the first question. Then second question on Eilen. So, yeah, big big part of the cash out has been has already been done. So if I'm correct, that's about a little bit less than €25,000,000 in provisions remaining there. You're helped with with with with Brazilian real there. But assuming that that would stabilize again, normalize the effects at at the current situation, how the file is going, the wind down, do you still expect to land in what your assumptions were previously and how long that would take approximately? Yeah. Thanks, Bart. I'll take the question on backlog firstly because it's a very valid question. I mean, backlog in terms of revenue is one thing, but your question, of course, what's the quality? What's the the profit level you take backlog in? And and the question was specifically was, have you seen any pricing pressure? You didn't use the word, but that's my interpretation lately because of competition. And pretty much across the globe, that answer is no. Not at this point in time, at least. We're also not seeing ourselves forced to, I use the word take a nosedive, that's probably too negative, but at least significantly lower our expectations for the work which is currently available to us in the market. So no, there is no deterioration or impact on the quality of the backlog we take in as we speak in terms of profit level because that's the question, I guess. Yeah. Indeed. Indeed. Exactly. Yeah. But regarding your question about Ireland, yeah, we are in the process of the the orderly wind down, and that and and we are still busy with that. We we stopped investing. As you noted, we had a €17,000,000 gain on the repayment and on, say, the amount we provided for, so the guarantees. What is still left on the balance sheet is a provision for guarantees of €14,000,000 that is for the remaining outstanding guarantees. And on top of that, we still have a provision of €9,500,000 left on the balance sheet or 9,600,000.0 to be fully precise. And that was we took also an additional provision of €10,000,000 for all kinds of other wind down costs, and that provision is still largely there. Okay. So so the file is continuing to to evolve in line of expectations previously at the moment? Yeah. Okay. Okay. Thank you for the answers. Thank you. That does conclude today's question and answer session. So I shall turn the call back across to yourselves for any closing remarks. Yes. Thank you, Courtney, and thanks, everyone, for your questions and your participation this morning. Just in closing, the situation we are currently all in requires all of us, and including us here in Arcadis, to remain vigilant considering the health developments we see across the globe. That being said though, I am really pleased and actually also quite proud of the way our people have responded to their current situation, their adaptability has been demonstrated. I'm also pleased with the overall performance, and I'm particularly pleased with the significant improvement in free cash flow in the second quarter. And all of these things do give me confidence for the remainder of the year, while we remain that vigilance in terms of looking at what is happening around us. So with that, thank you for your interest in Arcadis, and I hope to talk to you again in a quarter's time. Thank you for joining today's call. You may now disconnect your handsets. 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