Arcadis Nv S/Adr

Hello and welcome to the Academy's second quarter and half year 2023 results. My name is Caroline and I'll be your coordinator for today's event. Please note this call is being recorded and for the duration of the call your lines will be on listen only mode. However, you'll have the opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your questions. If you require assistance at any point, please press star 0 and you'll be connected to an operator. I will now hand over the call to your host, Christine Disch, Head of Investor Relations, to begin today's conference. Thank you.

Thank you, Carolyn, and good afternoon and good morning, everyone on the call. Welcome to our webcast. My name is Christine Disch. I'm Investor Relations Director at Arcadis. We are here today to discuss Arcadis' second quarter and half-year results. which were released this morning. And with us on the call are Alan Brooks, our CEO, and Virginie Dubras, our CFO. We will start today with a presentation by Alan and Virginie, which will be followed by Q&A. And we would like to call to your attention to the fact that in today's session, management may reiterate forward-looking statements which were made in the press release today. Please note any of these risks related to these statements are more fully described in the press release, on the company's website, and at the end of today's presentation. With this out of the way, Alan, over to you.

Thank you, Christine. Good morning, good afternoon, everybody, and a very warm welcome to you all joining the call today. I'm really delighted to be hosting my first investor call as CEO of Arcadis, and I look forward to taking your questions shortly. My first few months as CEO have been incredibly busy and rewarding. Obviously, we've been focusing on our performance, whilst at the same time, I've taken the opportunity to visit our key clients and connect with our people. It's been enormously encouraging to see the opportunities and the scale of those opportunities and services that our clients are looking for us to address, and we see strong market need into the future. Our people and our clients never cease to amaze me, whether it's in executing a project to prevent the rising sea levels in lower Manhattan or designing a new 33-kilometre underground multi-level system of highways and tunnels in Sydney. The ingenuity of our people is truly inspiring. We are progressing well with the integration of Arcadis IBI and Arcadis DPS, and this provides us with further opportunities to broaden our services to a larger network of clients around the globe. as well as delivering more complex, value-adding projects across multiple client programs and geographies. Our new architecture and urbanism business, which combines the architecture and design expertise of IBI and Callison RTKL, is now ranked in the top five largest architecture practices in the world, significantly increasing our ability to deliver megaprojects from design to operation. I've also strengthened our leadership team. The executive team includes now the three GBA presidents within that team. This underlines my ambition to bring our GBA leaders even closer to the business and help better serve client needs. This also allows us to collaborate across the GBAs and get cross border efficiencies. With less than six months until the end of our three year strategic cycle, I am today confident we are on track to meet our targets that we set ourselves for the 21-23 strategic cycle. Now let me turn to the results of this last quarter. If we look across this, I'm delighted to report a solid set of results in our second quarter on the back of continued strong demand and operational discipline. We have achieved a record net revenue for the quarter of €945 million, which is up 30% year on year, with a strong organic growth of 9%. Our net backlog has increased to 3.2 billion, with an organic backlog growth of 5% year to date. These results have been driven by client demand for our expertise and services, particularly in the industrial manufacturing, environmental remediation, and innovative mobility solutions. Our operating margin improved to 9.8%. This is up from 9.3% in Q2 2022. These results confirm that the operating model we introduced last year and the strategic focus on high growth markets is now delivering. I'm also pleased to report that voluntary turnover is down from a high of 15.9% in 2022 to 12.6% this quarter. These improvements reflect the changes to the talent and people processes we implemented over the last 12 months and show month on month progression. I will touch on our four global business areas shortly. But first, I'd like to share with you some examples of our significant synergy wins this quarter, which showcase the successful integration of our acquisitions that we made last year. One of the key drivers for the acquisition of Arcadis RBI and Arcadis DPS was the complementary nature of both businesses and the opportunity to combine our offering and provide clients with a full asset lifecycle of services and solutions. By way of example, a recent appointment to provide full architectural and engineering design services is to support the creation of the largest solar ingot and wafer manufacturing facility in the US. This brings together capabilities from across places GBA, including from the new businesses in the form of our expanded architecture and urbanism group and our high tech industry engineering and construction management expertise into this multimillion dollar project, which will create 1500 new jobs and support the nationwide reduction of carbon emissions. Likewise, Arcadis' projects and construction management expertise and Arcadis DPS knowledge in process engineering is generating synergy opportunities with new technology clients. A good example would be to support the new facilities to design, manufacture and test semiconductors for a global leader in embedded processing chips. This market is a huge market for us as we look to the future. As I mentioned, we now have one of the top five largest architecture and urbanism businesses within our places GBA. This takes us from placemaking in major cities to supporting workplace and interior transformations for top retailers. The new business creates a wealth of opportunities to combine our expertise and services. A good example here is a project to expand a holiday village in the Caribbean. A five million dollar project is utilising master planning, architecture and also our master planning design skills from both IBI and Kalasnati KL in Los Angeles, Toronto, Boston, Miami, and Salt Lake City. So a really strong project for us. If we look at our resilience business, we continue to see very strong momentum. Net revenues were up 13% and order intake up 23% year on year, continuing to position us ahead of the competitors. In North America, client support for environmental restoration projects continue to soar. Innovative digital tools are also proving a real differentiator for us in this field. A good example here is the green metrics analytics tool. This tool calculates the carbon emissions generated in each phase of a project. The results are then visualized in an interactive dashboard. The gaps are then identified and more suitable alternatives generated. This information can be used to drive a strategy that limits environmental impact and maximizes socioeconomic benefits in any project. In response also to the US Environment Protection Agency's new lead and copper rule, we are seeing increased federal funding for water infrastructure to improve the quality of clean water supply. This helps to drive the demand for our water optimization solutions. We also continue to see strong growth for our energy transition related initiatives, highlighted by a win to support the national grid in the UK to decarbonize its infrastructure. As the one and a half degree Paris target draws closer, the energy transition market will increasingly become one of our greatest opportunities. To meet demand, we are launching an energy transition academy This will create new talent, capacity and capability to address the future skills needed to advance this transition. Whether it's restoring brownfield sites or helping to increase the supply of renewable energy, we are committed to improving quality of life for communities where we operate. In the Netherlands, one area that highlights this commitment is biodiversity. Our 150 strong team, the largest in the Netherlands, is supporting a variety of clients, including the Dutch Water Authority and municipal governments to restore flora and fauna in the waterways. One such project in Zuidpolder Park, south of Rotterdam, where we have our landscape architects designing the master plan for a new 130 hectare park, which has just been awarded a European Garden Award. If we next look to our places business, we see excellent results with both net revenues and order intake up over 50%. This has been driven by growth in the industrial manufacturing sector, as well as increased investments in carbon management and the need to meet net zero targets. As we continue to focus on the strategic repositioning of our portfolio following last year's acquisitions and the integration of the new businesses, we see high growth markets in North America and Europe and these remain key drivers for our success. Government stimulus packages have also presented an emerging mix of both new business opportunities and entrance to the market. Legislation, including the US Inflation Reduction Act, have created a favourable investment market, and increasingly we are working with newcomers to capitalise on opportunities for profitable growth. The need to reduce carbon emissions also remains an ongoing concern for all our clients. Across the entire value chain, we are now looking for ways to improve what we do. This started recently with an ecosystem partnership with Honeywell. Together, we provide the tools and services that help optimize energy use and carbon emissions in commercial buildings. These are highly geared towards supporting clients on their journey to net zero. This will remain a priority as we continue to develop intelligent digital solutions We will help our clients accelerate their efforts to reduce carbon impact across their portfolios. Next, if we look at mobility, order intake is up 16% for the quarter, net revenue growth of 9%. New technologies and digital innovations have been critical to the growth. Within our connected highways and intelligent rail solutions, we see this particularly underpinning the growing demand that we have. New government stimulus packages are also contributing to the strength of our mobility business, notably in the US and Australia, where federal funding has been key for supporting clients looking to advance the capabilities in new mobility services, such as electric vehicle infrastructure. We are developing new solutions in emerging growth areas such as Advanced Air Mobility, or AAM. Highly automated and electric aircraft are used for transporting both people and goods, AAM can mean a faster, more affordable and emission-free way of getting around. But to become commercially viable, it must be integrated with existing mobility options and other emerging technologies. As a result, we are seeing urban air mobility ecosystems being formed in several major global cities. Thanks to our local knowledge and global expertise across technology, planning, engineering and sustainability, we are ideally positioned to take advantage of the opportunities this new area presents. A good example of this is our work with San Diego Association of Governments. We have been appointed to develop policy and technical resources to help shape the AAM strategy. We will be combining our expertise in the traditional aviation sector with digital tools to support policy and market analysis, as well as educational and public outreach to identify locations for AAM facilities that are accessible to all. The work has the potential to transform future transportation systems, and I am excited that Arcadis is at the cutting edge of these new developments. And so to our fourth and newest global business area, intelligence. This will support the growth of our innovation capabilities, particularly the way in which we embed smart digital solutions across our whole business. Demand has been driven particularly by traffic, transit and travel solutions, notably in North America, where synergies between mobility and intelligence business areas are translating into exciting new wins and opportunities for further revenue growth. A very good example here is where we have combined the two leading intelligence products, Hotspot and CurbIQ. This new application means that important mobility clients can look at CurbIQ, digitizing the curbside data to help cities monitor their curb parking and logistics, while Hotspot is integrating the mobility platform that users can easily track travel expenses and make parking and public transport payments all in one place. Now, by bringing both CurbIQ inventory of the Curb space together with the payment aspects of hotspots, we can give users real-time payment information, as well as direct customers to available parking spots. Combining these tools has been central to new opportunities in cities across Canada and the US. We now have approximately 1 million users in 2023. Our enterprise decision analytics tool, also part of intelligence, helps clients better understand their asset portfolios. It predicts and models assets, prioritizes complex decisions, and we've seen this really working already in Infrastructure Ontario in Canada to access their public building portfolio. In addition, we're seeing new growth opportunities emerge for our mobility and resilience businesses in Amtrak, a longstanding client of intelligence who use the EDA tool. With that, I'd like to hand you over to Virginie to talk through in more detail our financial results.

Thank you, Alan, and good morning, good afternoon, everyone. In the first half of 2023, Arcade has delivered a strong set of results with improved performance across key metrics. Our net revenue increased by 10.6% organically to 1,886,000,000. with strong growth at Arcadis IBI and Arcadis DPS. The currency impact on revenue growth was minus 1.1%. Our operating EBITDA was €185 million in the first half compared to €133 million in H1 2022, up 40% year-on-year. Operating EBITDA margin improved to 9.8% relative to 9.3% last year. We maintained our discipline networking capital management while reducing the ESSO to 66 days versus 69 days in end of Q2 2022. We also successfully placed at 225 billion euros sustainability loan in July and completed refinancing process of our 2022 bridge loan. Now, let's move to the next slide to talk about our order intake trends. In this first half, we delivered record net revenue with strong organic growth. Our order intake increased by 36% year-on-year to record level of $2.39 billion, outperforming total revenue growth of 33% and resulting in a book-to-bill ratio of 1.08. This resulted in a net revenue backlog of €3.2 billion, with organic growth of 5% year-to-date, well above last year's 3.4% in Q2. Let us now turn to the performance of each GBA, and let's start first with resilience. In resilience, we delivered an excellent performance across the board. We experienced continued strong momentum in client demand, particularly in environmental restoration, water optimization, and energy transition. This led to strong revenue and backlog growth, driven by public and private clients in all large markets, and with backlog development in the quarter beating the seasonal patterns. We delivered a strong margin in the first half at 11.2% and strong improvement from 10.1% in the first half of 2022, driven by good performance in North America. Finally, we continued to invest in digital products and partnerships to tap the wide range of opportunities in growing markets, such as water optimization. If we turn now to places, the good revenue and backlog growth was driven by North America, the UK, and continental Europe, while we increased selectivity in order intake at Arcadis DPS and continued to refocus on cost management to value-added product management in China. The operating EBITDA margin increased to 9.2%, driven by Arcadis SBI's strong position in North America and industrial manufacturing performance in continental Europe. Excluding Middle East, our operating EBITDA margin was at 9.9% for the first half. Moving now to mobility. Here, we continue to see very strong revenue growth in North America and continental Europe. We see increased public and private investments for upgrading of infrastructure assets, especially in the US and in Australia driven by the stimulus. Positive order intake momentum was maintained, leading to a much stronger quarter-to-date backlog development of 2.1% in Q2 23, compared to 0.3% of the previous year. The margins were strong in North America and continental Europe and in Australia. Middle East performance was 3 million euro negatively affected by the arbitration outcome on a rail project that was rendered in H1. Excluding the Middle East, operating EBITDA margin was at 10.3% for the first half of 2023. And finally, Our fourth GBA, Intelligent, delivered €45 million of net revenues in the first half and had a strong order backlog of €115 million. Good revenue growth was complemented by new order intake from key clients, mostly in North America and in the UK. Building on the recent synergy wins outlined by Alan earlier, we see a good pipeline of opportunities for Intelligent on the back of continued cross-GBA collaboration. For intelligence, our priority remains investing in product development, integration of Arcadis IBI, and organizational setup. Integration efforts and good momentum resulted in an improved margin of 9.6% in H1 2023 versus 9.1% for full year 2022. Overall, turning to the P&A, we delivered a strong operational performance with €169 million of EBITDA compared to €130 million last year, which was at 30%. Our net finance expenses were €27 million, even by a higher debt position. The effective income tax rate of 35% compared to 28% of last year was impacted by non-deductible items and the recognition of deferred tax assets. The weighted average annual income tax for the full financial year is expected to be between 28% and 30%. Our earnings per share increased by 10%, with net income from operations increasing to €103 million, or €1.15 per share. Looking now to our free cash flow generation for the first half. Year on year, our seasonality pattern remains the same. and the variance year-on-year comes from an additional cash outflow on taxes following a US changing law, limiting impacts coming from increased financing costs, some integration costs, IBI and EPS contributions, as well as an increased need in working capital to finance our strong works. The cash flow in the quarter of minus 26 million euros was in line with our seasonality pattern and fully in line with last year's 41 million euros when excluding the US tax impact. Finally, I would like to update you on our progress with the identification and the delivery of cost synergies resulting from both our acquisitions. End of H1 2023, we have identified cost synergies for a total amount of €20 million, above our initial target of €18 million. Synergy implementation is ongoing and expected to be fully delivered by the end of 2024. They are to be generated through integration and rationalization in workplace, IT integration and platform improvement within technology, as well as through rationalization of overhead, insurance, and support driving operational synergies. In 2023 already, we expect a positive impact of €4 million in our full-year P&L, to come from those synergies. The synergy exercise is still ongoing, and we will go on extracting additional efficiencies as we progress in the integration process, such as GC contribution, for example. And with this, I would like to thank you, and back to Alan.

Thank you, Virginie. So to wrap up our Q2 and first half year trading results, let me summarize. We have delivered another quarter of strong performance, reflecting continued high client demand and our global operating model continues to drive revenue growth and margin improvements. The integration of Arcadis IBI and Arcadis DPS is progressing well and is to be completed by the year end. Synergy wins are materializing and cost savings that we have identified exceed our initial target. The company's focus on digital innovation and operational discipline has led to significant order intake and opportunities to further scale and standardize, ensuring we remain fully on track to meet our 2021 to 2023 strategic targets by the end of this year. The need for sustainable and digitally enabled solutions remains high on our client's agenda. I am convinced that with the talent and expertise within the organization, we are well positioned to capitalize on these future growth opportunities. And with that, I hand back to Christine for any questions that you may have.

Thank you, Alan. We will now open up the line for Q&A. Kindly keep to a maximum of two questions at a time. Carolyn, up to you.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. We will take the first question from Lion House. The line is open now, please go away.

Yes, good afternoon ladies and gentlemen. Two questions to start with from my side. First of all, on wage inflation, could you give maybe some feeling how significant wage inflation was? maybe some flavor on wage inflation and volume and especially also how did you let's say perform compared to last year as last year there was some issue with respect to passing on that wage inflation how did you do that let's say this year do you believe that you have performed slightly better also looking at the margins because maybe some background on that and secondly on personnel yeah could you give me the number how strong do your total number of employees grew organically And also, let's say on the staff, which came down quite materially, which gave me some flavor, is there any impact from mix or any specific reasons for it, or let's say regions which drove that improvement? Thank you.

Thank you, Hans, and thank you for your questions. If you agree, I will take the first question, and I will turn to the boss for the second question on the personal element. So on wage inflation, what have we been seeing for the first half of this year? Really something really different, I think, from one year ago, obviously. There is still some pressure, obviously, but as we stated earlier, the big catch-up that we've done very early in the start of this inflation moment has allowed us to remain fully in what we had assigned for ourselves in the budget. So that's definitely something that we've been seeing. And obviously, as we are not getting into the same type of salary increase that we did the year before, even if there are still some discussions with clients, you know, when you want to go back and such, It's not at all the same magnitude that we've been seeing compared to one year ago. And there is no specific effect, I would say, in the P&L of the ALFIA to try to catch up. We still have, by the way, you know, one or two large contracts here and there where we still are into negotiation and discussion on the catchbacks of the previous year.

Thanks, Virginie. Maybe to your second question. We've seen about 3% organic growth in our personnel, which I think year on year is looking at where we've seen the growth markets. I mentioned energy transition and obviously we're very focused on developing there. I think we see pleasing for us is that the turnover in people in our new companies that have joined us through the acquisitions is either as good or better than in the rest of Arcadis. So people are excited in joining Arcadis and a lot of work has been done in that. We put a lot of effort into analyzing our staff survey in terms of the areas to address around onboarding people and that's really helped us in terms of recruitment a better onboarding process better recruitment process and then development and career process and really that's resulted in us achieving at the end of June our survey engagement score of 49 which actually puts us in the top 25 percentile of our industry so some pleasing results on the people front.

Okay, thanks.

Thank you. We will take the next question from line Martin D'Andrevo from ABN Ambrose. The line is open now. Please go ahead.

Yes, thank you, operator. My first question is slightly different from the one from Hans, but on the same subject. If attrition is trending down... Would it be fair to assume that there will be a better conversion of organic growth into EBITDA margins in the second half of the year and into 2024? And my second question is, the wind down of the Middle East is now popping up not only in places, but also in mobility. When is this effect going to disappear? Is that going to be in the course of 2024 or perhaps already at the end of 2023? Just a bit more color on that. And I'm going to sneak in a third question. Can you shed a bit of light on the performance of the merged entity IBI architects with Kellis and Artikiel? Just to get a bit of a flavor how that merged entity is doing relative to some of the individual parts. Thank you.

Maybe I'll take a little bit of the beginning of each of the questions and we'll let Alan complement on a business standpoint because there are quite a number of different angles that you are addressing there, Martin. So in terms of attrition and better conversion of EBITDA margin, you definitely have a point. And I think that if we look at resilience performance in H1 and the improved margin in that is really already there. Let's go back to one year ago. And one year ago, that was absolutely a moment where we had a very high attrition in that part of the business and also mainly in the US. And that's the moment where the team has been putting in place some efforts on recruitment, but also on how we manage the onboarding process and how it's being run. And all that, you know, working together, let's say, pretty, pretty well, we see the results definitely in the margin in H1 and 23. So that's something that might or should, let's say, impact, I would say, the other GBAs. Then we have contrasted results, you know, from one GBA to the other, and definitely attrition is absolutely down in resilience. And it's a bit higher, for example, in places for several reasons. It's not the same countries, obviously, and we have the Chinese effect, which is merely impacting China and places. And obviously, we also have some sort of slowdown in some areas, and namely a little bit in the UK at the moment. And we've seen some people getting out a little bit. which is something happening in this sort of circumstances. So that's a little bit the picture on that front.

I think just to add to that one quickly, I touched on before the onboarding, so actually the route to fee earnings. So as we've improved this, we're getting people into billable work faster. So I think you're right. And then that should continue, as you say, into 2024. It's also about the work we're doing on the selection of projects as well. But yeah, I think it's a good point. Do you want to start off on Middle East or shall I start off? You can start off. OK, so in the Middle East, you make a point there. Obviously, we're at the end, really, of the period where we're moving down in the Middle East now, winding down. aiming to do is be really quite a small business by the end of this year we will just be winding out of a few projects we're trying to accelerate that as we speak and we are hopeful that by 24 the end of 24 we will be out of the middle east altogether so that's our aim and that's what we are working to

And maybe to complement that, one of the reasons also to exclude that is that in some respect, because we are in the queue of the project, the impact of Middle East is smaller in terms of volume of activity, obviously. But the entities, and we went down in terms of business licenses and such, we have some cost, I would say, of administrative infrastructure on the ground. And that's weighing, and that's the reason why we thought we might need to signal it.

Just a short follow-up on the Middle East. So losses are probably, this is my assumption, in the mid-single-digit range for 2023. Will that be close to break-even in 2024, or will it remain at that level just until really the complete organization, or at least that part that you want to, is completely dismantled? Is that the way we should think about it?

The way we should think about it, I think, is the more we progress... the less revenue we have, but we still have costs to close the entities. So then you rather don't go back to breakeven, but go on getting some costs while you have no projects anymore, so then you don't have profits to put on the other side.

Okay, thanks for that clarification.

Thank you. And then I think the last question was about architecture and urbanism on the performance that we can observe there. And then maybe just a few facts, but I will let the enthusiastic Alan talk about it because he met them recently while I didn't. So on the performance of the first half, what we can observe is that obviously a super strong performance on the commercial side. If you calculate a sort of pro forma, you know, organic growth of their backlog and order intake year on year, it's a very strong double-digit number. So it's absolutely stellar. You take CertiKL and IBI, where they were last year, and what they were delivering separately in terms of order intake, and you compare that to the first half, and this is what you get. And in terms of P&L performance, we still have a lot to improve and extract in terms of synergies and efficiencies, but they are already, you know, at the average margin of the rest of the group.

Wow. Thank you very much, Virginie.

Just to add to that, I'll just say I visited offices of where we've now combined the teams. I think the really positive news for us is working in those offices The work is being done across both the teams, if you like to put it that way. And actually you can't tell who is from which team. And what we've done is look to maximize the people and the capabilities. We've particularly seen strong US Canadian performance in this regard and health in the UK. So we're looking to leverage the key clients of both organizations and really maximize the opportunity. And that's what's given us the results that Virginie has mentioned.

And the attrition trend is the same in that combined entity as it is for Arcadis as a whole?

It is indeed. And actually, if anything, lower. Yep.

Very, very low.

I have two more questions, but I'll go into queue for her back right now. Thank you.

Thank you, Martin. We'll take the next question from line Anthony Manning from Bank of America. The line is open now. Please go ahead.

Good afternoon, everyone. Uh, thanks for taking my questions. Um, could you just give us, um, an indication on the main moving parts, um, of the cashflow for the rest of the year, um, where you think that'll come out and what that means for net debt. Um, and then secondly, I think you just touched on it, but, uh, could you give us a bit more color in terms of the end market demands that you're seeing in the, in the kind of new places division, you know, uh, you've kind of given us regionally, but kind of, um, kind of a business line level, you know, where you're seeing in that places the indications you're getting. Thank you.

Thank you, Anthony, and good afternoon. I will take the cash flow part if you agree. So then cash flow for the rest of the year, we see the usual seasonal pattern coming back with cash generation, you know, expected to really happen on the second part of the year. Aligning DPS and IBI on our processes where, you know, salary reviews happen on the first half of the year, bonuses are being distributed there, we bring them in the same type of pattern that we have to Arcadis, and this is what you see if you exclude this history of U.S. tax. So, definitely, we see for the rest of the year the usual way of generating cash, The cash generation is starting also on a bigger base because we have a bigger volume of activities and such, so that is something that we should find also in our ability to generate cash. We definitely also see, let's say, some small administrative impact, and I've been really mentioning that in the slide or in the PR because it's a little bit anecdotal, sorry for that, But in fact, it happens at the moment. We have been integrating, you know, quite a number of different entities, getting IBI and DPS former groups in. And then, obviously, these legal entities are changing their names and changing their names. We've seen a little bit, you know, of time to get the right papers and such so that clients can go on bringing their cash in. So that, I expect, might go on affecting a little bit the Q3. So it might very well be that it's back and load part of our cash generation in Q4 because of that administrative process, which is happening at the moment. But this is what we see. The tax impact was 74 in H1, but we still expect, you know, 20 more, and that's in the press release, you know, to come from the rest of the year. on that additional element, except if there is an additional change in law, because that's also a question around that famous element. So that's what I would, let's say, give as an overview.

And then perhaps just on the places, the markets that we're seeing, there's quite a few. One of the big markets for us right now is the industrial manufacturing, so the high-tech manufacturing businesses, and we're seeing that in terms of demand for gigafactories. Also, combining the skills in Arcadis DPS with the traditional Arcadis skills, now looking at the semiconductor market, which we've got some very big client opportunities and projects underway, such as in Germany, where you're seeing these very large significant semiconductor factories as countries such as America, Germany start to insource, if you like, the production. This is a really significant places growth market. In addition to that, pharmaceutical market, Arcadis DPS has 19 out of the top 20 pharmaceutical life science clients, and we're looking at the combined offerings there. And then governments, we've seen quite a bit in governments, such as the UK asking us to help with the decarbonisation in the transportation area. So these are growth markets for us there. The UK is acting as a centre of excellence in the industrial manufacturing, and then the growth in the other markets as well in US, Europe. And some of this supported through the Green Deal, particularly where we're seeing funding released through that sort of incentive. Finally, maybe just to touch on what was talked about before, architecture and urbanism. There is quite a lot of demand now linked to lowering carbon, so projects such as the work that we've been doing on changing a concrete core for a residential tower into a timber core. And these are setting some real standards, if you like, for us in the future. So what we've done in place is moved to a flat sort of position for the commercial real estate and stabilizing it and really focusing on the shift into these new growth areas. And that's what you're starting to see pay off in the backlog developments.

And sorry, Anthony, because my slow brain forgot one part of your question about the leverage. We are 2.4 performa, if you calculate end of H1 2023. That's the worst moment of the year for us, as we all know. So we expect to be very well in our range of 1.5 to 2.5 times at the very end of the year.

Very clear. Thank you both.

Thank you.

Thank you. We will take the next question from line Quireen Mulder from ING. The line is open now. Please go ahead.

Good afternoon, everyone. Good morning, maybe for the Americans. You can hear me?

Yes, we can.

Perfect. Perfect. Thank you. My questions are especially with regards to the DPS IBI. The question is here about the synergy effects. You have raised the guidance from 18 to 20 million. Do you think there's more possible there? Is that everything? And is this still the planning 2025 for that? And with regard to the cross-selling of that IPI DPS, as I understand DPS, you are going to become more selective in picking up work. Is that more in a non-core business? I would say the staffing part or let me say the contract management. And what about the cross-selling impact of the CNSCs? I know that Peter Osefier spoke about a very serious amount in terms of revenues, in terms of opportunities in that market. Can you maybe update us on that? Those were my questions.

I will start with the synergy part and then switch on the rest and Alain will complement. On the synergy, you're right, that's something we expected, but it happened a little bit earlier potentially than we could have expected to be in a capability of raising that guidance in terms of cost synergies. This is definitely a super synergetic deal in every respect. this acquisition of IBI and this acquisition of DPS. And what we are showing today is the synergies that we have already identified. And if you go back on that slide, you will see that they are quite focused, you know, on the elements of integration we are touching at the moment. And there is a huge part which has not been touched at all, and it's not part of this evaluation at the moment, which is the GEC element and the fact that we expect to progressively embed more usage of our Global Excellence Centers for our project in Arcadis IBI, but a large part for our project in Arcadis DPS. And on that part, that was the part that we said, okay, this is why we absolutely need to say that the synergies will be fully on track by the end of 2025. Because it takes time to do that. You need to convince the clients to create the relationship with the team. And that generally is more difficult to embed in existing projects. It's more in the new projects that are coming in, in our order intake. And then you don't get that in the P&L immediately. So as of today, these 20 million, we think that we have them in PNL in 2024 because that does not relate to the Global Excellence Center. And then we expect to be able to come back to you with additional elements about what we think is a final amount, you know, that will come in addition to that and will rather come from the operations bucket. So that there is definitely more from the deal. In terms of revenue synergies, definitely there is a large number of revenue synergies projects that come from BPS. And then on their side, obviously, when we say we are more selective is that we focus so much on these synergetic projects and these revenue wins. So the traditional thing that they were doing by themselves in some respect is a bit lower. And the super strong order intake where they've been getting almost everything that was on the market last year is a bit lower this year because we extract part of it, which is really on the synergetic project that we are signaling. And on the synergetic project that we have already in the bag, IBI, DPS, GIFG altogether, it's already almost, you know, a figure with three numbers in it. So that's definitely something which is super strong, and we see the same pattern in Q1. Q1 was absolutely very strong on that respect. Maybe I'm a pessimistic person, so I was thinking, oh, maybe we'll see Q2 being a little bit different, but that momentum is definitely still there, and the project in a semiconductor, we were signaling, and that Alan has been talking about earlier in the presentation, is with another client in in the semiconductor space not you know one of the usual big ones we clearly work with not an unknown one but a new one that comes on the table so that's that's really uh uh some of uh of the key things that we see happening and that we are focusing on yeah and i think maybe just to complement that quickly i would say that um we are seeing now

Probably more connectivity interaction. We just had a workshop. That workshop has been with the sales directors of each of the GBAs, cross-selling into the new business areas with Arcadis RBI and Arcadis DPS. and we expect to see more connectivity and building more understanding. So if you look at what Virginie just touched on, the semiconductor market is huge. Those clients are now asking us not only to do the traditional work that Arcadis DPS would have done, but bringing in all aspects of Arcadis because these sites can typically be 20 to 40 billion as a project cost. They can be huge and need infrastructure, residential, water, energy, as well as the core production plants themselves. So there is a huge pipeline ahead for the major sort of clients in this area. And then I touched on before the Zuidpolder Park, where actually that was something that we wouldn't have done traditionally without the Arcadius RBI architecture and urbanism team. but also this is a large water management project for us. So this is where, as we build the understanding, we're expecting to see even more opportunity through collaborating across clients and providing a more holistic solution to the projects.

Thanks a lot.

Okay.

Thank you. We will take the last question from line Martin Werberg from the idea. The line is open now. Please go ahead.

Good afternoon, it's Martijn Beekhoff with the IDEA. Two questions from my side, please. You already stated that the combination IBI, Callison RTKL, is already at a segment average. In the good years, Callison RTKL outperformed Arcadis by 25% to 30% in profitability. Is that a target which is also set for this entity? Or is it possible?

Thank you, Martin. In fact, in a few months, because if we are honest, Arcadis architecture and urbanism entity is fully up and running since the middle of H1, something like this, and they are already back to the average margin. So I think that we can absolutely expect them to be relative to the rest of the group. in which magnitude and such, you know, it's not something that we've been guiding and it's something that is now will be fully part of places, obviously. But definitely, this is what we expect them to be. IBI architecture was definitely something quite strong and better performing than us on average in terms of margin. and that has no reason in some respect to cease.

Okay, thank you. And then concerning intelligence, I'm a bit more or less disappointed that I don't see the order book of this segment growing. What's holding it back?

So let's remember that a large part of what we do in intelligence is very rarely intelligence by itself. Quite a number of these projects that we have can also be projects that happen to be in mobility or in places of resilience, more or less, you know, depending on who the project manager is, you know, or who the client is and then where we record it. It's very, very rare that it's not a cross-GBA collaboration. So then we have some clients which are absolutely theirs or project managers that are theirs and that end up there. But a large part of also some of the projects that I think we highlighted in Q1, if you go back to our Q1 presentation, quite a number of those can be with Department of Transportation in the US and depending whether it is historical client of former Arcadis Mobility or former Arcadis IBI intelligence, then that happens falling in one or the other because you have mixed competencies. So I know it's not ideal, but at the end of the day, respecting the way these cross-collaboration work on a spontaneous basis also helps enhancing it and makes things happen.

I think just one small point to that. I touched on the fact that we've got the GBA sales directors working with intelligence as well as DPS and IBI architecture. Then I think we will see the targeting of clients for product development because obviously what we're trying to do is get you know, the recurring revenue into our key clients. And we're also targeting things like the US has just put a grant system in place for Curb digitization. We are one of the very few organizations now with our Curb IQ product where we have proof points that can actually directly link to the grants being offered. So in H2, we're looking to see both direct in terms of what you're talking about sales, but also indirect through our GBAs, as Virginie said.

Thank you very much.

Thank you. This comes to the end of the question and answer session. I'll hand it back over to your host for closing remarks.

Thank you, Caroline. This concludes today's conference call, and we'd like to thank you for your participation and your interest, and we definitely look forward to meeting you again.

If you're participating, you may now disconnect.