Arcadis NV

AEX:ARCAD

Earnings Call Transcript 2019-Q1

[Operator]

Ladies and gentlemen, thank you for holding, and welcome to the Arcadis 2019 Q1 Trading Update [ Interim ] Call. [Operator Instructions] I would like to hand over the conference to Jurgen Pullens. Go ahead please, sir.

[Jurgen Pullens, Director of Investor Relations]

Hello. Good morning. My name is Jurgen Pullens, Director of Investor Relations for Arcadis, and I'd like to welcome you to this Arcadis analyst conference call and audio webcast. We decided to reintroduce the conference call with the quarterly update as a service to you and also to create ample opportunity to address your questions at one time. We are here to discuss the company's results for the first quarter, which were released this morning. With me are Peter Oosterveer, CEO; and CFO, Sarah Kuijlaars. We will start with a short presentation by Peter and Sarah, and then we will open it for a Q&A. You will receive the presentation this morning, but it is also available through the Investors section on the Arcadis website.Just a few words about our procedures before we start. We will begin with formal remarks. We call your attention to the fact that in today's session, management may reiterate forward-looking statements which were made in the press release, and we'd like to call your attention to the risks related to these statements, which are more fully described in the press release and on the company's website. With these formalities out of the way, I'd like to hand over to Peter.

[Peter W. B. Oosterveer, CEO & Chairman of the Executive Board]

Yes. Thank you very much, Jurgen, and good morning, everyone, and thanks for joining us today. As Jurgen said, I'm planning to provide some opening comments to lead you through some of the operational and financial highlights. And then I will also speak briefly about the small acquisition we did this quarter, turn it over to Sarah, and then I will cap it off, and then, of course, we will open it up for questions.So first of all, on the operational updates. We are pleased with the results we've been able to create this quarter, in particular the fact that we've been able to create profitable growth, that we've been able to create the margin improvement and that all of that has also helped us to further strengthen our balance sheet.The solid results are created in the majority of our business. You will recall from the fourth quarter that we made a distinction between those regions within Arcadis where we already see by and large the performance which we expect to see and also in line with the strategic goals we have developed for ourselves during the Capital Markets Day, the goals which are applicable for the end of 2020. And those are the markets in North America, in Australia, in Continental Europe and the U.K. And this quarter, we can safely say that these regions have contributed further to a good performance in the quarter. Notice, of course, is the particularly strong performance in North America, a significant part of our business, and a trend which we've seen for a couple of quarters now continues, a trend which includes a growth of the top line as well as continued growth of the bottom line as well. In terms of performance in the -- and progress in the improvement areas, as you will recall from the fourth quarter, that includes Lat Am, the Middle East and Asia. We identified a number of actions. Some of them already go back to earlier quarters. And I'm pleased to see that the focus on executing the actions we identified has created the early improvements we were looking for. That doesn't mean to say that we're satisfied with where we are, and we still would like to see further improvements in those regions. But it is good to see that the Middle East has contributed positively, that Lat Am has contributed positively and that Asia has also seen a better performance in this quarter than in the same quarter last year. And in fact, in Asia, we've seen, as you will see from the details here later, a growth of the top line as well. I will speak to you in a minute about the continued investment that we make in the digital space and the acquisition we announced just not too long ago of EAMS. Just looking at the financial performance then. I think in most of our key metrics, we performed very well in this quarter. I think that the levers we have available to ourselves to improve our performance are showing to be effective. Levers which include the use of our Global Excellence Centers, the focus we have on Make Every Project Count, the selectivity we are applying on picking the right clients in the right regions, I think all of these have contributed to an operating EBITA margin, which has improved compared to the same quarter last year. Organic net revenue growth of 2%, which is also in line with what we were hoping for. And EBITDA increased, which is quite significant. And then, of course, net working capital improved significantly compared to last quarter as well, and Sarah will lead you through further detail here in a minute. And debt has been reduced, and that's also obviously a positive sign. And then a sign which I think says a little bit about where we expect to go next is the fact that we did grow our backlog this quarter with 4%. And so the backlog is 4% bigger than it was at the beginning of the quarter, and that's a good signal as well. So with that as the introductionary notes, I'm turning it over to Sarah. Oh, excuse me, yes, I'm going too fast. I was going to talk about digital first. So the next slide is an insight in what we did this quarter in terms of strengthening our digital offers. You will recall that in 2017, we acquired a company which is largely based in the U.S., E2 ManageTech, a company which gave us a greater capability -- a digital capability related to environmental, health and safety services. That was followed by another relatively small acquisition in 2018 with SEAMS, a company which has a digital capability largely in water and infrastructure. And the acquisition we announced a couple of weeks ago is -- or actually with the press release is the majority stake we took in EAMS, another U.K.-based enterprise asset management company. We believe that this addition will provide us a competitive advantage. Things this company does are in the space of asset management. And examples of that are, for instance, work EAMS does with Heathrow Airport, work EAMS does with several providers in metro services, digital capabilities which will help our clients to be more effective in the use of their assets. And when you look at EAMS more specifically, not only will you see a very good digital capability but also, to a large extent, clients which are similar to the clients Arcadis is already working for, so a very complementary combination of capabilities. And our expectation is that with the presence we have, the footprint we have, we will be able to further grow that capability which has come to us now through EAMS. So now I'm really turning it over to Sarah.

[Sarah Kuijlaars, CFO & Member of the Executive Board]

Thank you, Peter. Good morning, everyone. So now turning to Slide 5. I'm pleased to share a strong set of financial results for quarter 1 '19. With revenue growth and improved operating margin, tight working capital management and lower net debt, we continue to make tangible progress on our strategic framework and continue to deliver a sustained, strengthened balance sheet.Let's start with revenue. We report EUR 628 million, a 5% improvement year-on-year, and we've delivered an organic growth of 2%, which is the seventh consecutive quarter of organic growth. As Peter mentioned, this is led by a strong 8% organic growth in North America, a region which is almost 30% of our business. We have particularly strong growth in Environment, our largest U.S. business. And we see growth across the board. Water and Infrastructure also contribute strong results. This growth is a result of strong order pickup we saw in Q4. Our healthy backlog continues with further strong order intake in Q1. I think it's worth also having example of the projects from the U.S. this quarter. So this is a picture of a project in Chicago, and we're the managing partner of a consortium with Jacobs and Ardmore Roderick, working with Chicago Transit Authority to address Chicago's aging infrastructure and provide faster sustainable trans options for its citizens. This is one of the largest capital improvement projects in the history of Chicago Transport -- Transit Authority.So moving now to Latin America. This is a limited impact on the segment growth given its size, but it's worth mentioning that it has reported organic revenue growth for the second quarter in a row, a growth trajectory for the first time in over 3 years.Turning now to Europe and Middle East, which represents 46% of our net revenues. Continental Europe net revenue development was flat, partly driven by 1 less working day in the Netherlands. However, order intake was strong in Q1 with wins in all countries. The U.K. continues to show positive growth despite Brexit uncertainty. Infrastructure spending is slightly down, which we've been able to offset with increased revenues in Buildings, where we continue to see ample opportunities as a market, which reflected in our healthy order book. The Middle East showed lower revenues. This is a result of our combined disciplined -- or continued disciplined approach with respect to selective bidding, also contributing to a higher margin. The Middle East is now stabilizing its footprint with some recent healthy wins in program management, fully in line with our strategic review. On to Asia Pacific, which represents 13% of our net revenues. Australia showed a decline, which is due to the timing of the ramp-up of large projects. In Q1, we had a strong order intake, so it continues to be a very healthy performing region. Asia showed positive growth after 4 quarters decline. We saw good results in China with an increased focus towards project and cost management. In line with our simplified organizational structure, we are currently working on a planned exiting from a number of minor underperforming markets. We expect this will have a minimal impact on our revenue once executed. And finally, CallisonRTKL delivered a 1% revenue growth with a positive contribution from Europe. We'll now turn to Slide 6, which shows a broader set of our financial metrics. So before talking to the details, it's worth highlighting that these figures are presented in a consistent basis to previous years, i.e., in line with IAS 17. Further details about IFRS 16 include this backup. Our interim figures will be provided both in line with IAS 17 and IFRS 16. Sharing our figures on a consistent basis today allows us to better demonstrate the improved results of our underlying business as part of this trading update. So from a revenue of EUR 628 million, we delivered an operating EBITA of EUR 47 million, an improvement year-on-year of 10%. This resulted in improved margin of 7.5%, where we've seen improvements across the majority of our businesses. Now turning to our net working capital performance, our DSOs stand at 86 days, a year-on-year improvement of 8 days. This translates to a sustained improvement in net working capital at 17.4%, which is our strongest performance for quarter 1 for at least 5 years and contributes to our sustained, strengthened balance sheet. So our improved revenue, margin and working capital management results and a net debt position for end of March of EUR 409 million, with an EBITDA of EUR 56 million, this gives a net debt-to-EBITDA senior leverage ratio of 1.9, so below 2 and fully in line with our strategic frameworks.Turning now to Slide 7, I'd like to share some more detail on the improvement in our quality of our receivables. So as I mentioned, we show an improvement of our overall receivable position to 17.4%. But it's worth highlighting the improvement we see in the aged receivables. From the oldest category of more than 120 days, we see a reduction of EUR 38 million. And for those in the time bracket of 31 to 120 days, we show reduction of EUR 17 million. We have achieved this by embedding a sharpened and standardized process across the globe, by utilizing a standard set of KPIs, with visibility down to client level and a consistent approach. We've engaged the full focus of all Arcadians across the business, including client development, project managers and finance. We will continue this disciplined approach as working capital management remains a key enabler of maintaining our sustained, strengthened balance sheet. I'll now pass back to Peter.

[Peter W. B. Oosterveer, CEO & Chairman of the Executive Board]

All right. Thanks, Sarah. So with the summary of our first quarter performance, we expect that you're keen to know what will come next and what we plan to focus on for the remainder of the year. And so that is summarized on the very last slide before we open it up for questions. First of all, as you will recall, we launched our new strategy during the Capital Markets Day in 2017. And looking at the progress we've made, I'm convinced that we have the right strategy and that we are on the right path. Needless to say that what helps us is that our key markets continue to perform very well and that we have seen the early fruits of our actions in Asia and Latin America and the Middle East, but as I mentioned before, there's still more work to be done. We expect that further margin improvement will come from a number of actions we have already initiated and will benefit from further, which is including the focus on Make Every Project Count, the very structured program we launched about a year ago and is showing really positive signs in all the regions in which we implemented it now; the further use of our Global Excellence Centers mentioned before as an opportunity to further improve on our financial performance. And then I'm really pleased to see that the focus and discipline on driving the actions we've identified for the regions which need further improvements, and particularly Middle East and Asia, is actually contributing to already a better performance. And we are, as you will appreciate, determined to continue to maintain that focus and discipline.The growth momentum in North America, Continental Europe, the U.K., in Australia and CallisonRTKL is, of course, a great foundation to start from. And we have all the intent to continue that very positive momentum. The investments we made through the acquisition of EAMS and the investments we make on an ongoing basis in further strengthening our digital capabilities through, for instance, our Expedition DNA program will further help to improve our performance going forward. What is also a significant contributor is the focus on making sure that we have the right clients in front of us, that we pick the right opportunities, those opportunities which contribute to our performance going forward.I'd like to mention quickly the progress we've made in Brazil. We have additional volume of gas under contract. In the first -- or in the last quarter, excuse me, we mentioned that we have 30% under contract. We now are 50% under contract with an option for another 20%. The expectation is that we will start to deliver gas starting next month and then ramp up the production further throughout the subsequent quarters. The expectation also is that in the second half of the year, we will be cash positive on our assets in Brazil. And as we stated before, our intent and focus is still very much on divesting of these assets through the remainder of the year.And then finally, we are pleased with the improvement and the strengthening of our balance sheet and believe that the actions we have taken and the performance we've demonstrated in the first quarter will continue to help with further strengthening the balance sheet, and it will definitely obviously remain an area of focus. So pleased with the performance in the quarter, pleased with the noticeable positive signals in those geographical areas where we require improvement, pleased with the momentum in our key markets, but probably most pleased with the momentum, the enthusiasm and the focus in Arcadis internally at all levels and in all regions to diligently execute our strategy and maintain the momentum we've built to further improve our performance.So with that, we are ready to take your questions.

[Operator]

[Operator Instructions] The first one is from Hans Pluijgers, Kepler Cheuvreux.

[Hans Pluijgers, Head of Research of Benelux]

Sarah and Peter and, of course, Jurgen and Christine, a few questions from my side. To start with, looking at the sales performance, discussing Lat Am and Middle East, could you a little bit give more, let's say, flavor on Lat Am, let's say which segments are now driving the improvement and how sustainable do you believe it is? Or let's say, do you see some bigger projects coming in or if more, let's say, across the board? And secondly, on the Middle East, you indicated you should see some stabilization of sales. So what do you expect the sales trends to be further into the year and where are now your view -- let's say, your key focus on in that region, if you could give some more flavor on that? And then on the payables, yes, I see, let's say, that it's coming down. Can you give some more flavor on precisely what the moving parts are? And of course, seasonally, in Q1, it's always a little bit down, so is there any, let's say, important thing there? What's happening there to mention? And lastly, on ALEN, indeed you gained some additional contracts. Got a little bit of feeling that it's still a little bit slower than expected. Can you give kind of some feeling what your ideas are on the whole situation? Do you still have some, let's say, disappointment there? And how much, let's say, buffer do you still have before, with respect to your assumptions, before the good -- or to write down shares we've done so far before we could see some additional write-downs? Or do you -- what do you have -- what's your general view on that? Can you give us some feeling on that?

[Peter W. B. Oosterveer, CEO & Chairman of the Executive Board]

Okay. Thanks, Hans. I will take the first and the second one, in Lat Am, Middle East and ALEN. And then I'll ask Sarah to comment on the payables. So let me take Lat Am first. That was your first question. And of course, the question is in recognition of the better performance in Lat Am. And the question specifically what is -- what's driving it and how you see the future. As we said in our press release, it is probably the combination of actions we took over the last 3 years and particularly in significantly reducing our footprint in Lat Am. And then in combination with that, of course, a business environment which, now that the elections are behind us, is seen as more stable and by quite a few people actually seen as more positive as well. So that's why we highlighted in our press release that we are a little bit more positive about the business environment. What is driving it for us? It is largely Environment and Infrastructure. In fact, if you look at our Environmental business in Lat Am, and I am talking specifically about Brazil actually, the Environmental business in Brazil has held up quite nicely even through the difficult past years and is now at a point where it's almost as big as Infrastructure was, so that's positive. But the expectation is that we will see an increase of the Infrastructure spending going forward. So we believe that with this result in the first quarter, we've turned the corner. We'd like to see more evidence that indeed the business environment is more stable. And then on top of Brazil, which I spoke about only so far what drives our business in Chile, which is the second sizable part of the business is particularly investments in mining, and as you will probably have seen that the mining business as a whole appears to be getting ready for another growth spurt. So that is -- that's positive as well. So that's driving the business in Lat Am. And then on the Middle East, you asked the question what is the key focus. As we already communicated a couple of quarters ago, our focus is largely on 3 countries: the Emirates; Qatar; and then selectively and very selectively, in Saudi. And selectively in Saudi really means for us only program management and project management type of contracts, which tend to be the more profitable contracts and the least risky contracts. And that is clearly what we're seeing right now. So we are still quite okay, I say this again, with the reduction of our revenue in light of the fact that it actually has created an improvement of the bottom line. And the expectation is that throughout 2019, we will continue to be extremely selective and focus more on making sure that we have profitable growth, that we get paid by our clients rather than focusing aggressively on top line growth. The intent is that we will see top line growth again, but again, it is not our predominant focus at this point in time. It is further stabilizing the business, making sure that we get our bills paid and that we focus on the right clients.And then lastly before I ask Sarah to comment on the payables, ALEN. You commented that it appears to be slower than expected. And I understand that perception. I can see that perception. I think for us, it's probably not so much the case because we have gotten used to the fact that in Brazil, things are more difficult than they are in other places, so our assumptions are probably already more realistic based on what we have seen in the past. That doesn't mean to say that we're not overcoming hurdles as we speak. There's always new hurdles. But by and large, the progress we are making, the fact that we now have at least 50% of the gas under contract and potentially now the 20% relatively soon, that we are expecting to see trucks leaving the facility starting next month is progress. The fact that we have the largest gas-to-electricity facility producing at pretty much 100% of the capacity is progress. We will continue to make progress on the large facility. And then, of course, the big step here is still to make sure that we have enough interested parties in the assets. And the market survey Itaú is conducting for us as we speak is focusing on exactly that. And we always had assumed that, that would kick off in the second quarter, and that's what we're doing. So we're still, by our account and by our measures, largely on track. And again, Hans, that is already assuming that things in Brazil tend to go slower than in many other places in the world.

[Sarah Kuijlaars, CFO & Member of the Executive Board]

Thanks, Peter. So building on to your question, Quirijn (sic) [ Hans ], on the payables, so indeed on Slide 7, we highlight the improvement in receivables, and that's where the main internal focus is on. On the payables side, if you look like-for-like from Q1 '19 versus Q1 '18, there's only some EUR 10 million difference there, and that's part of the normal course of business. And there's not any particular spike in any particular region, but there's a slight increase but no underlying -- main underlying cause there.

[Hans Pluijgers, Head of Research of Benelux]

And is that increase mainly relating to, let's say, also the relatively higher gross revenue line or just to, let's say -- yes, related to, for example, the big project in Chicago?

[Sarah Kuijlaars, CFO & Member of the Executive Board]

Yes. No, absolutely, it is related to that. And there is a -- U.S. is a main contributor to that. Yes.

[Hans Pluijgers, Head of Research of Benelux]

Okay. And one last question -- follow-up question on the Middle East. I hear what you're saying with respect to you'll remain selective, that's in line with what you already previously said. And also you previously indicated that you expect that the top line to stabilize, let's say, around to mid of this year and then maybe slowly or see some improvement as of the second half. Is that still what's really you're looking for? Or did I misunderstand you in the past?

[Peter W. B. Oosterveer, CEO & Chairman of the Executive Board]

No, that's still the trend we're looking for, Hans.

[Operator]

Next question, Mr. Rob Vos, ABN AMRO Bank.

[Robert Jan Vos, Analyst]

Robert Jan Vos, ABN AMRO Bank N.V. I've got a few questions. First of all, congrats on the great set of results. My first question is related to the outflows and other working capital. I wonder if you can give me some more color there. The second question is related indeed also to Hans Pluijgers has already said, to the -- let's say, a bit steeper increase in gross revenues versus the net revenues. I think Philip Ngotho, our analyst, asked that question at the Q4 results as well. But is this still the case that there is not more risk taken in those contracts or that Arcadis is basically not more acting as a contractor than it was in the past or not taking more risk on those contracts? My last question is related to ALEN. I see the guidance is unchanged there, but you expect to be cash positive in the -- cash generating in the second half of '19. I also noticed that there is some debt basically which is basically coming to an end or need to be refinanced in the course of 2019. In a worst-case scenario, if ALEN is not being sold in the second half of '19, do you think there is good possibility that, that debt is going to be refinanced in the joint venture without providing more guarantees? Or is there a risk that Arcadis need to take that debt on its own balance sheet? That's it basically.

[Sarah Kuijlaars, CFO & Member of the Executive Board]

Okay. Let's start with the question on the other working capital. So indeed, if you recall in Q4, when we generated the raise on free cash flow, we did highlight that we'll support it by -- helped by the other working capital. And of course, it's helped some in Q4, some of it will reverse in Q1. We also highlighted there was some payables in the area of VAT, especially with the increased revenue and also some accrued bonuses which we've paid in Q1. But I think it's worth highlighting that -- so yes, it was a negative free cash flow this quarter but less negative than '18 and also '17. So there was some seasonality there.The next one was on the gross revenue to net revenue, and I think it's -- the example of Chicago is a good example in that case, where indeed we picked up that managing partner role, but it doesn't imply an increased risk. And indeed some of these material projects, particularly in the U.S., do have this gross versus net revenue difference, which is part of our ongoing business.And then on the ALEN refinancing, so indeed the associate does have some third-party debt, which is in the process of refinancing. And all indications suggest that they will proceed to do that without any change of structure in the coming months.

[Peter W. B. Oosterveer, CEO & Chairman of the Executive Board]

Rob, if I could just add to what Sarah said on the second point that the difference between gross and net and has been asked before, but let me reassure you that we -- and I'm quite familiar with large risk projects not so much in my role in Arcadis but more so in previous roles and previous companies, that we have no intent whatsoever to engage in more risky contracts across the board anywhere in the world. It is more the result of what sort of role do we have on a particular project, and the one in Chicago is a really good example. But there's no intent whatsoever for us to take on high-risk contracts.

[Operator]

The next question is from Quirijn Mulder, ING.

[Quirijn Mulder, Research Analyst]

A couple of questions from my side. Maybe you can give me some flavor on the profitability lines per division or per region in this first quarter to give an idea about what's the development year-on-year. So for example, what is U.S., what is -- that would be very, very helpful for us to make. Then with regards to the ALEN story news being okay, the 20% is probably underway. So what about the last 30%, is that still not being negotiated? What this -- what's going on there? Maybe you can elaborate on that somewhat more. Then you speak in your working capital discussion about enforced accountability on cash collection. Does it mean you have taken more and more measures to -- for everyone in order to get the cash on time? Is that new message taken? Or is that more the old policy which is being enforced now more than before? Maybe you can elaborate on that as well. That were my first questions.

[Sarah Kuijlaars, CFO & Member of the Executive Board]

Qurijn, so maybe starting with the profitability, I think -- so all segments are showing an improved profitability, margin profitability compared to this time last year. It's worth highlighting the really strong performance on North America from not only on a revenue point of view but also the operating margin. Another highlight is on the Middle East, which, because of that full activity, is showing to a stronger margin. And then I think maybe finally the -- on Australia, so their revenue was down, and the operating margin continues to be one of the highest in the group.

[Quirijn Mulder, Research Analyst]

Yes. What about Brazil, for example?

[Peter W. B. Oosterveer, CEO & Chairman of the Executive Board]

Also higher.

[Sarah Kuijlaars, CFO & Member of the Executive Board]

Yes. No, absolutely, it's also higher.

[Quirijn Mulder, Research Analyst]

Yes, but this is already positive then?

[Peter W. B. Oosterveer, CEO & Chairman of the Executive Board]

Yes. Yes, it's high because it's positive. That's a fact. But I think as Sarah said, by comparing this quarter by last quarter, pretty much region show higher profitability than this time around last year, okay?Let me take the second one on the gas production. So where are we with the last 30%? So you're right, Quirijn, that we increased the volume on the contract from 30% to 50%, with options for a next 20% with 1 of the 2 buyers we have secured on the first 50%. And these options should materialize relatively quickly in the next couple of months. And in the meantime, of course, we are looking at other customers for the remaining gas. But we're also looking at whether a potential buyer of the assets might actually be interested in having their gas available for themselves. As you will appreciate, as you start to look for potential buyers, you start with a long list of companies which have different characteristics. And included on the list are also companies who have potential internal use for the gas. And so we don't want to necessarily wait for that to happen, so we are, as the #1 priority, still looking to sell that remaining 30% as well. But we're not excluding an opportunity whereby the buyer of the asset would actually say, you know what, you don't need to sell that 30% because I have internal use for that gas as well. That's just a second option we have available to ourselves as well.

[Sarah Kuijlaars, CFO & Member of the Executive Board]

And then on cash collection, so I think it's a -- so we're taking many steps here. So I think on one side, absolutely, it's the -- an aligned set of KPIs through the organization from the executive, leasing team downwards. Of course, that's helped. I think it's the reinforcement of regular monthly calls by region, discussing by client where the issues are and who's going to follow up. And I think that's -- bringing that regular call, that regular enforcement, using really standard sets of KPIs, whether we're talking Australia or Brazil, is reinforcing the behavior shift that we believe is necessary so you can really embed this and improve this behavior or improve the receivable profile going forward.

[Peter W. B. Oosterveer, CEO & Chairman of the Executive Board]

Yes. And specific there is that now more than in the past, more people are, in terms of their incentives, depending on cash collection than in the past.

[Quirijn Mulder, Research Analyst]

So can you give me a number on that on -- or difference? Is it -- goes up from 1,000 to 2,000 people? Or...

[Peter W. B. Oosterveer, CEO & Chairman of the Executive Board]

No, it's a significant increase.

[Quirijn Mulder, Research Analyst]

Okay. Then my final question is about the working capital. So over 120 days, if you look at the end of last year, it was EUR 127 million. You go to EUR 106 million, that is exactly the number -- the EUR 21 million related to the interims, that, let me say, collection of the interest payment. Was there underlying no improvement further? Or can you maybe elaborate on that, what the development was there for the over 120 days net working capital aging?

[Sarah Kuijlaars, CFO & Member of the Executive Board]

Yes, not really. So the part of the U.S. insurance case was over 120 days, but also part of it was on the 31 to 120 days, yes? So in addition to that money coming in, we continue to see improvement on that long overdue, including in the Middle East, and we continue to see progress there.

[Operator]

[Operator Instructions] Now there's an additional question coming up from Quirijn Mulder, ING.

[Quirijn Mulder, Research Analyst]

Yes, my question is about [ Hooipolder ] is maybe you can elaborate on that news this week of giving back the project to the government in that sense. Has that any impact on your order portfolio or not? And...

[Peter W. B. Oosterveer, CEO & Chairman of the Executive Board]

No. Sorry, go ahead.

[Quirijn Mulder, Research Analyst]

And the second question is about you see a very strong growth in Environmental in the U.S. How should -- are they new clients? Or are the old clients, especially in oil and gas, returning to you after, let me say, the collapse in oil price? Is there any -- can you give me some flavor on that development there?

[Peter W. B. Oosterveer, CEO & Chairman of the Executive Board]

Yes, okay. On [ Hooipolder ], the A27, we obviously have seen the news as well. We, as Arcadis, were involved in the conceptual phase of this project. The cancellation of the project you have seen is obviously the combination of [ north-end bound ]. We were supposed -- or we're hoping to be able to play a role in that phase, which is their responsibility. But we have not taken an award on that or an order on that, so the cancellation does not mean for us that we would have to take anything out of backlog, it is simply a lost opportunity, but then we are expected to replace that with other opportunities. So it's not having an impact on our numbers to what we have in backlog.And then Environment, yes, good observation. The Environment in the U.S. is actually still growing strong, very strong. And it still grows strong for oil and gas clients as well. In fact, for very substantial oil and gas clients, we have won a substantial amount of work. So it is a combination of existing clients, new clients, and it does, of course, still include oil and gas clients as well. And there's no, I would say, negative impact from the oil price on the amount of work we get from oil and gas clients.

[Quirijn Mulder, Research Analyst]

Okay. So -- but that -- let me say if we speak about growth in the environmental, that is double digit anyway then. If you look at the numbers, organic growth for America is 8%, and Environment is doing better. That must be double digit, in my view.

[Peter W. B. Oosterveer, CEO & Chairman of the Executive Board]

Environmental contributed, but Water contributed as well. And in fact, Infrastructure contributed as well. But given the size of our business, in absolute numbers, the biggest contribution came from Environment.

[Operator]

Next question from Hans Pluijgers, Kepler Cheuvreux.

[Hans Pluijgers, Head of Research of Benelux]

Another question from my side. On IFRS 16, you gave some indications for the Q1 numbers. And based on what you can see in principle that there should be likely a negative impact on the bottom line as EBITA, impact is plus EUR 1 million; but also net finance expense, there's also an increase. So -- or should I read it, is the plus EUR 3 million for net finance expenses as a positive impact? So what's the impact on the net in the first quarter? And how -- what's, let's say, the impact a little bit some feeling on the full year?

[Sarah Kuijlaars, CFO & Member of the Executive Board]

Yes. So look, I'll take that question. So indeed, the net income overall impact is minus EUR 2 million, so it's that plus million at the EBITA level and the minus EUR 3 million at finance expense. And why this is, is that -- so we're applying the IFRS 16 to a modified retrospective approach, which means there's a bit of front-loading, so it actually changes the timing of the P&L impact. Most of the IFRS 16 impact is on our real estate, on the offices, and so that's 90% of the impact around the world. And of course, that's a key until we give the full breakdown. And if you want it earlier, we're very happy to provide that earlier as well.

[Operator]

Next question from Maarten Verbeek, The Idea.

[Maarten Verbeek, Equity Analyst]

It's Maarten of The Idea. Two questions. First of all, on ALEN once again. Again, last year, you already had 35% signed, and there was a negotiation for an additional 35%. And [ of this little ] one, apparently, the client has only taken 15% and changed the other 20% to an option. Could you provide more color why he did that? And secondly, Middle East, you have predicted that you expect revenues to bottom out last year. Your backlog was minus 57%. Can you say something about the development of this backlog in the Middle East?

[Peter W. B. Oosterveer, CEO & Chairman of the Executive Board]

Let me take the first question on ALEN on the 35%. I thought that we actually -- and we thought -- let me go back to our press release, but I think we communicated 30% of orders under contract initially and another 20% being added to that, which brings it to 50%. And then...

[Maarten Verbeek, Equity Analyst]

And then if I -- sorry to interrupt you, if I read the Annual Report, it states at 35%, plus 35%.

[Peter W. B. Oosterveer, CEO & Chairman of the Executive Board]

Okay. Well, then that might well be in a clearer seat than in what we communicated in the press release. What we currently have on the contract, including the options, is really close to 70% of the total capacity. So whether the breakdown is 35% or 30%, I would have to double-check that. But we have 70% as -- including 20% as an option on the contract. Does that answer the question, Maarten?

[Maarten Verbeek, Equity Analyst]

Yes, not completely, but otherwise, let me take it offline.

[Peter W. B. Oosterveer, CEO & Chairman of the Executive Board]

No, please ask for clarification.

[Maarten Verbeek, Equity Analyst]

And then the Middle East one, please.

[Sarah Kuijlaars, CFO & Member of the Executive Board]

Yes. So indeed, the Middle East is -- you got that very negative backlog in that year-on-year, so that's all part of how we settle the footprint. But they are now indeed winning new work in line with the new strategy, very much on the shift in focus to the Program Management, so we see that as being adequate for a flatter revenue going forward.

[Maarten Verbeek, Equity Analyst]

Okay. That it -- if you have a decline in Middle East year-on-year, I can understand. But if you look at year-end, what do you see in the Middle East happening in the first quarter, that's a plus?

[Sarah Kuijlaars, CFO & Member of the Executive Board]

Sorry, I didn't get that last question.

[Maarten Verbeek, Equity Analyst]

I think last year, the Middle East was minus 57 versus year-on-year on the back of the strategic reorganization. And that in Q1, the order book will be down versus Q1 last year. I can understand that as well. But can you give some color about the development? What happened as of the start of the year in the Middle East with the backlog? Is it up or down or maybe just relatively flat?

[Sarah Kuijlaars, CFO & Member of the Executive Board]

So it's relatively flat. Of course, to date, it's flat.

[Peter W. B. Oosterveer, CEO & Chairman of the Executive Board]

Maarten, this is Peter again. I understand what's -- what caused the confusion because we indeed, in the full year results, that we have 35% of the volume signed and another 35% under negotiation. I would have to go back to -- and then, yes, the sort of Brexit, that makes it to 70%. I would have to go back and run the exact calculation. But the fact of the matter is that in total, we have 70% in principle under contract. 20% of that 70% is in option. So in the next couple of months, these options will either become -- they've been bought by the customer and use the gas or we'll have to look for other customers. But it's 70% under contract, with 20% of the 70% on the second customer under option. So it still makes for the same total, but I see now what caused the confusion.

[Operator]

Next question is from Quirijn Mulder, ING.

[Quirijn Mulder, Research Analyst]

Yes, 2 questions left, sir. On the gas, I thought it would start in the first quarter, so maybe you can elaborate on that. As we had understood, you would produce -- you were able to produce, and somewhere in the first quarter, it would start. Maybe that's a discussion point. I think the other question is about Asia. If you speak about China, do you speak about the Mainland? Or do we speak about the Greater China? And what's the situation in -- for example, in Hong Kong, Singapore and in Malaysia? Is there any improvement visible? Or is that still somewhat in the doldrum relative to other areas?

[Peter W. B. Oosterveer, CEO & Chairman of the Executive Board]

Yes. Let me take the first one. And so I guess just to validate that I heard it correctly, Quirijn, your question was that on the gas side for the clean energy assets, we said in the first quarter you would start production?

[Quirijn Mulder, Research Analyst]

Yes, you would start the production. And I understand it's only in the second quarter then?

[Peter W. B. Oosterveer, CEO & Chairman of the Executive Board]

Yes. That's correct. So I'm trying to simplify it and not make it too complicated. But if I take the 2 customers we now have under contract, then we probably explained but it's good going to details. So I want to warn you that on the very first contract for the roughly 30% or 35%, that we would provide that gas to the customer's facility and that we needed to make a hub connection at that facility. And the second volume of gas, the gas which now brings you to the 50%, and those will lead potentially to the 70%, that is gas which goes by truck, needs a connection at the customer's facility. On that first 30-some percent, we had expected that the facility at the client's side would be ready towards the end of the first quarter to receive that gas. That is not the case. So there is a slight delay in making that hub connection available. On the other hand, on the second 35%, the percentage which gets it to the 70%, that is a situation whereby we do not need that hub connection, whereby we would invoice the client as soon as the truck would leave the facility. So you're right in that we had expected on that first contract where that hub facility is needed, that we would be able to deliver gas towards the end of the first quarter. And then the question was on China, and then second is a little broader, what is the situation in the various parts of the region. Just as a general comment, in spite of the fact that we had to take some measures in Asia to provide higher focus, bigger selectivity and ultimately depart from some nonperforming regions, I'm actually pleased to see that we still had revenue growth in Asia. As we said in the press release, that was largely driven by China, which in this definition is Mainland China, so not Hong Kong. You also asked what else do we see in the region as a whole. I think our situation in the region, Quirijn, is largely the same in that our focus areas remain Hong Kong, Mainland China, Singapore, Malaysia and the Philippines. So you can safely assume that as we go forward, we will continue to see the majority of our business coming from these 5 countries.

[Quirijn Mulder, Research Analyst]

Okay. So not Singapore?

[Peter W. B. Oosterveer, CEO & Chairman of the Executive Board]

That includes Singapore.

[Quirijn Mulder, Research Analyst]

Okay. Sorry, I missed it.

[Peter W. B. Oosterveer, CEO & Chairman of the Executive Board]

So it's Mainland China, Hong Kong, Singapore, Malaysia and the Philippines.

[Quirijn Mulder, Research Analyst]

Okay. Okay. Perfect. And the rest of Indonesia, Vietnam, et cetera, you're going to -- probably to close down some sites that were in your management.

[Peter W. B. Oosterveer, CEO & Chairman of the Executive Board]

Yes. We're not quite at the point where we can specifically say what we do in these other places because of, yes, us working through solutions to be created in those places. But let me just leave it by saying that our focus is largely on the 5 countries I've just mentioned.

[Operator]

The next question is from Robert Vos, ABN AMRO Bank.

[Robert Jan Vos, Analyst]

So 2 last minor questions also related to ALEN in Brazil. Just for my information, obviously, the write-down taken in Q3 and the provision taken leaves the financial exposure to EUR 59 million, if I'm right. Is it true that so far there has not been a real cash-out being recognized, right? We're only going to see that if ALEN is being sold. Is that -- that's question one. And my second question is, obviously, it is expected ALEN to be cash generative and positive in the second half of '19. Could you give me a bit of color, let's say, in an ideal situation what, yes, let's say, cash generation could ALEN actually generate in a perfect year, let's say, in 2021 or whatever? So if 100% is being sold, what is realistic, to get a bit of a feeling?

[Sarah Kuijlaars, CFO & Member of the Executive Board]

So your first question about exposure, so the net exposure has increased slightly. So indeed it's EUR 59 million at the end of the year. We have contributed a further shareholder loans for a total [ sales ] exposure that's EUR 64 million in end of -- at the end of March. And indeed looking ahead, we do hope it to move to the positive territory in the second half of the year, and -- but they are small positive numbers. And of course, remember we're not in a position to give any longer-term view on the potential sale value.

[Operator]

There are no further questions at the moment, sir. Please proceed.

[Peter W. B. Oosterveer, CEO & Chairman of the Executive Board]

Okay?

[Operator]

There are no further questions, sir.

[Peter W. B. Oosterveer, CEO & Chairman of the Executive Board]

Okay. When there are no further questions, then I'll talk -- I thank all participants for participating in this call, and thank you again for listening in. Thank you.