Arcadis NV

AEX:ARCAD

Earnings Call Transcript 2022-Q2

[Christine Disch, executive]

Good morning, everyone, and welcome to this Virtual Analyst Meeting. My name is Christine Disch, and I'm the IR Director of Arcadis. We are here to discuss Arcadis' second quarter and half year 2022 results released this morning at 7:00 a.m. CET.

With us on the call are Peter Oosterveer, our CEO; and Virginie Duperat, our CFO. And we will start with the presentation by Peter and Virginie, which will be followed by Q&A. [Operator Instructions] Lastly, we would like to call out your attention to the fact that in today's session, management may reiterate forward-looking statements, which were made in the press release. Please note that any of these risks related to these statements, which are more fully described in the press release and on the company's website. Now with these formalities out of the way, Peter, over to you.

[Peter Oosterveer, executive]

Yes. Thank you very much, Christine. Good morning, everyone. Thanks for joining us on our second quarter and half year results call. Let me begin with saying that I'm pleased to report a solid set of results for the first half of the year. With accelerated organic net revenue growth and an improved operating EBITDA margin of 9.3%.

Strong order intake and continued client demand across our 3 global business areas, Resilience, Places and Mobility, has resulted in organic backlog growth of 5.9% for the second quarter. And this is obviously keeping the business firmly on track to deliver on our strategic targets for 2023 whilst also allowing for further investments in the retention, the development and hiring of key industry talent as well as in the development of additional digital solutions.

And that focus on digital solutions is also strongly supported by the recently announced intended acquisition of the Canadian IBI Group, which strengthens our digital capabilities, whilst also significantly enhancing our footprint in North America, a key area of growth. And altogether, this is a significant milestone in our strategy. And I'll get back on the intended acquisition later on in the presentation.

Okay. Let's look at our 3 global business areas in a bit more detail now. Our resilience business is focused on providing comprehensive sustainable solutions for our clients, obviously driven by the need to respond to the challenges in the [indiscernible] across the globe. This builds on our heritage and expertise in, for example, environmental restoration, where tightening regulation around PFAS has seen us supporting more clients as they're obviously required to adhere to strict environmental obligations.

In addition, the current geopolitical tensions and ensuing economic challenges, as well as the continued extreme weather conditions, has created an accelerated focus from both public as well as private clients on investments in climate adaptation, energy transition and energy independence as well as water optimization. And this altogether has created a healthy and growing pipeline of opportunities for both public and private clients in many of our regions, including North America, Europe and the U.K., Australia and Brazil.

In the second quarter, we delivered solid organic net revenue growth of 8.5% in Resilience. Recent projects we won includes our further ongoing work to protect Lower Manhattan from rising sea levels and coastal storms. Having worked with the New York City Economic Development Corporation to secure prior funding, we are now working on the next phase of the master plan. And this includes providing preliminary design services where we are developing an energy and sustainability vision and leveraging our digital tools to conduct risk assessments, stakeholder management and design development as the city pursues a target to be carbon-neutral by 2050.

Next, our Places business area is focused on creating smart and sustainable places and communities. And this was defined broadly for a good reason and goes well beyond just the more ordinary buildings. It includes, for example, also the work we do for a variety of clients who want to build gigafactories necessary to support the transition to electric vehicles and that could be whether on batteries or charging stations. And it also includes the work we do for clients who are looking to develop sustainable distribution centers, manufacturing facilities for the production of life sciences and data centers but it also includes the design and development of transit stations increasingly required to support new and more sustainable mobility.

Whatever we do for these clients, our solutions are focused on production and energy efficiency as well as on helping them to reduce the carbon impact of the assets and allow them to reach their net zero goals.

In our Places GBA, we have experienced good revenue growth of 5.1% in the second quarter, driven by the U.K., North America and Australia and somewhat offset by ongoing lockdowns in China. A particular example of what we do in our Places business is the work we do for Wallbox to manage the design and development of its new electric vehicle charger manufacturing facility in Texas. By 2025, the 130,000 square feet facility is expected to produce over 500,000 charging units every year. And this is just an example of the requirements which come with the acceleration to the EV adoption to support the reduction in global carbon emissions.

Our Mobility business area has a strong focus on creating greener and cleaner mobility solutions, growing on Arcadis' expertise in highways, rail, again, electric vehicle adoption and airports. At 11.1%, our revenue growth was particularly strong for Mobility in the second quarter, and this was driven by public and private clients in the U.K. and Australia as well as Continental Europe and North America.

The U.S. airports, which fared competitively well during COVID, are now actively investing in infrastructure. The latest example of this is the new $9 billion P3 terminal project in New York, where Arcadis advised Ferrovial on the transaction. And we do see more airports who recognized the need for additional investments in order to be much more resilient than they have been, unfortunately, coming out of the pandemic.

As already mentioned a few times, EV sales continue to grow around the world, and client demand for new mobility has also been a significant driver of growth. We're seeing increased investments in additional capacity for EV charging infrastructure. And as another example, we've recently scaled our fleet electrification knowledge to Australia through a partnership with the Tianjin Bus Group.

Together, we will be providing advisory service from planning and operational transition through to asset management, training and design and engineering to help Australian transport operators make the shift to electric vehicles.

Summarizing what we have experienced since we created our new GBAs at the beginning of the year, we are pleased by the increased order intake from clients in support of net zero ambitions. We're pleased with the increased focus on global electric vehicles and infrastructure rollout, and we're also pleased with the need for sustainable industrial manufacturer solutions and the urgency displays around energy transition and energy independence all together creating a strong pipeline of opportunities across the 3 GBAs. And I'm also very pleased with the significantly increased global collaboration within Arcadis, the scaling and cross-selling of services, all dynamics we expected to see as a result of the creation of the GBAs, dynamics which directly benefit our clients.

Next, I'd like to talk a little bit more about our recently announced intended acquisition of the Canadian IBI Group, a forward-thinking technology-driven design firm. As I touched on at the start of this presentation, this acquisition marks a significant milestone in our business strategy. And the acquisition is fully aligned with the business strategy we rolled out back in 2020 when we announced the maximizing impact strategy for the next 3 years. This is definitely a transformational step in the development of new digitally enabled client solutions through the intended creation of a fourth Arcadis global business area called Intelligence, combining IBI Group's Intelligence platform and digital capabilities with Arcadis and all our digital solutions.

IBI is highly complementary to Arcadis' own GBAs, particularly in North America, where Arcadis has a large presence in Resilience and relatively smaller footprints in Mobility and Places. It also will allow us to get a much strengthened position in the highly attractive Canadian market. This combination will definitely create the global leader for urban planning, designing and building the resilient cities of tomorrow.

The combination of IBI and Arcadis will deliver material revenue and cost synergies. The combination of Arcadis Gen and IBI's Intelligence portfolio will provide clients with an holistic suites of digitally enabled client solutions. It will allow us to drive efficiency and additional productivity and be a platform for innovation and create positive disruption with technology.

To recognize the full potential of a larger and more comprehensive digital platform, consolidate existing products and services and optimize future investments, we intend to create this fourth GBA which will support Arcadis' existing GBAs with technology-driven client solutions for resilience for Places and for Mobility. It will deliver a wide range of services from tech-driven consulting such as software and systems design and integration to software-as-a-service or software-as-a-product.

The intended new structure of the 4 GBAs will allow our combined client base to benefit from both Arcadis' and IBI's groundbreaking expertise. That means that in Resilience, we will combine our climate change expertise, energy transition and water optimization, and it will be complemented by IBI's expertise in wastewater engineering, land engineering, and environmental services.

In Places, our capabilities in the varieties of businesses I referenced before will be enhanced by IBI's unique expertise in urban planning, smart cities and placemaking, and it will furthermore allow us to consolidate both of our complementary architectural capabilities.

And in Mobility, our experience in building intelligent rail and transits, connected highways and resilient ports will benefit from IBI's experience in transport planning, engineering and management.

And finally, as I mentioned before, in our newly created GBA Intelligence, we will combine our respective portfolios to deliver a wider range of solutions from again, software-as-a-service, software-as-a-product to software and system design and systems integration.

By acquiring IBI, we will add material scale in North America and the contribution of revenue from this region will, as a result, increased to 43% of our revenue rebalancing the contribution from the North American region versus Europe. And with that, I'll turn it over to Virginie for additional color on the financial results.

[Virginie Dupérat-Vergne, executive]

Thank you very much, Peter, and good morning, everyone. I'm pleased to provide you with some further comments on our performance in Q2. So during the first half of 2022, we delivered a net revenue of EUR 1.4 billion, corresponding to a very solid net revenue organic growth of 6.9% and as per our definition for organic growth, the impact of currency movements, acquisitions, divestments but also wind-down of footprint predictions such as the Middle East are excluded.

The operating EBITA was EUR 133 million compared to EUR 116 million in the first half of 2021, and the operating EBITA margin increased to 9.3% driven by the Places performance. Our disciplined working capital management allowed to further improve our net working capital as a percentage of annualized gross revenues to 13.3% versus 14.3% in H1 2021 and to further decrease our DSO to 69 days versus 74 days end of H1 2021. Our balance sheet further improved year-on-year, resulting in a significantly lower net debt position of EUR 283 million, which includes liabilities of EUR 253 million.

Revenue growth in the second quarter was supported by all of our 3 GBAs, which are increasingly collaborating on the scaling and cross-selling of our services and, in turn, reflected in a very solid organic growth of 8.1%. The operating margin for the second quarter was 9.3%, and the year-on-year improvement was driven by Places. In this quarter, we further invested in digital solutions for clients and, in the effecting retention and development of key industry talent while starting to successfully absorb wage inflation.

Furthermore, we saw a normalization of our operating expenses, where last year's margin was supported by lower costs related to, as an example, travel, housing or office-related items driven by the abnormal circumstances that COVID-19 created. We were able to already pass on inflated salaries and operating expenses to our clients to some extent. And we are confident we will be able to agree on fair and competitive rates to our clients that are in line with wider economic circumstances and labor market dynamics.

Net working capital percentage improved versus last year. A low starting point in 2021 year-end of 10.7% cause a higher cash outflow during H1 2022 than we saw in H1 2021. And at the end of June 2022, our backlog was at EUR 2.3 billion versus EUR 2.1 billion 1 year ago. Organic backlog increased by 5.9% year-on-year with a positive contribution of all 3 GBAs.

Turning now to the results by GBA. First, our Resilience business. We saw there very solid revenue growth driven by public clients as well as private clients and increased amount of scaling and cross-selling between GBA. An example of cross-selling is the sustainability advisory we do for a large mobility client, like Los Angeles country metropolitan Transportation Authority, helping them to meet increased sustainability and transit accessibility targets ahead of the 2028 Olympic games. And as part of this, we are delivering a wide range of projects such as managing resources efficiently, minimizing waste and reducing greenhouse gas emissions.

The margin for the health care was in line with our expectations and driven by good margin levels in North America and U.K. The margin decrease versus last year was, to a large extent, driven by increased investment in digital solutions and people as we continue to invest in attracting and retaining key industry talent to execute our growing backlog and expand our skill sets while trying to pass the wage inflation.

Moving now to our Places business. Good revenue and backlog growth was again driven by a strong U.K., North America and Australia, partially offset by COVID-19 lockdowns in China and CallisonRTKL getting back on track. The margin improved year-on-year driven by higher contribution and very strong performance from U.K. and North America, while last year margin was impacted by losses on projects in Asia. The project example of Birmingham City Council demonstrates the work we do for large public clients, supporting on shaping cities of the future.

For Birmingham, we are to deliver the next phase of its -- our future city plan, supporting the sustainable development for 2040 through strategic proposals that address different teams, ultimately, promoting economic, social and environmental sustainability.

The backlog growth was very strong for U.K. and Australia with Continental Europe also contributing. Order intake was lower at Greater China driven by COVID-19 lockdowns. And all in all, we see a healthy pipeline of opportunities across our resilient client and solutions portfolio with very strong demand and investment in EV Gigafactory space for support in permitting, D&E and program management but also increasing CapEx investments in industrial manufacturing, driving resource efficiency and productivity.

Now moving to Mobility results. Revenue and backlog growth were very strong for the first half year driven by a very strong U.K. and Australia and with additional contribution from North America and Continental Europe. And this was slightly offset by performance in Greater China caused by ongoing lockdowns. The margin development year-on-year was also driven by increased investment in digital solutions and people. And more than anything as a result of the strong organic growth of the recent quarters, we saw a high volume of large projects in the ramp-up phase.

We increasingly applied digital solutions in the work we do. And as an example, we are delivering a project for Georgia Department of Transport, with whom we have a long-standing relationship, like with a number of other state departments of transportation in the U.S. We are designing and maintaining an intelligent transportation system for that client in Atlanta, using technology to manage traffic flow and create safer conditions for drivers, cyclists and pedestrians.

Operational performance of the group. EBITA improved by 14% from improved performance across the GBAs and partially helped by FX impact. Net finance expense decreased to EUR 6 million versus EUR 13 million year ago from a lower net debt position. The effective income tax rate for the 6 months period ending 30 June 2022 was 28% normalized compared to last year as the latter was impacted by updates on prior year tax positions before 2021. Net income from operations increased by 16% to EUR 93 million or EUR 1.04 per share.

Turning now to the cash flow. The change in net working capital of minus EUR 113 million since the start of the year was driven by the reversal of a relative low net working capital position at the start of the year. End of 2021, we saw a significant cash inflow from large clients, leading to higher cash outflow for us in the first quarter of 2022 compared to the first quarter of 2021.

Furthermore, June 2022 was a particularly strong month in terms of gross revenues, driving up the unbilled receivables and, with that, net working capital position. Lastly, the lockdowns in China impacted our capability of issuing invoices and collecting cash for a number of weeks, slightly impacting our cash flow generation. And this resulted in a free cash flow of minus EUR 10 million for the first half of the year, roughly in line with our seasonality pattern with cash consumption in H1 and a strong cash generation in the second half of the year. And with this, I'd like to thank you and hand you back to Peter.

[Peter Oosterveer, executive]

Thank you, Virginie. Let me wrap up our Q2 and half year performance with a few closing comments. I'm, obviously, first of all, very pleased that we delivered a very solid set of results fueled by sustained client demand despite geopolitical tension, inflation and then somewhat uncertain economic outlook. Our GBAs are now firmly established and are creating the benefits we hope to see, and this is contributing to the solid progress on the implementation of our strategic plan, progress, which will be further enhanced by the intended acquisition of the IBI Group which will particularly strengthen our digital leadership and hence our footprint in North America and adds complementary capabilities in Places and in Mobility.

Alongside revenue growth, margin improvement and a strengthened balance sheet, we have maintained our focus and continued with our investments in digital and people. And in that context, I'm also pleased to share with you that our attrition has stabilized. That we are still an attractive employer and are able to attract the key talent industry we need.

And finally, as another positive signal, our recent survey resulted in a substantial improvement in our internal engagement score. And this all combined gives me the confidence to reiterate that we remain on track to deliver on our 2023 strategic targets. And with that, I'd like to hand it back to Christine, who will open up the Q&A.

[Christine Disch, executive]

Thanks, Peter. And here, I would like to open up for Q&A. [Operator Instructions] Martijn den Drijver has a question.

[Martijn den Drijver, analyst]

Yes. [Foreign Language] My first question relates to Mobility and Resilience. We've had strong organic growth yes, the EBITA margin declined year-on-year. You mentioned that's due to investments in digital and people. The first question is in this respect is that an equal split between digital and people. And with regards to people, we've talked about wage inflation on basically all calls in the last 3 quarters. Can you elaborate a little bit as to why this impacted your quarterly results or semestrial results so much today given that you've always indicated that you're able to pass on prices to raise tariffs? That would be question one. And I'll do them one by one, please.

[Virginie Dupérat-Vergne, executive]

Thank you, Martijn. Maybe I'll take this one. Yes, you're right, that is impacting us because in our mechanism, we generally generate salary increase in April every year. So then that's the moment that it goes into the P&L. And I think it's a little bit easy to capture, but that's not an immediate mechanical element to pass that to clients. It takes a little bit of time.

As we stated in the past, some of it is quite mechanical, and this is when we work in terms of cost-plus contract. And otherwise, that require to take your phone call, the client, discuss on escalation closing and start applying it and potentially [indiscernible] it's around the commercial negotiation.

So I would say that we found ourselves in a positive situation where we've seen that getting quite faster, and that has allowed us to go on maintaining the traditional investment that we make into digital and that we've been doing, let's say, since the beginning of this strategic plan and going on investing in attracting new talents and especially expanding our skill set during the quarter on top of some retention measures that we've been pushing through as we wanted to fight the attrition rate, sorry.

And that, for us, is quite a success, and the performance and the growth has been giving us the possibility to do that in all our 3 GBAs, while at the end of the day, yes, okay, year-on-year, it's decreasing a little bit in Mobility and in Resilience for last quarter. But overall, the group operating margin is above last year, and that has been our way of, let's say, go on investing and maintaining a significant investment while going on, improving the margin we are delivering on a group-wide basis outside.

[Martijn den Drijver, analyst]

So are you saying that in that catch-up in the second half, you're able to negotiate and raise tariffs that you should go back to previous levels in terms of EBITDA margins? Is that what you're guiding for?

[Virginie Dupérat-Vergne, executive]

Not guiding for. I'm just telling you that, yes, even in the IT systems, it's very -- you push something in the salary system, that goes then in your ERP in terms of impacting your projects depending -- can be a few days or weeks and such. So that can be seen by the product manager at the end of the month. And then you more or less have the first month that everyone is waking up. Second month, started moving, and then we've seen that it goes potentially even faster as it has been in some previous year with more, let's say, traditional wage increase. So then we are quite pleased with the reactivity of our teams and also the support of the client.

[Martijn den Drijver, analyst]

Just one final follow-up. What was the average salary increase for the Arcadis Group?

[Virginie Dupérat-Vergne, executive]

We're not communicating on that one, that's not even [indiscernible].

[Martijn den Drijver, analyst]

Then I'll move on to my second question. The unbilled receivables, I understand that you're saying it was incredibly high in terms of the growth in June. But when I look at the quarter, last year, in the second quarter, you had 6% organic growth. So that's pretty sound, pretty high as well, but you didn't have the increase in unbilled receivables. And now it's EUR 130 million higher than year-end. Last year, you had 6% organic growth, it was EUR 75 million higher. So is there something that we should be aware about in terms of Oracle cloud? Or is this really just a temporary June effect?

[Virginie Dupérat-Vergne, executive]

Yes, it's a pace of the growth. Last year, I would say it was more something like steady. Here, we really had growth that really strongly accelerated in June, some of those resulting from some wins also in terms of the balance of working days between the value spends of the quarter.

So then there is a bit more imbalanced growth towards the value spends of the quarter. So then very mechanically, if you have too fantastic last week, we don't have even the time to convert that in invoices or to start getting some cash in. So then that's exactly the picture. The balance sheet is being the fixture. The photography that has been taken is being taken at a very particular moment compared to 1 year ago I would say.

[Martijn den Drijver, analyst]

Okay. So for the second half, we go back to normal rates, levels of unbilled receivables, normally speaking.

[Virginie Dupérat-Vergne, executive]

Yes. And even with that, year-on-year, if you take the working capital ratio, this working capital ratio is improving. So then the same management policy helps us also to go through this acceleration of the growth and, despite that, maintain the same capital management and the ability to manage our working capital.

[Christine Disch, executive]

We have a question from Quirijn. He's dialing in by phone. Quirijn, can you hear us?

[Quirijn Mulder, analyst]

I can hear you loud and clearly, I must say. I'll limit myself to 2 questions. My first question, so stabilization of attrition rate. So can you maybe give the numbers of this attrition rate at this moment? So the -- let me say, the difficult April month has -- is gone now. So maybe you can give us insight in that respect. And then about the order book, the growth of the order book at the end of the first quarter was much higher than it is now. And if I look at the inflation rates, et cetera, and the raised rates for wages, et cetera, it looks to me that the order book at this moment is somewhat at the low end. Is maybe -- can you maybe confirm that or say something about it?

[Peter Oosterveer, executive]

Well, let me take the first one, Quirijn. And in fact, you described April as a difficult month, and I think, presumably, you're referring to the fact that selling increases and potentially incentives are being paid out. In fact, we already saw the beginning of a stabilization in April. And I recall that in the last call, we had -- that we actually quietly made reference to the fact that we're beginning to see the stabilization. And in the ensuing months, we have seen that continue. So that gives us confidence to now claim since we've seen it a couple of months that it actually is stabilizing and the expectation is that it will then eventually, of course, turn into a decline.

It is still around the 15% for Arcadis as a whole. So that is a little lower than the highest point. That was in the mid-15s. So it is stabilizing and heading in the right direction for Arcadis as a whole. And then, of course, as always, you see geographical differences depending on where in the world we operate.

[Quirijn Mulder, analyst]

Okay. With China at the top end, let me say, Continental Europe at the bottom.

[Peter Oosterveer, executive]

Yes, that's directionally about right, yes.

[Virginie Dupérat-Vergne, executive]

Maybe I'll take the other one. On the order book and on the increase, the pace of -- let's say, of the inflation rate being recorded in the order book gets exactly the same way as the negotiation with the clients. So for sure, inflation is not completely in the order book. So that probably explains partly of your observation.

Traditionally, Q2 is also a quarter with quite a number of bank holidays in a number of countries and such. And we generally see that has an impact in some of the same nature of the contract and the moment order intake can be regarded. But the pipeline is really, really very good. We are quite pleased with the number of projects we've been signing. And we have seen in the first week of July also quite a number of conversion of the discussion that we are exiting and that have been assigned and potentially some of these projects might have been finalized and signed in June also. Okay. It's a question of timing in some respects.

So no specific worry on that aspect on our side. Again, rather Eastern on the U.K. side, the exceptional Jubilee of the Queen this year, creating additional bank holidays also for these teams, and that has definitely an impact in terms of commercial concrete conversion.

[Quirijn Mulder, analyst]

Okay. Maybe a last question that is 2B, about escalation [indiscernible]. Is there some ramp up, as I understand, from the revenue side? But what about the profitability there?

[Virginie Dupérat-Vergne, executive]

So definitely a ramp-up on order intake and revenue side. And then they are suffering the same things at the rest of places, which is the Chinese lockdown has been seeing a decline in revenue and in order intake on that side. And okay, China for them is also quite a part of what they do. So contrasted pace in that respect, which is really driven by the regions, and then it's catching up.

[Quirijn Mulder, analyst]

And the profitability is, let me say, I understand the let me say, the back-office integration within Arcadis, et cetera. So that should lower the cost base for CallisonRTKL. Is that now materializing? Is that now feasible? Or...

[Virginie Dupérat-Vergne, executive]

It's materializing, but you have heard and we discussed that last week about IBI intended acquisition. Also there's definitely also integration that needs to happen between the activity on IBI building side and on, let's say, CallisonRTKL and Places side and knowing that this was coming, some of the things we've not been getting as fast as we could have because there is a clear interest on our side to make sure that these 3 part of our business in Places are fully integrated and work all together.

[Christine Disch, executive]

Next questions come from [indiscernible].

[Unknown Analyst]

Maybe a couple of follow-ons also on the comments that Martijn made [indiscernible]. It's good to see that the volumes in the order book are going well. And -- but the question is how many people in the end, are you going to have to attract -- to meet the higher order levels. And maybe also in connection with the utilization of stuff because I can imagine that, at this point, sick rates are quite high. That's what we hear at other consultancies as well. Maybe a few comments on that. And I have a follow-up.

[Peter Oosterveer, executive]

Yes. So [indiscernible], you're right that, typically, the utilization of staff goes hand-in-hand with the order book or to say the other way around, probably more people, typically, it creates a higher revenue. We still have opportunities to further optimize the efficiency of the utilization. And in fact, that was also one of the reasons why we created the GBAs in the first place so that we had a better handle on our global pool of resources as opposed to treating a pool of resources as a local pool. I'd also remind you that, of course, we have the significant capability in the GECs, which continue to grow, which gives us another opportunity to tap into a different resource pool.

Of course, at the end of the day, what makes this business model work in the most efficient way is to continue to attract more work and actually disproportionately attract new people or, to say differently, to better leverage the existing resource base and increase the availability of the people. And we still think that we have opportunity within the current pool to create increased availability and not having to hire as much people, relatively speaking, as you attract new revenue, if that makes sense.

[Unknown Analyst]

And that means probably that you're getting too high margins as well.

[Peter Oosterveer, executive]

That is this model works, yes.

[Unknown Analyst]

Okay. And the second question is more general. It looks more and more that we are heading for a recession worldwide. The problem now is, of course, attracting staff. But at some point, yes, you may be forced to cut some costs. How flexible is the base -- the cost base of Arcadis?

[Peter Oosterveer, executive]

Yes. So the R word is now being used increasingly. I remember 2 quarters ago, people started to carefully or selectively use it. Then a quarter ago, it was already used more. When you look at our outlook, and hopefully, as you also digest our comments and our feedback, we're not ignoring that the economic conditions have become more challenged. The war in Ukraine was a contributor. Inflation is a contributor, higher energy prices and it all ties together. And then that makes the outlook obviously, less rosy than it was probably a year ago.

If you look at historically to what extent our business is cyclical and completely in sync with growth in the world, then you will find that our business is typically much more resilient and doesn't see the deep dips, which economies in general see. So all in all, we have not even thought about the reference you made about cutting costs or, to say differently, reducing staff. We see plenty of opportunity to actually, as I mentioned in my response to your prior question, to increase the efficiency to get us through the work we already have in our order book.

And then -- and that's a bit more anecdotal, of course. But when we talk to our clients, yes, there is clients who have also taken some steps, but most of the clients in terms of prioritizing what is absolutely crucial for them are definitely looking at ways to become more energy efficient. And I think that is unfortunately what that terrible war has done. It has created an increased recognition that the energy dependence, which we used to have, is not what we want to continue to have.

So if then clients prioritize their investments and they need to choose between the new assets or optimizing the assets they have and making them less energy dependent on, for instance, Russian gas, then that choice is quickly made in favor of becoming much more energy independent. So we don't see in our order book, we don't see in our conversation with our clients that the recession is hitting us, is about to hit us and would consequently result in having to let go people. That is something we haven't even started to discuss internally, [indiscernible].

[Unknown Analyst]

Okay. Okay. Okay. Maybe one follow-up on a completely different question. That's more on IBI and the new GBA Intelligence. And what kind of margins should we expect in the unit? Maybe you said in the previous call and I missed that. So...

[Peter Oosterveer, executive]

No, it's not specifically stated. But when you look at what Software-as-a-Service, it typically does generate then it saves us they are in the more attractive region of margins. But we have not commented and neither are we planning to do it here with any degree of specificity on the exact margins.

[Christine Disch, executive]

Next question coming from Oliver from [indiscernible].

[Unknown Analyst]

My first question will be a little bit of a follow-up on the question of [indiscernible] efficiency, but specifically in third quarter with the full turnover that was higher this year? And also I remember last year, in Q3, you had a catch-up of holidays. That was a bit of hampering executions. And do you expect a similar -- yes, dynamics in the coming quarter of the summer holidays on both elements?

And then my second question would be about the other operational expenses. You said you saw normalization. And I wonder how far are you in there. Do you expect further normalization in Q3 and Q4? Or is that all in the margins today already?

[Virginie Dupérat-Vergne, executive]

Okay. So then starting with our outlook on Q3. So we don't guide, and then that's not something that, I guess, we should start doing today taken just the economic conditions that we see at the moment and the uncertainty. We are not quite stable on what things are going to happen. We have a very strong backlog to execute. We think that we are not ready to do so. And we see a very positive start of the quarter, let's say. So that's probably [indiscernible].

And on operational expenses, clearly, 2021 has been a very different year. We're quite stuck in terms of lockdown and such. We still have China and Southeast Asia, which has been quite partially impacted in H1. So that's why we talk about normalization, but we also admit that we are not completely back to totally, let's say, normal because of some of our colleagues are still stuck with COVID-19. And in the rest of the world, it's more on our new way of working with quite high part of that, which is still being done remotely and will probably remain that way, with travel, which has restarted, but we'll never be back again to the levels that we had pre-pandemic for various reasons and one of those being also general consciousness of our clients and our teams and [indiscernible] implication and the commitment to reduce on that front and let's say, [indiscernible] execution. So that's where we are today.

[Christine Disch, executive]

Next question comes from Hans Pluijgers.

[Hans Pluijgers, analyst]

Yes. A few questions.

[Christine Disch, executive]

Hans, I think you're breaking up slightly. Hans, you're breaking up. Maybe you can turn off your camera. Maybe that will work better.

[Hans Pluijgers, analyst]

Can you hear me now?

[Christine Disch, executive]

Yes.

[Hans Pluijgers, analyst]

Yes, a few questions from my side. First of all, on, let's say, the developments by client groups. You already mentioned that with Resilience, a good development [indiscernible] and in public. And you've also indicated that especially EV-related news were in demand and orders were quite strong. Could you give maybe some feeling in other key trends you see changing over the last 2 quarters by client group by short of demand? And especially, do you see already a significant increase from, let's say, some of the big plans that are there, the [indiscernible] and everything and in the U.S. coming through to the market. So that's also giving a boost that you really see that money flowing into the engineering business. And secondly, more detailed [indiscernible] could you give maybe some feeling on in your organic growth to components [indiscernible].

[Christine Disch, executive]

I'm sorry, you're breaking off quite a bit. So maybe you can jump in the queue, Hans.

[Hans Pluijgers, analyst]

Can you hear me?

[Christine Disch, executive]

Maybe it's a good idea to turn off your camera because sometimes the sound gets better than [indiscernible].

[Peter Oosterveer, executive]

You get more bandwidth if you only use the voice, Hans.

[Christine Disch, executive]

I think you were referring [indiscernible].

[Virginie Dupérat-Vergne, executive]

We're sorry for that.

[Hans Pluijgers, analyst]

Can you hear me now?

[Virginie Dupérat-Vergne, executive]

Yes.

[Christine Disch, executive]

Hans, maybe we can move. [indiscernible].

[Hans Pluijgers, analyst]

Can you hear me?

[Virginie Dupérat-Vergne, executive]

It's not very good. I understand that your question is around trend on client and what we've seen over the first 6 months and something like this. And then I understand that you wanted to discuss a little bit on organic growth. So we'll cover that as much as we can. And hopefully, we'll answer your questions.

[Peter Oosterveer, executive]

So I was assuming that we've understood that correctly, first on clients. And I think the question was any significant changes in dynamics in terms of clients and/or any significant demand from clients in a particular area. So you did indeed reference anything which has to do with EV, and that ranges from the creation of the gigafactories, to actually build the charging stations to the ultimate infrastructure, which put the charging stations on the road. And we see that, of course, across what, particularly in our case, Places and Mobility because that's where it has the largest impact.

Gigafactories in general is becoming much more of a trend. So we do see a pool from clients in the automotive sphere, so not necessarily related to EV charging stations per se but, for instance, batteries, also then, of course, associated with the introduction of EVs and other facilities associated, for instance, with the creation of more capacity for fabrication of chips and also a pool for more capacity to create additional life sciences, production facilities, as I mentioned in my comments.

So what has changed probably more than anything else over the last, particularly, quarter because that, I think, is more a realistic reflection is the acceleration of the energy transition. Not to say that we didn't know it. But I think because of what happens all of us or at least people who follow the work closely here, it became quite apparent to everyone that we can beat that depending on one producer.

So the energy transition is probably what has impacted us the most. And that fundamentally cuts across all of our business. So that's not just limited to mobility or places. That's even something we actually see in Resilience as well. Because the energy transition as a function or let's say, sustainability advisory actually resides within the Resilience GBA. So that probably is the biggest change, Hans, we've seen in the prior quarter, the acceleration of the energy transition and everything which is associated with that. You want to handle the second question as we understood it?

[Virginie Dupérat-Vergne, executive]

I tried to take what I could, I understood around it. I think it was around the organic growth trend around the last H1, something like this. I'm not sure. So then I'll try to...

[Hans Pluijgers, analyst]

It was around price and volume. Could you give maybe some indication on price versus volume and also on number of personnel?

[Virginie Dupérat-Vergne, executive]

Okay. Price and volume effect. That's what I got. And okay, we are not, let's say, giving detail in that. I think that we've been seeing quite a different absorption in terms of wages or part of it for sure is definitely price, but there is a lot still needs to be passed on, and definitely, volume has been quite strong. So probably quite a balanced mix between the 2 in the quarter.

[Christine Disch, executive]

We do have a follow-up question from Quirijn.

[Quirijn Mulder, analyst]

Yes. Yes. Quirijn again about the IBI. So we are 10 days later. Maybe you can update us -- let me say how were the reactions, let me say, like at IBI for like employees? Or maybe you have spoken with the large -- some large investors outside the partnership. So can you maybe update us on that-- in that respect?

[Peter Oosterveer, executive]

Yes, I can Quirijn, because after last week, Monday's announcement, I actually traveled to Toronto to address pretty much what you're just asking for, first of all, and probably more important than anything else to -- together with Scott Stewart, the CEO of IBI, addressed the IBI employees. And we did that last week Wednesday through a webcast, which was, I think, not only done quite well but actually received quite well as well. I think we were able to give the population at large the comfort that we look at this acquisition for a good reason because we see capabilities in IBI which we don't necessarily have in the same way as within Arcadis that there is no concern about continued employment because, at the end of the day, that is what matters most the most and rightfully so.

So the question, what is the impact on me not necessarily directly but indirectly came up quite a number of times. And based on the feedback we've received from IBI after the webcast, that is how the webcast was received, so very positive, seeing that this obviously has a lot of opportunity.

But that being said, of course, as always in a situation like that, there's always some anxiety as well. And that is something we plan to continue to address. So we had the webcast last week, and we will probably hold a few more to address any more questions before the close is upon us. I also had the opportunity to speak with a larger group of IBI leaders, larger than people I had already met in the recent past. In the recent past, I met about the top 15 and now that was expanded to about 40 people.

And there, I would say that the mindset has already moved from the anxiety apprehension to opportunity. And that is, of course, that we ultimately like people to actually go through. Yes, apprehension is understandable, but how can you as quickly as possible move them to looking at the opportunities? And in that respect, we actually need to manage on both sides, our people because our people in Arcadis but also people have a desire to reach out to their respective counterparts to look at opportunities to collaborate. And of course, we can't do that at the phase we're in.

So we actually have controlled our people. We've provided them with some direction on the dos and the don'ts And of course, in the interim, as we have not closed -- it is fundamentally business as usual. And of course, we use the time to fully prepare ourselves for the integration.

So all in all, from an IBI perspective, and that includes, again, the 3,500 people we covered in the webcast as well as the 40 leaders I was able to talk to, it's been quite well received, given that, of course, it came as a surprise to them as well.

Then expanding it a little broader, investors outside, the partners, we haven't spoken with them extensively. I have had a conversation with someone who is close enough to the markets in Canada -- actually resides in Canada while I was there. And we don't necessarily expect any major challenges in bringing this to a close. It does seem, based on the feedback we've received indirectly, that people understand why this combination makes an awful lot of sense.

[Quirijn Mulder, analyst]

Okay. Perfect. So neutral for investors, and positive for employees. That's the conclusion I can draw from this.

[Peter Oosterveer, executive]

That's a good summary.

[Virginie Dupérat-Vergne, executive]

I think also that lawyers would advise you not to retract particularly in such circumstances.

[Christine Disch, executive]

Okay. We've time for one more question. So Martijn den Drijver has some follow-up questions.

[Martijn den Drijver, analyst]

Yes. I want to go back to Places because -- you've mentioned Callison back on track. There's restructuring charges for the Middle East. So that's going to have a positive impact. The lockdowns in China are now over. Should we see the EBITDA margin for Places, which is a significant uptick relative to last year, should we now see that as some sort of trough, and it can only improve from here, given these 3 factors that I just mentioned?

[Virginie Dupérat-Vergne, executive]

Thank you for your question, Martijn. I think that we've always been saying that there is not much difference in the market capability of the 3 GBAs. So that I think exactly should tell you where we expect Places, Resilience and Mobility to be pulled together.

[Martijn den Drijver, analyst]

Okay. And since I have 1 more minute left, there was a dividend that you received of EUR 10 million in your cash flow statements. From which -- where did the EUR 10 million come from? And you also invested EUR 7 million in consolidated companies. So what did you spend that EUR 7 million on?

[Virginie Dupérat-Vergne, executive]

So if you go back to our H2 2021, we have a joint venture where we said there was a positive closure of some discussion we had with the client. And you have the, let's say, operating EBITDA elements that happened in H2 2021 in that line in the P&L. And then at that point of time, you get the cash getting from the GBA up to you in terms of dividend, and this is what happened.

In terms of investment in consolidated entities that's more around various elements and how, let's say, the -- some accounting entries have been posted to get some divestments out of the company.

[Martijn den Drijver, analyst]

Well, that doesn't tell me much more, to be honest, but...

[Virginie Dupérat-Vergne, executive]

We have been [indiscernible] Czech Republic, Slovakia and Thailand that is in the press release.

[Martijn den Drijver, analyst]

But you sold those. This is a cash out.

[Virginie Dupérat-Vergne, executive]

Yes. But we had to cash out some elements and then you have the element of price, which is somewhere else. And we have also acquired HydroNet in H1 -- in Q1, sorry.

[Martijn den Drijver, analyst]

Yes, but that would not be in consolidated companies, right? That would be new acquisitions. But these 2 elements explain the EUR 7 million.

[Christine Disch, executive]

We've arrived at the end of the conference call. Just like to give Peter the opportunity to give some closing remarks.

[Peter Oosterveer, executive]

Yes. Thanks, Christine, and thanks, everyone, for your engagement and for your questions. Just in summary, I think we -- with good reasons, I have shared with you a relatively upbeat story today with strong performance, and we also find ourselves in a really good spot in terms of what the needs of our clients are.

If I just reflect on the internal side real quick, I'm really proud of what we have accomplished in the first 6 months in terms of setting up the global business areas. That was a significant undertaking. And I'm even more proud on the positive dynamics we are seeing. These global business areas do bring what we expected they would bring, and I'm convinced that our clients will benefit from it. So in a much more efficient way, we're now able to share global capabilities, global knowledge, global experience for the benefit of our clients.

As we've commented several times, we will continue to invest in our growth, and I hope you don't blame us for that. We will invest in digital capabilities, and we will continue to invest in retaining the people we already have and hiring a new industry talent, which we also need. And then from a more external perspective -- or maybe one more thing before I forget, I also wanted to reiterate again that we're very pleased to see both the attrition tapering off or stabilizing and actually the engagement going up at the same time as well. And that is definitely quite positive when we look at the retention of our people.

And then finally, from an external perspective, we do indeed see really sustained strong demand from all our clients in all the 3 GBAs. And we actually look at a very healthy pipeline of opportunities notwithstanding the fact that indeed the environment around this is somewhat uncertain in terms of economic development.

So all in all, we're sitting here being pleased with what we have delivered in the first half and the second quarter of this year and positive about the outlook looking ahead of us. So thank you for your involvement today, for your interest in Arcadis. And I'm sure we'll talk soon and again in the near future.