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Arcadis NV
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Hello, and welcome to Arcadis NV Q3 Trading Update Call. My name is Val, and I will be your coordinator for today's event. Please note, this conference is being recorded. [Operator Instructions]I will now hand you over to your host, Jurgen Pullens, Director, Investor Relations, to begin today's conference. Thank you.
Good morning, everyone, and welcome to the Arcadis conference call and audio webcast regarding the trading update for the third quarter. I'm in the call together with our CEO, Peter Oosterveer; and our new CFO, Virginie Dupérat-Vergne, all working from home. We can start with, say, a short presentation by Virginie Dupérat-Vergne, and then we will open up for a Q&A. You all received the presentation this morning, but it is also available through the Investors section of the Arcadis website for which we address the -- yes, just a formal remark before we start. We call your attention to the fact that in today's session, management may reiterate forward-looking statements, which were made in the press release. We'd like to call your attention to the risks related to these statements, which are more fully described in the press release and on the company's website. With these formalities out of the way, I would like to hand over to Peter. One moment, please. I have to reconnect Peter as well.
Hello?
Hello, Peter?
Yes. Something went wrong with my connection. My apologies. I think I can hear you now. Jurgen, hopefully, you can hear me as well.
I can hear you. I hope this works. So I apologize for this technical thing. But as mentioned before, we are all working from home, and we have to deal with the situation. But I can hear you, Peter. I just made the introduction and I hope you can start right now.
Okay. I will do. Good morning, everyone, and thanks very much on my behalf for joining us today. First and foremost, I truly hope that you're all staying safe and healthy throughout what are clearly still really unprecedented times. I'd like to start with the highlights of this quarter, and I will then hand it over to Virginie for some more financial details. And as I just spoke about safety, let me begin by reiterating that the safety and well-being of everyone we work with is still our #1 priority. That is also why we're still strongly encouraging our people to work from home, wherever possible. And the vast majority of our people are just doing that, even in cases where there's really no government requirement to do so. Even in those cases, we have our people working from home. And in working from home, our people continue to impress and amaze me with the flexibility and the adaptability during these challenging times. And this has certainly contributed to what I believe are a set of strong results in this quarter. We are furthermore, obviously, benefiting from the actions we took in the early days of the pandemic, which was at the end of Q1, and specifically as it relates to cost containment and the ability to preserve and conserve cash, which has again been a very strong quarter this year. And where we do see impact from the pandemic, it is largely with selected private sector clients and, obviously, in the retail business of CallisonRTKL. However, that is largely offset by the fact that public clients continue with projects to the maximum extent, which has actually enabled us to grow our backlog this quarter and actually has enabled us to grow the backlog for the year as well. As you will have seen from our release this morning, we have furthermore taken the decision to significantly reduce our footprint in the Middle East, through a process which will take at least a couple of years to complete, whereby we will obviously honor the contractual obligations. We have a commitment for it vis-a-vis our clients and while we obviously will also balance the interest of our employees who are being impacted by this decision. So let's look at what this means in more detail on the next slide. I believe that our financial performance this quarter deserves to be called strong, with an operating EBITA margin of 10.9%, something we have not achieved in quite some time, and therefore, is a significant 2.5% improvement compared to Q3 of last year. Arguably, even somewhere is our free cash flow this quarter, following an already very strong Q2 and, in my view, also providing evidence that the global actions we took at the end of Q1 are paying off. With this strong performance and taking the challenging circumstances around COVID-19 into account, it is also very pleasing to see that we continue to win new work and are still growing our backlog. And the strong financial performance we are delivering has certainly also helped us in the successful refinancing of the EUR 150 million Schuldschein loans through a transaction which was oversubscribed multiple times. Finally, as a result of our decision to significantly reduce our footprint in the Middle East as well as due to the difficult market conditions for CallisonRTKL and particularly in the retail business, we had to take a noncash goodwill impairment. And for further financial details, I'd like to hand over to Virginie now.
Thank you, Peter, and good morning, everyone. I'm pleased to report today Arcadis third quarter results and would like first to thank the Arcadis finance team who did an excellent job in the last 2 quarters and highly contributed during my almost entire virtual onboarding. Moving on to Slide 8, where you have the main financial highlights. In the third quarter, Arcadis delivered very strong operational results despite a modest organic revenue decline of 3% due to the impact of COVID-19 crisis, which was more severely felt in CallisonRTKL. Operating EBITA was EUR 63 million (sic) [ EUR 66 million ], up EUR 12 million or 22% from Q3 '19. The free cash flow was again very strong and led to a net debt of EUR 195 million at the end of the quarter. Together with a strong EBITDA of EUR 74 million, this led to a covenant leverage ratio of 1.2 and a spot leverage of 0.8. Due to the strong cash collection, the net working capital percentage further improved to 16.6%. Organic backlog grew 6% year-to-date and 3% over the quarter, driven by good order intake in Infrastructure and Environment. Arcadis also booked EUR 126 million of goodwill impairment in the quarter, corresponding to a EUR 60 million impairment for CRTKL, reflecting the COVID crisis impact on the business, and the EUR 66 million impairment for the Middle East following the group decision to reduce significantly its footprint in the geography. Turning now to Slide 9 and to the detailed operational performance. Looking to the revenue development in the quarter, we see a continued strong performance in the Americas, which represent 36% of total net revenues. Net organic growth in this region was 8% year-on-year at constant exchange rate. Continued strong growth in Water and Infrastructure in North America is now also supported by growth in Environment. In the third quarter, we also won several good projects in PFAS remediation globally, while in Latin America, we saw a solid growth driven by Infrastructure and Environment in Brazil. Looking to Europe and to the Middle East, which accounts for 44% of net revenues, we see overall a revenue decline of 6% due to COVID-19 current crisis. The impact was felt in most countries, except in Germany, where we delivered strong growth. In the U.K., we experienced some decline in buildings, whilst we delivered growth in Infrastructure and Water. As an example, we signed a new contract for High Speed Railway 2, which brings significant workload for many years in Infrastructure. In the Middle East, revenue slightly declined. We announced today that as part of our ongoing global strategy review, we decided to significantly reduce our footprint in this region. This decision will be implemented carefully, and we will ensure this will not impact our clients and the delivery of our ongoing projects. As a consequence of this decision, we impaired the related goodwill and identifiable intangible assets on our balance sheet for a total amount of EUR 66 million.In Asia Pacific, 13% of our total net revenues, we faced an organic decline of 10%, resulting from the COVID-19 crisis contrasted situation, where China is on the road to recovery whilst other Asian countries face ongoing challenges. In Australia, we saw a modest growth driven by major public infrastructure projects. Turning to CallisonRTKL. CallisonRTKL experienced a strong decline due to COVID-19 crisis, especially in the retail practice. Due to weaker-than-expected results and forecast for CallisonRTKL, a noncash goodwill impairment of EUR 60 million has been booked in 3Q financial statements. Overall, turning to Slide 10. We see a strong performance in the quarter despite a modest revenue decline. Quarterly operating EBITA improved to 10.9%, reflecting the impact of the cost measures taken combined to a resilient revenue performance resulting from a continued focus on clients. The strong efforts made by our teams to reduce working capital proved to be successful and resulted in net working capital percentage of 16.6% and a DSO of 82 days, well within the target set for 2020. And with this, I would like to hand back to Peter for the closing remarks.
Yes. Thanks, Virginie. Please allow me to wrap up our brief presentation with a couple of closing comments before we, obviously, will open it up for Q&A. I think it's fair to say that we're still finding ourselves in really unchartered territory. And I have actually described the current situation before as a bit of a large global experiment, an experiment no one really asked for it. And it's probably also fair to say that the world as a whole was definitely ill-prepared for that experiment. That being said, I really believe that we have demonstrated through our performance that the business in which we operate and the businesses in which we operate are very resilient. And that we, as an organization, are equally resilient. It is this resiliency, which has created a strong performance in the second quarter in terms of operating EBITA margin percentage, free cash flow as well as in growth of our backlog. As a result of all of this, our financial position is very solid and better than it has been in a long time, which definitely provides comfort during these still really challenging times. However, as challenging as these times are, we also see that the necessity to invest in sustainable, resilient solutions, which provide societies with the certainty they increasingly demand is stronger and more widely supported than ever before. And that demand, combined with our solid foundation, gives me confidence in saying that we are really well positioned for the future. And we obviously look forward to further discussing this future with you during our Capital Markets Day on November 19. With that, Jurgen or the operator, I'll turn it back to you.
[Operator Instructions] The first one comes from the line of Henk Veerman from Kempen & Co.
Congrats with the strong results. I have a couple of questions. So firstly, can you give an indication of the organic decline in your activity across the private sector clients versus the public clients because you mentioned in the press release in 1 sentence that private remains weak? And also, when you look at the backlog, which is up strongly on an organic basis, is that also mainly driven by the public clients? Or do you see private client business already coming back strongly in the backlog? That's my first question.
Okay. Let me provide an overall perspective, Henk, first, and then I'll ask Virginie to chime in, as she see fit. The distinction we have made and continue to make between private and public, which, on average, is about 50-50 anyway is a distinction simply because of the fact that we do see that a number of private clients are indeed becoming more cautious about their investments. That being said, it may be a little surprising. We actually still see significant wins for work for clients in Environment in the oil sector. And that might sound like pretty unbelievable because not only are they dealing with COVID-19, they're also dealing with the impact of lower oil pricing. But as we've commented in the past, we do see that these clients do take the responsibility and most often the liability they have seriously and are actually still continuing. So the decline is mostly indeed for private clients and then even more specifically, actually in what we describe as our buildings business because that's obviously where a lot of people have some hesitation to see what the new normal will look like. In terms of winning new work, obviously, with the opportunity to win more work for public clients, a large opportunity there for private clients, our focus and emphasis is indeed probably a little bit more on the public clients because we simply see more opportunities. Most governments and semi-government entities in most countries, of course, are trying to advance their work and continue to do so. So it's -- I wouldn't say it's material decline in private client, but that is where we see most of the impact and particularly in buildings. And our focus consequently is more on the public clients as opposed to the private.
Right. Right. Okay. That's clear. Second question would be on the EBITA margin. It's very strong this quarter. But can you give us a quantification of more or less the one-off nature costs such as lower traveling expenses and lower consultancy expenses? To what extent did that have a positive impact versus more or less the more sustainable margin improvement, driven by pricing and contract terms? And then the question related to that would be, would you be able -- like does the result today -- does it make you confident that you will achieve the EBITA margin target of at least 8.5% this year and also next year?
Okay. Let me take this one. Thank you for your question, Henk. So maybe just to go a little bit about how margin brings in this quarter. For sure, there is, let's say, a lot of the improvements that comes from the cost savings that we've been implementing since the beginning of the year. Let's say, that probably half of this improvement and a bit more than the half has been offset by the fact that there is revenue decline. And that, for sure, we are missing a bit of margin due to the fact that we do not have the same activity as we had 1 year ago. But with the cost savings we managed to offset more than that. And then you have another bucket, for sure. We still have some grants and some support from government here and there for furloughed people, and this has positive impact in the P&L as well as some salary cuts that have been, let's say, given back by the employees all over the world. So with that, we have a real nice margin this year. And so can we sustain that in the future? Some of the savings that we've been managing to do could become structural saving depending on how we decide to, let's say, work in the future. And it's not, let's say, idiot or it's not unexpected to say that the world will never be the same again. And that the way we work today will considerably change the way we are going to work tomorrow and that we will probably embed part of the changes that we've been seeing in our ways of working in the future. To come back then to your question on the margin for next -- this year and the next year, you've been saying that we've not been giving any guidance for the quarter. And as we say, we remain confident that the measures we have been taking are the right ones to bring the company further.
Okay. Okay. Well, okay. Moving to the last question would be on the working capital because there's also a very strong improvement there. And I believe, on an absolute basis, you are at the lowest point in many years. And when I'm looking at the breakdown of working capital, I see, for example, that payables is still quite low. So it feels to me like, optically, you could have stretched. You could have even reported a better working capital improvement upon the already strong improvement. So do you expect the working capital to improve further towards year-end? And maybe, so what has been the most important driving factor behind the strong improvement in trade receivables and net working progress on a sequential basis versus Q2.
Okay. So as far as working capital is concerned, yes, you're right. It's a low point in time, not maybe even the lowest. At least we've been already managing to reach the same point in Q2 or Q3 last year. But for sure, in terms of accounts payable, we are low because also in this complex timing, it's not the moment to delay the payment to your suppliers. You need to make sure that your suppliers are still alive and that there is a decent way of working.And as much as our clients are paying us on due time and we chase the money on a strong basis as you can be -- you can see on our figures, on the same time, we make sure that we pay our suppliers so that we do not create any issue for the future in our supplier chain. So this is kind of sanitization of the working capital also. What impacts a lot the progress of the working capital is for sure the cash collection, but also the acceleration of the conversion to -- from unbilled and work in progress to effective billings. So that also has probably the hugest impact in our improvement in working capital.
And you expect to improve further towards year-end on an absolute basis or?
We would like to maybe to maintain it. It -- we don't have exactly the same also element of working capital towards Q4. We'll probably also start seeing some repayments here and there of some of the deferrals that also impact positively our working capital throughout the year. And so there's no reason to expect the major changes.
The next question comes from the line of Luuk Van Beek from Degroof Petercam.
Well, first of all, a question on the Middle East, where you indicated you want to reduce your footprint. Can you indicate if you have a target size of the operation in mind? And secondly, you say that it will take several years because you want to honor existing obligations. So can you talk a bit about your backlog? To what extent there are long-term contracts in it that will determine the pace of how does the trajectory towards this lower size will look like?
Yes. Thanks, Luuk. To answer the question, I'll probably take all of you back in recent history, not too far, recent history. But when we launched our current strategy back in late 2017, we introduced 1 of the -- actually, we introduced 3 new pillars and 1 of the pillar was Focus & Performance. And under the pillar, we already mentioned that we wanted to be more focused on where we would operate to ensure that our performance would meet our expectations. And following that announcement late '17, in the summer of '18, we announced that we would be more selective in the Middle East. At that time, we also, I think, shared that the expectation of that more selective focus would be that we would see a lower revenue going forward, but, hopefully, with better performance on all of the key financial criteria, including DSO, including margin improvement. So we already took a step in 2018 and allowed ourselves more time to see if the improvement we could achieve was enough to satisfy our strategic framework. So what we are announcing today is a reduction -- further reduction of our footprint, which, in effect, means that we are not focusing at all anymore on Oman, Bahrain and Qatar. We will, of course, honor our contractual commitments in all of these places, but they are not significant going forward. The most significant part of our backlog right now sits in Saudi Arabia and the Emirates, where we have actually done quite well over the last couple of quarters in maintaining that selectivity while still winning work. The announcement also included the statement that the reduction of footprint will take multiple years, simply because we want to honor our commitments to our clients, contractual commitments. And the backlog, which we currently have, is spanning several years. And so we will continue to deliver on those commitments. Several years, doesn't mean 10 years. It means, typically, the backlog we see in those countries is multiple years. We will be very selective in case that would be next question as to taking on additional work. That would fundamentally be for existing clients and then largely relating to variations or change orders on existing projects. But it will take multiple years to completely reduce that footprint. That actually has an upside as well because we believe that if we take a controlled reduction of the footprint, we will better be able to control and manage the interest of our employees as well as of our clients and maximize our opportunity to collect outstanding invoices, outstanding receivables.
Okay. And can you indicate roughly how the split is within these 3 countries that you will exit and the 2 countries that you will remain?
Yes. So we'll remain pretty quickly because the work in Oman, Bahrain is already down to a very low level. We are finishing a number of existing produce in Qatar. I think that whole dynamic in Qatar was probably to be expected. That has all to do with getting the country ready for the World Cup, and that was something we'd always expected to happen. So very soon, we will just be working on the backlog in the Emirates and Saudi. But it's not -- just maybe 1 final comment. Luuk, it's not going to be a sudden departure with the closure of all our offices at a particular date in the foreseeable future. It will be a controlled, managed reduction of the footprint.
Okay. That is clear. And I have a question on the margin because year-to-date you are already at 8.6%. So that's already at the low end of the 8.5% to 9.5% target range. And normally, Q4 is seasonally quite strong. So is there anything specific in Q4 that will make it more challenging to reach a similar margin level, any government support that terminates or anything else that we should take into account for making -- updating our models?
I think Virginie just addressed that question in maybe a slightly different way. You're right in that Q4 is typically a strong quarter in our business for Arcadis. We think that we are well on our way in terms of delivering predictable performance, which meets our expectations. The fourth quarter is not expected to be any different than the prior quarters in terms of government support or anything like that. At the same time, though, we still live in a world which has a fairly high degree of uncertainty, and that's probably why you sense a bit of a cautionary tone.
The next question comes from the line of Hans Pluijgers from Kepler Cheuvreux.
Few questions from my side. First of all, on the top line and the sales segmentation. You already indicated that building, of course, is more difficult, which is logical, I think. But within that commercial real estate, how much does that account for the total within building? Could you give some feeling on that? And how do you see that developing, let's say, in the coming quarters?And then, secondly, coming on the -- back on the backlog. Yes, you indicated especially, let's say, some public related contracts have been solid. And also, of course, in the U.K., a big contract has been signed. But could you give me some feeling on the duration of the backlog because it's growing quite significantly and better than normally you would expect in this time of the year? So it's also, let's say, a duration impact in that backlog.And then on the U.S. -- sorry, first on cost level. There you indicated, of course, a part is structural. But of course, I also imagine that you have a benefit from furlough measures. So could you give some number on the impact on the cost from the furlough measures you have seen in Q3? And then indeed going back on the U.S., on the IT problems you had there. Is everything now solved? Or is there still some impact we could expect from late receivables still outstanding there in Q4?
Okay. Let me take a few of your questions, Hans, first, and then I'll ask Virginie to expand as she sees fit. I'll probably start where you finished, Hans. We have sort of committed to ourselves from Q2 onwards that we wouldn't talk about the IT system in the U.S. anymore. And not because we felt that it was a sore point, but because we were hoping that it was actually behind us. But since you now raised the issue, it's given me an opportunity and a necessity to still talk about it. But the improvements in working capital, the improvements in unbilled receivables, the improvement in collecting cash have been across the globe, but the impact in North America has been significant.And I think that is to be interpreted as having resolved the issues with the Oracle system. As we said we would do in Q2, we said by Q3 we will have caught up on unbilled receivables and would also contribute to an improvement in overdue receivables, and that has certainly happened. So the impact in that improvement in working capital is significant impact from North America as well. So I really hope that going forward, we don't have to talk about the Oracle system in North America anymore because we have really been able to catch up on unbilled receivables and to an extent also on overdue receivables. So that is behind us. The question you had on the backlog and the duration of the backlog, the backlog growth is, of course, a very, very strong sign in the market which -- or in an environment, which is probably seen as challenging. Not only are we delivering very solid operational performance, but we're still growing our backlog. In terms of the duration of the backlog because that was any -- the specific question you had, it's not a significant impact. There's now slightly above 10 months. But if you break it down, then you see differences by region, and that has all to do with the type of work we perform in certain parts of the world. In certain parts of the world, let's use Australia as an example, where we work on a number of large programs. That backlog typically stretches out over a longer period of time. But we're happy with the growth of the backlog and really also in terms of the duration, not a material impact, duration as in duration in backlog. So I'll ask Virginie to speak about the impact of things like furlough on our cost level.
Yes. Okay. Thank you, Peter. So as we said earlier, yes, for sure, we have some furlough in the P&L as we had in Q1 and Q2, and we don't have more than what we had in the previous quarter. So more or less the contribution of that remains more or less steady quarter-after-quarter. And there's no reason for it to change, and it doesn't represent even a few basis points. It's really limited. What's more contributing to what we managed to deliver is a structural or, let's say, temporary cost savings that we've been putting in place, but that we can also look in a different way and project on a more structural basis in the future because it's on how our hand. And on the second thing, more salary cuts at -- or cut-off bonus that has been embedded in our P&L following the decisions made in Q1.
And my last -- my first question was on commercial real estate. The impact there? And also how much it is of the buildings part?
Yes. I'm not sure that I know the exact percentage there, Hans. But in general terms, most of the impact in our business has indeed been in buildings, and that is both buildings as in buildings in Arcadis proper, which is the work we do typically for clients and buildings around quantity surveying. And then secondly, particularly buildings, but then more related to retail in CallisonRTKL. That is definitely the business most impacted. We do see some very early signs of potential improvement in retail and then more specifically in North America for CallisonRTKL. But it is still a very early sign. So I'm fully expecting that buildings for the foreseeable future would still be the most challenging part of our business. That being said, I'm really encouraged by the growth we're seeing in Environment and in Infrastructure and also in Water, particularly in North America. So it is an impact, but definitely to a large extent offset by the growth in the other regions -- the other business, excuse me. I don't know whether Jurgen, you, or if Virginie have a detailed number on the commercial real estate. I don't have that breakdown.
No, we don't break it down.
Yes. What we can have is, as you said, let's say, the decline in CRTKL comes from retail and investment activities.
The next question comes from the line of Martijn den Drijver from ABN AMRO.
The first question that I have is on the dynamics in the Asia Pacific region, the minus 10% in third quarter. At the Q2 call, you said, Peter, that you had a strong pipeline in Australia, that China had normalized, so I'm a little bit puzzled. Can you provide a bit more clarity on what's happening, what's explaining that minus 10%? That would be the first question.
Yes. So let me break -- thanks, Martijn. Let me break it out by 3 different subregions. You already mentioned Australia, China, and then I'll add the other Asian countries in which we operate, which includes the Philippines, Malaysia, Vietnam, Thailand, Hong Kong. So let me start with Australia first. We actually had a modest growth in Australia. But what we do see is -- and I think you've seen it probably yourself as well that Australia in this quarter was -- I shouldn't say a surprise, but at least hit by the second wave of COVID, which, as an example, in Melbourne created a total lockdown, which lasted 90-plus days. So we did see the government entities, which would typically provide us with additional opportunities, being much more focused on containing the second wave of the COVID crisis as opposed to letting go of new work. So in terms of new work, we do see some delay. That being said, in terms of top line, we did actually have a modest -- a very modest growth in Australia. China -- actually, China, to an extent, falls in the category I just mentioned in response to Hans' question about commercial real estate. Yes, China as a country is going back to a degree of normalcy in terms of having successfully contained the COVID crisis. But that doesn't necessarily mean that on all job sites where we operate work has come back. So society is back, but clearly we're not seeing necessarily that China is back to an overall level, which we had prior to COVID. And then I think the biggest impact actually for us has been on those other Asian countries, the Philippines, Malaysia, Singapore, Thailand, Vietnam, which, to an extent, still are in pretty much of a full lockdown. I think the Philippines has, for instance, been in a lockdown for most of the 7 months since it all started for them. And that doesn't necessarily impact the GEC work we do in the Philippines, but we also have a pretty substantial presence with work in the Philippines itself. So the impact is largely in Asia from the countries other than China.
Understood. Moving then to the second question. You already answered the question on support from furloughs. But you also saw the ALEN issue, and I recall that there was a provision which may have been released. Was there any benefit from that release of provision of ALEN in the third quarter? Or is that something that will occur finally in Q4, even perhaps in Q1 2021? Just wanted to understand that.
No change on ALEN over the quarter, so no accounting change either.
And no release of provisions of ALEN in this third quarter.
Okay. Then moving on to the order intake. Can you say something about the quality of that order intake? Obviously, the backlog -- as some analysts have already mentioned, so the backlog is doing well. Can you talk a little bit about price discipline and other elements of that backlog, order take?
I think, Martijn, that was actually a question which sort of came up prior, but we probably didn't answer it in the same specificity. You are now talking about, are you experiencing any significant price pressure in any of the regions because of COVID? And the plain and simple answer is no. We are holding to our selectivity focus, and that means that we are not and don't feel a need at this point in time to lower our expectations in terms of the work we take in.
Okay. Clear. Then moving on to the accounts receivables overdue, more than 120 days, magnificent performance there. How should we think about that category of overdue accounts receivables? Is it the same line that we've seen in the third quarter going to be what we can expect for the fourth quarter? Or is this really a one-off which maybe contained a large project for which you finally got paid? How should we think about this particular category going forward? .
Go ahead, Virginie.
So I think that in terms of receivable, we did really see a huge improvement in the quarter. So for sure, at 1 point of time, we might expect that this go a little bit slower because we maintain that we've been able to catch the easiest overdues, but there is no particular big impact on a specific client or a specific project that was overdue that came in the quarter. As said earlier, I think maybe by Peter, it's been coming from all the regions, all the various clients and projects. And we might also keep in mind that as we do for whole supplier, probably also appliance, keep more in mind than they were before that there is a need in this moment to take care of the entire supplier chain. So maybe this is 1 of the things that will benefit for -- on top of what we do, if there is an effect, let's say, or kind of unusual effects that you would want to highlight somewhere. But even that is difficult to say. I think it's more really the dedicated effort of the teams on a day-to-day basis to be sure that they change the cash in such a moment.
Martijn, to maybe add to that if you allow me to. So your question is, is it an incident or a large release on a large project or a large payment on a project? No, this is the result of a global program, which we kicked off at the end of Q1. And so it is the contribution of many people and many projects. And maybe as a final comment. It's not a program we obviously expect to stop now that we have been able to lower this particular category. We like the program.
Yes, I think we like it, too. Then the final question. If you look at the statements about Southern Europe, so then you can probably draw the conclusion that France is a negative growth territory. Margins are at best stable but probably declining. You gave the management team quite a bit of time. So what's now? Is that a situation that you're going to address in the Capital Markets Day? Or are you going to give them more time than that?
Yes. So Southern Europe is not just France. It's actually a couple more countries, which coincidentally have all been hit by more severe lockdowns than in most other places. It started, obviously, in Italy and Spain, then France and all of them sort of now being hit by a second one. You're right in that we asked the management team in France to get on with the party, so to speak, and improve the performance. And I would definitely say, if I look at the underlying performance, not necessarily the amount of detail, which is provided through the trading update, but the underlying performance on working capital, as an example, in margin, I wouldn't necessarily suggest that they failed in that effort. Were they less successful in fully neglecting or ignoring the impact of COVID? No, but I'd say that that's probably true for a lot of people. So I wouldn't necessarily construe from the comment about Europe sounds that it was the result of a great effort in France, but with no impact. That probably is too short, too quick. It really has impact from other countries as well. And clearly, in France, what the management team has been able to do in spite of COVID is definitely encouraging.
The next question comes from the line of Edward Donahue from One Investments.
A few questions, if I may. I mean just a starting point going through the backlog. At the first half, you gave some quite good detail on the breakdown. Can you say the sort of trends that you were seeing in the first half like your EMEA plus 11%, the Americas flat, et cetera? Has that -- those trends continued through Q3?
You want to answer this question first? You said you had a couple of questions, so why don't you...
Yes. Probably easier to go through them 1 by one, yes.
Okay. Let me see if I can help you with that detail.
Or at least sort of what is the acceleration geographic to get an idea?
I think there's really not a significant material change, Edward, compared to what we shared before. As I just mentioned in response to Martijn's question about Australia, we see a bit of a slowdown there in order intake because of COVID and the government being focused on other things. Of course, in the Middle East, we have been already more selective anyway. In other parts of the world, particularly the more mature parts for us, I think the trend is pretty much as it was when we spoke the last time. So no material change. Maybe where we did see a bit of a change, but it's a positive one, but then again, from a small basis, is in LatAm, where we have been quite successful actually in winning work in Brazil, in particular.
Yes. Edward, maybe in addition to that, we do see also that -- and that was also mentioned in the press release that there was an increase in the U.K. due to also some signing of sizable infrastructure, say, projects.
Right. Okay, noted. And then just looking again at the phasing of the new contract wins. How should -- again, going back to Hans' question with regard to the duration. When should we actually see those -- some of the larger projects on the public sector phasing in on to the revenue line?
Yes. So what we typically do, Edward, is if we announce a win or if we announce order intake, then it typically means that the expectation is that you start working on it right away. I mean, if you -- we've given a contract, but the instruction that you can only start in 1.5 years from now, so to speak, then we would be very cautious to actually take it into backlog. So if the -- when we take something into backlog, there's an expectation that we can start with the work fairly quickly.
Okay. Fair enough. And then just on the U.S., the Americas the pickup in revenue, was that driven by the U.S. environmental restarts or it was actually new wins coming through?
Most of the growth actually in North America was in Water and Infrastructure. And a little bit more this quarter than actually the last quarter in Environment as well. And so it is a combination of existing client relationships. I mentioned earlier in response to a question, a large win for a large oil company. That is more of the same in that we are working with this company and get over time additional orders to be taken into backlog. So there's no significant change to the dynamics there in terms of additional work on existing contracts and new contracts. It depends a little bit how you formulate a new contract. I mean, if we get a large new win for an existing client, it's still a new win, but it's fundamentally on an existing relationship. And that is what we actually get on most of our work. It's largely existing relationships, which allow us to win additional work.
Okay. And not just from the cost structure and the margins, I'm a little confused. If I look at Q1 in absolute numbers, revenue up 31%, EBITA of plus 1%, Q2 minus 20% and then flat. Q3, you've got minus EUR 38 million on your revenues, but plus EUR 13 million in absolute on the EBIT or the operating level. Can you just explain how maybe cost savings are phasing through the year? And on your commentary with the reduced salaries, bonuses, et cetera, and how that phases through this year and returning? And also, I'm just -- if I look to your first half personnel costs, they were up nearly 2%. So I'm just trying to square in this kind of business, to find that kind of operating leverage is spectacular. So could you just drill through what actually went on in Q3, please?
So maybe as we've said before, there's a lot of things you can't do anymore. And while the COVID crisis has been starting somewhere in February, March in the world, it's not been hitting the entire world as it's been doing over Q3. Over Q3, you have the entire world more or less that cannot travel anymore or travel really on a very restricted basis. You have a lot of conferences that have been finally being canceled. You have also all the -- let's say, the things you need to expend to have people be able to work-from-home at the beginning of the year, which with OpEx and which is absorbed over the first quarter. So then you only have the things that you do not do anymore rather than the things that change. So that's also why you get such an impact in the P&L. And on top of that, compared to the types of quarter, you maybe have also an impact of people maybe taking a bit less leaves because they don't -- they can't go anywhere. So it's additional billability and percentage improvement and such that you'll find back in your margin construction.
Okay. Yes, that is very helpful. And then just a final question was with regard to the Middle East. I mean the actual cost of running that down and the risk of maybe mismatch and therefore, stranded costs. And what kind of margin should 1 be expecting with regard to the going forward in the Middle East?
It depends on -- yes, sorry.
Go ahead, Virginie.
No, I wanted to say that it -- for sure, we cannot say that what we are going to do won't have an impact in terms of profitability of some of the projects because for sure to do something like this, there are some costs that are going to be added to what we do in the Middle East. But for sure, we've been setting up very carefully a project that encompasses huge management of what's going to happen and how we measure the efforts we put in place. So that is carefully managed. We still, for sure, will be focusing on delivering quality projects to our clients, so that maybe need some involvement -- additional involvement on our side that we need to figure out. But then also, as we said earlier, if additional things are to be taken or signed such as [indiscernible] orders and such, we'll be more selective than we've been ever been before. And there's no reason for us to take something that does not improve the margins that we have in portfolio on a significant way. So that also would be a way of balancing what's going to happen over there.
Okay. I have 2 last questions. I mean sorry, I apologize for sort of drumming on about it. But if you go back again on the cost side, can you give us sort of just an absolute amount, bonus salary cuts, that have benefited 2020? And will those actually return in 2021? I'm basically just trying to get an idea of the swing back as the business -- can you expand again on what you will actually think you would have to put back under whatever the new normal might be of the savings that you booked in '20 that could return in '21?
So for sure, part of this savings have to return back to the employees at 1 point of time. But on the other side, we expect that the growth decline that we've been facing due to the crisis also revert. And for sure, all the additional margin points that you've been losing on 1 side because we didn't have the activity level that we could expect, and we've been a bit cautious in protecting the level of workforce and not adapting too much anticipating that it could restart this should compensate part of the amount that we will have to inject back at cost to support bonuses, employee increase over the world and maybe also a bit of rehiring.
Is it possible to give an absolute figure?
I think we don't comment such in detail as is quarter. It's only Q3. You'll have a better view also, I think, with the full year on that one, and it would be far more meaningful, I think.
Okay. Fair enough. My final question -- the final question. Yes?
Just real quick. It's obviously -- I can understand the interest in understanding what can be sustained in terms of contribution to the EBITDA margin. But let me reinforce and reiterate what we've been saying before that the real EBITDA, sustained EBITDA margin percentage improvement can come from other things which we still have available, such as our Make Every Project Count program, such as a broader use of the Global Excellence Center. So I would just want to kind of restore the balance as to where are the bigger opportunities, are they in whatever can be sustained or not sustained resulting from COVID or are they in the other buckets, which are Make Every Project Count in GECs, then the leather category is still the bigger opportunity.
Okay. I take that onboard as well. And my final question is just what is building as a percentage of group net revenues just as a matter of interest, please?
Is it about 20%, Jurgen, if I'm not mistaken?
Yes. It depends whether you include CallisonRTKL yes or no, but it is about, say, 25%.
That's including Callison?
Yes. You see it's also -- let me double check. It's close to that number indeed around buildings -- I think it's a bit higher. I think it will be closer to -- including CallisonRTKL, it will be closer to 35%.
Including CallisonRTKL, yes.
I understand there are also questions from Quirijn Mulder in the call.
Yes, we do have Quirijn Mulder from ING.
This is Quirijn Mulder. I would like to come back on the questions of Edward. Let me say, first quarter, you announced the COVID measures for second quarter, third quarter. If I look at the second quarter, your margin was 7.5% and the third quarter, 10.9%. If I look at the year-on-year improvement, the third quarter was especially the improvement and not the second quarter. And that cannot be related to the good execution, I think, in my view. It must be related to cost savings. So is it correct to assume that the -- let me say, the additional margin growth year-on-year is the effect of the -- let me say, the effect of the cost savings, which were bigger in the third quarter than in the second quarter? That's my first question.
Maybe to get the dynamics right, Quirijn. If we look -- if we go back to pre COVID at the beginning of the year, and without knowing what we now know, we said that we felt that we would actually be able to deliver on the commitment on EBITA margin between 8.5% and 9.5%. And then, of course, COVID hit in the first quarter where we reported the COVID hit was indeed at the end of Q1. That was largely at that time, impact from Asia, but it had an impact. And then following the whole trail and the timing in the second quarter, of course, the cost savings started to be implemented and contributed to what was roughly stabilization of their margin. And then cost savings, of course, are getting more impact as you go by in time. So in the third quarter, the cost savings -- obviously, the impact thereof was larger than in Q2. But we were on track before COVID to actually improve our margin through the means I just mentioned before, the GECs and Make Every Project Count. And that has obviously not being stopped because of an emphasis on COVID.
Okay. Perfect. And then a couple of other questions, small ones. Can you maybe give an idea about your order intake in CallisonRTKL? How the development is there? And what are you going to -- let me say, besides EUR 60 million impairment, what are you going to do to improve the profitability and to return to the business there? Are you completely shifting now from retail into, I mean, hospitals and [ routine ], et cetera? That's my second question. And the third question about the organic decline in the, let me say, Asia 3, I would say Asia Pacific 3, that is Hong Kong, Singapore, Malaysia and Philippines. Was the organic decline in the range of 25%. Can you maybe confirm that? And my final question is about dividend. If you look at the 2020 now developing, is there any consideration about the dividend given the fact that the results in 2020 turn out to be maybe higher than 2019?
So let me take CallisonRTKL first, Quirijn. And I'm going to also here go back maybe a little further in time because the retail business within all the practices CallisonRTKL operates in -- was already the challenging 1 anyway because of a tendency more and more people had to try and not necessarily go over everything they needed to a physical shop but actually use online capabilities. And that has obviously been exacerbated by COVID to an extent that it really, really impacted the retail business in CallisonRTKL. So we already had a focus on trying to move our focus from lesser retail than in the past. Now that being said, we also, at the same time, see that the whole definition and function of retail was already subject to change, not in all places in the world, but certainly in some of the more significant places we deal with CallisonRTKL and that's North America and Asia, to a multi-purpose type of retail environment, not just shops, but shops and other leisure opportunities. Now that is still being brought to a standstill because of COVID. But the early signs do suggest, particularly in North America, that, that will likely come back. But it's early signs. So we're not saying that all of a sudden, we expect the business to significantly improve in CallisonRTKL. We're probably at the trough, at the bottom at this point in time. And the expectation is that slowly in '21, we'll see a bit of a recovery in retail. But the focus away from retail was already a focus CallisonRTKL had prior to COVID indeed into other things such as workplace, health care and support. But the crisis has, of course, exacerbated the necessity to do so. Then your question about organic decline in Asia category 3. Yes. We have introduced a new category, I realized. The -- that actually is indeed growing because whereas in the past, Asia was largely China and then a couple small bits and pieces. Because of the reduction of our footprint in the real small countries, which we did, what is it about a year plus ago, the other countries remaining, particularly the Philippines and Malaysia and Singapore, has been significant, but those happen to indeed be the countries which have a very, very severe sustained lockdown. I used Philippines already as an example, but I could say the same thing about Malaysia, which has some other challenges as well with the government. But clearly, the decline in Asia in the third quarter has been mostly in these category 3 countries. And then on the dividends, that's a question to be expected. We believe that when we look at the world around us and we look at the vulnerability and volatility of the business that it would not be prudent to come back from the decision we took 2 quarters ago and consider an interim dividend at this point in time, considering everything we want to continue to be prudent. We're pleased with our results, but we also want to be prudent.
The last question for today comes from the line of Bart Cuypers from KBC.
Yes. So 2 remaining questions, 1 coming back to what was said elaborating a bit further on North America. So yes, in terms of revenue development, as we discussed, it was a bit mixed across the regions in terms of revenue as so carried by Americas. The order intake, the line from the backlog, indicated that there remains good intake in Americas, which I assume is also internally comforting as the stimulus package is uncertain, the timing and it will depend on decisiveness of the results -- the election results, but also on the scope of the packages. From what I understood in the initial Republican plan, that there was little provided support for the cities and the states themselves. So does that line in -- on the backlog that there is good continued order intake in the Americas, should we interpret that so far you have seen limited impact in states and cities being forced to scale down due to budgets? Or do they remain operational in the amount of projects that they are undertaking?
Bart, in a different conversation this morning, I described the upcoming U.S. elections as 1 of the bigger events for the rest of the year, at least events I can see in addition to managing the pandemic, of course. And then when you think about this event and the impact it could have, how would it impact our business? And I was actually commenting in that context that in the past 4 years, our impact -- the impact on our business from the outcome of the elections 4 years ago has been not at least negative, but that has actually been quite positive and maybe even more striking in the view of many people is that we've actually seen a very steady growth in Environment in North America, in spite of a government or an administration, which was not necessarily seen as the most environmentally friendly. Now assuming that the outcome of the elections will be accepted, and that there will be either a continuation or an orderly transition, either of the 2, I'm not going to share what my preference is, but assuming that, that will be the case, then the impact on our business will still be relatively low. Our business is resilient, much less prone to vulnerabilities other businesses might have because of either large events such as a pandemic or an election. If you look at the business in which we operate, no matter what government will ultimately take over or continue, I'm still pretty optimistic about our business in North America fundamentally because of what drives that business, which in North America will have to be eventually infrastructure investments, which in the past 4 years in spite of all the rhetoric came from states and not from federal, and that could change going forward and would only be a boost if that happens. And again, because of the necessity to also continue to invest in the environment. And that's where most of our clients recognize and accept the fact that they have liabilities they need to get rid of. And therefore, my overall comment would be that our business is not going to be very vulnerable to whatever election outcome there might be, assuming that there will be either an orderly transition or a continuation.
Okay. That's clear. And so also, and then just returning real quick on the budgets of cities and states. So you're not witnessing right now locally that they are becoming, let's say, scared from that perspective on their budgets to continue with projects neither in that part?
No, not -- it's a very valid question in light of the elections coming up and budgets being becoming tighter or budgets not being necessarily been released. But no, nothing we have noticed, which would all of a sudden make us see that the trend, which has been quite positive for us in North America would all of a sudden change.
All right. That's very clear. And then yes second question on the Middle East. So like their working capital requirements are more intensive than a lot of the other countries that you're active in. Question naturally, the answer will depend on how much of the outstanding overdue receivables that you will be able to recover at the end of the line. But would it be possible to give a rough estimate on how much the selective approach and the relative exits there, selective exit there could free up in your working capital going forward in the next couple of years?
So I think that in terms of working cap, we should not expect a drastical change immediately because we still have some backlog to execute over there, which is relatively significant. So for sure, I would expect, let's say, '21 to be still a year of big execution in Middle East.
Okay. It's a bit too soon to talk about 2022, let's say, on the amount of working capital in terms of group and percentages that you could free up from that savings?
No, not yet have increased. Would like to always but...
Thank you. I'll hand the call back to our speakers to conclude today's conference. Thank you.
Yes. Let me offer some closing comments. First of all, thanks, everyone, for participation today. The fact that we ran over with 15 minutes, I think, is a positive sign. I would actually also describe our performance in the third quarter as positive and strong in an environment, as we commented several times, is definitely challenging. And I would be lying if I suggested that this has been a walk in the park. But the way the organization has pulled together, the way the organization has remained focused on the things which matter, which are in order of sequence our clients, so that we continue to win work. Our cash collection, so that we improve our balance sheet, has been absolutely heart warming and quite amazing as well. And I do realize that an extended period of time working at home, which we hoped a couple of months ago, would be limited to, say, a couple of months, is going to easily be a year, if not more, by the time it's all said and done. And all of that has been taken by our people in strides. I think we've also demonstrated that not only is our business resilient, but our business model, how we work with our clients is quite resilient. And all of that does give me indeed the comfort and the confidence that not only have we delivered a strong third quarter, but that the foundation we have provided combined with the strength of our people makes us set up for a future, which is quite positive. And we hope that you either agree with us today or that you will agree with us when we share a new strategy with you on November 19. So thanks again, and please stay safe.
Thank you for joining today's call. You may now disconnect.