Arcadis NV

AEX:ARCAD

Earnings Call Transcript 2017-Q4

[Jurgen Pullens, Director of Investor Relations]

Good morning, everyone. My name is Jurgen Pullens, Director, Investor Relations for Arcadis, and I'd like to welcome you for this Arcadis analyst conference call and webcast. We are here to discuss the company results for the fourth quarter and the full-year results 2017, which were released this morning. With us are Peter Oosterveer, CEO and Renier Vree, the CFO and we will start with a short presentation by Peter and Renier and then we will open up for Q&A. You will receive the presentation, it's also available through the Arcadis website.And just a few words about the procedures before we start. We will begin with some formal remarks. We will call your attention to the fact that in today's session, management may reiterate forward-looking statements which we have made in the press release and we'd like to call your attention to the risks related to the statements which are more fully described in the press release and on the company's website.With these formalities out of the way, Peter, please begin.

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

Thank you, Jurgen and good morning, everyone and thanks very much for your interest in Arcadis. Let me talk a little bit about the results we have been able to achieve in 2017 at a high level. Obviously, there will be room for more detail subsequent to my presentation and then of course, in the Q&A as well. And then also share with you how that foundation, which we created in 2017, will help us going forward, and particularly as it relates to 2018.So, starting with what is likely for all of us, one of the most significant measures to look at, and we're proud to call it the performance improvement, and just quickly going over all of them, they were also of course, in the press release, and I'm sure that you paid attention to them. We're pleased to report that over the year, we have created organic growth, which of course is an important measure. Particularly in the fourth quarter, actually a very strong quarter in most of our regions. So that contributed to that improvement of 1% organic growth for the year.I think the work we started to do at the beginning of the year to really focus more strongly on our clients, the work which was done and led by Renier in simplifying the organization and create that focus on our clients is starting to pay off. It makes us actually optimistic about the future as well, because we are obviously not going to lose that focus.Looking at the EBITDA margin percentage, an improvement there as well from 7.1% last year to 7.6%, is driven by that focus, but also driven by the cost reductions, which were also initiated by Renier at the beginning of the year. So, they both contributed to an improvement in the EBITDA margin.And last but not least, we're also proud to share with you that we have improved our free cash flow, which again is the result of the way the business performed, the way our projects actually performed, I should say.So, this slide is kind of looking back a little bit, but maybe more so looking forward to 2018. And for those of you who were in attendance during the Capital Markets Day and even if you weren't in attendance, you've probably seen the left side of the slide during that meeting, because in that meeting in London in late November, we did reveal our strategy and we built it around the three strategic pillars, the very first one being people and culture, the one in the middle being innovation and growth and the last one being focus on performance.And although it was in November that we did present all of this, and so one could argue what we are able to do in the remaining time in 2017, quite a bit of what we actually revealed at that time was already work in progress. So, we have seen proof points of the strategy, particularly the focus on the pillars. And let me just highlight a few for you. And needless to say, and that's why this slide is called "on track to deliver on our strategic commitments for the next three years" that we will continue to use the focus on these three pillars. I've actually been very pleased with the way the organization has responded to the, let's say, simplification of our strategy. And of course, there is reason why people responded in a favorable way. And let me go into the very first one, we did share with you in November that we felt that we needed to put a much stronger focus on our people. At the end of the day, that's the only thing we have in our company and somehow in the last couple of years, that focus was lost. And our people have obviously responded very positively to that increased focus, needless to say they like it. So, we've made some really good progress in that area but more work still to be done.We continue to reinvest in our people through, for instance, the Arcadis Academy, which is our way of training, developing people, sharing experiences. And the focus on global key clients has really allowed us to reap benefits. So, we did see a 17% growth in 2017, just simply on our global key clients. So, that's a result we're proud of and gives us confidence that what we said you in November that we would, in fact, double the growth on our key clients compared to what we would do on our non-key clients and that is very feasible. The 17% strongly suggests that what we said to you in November is not unachievable.Momentum on revenue growth, and maybe depending on where you come from, the single most significant bit out of our growth story is that North America has returned to growth after what was fundamentally three years of decline. And I'm not comfortable enough to tell you that I don't think that that's a one-off for an incident, I think that we are on track for that growth to continue. So, that's definitely very positive, given the significance of the North America market and the large percentage of that market relative to the total of Arcadis.We did also mention that as part of innovation, we will focus heavily on digital, which is probably the single biggest catalyst for the change which the industry will see. Now, I know that everyone will probably say we're focusing on digital, but when I came to Arcadis back in May of last year, I was actually pleasantly surprised to see that we not only had a focus, a very strong focus, but also we're willing to invest in improvement of digital capabilities. Wnd we've continued to do so. In the early part of 2017, we announced the acquisition of E2 ManageTech, which is an organization largely focused on the US and sort of operates as the intersection of data and environment. And needless to say that environment is an important market for us and needless to say that data as a whole will turn out to be the biggest change agent we will see in our industry.And we've continued, even though that's not necessarily applicable to 2017, but we thought it would still be appropriate to share with you that we also announced another acquisition, relatively small one, another company this time in the U.K. focused heavily on data and digital. So, we will continue to push hard on digital and data because as I said before, I think that it is going to inevitably change the industry.We also had, in terms of living our values of sustainability, we have some major project wins in water resilience and green buildings and when you just follow societal developments in virtually all places in the world, you can probably easily see that this will continue to be a significant driver for us going forward.And we are deeply into the effort to more sustainability from compliance to creating business opportunity because of the sustainability capabilities we have in the company.Last but not least, in the category of focus and performance, the last pillar, some of these things were in the prior slide, so I'm not going to repeat myself, but I'm still proud to say that our EBITDA margin did improve to 7.6%. Our net working capital improved, DSO improved, so many, many positive signs, all in all.We are going to propose a dividend of EUR 0.47 per share to our shareholders in April. Because of our very good cash generation, our leverage ratio, of course, improved quite a bit as well. Some of you have commented that that takes you out of the danger zone, which is a word I hadn't heard for some time. I heard that word repeatedly after I joined but in the last part of last year and the early part of this year, I hadn't heard that word again. And thank you for reminding me that that was something which was in use relative to Arcadis not too long ago. But we're proud that we were able to decrease our leverage ratio. And the last but not least, and I suspect that we'll probably get some questions here later, we are on track relative to CallisonRTKL, we have announced that the market consultation process has started, that is a process we, to remind you, we kicked off back in July of last year, which had a number of steps and we are very much working that whole project as per these steps, which means that if at the end of the day, we will be successful in finding the right buyer at the right price, that we could potentially close a sale towards the end of the second quarter, the beginning of the third quarter. So, very much on track relative to the activity for CallisonRTKL.So, with that overall broad introduction, I'm turning it over to Renier.

[Renier Vree, Former CFO & Member of Executive Board]

Yes. Thank you, Peter, and good morning, everybody. You see here a picture of the Nike distribution center, a sustainable building, which uses renewable energy. This is an artist impression of a project we are very proud of.And turning to the financials for 2017 here in comparison with 2016 as well as for the fourth quarter, Peter already mentioned a number of the figures, I'm not going to repeat it, but the margin improvement clearly a highlight. Secondly, non-operating costs were EUR 25 million for the year, it was EUR 29 million in 2016 and the EUR 25 million can be broken down in EUR 20 million for restructuring and it can be even more specific and basically, it's Brazil and France, those are the two main areas where this money was applied. And the other part was M&A, which had to do with the two acquisitions that Peter was mentioning, but also the project for CallisonRTKL, and finally, the divestments we did in 2017. You may recall that we had the infra business in the Czech Republic, which we sold earlier in the year, but also in Brunei, we sold our business, which had some cost to come with it.Working capital, I come back to that later, decreased and our backlog improved organically by 2 percentage point. And if you look at the absolute number, that's came down, but there is a significant currency effect between December 2017 and 2016, particularly the U.S. dollar is 9% lower.Then if we turn it to the more detailed P&L and net income and earnings per share, important here too, I mentioned two exceptional items in 2016, one being the release of a provision from an acquisition done in 2014 of EUR 19 million, which was again in 2016 in the fourth quarter and the other one was an impairment charge, so that ended up in amortization costs related to Brazil in 2016. It's important to be able to make a good like-for-like comparison.And then you see that the number like the EBIT went up 14%, if you take into account financing expenses, it decreased because, on the one hand, the debt was lower and also the weaker U.S. dollar helped there, also the overall interest percentage was slightly up because of the rising interest rates in the U.S.The income tax rate was basically flat, 19% in 2016 and just under 20% in 2017. This was much lower than we thought earlier in the year because here the tax reform helped us since Arcadis has a significant tax [indiscernible] and it led to an EUR 13 million reduction of deferred tax position, hence a gain in the net income. There was a loss in association [indiscernible] energy activities in Brazil and I have a slide, later on, to explain that in a bit more detail.And overall, earnings per share was up, and if you look through that it's really because of the underlying performance that improved, which then allows us to increase the dividend.If we look back at the year 2017 on a quarterly basis, I think you see that the result progressed through the year with organic net revenue growth sustained at 3% in the fourth quarter as it was in the in the third quarter. And in the fourth quarter, all regions contributed to this except for Latin America and the Middle East. So that means that a big part of our business is doing well, making the full-year organic growth 1% and as Peter already said, North America being a key swing factor in that, by after three years of decline now being able to report 2% growth. But also, important to call out that Continental Europe, the U.K. and Australia, did well.If you look at the margin, 8.5% in the fourth quarter, which is a number we haven't seen for a while and a here in comparison with the year before, North America, Continental Europe and also Latin America contributed, bringing the full year number then to 7.6% and the key differences with the prior year, where also North America and Continental Europe as well as Asia while the margin in the Middle East was lower. Also there, I'll say a few more words later.Looking at the cash statement with cash flow up over 20% to free cash flow to EUR 98 million, main contributor is the higher profit that we generated. And also, here the one-offs from 2016 play a role in the comparison, but ultimately it was a pretty straightforward cash flow generation, whereby also the capital expenditures were lower, because the number of office renovations could be slowed down after the big investments we made in the prior years.The cash flow in combination with EBITDA and net debt is shown on this page, where you see that in the first half year we typically have a negative free cash flow, I thought it was less negative in '17 than in the prior years for the full year, the numbers I just mentioned. The EBITDA being stable at EUR 100 million, but don't forget that this EUR 90 million release from that provision was in the number for the second half of 2016.Net debt ended at EUR 416 million and it then brings the average net debt, so we take the June and December net debt, then divide it over the EBITDA for four quarters at 2.3 and the number -- number for December is in the ratio of 2.1.Here's some more details of the balance sheet. Obviously, a big impact from currency movements, dollar 14% lower and also the British pound, there was a 4% impact, reducing the size of our balance sheet. Another category where you see a shift compared to the prior year is in the debt because about EUR 200 million of our long-term debt has become short-term debt as that payment terms have come up for renewal in 2018, it has to with a bank loan, as well as the U.S. private placements.Then some more detail on the working capital. Working capital finished at 16.9%, I said earlier, which is the lowest in the three years and the largest contribution to the reduction came from Continental Europe. And if you look at the cash collection where we remain to have a priority is in the Middle East, particularly in Saudi Arabia, but also Qatar, also in Qatar, we had good progress during 2017.DSO dropped to 88 days, so three days drop compared to the end of 2016. And also here, Continental Europe contributed as well as Latin America.Also important to provide some more details on our receivables, which you see on this slide, broken out into the various categories of aging where the two large items have our highest attention. One is in the Saudi Arabia as just mentioned where we have completed projects in 2016. And we are making progress in getting payments, but there are still substantial amounts outstanding. And I can give some more color on that. These -- some of these payments are in progress and we can also see that, that it moves from municipal level to provincial to federal level, ultimately then to the Ministry of Finance there to make those payments. So, we can see from information from the clients and the government officers that that progress is made. However, we didn't receive that cash yet. So that's to come in 2018.And the second one is in oil and gas project in North America, as also mentioned with the half year results, where part of the fees are to be paid by insurance and that still requires time to have that split exactly defined.If we look at the provision movement, then the amount of provisions we have set aside went from EUR 58 million at the end of '16 to EUR 57 million, so a slightly higher percentage in the terms of the total receivables. And main movements there, the fact that we wrote off so we utilized EUR 11 million, but we also added through the P&L EUR11 million to that provision, and then there was a small currency impact included as well.When we look at the maturity of our financing, you see that EUR 200 million or almost EUR 2 million of debt, which is the expiring around the middle of 2018, we are considering various options and you can imagine that if it would come to a divestment of CallisonRTKL, this will we taken into account in how to deal with the outstanding debt. And the average interest expense was 3.2% last year, so slightly higher for the reason as mentioned, of the interest rates in United States.Now let me give some more details about the results per segment. Starting with the Americas, where we have 6,800 people, you see some more details here about the clients that we have and the 31% of revenues that this segment makes up. But then looking more at the financials, there was, for the whole year, a 2% organic decline in revenues and it's really tale of two stories. It's the growth story for North America, the 2%, as indicated earlier, and a decline of another 26% in Latin America, for the third year in a row that we had a significant decline in the revenues of Latin America. And in Q4, the organic growth in North America was even 3%, to which all four business lines contributed.The operating EBITDA improved to 31% and that was because North America improved this margin from 7.1% to 8.1%. And in the fourth quarter, I think important to mention that Latin America was very close to the breakeven level. As a consequence also of the Brazilian economy gaining traction, the order book becoming filled up again, while the costs have come down significantly.And also in North America, the backlog increased even 5% organically, which also is a good indication for further growth expected in 2018 and overall DSO dropped by 2 days to 84.As mentioned some more details on the Brazilian clean energy assets. So, here Arcadis owns 49.99% of Arcadis Logos Energia. And that entity has equity stakes in six biogas plants. I think we have also shared it with you before, they are all in Brazil. And those energy, the biogas plants, they convert landfill gas, so the concession is to get landfill gas from the landfill converted either into gas -- as a natural gas substitute or in electricity, so power. And this is one of the most effective ways to reduce greenhouse gas emissions, which is also in Brazil, a very important topic.We shared with you earlier that we have reassessed that business because we have tried to sell that earlier, but ultimately didn't work out as that was the best way to optimize the value, and then reached the conclusion that we should invest in the business and complete the investments in those plants, the ones that were not completed yet, which would require EUR 20 million of investment by Arcadis and that is on track. You see the pictures in the top left of one of the major gas plant actually, and it was a loss of EUR 12 million, which is significant recorded in the second half year for this. And the main reason was that this gas plant was transferred from one landfill to another landfill. One landfill didn't have enough gas production, so we -- the organization moved it, relocated it to the largest landfill to make sure that in the next many, many years, there will be sufficient gas coming out of it. But during that time, of course, there is no gas production, no revenues, only the cost to run the operations and transfer the plant.That relocation is advancing well. And we expect that by the end of this quarter, the plant will be operational. And also, the investments in some of the other plants that produce power should come on steam in the course of the first half year. And that would have set us up, I think in the second half year we can initiate the divestment process for all of the biogas plants.And then moving to Europe and the Middle East, with over 13,000 of our people and 46% of revenues. 4% organic growth was realized both in the fourth quarter as well as for the whole year, whereby Continental Europe grew 6% and U.K. even 7% and it compensated for a decline of 10% in the Middle East.When we look at the margins, then Continental Europe had a good margin improvement to 7.3%, so 50 basis points more than the year before. And the main driver of the growth and also the margin is the private sector, which also generated some nice orders towards the end of the year for 2018.In U.K., the margin was 9.2%, a good margin although a bit lower than it was in 2016 and the main reason here is the high level of bidding activity, particularly on the infrastructure side for rail, there were a number of very large packages coming on the market, so for quite a while many of our people are busy on that bidding. And we won many of them, so that means also that the backlog increased by 36 percentage points, making therefore possible that in 2018, the billable rate will further increase.In the Middle East, we had mentioned a decline of revenues and selective bidding is a main part of that, but also the market itself is slowing down in Qatar, for instance, but also the margin declined to 4.7%, it was 8.6% the year before. And also [indiscernible] the prudency we apply on the projects there given sometimes the uncertainties in the way to deal with the clients in that region played a role in that margin development.DSO improved by four days, Continental Europe and the U.K. around 70 days and the Middle East is still high at 250 days, which is therefore still a priority for management.Then shifting to Asia-Pacific, 14% of our revenues with 5,700 of Arcadis people, a growth here of 2% for the full year and 8% in the fourth quarter organically. Australia did well with a 12% growth, you have seen during the year some announcements about infrastructure wins like for the Sydney and Melbourne metro where our organization was very successful through global collaboration to win these projects.Asia had a softer start of the year, but they also returned to growth in the fourth quarter. And as mentioned earlier, we decided to divest the Brunei business, it was a relatively small business, very oil and gas dependent. And we didn't think it fitted with the portfolio of Arcadis and as part of the effort to focus our activities, we decided to divest that business.The margin in Asia improved slightly, Australia a bit lower, it has to do with some of the underperforming projects earlier in the year, which we reported about in the half-year results. Backlog was up in the second half of year in Asia and also Australia had a good backlog development. So, overall, the segment has a 6% growth of its backlog organically, with a stable DSO.Then CallisonRTKL 1,700 people and 9% of net revenues. And as you may all remember, CallisonRTKL is active in commercial real estate, but also a retail business workplace and healthcare, these are the four main practices in this activity, with most of the revenues being made in America, 53%, but also, Europe, Middle East and Asia are important for that business.When we look at the numbers, the revenues declined organically by 3%, also it was flat in the fourth quarter and a decline early in the year was because the U.S. market had slowed down around commercial real estate and also healthcare had weaker markets.In the fourth quarter, the improvement came particularly from China, which had a strong quarter. Margin of CallisonRTKL is at 10.4% and that indicates that the cost actions taken to deal with lower top line were effective, with also DSO coming down by five days. And as Peter mentioned, we have started the market consultation process for this business to see if a sale is a viable option.And then I hand it over back to you, Peter.

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

Great. Thanks, Renier. A very appropriate and applicable picture, I spoke about sustainability in my introduction, and this is the type of project which Arcadis and probably very few others can handle extremely well because of our capability, our heritage and our track record and it's also appropriate that we use an example in the U.S., we've actually, since we won this project, seen additional wins in the U.S. and also there is a realization that Brazilian cities need to be protected against climate change. So, a very applicable picture here.I haven't spoken much about the markets, but I'd like to spend a minute on the markets, because at the end of the day, whether we like it or not, our markets will have a big influence on what we can achieve. And making my tours and talk to people, including our clients, if you look at the markets in which we operate, then, I can only be optimistic. The markets are definitely strong and there's megatrends which will actually help us further with these strong markets in which we operate.Urbanization is probably the single biggest one, I think I said in November that right now about 56% of the world population lives in cities and that is supposed to go up to 62% in the next 20 years, 25 years. That doesn't seem like a big increase, but I think it actually amounts to 800 million people who will be in need of many, many things, housing, infrastructure, education and so forth and so forth. So clearly the megatrend of urbanization and the associated mobility because mobility will of course be a big factor in it as well, we'll definitely open up lots and lots of opportunities.It is appropriate for us to also mention sustainability here, increasingly, we see our clients and in fact our shareholders having more and more focus on making sure that what we do makes a positive impact and a sustainable impact on society as well.In terms of competitive landscape, client patterns continue to change whereby clients in some place at least have a tenancy to try and allocate more risk on projects to companies like ourselves, but probably the single biggest change in the competitive landscape and I can't mention this enough is the move to digital. Our industry, so I'm not talking about Arcadis, but our industry is certainly not a front-runner in terms of using digital, but I don't think that we can keep that reputation much longer. The industry is going to significantly change as a result of data and digital.And the last but not least, the scarcity of qualified people. That is an issue in some places. The good thing about Arcadis is that we operate in many places, so we have an opportunity to offset that disadvantage in some places where scarcity of resources is an issue by using resources in other places. If you think about, for instance, our Global Excellence Centers, scarcity of resources in India is much less of an issue if you get 1 million people coming out of universities every single year and that is the case in India. So, there you don't see those issues.All in all, our positioning us to be the leading design consultancy for sustainable and resilient cities again, with the emphasis on cities. But not only cities, also smart infrastructure solutions and future-proof industries for our clients.Again, the strategic pillars, people and culture, innovation and growth, focus and performance, they were introduced back in November to all of you. They were also introduced at the same time to our employees. I'm very pleased with the momentum and the traction we have created. I see these pillars now reoccurring in many different places. So people have really embraced the pillars, not only people and culture, which is an obvious one, but clearly also drive for innovation, and our focus and performance. And the key word here, or the keywords are of course focus and performance, focus on making sure that we focus ourselves on the right clients, in the right regions, the right opportunities and that's through that focus we actually perform better on our projects and there clearly we have a significant opportunity for further improvement.So, delivering sustainable value. This is kind of the repeat from the very first slide, but then kind of looking ahead, a little bit more. The first slide was more looking at what we had done in 2017, but obviously, we're not done yet. We still have a road to go and we still have ways to improve ourselves as well.What you see here is fundamentally what we presented to you back in November. So, our commitments in terms of organic growth, we want to surpass the GDP and in fact, we want to double that growth for key clients, as I mentioned before. We are on track to move our operating margin, operating EBITDA margin to anywhere between 8.5% and 9.5% by 2020. And then of course, we will continue to improve on our net working capital and our days sales outstanding.The ways to do that is to focus again on the right clients and particularly, key clients, to also focus ourselves on those activities, which will give us an adequate return for the effort, so higher-margin activities. Probably, the single biggest opportunity we have available to ourselves is to improve our project delivery. I mentioned this back in July when we were here, I mentioned that in the Capital Markets Day, and I suspect you'll hear me mention that many more times in the foreseeable future.And then another opportunity we clearly have available is our Global Excellence Centers, which right now make up about 10% of our total population and has significant opportunity for growth. And if we use that right, then we're not just creating growth in the Global Excellence Centers but we will also be able to create growth in those organizations and those centers in the western world who cooperate with the Global Excellence Centers.So, the outlook, just to kind of summarize it, we will continue to use our strategy, as I think you would expect us to do. We think that we have a very positive market outlook. So, being diligent and disciplined in deploying and implementing the strategy, capitalizing on the opportunities the markets have available to us, will allow us to meet the commitments we made back in November. And we do expect, as the press release also suggested that in 2018, we will obviously make a start with that. We do see plenty of opportunity to grow our -- continue to grow our revenues organically and to improve our operating margin throughout this year.So, to kind of wrap it all up, I'm not going to repeat each and every bullet because several of them already we've discussed as we went through the presentation. But of course, the very first priority for all of us in Arcadis is to deliver on the commitments we made in terms of our financial performance as per our strategic framework. And I can assure you that everyone is definitely focused on just doing that.One way to do it is to again make sure that we select the right geographies, the right clients, the right projects and that also means that we'll have some make some choices. And that means that some clients or some projects, we will not focus on, we will not pursue any more if they don't provide us with the adequate return which we expect to get.I spoke about the opportunity we have available to ourselves to improve our project delivery. We will continue to invest in our people. At the end of the day, they will make a difference. Spoke about innovation, spoke about the sustainable development goals we want to contribute to and then as we also mentioned, we plan to, in 2018, conclude the strategic review process for CallisonRTKL, which is a process we started back in 2017.So, really at the bottom line, I'm really pleased with our performance in 2017. But I'm probably equally pleased or equally excited, I should say, with our opportunity going forward. I can now safely say after nine months in Arcadis that I have a firm grasp on our capabilities, on our improvement opportunities and that sort of feeds into that optimism.So, with that, I think we're ready to take your questions.

[Hans Pluijgers, Head of Research of Benelux]

Hans Pluijgers, Kepler Cheuvreux. Few questions from my side. First of all, yes, in the U.S. you indicated across the boards, you see an improvement, but could you give some, maybe some background what you see in the market and how, let's say, how you internally, your performance is doing, so what are the key drivers you believe, let's say, that result in that improvement in the performance? Secondly, on Australia, you indicate you have some execution issues with some project in the first half, but if I look at the margin, and of course you do it on Asia-Pac level, then I see a comparable pressure in the margin in H1 and H2. So, let's say it had an impact on the full year then or how should I look at it? Then on Brazil, could you get [indiscernible] you said a stabilization and almost breakeven, could you get us some feeling, let's say, on the different segments, how that is performing? And my last question on the payables, it's a quite significant decline let's say, in the total payable number, but could you get us some feeling on the [ DPO ] how it is developing because, of course, the currency has also quite some significant impact there, with the [ DPO ] trending down, could you give some flavor there?

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

Yes, let me take the first two questions, Hans, and I will ask Renier to take the second two. In the U.S., you're right to recognize that we that we have done quite well. As I mentioned in my comments, that is not something we expect to be an incident or a one-off, I think we are optimistic enough and seen enough now to continue to see solid opportunities and solid growth in the U.S. What has contributed to it or what is contributing to it, I think we mentioned in July, when we were here that we made some significant management changes, that's sometimes where it starts, and in our case, I would say, that's probably where it started as well. I think these changes and now that I have another six months under my belt, I'm very comfortable that these changes are indeed were the catalyst for creating the change we've now seen in our performance. If you then look at the next level down, in fact all our four businesses have started or have contributed to that improvement, including water in the fourth quarter. That was the one which was probably lagging a little bit, we already mentioned back in July that infrastructure was doing quite well. Not just for the first time, in fact it's now three years whereby it has shown double digits of growth. And I think that opportunity will continue to exist. Infrastructure in the biggest scheme of things for us in the U.S. is not the biggest market. So, I think there is definitely more upside. But I would say the management changes, the focus on our clients, some of the things we did globally, but probably had a bigger impact on the U.S. have really contributed to what I think is now sustained improvement. On Asia-Pacific, I think when Renier made a reference that we had some issues on execution in the beginning of the year, it had largely to do with the last bit of the implementation of the Oracle system, the Arcadis Way, as you might recall, Australia was the first region, which -- the larger region which was subject to the implementation. Subsequent to Australia, we now have had many more regions implemented the Oracle system. But clearly the growing pains tend to be a little higher with those regions who are first in line and that's what Australia clearly was. I think that we have that largely under control, still room for further improvement, but the attention the Oracle system implementation took diverted people a little bit away from focus on improving project delivery.

[Renier Vree, Former CFO & Member of Executive Board]

Yes, maybe to add, in the second half year, both for Asia and Australia, margins were higher than in the first half year, for both regions within that segment.

[Hans Pluijgers, Head of Research of Benelux]

Yes. But there was also [indiscernible] let's say, in the previous year. So, decline year-on-year in the margin was comparable, if you take it year-on-year. So, is there a seasonal impact and that margins are always better in second half or?

[Renier Vree, Former CFO & Member of Executive Board]

Yes, for Australia, there is quite a seasonal impact because with summer and winter of course, being different than here, they tend to have the highest activities different times than we have that. So, there is some seasonality in it.

[Hans Pluijgers, Head of Research of Benelux]

But is there an additional reason why in second half also the margin wasn't [indiscernible] despite the very high growth?

[Renier Vree, Former CFO & Member of Executive Board]

Within the second half of 2017, the margin Australia in were good, the operating margins.

[Hans Pluijgers, Head of Research of Benelux]

They improved year-on-year?

[Renier Vree, Former CFO & Member of Executive Board]

They were the highest we have in Arcadis, I haven't done [indiscernible] compared to '16 but we were very pleased with the margin of Australia in the second half year. And on Brazil, what we have finally started to see there is that the private sector is coming back to life. You recall so in previous conversation that we said on the public sector, you could see spending still (audio gap) private sector, which is most important for Arcadis when it comes to Brazil, was very slow. We did see in the environmental side already for the last year and half or so, particularly work on environmental projects for due diligence, because there's a lot of M&A activity happening in the country, and then we do the environment and technical due diligence dividends. Now we have seen also that more typical project management and to some extent, engineering, design engineering projects are starting to come back in the market. And therefore, the backlog improved and with a significant reduced headcount, because it dropped another 400 people during 2017, now to 860 and originally, you remember over 3,000 if we go back three years in time, we are confident that we have scaled the organization to the right level and that now it's a matter of making sure we execute with that staff the projects in the market. Pricing is not great, so in that sense, I don't expect the margins to suddenly become as they have been very attractive in the past, but significant, call it bleeding, that we have seen in Brazil that should basically be over by now. While Chile is more stable and Peru actually is a good market, which has improved its performance. On the last question, on [ DPO ] it's not a measurement we have in place for this has do both with sub-contractors as well as the cost for which we'd have invoicing, but I'm not aware of anything unusual or specific happening around payables. And indeed, there is a currency effect, but the focus we have in terms of cash flow, working capital is about our receivables and work in progress and that's also where the reduction came from. Yes, so in terms of payable percentage, as you would calculate that, there is no change that I'm aware of.

[Luuk Van Beek, Analyst]

Luuk Van Beek from Petercam. First another question on Brazil, you talk about a better order intake. Is that something that we could already expect to see in revenues in Q1 or is it something that will translate in the course of the year, is the first one.

[Renier Vree, Former CFO & Member of Executive Board]

Yes, so I can answer that now if you want, definitely, so we have seen that order intake happening and therefore the productivity is up. We have still less people now than we had a year ago. So, it doesn't mean that you will see growth numbers. But in terms of bottom line, that will be better that we expect already in the first quarter than it was a year ago.

[Luuk Van Beek, Analyst]

And then a question about CallisonRTKL. You now talk about a sale, would it necessarily be a 100% sale, would you consider a scenario where you would keep an involvement to keep synergies with the rest of the business?

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

Yes. When we started the process, which we rightfully so described as the strategic review process, we looked at different options, but we didn't look at a partial sale. And so -- it will be unlikely that we would change that course. We never -- it was never part of our initial assessment and again, we won't -- probably not change that.

[Luuk Van Beek, Analyst]

And then a question about the restructuring, it was mainly in France and Brazil last year, I think those programs are now over, is there anything that we should expect for the coming year, any regions where you see an imbalance that need to be addressed?

[Renier Vree, Former CFO & Member of Executive Board]

I would say, in Europe, France is not completely over, so there's still some work there in terms of restructuring continuing, but there are no other significant restructuring programs currently happening in the company.

[Luuk Van Beek, Analyst]

And then finally on the clean energy assets in Brazil, you said that in Q1 it will be operational, should there be any further financial impact in Q1?

[Renier Vree, Former CFO & Member of Executive Board]

Yes, so what we expect there, I think I said that on the gas plant will go up to steam towards the end of the quarter and the gas power plant that will produce electricity is more in the second quarter. So there will still be some losses in the first half of year, but far less than what we have seen in the last part of 2017.

[Philip Ngotho, Analyst]

Philip Ngotho, ABN AMRO. My questions are on working capital. Maybe to start with the days sales outstanding. In the Middle East, you indicated it's about 250 days, so quite long, but the same time you're saying that you're quite confident that you'll get paid. I'm just wondering at what point where you actually decide that because what we've seen other companies as well have been taking write-downs in the Middle East if they haven't gotten paid after a year so, at what point will you also decide, okay, this is enough, we probably won't get paid, so we might as well take a write down? That's my first question. Other than that also I'm a bit surprised about the statements on the payables outstanding that it's not a specific item that you really -- or KPI, because if I remember correctly, last year you actually mentioned in your press release that you were going to readjust your payments policy to align it with industry practices, I can't recall the exact statement but it was in one of the press releases, but other than that, if you just look at the days payable outstanding, according to my calculation, it's actually increasing now, it has increased to 111 days versus your historical average, pre-2014 of around 80 days, the industry is also at around 80 days. So I'm wondering how confident are you that you are able to keep this level of [ DPOs ]?

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

Well, let's -- so I think the first one [indiscernible] you can always chime in. Well, for the Middle East, the way that happens and also for all the regions, but particularly in Qatar and Saudi Arabia, we look at those outstanding amounts client by client, project by project and then what is important decision whether provision or more -- because we have some provisions of course, but are more provisions needed, is there a progress. And on a number of projects, we have seen payments coming in, but some others, not so much. But then it's not just that in these countries like I tried to explain earlier that you send an invoice, and then these clients will pay you, for instance in Saudi Arabia, it is really a process where the municipal government needs to approve, then it goes to the province and then ultimately ends up with the Ministry of Finance that need to make the payment and they give you insight in where invoicing is going, when the payment is to be expected. And based on the insights we have in that, we are comfortable that this will happen in 2018. So, it's really that underlying progress that gives us that confidence. If that would indeed reverse and not be an expectation we continue to have, that will lead to a different conclusion. But for now, we continue to have reason to be positive about it.On the second question, well, I said that [ DPO ] is not a measurement we use. Our payment practices are not different than the industry. Where this play a role in our payables is again the Middle East where we have for a number of projects, the [indiscernible] and paid principle. And I think also that was shared with you before, where quite significant amounts we owe to subcontractors to who only get paid when the ultimate client has paid us. That significant amount in our balance sheet, and of course that is there till we have been paid for the work we have been doing, on the typical sub-contracting for remediation work or for the laboratories or for rent or whatever. I'm sure that there is no difference in the way we handle suppliers than what is common practice in the industry and other industries.

[Philip Ngotho, Analyst]

So you're implying that the { DPOs ] it's only in the Middle East, that it might be out of sync with the industry average?

[Renier Vree, Former CFO & Member of Executive Board]

Yes. Well, I think ultimately not from the industry, but I'm pretty sure, actually I'm sure that competitors or peers that have contracts in the Middle East where they use subcontractors have exactly the same principle, the [indiscernible] principle is very common in the industry. So you don't have to pay your suppliers until you've been paid yourself. It's the way the contracts are being designed.

[Philip Ngotho, Analyst]

Then one other question. Also you made statements on [ why is ] that you were happy with the progress that you're making on finding a replacement or a new CFO, can you give us a bit more insight on what especially you're referring to and whether it's going to be someone internally, externally or anyway you're in process?

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

Yes. No, I obviously fully understand that that's of interest to all of us and rightly so. So, when Renier informed us about his decision, which was on the 3rd of January, we didn't lose a beat to start a process to identify his successor. And we had, in our mind, a timeline for the completion of that process. And as you will appreciate, finding someone at this level is not something, which you typically do on a rainy Saturday afternoon. It takes a little bit more time. We did say that we are considering both internal as well as external candidates, which is indeed what we have done in the process. The process has not been completed, but we do expect the process to be completed within the timeline we had in mind when we started the process in the early January. And by the time that we will have that process completed, you will be amongst the first to hear what the decision will be, trust me.

[Philip Ngotho, Analyst]

And the timeline, is there anything you can say about that, what do you have in mind?

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

No, I'd rather not make a firm commitment on the timeline. But it is very much going with what we had in mind when we started the process.

[Philip Ngotho, Analyst]

Maybe one last question on just the overdue receivables EUR 147 million. Can you just remind us how much is coming then from he -- how much is related with the US and what part is related to the Middle East or the ones that's overdue more than 120 days?

[Renier Vree, Former CFO & Member of Executive Board]

Yes, so if you take those two items together, we are talking about some EUR 40 million.

[Philip Ngotho, Analyst]

Just those two items together? But then there is still quite a bit share -- a large chunk of EUR 100 million that's unexplained in the system.

[Renier Vree, Former CFO & Member of Executive Board]

Well, not explained on that slide, but of course, internally we have that list by client, by project in fine detail, but those two are the two biggest ones.

[Philip Ngotho, Analyst]

And is that EUR 100 million, is that also then still skewed mostly to the Middle East?

[Renier Vree, Former CFO & Member of Executive Board]

No, that's much more spread around -- not skewed to -- it's bit more skewed to emerging markets like it always has been. So you see that in Asia and Latin America, there's some of it in the Middle East but it's not dominated by the Middle East.

[Edwin de Jong, Analyst]

Edwin de Jong, NIBC. Couple of questions of course, on Brazil again. Yes, so you've invested -- you're investing quite a lot into the biomass plants and you're going to sell them, of course. Can you give us any idea of what has been [indiscernible] over the years or what the book value is to give us something of a grip on what the value of those assets could be?

[Renier Vree, Former CFO & Member of Executive Board]

Yes, well, the net asset value in the books of Arcadis is EUR 14 million. So that's a relatively low amount, also because the losses continued to be deducted from the investments. So therefore the amount in the books is relatively small.

[Edwin de Jong, Analyst]

And you would expect to sell [indiscernible] couple of times book then?

[Renier Vree, Former CFO & Member of Executive Board]

We expect to sell it as a profit, yes. But before that also loans in the entities, because these are typically leveraged assets as you would expect in energy business. But we did have a -- maybe a -- to answer one more point, also as part of the investment we are making, we did have an external evaluation then of those activities which will help us to confirm that the return on that investment there will be there. And the outcome of that acceleration was indeed that we should expect to get our investment back.

[Edwin de Jong, Analyst]

Could you get somewhat more details?

[Renier Vree, Former CFO & Member of Executive Board]

I think I'll leave it at that for now.

[Edwin de Jong, Analyst]

Then there's much emphasis in the strategy on digital, and rightfully so, I think. So we've seen a couple of smaller acquisitions now. Are there larger targets in the market or could you say something on the M&A market in that field specifically?

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

We don't have on our list any larger targets at this point in time. And my expectation is also that that will probably not service anytime soon. Now that being said, and that's why the two acquisitions are relevant to us, the innovation which I expect to happen in the industry is not going to simply just come from within. The innovation will need external forces, external catalysts, if you like, as well. So hence the two acquisitions we did. And without saying any more in specific, you can probably expect this to continue to do these sort of things to enhance our digital capability, but I can tell you that we're not looking at something of a really, really large scale at this point in time. And I don't think honestly that that is what will be required at the end of the day.

[Edwin de Jong, Analyst]

Is there any larger company in the space?

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

Well, there is of course large digital companies, but if you look at what we would need at the level where we would need it, and there's probably two levels and maybe to expand on that just a little bit, there is first a level which we largely control ourselves which is to really digitize all our inner workings. And I think you've heard about the Oracle implementation, that is just part of it, but not the only part. Another part of it is to use building information, modeling, or management for the full 100%, which we still have some ways to get there and in fact that is for the industry as a whole. So that first of all you convince yourself that you, as a service provider, you're fully digital. And then the next step would be to really offer different business models, different offerings to our clients whereby you get paid for the service you provide, the value you provide as opposed to just for every man-hour. And that's the second part. And there's these companies who can help us with that second part, but there is not a single company I know of which would all of a sudden accelerate that whole process.

[Edwin de Jong, Analyst]

And then -- this year somewhere 197 of USPP will be renewed, when will that be, it will be in the first half of the year or the second half of the year?

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

I'd say it's two elements, one is the U.S. -- part of the USPP outstanding, another part is the bank term loan that's coming up for renewal. And it will be in the middle of the year, not at the same -- one is at the end of the second quarter, I think one is at the beginning of the third quarter, but it's in the summertime.

[Jurgen Pullens, Director of Investor Relations]

I understand there's a question in the conference call. So I'd like to switch to the conference call. Please go ahead.

[Operator]

We have a question from Mr. Bart Cuypers, KBC Securities.

[Bart Cuypers, Financial Analyst]

So yes, I had a question on the long-term overdue receivables on which already quite some has been said. And so yes, there is net receivables, there is quite a bit reduction in the total amount, but the long-term overdues increase to a limited amount despite the significant payment in CapEx. Is that due to only the moving of the government ladder, if you will in Saudi Arabia, or is there still some other aspects playing there that the long-term overdues increased slightly?

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

Yes. Hi, Bart and thanks for asking the question through -- the technology. Well, the single, in fact the only reason why the amount went up is because of the receivable in the U.S. for this oil and gas project that has shifted to the bracket of over 120 days. And because of that the overall amount went up [indiscernible] declined.

[Bart Cuypers, Financial Analyst]

And then only just a little question on also the restructuring, on which already something has been said. So we have Brazil that's starting to clear up again, then there was France where still some restructuring is expected to be ongoing, can you give a rough indication of how much of the restructuring that has been booked now, the EUR 20 million is France and how much has been Brazil?

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

I don't have the exact amount here, in the fourth quarter, France was the biggest piece, of course for the whole year, it was not just those two, but they were dominating the expenses. But Brazil was bigger than France in that sense, I think. So, in that way, looking forward, which of course is ultimately the most important, the fact that Brazil will need no or very little restructuring money, bodes well for the non-operating costs.

[Bart Cuypers, Financial Analyst]

Yes. So follow-up questions on the last item, restructuring first of all. You said that it will be, let's say, bode well for the normal cost, but could you give some indications on guidance for the one-off cost for 2018, the last year you have been doing that, so. And secondly, on -- going back the over 120 days due, I understand also a lot of governments are in there, you said, not Middle East and the U.S., but is there a turnover of clients within that, is that, let's say the least, which let say new names accounting is coming on so is it or is it quite stable, is with the same names continuously being over 120 days due and also the special project, is -- new amounts. My question was, are there being payments on those on 120 days due in the same time you're coming [indiscernible] get some freedom on the turnover in that? And then on the U.K., you already indicated strong order book, could you give some flavor on how that will, let's say, work out in growth, especially in the first half with the U.K. already strong growth in last year, do we expect some pickup in growth because there might be and you should have quite some visibility, especially for the first half, if you could get some feeling on that?

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

Well, on guidance, on operating, I don't think I can add a lot more to what I already said. But what we expect is that it will be significantly lower in 2018 than it was in 2017. And in terms of the over 120 days, there is a little turnover, because in the end it's number of clients that we are addressing, but we are making progress and sometimes you see [indiscernible] shifting like this oil and gas client into that bucket because underneath there's a lot of focus on this and also progress made, but there are not many new clients suddenly arriving and I think also what Peter said earlier, the focus we have in working for the right clients, and picking the right projects and even working in the right geographies, are helping in that respect. And I think in the last half-year, that process became even more stringent than it was prior to that.I think we had one more question on U.K., right?

[Renier Vree, Former CFO & Member of Executive Board]

Yes. So, we are positively and pleasantly surprised about our ongoing growth in the U.K. And this is for obvious reasons because there is a bit of an uncertainty hanging over that market, which everyone knows which is what will happen by the time U.K. departs the European Union. But that being said, so far the impact has been actually -- I would say --I can't say positive but negligible for sure and the expectation for '18 is that that will not change. We expect that '18 for the U.K. will still be a pretty good year, in spite of, again that overhang on Brexit. And if you would have asked me 1.5 year ago, I wasn't here anyway, but if you would have asked me the question 1.5 year ago, would you expect that to have an impact on your business, I would have probably anticipated and expected that it would, but we don't see that at this point in time.

[Edwin de Jong, Analyst]

[indiscernible] expect to, let's say, a lot of projects wins you have done over the last few months [indiscernible] start, let's say, in the first half of 2018?

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

Yes, typically the model is such that if you win a project, sometimes there can be a delay in starting it, but most of the projects start shortly after you announce the award, for sure. If you look at our pipeline and as well as what we see in our backlog this year, it's certainly feeds into the optimism I expressed before.

[Unknown Analyst]

[indiscernible] I have a follow-up on the U.K. with regards to the buildings revenues you mentioned in the full year press release again, there was revenue growth carried by automotive and commercial. First half, you were speaking about margin improvement because of cost actions, I don't read it back in the second half. Could you discuss a little bit specifically, the buildings market in the U.K. because of -- I understand that especially in [indiscernible] growth next year?

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

And so the question is what do we expect on the building side?

[Unknown Analyst]

Yes, exactly, can you discuss it a little bit how the market is behaving currently?

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

Well, the buildings in the case of the U.K. in particular is not just maybe the typical buildings you think about, real estate, it actually includes other components of the market as well. As an example, the work we do for [indiscernible] and that actually continues at a really nice tick. But that being said, in the more traditional building side, we still see, in the U.K., a lot of foreign money flowing into the country, which ultimately translates into buildings opportunities and again in '18 we don't expect to see that to decrease.

[Unknown Analyst]

Underlying -- without cost measures, you do see margin improvement on that side as well?

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

I think the outlook for the U.K. is positive and I think the growth they have there, of course, we have seen rent going up, it's also, from an inflation point of view, in a business where it's important to make sure that your cost inflation is moved on to your clients, which is anyhow topic we are addressing in a number of our markets to help expand margin and it also applies to the U.K., that should also help.

[Unknown Analyst]

Could you give some indication how much margin [indiscernible] could you give some indication how much capital expenditure you expect this year? Talking about capital expenditure, you are spending money in Brazil in the energy facilities, how much do you still need to put in there? And you mentioned also the net asset value, but also the loan, so exactly what is your total investment in the energy assets over there? And then you have changed your -- I don't know if I should put it like that, but your policy to go for tendering in the Middle East, what has exactly changed and could you give some -- bit more color about expecting payment terms and whatever, if that's a new issue and topic when you want to go for a deal? And in general, so you mentioned that there's good environment, could you give us some flavor on -- color on the tariffs you're able to pass on, high tariffs for your people?

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

Well, on capital investments, I think we've seen in 2017, kind of a normalization, of course, it has been a bit higher in the years before. So, I think as a proxy, what is a realistic outlook for 2018, it shouldn't be too different, if I would have to model it. And in terms of Brazil -- that's not the capital investment, by the way, that investment, we are making in that associate is recorded as an investment in associates. So, there's not recorded as a capital investment, part of it was already invested in '17 and the larger part is happening in the first quarter and some of it in the second quarter, but mostly in the first quarter. And when I mentioned, I should tell you that is the net number, so that EUR 14 million is the net number that we have in our books for equity, which in fact is 0 right now and loans.

[Renier Vree, Former CFO & Member of Executive Board]

Let me take the other question on the Middle East and I think the last question was on our ability to pass on increases in salaries, I think was the question?

[Unknown Analyst]

Tariffs to your clients.

[Renier Vree, Former CFO & Member of Executive Board]

Yes. So, in the Middle East, I think the question was so what is the change in the Middle East entirely and what would it ultimately mean for you. What it does right now is a much sharper focus on, as I explained on picking the right clients, the clients who have demonstrated to us that they have a habit of paying people by the time their service have been provided. So that will, as you have seen, lead to declining revenue initially. But that doesn't mean that you can't find other clients in those regions who have that same behavior and/or do more work for the clients who have already demonstrated that to you. So, I was fully prepared for that to initially have a negative impact on the amount of work we would win, that's what you expect people to do, you don't expect them to sign each and every contract even if they know that the client is not paying us first. So, I was fully prepared for a temporary decline in revenue and profitability as well. But over time that should go up and if it doesn't go up, then we need to ask ourselves the question, is this still a place where we want to operate. So, I think the second question, or the second answer on the tariffs is whether we are able to pass on increases to our clients is largely depending on the contract, to be honest. If we have lump sum contract, there is simply no chance because you sign up for a fixed price. If you have a cost-plus contract, then if you're smart you have a clause in that that you can pass on annual salary increases. But the good thing about our work is that, yes, we have projects which take many, many years. And if you don't that project can be painful. But most of our projects actually have a relatively limited duration, which doesn't exceed a year. So yes, you need to be smart, but the issue is not a huge issue for us because of the nature of our work, if you only had a portfolio with projects of 5 years and more which I'm actually quite familiar with, then it can potentially be painful.

[Philip Ngotho, Analyst]

Philip Ngotho, ABN AMRO. A few follow up questions. First of all, I just wanted to understand maybe the contracts that you have in the Middle East a little bit better. You said that one of the reasons for the payables increasing was because of you just pay when you get paid that or the suppliers, but what happens if theoretically you don't get paid? Does that mean that you still have to pay your suppliers or you're just going to kind of default on those payments? So, wanted to understand a little bit the contract structure there? Then my other question is on the outstanding guarantees, I know that you probably published it within your report, but can you give an indication how that has developed at the end of 2017 because we saw a tripling of guarantees, outstanding guarantees of the last 3 years whilst revenues only increased by 25% if you take in [indiscernible] so maybe some color on that as well would be nice. And the other one question I have is on CallisonRTKL, can you give an indication of how the order book, the backlog has developed in Q4, there was a decline of 10% over the year, but how has it developed in Q4?

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

Let me take the Middle East first, Philip, and then I'll ask Renier to answer the other two. So pay when paid in the Middle East means exactly what it suggests that means which is you don't pay your subcontractors or your vendors until you get paid yourself. And the type of contracts we have in the Middle East have -- a wide variety, just contracts whereby for instance, we get paid for every hour, but we don't have an obligation to pay our subcontractors, they get directly paid for by the client. The situations where we have a lump sum contract and we have subcontractors, and then we are responsible for the subcontractor, but the principle of only paying the subcontractors when you get paid in the Middle East is a very common principle. Can I guarantee that on all 100% of our projects in Middle East, we have that clause in there. I probably would have to check all of them to make sure that that's the case, but generally speaking, it's very common in the Middle East to have that principle in there. You only get -- you only pay your subcontractor if you get paid yourself.

[Philip Ngotho, Analyst]

But on these specific projects that are top of mind, then where -- you have a lot of focus on, I assume that you probably know those contracts quite well. So, what happens, I mean, because everybody's looking at it and thinks, okay, 250 days of DSOs could actually mean that there could be a write-down at one point. We'd just to see what happens in 2018 because at the same time, I think you also in the past indicated that 2017, by the end of 2017 or mid-2017, you would get paid. We are now in 2018 and we still haven't gotten paid for some [indiscernible] projects. So, I think it's a realistic assumption that or a probability that you might [indiscernible] and so what would happen then on your payables, would you still have to pay your sub-contractors?

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

Well, first of all, I think that the risk that we don't get paid for, I think you're referring specifically to the contracts in Saudi Arabia. In 2018, or to say that we cannot put a full 100% guarantee that we all get all paid, that's probably a bold statement, but the increased confidence Renier expressed is not just based because we feel like we get further down the line, but because of signals -- specific signals we are getting that the payments are moving through the channels, which is what Renier also explains. So, I'm not counting with a potential of not getting paid for these contracts in the Middle East, I am confident that we will get paid in 2018 for these contracts.

[Philip Ngotho, Analyst]

And -- but if not, then you would have to pay your subcontractors?

[Renier Vree, Former CFO & Member of Executive Board]

I don't know whether we'll have to pay our subcontractors at that point in time.

[Philip Ngotho, Analyst]

That sounds like a very good contract.

[Renier Vree, Former CFO & Member of Executive Board]

Well, yes, but that's what paid when paid, actually it's yes, so you don't get paid, you don't pay your subcontractor.

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

Well then, on the guarantees in detail, our Annual Report will be published on February 27 and then of course look for details that are available, but a few things I will know top of mind. It did increase and -- when do we use guarantees is very much dependent on where we do business. In Continental Europe, it's not very common to use those guarantees on projects, maybe you need guarantees for rental contracts for the buildings you're in, in all the regions, and again here is Middle East, there are you are, at the beginning of a project, have to give a bank guarantee for the size of that project. That's how it works in the industry in the Middle East. So, differences between regions are the main factor why for some guarantees are higher while others are lower. And by the way, I'm as you know, 8 years with Arcadis and I've never seen a guaranteed being called anywhere in the world actually. So, it's a common feature in some parts of the world, but not one, which is activated in reality, at least not in the last 8 years. In 2018, there will be some movements in guarantees, but there won't be very significant changes compared to 2010 and 2017. And the last question on the CallisonRTKL, in the fourth quarter, there was a reduction in the order book.

[Philip Ngotho, Analyst]

For how much?

[Renier Vree, Former CFO & Member of Executive Board]

I don't -- well -- a few percentage points.

[Philip Ngotho, Analyst]

And maybe just on the guarantees because at the same time, it's also if you look at peers and some peers have reported [indiscernible] but it's in anyway, it's quite often a very important KPI, I think that they merge on just risk management to give me the outstanding, guarantee. So, it seems like it is an important item to keep track of and what I'll be surprised, so you say that in 2017 it has increased and it's mainly because of the Middle East, but at the same time, revenues have declined in Middle East.

[Renier Vree, Former CFO & Member of Executive Board]

Yes, but the guarantees are given for the value of a contract. When a contract is finished and the client is completely over with, then a guarantee is canceled basically and it's given back, that's how the process works. And those things move up and down with the flow of the business with some time lag. And we definitely manage it by the way, so I don't know where you get the impression that we get surprised by how guarantees work, but it is very region specific, of course in other parts of the world, guarantees are not an item that a part of -- when a contract is being won.

[Philip Ngotho, Analyst]

Just to be clear, if Would you expect payments in the Middle East into '18 then, the guarantees will probably come down as well likely or is that?

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

Yes, definitely and the size of the business continues to come down in Middle East as well.

[Philip Ngotho, Analyst]

And If you would sell [indiscernible] if you would decide to sell CallisonRTKL and you would the proceeds, what would be your top priorities for using that amount of money?

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

We haven't decided anything relative to the proceeds of CallisonRTKL in terms of allocating into a particular target. As I said before, we will continue to look at opportunities to enhance our digital capability. So it's probably safe to assume that you'll see us make some announcements in the digital space. But we have not made any decision yet on allocating the money which might become available if you sell CallisonRTKL.

[Unknown Analyst]

[ Mark Prince, ] ING. Regarding the backlog growth in North America, you spoke about let's say, that all sectors are contributing in terms of your own activities. But where do you see the growth coming from your client side, is that that private money, is that public money, is that stimulus programs, is that private companies, certain sectors that are requiring to spend money there have you elaborated them?

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

I think -- I'm not sure you had a percentage actually is in here between private and public and we see spending in both categories and spending increase in both categories as well. I know that sometimes people tend to think what if the federal government doesn't make a decision on a particular plan, like for instance, like the big infrastructure plan which the U.S. government is planning to launch, and in the meantime, you won't see any investments in infrastructure and that is absolutely not the case. I think we've said before that states, and particularly states such as Texas, Georgia, California will continue to invest in the infrastructure and in fact that is where we actually see most of our growth as well. So yes, would it be nice for us and good for us, if the federal government would approve the infrastructure spend, it would certainly have or open up lots of potential but it's not like we are sitting on the fence waiting for that to happen and in the meantime, don't see plenty of opportunity. So, it's both federal, so it's both private and public and the absence of, for instance, an approved plan on infrastructure from the federal government is not making us overly nervous.

[Jurgen Pullens, Director of Investor Relations]

Then there are no further questions, so I would like to thank for your participation and your presence here and I close the meeting. Thank you.

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

Even though we closed the line -- I guess we have closed the line. For the benefit of all of you here, I want to take a minute. Since this is Renier's last update to all of you and some of you might actually see him in a different capacity, but in the meantime, I wanted to take the opportunity with all of you here to thank him for the 8 years of outstanding service to Arcadis. I only had the pleasure of working with him for 9 months, I will definitely miss him. I can safely say that he's been the best CFO I've worked with. So, we will miss him, but obviously, we wish him best in his new endeavors. And by the time you get back here our next update, we will have a new CFO sitting next to me. So, thanks for your interest in Arcadis and hope you have a great day.

[Renier Vree, Former CFO & Member of Executive Board]

Well, thank you, Peter. And I would say, these events, and I think, I've been about 30 or so with you guys, always felt like the oral exams in a high school, and I felt sometimes I passed, some maybe just not, but really have helped -- you help us all to keep sharp. So thank you very much for that. Indeed maybe, I see some of you back in my new capacity. So, thank you very much.