Arcadis NV

AEX:ARCAD

Earnings Call Transcript 2019-Q4

[Jurgen Pullens, Director of Investor Relations]

Good morning, everyone. My name is Jurgen Pullens. I'm Director of Investor Relations for Arcadis. I'd like to welcome you to the Arcadis analyst conference and webcast. We are here to discuss the company's results for the fourth quarter and the full year 2019, which were released this morning. With us are Peter Oosterveer and Sarah Kuijlaars. We will start with a short presentation by Peter and Sarah and then we will open up for Q&A. You all received the presentation this morning, but it is also available through our Investors section at the Arcadis website. Just a few words about procedures before we start. We will begin with formal remarks. We call your attention that -- 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 the statements, which are more fully described in the press release and on the company's website. So with these formalities out of the way, I'd like to hand over to Peter.

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

Thanks, Jurgen. And also on my behalf, welcome to our fourth quarter results. For people here, in the room, thanks for giving us your priority today. I know there was lots of competition, but thanks for joining us, and of course, for people on the call, thanks for joining us as well. I'm going to offer a couple of quick statements, before I turn it over to Sarah, and then we'll close it out. And as Jurgen said, thereafter, of course, we will allow you to ask your questions. All I need now is to know how to -- do this one. Thanks. Yes. So let me start, and I'll probably start by saying -- making a simple statement, profitable growth. That is how I would describe our 2019 results. Growth in a number of ways. And profitable growth, obviously, at the end of the day, matters a lot. Whereby, of course, we are trying to find a balance between the growth at the top line and the growth of the bottom line. And I'm equally pleased with the growth at the top line as well as with the bottom line, but the significant improvement, as you will have noted is, of course, at the bottom line with an EBITA -- operating EBITA for the year of 8.1% versus 7.3% last year. I'm going to also expand on areas we identified about a year ago as the so-called improvement areas. Those were the regions which were not at that time quite meeting our expectations particularly, Asia, Middle East and Latin America. I'm going to also speak about some growth investments, so here's the word growth again. And to speak about growth, a measure which doesn't necessarily always gets the attention in conversations like this, but a measurement we are extremely proud of is the voluntary turnover. I have commented in prior years that I wasn't particularly happy with where we were. As you might recall, we finished 2018 at a 15.6 percentage, and we finished 2019 at 13.5%. So a significant improvement and definitely a very important dimension and a dimension which is suggesting that we're, as a company, moving in the right direction. So in my further presentation, I'm going to elaborate on how we did actually improve our performance. That we did it, you probably take for granted, but you might be interested in how we did it, what we did, so that you can also form an opinion as to how sustainable the improvements are, which we created over 2019. I'm also going to give you a glimpse in what we expect in 2020. As you will recall, 2020 is a significant year since it is going to be the year in which we are scheduled to deliver on the commitments we made during the 2017 Capital Markets Day. I'm not going to spend an awful lot of time on this particular slide, for one, because this is information which is all in the press release; two, Sarah is going to expand on this in more detail. Anyway, other than highlighting, I think, the favorable developments, again, the organic growth at 3%, which is pretty much in line with what we have committed we would deliver. And a significant improvement in operating EBITA margin from 7.3% for '18 to 8.1% for this year. Not quite where we want it to be is the free cash flow and I'm sure that we will speak about that later throughout the day as well. And then lastly, definitely, also want to highlight the fact that our net debt has come down as a result of our improved performance, of course, as well. You'll probably remember this distinction, which we introduced about a year ago, where we wanted to be specific on areas where we felt we needed to create an improvement to ultimately get to the 8.5%, 9.5% bracket for operating EBITA margin by this year. And we made the distinction because a fair majority of our business, 84% of our net revenue, was already a year ago meeting the 8.5%. And we highlighted that the 16%, which was largely represented by the Middle East, Asia and Latin America, wasn't quite there yet. And to remind you of what the actual performance was a year ago, these 3 regions: Middle East, Asia and Latin America, generated 1% and now they have generated 7.1% operating EBITA. And I'm going to go into a little bit more detail as to what we did to create that improvement. We already said a year ago that we were quite proud of those more mature regions, in which most of our performance criteria were meeting our expectations. We also highlighted, at that point in time, that the operating EBITA for those regions was already within the brackets, which we have committed for 2020, which is between 8.5% and 9.5%, and they are still at that same level. So at 8.7% for the more mature regions, we feel that, that performance is still very, very stable and satisfactory. Just a couple of things we did to highlight how we have been able to sustain that level and to also highlight where we see additional opportunities for further improvement. I have to start with North America, a significant part of our business, of course. And a significant part of our business, which contributed to continued growth over 2019, both top line as well as bottom line, of course supported by a market which is quite favorable, quite attractive still. But also in face of some headwinds, which came from the implementation of the Oracle Cloud system. And again, we will talk about that a little later. But the fact that the America -- North America delivered the very solid performance while, at the same time, working through some issues with the Oracle Cloud system, I think, is definitely a strong achievement. In Continental Europe, and not just in Continental Europe, in fact, I could make that applicable to many of our regions, the Make Every Project Count program, which we introduced about 1.5 years ago has contributed to the improvements in performance. The program is now solidly anchored in Arcadis. I would not go quite as far as saying completely institutionalized, but the behavior, the cultural change we're trying to drive resulting from Make Every Project Count is definitely noticeable, just by what we see but also by what we generate at the end of the day. And I believe that Make Every Project Count, I don't believe it, I am convinced that Make Every Project Count is here to stay because it's -- it has given us an opportunity for improvement and will continue to give us that opportunity. I'm really also quite proud of the performance in the U.K. in the face of what is now no longer the uncertainty, but the uncertainty, which was there for quite some time. And now that we know that Brexit is a fact, that uncertainty has come to an end. You might have noticed this week that the Prime Minister of the U.K. made a significant decision; for us, a very favorable decision. He decided to go ahead and potentially even expand the HS2 program, so the high-speed line, which starts in London will go up north and then, ultimately, might actually go east as well. We were already involved in that project and the fact that this project has now been given the approval to go ahead is a significant positive signal for us as well. In Australia, I have already mentioned Australia several times and I will continue to mention Australia definitely for as long as they are the poster child in Arcadis, poster child, as in their performance. They continue to move the needle on the operating EBITA margin and are definitely leading. They continue to be the region with the strongest DSO, and they continue to be a region with strong top line growth as well. So I'm really proud and will not lose an opportunity to use Australia as an example of where we could go, both internally as well as externally. And CallisonRTKL, as you would have noticed from our press release, by the time you start to improve regions, then there's another region, which tends to be at the bottom and the bottom now is a much different bottom than the bottom we had a year ago. But CallisonRTKL is clearly not where we want CallisonRTKL to be. CallisonRTKL is also not where CallisonRTKL traditionally has been. You might recall from the recent past that CallisonRTKL would typically generate the highest margin, and they have, unfortunately, because of reasons we fully understand dropped to a much lower level. That being said, we believe that with the changes we made in leadership combined with some signals we considered to be very favorable, and those signals are a significant reduction of voluntary turnover, an improvement in the book-to-bill in the last month of the year and the ability to hire people who left us -- senior people who left us at a time where uncertainty was, unfortunately, the name of the game. Those are signals which we consider to be favorable to create a turnaround in CallisonRTKL throughout 2020. So back to the regions, which we did identify last year as the improvement areas. And it's probably safe to say that the people who are working in these regions weren't necessarily too happy that we put them down as improvement areas. But at the same time, they have taken the challenge in a very positive way, and I would say that they've created quite a remarkable turnaround and improvement in all 3 regions. What did we do? And why did it happen? In the Middle East, I think the selectivity of what we have used quite a bit in the past, so making sure that we focus on the right clients in the right countries is paying off. We have also repeatedly had to answer the question, why is the revenue dropping? And the answer has been repeatedly and still is, well, it is dropping because we want to be more selective. We're looking for profitable growth. We're not looking for growth at any price and that selectivity has definitely paid off. And the fact that the revenue has dropped is something we had fully accepted and, absolutely, continue to accept. The good news though is that, in the last quarter, we did see growth in the Middle East as well. But the best news really is that from a minus 3% operating EBITA a year ago, we're now to 7% EBITA, so quite a significant improvement. In Asia, we reported last year that we felt that we needed to make some changes in leadership as well. We also had to work through a number of legacy issues. All of these issues are behind us now. The leadership is firmly into settle. The leadership has also taken the opportunity to simplify the organizational structure. And also there, that has resulted in a significant improvement of our performance from about a 5% operating EBITA a year ago to 9% and, albeit, small organic net revenue growth as well. And then lastly, Latin America. Coming out of a prolonged period of challenging circumstances, economic circumstances, which were not very favorable, continued reduction of our presence in particularly, Brazil. I think we can now safely say that in 2019, we did turn the corner. We had commented before that we felt that we had the right size with about 850 people in Brazil. And not only did we feel that we have the right size, the results show that, that size is actually conducive to the market we're seeing, and that market actually is improving as well. So positive from minus 2% to now plus 5% and kudos to the leadership in Latin America for that significant improvement. I need to talk about PFAS because PFAS is, particularly for people here in the Netherlands, right in the center of a lot of attention. That might make it a new issue for a lot of people. It is actually not a new issue for Arcadis. We have been working in PFAS-related activities for a significant amount of time. We have a significant presence. We have a significant capability, which we actually broadened throughout 2019 and beginning of this year. Last year, we announced the partnership with Evocra. And then, not too long ago, we actually announced a similar partnership, a global partnership, with ABS. And it is, of course, all intended to further strengthen our position in PFAS-related work, which for us is business advisory, environmental consultancy and then remediation. I do fully acknowledge that for some businesses, this is a threat. For us, this is an opportunity. An opportunity we actually expect to create significant growth over the foreseeable future. You've probably also seen the announcement we did a little while ago on the creation of Arcadis Gen, which is our new entity, focused on delivering digital services and products to clients. It is bringing together capabilities we had acquired through, particularly, the acquisitions of EAMS and SEAMS, and what we added to that combined capability was a capability we already had within Arcadis so-called client-facing IT. That together is about 200 people who are based in different locations in the world, intended to serve Arcadis globally. You might have seen that we had 2 significant wins: one, which was announced last year for Transport for London, which is really going to help customers of the underground in London with more secure, more safe utilization of the assets Transport for London runs for the underground. So what will ordinary people like you and I see is a much more predictable and much more safe schedule for running the underground Transport for London. And a similar award for Amtrak, which is a large train operator in North America, similar award. Also there, we are going to help the client to optimize the use of the assets to be more predictable to customers who use and will continue to use trains in an increased fashion. Lastly, you probably agree with me and, hopefully agree with me that we have a very strong pedigree in sustainability. It is part of our heritage. We clearly recognize that this will increasingly become more significant to our clients, to the world as a whole. The issues which we're seeing as a result of climate change are undeniable. The impact has been very significant. Just lately, we've seen significant impact and we, therefore, believe that our position, which is already quite favorable, is a position we need to further strengthen. And in that context, the acquisition of Over Morgen, which is a company based here in the Netherlands, was for us a very, very good fit. There's other things we do to strengthen our position in sustainability, as you will recall from last year. We have sustainability now as a measure for the LTIs for our senior management. We're proud to announce that over 2019, that measure actually improved, not measured by our own people but measured by Sustainalytics, which is a company in this space, which looks at how sincere, how real companies behave in terms of ESG and our incremental improvement from 70 to 73 over 2019 is certainly noteworthy. I'm actually proud to actually also take a personal responsibility for sustainability, and that came through the announcement and the appointment to become a member of the Executive Committee of The World Business Council for Sustainable Development as of the 1st of January, which is for a term of 2 years, which is a really interesting, I think, organization. Not only an interesting organization, but I will say the predominant body to actually advance the whole course of sustainability. And with that introduction, I'm turning it over to Sarah.

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

Thank you, Peter. Good morning. I'm pleased to share a strong set of financial results for quarter 4 and the full year 2019. But before doing so, I'll start with the project example from here in the Netherlands. Arcadis is providing consultancy and design services for one of the largest Dutch offshore wind energy projects, where we are utilizing our expertise in offshore geotechnical, engineering and digital modeling capability. So now turning to the financials on Slide 11. Before talking through the details, it's worth highlighting that these figures are presented in a consistent basis to previous years, in line with IAS 17. A summary of our results under IFRS 16 is provided in the appendix, and our annual report to be released next week provides full details in line with both IAS 17 and IFRS 16. I start here with a picture, highlighting the improving trend over the last 6 quarters of our key financial metrics. Net revenue growth, solid margin performance and better managed net working capital. With regard to net working capital, if we normalize for the implementation of the Oracle Solution in the U.S., we will be around the same levels as last year. Our net revenue for quarter 4 is EUR 660 million, a 5% growth for the quarter. And maybe good to remind you all, this is the tenth consecutive quarter of organic growth. We delivered a strong EBITA margin of 9% for the quarter. To demonstrate that we are moving in the right direction, this is the strongest quarter for margins since 2015. For the year, our operating EBITA increased by 18% to EUR 209 million. This margin improvement reflects our ongoing focus on some of the actions we took as management. As Peter mentioned, especially, Make Every Project Count, which is about improving project performance by aligning behaviors, processes and systems. Also, our ongoing attention and priority to key clients and further utilization of our Global Excellence Centers. As we previously reported, the working capital progress in Q4 has been held back by the implementation of the new Oracle Cloud solution in North America, and I will expand further on this in the coming slides. Turning to Slide 12. We have delivered an improved EBITDA of EUR 235 million for the year, up 15%. Walking further down the income statement, our financing charges sit at EUR 30 million. We have a lower interest expense on a lower average gross debt, but this is offset by lower interest income from loans to associates. The year-to-date tax rate was 27%, in line with our normalized rate of 2018. Net income of EUR 18 million includes the full provision of the exposure in the associate, ALEN, as we communicated in December. This consists of EUR 82 million of expected credit loss on shareholder loans and corporate guarantees and EUR 10 million included in other operational costs relating to provision for expected wind-down costs. NIFO was strong at EUR 125 million, an increase of 43%. This allows us to propose a dividend of EUR 0.56 a share, with an increase of 19%. This is, of course, good news for our shareholders. Now turning to cash on Slide 13. From an EBITDA of EUR 235 million, we now see the working capital timing impact of the North America Oracle implementation. Despite the good progress made in the fourth corner -- in fourth quarter, the return to normalized working capital takes more time than earlier anticipated. Tax and interest is broadly in line with last year, so we delivered a cash flow from operations of EUR 143 million. We continue to manage CapEx carefully and so deliver a full year free cash flow of EUR 97 million. Slide 14 shows our progress on working capital. You will recall that in quarter 3, we had a high level of unbilled receivables in the U.S. In absolute terms, the unbilled receivables is EUR 90 million lower than Q3, and the accounts receivable are normalized at 16% of gross revenues and in line with Q4 2018. As a percentage of gross revenues, unbilled is now 16% of gross revenues compared to 21% at Q3. Furthermore, it's worth highlighting that we have a lower proportion of aged receivables. Needless to say, working capital and cash collection remains top priority. And so on to Slide 15. Our continued improved EBITDA and continued cash generation results in a net debt position for the end of December of EUR 310 million. This is our lowest position for 5 years and significantly better or below our peak debt position of EUR 623 million in June 2015. With an EBITDA of EUR 235 million, this gives a net debt to EBITDA total leverage ratio of 1.4, fully in line with our strategic framework. We will continue to safeguard our now strengthened balance sheet. So now turning to the regions. Our performance is led by a strong 8% organic growth in North America for the year. It is pleasing to see that North America with 30% of our revenues provides strong profitability and so continues to be an important building block for Arcadis' performance. Our Environment business, now more than half our North American business continues to be very strong, covering both the public and private sector. It achieved both double-digit percentage growth and percentage EBITA margin. Water, our second largest business, also continues to contribute strongly to these excellent North America results. We do show a higher gross revenue increase in North America. We are becoming more involved in larger programs and where we are lead consultant of projects, we use third-party cost subcontracting. For example, our successful environmental FieldTech Solutions. Latin America, with 3% of our business, also showed strong growth for the fifth quarter in a row, led by Brazil. Operating EBITA margin was 5.3%, showing a marked year-on-year improvement. Across the Americas, backlog growth is solid. Turning now to Europe and Middle East. Representing 44% of our net revenues. Here is a project example from Germany, where we're providing project management and expertise across biodiversity, water management and infrastructure development, enabling the construction of the new gigafactory for Tesla in Berlin. For the segment, revenue growth was 7% in Q4, helped by a return to positive net revenue growth for the Middle East. For the year, revenue growth was 1%, absorbing 10% decline in the Middle East as a result of our increased selectivity. Overall, the region delivered 7.6% margin, a year-on-year improvement. U.K. performance was robust despite Brexit uncertainties. And as Peter mentioned, Boris Johnson gave the go-ahead for high-speed rail, committing to fix the spine of the U.K.'s transport network, including commitments on HS2 and the Northern Powerhouse Rail, both the strong ongoing opportunities for Arcadis. In the Netherlands, margin delivery continued to be strong. On to Asia and Australia Pacific, representing 13% of total net revenues. Australia showed positive growth and operating EBITA margin continues to be excellent at 13.3%. Asia showed positive growth for the year and a pleasing step-up in their operating EBITA margin at 8.8% for the year. And finally, CallisonRTKL. Delivered a revenue of EUR 222 million and an operating EBITA margin of 7.6%. While a disappointing financial result, the newly strengthened leadership needs and gets the time to implement the necessary changes. We are seeing a significant lower attrition at 16.6% compared to historically over 20% and some pleasing recent positive momentum around backlog. And so to conclude, this is a strong set of results for 2019 with positive contributions across the portfolio contributing to a sustained margin improvement, here showing the trends since 2016. We will continue to focus on managing our working capital and cash generation. Even despite the temporary delay in cash flow in the U.S., Arcadis now has a strengthened balance sheet and healthy leverage ratios. And I'll now pass back to Peter.

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

Okay. Thanks, Sarah, and let me wrap it up. I think what you have seen in the press release and what I hope you have heard from us today is that we feel that we are nicely on track to deliver on our strategic priorities. And let me cap it off by bringing you back to what those priorities are and then also highlight where we think the opportunity lies and why we feel comfortable that we will be able to deliver on the specific measurements, which were part of the strategic priorities. So you will remember that when we launched a new strategy in 2017, we actually introduced the 3 strategic pillars, which we consider to be important to deliver on the commitments, which is People & Culture, Innovation & Growth and Focus & Performance. And as I mentioned before, one nonfinancial measure, but yet still very important in our business is the voluntary turnover, also known as attrition. And I think the improvement we made in this year, or I should say, last year, to bring it down significantly with more than 2 percentage points, I think, it's worth noting. It's not where we ultimately want to be. I really feel strongly about a need and a desire to continue to further improve on this, and my goal has not changed. My goal is still to, ultimately, be at the level where we have a single digit to express our voluntary turnover. And as you might have seen from some of the detail, in fact, in some regions, particularly those who performed well, we are already at that level. Equally important in the belief that culture is significant in terms of delivering on goals, the necessity to create a culture, which has a growth mindset, but at the same time, also has a discipline to focus on the right clients, to focus on the right projects. And when you're focused on the right project, you actually be diligent and disciplined in the execution of our projects and that's why Make Every Project Count is such an instrumental part of our journey. Innovation & Growth. While we are shoring up our capability, while we are improving the foundation, we're not losing sight of the fact that the industry is moving on. And I think the launching of Arcadis Gen as of the 1st of January is, for us, a very logical step in also capturing opportunities, which will increasingly become available to the delivery of digital products and digital services. And by the way, the intent, of course, there also is that through the delivery of these digital products and services, we actually create higher margins for ourselves than we do in our more traditional businesses. Our focus on key clients, the 200 which we have now selected to, has also paid dividends. The growth on our key clients is more significant than the average growth, which is what we wanted it to be. In fact, we've committed to have growth from key clients, which would be double the growth in general, and we are well above that. So it's showing that it actually works, and not only at the top line but also at the bottom line. We spoke about PFAS, so I'm not going to reiterate that one. And all of that has created an operating EBITA improvement, which gets us pretty close to the bottom of our bracket and should, hopefully give you the same confidence I already have that, that bracket is something we will achieve throughout 2020. We still need to improve our net working capital, and Sarah has explained why that is. That is largely because of the issues we have encountered with the implementation of the Oracle system in North America. I'm proud to also say that the leverage ratio is already well within the brackets we had set for ourselves for 2020, which was between 1 and 2. So what is going to drive that growth? It's fundamentally to do more of the same and more. So first of all, you need to have, obviously, the business and the drivers in the business, which will fuel that growth. And we believe that urbanization, sustainability, globalization and digitalization will continue to fuel our business. We'll continue to provide those opportunities. And if you, for instance, realize that now close to EUR 1 billion of our revenue is already coming from cities and with the ongoing urbanization, the move of people to cities, you can just clearly see that, that opportunity is not going to go away anytime soon. Our digital agenda will continue to be a more significant part of where we expect to grow in the future, where we expect to create higher returns and Arcadis Gen, again, is part of that journey. Proud to also say that it took a long time, it took a lot of hard work to get rid of the legacy issues. And I believe we are at the point that we can safely say that the significant legacy issues have now all been behind us, which allows us to focus on our core business more significantly than we've done in the past. All our attention can now go to the core business. And I think over 2019, we've already seen that attention, and the focus on core business is indeed what makes us the great company we are. The opportunities to further improve our operational performance are still largely the same. It is through a continued focus on Make Every Project Count. I would say that a significant part of the improvement in operating EBITA came from Make Every Project Count, but we have not completely exhausted that opportunity. We believe there's much more opportunity to capture. The focus on key clients, I just mentioned. And the use of our Global Excellence Centers to be at a higher percentage than we currently are, is still the opportunity available to us as well to further improve our financial performance. You will have noted that we did also in our press release expressed an intention to repurchase 3 million of shares to cover both employee incentive plans, that is nothing new because we've done that in the past as well. What is the newer part is that we're also covering the dilution, which happens through the stock dividend, so that is definitely different from the recent past. So in closing, and to now allow you the opportunity to ask any questions, we believe that we are nicely on track, and we'll be able to deliver on the goals we've set for 2020 and more to come throughout this year. Thank you.

[Jurgen Pullens, Director of Investor Relations]

I guess with that, we're opening it up for questions. I'm not going to be the arbitrator who says, who's first? Go ahead. Go ahead.

[Luuk Van Beek, Analyst]

Luuk from Banque Degroof Petercam. Well, first of all, a question about your portfolio streamlining basically. So over the last years, you've done a lot of work on that, mainly in the weaker regions, but also in the strong regions and areas. How far are you in now in the process? And to what extent do you think that will still have a negative impact on your total organic growth?

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

Yes. So I think we did say that the portfolio review is an ongoing process. So it's not something we had told ourselves would be taking 2 years, and then we would stop it. It has become more of a discipline, so that we continue to look at our business to see where we have an opportunity to actually win or at least be amongst the winners. We started that in the Middle East, of course. And I think that has paid dividends. A focus on a smaller number of countries and a smaller number of clients, I think, has created the improvements we have seen. The next we took care of in that regard was in Asia, where we exited a couple of countries. Exited services, we were providing so-called D&E services in China. So that has been pretty much finished as well. So we exited from Taiwan. We exited Indonesia. We exited Korea and we exited the D&E services in China. We've actually done some smaller things in Europe already, and Europe is now the region we're looking at to convince ourselves that we are in the right places. Then we'll probably look at regions where we haven't looked at in the past. So we looked at the high priority ones first. And it is indeed still a part of a process, which will continue to run its course so that we can convince ourselves on an ongoing basis that we are in the right place, the places where we have an opportunity to actually deliver on our goals.

[Luuk Van Beek, Analyst]

Okay. And you also mentioned the GECs as a key driver for margin expansion. Can you give us an update on how that's developed over the last year?

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

Yes. So we -- the commitment we made at the beginning of last year was that we wanted to have 15% growth in the GECs and 15% growth is not necessarily 15% growth in terms of head count. But more important for us, 15% growth in billable hours. And we achieved that growth. So we kept the head count pretty much stable to first utilize capability we already had available, i.e., high availability and we've created that. We have given all the regions this year a further stretched goal. So the expectation is that all regions will continue to grow throughout 2020 as well. We are roughly around the 10% of the total. I have stated publicly in the past and I'm not going to change that view that something more like 20%, 25%, even maybe 30% is possible, so that gives you an idea of that opportunity, which is still available.

[Luuk Van Beek, Analyst]

And the final question for now is on your balance sheet and your share buybacks. You announced the share buyback for 3 million shares or up to 3 million shares. If you look at the leverage, it's going down quickly, already at the low end of your target range. Do you see that share buyback as a structural instrument that you will use in future years as well? Or how do you see the use of free cash flow in the future?

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

Yes. So I think, indeed, I think it's a demonstration of our strengthened balance sheet today. And I think in longer term, you're aware that we come out in Q4 with a new strategic framework and, as part of that, a longer-term capital allocation position. But I think it's great to see that we do now have the stronger balance sheet as a result of a lot of the actions internally.

[Hans Pluijgers, Head of Research of Benelux]

Yes. Hans Pluijgers, Kepler Cheuvreux. A lot of questions, but I will stick to 3 -- start with, first of all, you already discussed margins at the beginning and that, let's say, you saw clear improvement. But the main improvement was indeed in the improvement areas. I know of course, you have a target set for next year -- sorry, for this year already, between 8.5% and 9.5% but I believe that maybe your ambitions for the longer term are somewhat higher. So yes, looking at the development, because also now the improvement in markets are closing into the 8.5%. So where do you see really the longer-term potential for really improvement? Also, in your -- let's say, in the key areas, you mentioned [ there of course it ] was about stable, though, of course, CallisonRTKL had some impact. But you could maybe elaborate a little -- some more and maybe give some building blocks of how you see it? Secondly, coming back on RTKL. Yes, could you give maybe some feeling on how do you, let's say, see that progress to development in that company over, let's say, in 2020, with respect to sales development and margins? Is it still a transition year? Or do you see some clear improvements there? And lastly, of course, the old U.S., on the cash flow there, it's taken somewhat longer, but could you give maybe somewhat more detail on precisely what you're currently doing and why it's taking somewhat longer? And when do you expect, let's say, that issue is to be solved? So when we can say -- can principal include the cash into our numbers?

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

Yes. Okay. Thanks, Hans. I'll take them one at a time, obviously. So it is obviously very positive and encouraging to see that, increasingly, the focus on -- is on what do you do next as opposed to what did you do in the past, and that's understood. I'm not going to give you a specific number because that's part of the Capital Markets Day. I think what we have said is that the improvements which we have seen -- and you've rightfully so noted that the improvement areas are, I mean, at least trending in the right direction and in some cases, like Asia, is already well within the brackets. It's not like we are sitting on -- or resting on our laurels and saying this is good enough. We will continue to push these improvement areas as well.I think that I've also highlighted where I see the levers for further opportunity, GECs, Make Every Project Count, key clients and in fact, maybe somewhat more midterm, the contribution which will come from digital services. So I'm not going to give you a specific number quite yet. As I commented before, my goal is first to deliver on the 8.5% -- 9.5% for 2020. And then in the Capital Markets Day later this year, we will give you specific numbers for the next couple of years.On CallisonRTKL, yes, the turnaround is taking longer than we had expected. The issues which I think were all kind of resulting from that prolonged period of the strategic review had a deeper impact than I think we had anticipated. I've commented before that to leave a people organization in somewhat of an uncertainty for 9 months is obviously something I don't want to do again. I think that with the changes -- the first change we made with Kelly Farrell as the CEO, we took a first step. She has subsequently looked at her organizational structure, made some changes in the organizational structure and the operating model as well to increase the accountability, to also increase the focus on their equivalent of Make Every Project Count and then also to increase the focus on clients.As I mentioned in my opening comments, the positive notes or the positive signals I'm seeing are the reduction of voluntary turnover, which is typically a sign that things are starting to stabilize; the improvement in the back book in the last quarter, which is showing that our clients also increased their confidence in us; and lastly, and that's quite important and significant in the architectural world because winning work is, to a large extent, determined by having senior people who can convince clients that you're the right individual, we were very recently able to hire 2 senior people back. And with that, we are also, of course, hiring or bringing client relationships back, which is a welcome change from where we were because these people all left in that period of uncertainty. The fact that they know us and decided to come back is another positive signal. So the expectation is that throughout 2020, we will see an improvement in CallisonRTKL as well.And then lastly, on the Arcadis Way, the Arcadis Way Oracle Cloud implementation, just to refresh your memory, kicked off in July of last year. That was the very first time we actually did a cloud implementation because all implementations prior to that one were the so-called eBS system. The issues, which were largely related to billing, invoicing, had been more severe than we expected them to be. At the same time, though, the improvements might not necessarily be visible, but in terms of, for instance, unbilled receivables, we have significantly reduced the percentage or the value of unbilled receivables. I'm not going to be extremely bullish in terms of saying that at the end of this month, or the end of next month, we will be able to completely normalize it. I think a more realistic period to -- for it to be completely normalized is halfway this year.

[Hans Pluijgers, Head of Research of Benelux]

Maybe a follow-up on that. On the billed receivables, there you saw a quite significant increase in the nonoverdue and in the 31 days overdue. Is it mainly then the U.S. because you, of course, maybe have been sending another invoice, but still they have to come in, in the coming months? Is that the main driver for that increase?

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

So on the aged receivables?

[Hans Pluijgers, Head of Research of Benelux]

On the aged receivable -- yes, only because -- the more aged receivables that was improving, but between 31 days and 60 days, that was increasing. Is that mainly U.S.?

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

So indeed, the U.S. impact is significant on there. And as you rightly say that the -- some of the very old receivables, which includes U.S. but also Middle East, has improved slightly. I think maybe to add to Peter's point, it's great to see that the billing now is higher than revenue, yes? So we are closing that gap. We're getting the invoices out there, and this is recent U.S. debt, so we're -- receivables, so we're confident we're going to get that in the short term.

[Hans Pluijgers, Head of Research of Benelux]

Yes. But what I'm referring to is on Page 14, you referred to nonpast due that increased from EUR 244 million to EUR 381 million and year-on-year, about EUR 60 million. And also the -- between 0 and 30 days overdue, that increased also quite significantly. Is it mainly -- that's mainly U.S.?

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

It is, because that's the unbilled bit that's gone into the receivables and will be coming in shortly. Yes, yes.

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

And maybe a final comment on the Arcadis Way, even though you might have additional question. But the implementation in North America, as I mentioned, was the first one to go on the cloud. Prior implementations in other regions were all on the so-called eBS system. We have, actually, in January, done a retrofit in Australia from the old eBS system -- I shouldn't say old because it's only a couple of years ago, from the eBS system to the cloud. That has gone extremely smooth.So the changes we made in our approach, learning from the North American implementation, have clearly paid off in the retrofit in Australia because you didn't ask any questions, which suggests that you haven't picked up any noise on this, neither did I pick up any noise, so that's quite positive. So we're trying to learn from the experience in North America, which was not what we wanted to be. And again, the Australian one went much smoother.

[Martijn P. den Drijver, Analyst]

Yes. Martijn den Drijver, ABN AMRO. Just a clarification on RTKL. You're happy with the book-to-bill, happy with the backlog development, new hires. Basically, you're saying we'll let the team do whatever it needs to do and no additional measures are contemplated at this point in time.

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

No. No. We have spent quite a bit of time with the leadership, particularly Kelly, to ascertain ourselves that we're on the right track. So we are not contemplating any significant changes in the structure in the short term.

[Martijn P. den Drijver, Analyst]

Okay, clear. Then moving on to unbilled receivables. So you seem relatively happy with the performance. However, if you look at the absolute numbers, it has increased by 23%. And if you then look at how net sales has improved 4% and gross sales by 6%, I just don't understand how you can be happy with the unbilled receivables development. So maybe you can add some comments on that.Maybe it was a bit distorted by the impact of Oracle Cloud, so maybe you can tell us what the actual number was or some kind of range. It was EUR 50 million during the Q3. What was the remaining impact in Q4 so we can have a better view of how unbilled receivables has actually developed? That's my second question.And then on Continental Europe, if you mentioned a good performance in The Netherlands and in Belgium and Germany, 3% organic growth, but your EBITA margin declines, that kind of suggests that your performance in France has deteriorated quite significantly. Can you elaborate a little bit on that?And then my final question for now, on ALEN, ALEN. Can you update us on the timing of any cash flows, if possible? And your thoughts on maybe the choice that you still have on assuming that, meaning taking on the debt of the banks or the alternative. And as a final one, can you remind us of the total provision for the credit losses as per year-end for ALEN?

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

So we'll take them in the same sequence as you raised them. So we'll start with the unbilled receivables first.

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

Yes. So I think it's worth highlighting that the -- so indeed, the unbilled receivables has to continue to improve. But it's worth noting that, that was a high number in Q3, and we moved from the 12% to the 8% in Q4. But December '18 was at 5%. Yes? So we've still got more work to do on the unbilled, and that is -- the majority of that is indeed in North America.

[Martijn P. den Drijver, Analyst]

But can you quantify the impact from Oracle? So...

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

So in terms of cash flow, it is about EUR 50 million. I think what is positive is that the majority of that at Q3 was in unbilled, it's now moving from unbilled to billed, which gives us confidence it will go from billed to cash in the coming months.

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

Okay. So -- all right. So your next question, I think, Martijn, was on Continental Europe?

[Martijn P. den Drijver, Analyst]

Yes.

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

And I think specifically on France. Yes, we didn't speak about France. It's not because we don't want to speak about France, but since you asked the question specifically, so in France, last year, we took a couple of actions as well and we made also there some changes. That gave me quite a bit of confidence. In fact, I've been to France myself to see what our business outlook is, how our CEO is performing, and I have been particularly encouraged by the way he took care of a number of legacy issues, which we had in France as well. So when I spoke about legacy issues largely being resolved, that included legacy issues in France, particularly legacy issues related to 1 particular client, but 5 projects for the same client.So we didn't mention France because we wanted to hide it. The performance and the improvements we're seeing is not where we want it to be, so we still need to create further improvements in France than the improvements we've seen throughout 2019. But the signs, the signals, including taking care of some legacy issues, are definitely encouraging.

[Martijn P. den Drijver, Analyst]

Okay. And just a follow-up on that. Previously, when we talked about France, you kind of indicated that if the [ results ] do not improve, then you might even contemplate a sale. Is that off the table now given these positive signs that you've seen? Or is that too early to say?

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

No. I think that this is part of a larger conversation or a larger question around portfolio. Our patience is not unlimited. So if a country does not improve in a time which we consider to be reasonable and the business outlook is not such that you can expect an improvement anytime soon, then we would still not hesitate to take the actions, as we've done in Asia, as we've done in the Middle East. That doesn't mean to say that there is an immediate potential sale on France, but they will have to deliver just in line with the rest of the organizations. Otherwise, we'll have to take a different decision.I think your next question was on ALEN. Let me just give everyone a highlight or an overview on ALEN as a whole, and then Sarah will give you the specifics on the guarantees. So when we made our announcement in late December, the announcement was fundamentally that we had decided to stop any further investments in ALEN, which is still our position, so that hasn't changed. We also, at that time, said that we would work with our partner to create an orderly wind-down for us. And we also described at that point in time that there's different scenarios which could ultimately lead to an orderly wind-down. We're now in the middle of February. I don't think that we had expected in late December that by now, we would have been able to tell you what that orderly wind-down would look in detail. But I can tell you that we've had excessive amount of conversations with our partners, which are actually going on as we speak. I'm actually pleased with the progress in those conversations, but we're not at a point where we can share with you any specifics on what that wind-down would look like. But I'm not expecting that would drag out for years based on the conversations we've had so far.And let me also say before someone asks the question, is a lawsuit upon you anytime soon, because that was a question we got in December. The conversations are very constructive, so I don't see a lawsuit on the horizon at all, just as I said in December.

[Martijn P. den Drijver, Analyst]

And previously, you also mentioned that a sale would still be a possibility. Is that still on the table based on your conversations?

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

Yes. It's amongst the scenarios which we are pursuing.

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

So in terms of guarantees, the total amount was EUR 93 million, and that's related to the ECL for this year and the P&L was EUR 83 million. And you recall, we also took a EUR 10 million provision to make the full P&L impact, EUR 93 million for 2019.

[Martijn P. den Drijver, Analyst]

You also had a provision already in the balance sheet last year. So the total would now be? Because what you mentioned now is the addition.

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

The addition, yes, but the total is EUR 93 million.

[Martijn P. den Drijver, Analyst]

EUR 93 million, okay. And on your discussions about assuming debt, is that part of the conversations that you're still having?

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

Absolutely.

[Quirijn Mulder, Research Analyst]

Quirijn Mulder from ING. A couple of questions. My first question is about that in the presentation, it's all about the geographical breakdowns. I'm missing [ similar view ] on the different segments. So I would like to -- how is that developing with regard to building or water, et cetera, in terms of order book and where you see the biggest chances?Then my second question is about the organic growth was 4% in the key market, but the margin stayed at 8.7%. In normal cases, when there's an organic growth, there is also an improvement of EBITA margin. So maybe you can elaborate on that, what's happening exactly there.And then my third question for this moment, a last one, is that the organic growth in the fourth quarter was 5% overall. And I'm interested how sustainable that 5% is for you in -- going into 2020, let me say, excluding effect of coronavirus.

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

So let me start in different sequence here and start with your last question first. I think we've repeatedly said and we'll continue to say that at least for the foreseeable future that we're not looking for growth at any price. We're looking at quality growth. We're looking at profitable growth. And our commitment for 2020, of course, is still part of the goals we said during the Capital Markets Day, which means that we would commit to a growth which is for the non-key clients at least equal to GDP in the countries in which we operate in. 3%, by and large, is probably just a little higher, but that is, I think, in line with the commitments we make. And for 2020, our commitments will continue to be the same. And our commitments for key clients, by the way, will continue to be the same as well, which is twice GDP. And as I said in my earlier comments, last year, 2019 actually, we exceeded that nicely.So that's on the -- how sustainable the 5% will be. And if we can create 5% with the right quality of the bottom line, we will not hesitate to do so, but it's not top line growth at any price. We have, I think, done a really good job to move the organization away from the belief that the only thing which matters is top line growth. We don't want to disturb that balance, the balance between top line and bottom line. So I will be very careful before I will convey a different message to the organization. I want the people to continue to focus on growth, which will give us that top line improvement but certainly, and maybe even more importantly, the bottom line improvement.Your first question was on segments. I'm not sure I completely understood the question, Quirijn. Break it down in -- as opposed to the segments?

[Quirijn Mulder, Research Analyst]

No, no. I would like to know more about what's the situation with regard to the order book in water and building and infrastructure, how's development there because it had not been discussed in the presentation at all. So I'm missing that there somewhat.

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

I don't think that we have actually, in the past, in this presentation, updated you on the businesses and the growth of the business per se. We can do it more anecdotally and we can give you any specifics you'd like to have probably separately, but then I'll probably take it by region, if you don't mind.

[Quirijn Mulder, Research Analyst]

Okay. I understand what you're saying. But that's the idea. I mean it's -- we would like to get a feeling on where is your biggest growth. Is that in water? Or is that in infrastructure? Where do we see the best opportunities? And where -- what is...

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

So by the time you total it up? Or by...

[Quirijn Mulder, Research Analyst]

No, for the whole, for the group, at group level.

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

We can probably give you that number. I thought you wanted to break it down by segment and then by business. But it's just looking at the 4 businesses for Arcadis as a whole, where is the highest growth coming from. Correct?

[Quirijn Mulder, Research Analyst]

No, if you break it down by region and then by segment, that is more the work for an analyst, I think.

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

So environment is definitely the strongest growth, but we also see growth in -- across the others. But yes, environment was definitely the strongest growth. And that was linked to the point I made about environment in North America where it's more than half our business in North America and is growing double-digit growth and margin in North America.

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

And then there was one question left, I think, yes?

[Quirijn Mulder, Research Analyst]

Now if you look at the key markets, last year, you made 8.7% EBITA margin. That was the same as 2018, it was also 8.7%. Your organic growth was about 4%. So I'm interested whether -- what is the reason that you did not show any growth in the key markets in terms of EBITA margin? Because I think there's a lot of opportunities there, and the markets are willing to ask for your services.

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

Yes. I think the -- part of the answer to that question is CallisonRTKL being part of key markets there. So CallisonRTKL's decline in operating EBITA margin took down the total for that segment, if you like, the 84%. I think that probably is the most significant explanation actually for it not growing.

[Quirijn Mulder, Research Analyst]

And what -- and about RTKL, you speak -- let me say, you have spoken a couple of times about, let me say, management changes, et cetera. But what about the markets? What is the development there? Are you more looking for retail? What's the situation in the U.S. with regard to [ architectural ] work? And what's the situation in China, for example? Because I think that are the most important markets for them. And maybe the market sector has changed in the last couple of years, which you might not see yet, but it might have an impact on the profitability and the revenue of the RTKL business.

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

Yes. No, that's just like almost any other market. That market is subject to change as well. You mentioned retail specifically, which has always been an important market for CallisonRTKL. It is still an important market for CallisonRTKL, but you have to easily argue whether longer-term retail, particularly shopping malls, will continue to be a driver for significant growth. And the answer is most likely not, simply because people are not going to -- in great numbers continue to go to the shopping centers, except for the fact that if you have multipurpose type of shopping centers, then you might still get investments in these sort of things.So the focus will -- we're not moving away from retail, but we're not expecting the biggest growth in CallisonRTKL to come from retail, simply because of the dynamics in the world, which is people taking away from shopping malls. So Healthcare, as an example, we'll have to replace. If we see a decline in growth in retail, then that will have to come from Healthcare, in particular, in Workplace.

[Hans Pluijgers, Head of Research of Benelux]

Some follow-up questions. First of all, looking at the Middle East, you already pointed out that in Q4 you saw some growth again, but still year-on-year, still a clear decline. Margin clearly improved. But yes, how do you see that going forward? Do you really see now that it will -- let's say, will you have again, like what you see in Latin America, [ the way it's ] up again? Or do you get most -- maybe to take some additional measures there? And how that has changed the composition of clients from public to private, could you maybe give some feeling on that?Secondly, on the CapEx, Sarah, you mentioned a better focus on CapEx, more [ improve ] on that. It came down quite significantly. So what has changed there? And how should we, let's say, look at CapEx for 2020? Also why could you, let's say, get -- take it down so significantly?And lastly, again, going back a little bit on capital distribution, combined with M&A. Yes, the acquisition in Netherlands was somewhat different from -- let's say, from what you announced in the past. It's mainly focus was on digital acquisitions, so that's more or less strengthening your position in sustainability. Is this going forward? Also, what you should expect, maybe you've gone slightly more active in some markets and some market segments to improve your position there. How should we see that? And how could it also indeed affect in the longer-term capital distribution?

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

Yes. So I'll take the first and the last one, and then I will ask Sarah to take the second question. So on the Middle East, yes, it is kind of interesting to see how discipline and focus actually can create results. And as I mentioned before, I have never been bothered about the fact that we would see a decline in revenue. In fact, that was something I had assumed needed to happen in order to improve our performance.Our mix is changing. The number of countries is changing. It's simply now the Emirates, which has always been relatively stable, Qatar, and that is probably not going to be, longer term, a country of growth simply because of lack of investments after the World Cup is completed. And up until that point in time, there was -- continued to be investments.And Saudi Arabia. And I know that in that context, a lot of people have always had mixed feelings about Saudi Arabia. But our focus on Saudi Arabia and particularly the disciplines and our focus on only a limited set of services, project management, program management, has now created a situation whereby we're not going out of our way to try and win a lot of work, but we're creating extremely healthy margins from Saudi Arabia, and that's probably something you've not heard us say in the past. And I'm not going to make it bigger than it probably needs to be because it is from a small basis, but it does show that if you can be and continue to be focused, then you can actually make a decent living in Saudi Arabia.That being said, though, there's still other things than simply only margins we need to focus on. We still want to ultimately end up with a set of clients, which not only generate healthy margins but also pay us in time. So the DSO needs to come down as well. We're still in the midst of that journey. Time will tell if that journey is a realistic journey. I am just very pleased at this point in time with the fact that discipline is there. And I am not going to move away from that discipline. And so if that comes with modest growth, as we've seen for the first time or at least in the last quarter, I'm perfectly okay. I would rather see that than allowing people to go out and chase everything which moves.So on the last question, capital allocation, and particularly, are we going to change our view on M&A, no, not at least until the point of time that we have worked through our strategy and shared with you what our new strategy is. So for the foreseeable future, which is between now and November, our stance on M&A will be the way it has been for the last 2 years. If we see something which is attractive, is a complementary capability, fills a niche, like Over Morgen did and EAMS and SEAMS, then we'll look at it. But I'm not going to close out this meeting to say that all of a sudden, we have decided that we go after a lot of large acquisitions.

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

And then on CapEx, indeed, we have implemented a greater control around our CapEx. The CapEx is broadly 2 parts. One is on investments in IT and the other half on real estate or offices. And on that -- on the latter part, we've got a new manager of Workplace, of real estate, which allows us to have a global model of really ensuring that we invest where it's wise with the right investment return. And of course, the principal part of the IT investment has been Oracle, yes, and that will continue over the coming years.I think it's worth highlighting, and I think it links in with the announcement we made last year about the Chief Technical Officer. Obviously, moving forward, there's a much greater link between traditional IT and technology and software, so the type of investment could well change. And obviously, that's something we'll talk more about in November. So it's less -- it's not bricks and mortar, it's more investments in software and capabilities. So the investment will change, but I think we're all committed to invest the right level to ensure that we enable future profitable growth.

[Hans Pluijgers, Head of Research of Benelux]

And I guess some guidance for the CapEx for this year?

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

It will be broadly similar.

[Hans Pluijgers, Head of Research of Benelux]

Broadly similar.

[Quirijn Mulder, Research Analyst]

A couple of questions left, Quirijn Mulder from ING. ERP rollout in the -- in Europe is somewhat delayed maybe because of the U.S. -- some issues. That's my first question. And the second question about the PFAS, NOx. On the NOx, you did not give any comment, but there should be some impact on the NOx given the fact that you are active in the Netherlands, and there's certainly -- so maybe you can elaborate on that. And then with regard to the presentation on PFAS. You speak about an addressable market of $500 million, so maybe you can elaborate what you mean by that. Is that total markets on an annual basis? What is the current state with regard to what you do in PFAS, et cetera?

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

Yes. So addressable market means a market we can potentially pursue, and I'm not going to tell you that we will be able to capture 100% of that market. No one expects that. In 2019, our revenue in PFAS was about EUR 40 million, so just under 10% of that addressable market, which is not a bad share, but we want to, of course, increase that share. So it is an annual addressable market, annual addressable market for Arcadis. Other people might have another number based on their capabilities, but this is a market we feel we can address. And the expectation is that, that market is going to continue to grow. And when I say grow, the expectation is not that it will stay necessarily single digits, it will be a significant opportunity, clearly.As far as The Netherlands is concerned, yes, nitrogen and PFAS, both 2 hot topics in the Netherlands, both without the resolution at this point in time. As you might have seen from the press release, we have signaled that it is still an issue which needs a resolution. It needs clarity. If that clarity is not going to be provided, then it will have an impact on our business and not just our business, it will have an impact on everyone's business who are active in this space, including the larger contractors. At the same time, though, we also didn't want to miss the opportunity to say that in the meantime, as we're trying to work through this issue and trying to find out, we as in everyone in the space, what the best solution is, we have also had an opportunity to provide more consultancy services than we probably would have not been able to provide if this issue didn't surface in the Netherlands. So it does have an impact. And I don't know that I can predict what the depth of that impact will be because I can't predict when this will be adequately resolved with regulation, which is clear to everyone.

[Quirijn Mulder, Research Analyst]

Okay. But it had already probably an effect in 2019 as some -- were delayed by some, let me say, infrastructure work in the Netherlands?

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

Yes. Yes. We -- I don't think that the fact that it is an issue was signaled this time for the first time. We've signaled in the past for as long as this issue came up, and I think the nitrogen issue came up in May of last year and PFAS shortly thereafter. And we have, I think, consistently said that it will have an impact if there's no regulation. At the same time, though, it might have an opportunity and effect on PFAS. It has had an opportunity as well.

[Quirijn Mulder, Research Analyst]

But the balance is probably negative then.

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

Yes.

[Jurgen Pullens, Director of Investor Relations]

I'd like to switch also to the conference call to give people the opportunity to raise questions.

[Operator]

[Operator Instructions] We have no questions coming through via the telephone lines.

[Jurgen Pullens, Director of Investor Relations]

Hans -- or go ahead.

[Luuk Van Beek, Analyst]

Luuk from Banque Degroof Petercam. I have a question on corona. You mentioned that it has an impact in China. Can you explain what measures you've taken to protect your business and how it's impacting your operations in -- demand for customers and so on?

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

Yes. So to put it in perspective, China is about 4% of our total revenue. That's the first important data point to take into consideration. We have about 1,730 people in China and about 800 in Hong Kong or thereabouts, so 850, so say 2,500 -- 2,600. As you will have seen from the public domain, quite a number of businesses have been impacted. For us, it meant that most offices in China have been closed for an extended duration, and extended meaning an extension of the Chinese New Year, which is typically already a closure anyway. By now, most offices have been reopened again. That doesn't mean that everyone is ready to go to work. The only office which is still closed is our relatively small office in Wuhan, which is the center of the virus, of course.How quickly we can pick up work is not just depending on whether we can open an office. But if you think, for instance, about the quantity surveying work we do in China, which is a significant part of our business, then for us to be back at work means that, first, contractors need to be back at work too, for instance, go back and resume the construction on a building. If they don't get back to work, then there's no point for us to be there. So business will potentially -- or will surely start up slowly after there is a firm point in time that everyone can say the situation is safe again.We are looking at this in terms of a number of scenarios. One scenario is that fairly soon, there will be a situation where things are under control and people can go back to work, and that means -- fairly soon means in the next couple of weeks. The other scenario, which is another extreme, is that this will drag on for a longer period of time. And then, of course, the scenario doesn't get more attractive, it gets worse. And so we are not at the point yet where we are able to quantify exactly what these different scenarios will be simply because we do not know when we will reach a point where we can say everyone can go back to work, the situation is now under control.It does suggest that at this point in time, because of the number of additional people being infected coming down, except for today because they introduced a new measurement, but just -- not much you can do about it. But it seems like over the last couple of days, the number of incremental infections came down, and that suggests that we're getting closer to the point of having it under control. But I want that point to be more certain than it is at this point in time. 4% of our business, a lot of people can't go to work. In some cases, we allow people to work from home, but not in all cases that actually is a solution.Hans?

[Hans Pluijgers, Head of Research of Benelux]

Yes. Maybe just a follow-up on the last one. First of all, that implies that in principle, currently, you're not billing -- have no -- almost no billable hours in China. Is that how we should see that?

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

Yes. It's -- I mean it is, indeed. If you have people on the payroll but you don't have projects they can work on, then that's fundamentally a very low availability. It's not like it's a 0, but it's certainly not where we want it to be. So this mechanism is a painful mechanism because you want to sustain your workforce in the expectation that there will be a solution anytime soon. You still need to pay them, but obviously, there's nothing you can allow them to charge time to.

[Hans Pluijgers, Head of Research of Benelux]

And then a question on the U.S. FieldTech Solutions where you indicated the environmental business is growing quite rapidly. Could you give maybe some feeling how the FieldTech Solutions were growing and how big part of the environmental business in the U.S. that now accounts for?

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

I don't have the specifics on FieldTech Solutions, but we might be able to get it to you separately. I will say, though, that the way the environmental business in the U.S. is growing is, I would say, close to spectacular given the size of the business already. And a view of what a lot of people think about the U.S. as a country, which at this point in time, might not care too much about the environment, that is not what we see, and that's why we have this growth. If we look at our pipeline, there's nothing which would suggest that any time soon, there will be a sudden stop to that growth. So it is a healthy pipeline, tremendous growth, I would say, in light of some challenges, which clearly are prevalent in the U.S. environment. But still, a really good business and a business which is significant part of our overall business by now. But we can back -- we can circle back separately on FieldTech Solutions and the growth in there, but it's certainly been a big contributor.

[Martijn P. den Drijver, Analyst]

Martijn den Drijver, ABN AMRO again. Just to follow up on working capital, Sarah. If I look at payables and then I'm taking into account accruals as well, but it's gone up quite considerably. In your presentation, you see -- you noticed that -- you mentioned accounts payable, [ SEC ] are stable at 7% growth. But if I look at the absolute number, it's gone up quite considerably. Is there something special that we should know about?

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

No. I think it reflects the fact that our gross revenue has gone up quite considerably. And with particularly in North America, there's a lot of the subcontracting, yes. So the...

[Martijn P. den Drijver, Analyst]

Yes, but again, as with the unbilled, the payables have gone up way more than your gross revenues.

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

No, but it's 7% of gross revenue in December '19 as it was in December '18. So there's nothing abnormal going on there.

[Martijn P. den Drijver, Analyst]

I would assume that if you look at payables, that you would look at your costs, not so much your gross revenue. And I realize that your third party also flows through gross revenue, but I would more link it to costs.

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

No, but a significant portion is the subcontracting, and I think it's worth reiterating that it's 7% this year as it was last year.

[Martijn P. den Drijver, Analyst]

All right. Then the second question I have is on -- I know we will have the annual report in a week or 2. But what is the available undrawn credit facility at year-end? Would you say the number that you can give right now?

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

So our liquidity have obviously significantly improved, north of EUR 500 million.

[Martijn P. den Drijver, Analyst]

Okay. So the refinancing of the Schuldschein, which comes due in May, not an issue?

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

It's not an issue. Obviously, we've initiated the process to maintain that level of liquidity, but it's not an area of a concern, no.

[Martijn P. den Drijver, Analyst]

Okay. Because you are able to draw down on the RCF to refinance the Schuldschein. That is a possibility. There's no restriction on that.

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

There's no restriction on our RCF, no.

[Quirijn Mulder, Research Analyst]

Yes, Quirijn Mulder for the last question. Maybe it's a strange question, but can you give me an idea about what percentage of your revenues related to climate change? Do we have any idea about that number?

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

Yes. So we slice and dice our revenues in many, many different ways, but we haven't gone that far yet. But I say that not with -- I say it probably with a smirk on my face, but I don't mean that -- with a smirk on my face because I think that is going to actually change over time. So I don't think that we have that specifically. Do we have it, Jurgen? I don't think we have it. What we can do is probably take a look at it and see if we can come up with a meaningful measurement.Intuitively, I would say it is growing. If I see where we get involved in either proactive or reactive issues related to climate change, including in North America, I would probably not be overly ambitious to say that I suspect it is growing, but I can't give you the specific numbers. I would expect, though, going forward that it will grow once we have established the baseline, and my expectation is going forward, it will change, improve, increase.

[Jurgen Pullens, Director of Investor Relations]

Then there are no further questions, so I'd like to maybe hand over to Peter for a final remark.

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

Yes. Yes, thanks, Jurgen. And thanks, everyone, for again your attendance, including people on the line and for your questions. As we said in our comments, we're pleased with the performance in 2019. We also acknowledge that there's still additional work to be done. That will probably never change. But at the same time, we feel that we are well on track to deliver on the commitments we made to you in 2017 vis-à-vis 2020. In quite a number of cases, we are already delivering on those commitments. We still have some work to do, but the confidence that we will, throughout this year, deliver on the remaining commitments is absolutely there.We also appreciate the interest you have in seeing what comes next. I need to test your patience just a little longer because we are in the process of revising our strategy. We have set a date for the Capital Markets Day, by the way, which is in our press release. We're close to also deciding where it will be held. So I know that we will be talking to you in between, but we definitely appreciate the interest you have in Arcadis as a whole and in our revised strategy, including capital allocation and the like. So thanks very much.