Arcadis NV

AEX:ARCAD

Earnings Call Transcript 2020-Q4

[Jurgen Pullens, Director of Investor Relations]

Good morning, everyone, and welcome to this Virtual Analyst meeting. My name is Jurgen Pullens, Director, Investor Relations of Arcadis. We are here to discuss the company's results for the fourth quarter and full year 2020 released this morning. With us on the call are Peter Oosterveer, our CEO; and Virginie Dupérat, our CFO. We will start with a presentation by Peter and Virginie, which will be followed by a Q&A. [Operator Instructions]Lastly, we'd like to call your attention to the fact that in today's session management may reiterate forward-looking statements, which were made in the press release. We'd like to call your attention to the risks related to these statements, which are more fully described in the press release and on the company's website.With these formalities out of the way, Peter, please begin.

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

Yes. Thank you, Jurgen, and good morning, everyone, and thanks for joining us to discuss our fourth quarter and full year results for 2020. When reviewing our performance for 2020, I believe that one must obviously start with COVID-19 and the impact that it has on all of us. And it does not quite feel like less than a year ago when we initiated our global COVID-19 task force and identified a series of actions to ensure continuity for our people, for our clients and for our business as a whole.We actually felt really proud back in March of last year to have moved 90% of our people to work from home within 2 weeks. But frankly speaking, I could have not imagined that this would have last for as long as it now has. I am, therefore, extremely proud of the way my fellow Arcadians have responded, with resilience and agility, whilst staying very focused on serving our clients in the best possible way. And I believe that this -- that focus on our clients combined with the actions we took and all of that on top of the improvements we already initiated prior to this pandemic, which has enabled us to perform as well as we did in 2020.Our clients have continued to provide us with new opportunities, which has allowed us to finish 2020 with a 5% growth of our backlog. We are also seeing that our clients are increasingly more interested to hear what Arcadis can offer to create safer, more resilient and more sustainable solutions so that they also evolve stronger from this pandemic.I'm also, obviously, very pleased to see that we have not been forced to reduce our workforce; that the engagement of our employees has increased while our voluntary turnover decreased significantly throughout 2020.Let me now provide a summary of our operational results for 2020, first, followed by quickly reviewing our performance against the commitments we made back in late 2017, when we launched our now prior strategy. And I will then turn it over to Virginie to get into further detail.I believe that our overall performance deserves to be described as strong, certainly considering the very challenging circumstances. And I'm particularly proud of the improvement in operating EBITDA margin to 9.2% from 8.2% a year ago, and even more so, the very strong free cash flow of EUR 324 million. It does show that our earlier initiated stronger focus on better project execution and expanded use of our global excellence centers and our focus on key clients, in conjunction with the actions we identified in Q1 of last year, were the right ones to take.And finally, we are starting the new year with a healthy backlog as we were able to win a more than fair share of new opportunities, which created the growth of our backlog. And Virginie will obviously go into further detail, but let me now already specifically mention the outstanding performance in North America over 2020. A significant part of our business, as you know, and a business which continues to perform better and better.I would like to now quickly review on our next slide, our broader performance against the commitments we made when we launched our strategy of creating a sustainable future, now a little more than 3 years ago. When we launched our previous strategy, we did so whilst providing a balanced set of metrics across all 3 of our strategic pillars. We felt at that time that we needed to focus on our people and our culture by creating an inclusive environment with engaged people who would increasingly decide to stay with Arcadis. And reducing our voluntary turnover from the 15% at that time to now just under 9% is a very solid achievement and a testimony to the progress we have made.We also wanted to ensure that we grew not for the sake of growing, but for the sake of increased quality of our earnings. And did believe that by focusing on a smaller set of key clients, more disciplined project execution and an increased use of our global excellence centers, that would give us a really good chance to do both, grow top line as well as grow the bottom line.And finally, we initiated a stronger focus on pursuing opportunities and working in those countries and regions, which would give us a right to play and an opportunity to win. And all of this needed to deliver better and more predictable financial performance and an improved quality of our balance sheet. And I believe that we also met those commitments.I'll now turn it over to Virginie for further detail on our financial performance. Virginie, we can't hear you I am afraid?

[Virginie J. H. Duperat-Vergne]

Sorry. Hello, everyone. Does it work?

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

That's better.

[Virginie J. H. Duperat-Vergne]

Thank you, Peter. So good morning, everyone. Our achievements throughout the year demonstrates how we can resist even in the current unprecedented market environment. Our fourth quarter was strong again despite a modest organic revenue decline of 3%. Our operating EBITA in the quarter further improved to EUR 66 million, allowing us to close the 2017-2020 strategic plan at its highest level in terms of operating margin with 11% for the quarter.Our strategic performance enhancements initiated 3 years ago and the cost-saving measures we took at the end of Q1, including our cash management program, led us to close the year so strong. Compared to Q4 last year, we reduced the net working capital by more than EUR 200 million to EUR 414 million, and this relates to an improvement in the net working capital as percentage of gross revenues of 12.6%. Most of the improvement in net working capital came through our cash collection efforts, leading to a DSO of 66 days.The strong first quarter performance brings us to a net revenue for the year of EUR 2.5 billion, which resulted in a minus 1.5% organic decline against the global pandemic backdrop. Foreign exchange was also a negative factor, notably the weakness of the U.S. dollar, taking EUR 51 million of our top line over the year. Our operating EBITA increased by 8% to EUR 229 million, leading to an operating EBITA margin of 9.2%, well within the strategic margin target bracket of 8.5% to 9.5% set for 2020. This improvement was the result of improved project management, increased use of global excellence centers and focus on key clients, combined with the cost reduction actions initiated in the first quarter to mitigate COVID-19 impact.The net income from operations per share increased by 10% to EUR 1.49. Order intake was EUR 2.7 billion for the year, leading to an organic backlog growth of 5%, allowing us to start 2021 on a strong foot.Turning to Americas. In Americas, we've seen a continued organic revenue growth of 5% and a margin improvement to 11.6%. We saw growth in all core business lines, especially in water, in North America; and in infrastructure, in North America as well as in Latin America. Climate resiliency and sustainability clearly become a priority across all client sectors. The high order intake allows the Americas to start this year with a strong backlog.Turning to Europe now. The organic revenue decline was 2% due to COVID-19 crisis impact on European markets. Thanks to our structural strategic improvements, combined with cost savings, the operating margin improved to 8.2%. Overall, we saw public and green investments continuing to be strong.Revenue in Continental Europe declined slightly due to less work from private clients. However, operating margin improved in the Netherlands, Germany and Belgium, offsetting some project write-offs in Italy.In the U.K., as well, we saw a solid performance and margins improved. Revenues were flat compared to last year. Growth in infrastructure and environment compensated for a decline in buildings. A major new contract win for the high speed railway, or HS2 project, provide significant continuity of work in infrastructure. In the Middle East, we saw a revenue decline in line with our decision to reduce our footprint in that region.In Asia Pacific, overall, we saw the negative volume impact of COVID-19 on revenues. However, this was compensated by our cost saving efforts to mitigate the impact, which resulted in a 10.6% operating margin. Australia Pacific's result was strong due to revenue growth and efficiency improvement. The performance benefited from a solid infrastructure backlog, driven by investments and growth in major cities and federal and state government project wins since the beginning of the pandemic.The net revenues in Asia declined due to the pandemic, which, in particular, impacted the buildings business in China in the early part of the year. The operating margin improved in the second half of the year, led by a recovery in China. A diversification strategy initiated 2 years ago to increasingly focus on the Greater Bay Area in terms of geography and on environment in terms of business, moving beyond the core of cost management services has resulted in improved performance.Organic net revenue declined by 18% in CallisonRTKL, affecting mainly retail and entertainment sectors, which were most severely impacted by industry-wide slowdown, driven by COVID-19 crisis. Impact on workplace business was mixed.China continued to be a stronghold with a steady stream of new business from existing clients. On top of the impact of revenue decrease on the P&L performance, CallisonRTKL full year EBITA is affected by EUR 7 million provision booked on overdue trade receivables in the first quarter.At group level, full year EBITDA amounted to EUR 224 million. EBIT was EUR 83 million due to amortization and impairment of EUR 141 million, that mainly included a Q3 goodwill impairment of EUR 126 million for Middle East and CallisonRTKL. This impairment is excluded in the calculation of the net income from operations.Net finance expenses decreased to EUR 27 million. Interest expense on loans and borrowings was EUR 18 million, substantially lower than last year due to lower average gross debt and lower interest rates. Net income from operations adjusted from nonrecurring elements was EUR 133 million, up 12% compared versus last year.Starting point of our cash flow was our increase in EBITDA to EUR 349 million. The strongest contributor to this increase in free cash flow came from the substantial reduction in working capital that led to a cash inflow of EUR 168 million. Most of the working capital reduction came from our cash management program initiated at the end of the first quarter by reducing overdues and improving the conversion of unbilled into receivables. Roughly EUR 50 million of this improvement corresponds to the catch-up on the invoicing process in the U.S. following Oracle implementation.Moreover, the net working capital improvement was helped by significant earlier than expected cash collections on ongoing public contracts in December. These improvements were slightly offset by the reduction in payables. Changes in other working capital is mainly due to EUR 47 million of VAT and social contribution cost payments deferrals granted by governments in the current pandemic crisis context. This will be almost entirely paid throughout 2021. This amount is largely offset by prepaid expenses for software and IT contracts, amounting to EUR 32 million.Our capital expenditures were relatively low at EUR 35 million due to strict CapEx management. This resulted in a free cash flow of EUR 324 million. Our goodwill decreased by substantial part due to the goodwill impairment for the Middle East and CallisonRTKL of EUR 126 million. The quality of the net working capital significantly improved due to strong cash collection and increased invoicing efficiency, trade receivable and contract assets or unbilled receivables were substantially lower. Trade receivables were EUR 138 million lower, at EUR 468 million at year-end, while DRO was down to 66 days. Overdue receivables decreased significantly in all of the new categories, representing a 10-day improvement in our DRO. In total, the overdues decreased by EUR 100 million.Network in progress that consists of contract assets, net of contract liabilities and provision for onerous contract, substantially decreased to EUR 130 million from EUR 294 million last year. We also paid attention to paying our suppliers in time and advanced some payment in December in anticipation of the implementation of our Oracle ERP in Continental Europe.The cash generation was, for the most part, used to further reduce the debt to EUR 48 million, resulting in an average net debt-to-EBITDA leverage ratio of 0.7. During the year, the group repaid EUR 70 million of debt in May, USD 70 million in October and issued also successfully a new Schuldschein of EUR 150 million in October. At year-end, net debt was EUR 48 million due to the significant increase in cash.During the Capital Market Day, we reaffirmed our dividend policy of a 30% to 40% payout ratio based on our net income from operations adjusted from nonrecurring events. We also committed to avoid dilution. Our EPS growth based on net income from operations was at 10%, which allows us to offer a dividend proposal of EUR 0.60 per share, corresponding to a payout ratio of 40% and in line with our dividend policy, as stated during Capital Markets Day.We also decided to expand the current share buyback program with an additional repurchase plan of 1.35 million shares. We will continue to invest in our capabilities and digital solutions. In addition, we like to grow our company with acquisitions that are aligned with our strategic priorities and will strengthen our position as digital front runner. Looking back, we confirm that we delivered our strategic commitments for the last 3 years as well as a total shareholder return of 142% over that same period.And with that, I hand it back to you, Peter.

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

Yes. Thank you very much, Virginie. So -- so much for looking back. Let's now spend a few minutes before we open it up to look forward. And let me wrap up this presentation with a summary of our 2021-2023 strategy, maximizing impact, which, as you know, we launched in November of last year.We believe that there are 4 global mega trends which impact societies across the globe as well as, obviously, our clients and which, as a result of that, provide many opportunities for us. As an example, the fact that the world's population is expected to grow to over 9 billion in 2050, will drive further urbanization. The now undeniable impact of climate change will require the creation of more resilient assets, while at the same time accelerating the energy transition. And digitalization will create both efficiency gains as well as open paths to different business models.And we do believe that the impact of these trends will be compounded and actually also accelerated by increased societal expectations to create a more sustainable, more inclusive and more equitable future for all. And Arcadis is in an excellent position to benefit from these trends for several reasons. Firstly, because of our resume, our experience, the experience of our 27,000 employees, combining extensive and deep asset knowledge in, for example, mobility and buildings with the proven ability to integrate sustainability requirements into the design, creating resilient solutions for our clients. Secondly, through the progress we've made in delivering digital products and services, both in our core business, but also through the launch of Arcadis Gen, which happened in early 2020, as you will recall. And the latter of which will be on a springboard for further growth and the creation of the different business models I spoke a minute ago about.And thirdly, due to our much stronger and solid foundation created through improved and predictable project execution, expansion of our global excellence centers and focus on our key clients, all of which have further opportunity for additional improvement.And just as we did 3 years ago, we are again transparent in sharing our targets for this strategy cycle, making again a distinction between financial and nonfinancial targets, which will culminate in fully integrated reporting.In terms of financial targets, we simply aim for further improved, predictable and profitable growth, satisfying all of our stakeholders. In terms of nonfinancial targets, we want to further advance our course to be an employer of choice through lower voluntary turnover and higher engagement and also through creating a diverse and inclusive culture. And we also commit to further lowering our carbon footprint to align with the 1.5-degree science-based targets and to achieve this as soon as possible in any event before 2030. We furthermore plan to develop a structure, which will allow us in a more tangible way define how the work we deliver on our projects for our clients contributes to a better, more sustainable world.Looking back over the past 3 years, Arcadis has come a long way. We resolved legacy issues, focused our organization, made choices and steadily improve our performance, even during the unprecedented conditions we experienced last year and are actually still experiencing, as we speak.Looking ahead, we are really well positioned to maximize our impact and the impact of all our stakeholders by seizing opportunities which play to our strengths, allowing us to apply our global capabilities and experiences, investing in our strategic priorities and delivering the resilience and future-proof solutions that our clients need.And with that, I'll turn it over to Jurgen and to handle the Q&A.

[Jurgen Pullens, Director of Investor Relations]

Thank you, Peter. And hereby, we would like to open our Q&A. [Operator Instructions] I see a --first question I see here for Hans Pluijgers.

[Hans Pluijgers, Head of Research of Benelux]

2 questions from my side. First of all, you -- on the margin improvement through the year and especially in Q4, you pointed out, first of all, that indeed a big part is also the result of the strategic investments and strategic decision you have taken, for example, focus more on the GECs, focus more on the key accounts, but also, of course, cost savings. Could you a little bit maybe elaborate on the breakdown of the impact of those 2 different -- on the margin, so from the strategic perspective and from the cost savings? And then work in progress, full year, a clear decline in billed receivables. Of course, in H2 also seasonally, but if you could give you some, let's say, explanation and some flavor, additional, on the strong decline in work in progress, especially also compared to development in sales?

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

Yes, Hans, let me start off, and then I'll ask Virginie to fill in the details. And thanks for these 2 important questions because they are probably the most significant parts of what we consider to be a strong performance. So firstly, on the margin improvement, it's tempting to look at the last year only because of the significant impact corona has had on all of us, but I want to remind everyone, as you rightfully indicated, that we have already identified and enacted a number of improvements, which already -- before corona created improvements in our margin as well. And they are indeed the expanded use of our global excellence centers, much better project execution through our Make Every Project Count program and the focus on a smaller number of key clients. And before corona, that already created an improvement and that has continued. And of course, what compounded the improvement is the opportunity we seized throughout 2020, unwillingly so, but it's still a fact to create cost reductions, including in much less travel. And some of that will, of course, stick going forward because I think we've all come to the conclusion that what we consider to be a normal pattern in terms of traveling is likely not always necessary and will be a different pattern going forward. So clearly, the improvements have helped a lot. And the cost savings, which we created to 2020, have given us the additional tailwind. And I'll let Virginie add to it, and then also handle the question on the work in progress.

[Virginie J. H. Duperat-Vergne]

Thank you, Peter, and thank you, Hans. If I wanted to help build a bridge, I would say that the volume decline and, let's say, some of the hits that we had in Q4, such as, for example, the revenue -- the receivable provision on CRTKL have been absorbed by cost savings, and that the remaining improvement on the margin has come from the performance. So that's it -- so it's a huge bunch of cost savings that allows both to absorb volume effect, but also, let's say, this additional hit and the improvement in margin comes from better efficiency in a large number of areas, the GECs and MEPC, for example that are probably hit.And then if I want to turn to your question on work in progress and the strong decline, the focus that we've been having all year-long in terms of cash management, I have to say that this doesn't start only with receivables. It starts with the entire process of making sure that you turn quite quickly, the work in progress in unbilled and that you understand where you are and then turn everything in receivables that you can then address to the client. So the reduction in work in progress is really due to this acceleration in terms of efficiency. Part of this has been really supported by the implementation of Oracle in North America. As you know, North America is a big bunch of what we do. So after, let's say, a start-up, which has been difficult, as you remember, then we start getting the efficiency on having that onboard and helping them create a better use of our processes.

[Jurgen Pullens, Director of Investor Relations]

Thank you, Virginie. Then I'd like to hand over -- open the room for Henk, Henk Veerman.

[Henk Veerman, Research Analyst]

I will limit myself to 2 questions. The first one is on the order book, which is up 5% organically. Seems quite strong. I think one of your most important payers recently talked about a stable order book. So what is particularly strong in the order book? And how does the order book face throughout 2021? And can you say anything about the pricing in the order book? That's my first question. My second question is on Callison. You mentioned in the press release that Callison is preparing for a recovery of demand. So should we already expect a recovery in 2021, maybe even in the first half of 2021? I mean, in Q4, we saw a further slide of sales. So should we expect a V-shape recovery or more recovery towards 2022.

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

Henk, thanks very much. I'll also kick off here, and then I'll let Virginie fill in the blanks and the additional detail, if you like. So on the order book, first, we are indeed very pleased that in addition to the strong performance in 2020, we are starting 2021 from a really solid foundation with an order book, which is higher than it was a year ago, and all of that in these unique circumstances. And it follows largely the performance we've seen in the region. So where you see strong performance, you see the same strong performance in order book. I think our focus on the key clients does help an awful lot here also in terms of winning work for new clients. So it is largely across those regions, which already performed quite well in '20. I'll make one additional comment, just in case it comes up as a separate question. We also actually had some significant wins in the Middle East. That might sound like, well, how did that happen? And why did that happen? I want to take you back to the third quarter, which is only a quarter ago, when we did announce that we would, over time, reduce our footprint in the Middle East. But at that time we announced it. We also announced it to the rest of the organization. And we -- prior to that had, of course, pursued a number of opportunities, which have come to fruition. And in addition to that, we've also said that we would only take on additional new work if it was on an existing project or for a client, which has proven to us that they pay us in time. So just in case people wonder why with the decision we took in the third quarter we're still growing or at least have a healthy book-to-bill in the Middle East, it is for those reasons. And that is not something we expect to continue. We still stand by what we announced in the third quarter, which is to, over time, reduce our footprint in the Middle East. While, of course, still committing and delivering on the commitments we've made to clients when we signed up for particular projects.I'll also take a shot at CallisonRTKL first. And then again, Virginie, feel free to add. Needless to say that the performance in CallisonRTKL throughout 2020 has been disappointing. The reasons are largely because of the markets they serve, where I will make a distinction between places where they operate where we already see an improvement. Virginie also spoke about China, when she spoke about CallisonRTKL, where we already see improvements, which is largely because China is, you could say, out of the corona crisis. But 2020 still has been a disappointing year. When exactly in '21 we will turn the corner is, unfortunately, still largely depending on to what extent throughout the year we will get corona, and we, as in societies, get corona under control, enabling and allowing clients to continue with their investment spend. China in that regard is almost like an indication. There corona is largely under control. Things are largely back to normal and sure enough clients are picking up where they left it before corona. So our expectation is that we would see the same in other regions where CallisonRTKL operates. Virginie, feel free to add if you like?

[Virginie J. H. Duperat-Vergne]

Thank you, Peter. Maybe just coming back on the order intake. I think it's probably worth mentioning that what also brings us to a strong backlog at year-end is that we had a strong order intake over the year, but also despite the very, let's say, complex circumstances due to COVID crisis. We finally did not face a huge number of cancellations in our backlog. So that really sustained the backlog. This is for sure the result of the extremely good work that has been performed by the teams all over the world. They have been able to deliver the project in the -- more or less in the original time frame that has been agreed with the client. And even working remotely, we've not been experiencing, let's say, major disappointments or such due to the situation. So that has really also been helping -- fueling the discussion with the clients and making sure that we could rebuild order intake for the year and, in fact, also reducing the number of cancelations because the discussion and the momentum was still there.

[Jurgen Pullens, Director of Investor Relations]

Thank you, Virginie. I'd like to hand over to Quirijn.

[Quirijn Mulder, Research Analyst]

Can you hear me?

[Jurgen Pullens, Director of Investor Relations]

Yes, loud and clear, Quirijn.

[Quirijn Mulder, Research Analyst]

My question is about your midterm targets, looking at what's happening today with regard to results. To what extent are you happy with your 10% EBITA margin or over 10% EBITA margins still given what's happening? And let me say, knowing that if the organic growth is resuming in -- during 2021 and the effect on your operations and profitability. So can you maybe elaborate on that?

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

Yes. A logical question, Quirijn. Obviously, we are very pleased with the performance to date. I think there's some unique circumstances which have provided that additional tailwind. But I will also say again what I said in response to Hans' question that we were already on the trajectory of improving our margins. We've learned additional things, and they are helpful, and they give us confidence that what we said only -- what is it 3 months ago or thereabouts, to create targets or to set the targets for operating EBITA over 10%. It creates, obviously, a lot of confidence that we will be able to deliver on these targets, just as we did over the last 3 years. So yes, confidence and comfort that we can deliver on these targets in excess of 10%.

[Quirijn Mulder, Research Analyst]

So you're not afraid that they are somewhat low? And let me say, given the leeway you still have for improving your margin, let me say, outside revenue growth, but you have still the room in terms of GECs effect. Do you have still room with regard to make every project count with too low margins, et cetera.

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

Well, you could argue that, that is too low. But over 10% is, of course, something with a margin. So if we had said 10%, then I would have understood your question. And I, of course, still understand your question. But we said over 10%, and that gives us quite a bit of room for additional improvement on top of just sticking with 10%.

[Quirijn Mulder, Research Analyst]

Okay, okay. Yes, that's fine. The other question I have is on the cash flow. So EUR 324 million full year 2020 was somewhat inflated because of government support. So how much do you expect to pay back? And what is the -- what was the impact of the system working smoothly in the U.S. and the positive impact on the cash flow in 2020? So to give us our -- an idea about what -- let me say, the normal operational cash flow can be in 2021?

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

Virginie, you want to take this one?

[Virginie J. H. Duperat-Vergne]

Yes, thank you. So answering your question on cash flow, everything that relates to deferrals amounts to EUR 47 million. So we are more or less quite exhaustively going to pay this amount this year. So you can reverse exactly that amount on free cash flow anticipation in 2021. And then, for sure, in cash flow, you -- we also had the exceptional catch up on Oracle, which is a catch-up on '19, that also impacted 2020 that needs to be restated. And probably also the amount of, let's say, anticipated or at least very accelerated payments that we had on some receivables at year-end in December. Then in terms of government support and such, namely, in the U.S., was not a lot major. We've been using a little bit of the furlough system that was available, but we have rather seen as a kind of, let's say, companies that's been preserving employment all over the world. If you have a look to the headcount, you will see that it's rather stable year-on-year, meaning that we managed to almost remain steady and not go through restructuring or letting a lot of people go. So that's probably it. And we didn't receive a lot of positive impact on the P&L. We had, I think, EUR 8 million government support on H1 and received almost the same thing for H2, so that brings the total impact for the year around EUR 16 million.

[Jurgen Pullens, Director of Investor Relations]

I see there is a follow-up question from Hans Pluijgers.

[Hans Pluijgers, Head of Research of Benelux]

Question on the gross revenues. In Q4, you saw a quite steep decline, much steeper than the net revenues, and also a little bit through the year that was visible. Is there any specific reason for that? Or is that also that you may be refocusing with the kind of projects you are working on and that will result going forward also in less third-party work? And then secondly, on the wage cost. We indicated already -- Virginie indicated that, indeed, the number of employees are stable for the year. But could you give maybe some feeling on how the wage cost has developed? Has that declined in line with the top line? Or could you give maybe some additional flavor on that?

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

Yes. I'll do the same thing. I'll start first, Hans. There's no specific reason why the gross revenue declined more than the net revenue. That could be the result of mix. What I will say, though, is that in the fourth quarter of last year and more specifically in December, I think the amount of work we did perform, or to say, definitely, the amount of time people took off compared to prior years because they really needed to recharge the batteries is probably higher than it has been in prior year simply because of the unique circumstance. So I wouldn't read too much into the fact that the gross revenue declined more than the net revenue. That's definitely a mix issue as it normally is when these things get delivered out of [indiscernible]. On wage cost, you made me realize that I didn't necessarily answer your first question correctly because you also, I think, had a question about whether we see any -- or that was actually a question from Henk any pricing pressure? So let me take those together now. There's no pricing pressure out of the ordinary in the market. So we're not seeing that because of circumstances. We see either pressure either way up or down. It's pretty stable in all fairness. And in terms of wage costs, I would give you the same answer. It is pretty stable. The wage costs throughout the year, obviously, doesn't change that much. It's something that does change at the beginning of the year if we decide to give pay rises to people and that follows largely what's the industry as a whole does. So nothing out of the ordinary.

[Virginie J. H. Duperat-Vergne]

Maybe just to complement on the personnel cost a little bit. So there is a small decrease year-on-year, I think, on the personnel cost, which is not really sensitive compared to the bunch amount. I think that, in total, it's probably EUR 2 billion what we have in personnel costs, and we are probably in net EUR 50 million or EUR 60 million less year-on-year, I would say, something like this by memory. So it's not a huge decrease. There were, let's -- for sure, some cuts that have been there. [indiscernible] committing to corporate bonuses and such, so reducing the provision for that. Some salary cuts that have been decided also when COVID crisis started and, let's say, some compensation all over the world to the crisis of people for taking some [ sick days ] and such. But it's a limited…

[Jurgen Pullens, Director of Investor Relations]

Thank you, Virginie. I see that Henk Veerman has also another question.

[Henk Veerman, Research Analyst]

So 2 follow-ups from my side. So on -- firstly, on buildings. I think commercial buildings is probably the weakest part of the service offering or the end markets, if you will. Can you update us on discussions you have today in this end market? And is there already a bit of optimism visible in the market? Or is it expected to remain weak at least for the beginning of this year? And then the second question is on capital allocation. I think everybody was quite surprised about the low net debt. Obviously, there's still some deferred payments outstanding. But nevertheless, we have an unlevered balance sheet. What kind of discussions did you have in the group in this full year, when you made up the balance? I mean you do a buyback, but it's not a large buyback, mostly to offset scrip dividends. Have you considered doing a larger buyback or are you preparing for larger M&A? And what are your thoughts on doing M&A?

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

Yes. Thanks, Henk. Let me also here start it off and then ask Virginie to add any additional color. On buildings first, this is a bit of the same story, as I've tried to explain before, where we see that things are getting under control. And unfortunately, there are not many places in the world which can safely say they have things under control. And I'm talking about corona now, of course. Except for China, as one of the larger countries, of course. There we see things normalizing. In China, we had a really good book-to-bill in the first month of the year. So that builds on the belief that by the time that there is a degree of comfort, that things are better, that you will see things improving. And that's what we see in China. You also saw the comment, again, Virginie made about China in the context of CallisonRTKL. So it's another example of where things are under control, our clients are more comfortable to proceed with the investments. On buildings as a whole, and that is probably a broader question, the use of buildings and the future of buildings, of course, will be different. I think everyone, including we, ourselves, are looking at the learnings out of this pandemic and whether you need the same footprint as you needed in the past. And we start to evolve the answer to that question to the point where we believe the answer is most likely not. We will need less buildings. And I presume that many others are going through the same learning. Now that doesn't mean that I expect that all of a sudden the buildings business will crater, but what I do expect is that you'll see a lot of repurposing of buildings, and repurposing of buildings is also an opportunity for us, and we already see some of that where clients are thinking about, okay, if the building used to be an office building, but it now needs to be something else, then I need help. So buildings is obviously mostly impacted by corona. But in summary, where you see improvements, situation under control, it starts to improve the buildings business as well. On capital allocation, obviously, a logical question, too, because of the significantly improved situation. We are obviously looking at this all day long, I would say, almost. And we have come to the conclusion that the environment in which we operate is simply not stable enough to actually take any bolder steps at this point in time. And I just probably have to use the example of lack of stability in our own little country. On Tuesday morning, we woke up and thought we had a curfew. During the day, we thought we didn't have a curfew anymore. And then before we went to sleep again, we had a curfew, just another example of lack of stability. And that makes us still be very prudent in terms of capital allocation. And I'll let Virginie add any color she wants to add in that regard.

[Virginie J. H. Duperat-Vergne]

I think the example is really talking to us. We navigate the best as we can, for sure. We might have a look also to the remaining gross debt that we have. Some of it is going to be reimbursed, whatever happened in '21, it's scheduled, and we should have a significant investment to make in H1 2021 on that front. So this will also be part of the restructuring of, let's say, our balance sheet that we are currently...

[Jurgen Pullens, Director of Investor Relations]

Thank you, Virginie. I do see that Martijn Drijver has actually 3 questions.

[Martijn P. den Drijver, Analyst]

Can you actually hear me?

[Jurgen Pullens, Director of Investor Relations]

Yes, we can hear you.

[Martijn P. den Drijver, Analyst]

Okay. Great. Actually, a couple of bookkeeping questions. But what I'm seeing in the cash flow statement is a EUR 15 million cash inflow from investments in consolidated companies. Could you please elaborate a little bit on that? And the 2 bookkeeping questions, accounting questions, are on CapEx. Could you provide some guidance on what we should expect in 2021 and the same for tax?

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

I think, Virginie, I'll direct those directly to you?

[Virginie J. H. Duperat-Vergne]

Yes. Thank you. So yes, the investment relates on not an investment. We have to say that we have insurance captive for [ a long latent search ]. So this insurance captive has to be consolidated in the financial statements. This is a rule. This was an accounting error, and this has been corrected in the year. That's why you see [indiscernible] on the face of the balance sheet. So also bringing a bit of additional cash. So that has a small impact, I have to say. And a bit of impact also, a negative one in net working capital because as an insurance captive, you have provisions on the face of the balance sheet, some of them being quite short-term provision. But this is an insurance captive for low impact, high frequency potential [ risks ]. So that's the impact on the consolidation. We've been also acquiring last year a company named Over Morgen and so we've been finalizing the PPA churn, but that has no impact. And there is, for sure, the, let's say, outflow of ALEN over the year because we've been managing to get, let's say, the story of the ALEN investment fully closed.Answering on CapEx, EUR 35 million of CapEx this year was a result of strict management. And so we've not been making a lot of those. Next year, we've been committing in the Capital Markets Day to EUR 40 million to EUR 60 million a year in terms of CapEx. We might probably see ourselves in the higher range of this one because this is also the first year on investment in our new strategy and also namely digital investment and such. So that's probably the best element I could give in terms of CapEx for next year.And in terms of tax, yes, I have to say that our countries are very independent as such one from the other. So we are taxed depending on the countries where we do make profit. And while we can have, let's say, relatively low rate in such countries, we still have areas where, let's say, profitability is lower and we cannot compensate and that brings a little bit of, let's say, not a lot of capability of using some reportable losses here and there. But I would, yes, bet on a stable 30% on the long-term rate or something like this in terms of building cases and not something very exciting as such. But I think this is what it is at the moment. Please bear in mind that the goodwill impairments that we had this year, even if CallisonRTKL in the U.S., none of this goodwill impairment is tax deductible, and that creates, let's say, a huge impact on the face of the P&L when you do read the tax impact for the year.

[Jurgen Pullens, Director of Investor Relations]

Okay. Sorry, Martijn, go ahead.

[Martijn P. den Drijver, Analyst]

Yes. I'm saying that I was apologizing to Virginie because I didn't understand the first part of the answer about the EUR 15 million cash inflow. You said something about insurances, but I couldn't -- because I didn't quite catch that.

[Virginie J. H. Duperat-Vergne]

No, it's an insurance captive. We have an insurance captive sale, like a lot of companies do have. And so historically, this company was not consolidated in our financial statements because it's not an isolated company. It's a sale of a company. But if we do apply truly the rules of consolidation, this needs to be in our consolidated financial statements. That's why it is arising this year in the consolidated financial statement because we've been taking this correction.

[Martijn P. den Drijver, Analyst]

So it's insurance units that you own but you...

[Virginie J. H. Duperat-Vergne]

Yes, it's some area of insurance...

[Martijn P. den Drijver, Analyst]

The insurance unit that you [indiscernible] and didn't consolidate?

[Virginie J. H. Duperat-Vergne]

Yes.

[Jurgen Pullens, Director of Investor Relations]

Okay. I don't see any more questions in the chat room. We have a couple of minutes left. Maybe Quirijn, do you have a final question because I can't see your hands?

[Quirijn Mulder, Research Analyst]

No you can't see my hand, I know. I am somewhat -- let me say to get an idea, in your order book. Can you hear me?

[Jurgen Pullens, Director of Investor Relations]

Yes, we can hear you.

[Quirijn Mulder, Research Analyst]

Okay. In your order book and, let me say, you see a 5%, but that does not say that you're expecting something like organic net revenue growth in 2021 to be that good. I think it's -- or is that something we can use as a starting point here?

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

Well, the -- to answer that question, Quirijn. I probably have to just refer you back to the commitments we made during the Capital Markets Day, where we said that in terms of growth, we would be looking for mid-single-digit net revenue growth. And that commitment, obviously, hasn't changed. What we said about the order book was that if you have an order book which is larger than where you started last year, that should give you confidence that, that is something within reach. Was that helpful?

[Quirijn Mulder, Research Analyst]

Yes, it is. But I'm still somewhat circling with the first quarter 2021 against '22 -- against '20 because the corona was marginally impacting your business. So I'm still puzzling for, let me say, first half 2021, what's going to happen there. But that's...

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

Okay. I get that point. I mean if you compare Q1 '21 with Q1 '20, that is probably a difficult comparison because '20 was no corona or virtually no corona. '21, likely will be. We didn't break it down by quarter. We just look at the whole year.

[Jurgen Pullens, Director of Investor Relations]

Okay. I don't see any other questions. So then I'd like to turn back to Peter for some closing remarks. Peter?

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

Yes. Thanks, Jurgen, and thanks, everyone, again, for your questions and for your interest in Arcadis. Reflecting on 2020, I'm still sitting here being very happy with our performance. And I know that in these difficult times, it is sometimes difficult to almost say that you're happy. But I have to say that I'm very happy with the performance of Arcadis. I'm very happy with what our people did in 2020 to get us through this crisis. I also feel that '20 actually gave us an opportunity to accelerate some of the improvements we have initiated before corona. As an example, we said in the beginning of 2020 that we would want to do more work in the GECs, and we actually did so. And actually, we did a little bit more. And that also is probably the support you always need in a situation like this to do more than what you thought you could do. And I'm thinking about this in the context of a statement, which someone at one point in time made is never waste a good crisis. And I think that is exactly what we did in 2020. We didn't waste a good crisis. We took our learnings, and we continued to accelerate things we could accelerate, and more than that. If I take that then looking forward and then take into consideration what we see in the world, and what we hear from our clients, then consistently we hear a stated expectation for more resilient and more sustainable assets. If we then add to it the increased recognition and increased necessity to finally act on the impact climate change is creating on societies, then that altogether gives me a lot of confidence for 2021. So I'm sitting here happy about the performance of '20, and with really good confidence for 2021 and beyond.

[Jurgen Pullens, Director of Investor Relations]

Okay. Thanks for listening. You can now close your connection.