Middle East project cancellation drives Arcadis to $30m loss in 2018
Consultancy pursued selective bidding as regional 'headwinds' mounted despite $28m overdue collection in Saudi Arabia
Dutch construction consultancy Arcadis has reported a net loss of $30.5m for 2018, led by a goodwill impairment of $45m that was driven by the reassessment of its Middle East operation.
The consultancy said its organic net revenue grew by 3% during the year, and while the majority of its businesses posted a satisfactory performance, “setbacks in the Middle East and Asia negatively impacted results”.
Revenues “declined particularly in the Middle East” by 34% as a result of Arcadis adopting higher selectivity and “the cancellation of a large project”. Organic net revenues in the Middle East declined by 39% in Q4 2018, and by 17% for the entire year.
Overall, Arcadis’s free cash flow improved to $168.3m, mostly due to “a disciplined approach across the company, and $28m collected on overdue receivables in [Saudi Arabia] in H1 2018”.
The company’s earnings before interest, tax, and amortisation (Ebita) decreased by 5% against 2017, in part due to a currency impact of -4%. The consultancy said that the improved performance of its businesses in North America, the UK, Continental Europe, and Australia was “offset by lower results mainly from the Middle East and Asia”. Operating Ebita margins across the group decreased to 7.3% in 2018 compared to 7.6% in 2017, mainly due to “project write-offs and provisions in the Middle East and Asia”.
The company’s “continued selective bidding” approach, and the large, unnamed project’s cancellation, led to its backlog in the Middle East declining by 57% for 2018. The Middle East backlog reduction led to a 4% decline in Arcadis’s overall pipeline, worth almost $2.3bn in 2018. However, excluding the Middle East, Arcadis’s backlog noted a 2% growth during the year.
Despite the apparent setbacks faced by the business in the region, Arcadis appears to be focused on the Middle East. Listing “further margin improvement” as one of its strategic priorities for 2019, the consultancy said it would continue to observe “rigorous adherence to actions identified for the Middle East and Asia to improve performance” in both regions.
Arcadis implemented a portfolio analysis for both markets during 2018 in order to “focus where we can lead and de-prioritise the businesses that fail to meet our criteria”, the company explained.
The company is implementing “firm measures to turnaround these regions”, and chief executive officer of Arcadis, Peter Oosterveer, said “earlier headwinds in the Middle East caused [the firm] to be more selective” so as to de-risk its portfolio.
“This resulted in lower revenues and, as a consequence, we impaired goodwill,” he continued.
“There is no denying that 2018 has been a challenging year for Arcadis, but we are pleased with the growth in the majority of our business [and] the strengthening of our balance sheet, as well as with the actions taken to improve our performance. Our strategy towards 2020 is clear and we have confidence that our efforts in 2018 will further pay off in 2019.”