ARCADIS: Results in line with trading update

3Q11 gross revenues came in at € 485m (€ 484m KBCS, € 483 css), EBITA at € 31.8m (€ 31.6m, € 31.6m), net income at € 17.5m (€ 17.8m, € 17.1m) and net income from operations at € 18.2m (€ 18.4m, € 18.0m). Arcadis’ underlying EBITA (incl. Fx) came in at € 33.8m (€ 33.1m KBCS) and included a € 0.3m loss on Brazilian energy project, a € 0.3m gain on carbon credits and € 2.0m in restructuring charges (€ 1.5m KBCS). The underlying EBITA margin came in at 10%.

Below the EBITA line there are some deviations vs. our forecasts: net finance expenses came in at -€ 6.1m (-€ 4.4m KBCS, -€ 5.6m css), income from operations at -€ 0.2m (€ 0.2m, € 0.4m), income taxes at -€ 7.6m (-€ 8.4m, -€ 7.7m) and minorities at -€ 0.6m (€ 0.1m, € 0.4m). Higher finance charges are attributable to Arcadis’ expansion in Brazil and higher interest rates on refinanced debt. The tax rate of 30.7% came in below our 32% forecast. Overall these effects balance each other out.
As previously noted closing EC Harris transaction is anticipated by early November.

Divisional overview:
Arcadis confirms earlier trends witnessed in its key markets and divisions. On 9 month numbers Infrastructure gross revenues grew by 5% (7% KBCS), of which 5% organic; Water was down 14% (15% kbcs) of which 10% organic, Environment up 5% (4% kbcs) of which 11% organic; and Buildings contracted by 12% (10% kbcs) mainly due to the deconsolidation of AAFM, with a 3% organic gross revenues decline.
Interesting to see is that Arcadis' activities turned profitable again in the UK, which could bode well as a read-through for EC Harris, which is mostly active in the UK in Buildings, Rail and Airports.

Outlook:
Arcadis’ CEO noted the backlog is strong despite slight decline in 3rd quarter. Trends remain the same as before: government spending in Europe and US under pressure; private spending increasing; and Brazil, Chile, Asia and parts of the Middle East strong. Guidance of net income from operations for FY11 approximately level with 2010 excludes a € 7.4m sale gain on AAFM, and any impact from EC Harris. This guidance is in-line with our forecasts.
We re-iterate our Accumulate rating on Arcadis and € 16/sh TP. A conference call is scheduled at 15.00 CET.