Brunel International N.V. (BRNL.AS) Earnings Call Transcript & Summary

Good morning, and welcome to the Brunel International Results Call for the Third Quarter of 2025. My name is Carla, and I will be coordinating your call today. [Operator Instructions] On this side of the line, we have Peter de Laat, CEO; and Toine van Doremalen, CFO. I will now hand you over to Peter. Please, Peter, go ahead.

Thank you very much, and good morning, everybody. Welcome to our call for the results of the third quarter of '25. Let me go to the key points of the results. So the quarter kind of developed as expected. And that means that revenue ended at Q3 -- in Q3, pretty much at the same level as we achieved in Q2. But that also means that after 5 quarters of consecutive revenue decline, revenue has now stabilized. And of course, it's still a mixed bag. We continue to see challenging markets in Europe, whereas outside Europe, we are still doing pretty okay. The same pretty much apply for perm activities, slightly better than in Q2, but still much lower than last year. On the cost reduction plans that we have announced, of course, we did the EUR 20 million plan last year, fully executed last year. And this year, we announced an additional EUR 10 million, and that was also fully executed in Q3. Very positive is that we're making strong progress on the [ Oil and IT ] developments and the implementations and the AI enhancements to our tools, and we're seeing very positive signs on that. So that is pretty promising going forward. And then I would like to hand it over to Toine to go more into the details.

Yes. Thank you, Peter, and good morning, everyone. Let me shed a bit more light indeed on the specifics of the financial performance. You can see here the revenue and the underlying EBIT split by region. As mentioned, the revenue still declined year-on-year, organically 7%, but indeed, it stabilized compared to Q2 of this year, indeed after 5 quarters of decline. If you then look at the specific regions, you can see here that the DACH and The Netherlands region have the largest declines as expected and in line with prior quarters. And if you look at the total for the global business, we are indeed stabilizing in some regions even growing year-on-year. Then gross profit declined 16%, which is 14% organically. And that is a combination of perm business that declined, less decline than in prior quarters and also some price pressure specifically in DACH. Operating cost is well controlled year-on-year. And after the cost reductions last year, also the cost program this year of EUR 10 million is fully implemented. We see part of those results already in Q3 and the balance will follow in Q4 and the quarters after. Maybe it's good to highlight here that we've made some reallocations in our global IT cost. That is on the back of increased investments in digital and IT, and we decided to further allocate those to the regions. So you will see some minor changes there year-on-year. Underlying EBIT, 31% down organically 29% down. There's some exchange rates involved, and that is mainly on the back of the lower revenue and the lower gross margin, that partly offset by favorable cost. In terms of the split by region, revenue and gross profit, obviously, you can see that the revenue for DACH and The Netherlands and also the margin has declined. Having said that, in gross profit, it's still a big part of the total. Then going deeper into the regions. This is DACH. Again, I already explained the trends year-on-year. You can also see here that from a revenue perspective, Q3 was better than Q2. That is partly workday driven, but we also see some stabilization there in the headcount and in the business. And then the bottom line, you can see that we improved negative 1% in Q2 to plus 6% in Q3. Also, that's partly working day driven, but specifically also the cost actions that we announced last quarter, which are partly included in Q3 and more to come in Q4 and beyond. And underlying EBIT in total was then 6% for the year and only explained the margin trends perm and specifically margin pressure. Then The Netherlands, also here, headcount reduced for the same reasons. Also here some impact of productivity. But if you look at the margin percentage overall, it was stable compared to last year, whereby then the impact on the EBIT was specifically the lower top line, partly offset by favorable cost development as implemented also in recent quarters. And by the way, we've decided to have the more detailed slides per region move to the backup slides as there was some repetition. But if you like to see more details then please refer to that slides in the backup. Then Australasia, there, we have decided to reduce some low-margin business. So you do see the revenue reducing and headcount reducing year-on-year, but margins and also the conversion ratio have developed favorably also in line with the cost development. We see that EBIT has stabilized, but actually has increased if you compare it to last year, the prior 2 quarters. Also here that we have highlighted before that we are further increasing our focus on defense. And here, we have won a project that will come online in the quarters to come. Then Middle East and India, also this business continued to grow in headcount as well as revenue year-on-year. Margin is more or less stable, we see some minor mix effect. And combined with good cost positions, we see that the EBIT has stabilized at EUR 3.2 million compared to last year. Americas, also here, we see headcount improving. That is specifically in some lower-margin business in Brazil. So you don't see it completely back in the top line and margin. So there's some mix effect there. Margin declined slightly, and that is primarily on the back of lower perm revenue, which was favorable last year, and we see that lower this year. But combined with good cost positions, we still have an EBITDA of 4% as the perm impact was partly mitigated by higher contracting services. Then Asia. Also here, we see the business stabilizing or even picking up. Again, we had a good quarter with gross margin improving with 0.4%. And combined with cost reductions, we have seen a 5% improvement organically in underlying EBIT. Rest of World, and that is a combination of Europe, Africa, Taylor Hopkinson and our Belgium business. We've seen there's some increase in headcount that was specifically in Kazakhstan, which is also relatively low labor rates. Market uncertainty, specifically in Taylor Hopkinson, led to a reduction in permanent revenue as new hires were delayed in our renewables business. And then in Europe and Africa, we did see some mixed bag with some slowdown, but also some pockets of growth. Then if you add it up Brunel International total company, here, you can see, as Peter also mentioned, that our revenue in Q3 has stabilized compared to prior quarters at EUR 304 million, which is more or less the same as prior quarter, still year-on-year 10% reduction, as mentioned, 7% organically. Gross profit, already highlighted at negative 16%. And then the operating expenses, again, we had EUR 45 million, which is 10% lower than last year and also significantly lower than, for example, Q1 2024, which was at EUR 54 million. And that leads then to an underlying EBIT of EUR 12 million in the quarter, favorable compared to Q1 and Q2 of this year, but year-on-year, still around 30% down for the reasons that we mentioned, specifically in Europe. The gross profit by vertical, most verticals show here the same trend as we've highlighted before. You can see for mobility, specifically in DACH, a large reduction, which is on the back of the weak automotive business. And the rest shows more or less all the same trends as we have highlighted before. Cash flow and cash position. Free cash flow was about EUR 14 million for the first 9 months compared to EUR 36 million last year. And that is mainly a reduction on the back of lower earnings and higher corporate income tax payments. Also last year, the collections were relatively strong given a relatively high TDO position at the end of 2023, and we see that more normalizing now in 2025. And the cash balance is at EUR 11 million, which includes a EUR 14 million restricted cash, which is more or less in line with last year. Obviously, the net cash balance is lower than what we saw at the end of 2024, and that is a combination of the -- what I already mentioned, the lower revenue and profitability. Obviously, the dividend payment in June and also the income tax paid in the first half of the year. In that there's some temporary impact, and we expect part of that back in the second half of this year or in Q4 specifically. Then one-off costs. As you've also seen in the press release, we still booked some one-off costs related to our restructuring programs. But specifically, we have seen a large write-off of EUR 4 million of receivable, which is a bit unusual in our business. But in this case, it concerns receivable, which is linked to a local operating entity of an international group, whereby the ultimate holding company of the group recently filed for administration. And even though the operating entity is still trading, we do see a significant risk that we will not be able to collect that amount. And as such, we have decided to write-off the total receivable for this group, and that impact is EUR 4 million. And then the outlook, like we've highlighted in prior quarters, we expect for Q4 the trend to be in line with what we have seen in Q3. Peter, over to you.

Yes. Thanks. And then on the strategy update, we're making good progress and work on the strategy update and the implementation plan at the same moment while implementing quick wins as soon as we can. And especially the technology part, but also our focus on the -- our core markets, conventional energy, renewable energy, mining, defense, utilities look very promising for the future. And we will share the updated strategy in the Capital Markets Day in March 26. And this is what we want to share at this moment. And looking forward to receive your questions.

[Operator Instructions] And our first question comes from Simon Van Oppen with Kepler Cheuvreux.

I have 2 questions. Firstly, on your gross margin. We saw that your revenue went down 7% organically, whereas your gross profit declined 16% compared to last year. And if you exclude mix effects, is there a pressure on your gross margin due to price? And if so, in which markets are you seeing that? And secondly, on cost savings, given the still weak trading environment, to what extent are you prepared to protect your global network at the expense of additional cost savings and profitability?

I'll address the first question. There is indeed some price pressure. And at the moment, that's especially in Germany, where the bigger companies that are still hiring understand that they have a strong position in negotiations and they are using that to their advantage and that's impacting our margin. The good thing is that for most cases where we encounter that, we do get some volume in return, but it will impact our gross margin. And there's also the other element that is more specifically for The Netherlands with the impact of the new pension scheme for our industry and changes in the collective labor agreement that will give us a little bit of price pressure or margin pressure in The Netherlands, especially in the first 6 months of next year.

Yes. Then Simon, on your question regarding costs, yes, we will do the cost actions and rightsizing where we see that's needed. But you're right that we will also make sure that we protect where possible, our sales force to take advantage also of the market once it turns. So we have specific also programs to invest, for example, in business development in various regions. At the same time, we're also leveraging the investments we've made in our systems to drive efficiency and make sure that we have the right organization linked to the size of our business. So it will be a mixed bag. Cost will be a focus, but we want to make sure that we protect our growth capabilities.

And that also includes your global presence as of today?

That is correct. We will make decisions where needed if there's really low-margin business, obviously, as we have also done in the past. But by and large, we will protect our global network.

[Operator Instructions] And our next question comes from Maarten Verbeek with The Idea.

It's Marten Verbeek, a couple of questions from my side. Firstly, we secured a defense order in Australia. Can you provide us with a bit of information what kind of work you will be doing, the size of such contract and the expertise you are offering? Is it something you can offer to other countries as well? Will the [Technical Difficulty] specialization for [Technical Difficulty]

Yes. So thanks for your question, Maarten. This specific job for -- in Australia relates to the construction of the submarine, which is pretty similar to all the construction work we do in the energy space. And we're also working on tenders in other parts of the world on that specific part of the defense industry. So that's pretty adjacent to what our people always have done. And we're looking forward to win more work in that space. And you also asked about the volume. Unfortunately, I cannot answer that at the moment because we are part of a panel of suppliers, and it's up to us to make sure that we get our fair share. I only know that in total, they are looking for 3,000 contractors, but that will be a mix between 10 suppliers and partly hired directly by the client. So it's hard to put an amount like that.