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

Hello, everyone, and welcome to the Brunel International N.V. Trading Update for the Fourth Quarter and Full Year 2024. My name is Emily, and I'll be coordinating your call today. [Operator Instructions] I will now hand over to Peter de Laat, Brunel CEO. Please go ahead.

Thank you very much. Good morning, everybody, with the presentation of our fourth quarter results and we'll dive immediately into it. Let's start with some operational highlights. The cost reduction plan was already, yes, fully announced and discussed the previous quarter, but we have 2 other items that I wanted to share. And let me start with that I'm very happy that we are able to propose Toine van Doremalen to be our new CFO as we have announced earlier this week. Toine is the right candidate and exactly fits our profile that we were looking for. So I really forward to start working with him from the 1st of April onwards. And then as a reminder, we also completed 2 smaller acquisitions this year, Advance Careers in Australia, a recruitment firm specializing in ESG profiles; and Equals, a nice Amsterdam-based company focused on training women, especially for IT profiles. And well, there's a lot of demand for that, so we're looking forward to the opportunities that, that will bring to us. Then on to the results. Q4 kind of developed as expected. As we had included in our outlook at the end of Q3, we had anticipated that the impact of the DACH region and the delayed projects in Asia on our Q4 results would be bigger than in Q3, and it's also what materialized. But the other regions still continued pretty resilient, especially EBIT-wise. And the cost level ended up slightly lower than we anticipated. So as a result, we achieved EBIT that's really close to what we achieved in the fourth quarter last year. And under these circumstances and especially in Germany and Asia, I'm, yes, pretty happy with these results. Of course, we saw the gross margin decreasing, but it's mainly the impact of the change in the mix between the lower volume in our higher-margin businesses in -- especially in DACH, that's a smaller part of the total. And because of the reduction in OpEx, yes, the lower margin we were able to offset most of it. For the full year, I'm still pretty pleased that many regions were able to improve their EBIT contribution, and most notably, Australasia and Americas. Moving on to the DACH region. The head count line graph is the key thing here where you see the weakening in the second half of the year where our business held on pretty firmly in the first half of the year. We are getting more and more traction on our focus on the markets that are growing, like defense and energy, but it will take a bit time before you will see that in our numbers because we still have to also -- we're still facing quite a number of starters -- stoppers in the other industries. But that brings us to the overall results with a 12% decline in gross profit, but still an underlying EBIT of 8%. And these markets in these circumstances, that is still a very strong performance, very resilient and responded timely to the market circumstances. Yes, very interested to see what will happen in '25 for Germany. Especially the macroeconomic outlook, yes, is pretty positive, especially towards the second half of the year. So I would like to see that materialize. Moving on to the Netherlands. The key thing there that is now keeping us busy is the increased monitoring on the freelance regulations. And the good thing is that we see a clear change in behavior mostly at our clients, but also at the freelancers themselves, where many clients are moving away from using freelancers when there's any doubt. And as a result, it's a level playing field between all the companies active in that area and that makes it easier to deal with it. And the result will be that the portion of freelancers in our total mix, now roughly 25%, will probably go down slightly towards the own employees that typically attract a higher margin. So that should help to improve our results in the Netherlands on the medium term. The Netherlands managed to increase the profitability slightly in the year by tight cost control and managing the margin impact of the growth in freelancers that we still experienced in the first 2 quarters of the year. On to Australasia. Yes, a very strong performance in Q4. The markets there are still doing very well, the energy market and the mining market. As a reminder, Australasia, we are working mainly in Australia and Papua New Guinea. Yes, a very tightly managed organization with tight cost control, resulting in nice EBIT contribution of EUR 7 million EBIT, whereas for many years, we are looking at a 0 year. So happy with all the progress they've made, and there, developing towards their target EBIT of at least 4% pretty rapidly this way. So very happy with that performance. Middle East and India. Yes, a resilient, stable performance, as always, I would like to say. And they had another shutdown project, so that's a short-term project where we mobilize a lot of people and it attracts quite some revenue and a slightly higher margin, so supporting results to still continue to show, yes, a strong result overall. And very strong EBIT percentage of still over 7%. On to Americas. The head count appears flat. The slide is not moving on the screen, sorry. Now it is, yes. The head count appears flat, but there's a change in the mix where the portion of the U.S. is increasing compared to what we do, especially in Brazil. And obviously, in the U.S., the day rates are higher and the margins are slightly higher. So that's also supporting our results. Q4 was a very interesting quarter where people -- where many clients were waiting to make their final decisions on where to go to based on the results of the elections. And what we see at the moment is, although the sentiment seems strange, that there's still continued activity even in the renewable market and that a lot of activity is also continuing towards conventional energy. So still a very strong market in the verticals we are aiming in. And the strong performance also shows in the results with a nice revenue growth and then a very impressive EBIT growth. They managed their costs really well despite the revenue growth, keep the cost level pretty stable and also here a nice EBIT contribution of EUR 7 million. So Asia. Yes, again, as expected, we knew that there wouldn't be any projects starting in Q4 and you even see a steep decline in head count in December. That's mainly in local employees. So the people in working on projects in Thailand and Indonesia and the local employees typically have a much lower day rate than the experts that we employ there. So the revenue impact won't be as strong as you see in the head count graph here. In Asia, the year always starts slightly later than in Europe, especially when Chinese New Year celebrated early in the year, where it was this year in the end of January. So Asia is really starting up now and we see the activities in preparing new start-ups of projects increasing, sort of makes me really optimistic for the rest of this year. It will take a couple of months before you really see it reflected, but the underlying activity, including the pipeline of contracts that we have already secured is very promising. But of course, the lower project level did have an impact on our revenue in '24 and especially on the EBIT. But looking at it from a different perspective, in the past when we were at a low project volume, our EBIT will drop back to close to 0%. And now with the lower project volume, we are still able to keep it at the 4% EBIT. Yes, it's lower than we were hoping for or expecting at the beginning of the '24, but still, yes, considering all the project delays, a strong performance. And the Rest of the World, again, that's our energy activities in wider Europe and Taylor Hopkinson. Head count is pretty stable. We did win and started a nice hydrogen project in Sweden that's starting to ramp up in Q1. Building a steel plant gets run on hydrogen energy, so it's really exciting and also meant that we opened up in Sweden. And in the numbers, we see that especially the GP development quarter-on-quarter is better compared to Q3, especially due to the weaker quarter at the end of last year where we saw the firm market in renewable very slow and we know, yes, that market is continuing to return. So overall, a slightly higher EBIT contribution than in '23 as well for the rest of the world. And as a group, yes, I know that at the end of '23 we guided for high single-digit revenue growth until '27, but we also added to that, that it won't be a straight line, that there will be ups and downs. And we didn't achieve high single-digit revenue growth in '24. But again, looking at the markets, especially in DACH and Asia, I'm still pretty happy with the results that we achieved under these conditions managing to still deliver an EBIT that's really close to what we achieved in '23. I think a job well done by our organization and it's very promising for -- when the other markets start improving as well. Then the gross profit per vertical that we operate in. We continued to grow in conventional energy as expected. Renewable energy is at a slightly lower level than it was. Future mobility and industrials and technology, significantly lower than '23, mainly as a result of the weaker markets in DACH. What we do in automotive or future mobility, the trend improved a little bit in Q4 where the decline was slightly lower than in Q3. And we do see that the activities we do in automotive are pretty stable at the moment. The clients that we work with are the stronger parties that continue to invest in R&D and other CapEx projects. And our cash flow, I must admit I was even surprised by that. To go back to '23, we saw an increase in our days outstanding and we started a lot of initiatives to improve that, including better use of systems, automation and robotization. So -- and that all materialized or really going to fruition in Q4. So we saw a huge decrease in the days outstanding, making up for the weakening in '23 and even more. And I think we still have even more potential to improve our collections further. And as a result, we ended with a very strong free cash flow for the year of almost EUR 75 million and a cash balance of EUR 65 million. And overall, with the result being at a similar level as '23, we propose to pay a similar dividend as in '23, so EUR 0.55 per share. Then the other, I just already mentioned. So Toine's appointment will be voted on in the AGM on 15th May. Really optimistic about the outcome of that vote. A reminder of the '27 targets. And if you look at where we are today, especially on the EBIT percentage, we achieved an EBIT percentage of 4.3% in '24 and we're guiding for -- still guiding for an EBIT of over 6% in '27. And I still think we're on track to achieve that based on what we see today. And then finally, the outlook. The outlook for Q1 is still that we expect the current trends to continue. Like I said, Asia starts a little bit slow because of Chinese New Year. The German market is not improving yet, and it's very interesting to see what will happen in the elections this weekend. Yes, so the trends we've seen in Q4 is likely to continue. We see that continuing. Okay. That's a brief overview of our fourth quarter and full year results. And now we would like to invite you to ask any questions you might have.

[Operator Instructions] Our first question comes from Konrad Zomer with ABN AMRO.

I've got a few questions. Firstly, on the Q1 outlook, you stated in the press release, you also just mentioned it, you expect current trends to continue. Now if we look at the regional performance, except for the Americas, Q4 revenue developments were actually worse than in the first 9 months in every region. When you say that you expect current trends to continue, does that mean that you expect these worsening trends to continue? Or is that too negative a view on what you intend to say? And let me just ask the other 2 questions as well. The other question on the EUR 20 million of cost savings, I think you did really well in 2024. What could be the additional full year effect in 2025? And then thirdly, in the rest of the world, you talk about renewable energy projects that are scheduled to start early 2025. Could you maybe tell us a bit more about the potential size of these projects? And are they likely to start in Q1? Or should -- is that likely to be Q2?

Yes. Thanks. So starting with the outlook, yes, we did see a little bit of slowdown also outside Europe in Q4, but I don't expect any further weakening. So in the -- I expect them to, in the year-on-year comparison, stay at that level. And Germany and Asia is a bit harder to predict, obviously, but for the other regions I don't expect any weakening -- further weakening in Q1. The EUR 20 million cost savings, first of all, there will be the impact of the normal inflation and salary increases 1st of January, but we still have some levers to manage our costs. And that's be a bit reluctant in -- the key thing is in replacing people that leave us. We are taking our time to replace and to manage our costs. So the EUR 47 million in costs you saw in Q4 will definitely be higher in Q1, but nowhere near the level we've seen in Q1 '24 of EUR 54 million. So I think we will expect to end up somewhere around EUR 49 million or EUR 50 million in Q1, and we'll be able to keep it pretty stable at that level. On the renewal projects, I cannot name concrete projects at hand that are starting now, but we are delivering -- placing a lot of people on the, let's say, the preparation for the start-up projects. So that's 10 people here and 10 people there. But it will start to add up in the first half year. And it's all across Europe, especially Germany is pretty strong there with all the investments that are also going on in the grid. And we also see more and more moving towards Asia, but it will end up in our Asia numbers. Does that answer your question, Mr. Zomer?

That really helpful. Yes, yes. No, absolutely. Just one other question on Asia. If I look at your indirect-direct ratio, it improved in pretty much every region except Asia. And I noticed you actually recruited more indirect people in Asia, given the developments in your revenues. Could you tell us why that ratio didn't improve and why you recruited more people there?

Yes. So remember that I mentioned that we had a lot of local people stopping. So that impacts the head count, and with that, also the ratio. And the increase in head count in Asia, we see -- we are keeping our organization in place to be ready for the projects ramp-up that we expect later this year. That's why our indirect head count is not developing the same way as the direct head count yet, but that will reverse in the course of '25.

We do not currently have any further questions registered on the phone line. [Operator Instructions] The next question comes from Maarten Verbeek with The Idea.

It's Maarten Verbeek for The Idea. A couple of questions from my end. Firstly, after the Q3 numbers when you presented those start of November, you still expect it to return to a high single-digit revenue growth as of this year going forward. Is it still feasible? Do you still think that's a realistic view at this moment?

Thanks for your question. Honest answer is that I cannot tell at the moment. It could still happen, but it all depends on how fast projects are started and are ramping up. But where we are today, if I look at all the forecast for the second half of the year, it's definitely still feasible, but I would not guide for that at the moment.

How many months in advance do you hear whether or not a project will go live or not?

There's a huge variation in that. So we have one smaller starting where we need to have people ready at 1st of March, where we were informed this week. So that's 2 weeks in advance, that's quite a challenge. But we also have clients that book 6 months ahead. So it really varies. But in Asia, more and more the time frame is pretty short.

Okay. Okay. And then secondly...

Sorry, Maarten, may I add to that? And of course, that's clients that we have been discussing the project with for 6 months to make sure that if we get the go-ahead, we know what to do. It's not that they called us this week, hey, I need so many people next week. Again, there's continuous dialogue, obviously. But the actual start date can be confirmed really late in the process.

Okay, okay. Secondly, concerning Taylor Hopkinson, last year you already more or less acquired a large stake again, but still not at 100%. I thought at the first quarter of this year or maybe you already have done that, you would buy the remaining last shares of Taylor Hopkinson. What's the participation at this moment?

So we did another tranche in Q4 with existing management and the final piece will be done mid-March. But the numbers have all been prepared and finalized. So it is more -- it's only a matter of formalization. Yes, and I'm very happy to say that despite the headwinds they face in renewable, we still end up with a nice transaction and also allowed many of the people that were involved in that earn-out scheme to offer them a promising role going forward within the group.

So the cash-out of EUR 1.8 million in the cash flow statement for the second half is partly for Equals and partly for Taylor Hopkinson.

It should only be Taylor Hopkinson. But that's in a -- so we had a technical discussion with our auditor. So the cash-out for the put and call is in a different line. But happy to clarify that offline. But we had a cash-out for equals of EUR 1.5 million and for Taylor Hopkinson, I mean, in the fourth quarter, it was also EUR 1.5 million, I think.

Okay. And then furthermore, concerning Taylor Hopkinson, particularly, what is the impact of Mr. Trump at the helm in the U.S. making clear statements that he forbids all new windmills, as he calls it, and focuses particularly on oil and those kind of energy sources.

First of all, it scared everybody that worked in renewable a lot. And now that everybody sees the impact, it appears to be not as bad as it might suggest. We see that there are still a lot of renewable projects still continuing just because there is a business case or there are states in the U.S. that want to continue with that. So it's not that the market is completely dead. And we have been preparing for all scenarios, so also looking into other sources of renewable energy outside offshore wind. So yes, for now, I think it mainly impacts the sentiment in the industry, but there are still projects that are continuing and are being started.

And also the situation in Europe, where Denmark is canceling offshore wind projects. There are doubts that in the Netherlands, the Nederwiek projects won't find any bidder. How do you look at that situation?

So the offshore wind market is really challenging at the moment, and that's why we are focusing already for more than 2 years on hydrogen. That seems more and more promising with the education on hydrogen we provide in the Netherlands, and the hydrogen market is still continuing and growing fast. Like I said, the project in Sweden. Yes, and related to that, all the investments in the grid is continuing. So there's still plenty of growth in that industry. But you're right, offshore wind is not the best market at the moment. But there are plenty of other pockets in renewable that are interesting.

For me to get a bit of a feeling for the markets that Taylor Hopkinson is addressing, can you more or less give a breakdown of offshore wind, hydrogen energy networks, et cetera?

So at the moment, and by my earlier comments, there are still a lot of what they do and it's probably 60% is geared towards offshore wind. And still a decent portion of onshore wind, it's probably 20%. And 20% of the rest and that includes hydrogen and the grid infrastructure. But as I explained in previous time, in the reported numbers, we only see the business for Taylor Hopkinson that's run out of the. U.K. out of their own entity and more and more the renewable businesses. Won and contracted by Taylor Hopkinson, but executed by Brunel region and therefore ends up in the P&L of a Brunel region as you can see in the total development of our renewable revenue. When we started with Taylor Hopkinson or in '21, we did roughly EUR 35 million in renewable, and last year, we did close to EUR 175 million. So there's still clear growth in the market. But it's not feasible in the -- only the TH numbers because it ends up in various P&Ls within Brunel.

The next question comes from Konrad Zomer with ABN AMRO.

It's Konrad again. I have a question on your financial expenses. I think you did really well, as you said, on your free cash flow. Net cash came in really at a high level. I was wrong-footed in my estimates on your financial expenses for the year, minus EUR 7.9 million. It was minus EUR 2.2 million in the first half. And that was the result why my EPS forecast was a lot higher than your reported EPS level and also subsequently your dividend flat year-on-year. It makes sense from your reported numbers. But can you explain to us what happened in your financial expenses, particularly in the second half because, overall, you're a net cash company and your net financial expenses were actually higher than last year.

Yes. But you will see that also our interest expenses for banks and so forth, the overdrafts, right, in the second half of the year were at the same level as the first half of the year because the trend in Q4 was opposite. That's what we've seen in -- yes, as we've seen in the first half year. And remember, we were the first time since many years we were in net debt position at the end of June. So we were still using quite a bit of our overdraft facility in the first couple of months and the cash collection really accelerated in November and December. So the interest on our overdraft is pretty similar in the second half of the year as in the first half of the year. In the second half year, we did incur some additional interest expenses. Yes, the tax dispute we settled at the end of '23 in Germany, which went back to even 2013, where we ended up paying the remainder in the second half of the year and that also came with some interest.

And that tax settlement explains the year-on-year increase in your financial expenses.

The year-on-year increase. The year-on-year also started because in '24 we did use a large part of our overdraft facility for quite some months, many more than in '23. So a big portion of the increase is also, yes, because of that if you compare to '23.

Right, right. Okay. I still struggle a little bit to explain why your second half financial expenses were so much higher than in the first half, given that you are in a net debt position at the half year stage, but you're not in a net debt position today?

No. But we are also not in a net debt position at the beginning of the year. But that's why I said the trend in the second half of the year was opposite of the trend in the first half of the year.

At this time, we have no further questions from the phone lines, and so I will turn it over to the management team to manage the questions from the webcast.

So we received a question from [ Rob Sears ], whether we can give an update on our pipeline of new projects. I remember many years ago we did give actual projects because they were huge and so significant and had individual impact on our top line. The size of projects we are currently working on is not at that level. But to give some overview of projects we are working on is the hydrogen steel plant in Sweden, where we do the commission -- where we support them in the commissioning. We have continued work in Asia on FPSO construction for the bigger FPSO producers. We do a lot or increasing more and more on the shale in Texas in the U.S. So it's a combination of many projects. And besides that, we still have the ongoing activities on the installations in Papua New Guinea, where there is -- where there will be a new addition being started towards the end of this year. Mozambique is still on the horizon. So no really huge projects that will have -- or will be a game changer this year, but it's a combination of many smaller projects. Okay, the next one. Question from [ Mark Fergis ]. Is Brunel able to provide technical workforce for all types of energy capital investments? And can the same talent profiles be allocated on various projects? In other words, does it matter which energy vertical is stable? We see that we -- that skills are really transferable between many parts of the energy market and the ones that are named, wind, hydrogen, LNG, conventional, there, we see a lot of skills that can be used in all those markets. You also mentioned nuclear. Nuclear is a completely different industry, and we're hardly doing anything there. So it's more difficult, and the same applies to solar energy because that's these days pretty much an installation and that doesn't require the same level of management and health and safety and quality inspection as many of the other energy projects do. On to the next question. Question -- interesting question from [ Willem Berkus ], whether we have additional M&A targets for '25? And are price levels becoming more attractive and in what area would we be interested most? We're definitely still very interested to do M&A this year and I will not commit to a target because then you might end up making your own decisions. But we're still working on the pipeline, speaking to many companies, although we postponed it a little bit for as long as the CFO position was vacant because we also want to be capable of managing an acquisition. But we're still looking at it. And at the moment, we are especially looking at the markets where they generally have a higher margin, such as Netherlands and Germany, or where we have a strong organization. So we're still also looking at Australasia. But they're definitely very interested to do more acquisitions. At pricing levels, strangely enough, there appears not too much change there where you expect -- if you look at all the listed companies in our industry, multiples have gone down significantly. But if you look at the acquisitions that we are looking at, so slightly smaller, the multiples are still pretty high and we see a lot of private equity activity there. Okay. I think that's the final question. We have one more. Question from [ Max Kleisen ]. On the dividend payment, asking why. The last year, we didn't have enough cash to print the dividend. And with the improved free cash flow this year, if we will be able to fully fund the dividend from the cash flow. Yes, and I can confirm that I expect to at least keep the collection at this level and probably will even increase it further and then not expecting significant revenue growth. So increase in working capital in the first half of the year, our free cash flow should be sufficient to pay for at least a dividend and probably a bit more. Okay, so that's the final question. So thank you all for your attention, and hope to see you soon.

Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.