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

Hello, everyone. Thank you for joining us, and welcome to the Brunel Second Quarter 2026 and First Half of 2026 Results Call. [Operator Instructions] I will now hand the conference over to Peter de Laat, CEO. Please go ahead.

Thank you very much. Good morning, everybody, and welcome to our call on the results for the second quarter of '26. To start with the highlights, the second quarter developed as expected with the trends we saw in the first quarter of this year continuing. That means a strong performance in DACH, improved profitability in our global business and still a challenging performance in the Netherlands. But besides that, it has been a very hectic and busy quarter. And I want to mention a couple of items that passed -- that happened in the second quarter. First of all, I want to start with the conflict in the Middle East, and I want to start with the people aspect of it. In the second quarter, they tried to get the Ras Laffan plant live again and up and running in Qatar that was impacted by attacks earlier this year. And in doing so, they encountered a huge explosion that resulted in 13 casualties and 66 injured people, including one of our specialists. Yes, a huge tragedy and then also another setback for that region. And then to the other elements. So the second quarter was also the first time this year that we saw the entire quarter impacted by the conflict in the Middle East. Our activity level dropped immediately after the conflict started at the end of February and then remained relatively stable after that. But it also means that now we have three months impacted in the quarter, and that explains why the trend is a touch softer than we saw in the first quarter. And especially with the huge revenue and EBIT contribution, the Middle East still has owner group. And I'm really proud of the resilience of our performance in that region and even more proud of the dedication of our team and our specialists working in that region. Another thing element that happened in the second quarter is that we formally announced and started the execution of our updated strategy. We had a Capital Markets Day. We had also internal takeoff, and I'm very encouraged by the progress we're making so far. And to mention a couple of items there, we're expanding our teams in power and grid and defense in new verticals and also making progress on our revenue in those segments. Not yet enough to disclose it separately, but we're making nice progress, very happy with it. The other part is the continuation of our AI implementation. We have a NEO solution that's a completely AI-driven solution for our services and our interaction with clients and candidates. And we started piloting that in Q4 last year, and that's going so successful that we decided to accelerate the rollout to all regions in the course of -- this year. So nice progress there and nice results as well. Another element, and I started with the challenging performance in the Netherlands in April, our new Managing Director in the Netherlands started and she immediately embraced the strategy. She's not taking, let's say, the first 100 days to observe the situation, but she's already impacting our activities. And so far, I'm really happy with the progress we're making, and that also includes the refocus again on the engineering market in the Netherlands where it all started for Brunel and where we used to be very strong, but we lost a lot of market share, and we want to regain that. And then finally, in the quarter, we have been recognized as one of the fastest-growing staffing companies in the U.S. and that's measured over the last five years on the CAGR. And yes, we're in the top 50 there, one of the bigger companies. So also proud of that performance. And with that, I want to hand it over to Toine for the financial details.

Thank you, Peter. Good morning, everyone. If you can go one back to the financial highlights… Thank you. In terms of the quarter 2 results, we were close to the EUR 300 million. As Peter mentioned, we're a little bit softer than that given the impact of the Middle East. Still a big part of the Middle East is holding its revenue and the margins, and we'll come back later to that, but we see growth not coming through as expected. Gross profit is EUR 52 million. That's organically and also reporting wise, about 1% down -- gross margin stayed stable at 17.3%. And we also see there the impact of the perm revenue where we continue to see growth of about 6% in the quarter and even 20% year-to-date. Operating costs still favorable compared to last year. These obviously are the cost reduction programs we initiated last year. But also, as mentioned, those will be partly used also for investments in sales business development and the new strategy. And also there, we start to see the impact in quarter 2 and also expect that impact of the investments for the remaining part of the year. Underlying EBIT then at EUR 6 million for the quarter, which is stable from a reporting perspective and organically 2% up this quarter. Then for the H1 results, EUR 597 million, about EUR 300 million per quarter. And then the trends are more or less the same for gross profit, organic 1% down. Operating costs also down for the first half and then EBIT is 3% organic for the first half at EUR 14 million. If you then dive a little bit deeper into the regions, Peter already mentioned, we have continued to see good performance in DACH compared to last year with about a 12% organic revenue growth year-on-year and a positive EBIT contribution of EUR 800,000 compared to a loss of last year. So momentum is there. Netherlands and Belgium, there, we have seen the negative impact both in revenue as well as EBIT and the turnaround is in full progress, as also Peter highlighted. And then for the global business in total, stable revenue, but a growth in underlying profitability, whereby obviously, Middle East indeed is a bit down, as already indicated before, both revenue as well as profitability. But the other regions are doing well in terms of profitability. We also discussed in Q1 that Asia, although revenue is down, that is for a big part also driven by a change in service model there for certain customers where we serve much more incumbent services where we do get the full margin or our full fees but not the full top line as we see for our -- some of our other services. So profitability is still strong there with a 9% growth in the quarter. That is for Q2. Then H1, I will be short as the trends are the same, both for DACH, the Netherlands as well as the global business. The main outline here is that we still see Middle East in combination with a strong Q1, showing organic growth for the first half, but still a little bit less profitability given the challenges there in the second quarter. Perm revenue already mentioned, 20% for the first half and then EUR 4 million EBIT for the quarter, which is 3% up organically. Gross margin. This shows the split in gross margin as well as revenue by region. We've also split this as we have introduced in the Capital Markets Day between Europe and the global business. You can see at the bottom that the margin -- that we have seen margin challenges in the European business in the Netherlands, but specifically also in DACH. And that is where we see strong revenue growth, but also we see supply consolidation at our customers. We've also indicated that last time where we see more revenue, but then sometimes at lower margins. And then in the global business, gross profit up at 7% and also the gross margin is up, and that is partly that service mix in specifically Asia. That is what I would like to highlight here. So we go a little bit deeper into the regions, starting with DACH. Again, 13% increase in revenue, margin of 24%, although lower than last year for the reasons that I mentioned. The cost program that we introduced last time has had its full impact and also shows in a stronger bottom line for a total EBIT of EUR 800,000 compared to a loss last year in the quarter. Then the Netherlands and Belgium. And here also with the scope of the new Managing Director, we have decided to combine also now reporting the Netherlands and Belgium together, where obviously, Netherlands is by far the bigger part of that. And then the revenue decline that we have shown is a combination of the market challenges that we see, but also with the organizational changes also that is impacting in the short term the performance. In line with the low activity level, also costs have been reducing, and we will stay vigilant in terms of cost levels, but also want to make sure that we set up the organization for success for growth. And then as Peter already mentioned, the turnaround program is progressing well. Australasia is continuing a strong performance that we also did see in prior quarters. Revenue still up year-on-year. Gross margin increased with 11.5% and is 100 basis points up compared to last year. And the EBIT increased or improved 11% organically to EUR 1.9 million. So a strong performance of the team there and also the strong conversion ratio. The Americas, also there, we continue to see a good performance, a growth of organically 6% year-on-year in the quarter. Gross margin also increased there slightly to 50 basis points. Underlying EBIT, despite the increase in margin and revenue was flat, and that is also reflecting the continued investments we're making in the region to take advantage of the opportunities that we see there. Conversion ratio close to 24%. Middle East, I think most has been said already by Peter about this region and also the resilience of the team there focusing on customers and contractors. But obviously, there has been some impact on the top line and the bottom line. And specifically, we also see that new projects and new growth is being pushed out. So we see a slight decline in revenue as well as in bottom line. And we stay vigilant here on cost and also the region here continues to have the highest conversion ratio, and we'll make sure that we are ready for growth on net returns. Asia, already mentioned there, the service mix. So at the one hand, the revenue decline of 13% looks like a lot, but underlying, we see a limited impact in our gross profit and even margins and then improving given the service mix. EBIT was flat year-on-year, reflecting that swap in services between top line and margin. And also here, we continue to invest in future growth and conversion ratio was stable around 33%. Then the Rest of World, that is a combination of Europe, Africa, Belgium, Taylor Hopkinson. As mentioned before, Belgium has moved to the Netherlands, and it's now Netherlands and Belgium together. Here, we see that revenue increased in -- across this Rest of World region with about 9% organically. Margins are also up close to 200 basis points or more than 200 basis points. And then also EBIT returned to positive area, EUR 800,000 profit compared to a small loss last year. So also here, performance is picking up, and that is also contributing to the good performance in the global business. Then if we add that up, I've touched on most. I want to mention that perm business has been up 6% in the quarter and 20% year-to-date. Gross margin is flat and then underlying EBIT is up 2% also on the back of still good cost control across the regions. Then this shows the gross profit by vertical. As Peter mentioned, the new verticals will be reported later, but not at this stage. Conventional energy is more or less flat, obviously, also impacted by the Middle East conflict. Renewables shows growth as well as mining. Future Mobility shows some growth. That, of course, is also the impact of the growth that we see in DACH and Germany. And then in the Netherlands, you see some decline in the financial and public sectors in line with what we also reported in prior quarters. Then moving on to net profit. We showed a net profit of slightly over EUR 5 million. That compares to a loss -- slight loss last year. Last year, as you can recall, we booked quite some one-off costs related to the restructuring that we did at that moment. In this quarter, we did book some one-off costs. We have still some small restructuring going on here and there. And also there's some strategy and transformation costs included in that EUR 1.3 million. Earnings per share at EUR 0.10 compared to EUR 0.01 last year, and then the tax rate has normalized around 35%. Last year, that was much higher given quite some special items, but this is normalized tax rate that we also expect for the remaining part of the year. Then cash flow. As usual, with the seasonality, we see negative cash flow in the first half of the year, negative EUR 40 million. It was less negative than the year before. And basically, this follows the usual seasonality specifically of our receivables. Net cash position of -- a net debt position of EUR 4 million, which compares to about EUR 32 million net cash at the end of the year. And then restricted cash out of that is close to EUR 11 million, in line with the end of last year. And of course, the cash position also reflects the dividend payout that was done in June of this year. And then the outlook, this is in line with what we have seen in Q2 and also Q1. We will remain cautious here also given the macroeconomic and geopolitical uncertainty, specifically in the Middle East and any fallout of that. So we expect the trends to continue, meaning DACH global business in the Netherlands as well as the Middle East, we expect the same trends to continue for Q3. With that, I hand it back over to you.

Yes. And then I want to open the floor for any questions you might have.

[Operator Instructions] Your first question is from the line of Simon Van Open with Kepler Cheuvreux.

I have a question on operating leverage. You have said roughly EUR 30 million in costs since Q2 2024. And we see despite top line being slightly negative in Q2 that underlying EBIT is up 2% organically. When can we expect a bit more operating leverage from all the cost savings initiatives that you have done so far? And then secondly, I was wondering on the dynamic of your temp versus perm business. We see permanent placement or permanent recruitment being up 6% organically and contracting revenue down 2% organically in the quarter. Curious to hear your thoughts on what is driving the, let's say, difference in terms versus contracting.

Yes. In terms of -- in terms of the leverage, we have seen over the last quarters, as you mentioned, the last 18 months, significant improvement in our cost base. Obviously, we also have seen a reduction in revenue and with that margin and some margin pressure, specifically in Europe. So the lower cost base is fully into the numbers. In the meantime, we're also investing. What obviously, we're getting ready for is growth and also achieving that growth with no or very limited additional costs. So you see that we've bottomed out in Q1 and Q2. Obviously, Middle East is a bit uncertain, but that operating leverage will start to show as we start to grow as well. But obviously, the lower cost base is fully there.

And maybe as a follow-up, what do you expect to achieve in an environment where your top line remains relatively flat? How much operating leverage going forward?

Well, we do expect growth, right? So the lower cost base is there, Simon. Obviously, if we would not grow moving forward, then we will need to relook at cost since we have invested in growth, but we do expect growth to return also with the new strategy and the focus on new verticals. So I have no concerns that the operating leverage will start to show moving forward.

Or slightly rephrase if the growth does not materialize, but we don't expect, then we need to reduce cost.

Yep. All right. Thank you.

And the temp versus perm, nice question. So temp has a slightly different, let's say, cyclicality than perm. Our clients start building their own organizations first. That's where we can help them with perm before they start hiring external contractors, and that's temp, of course. So that means it's promising that perm is picking up. That's promising for what will happen with the temp activities, and that's also why we are expecting growth.

All right. That's very helpful. Thank you very much.

And to add to that, I'm also very pleased that perm is doing well across the globe and all verticals that we do perm in.

Your next question is from the line of Conrad Zama with ABN AMRO.

A question on your performance in the Netherlands. Can you explain to us in a bit more detail what you see in terms of timing of the refocusing on engineering? What's going to happen to your other activities like in financial services and the public sector? And also in Q2, your revenues were down 21%. The cost base was down 8%. Obviously, that cost base will continue to come down further. But when do you think that will be aligned with the developments in your revenue base?

Yes. Good question. So the timing on the focus, obviously, we started immediately after all the -- we've implemented all the changes in April this year with a focus on engineering, but that starts with building your teams and intensifying our client relationship. So it's a bit hard to put an exact timing on it when we will see the benefits of that. But I'm cautiously optimistic that towards the end of this year, we will see the first real benefits of that. And what will happen with the other verticals? We continue to have a strong position in those -- in the financial services and the public sector. But those verticals, the markets are declining there. So we will -- I'm convinced that we will continue to do well in those markets, but I don't expect any significant growth coming from those verticals. And then finally, I agree that there is a mismatch between our current cost level and our revenue and margin level in the Netherlands. And most of the reset should be done by the start of next year. So that next year, we will have a more decent profitability in the Netherlands, not yet at the levels we've seen in the past, but yes, a nice uptick.

Okay. But then -- then I'd like to hear a bit more about the word refocusing because from what you just said, I understand that you're going to keep the other businesses. You even said they will continue to do well. To be honest, if I look at the performance in Q2 with both financial services and the public sector down more than 30% year-on-year, I wouldn't classify that as doing well. So what's going to happen to those people in those businesses? Will they continue to remain employed? Will they get the backing from the management? How do you see that develop?

To start, they have the backing of the management. And in those verticals, the cost level pretty much have been adjusted to the activity level. So the overall performance of those verticals is not too bad, I would say. But it's not visual in the overall numbers because of the investments we're doing in all the engineering verticals where we are expanding our sales teams to make sure that we can be more successful in the engineering verticals.

Right. Okay. And maybe as a final question on this topic. I think that engineering at the moment is about 30%, 35% of your business in the Netherlands. Correct me if I'm wrong, but I think that's roughly the ballpark number. Let's say, you're 1 year ahead and you've done all the things that you wanted to do. what percentage of your overall revenues in the Netherlands do you think consist of engineering?

Yes. So your current assessment of what engineering is in the total business in Netherlands is pretty accurate. And for next year, that should -- we should see the first benefits and then resulting in that it will go to 40 -- between 40% and 50% of our overall business. But it does take time to regain what we've lost.

Your next question is from the line of Marc Zwartsenburg with ING.

Let's see what's left. Yes, I first want to discuss the outlook. You say trends are continuing from what we observed in the second quarter. But I would say comps are getting quite a bit easier. So how should I read that? And also with Germany, resilient because we accelerate from plus 7% to plus 12%. Comps still easy. Should we expect then a sort of low double-digit growth to continue? Is that what you're trying to say? Or is it still going higher because of easier comps? The same bit for the other regions because...

It's the latter part. So the sequential trends will continue and helped by the easier comps and that will show improved trends year-on-year.

Okay. That should improve. Okay. And what do you see in Germany? Because you had a bit of an acceleration. If I read the outlook, it feels a bit more cautious. Is it because it's stagnating a bit in the quarter-on-quarter improvement in volumes? Or what do you see there?

Yes. It is stagnating a bit overall, but that's the balance of -- continued challenging automotive market, and you surely have read the BMW announcement this week. So that's not helping, but we see the other verticals and especially defense, power and grid and wider energy, we see continued growth there. And the uncertainty is that it's not fully clear how challenging automotive is and how fast we can grow in the other ones.

Yes, because you see in automotive that things are stagnating or coming down a bit further.

Correct.

Yes. Okay. And then on the Middle East, as expected, the trend came down. You flagged it also at the Q1 numbers, project delays. What is the current situation? What should we expect for the second half? Will that come down a bit further because of all the tensions still ongoing and strikes and what have you? But what should we expect? Is it all -- can we go minus 10% or it will stay at this level within general trend?

The trend -- it will go down slightly more. That's just because projects are completed and no new ones are started, but it's only very small impact.