Good morning, and welcome to the Brunel International NV Results Call for the first quarter of 2025. After the speaker's presentation, you will have the opportunity to ask a question. To submit a question, if you have joined the phone lines, please press star followed by 1 on your telephone keypad. If you change your mind, please press star then 2 to remove. Should you need operator assistance at any point, please press star then 0. Thank you. I will now hand over to Peter de Laat, Brunel CEO. Please go ahead, Peter.
Thank you very much. Good morning, everybody, with our call for the Q1 results. Let me move on to the summary of the results. Before I get to that, maybe a reminder on where we assist our clients. Our statement is that we provide specialists to pioneering projects. Many of our clients have a deliberate strategy that they want to use external help in their projects, mainly their investment projects and their R&D projects, and also because they lack the skills themselves internally. That is what we do. That typically helps us in the downturn because most of those projects continue or will be finalized. What we always also see is that when the economic activity slowed down, there is a delay in new projects being started. That is what we have seen for a while now. That is now starting to impact our results.
What especially impacted our first quarter results is all the events that happened that caused even more uncertainty with our clients and where they stopped their direct hire themselves, impacting our firm revenues. Our firm revenues, so that's one of the fees we get for finding candidates for them, almost halved in the first quarter, where it has been pretty stable for the last eight quarters. That's one of the fees without any cost of sales against it. It is also impacting our gross profit and our EBIT directly. Overall, you see a decline in revenue of 11% across the board, with the biggest still in the DACH region, where the year-on-year comparison is getting tougher and tougher. That is something that's applicable for the entire group. Our first half-year results for last year were still pretty okay because the projects were continuing.
We're now starting to see an even more impact of the slowdown of new projects being started and a lower activity level, despite the cost savings that we initiated last year and resulted in a cost level that was even lower than we initially guided for. We still saw an EBIT drop of 44% compared to last year. Again, the first half of last year was still pretty okay. If you then look to the distribution of our revenue and GP, you can see a quite even distribution of revenue across the globe, but still a much higher contribution of the DACH region to our gross profit. The economic circumstances in the DACH region and the decrease in our activities there is impacting our results significantly.
To move on to the DACH region directly, here you can see that our headcount in that region is significantly lower than we've seen last year. We only saw the headcount significantly decreasing from summer last year. Unfortunately, the decrease is still continuing. We are making nice progress in other industries or kind of new industries for us in the DACH region, such as defense and energy. The stoppers in the other industries are still higher than the starters in the new growing industries. The gross margin remains pretty stable. The margin pressure is still okay-ish. Just for working days, the gross margin was 32%, where it was 34% last year. The difference is explained by the lower firm revenues in Germany and 1% more illness in Germany.
To the summary of the results, yeah, where we still achieved 10% EBIT last year, we now achieve 5% despite a lower cost level. The decrease in revenue and gross profit is pretty significant. What are we doing to try to turn the trends around? Like I said, we're entering and focusing on the growing industries: conventional energy, renewable energy, and defense industry. Defense is included in the industry and technology. I'm pleased to be able to share that our share in defense of our total gross profit is now above 10%. From almost zero up to 10%. Yeah, it's a nice performance of the team there, but also shows the growth that's happening in that area. That's enough on that's all I want to share on the DACH region. The Netherlands, we also see a decline in headcount there, especially in February and March.
That is largely due to the change in law and freelancers. We saw quite some freelancers stopping in March. That will help our gross margin percentage going forward, but it is not helping our revenue and headcount. What we see is that clients are getting more and more reluctant to work with freelancers. They just stop working with them. Most of the engagements are just stopped. They are not hired by our clients or also not employed by us, but the engagements are stopped. They are looking for alternatives. Another element or development in the Netherlands that we are about to share is the information ABN AMRO shared earlier, in Q1 of the hiring freeze, where they go to stop all hiring and stop all external hiring. That will have a limited impact on our numbers going forward.
We do have a decent headcount with ABN AMRO. They will not be stopped immediately, but just at the end of their engagement. Overall, the result is a decrease in revenue of 7%, with a higher decrease in gross profit because of the lower productivity. Pains and illness were higher than before, and that has impacted that. There is also the element of the working day. We have one less working day in the first quarter, which makes up for roughly EUR 600,000 that we miss in gross profit and EBIT. It also explains the big gap in EBIT, which is partially due to, or largely due to, the working days. Moving on to Australasia, I did share before that we decided to terminate our last two projects that we still have in the coal mines in Australia. That is a market that does not fit us anymore for several reasons.
The risk related to it, the industry we're in, and the margins that come with it. That is one of the reasons why our headcount is slightly lower than it was last year. Another development we've seen is the slight delay in new projects in P&G startup that were expected to start in Q1, but are now starting in April. Overall, slightly lower revenue. As you can see the result, again, an improvement of the EBIT percentage and nicely on track to achieve their EBIT target of 4% in the near future. Also, Australasia's gross margin has been impacted by lower firm revenue. Again, we've seen volatility in our firm revenues before, but it has now impacted all industries and all regions at the same moment in Q1, which is pretty unique and I haven't seen before.
The Middle East and India, still a very strong performance, especially on the back of Qatar. In Qatar, we are working on a huge LNG project, the North Field Expansion Project, and that will run until at least 2028. We have many multi-year contracts there, and that's contributing significantly to this region. We also saw another shutdown project, which, yeah, typically has a higher gross margin. That explains why, despite the lower revenue, we managed to increase our EBIT with tightly managed operating expenses. There is more activity to come, especially from Qatar. We will also be operational in Saudi Arabia from the third quarter onwards. Moving on to Americas. Decline in headcount at the end of last year, but now we turn to grow very nice project one in Brazil. Activity in Guyana remains high. The first activities in Suriname are starting.
USA is pretty flat at the moment, despite, yeah, all the news around the conventional energy developments in the US. We do not see any significant changes in new project activities yet. They did manage to achieve a huge increase in EBIT, although it shows EUR 1 million for Q1 this year and last year, but that is a rounding thing. Also, very nice EBIT improvements continued and lower cost level, despite an impact of also lower firm revenues in this region. Asia, headcount continues to be pretty flat, where we were hoping for an increase because of the start of new projects. During the full year results call, I already mentioned that it was very unlikely to happen before the Chinese New Year in early February.
We now see a little bit more activity and a little bit more starters, but it's still at a very low level. It probably will take until at least the second half of this year before we see significant changes in headcount development and revenue and profitability. Where Q1 last year was still pretty strong. It is a tough comparison with the lower revenue, but still some nice continuing projects. It is waiting for the pipeline of new projects to finally start. The pipeline has been building for two years. Those projects are being kept postponed. At some point, they will have to start also because of the deadlines that are put by our clients and their clients. The rest of the world includes Taylor Hopkinson and our oil and gas, wider oil and gas activities in Europe and Africa.
To start with the last one, they are pretty stable. We are getting a bigger footprint across Europe. They are everywhere. One of the nice projects we are working on is a hydrogen steel plant in Sweden, where we provide commissioning services. It is still early days, but a nice development there, especially a nice project. On Taylor Hopkinson , the offshore wind market remains very challenging and probably is getting even more challenging with the recent announcement of Equinor to stop a project in the US and this week's announcement by Vattenfall and Ørsted to, for now, postpone a huge wind farm project in the North Sea, the Hornsea 4. It is hard to predict when that market will start recovering. Our organization, especially in Taylor Hopkinson , is focusing on new industries, especially for their perm business, and they are making inroads there.
It takes time, yeah, to make up for the lower activity in the offshore wind industry. That also explains why the revenue is lower. The gross profit difference, yeah, again, is mainly the impact of the perm revenues. That results in a decrease in EBIT. That brings us to the overall results for the first quarter, an 11% decrease in revenue, a higher decrease in gross profit due to the mix on one end in, yeah, the big impact of the DACH region and the impact of the lower perm revenues. If you adjust for the perm revenues and working days, our gross margin is pretty stable. Operating expenses at EUR 48 million, where initially we guided for EUR 50 million. That demonstrates that there is further room for cost optimizations.
We continue to work on all our IT and AI implementations, and they are really contributing to the quality of our services and the efficiency. We will continue to use those to, yeah, reduce our cost level going forward, also to make up for the lower activity level that we see for now. Gross profit by vertical, yeah, as you can see, impacted across the board. All our verticals are showing a decline in gross profit. Shows that the activity level is, yeah, pretty low across the board and, yeah, in many areas. Waiting for new projects to start. Cash flow, the free cash flow was lower than last year. The two main drivers for that were the lower results. We did pay quite some corporate income taxes in Q1, where last year we paid them later in the year.
Cash balance still really healthy, EUR 36 million. The impact of the lower revenue on the release of working capital is not yet visible because it takes typically a quarter before that becomes visible. That is expected in the second quarter, and that should help our free cash flow in the second quarter. Progress on the 27 targets. The outlook for the second quarter, visibility remains low. What we can see now is that the downward trend has stopped with our performance in April at a similar level as, yeah, March. It seems that for now, the downward trend has stopped. Hard to predict when we will really see new projects starting besides the one that I also highlighted in a press release in Americas and continued activity in Qatar. Those were the elements that I wanted to share for now.
I look forward to taking any questions.
Thank you. To ask a question on the phone line, please press star followed by 1 on your telephone keypad. If you change your mind at any point, you can press star 2 to remove. We have the first question on the phone lines from Konrad Zomer with ABN AMRO. Your line is open.
Hi, good morning, Peter. Konrad Zomer here. Two questions, please. The first one, your EBIT margin in Q1 went down to 2.7%. Do you consider a certain floor level of your EBIT margin in terms of how much you continue to cut costs, or do you just take it as it comes and assume that you will benefit from recovery when it is there? My second question is on your EBIT in the rest of the world.
We know that the earnout was completed last year, so that in itself should give a bit of leeway in terms of your EBIT for this year. Nevertheless, you turned into a small EBIT loss. Is that something that is in line with your expectations, or would you like to see that going back to a positive number as soon as you can too? Thank you.
Yeah. Clear questions. Interesting. The floor level EBIT. We do not have a fixed number of the floor level of EBIT. Of course, we want to adjust our cost levels to our activity level. We will continue to do so. Especially due to the lower perm revenues, the EBIT percentage is really low in Q1. Overall, it remains our plan to achieve our long-term targets. It also means that the cost level should match our activity level.
We are also mindful that we also want to be ready when the recovery starts in our markets. We need to have sufficient salespeople and recruiters available. That is where all the technology investments help us to make our organization more efficient. There is still definitely room for further cost savings. Yeah. We want to end up with a decent result going forward and are still trying to achieve our long-term targets. The same thing applies for the rest of the world. The biggest impact in Q1 is a really low level in perm fees at Taylor Hopkinson in Q1, where we see continued vacancies coming in, but a lot of starters were just canceled by our clients. It is a bit too much. That result should definitely turn positive as soon as possible.
One of the elements that's making it a bit more challenging is the older contracting work that Taylor Hopkinson is now winning and some in Brunel regions because it's executed in other parts of the world. It is certainly the plan to bring the rest of the world to break even, at least as soon as possible.
Okay. Maybe as a follow-up, your performance in April seems to be in line with March. As you just phrased it yourself, the downward trend seems to have stopped for now. Has that had an impact on how you approach your cost line already? I can imagine that it's quite a thin line between ongoing cost savings and holding on to capacity. How do you make that decision?
Because obviously, if the business no longer deteriorates, then you do not want to keep cutting costs for too long.
Yeah, a fair point. However, one month of stable performance does not give you enough comfort that it is definitely the end of the downturn. We keep on monitoring. For instance, the Hornsea 4 wind farm project on the North Sea, we were still discussing that with one of the parties involved last week to arrange the starters. Only a couple of days later, we were called by surprise that it is still ending. It is too early. We are definitely taking that into account that we want to be fully ready for an upturn while monitoring the current trends.
Okay. Thank you.
Probably not the clearest answer you were looking for, but it is also the bit of the lack of visibility we have to deal with at the moment.
No, no. I mean, it's obvious that it's very difficult to predict even for an expert like yourself.
Yeah. Thanks for that. There are some elements that are helping. We saw the activities in the DACH region already weakening from the summer last year. That also means that we have a relatively low number of projects stopping in the second half of the year. It should be more likely that the number of starters outweigh the stoppers. We do have visibility, but there are still certain surprises like the Hornsea 4 project happening.
Okay. Thanks.
Thank you. We have Marc Zwartsenberg with ING on the line now.
Yeah. Good morning. I might be asking stuff that you already discussed, but yeah, good morning. I jumped in a bit later because I came from another call. Apologies if I'm asking something that you already mentioned.
Maybe to start with the Netherlands, if you look at the top line trend, there's sort of a 5.5% decline working day adjusted. You see a March still trend bending downwards a bit. You mentioned April a bit stable. I guess that also then counts for the Netherlands. Are we then down now currently 7% already? Is that the kind of trend we should be looking at when entering Q2? Linked to that, you mentioned also the freelance impact that seems to be more negative than it is a positive from people joining Brunel instead of going to a perm job. How do you see that developing going forward? Because eventually, I can imagine that people want to be still flexible, and it will be a small positive for you guys.
Yeah. The group that stopped—
I'll ask a question. Let's take them one by one.
No, yeah. Thank you. Yeah. I prefer that. Thanks. What we have seen in the development of freelancers in March is especially the group that was clearly, that they did not meet the requirements, but they were allowed to continue until March because our client provided us indemnity on any risks. They stopped by the end of March. That is a group where we already knew for quite a while that they did not meet the requirements. At the moment, after reviewing our total population in that area, we are comfortable that the rest of this group, yeah, does meet the criteria. No further decline expected there. There are some other developments that are hard to predict. We see, yeah, the reluctance to work with freelancers, that more and more clients, we see it increasing. There is also uncertainty with the freelancers itself.
Yeah, hard to predict how they will respond to that. On the run rate, we highlighted the headcount at the end of March in our press release in the Netherlands, which was roughly 6% below where it was last year. That means that headcount-wise, the run rate is minus 6%. Because of the mix between freelancers and own employees, where freelancers typically get a higher day rate, the revenue impact will be slightly higher. Probably your minus 7% is an accurate estimate. Normally, we never see significant headcount growth in Q2, and that is also not what we are seeing today. It is also not what we are expecting for the remainder of the second quarter.
If we then go to Germany, what are you seeing there in terms of trend going into Q2?
Is that also a bit deeper than the—was it minus 22 even? We're going even a bit deeper because last year it remained rather stable for a while.
Yeah. Now, if you look at the headcount graph that's in our press release, you see you're right. In the first half year of last year, it was pretty stable, and we do see a continued but slower decline in this year. The gap is getting bigger. Therefore, also the revenue impact will be bigger. It'll be a limited offset of—
Q2, you mean?
Yeah. That will be partly offset by, yeah, increase of rates for the first of April.
What do you mean? Oh, sorry. Sorry. The CLA increases, you mean?
Yeah. There's a 3.5% increase in the CLA from the first of April onwards.
You're basically saying that's compensating. The revenue trend should remain rather stable.
That's what you're saying.
Yeah.
Sorry, writing it all down. You also mentioned, and that's a bit linked to what Conrad was asking, you say we have more room to save cost. You took out, of course, this significant—what is it? EUR 20 million or so. Of course, there's always more room to cut costs because, yeah, you can take out stuff and adjust to the top line. But yeah, given the current trend and where the margins are and your longer-term targets becoming a bit further out of reach, should we expect another sizable restructuring in the second half of this year that you need to prepare for? Because, yeah, with high double digits declines of over 20%, yeah, and not really visibility on things getting better, your conversion rates and longer-term targets get a bit out of reach, I would say.
Yeah, that's a fair observation.
That's what we're currently working on. What I also tried to explain to Conrad's question before is that the lack of visibility, yeah, needs a bit—you ask for a bit more time to do a thorough review. It also means that we're reviewing different levels on types of activities and offices and those types of things without impacting our capability to benefit from recovery. In short, there will be further cost savings planned going forward. A lot of those will be happening in a, let's say, natural way.
Yeah. Maybe moving to your projects in global businesses, we knew some projects were ending. We also have some new projects starting, like Papua New Guinea gaining traction. What would you expect in terms of new projects?
Because do you feel that there's still a less fast ramp-up, or can they even be halted? What is a bit of the feedback from the larger clients that are involved in the larger projects?
Yeah. I don't see any of the current projects being halted. We continue to see that our clients are taking more time to really ramp up their projects. We made, for instance, nice progress on projects in Namibia, and that's now being slowed a bit. Same for Mozambique. Clients are taking even more time to really start ramping up. There's continued preparation for it again with Mozambique. For now, we see the projects that are starting are small projects, but they're still working on the bigger ones. It will depend on what happens in the world in the next couple of months when they will start.
They are continuing the preparation.
Okay. You do not see any more concerns arising from the lower oil price at the moment?
No. Especially in oil and gas, I have not seen any project being canceled, postponed, or shelved. We do see the continuation for the preparation for Mozambique and Namibia. Those are the bigger projects. Yeah, P&G is pretty much agreed that that will start January next year.
Okay. If we look at that perm business, that is down 50%. It is now EUR 3.3 million in a quarter. What percentage is Taylor Hopkinson of that, and what percentage is Germany of that? I saw you made some statements in the German and DACH region about the perm. Obviously, I also know from the profit warning a while ago in Taylor Hopkinson that there was a lot of perm there. How would you split that?
What are the key differences there? Is Taylor Hopkinson even weaker than the German perm, or?
The surprising part in Q1 is that all the markets were weak. Germany is somewhere between 20% and 25% of the total. Taylor Hopkinson between 35% and 40%. Then two other big ones are America and Australasia. The decrease happens across the board. The biggest surprise here is that, yeah, vacancies that we filled and where the candidates accepted the offers were canceled anyway. You do not get the fees there, where we now see that we continue to work on vacancies that will be paid. I do not expect the impact to remain this significant in the foreseeable future. They will recover to a more normal level, but not yet to the 6 million that we have seen.
Germany was 25%, you mentioned,
yeah. Just to be sure, that includes perm fees and transition fees.
Okay. Yeah. Is Taylor Hopkinson—there must be loss-making, I guess, at the moment.
The reporting entity is, like I explained before, a lot of the work they win ends up in Brunel regions. We're still finalizing the final cost allocation for that. Just to understand that, some of the business that they win is then later on carried out and executed by the Brunel footprint in the final version? Yeah. They've done quite some work in Asia on construction yards, and it's fully executed by Brunel in Asia. Also, revenue and gross profit is included in their P&L.
That's because they don't have an operation there that Brunel has, and they won the contract because they pitched for it.
Yeah. They have the—
so that means that their existing business where they're—yeah.
Basically, that means that the business that you really bought from them, leaving aside the business that they pitched for and is now executed by Brunel, the synergy, that their business is significantly underperforming at the moment. Should there not be then a significant right-sizing at their end, or should we even expect an impairment on the back of that, or lower businesses that are not running anymore?
No. I don't agree with your initial observation that the business that we bought is declining because they had own entities in other parts of the world. We don't want to duplicate our infrastructure. We closed their entities, and now it's all done by Brunel entities. That's the first part. We're still pretty happy with, especially their contracting headcount. The perm performance is absolutely lower than at the time that we acquired them.
That requires attention and optimization, either in ideally more work, but otherwise, we need to adjust the team to the activity level. They are finding new inroads in other renewable markets. Finally, that also does not mean we should be concerned that there will be any impairment on that acquisition.
Why not?
Because overall, if you add the contribution of the projects that are ending up in other parts of Brunel, then they still contribute to have a positive EBIT.
All right.
Which is part of what we acquired because it's their clients, their contractor database, all those type of things. It's just that the administrative execution is done by Brunel.
That's clear. It's just that I'm a bit disappointed in the performance of Taylor Hopkinson a few years. Of course, I know offshore wind is difficult.
We know we also read, everybody reads the newspapers. Yeah, considering what you paid for it, Tom collected a nice amount of money. At some point, they also need to deliver. That is already lacking now for quite a while. That is why I'm interested in how management there at Taylor Hopkinson has a plan to turn this around. Even though there are maybe some profits in the Brunel organization, that our clients are there, etc., in the end, given the synergies, it should be a way bigger contribution. That is why I'm saying, I would expect then at some point that Taylor Hopkinson comes up with a business plan, how they can be much more profitable than they currently are. Is that something that's on its way, or did we get an update?
That's what we—that is in place and what we're working on. In Q1, there were additional surprises that's impacting the results. Yeah, we fully agree that the contribution, especially on the perm part, needs to increase.
All right. That was one of my questions.
Thanks.
Thanks very much.
Thank you, Mark. As a reminder, it's staff followed by one if you wish to ask any further questions on the phone line. We have Martin Wetherbee with The Idea on the line.
Good morning. It's Maarten Verbeek of The Idea. A couple of questions from my side, please. Firstly, yeah, Peter, to make a better judgment going forward for the next coming quarters with the perm business, how much perm revenue did you have last year? EUR 24 million for the full year. EUR 24 million. More or less equally divided over the quarters.
Yeah. More or less. Yeah.
Okay. Thanks. You mentioned about the freelancers in the Netherlands that contracts have ended and that the customer at that moment does not replace that person. That is a bit odd because that would mean that a lot of work simply has disappeared. Or did I understand you incorrectly?
No, you understood me correctly. I can only say that I am just as surprised as you are by that development, especially since some of them are working in quite some, let's say, political-sensitive areas.
Okay. How do you—what are the risks that you will see a further deterioration in your population of freelancers? Because initially, you saw there is an opportunity that people would be transferred and you would have other contracts with them for them.
Yeah. Now, after doing the full review, we have identified that, yeah, the freelancers that we use, they do meet the requirements.
There is no need for them or for us or for our clients to change our behavior, except for when our clients do not want to do it anymore. That is limited so far. My guess would be that the area that is impacted is not directly the area where we operate in, which makes sense because the ones that are not considered true freelancers are probably at a slightly lower level than the people we typically use.
Okay. Clear. To get back to Taylor Hopkinson's, you mentioned that they are developing and entering new market segments. Can you provide a little bit more color and how much is still the offshore wind business within the portfolio of Taylor Hopkinson?
Yeah. When we acquired them, their perm activities were only in offshore wind.
Since the slowdown in that market at the end of 2023, they have now also been looking at onshore wind, hydrogen markets, and even partly carbon capture markets. They are looking at more markets. The positive thing is that their contractor or their database of people has a lot of people that can operate in any of those markets. The other part is, of course, that they continue to look across the globe because it is not—even though the offshore wind market is not very—it is not doing very well, but there are still parts in the world where it is doing okay.
Absolutely. If you now look at those three new segments they have entered, the onshore, hydrogen, and the carbon capture, how much is that of the total business at this stage?
Yeah. The three combined are roughly around 35%. Already 1/3. Yeah.
Just to make sure, 35% of a really low level.
Okay. Okay. Okay. Thanks. That's it from my side. Thanks.
Yeah. I do want to share. So the low perm revenue, again, was a significant drop and cancellations of vacancies that we are finalizing or about to finalize. And that has a huge impact. We have never seen that in the same way at this level before. We expect that going forward, it will be more normal business and crisis. It should at least be better than in Q1.
Thank you. We have a follow-up question from Konrad Zomer with ABN AMRO. Please go ahead when you're ready.
Hi. Thanks. Yeah. One other question. You mentioned in your preparation remarks, your prepared remarks, a few times projects are being delayed or upheld by clients.
I was just wondering, if you look at your total revenues of maybe, let's say, EUR 1.3 billion or EUR 1.4 billion for the year, whatever it's going to be, can you give us a breakdown of how much of that revenue is generated by what you call larger projects, maybe, I don't know, 50 people or more? Because your bread-and-butter run-of-the-mill business of placing a few people here, placing a few people there, I think that has continued at a decent pace. I'm trying to get a feel for how important those bigger projects are for your overall performance.
Yeah. I don't have the accurate number, but that will be mainly in Asia, Qatar, and Australia where we have the bigger projects. That will be roughly 40% of our revenue.
Sorry. Did you say 40%?
Yeah.
Okay. Cool. Thank you.
Thank you.
We currently have no further questions on the phone line. I would like to hand it back.
Yep. Thank you very much. Okay. Thank you all for attending the call. I look forward to seeing many of you soon. Have a great day.
Thank you. Thank you all for dialing in. I can confirm that does conclude today's conference call. Thank you all for your participation. You may now disconnect.