Q2 2019: Continued double digit revenue and EBIT growth (excluding one-off), results impacted by loss on contract in new activities

Amsterdam, 2 August 2019

Key points Q2 2019

• Revenue up by 17% to EUR 258 million
• EBIT (excluding one-off) up by 21% to EUR 5 million
• EBIT EUR 0.5 million negative due to one-off loss of 5.5 million

Key points H1 2019

• Revenue up by 20% to EUR 524 million
• EBIT (excluding one-off) up by 51% to EUR 17 million, reported EBIT up by 3% to EUR 12 million

Jilko Andringa, CEO of Brunel International N.V.: "We continued to outperform in key markets like Germany and Middle East & India. However, we also incurred  a one-off loss in the USA.

In line with our entrepreneurial spirit, we started an entity to build up new project capabilities in Texas. With this new entity, we won many new projects. One of the initial projects did not go as planned and resulted in a loss. As painful as this is, we used the learnings of this project to improve our team, processes and controls. Supported by the improved settings, this new activity delivers profitable revenue growth.

In the DACH region, we continued to grow, while we experienced some impact from the weakness in the Automotive Industry. This has not reduced headcount and productivity, as we continued to focus on other growth markets, in line with our strategy of diversification. In the Netherlands, despite a revenue decline, we were able to realize a higher EBIT than Q2 last year, as a result of operational control and cost savings.

Overall, Brunel realized strong growth in most of its regions in the first half of 2019. Outside of Europe, we see project activity and our pipeline increasing. Taking into account some project ramp-up time this will lead to continued growth in revenue and profitability”.

H1 2019 results by division
P&L amounts in EUR million

Summary: 

 Revenue

This region includes Germany, Switzerland, Austria and Czech Republic. In Q2 we started to experience some slowdown in the Automotive market, but have been able to balance this through our diversification approach and found projects for our specialists in other market segments.

Revenue per working day increased by 7% in Q2, despite a slightly lower productivity due to vacation. In H1 revenue per working day increased by 11%. Headcount at 30 June 2019 is 3% above last year’s headcount and we experienced a 3-4% price increase through the first half of 2019.

Working days

Gross Profit
The gross margin adjusted for working days in Q2 is 30.6% (Q2 2018: 30.6%). The gross margin adjusted for working days in H1 is 32.2% (H1 2018: 31.3%). Adjusted for working days, the gross profit in Q2 increased by 7%, or EUR 1.5 million.

Operating costs
Operating costs in Q2 increased by 6% mainly driven by continued investments in our commercial organization.

 Revenue

Revenue per working day in the Netherlands decreased by 6% in Q2. This decline is caused by clients actively taking over our professionals, in combination with challenges to recruit new professionals due to the scarcity in the labour market.

Working days

Gross Profit
The gross margin adjusted for working days in Q2 is 24.3% (Q2 2018: 26.3%). The decline in gross margin is mainly caused, as in Q1, by a higher bench and margin pressure. In June the bench returned to a normal level of 4%.

Operating costs
In Q2 the operating costs decreased by EUR 1.5 million as a result of cost saving initiatives and the costs related to digital market initiatives we incurred in 2018.

Revenue
Australasia includes Australia and Papua New Guinea. Australasia managed to achieve limited growth, even despite a challenging and competitive environment in the mining sector. The growth is mainly driven by our traditional services in the Oil & Gas sector.

Gross Profit
The improved gross margin is mainly the result of our diversification in mining and other types of services.

Operating costs
The increased operating costs reflect our investments in diversification and the sales team.

 Revenue

We achieved another very strong quarter in Kuwait, Qatar and India. We continue to see a strong pipeline of work and we expanded by opening new offices in India, and setting up businesses in Oman and Abu Dhabi.

Gross Profit
The gross margin is in line with 2018 and varies based on the relative share of project business versus traditional manpower offerings.

Operating costs
The increase in operating costs is the result of the investments we made in our organisation to support continued strong growth. As a result of the implementation of IFRS 16, an amount of EUR 0.8 million is now recorded under operating costs, which was previously recorded in cost of sales.

Revenue
Rest of World includes Americas, Russia, Belgium and Asia. The Americas show significant growth, also driven by the entrance to the shale market we obtained with our new activities in Texas. Excluding a one-off loss the Americas has returned to profitability in H1 2019.
In Asia, we see activities on the yards increasing.

Gross Profit
The gross margin decreased significantly due to the lump sum project in the USA. Adjusted for this loss, the gross margin amounts 14.2%, down 1.9 ppt., due to a change in the mix of countries and services.

Operating costs
The operating costs increased to support further growth throughout these regions.

New activities in Texas

In 2017, we started Brunel Industry Services (BIS) in Pasadena, Texas. These activities have provided us access to the shale market and are currently one of the strong drivers of growth, and EBIT contribution.

We encountered a one-off loss on a project for a water treatment plant. After a successful fixed price contract for the maintenance of water treatment tanks in 2017, we were granted a second project in July 2018. This was a EUR 12 million fixed price project for a water treatment plant, based on the design and engineering of our client. Work on this project started in September 2018 and even though we experienced a backlog, project management seemed in control, and the project appeared successful by year-end 2018.

In June 2019, at 55% completion, our new experienced BIS leader and his team had to determine that the project had not advanced as expected. A re-estimate resulted in a EUR 5.5 million loss for the total project until completion which is scheduled in Q1 2020. The loss is recognised in the Q2 results.

The re-estimate is made up of many components, from missing parts in the initial bid, inefficiencies in the performance of the team, resulting in a lack of progress, disadvantageous renegotiations with subcontractors and insufficient project management.

We have replaced the general manager of Brunel Industry Services (BIS), strengthened the organisation, improved processes and procedures, and reduced our risk-appetite in the acceptance of new projects to prevent this type of incidents to occur in the future. Brunel does not have any similar type of contracts anywhere in the world. 

Effective tax rate
The effective tax rate in the first half year of 2019 is 52.0% (2018 at 54.4%). Due to the seasonality in our businesses in the Netherlands DACH region and the negative impact from the one-off loss in the USA in Q2, we expect the effective tax rate for the full year to come down significantly to around 35%.  

Risk profile
Reference is made to our 2018 Annual Report (pages 93 - 116). Reassessment of our earlier identified risks and the potential impact on occurrence has not resulted in required changes in our internal risk management and control systems.

Cash position
Brunel’s cash position decreased to EUR 60.6 million in line with our expectations, due to the increased working capital as a result of growth, our normal seasonality in our cash flow and the dividend payment in June.

Outlook for 2019
In the DACH region, we expect limited growth in the remainder of the year, with increased profitability. Cost savings in the Netherlands will result in an improved EBIT, despite a decline in revenue. The Middle East will continue its strong performance, whilst the strong growth in the Rest of the World will support a return to profitability in the course of the second half of 2019.

For the full year we expect revenue between EUR 1,025 billion and 1,075 billion and normalized EBIT between EUR 43.5 million and EUR 48.5 million. Including the one-off loss of EUR 5.5 million, we expect the full year EBIT to end up between 38 million and 43 million.

Statement of the Board of Directors
The Board of Directors of Brunel International N.V. hereby declares that, to the best of its knowledge, the interim financial statements give a true and fair view of the assets, liabilities, financial position and result of Brunel International N.V. and the companies jointly included in the consolidation, and that the interim report gives a true and fair view of the information referred to in the eighth and, insofar as applicable, the ninth subsection of Section 5:25d of the Dutch Act on Financial Supervision and with reference to the section on related parties in the interim financial statements.

Amsterdam, 2 August 2019
Brunel International N.V.

Jilko Andringa (CEO)
Peter de Laat (CFO)

Attachments

• Press release Q2 - Appendix
• Press release Q2 - Attachment