Press Release Brunel Q2 2020: Impact COVID-19 less than expected, strong free cash flow

b 6 % at constant currenciesc -8 % at constant currenciesd -7 % at constant currencies

Revenue
Australasia, which includes Australia and Papua New Guinea, managed to keep revenue stable compared to a year earlier. The region continues to see opportunities, although it currently experiences some impact of travel restrictions and cost saving initiatives at clients.

Gross Profit
The decreased gross margin is mainly the result of an adverse development in the exchange rate for the activities in Papua New Guinea (impact -0.4 ppt.).

Operating costs
In Q2, the operating costs decreased by 11%, mainly as a result of several cost saving initiatives.

a 4 % at constant currencies b 13 % at constant currencies c -9 % at constant currencies d 9 % at constant currencies
Revenue In Q2 2020, the region continued to deliver a strong performance and attained 5% higher revenue compared to Q2 2019. Qatar is the main contributor to the increase, partially offset by lower revenue in other countries of the region. The activities in the Middle East are heavily dependent on our ability to mobilise specialists to the Middle East. We do have a healthy pipeline of projects, however the starting moment of these projects is uncertain due to the current travel restrictions.

Gross Profit
The gross margin has reduced following a reduction in our services due to the challenging environment. We have also seen some margin pressure and a change in the mix of clients.

Operating costs
Operating costs decreased by 10% as a result of various cost saving measures.

a -7 % at constant currencies b 9 % at constant currencies c 10 % at constant currencies d 30 % at constant currencies
Revenue While we still saw growth in Q1, revenue has decreased over Q2, mainly caused by a high number of projects that have been stopped or paused in the US. Canada, Brazil and Mexico still managed to achieve growth.

Gross Profit
The gross margin and gross profit are impacted by a lower recruitment revenue. Adjusted for the impact of the lower recruitment revenue, the gross margin is at the same level as in Q2 2019.

Operating costs
We reduced our cost level and aligned the organisation with the expected lower business volume. This already resulted in a cost decrease of 20% when compared to Q1 2020, and we expect to see the full impact of these measures in Q3 of this year.

a 9 % at constant currencies b 14 % at constant currencies c -7 % at constant currencies d -2 % at constant currencies
Revenue Rest of World includes Russia & Caspian, Belgium and Asia. Total revenue in the region increased, mainly driven by growth in China, while Russia and Belgium saw declines in revenue over the quarter.

Gross Profit
The gross margin in the region in Q2 was in line with Q2 2019.

Operating costs
The operating costs in the rest of world decreased mainly as a result of government relief plans in Asia and cost saving initiatives.

Asia is the main contributor to the higher EBIT.

Early July, we finalised our work on the only remaining project of Brunel Industry Services in the US, which we decided to terminate in October 2019. During the quarter, we have been able to collect most receivables and terminated the remaining leases, and we will continue to employ a small group of people in Q3 to deal with the final financial settlement, mainly the collection of the agreed amounts.

The effective tax rate in the first half year of 2020 was 56.4% (2019 at 52.0%). We expect the effective tax rate for the full year to come down to around 50%.

Our company's risk profile as presented in our 2019 Annual Report (pages 52 - 73) is impacted by the COVID-19 crisis in different ways. The crisis brings increased uncertainty in areas such as: workplace health & safety, changing regulatory and economical environment, contract liability & delivery, credit risk, information technology and cyber security and tax and labor law compliance. We have implemented processes and procedures to deal with these increased uncertainties to the extent possible under the current circumstances. For example: our health & safety procedures for all our staff, credit management, and information security measures, are re-evaluated based on emerging risks from this pandemic and are continuously being upgraded where needed. These evaluations and adjustments are part of our continuous monitoring processes and operational flexibility, which include international exchange of protocols and good practices between our operating companies in all mentioned areas. The crisis has also brought opportunities for acceleration of our digital transformation, where for example clients have been working with us over the past months to further digitalise exchange of data to improve efficiency in their and our processes.

We continue to closely monitor the key risks and opportunities, and will respond appropriately to any emerging risk. We have a wide geographical coverage, which spreads our exposure across mature and emerging markets, which are experiencing different economic conditions. Since it remains difficult to predict future economic developments, we focus on responding to actual performance in each of our local markets. Our business model, processes and weekly indicators help to ensure that we are flexible enough to respond to these economic conditions.

Brunel was able to attain a strong free cash flow of EUR 22 million over Q2. This results in an increased cash position of EUR 111.5 million (EUR 96.8 million non-restricted).

We expect the impact of COVID-19 on our society and the global economy to continue. In the DACH region, we do not see signs of a recovery yet and we expect productivity to be under pressure due to the reduction of the use of short-time working towards the end of the year.

In the Netherlands, headcount is stabilising. The second half of the year might see some lower productivity because of postponed vacations of our specialists.

Activities in Australasia are expected to remain pretty stable, with the results supported by further cost savings.

The restructuring positions the Americas well to recover quickly once the COVID-19 situation eases.

In the Middle East & India and in the Rest of the World we have secured new projects through our improved sales activities, but the start of these are dependent on an ease in flight and travel restrictions. If we are not able to mobilise our specialists, we might experience a small decrease due to projects that are finalising.

Overall, we expect slightly lower revenue in Q3 (compared to Q2), but at a higher profitability, due to the cost measures taken, as well as due to seasonality.