Gulf International Services Q.P.S.C. (GISS.QA) Earnings Call Transcript & Summary

[Audio Gap] Currently underway for deployment under a new contract expected in Q4 2025. Profitability was further impacted by higher operational costs, mainly related to demobilization and maintenance activities as well as increased depreciation expenses resulting from prior year asset capitalization adjustments. Moving to the Aviation segment. The Aviation segment recorded a 7% increase in revenue compared to the same period of last year, primarily driven by stronger performance in the MRO segment, supported by third-party engine repair activity. Additionally, the group Turkish subsidiary, Repstar Aviation contributed positively due to increased flying hours. However, this growth was partially offset by the completion of certain international contracts, including those in Libya, Oman and Morocco. However, the Aviation segment recorded a 6% decline in net profit compared to the first half of 2024. This was primarily due to higher operational costs related to maintenance activity as well as an increase in general and administration expenses associated with consultancy services and administrative requirement linked to the acquisition of AW-139 aircraft. Additionally, other income was lower year-on-year as the prior period has benefited from one-off insurance claim recoveries. On a quarter-on-quarter basis, the Aviation segment reported a 10% decline in revenue in Q2 2025 compared to Q1 2025. This was mainly due to lower revenue from the MRO segment following the completion of major third-party engine repair work and the clearance of maintenance backlog in Q1 2025 related to 2024. However, this decline was partially offset by improved revenue from domestic operations, supported by increased flying hours. Profitability for the quarter also declined primarily due to the reduction in revenue and higher G&A expenses. Now we can move to the insurance segment. The insurance segment recorded an 8% increase in revenue for the 6-month period ended 30 June 2025. This growth was primarily driven by newly secured contracts within the medical line of business, which contributed positively to the segment's overall performance. Segment net earnings for the insurance business declined by 9% compared to the first half of 2024. This was mainly due to higher net claims incurred across both the medical and general insurance lines, along with a marginal increase in G&A expenses, driven by higher staff costs. On a quarter-on-quarter basis, revenue for Q2 2025 increased by 6%, supported by higher end portion of policies issued during the quarter. Profitability improved significantly rising by 45% compared to the previous quarter, driven by stronger revenue and a notable increase in investment income. This was largely due to fair value gains on investment security, marking a reversal from the fair value losses recorded in the prior quarter, reflecting improved market condition and portfolio performance. We can conclude our segment revenue with the catering segment. The catering segment recorded a 6% year-on-year increase in its share of revenue for the 6-month period ended 30 June 2025, primarily driven by higher contribution from the catering support services and food trading activities. Segmented share of net profit also rose significantly by 32% compared to the same period of last year, supported by improved revenue performance. On a quarter-on-quarter basis, the segment share of revenue increased by 9% due to stronger performance in the core catering business. However, profitability declined by 32% during the quarter, primarily due to tax expense recorded in Q2 2025. I will now hand over to Rashid.

I would like to thank the management for the presentation, and we'll open the floor for the Q&A right now.

[Operator Instructions] And our first question comes from the line of Seki Mutukwa from Ashmore.

Hope you can hear me clearly. Two questions, please, to start, and then I'll get back in the queue. The first one was just on the offshore rigs. If we include the rig that sort of came off contract in May, just if you remind us of what the expectation is at least for the second half of this year in terms of number of rigs that are up for renewal, what your sort of base case is? I know you mentioned Q4 for the one that came off in May, but just roughly what you're thinking in terms of timing on those renewals? And then the second question relates to the insurance sector in terms of the mandatory insurance at least for Qatari Nationals Phase 1, if we call it that. Just any big picture indications you can share about what that means to, let's say, the market size in terms of premiums or lives covered and sort of next steps, please?

Thank you for the question. I think regarding to the renewal of the rigs, as we stated in our press release, so only one offshore rig came out of contract in the month of May. So that rig is now under maintenance and it's under preparation for the second contract, which is almost agreed with the customer, and we are planning to have that rig under operation by -- in the Q3 or Q4 of 2025. So we don't have any other rigs, which is coming for another renewal, except one, which is in September 2025. So again, for most of these offshore rigs, we don't see any issue in terms of renewal, either in terms of the term of the contracts that we are discussing or in terms of the day rates for these offshore rigs. So I think most of the other rigs has been already extended to four and to five years agreements. Some of them are expiring in 2030 and 2032. So this gives us probably some good ideas about the offshore rigs that we have. The other offshore rigs that are under Gulf jack-up and the Gulf rig I think out of the 5. So we are discussing already the renewal for these rigs and more clarity will be provided during the next quarter. So that's for the first question. I think regarding the second question, which is in relation to the Qatari mandatory insurance, I think the program is under discussion now between the Ministry of Health and some of the insurance company as a provider for this kind of scheme. So the scheme will be providing insurance for all Qatari nationals. So basically, this will provide the insurance for all Qatari nationals. They will have access to basically hospitals and clinics in Qatar and outside of the country. At the moment, there is -- we cannot provide any more clarifications on the premiums on the term of these agreements. Alkoot is part of those discussions with the ministry. And if successful, it will participate in this program. But nothing -- again, nothing yet is confirmed. So it's still under discussions. And we'll provide more clarity once we have better picture in relation to the discussion that we are having.

Thanks Sami. Just quickly going back on the comment you made about day rates. Did you suggest that day rates are stable for the offshore rigs, if I take it year-to-date? Or maybe I misunderstood what you meant?

Yes. I think -- what I meant, so day rates that we have used for renewals are stable, are in line with the market day rates. We haven't seen any like reduction compared to the day rates that we had prior to any renewals, so which means that we have stability in terms of day rates, and we have longer period for the term of the agreements that we are having with our customers.

Our next question comes from the line of Nafez Alabbas from Ajeej.

We really appreciate your time. Sorry to press you on this point, but two things. One, in regards for the daily rate, our understanding previously was that the renewals or -- like the renewals for each rig that will come with an expiring contract over the next few years was going to be re-rated higher because at the time of the contract, the rates were lower, maybe because the market now is weaker, things have went back down. So do you expect that over the next few years, do we -- should we expect an improvement in the daily rates of the old fleet, let's say? And the second question I have, it was a little bit surprising to see this rig being off-hire in May. Can you give us more insight? Was it planned already that you will go on maintenance? Like do you have any more feedback, please?

Okay. So I think for the first question, I think the daily rates are dependent on many aspects. So the first aspect is the market demand and the market conditions and the oil prices at the time of the renewal of those agreements. That's one aspect. The second aspect is the term of the agreement as well. So for us, we always have some preference to have longer-term tenors for those agreements and discuss some kind of stability in the pricing, that's the preferred option for the management. So that's on the daily rates. Your second question is relating to the offshore rigs that went off contract in May. I think this is normal. So basically, after completion normally of a 5-year tenure or 4-year tenure with the clients, you will need to do some kind of upgrades or some kind of preparation maintenance for that rig in order to start the new contract. This is normal and the rig is prepared for the next contract, so which is once it will start, so that's for a longer tenure. And those kind of maintenance, we are trying to plan those kind of, let's say, upgrades or maintenance together with the expiry of the agreement. And plus to take into consideration any comments or any requests from the new client based on the new agreement that needs to be taken into consideration.

Yes. And just to add here, I think for that specific rig, it will be mobilized to a new client. So you would need to have a mobilizing period for you to mobilize the rig and then do certain maintenance to be able to keep up with the new contract duration and requirement. So this is what happened for this specific rig. We found a new client, and we are right now in final stages of finalizing the agreement with the client. And as we said, this agreement once finalized, hopefully, by year-end, we'll be able to disclose the tenor and all the other details that is specific to that rig. But naturally, that would happen when you shift the rig from one client to another client, you would have a gap.

Our next question comes from the line of Nikhil Bhutani from CBFS.

Actually, I think quite some questions have been answered. But regarding again, your rigs, I wanted to understand in terms of it, how much have been the amount for the demobilization expenses, which got associated in the second quarter for that one offshore rig? And when exactly it went offline in May? In the first or second half, suppose you can enlighten on that. And you also mentioned about some jack-up drill again getting renewed. So is it again with the same client? It will again go through the cycle of demobilization expenses coming up in the third and the fourth quarter? Yes.

Yes. I think for the first question, so the rig was working until 11th of May. So that's the date of the expiry of the initial contract. As we explained in -- previously, so basically, we need some time to prepare that rig for the next phase and for -- to move to the next client. And by the way, part of the mobilization fees will be recuperated from the contract based on the agreements that we have with the client. I think for your second question, it's relating to what -- sorry, if you can repeat your question.

Well, you mentioned about another -- in the second half, you could be having again some jack-up rig associated with your Gulf Drill coming up for renewal. So it's going to be the same client? Or again, it will be going to a new client and again, expenses associated with that?

Yes. These are the rigs, what I mentioned was, these are the rigs relating to the rigs in the Gulf jack-up and Gulf Drill. So these rigs are normally under renewal, and we are discussing with the customer. It's not exactly the same customer. We are dealing with many customers for those offshore rigs. And we are discussing the renewal of these rigs, which -- again, so we don't see any issue in terms of the renewal itself. So discussion is about the tenor of the agreement about the daily rates. And the discussion is starting by the second half of 2025 for renewal starting beginning of 2026.

Okay. And your GDI-2 rig, I believe, it's still offline, right?