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

Hello, everyone, and welcome to Gulf International Services Conference Call. Please note that this call is being recorded. I'd now like to hand you over to our Q&A moderator for today, Bobby Sarkar. Please go ahead.

Thank you, Eli. Hi. Good afternoon, everyone. This is Bobby Sarkar, Head of Research at QNB Financial Services. I wanted to welcome everyone to Gulf International Services Third Quarter and 9 Months 2025 Results Conference Call. So on this call from QatarEnergy's Privatized Companies Affairs Group, we have Abdulla Al-Hay, who is the Manager of Privatized Companies Affairs. We have Sami Mathlouthi, who's Assistant Manager in Financial Operations. We have Saoud Alabdulghani, who is the Senior Financial Management Analyst; and we have Rashid Hamad Al-Mohannadi, who's the Head of IR and Communications. So we will conduct this conference with the management first reviewing the company's results followed by a Q&A session. I would now like to turn the call over to Rashid. Rashid, please go ahead.

Thank you, Bobby, [Foreign Language] Good afternoon, and thank you all for joining us. Before we go into the business and performance updates of GIS, I would like to mention that this call is purely for GIS investors, and no media representatives should be attending this call. Moreover, please note that this call is subject to GIS disclaimer statement as detailed on Slide #2 of the IR deck. Moving on to the call. On Thursday, 30th of October 2025, GIS published its results for the 9-month period ended 30th of September 2025. And today, in this call, we'll go through these results and provide you with updates on key financial and operational highlights. Today on this call, along with me, I have Mr. Abdulla Yaqoob Al-Hay, Manager for Privatized Company Affairs; Sami Mathlouthi, Assistant Manager for Financial Operations; and Saoud Alabdulghani, Senior Financial Management Analyst. We have structured our call as follows. At first, I'll provide you with a quick insight on GIS ownership structure, competitive advantages and overall governance structure by covering Slide 6 through 8 and Slide 28 and 29. Secondly, Sami will brief you about the latest business update and the overall results, and then he will take you into GIS key financial and operational performance metrics. Later, Saoud will provide you with the segmental performance and review. And finally, we'll open the floor for the Q&A. To start with, as detailed on Slide #6 of the IR deck, the ownership structure of GIS comprises of QatarEnergy with 10% stake being the parent shareholder, whereby GRSIA is taking 21.9% stake and is considered to be the largest shareholder. As detailed on Slide #5, QatarEnergy provides most of the head office functions through a service level agreement. The operation of GIS subsidiaries are independently managed by their respective Board of Directors, along with senior management team. The BOD structure is detailed on Slide #7 of the IR presentation. In terms of the competitive advantages, as detailed on Slide #8, all of the GIS group companies are strategically placed, having significant market share in their respective business sectors within Qatar. For example, the [ land ] business is holding the majority of the market share in the offshore drilling service in Qatar. Similarly, the aviation business of GIS is a sole provider of helicopter services in Qatar oil and gas service sector, being one of the largest operator in the MENA region. In terms of insurance business, it's one of the leading medical insurance provider in Qatar. For catering, the transaction of Amwaj with Shaqab and Atyab has established a predominant local champion in catering services. All of these supported by experienced senior leadership having expertise in the relevant business segment. In terms of the governance structure of GIS, you may refer to Slides 28 and 29 of the IR deck, which covers various aspects of GIS code of corporate governance in detail. I will now hand over to Sami. Over to you.

Thank you, Rashid. GIS delivered strong financial performance for the 9-month period of 2025, supported by group-wide strategic initiatives and operational enhancement across key segments. Notable achievements include the acquisition of 3 offshore rigs and successful refinancing of related facilities at GDI, strengthening the group financial position. Revenue for Q3 2025 increased compared to the previous quarter, driven by improved performance across drilling, aviation and insurance. However, net profit declined quarter-on-quarter due to higher aircraft maintenance expenses in aviation and lower investment income in insurance, reflecting market volatility. Despite this moderation, the overall business trajectory remains positive, underscoring our commitment to long-term value creation and operational resilience. Against this backdrop, we are pleased to share segmental business updates, highlighting progress and strategic development across drilling, aviation and insurance. In drilling, GDI achieved a major milestone with the award of a contract for 2 new well service lift boats scheduled to start operations in 2027. This reinforces GDI leadership in offshore drilling and well services. The segment delivered a strong growth driven by the transaction with Seadrill, boosting financial performance through full consolidation of Gulf Jackup and Gulfdrill revenues. High rig utilization further supported results. Operationally, 4 out of 5 jack-up rigs secured extension of 1 to 1.5 years, ensuring revenue visibility. Onshore, 2 rigs completed contracts in Q3 2025 with redeployment opportunities under review. In aviation, Gulf Helicopter continues its fleet modernization strategy. In July 2025, an additional AW139 helicopter was delivered, bringing the total to 6 with 4 more scheduled beyond 2025. In a strategic move, Gulf Helicopter finalized the purchase of 2 AW189 helicopters for delivery in Q3 2027. This transaction separate from the earlier 10 helicopter agreement addresses rising demand for medium and heavy helicopters in offshore energy operations. The AW189 offers advanced performance and reliability for multi-mission routes, reinforcing Gulf Helicopter readiness to meet growing offshore transport needs and increased energy sector investments. Lastly, in insurance, Al-Koot Insurance is progressing steadily towards its planned listing on the Qatar Stock Exchange. As of Q3 2025, financial, legal and regulatory preparations for the IPO are advancing positively with further updates to follow upon achieving key milestones. Moving to financial performance. Gulf -- GIS has reported results for the 9-month period ended 30th of September 2025 with a net profit of QAR 574 million, almost comparable to the same period of last year. We also reported earnings of QAR 0.309 per share compared to QAR 0.308 per share for the same period of last year. Key drivers for this growth included the full consolidation of Gulfdrilling and Gulf Jackup from 25th of June 2024, improved asset utilization in the drilling segment, higher MRO revenue and flying hours in aviation and increased insurance premium supported by new medical contracts. As a result, the group achieved an EBITDA of QAR 1.2 billion for the 9-month period of 2025, representing a 16% increase compared to QAR 1 billion in the same period last year. This strong performance was primarily driven by robust revenue growth across core business segments. On a quarter-on-quarter basis, revenue for Q3 2025 was higher than the previous quarter. This growth was mainly driven by stronger performance across drilling, aviation and insurance. In drilling, we saw an uptick in rig move activity. Aviation recorded gains across all subsegments, domestic, international and MRO, supported by more flying hours and increased maintenance work. Insurance also contributed with higher earned premiums from policies issued during the quarter and the renewal of a major contract. However, despite the revenue increase, net profit declined compared to the previous quarter. This was largely due to higher aircraft maintenance costs and increased MRO costs of sales in aviation. In addition, insurance profitability was impacted by lower investment income, reflecting unfavorable movements in capital markets during the quarter. As of 30th September 2025, the group maintained its solid financial position with total assets of QAR 11.8 billion. Total debt slightly declined to QAR 5.4 billion, primarily due to partial repayment of existing loan facilities within the drilling segment. I will now hand over to Saoud to cover the segment overview.

Thank you, Sami. Let's proceed with the segment overview, beginning with the drilling segment. The drilling segment delivered a strong revenue growth by 19% for the period ending September 30, 2025, mainly driven by the robust performance of the offshore operation. This momentum came from the strategic acquisition of the 3 jack-up rigs, which allowed full consolidation of Gulfdrill and Gulf Jackup revenues, significantly strengthening the segment's financial position. Liftboat and barge operation also contributed, supported by improved rig utilization. Onshore operations saw higher revenue from increased rig moves and ancillary services. Profitability for the period improved by 21% on the back of higher revenue, though gains were partially offset by increased finance costs from the new loan facility used to fund rig acquisitions as well as higher administrative expenses linked to consultancy projects. Additionally, we did not have the one-off gain from last year's Seadrill transaction. On a quarterly basis, net profit was higher than previous quarter by 32%, thanks to increased rig move activity and lower operational costs. The prior quarter has included elevated demobilization and maintenance expenses, along with higher depreciation charges from earlier asset capitalization adjustments. Moving to the aviation segment. The revenue growth of 5% was mainly driven by strong performance in the MRO segment, supported by higher third-party engine repair activities. Our international operation also contributed positively with the Turkish subsidiary Redstar Aviation, benefiting from increased flying hours and improved revenue. However, the segment recorded a year-over-year 13% decline in net profit. This was due to margin compression and higher costs. Gross margins contracted as operational expenses rose, while G&A costs increased because of the consultancy fee and other overheads. Finance costs went up due to additional borrowings for the AW139 aircraft purchase and finance income declined and lower returns from cash and investments. Profitability was also impacted by a smaller gain in net monetary position under IAS 29. These challenges were partially offset by stronger revenue and reduced foreign exchange losses, but not enough to fully counterbalance the cost and margin pressure. On a quarter-on-quarter basis, revenue for Q3 2025 was higher than Q2 by 3%, driven by improved performance in domestic, international and MRO segment, thanks to more flying hours and increased third-party maintenance work. However, profitability declined by 13% due to higher aircraft maintenance costs and increased MRO cost of sales. Now we can move to the insurance segment. The insurance segment delivered a revenue growth of 7% for the 9-month period ending September 30, 2025, mainly driven by newly secured contracts in the medical line of business, which significantly boosted overall performance compared to last year. Net earnings showed a 2% increase year-over-year, supported by higher insurance revenue. However, this was partially offset by lower investment income due to reduced interest rates, lower dividend income and smaller fair value gain along with higher G&A expenses. On a quarter-on-quarter basis, revenue for Q3 2025 was higher compared to the previous quarter by 4%, thanks to a greater earned portion of new policies issued during the current quarter. However, net profit declined by 12%, primarily due to lower investment income driven by reduced fair value gains compared to the previous quarter. We can conclude our segmental review with the catering segment. The catering segment delivered a higher share of revenue by 7% compared to previous year, mainly driven by stronger contribution from catering service, food trading and other support activities. This improvement also translated into a higher share of net profit year-over-year, which increased by 51%, supported by revenue growth. On a quarter-on-quarter basis, revenue for Q3 2025 declined by 5% compared to the previous quarter due to lower contribution from the manpower segment following the demobilization of certain contracts and reduced shutdown services. Despite this revenue drop, profitability improved by 66%, thanks to higher other income and lower amortization costs. I'll now hand over to Rashid.

Thank you for your attention. I think we can now open the floor for the Q&A.

[Operator Instructions] Your first question comes from the line of Seki Mutukwa with Ashmore.

Hope you can hear me. Three questions from me, please. The first one, I think, specifically for you, Sami, you mentioned winning of -- I think it was offshore contracts starting in 2027. Just wondering if that would require acquisition of additional rigs? Question one. Question two was just a little bit on the outlook for margins in aviation. You talked about some costs putting some pressure there. So do you see opportunity for recovery there maybe due to pricing or anything you can say about the margin outlook for aviation? And then the final question, please, is, given what we anticipate as the sort of Phase 1 of the health insurance mainly for Qatari National sometime in 2026. Could the Al-Koot -- can you comment a bit about whether the Al-Koot IPO could be an opportunity to raise fresh capital to be able to sort of have the capital for that new insurance scheme?

Thank you for the questions. I will start with the first one, which is relating to the announcement that we have made in the press release for the acquisition of the rigs, which are starting in 2027. Yes, this will be related to the acquisition of 2 new lift boats. These are well service lift boats, slightly different from the rigs and a bit advanced compared to the normal lift boats. So we announced as well that we have started the contractual arrangement for the acquisition of 2 well service lift boats with operation planned to start in 2027. That's for the first question. In terms of the Gulf Helicopter pricing and the margin, we don't see a huge impact in terms of pricing. As you have seen, the revenue has increased. Flying hours are increasing as well, which have a direct impact on the revenue. In terms of costing, I think costing will be impacted by probably various, I would say, reasons. So the first one will be the depreciation. I think depreciation will be higher because we have already started the delivery of the first batch of the aircraft that we have ordered in the beginning. I'm speaking about the first 10. So there are the 10 aircrafts that were ordered. Out of these 10, we have already received 6 aircrafts. The 6 aircrafts, 5 of them are under operation now, and this will have a direct impact on the depreciation, and this will have an impact on the cost and on the net profit margins. In addition to this, I think additional probably with the increase in the MRO business. So the cost of this MRO business, the cost of sales will increase as well and will have an impact on the margin. In addition to probably the aircraft maintenance programs that are taking place in some of the regions, I will probably the Turkish business have had an increase in the maintenance cost. In addition probably to other SG&A costs, which are relating to the studies and to the consultants that we hire from time to time for any strategic initiatives that we take place. I think this is for the second question. Your third question about the health insurance, Mr. Abdulla will reply as well.

[Foreign Language] This is Abdulla. I will answer your third question related to the Al-Koot activities and the IPO, et cetera. If you look at Al-Koot business right now, we and the medical sector having the market share for the medical insurance in the state of Qatar right now currently from 70% to 75%. So this is a good indication that we will be ready if the mandatory health insurance came into the picture, we are ready to take that opportunity. However, still, there is nothing solid came to Al-Koot. And we have -- we hear this news for a long time that there will be a mandatory health insurance for the Qatari and non-Qatari and for the expat, et cetera, but still nothing has been there. Definitely, if there is something there, it will have a normal reflection on the profitability of that company or even on the valuation in case we're going to go for the IPO, including the mandatory health insurance. Right now, we are in the process of conducting the due diligence and the financial activities and legal activities and et cetera, which is a normal activities for the IPO. Once we have further information and further progress related to the IPO, we will be going to the market and announce that progress. But what I would like to tell you that we are always ready to compete, and we are always ready to provide services, especially that we have the most, I would say, experience with the behavior of the insured people within the state of Qatar. I hope this answers your question.

Just I didn't quite understand. Did you say that Al-Koot has 70% to 75% market share? Was that what you meant in medical insurance?

Yes. Right now, if you look at the market share, Al-Koot is around 70% to 75%, it's got quite more.

Next question comes from the line of [ Nikhil Bhutani of CBFS ]

Well, my question again pertains down to your drilling segment. In the past conference call, you did mention that further rigs are likely not to be offline going forward, maybe in the next quarter and all that. Again, we are seeing certain rigs getting off contract. So I wanted to understand the reason. Is this one-off? And secondly, can we get an idea about which are the onshore rigs which have gone off contract during the third quarter?

Yes. Thank you so much for the question. I think we -- with reference to what we highlighted during the last call, I think we are referring to the onshore rigs. So last time, we had one offshore rig, which is relating to one of the rigs, which stopped operation in May 2025. And we highlighted that this rig will be back to operation. So this rig has a confirmed contract now and is planned to start operation during this Q4 2025. That's on the offshore side. So we don't have any other offshore, I think, from the offshore owned rigs by GDI, which is off contract. Back now to the onshore contracts. Onshore, we had one onshore rig, which was off contract. During this quarter, we had an additional 2 onshore rigs as well, which went off contract, which is mainly due now to the lower activity in terms of onshore drilling. However, the management are trying their best to either negotiate with the client, with the existing client, the possibility of new contracts or probably finding other strategic decisions for those onshore rigs. So that's in terms of the onshore. In addition to this, based on the other owned companies, which are Gulf Jackup and Gulfdrill. So one of the leased offshore rigs is coming off contract as well during this quarter and the management are checking now with the customers how to place that agreement, that offshore rig, and we will give you more updates during the next call.

Okay. So the last one, which you mentioned, is the Gulf [indiscernible] one, which is going to be going offline or that has already gone offline?

No, no. The one which is going offline will be the [indiscernible], and that's one of the leased offshore rigs, which is not under the full ownership of GDI.

Okay. And given the fact that on the quarter-to-quarter comparison, it looks like your maintenance cost has slightly come off. I mean, given the fact that maybe the offshore rig took a huge expense in the second quarter. So from that perspective, we are seeing your 2 additional rigs which went offline in onshore. Does not look like huge maintenance cost. Is it because of lease or something? Or are you still...

No, no. No. I think the maintenance costs came down because during the Q2 2025, we had one of the offshore rigs, which went off contract. And as we said, that will need to be deployed for another contract, and that will have -- demobilization cost will take place during that specific quarter in addition to the maintenance and some upgrades, which are needed for the new contract. So that's why you will see that during Q3, maintenance costs will come down due to that as well. In addition, during the previous quarter, there was some depreciation cost that has been adjusted during the second quarter, which doesn't exist during the Q3 2025.

Okay. And I mean, overall, going forward in 2024 -- fourth quarter of 2025, do we see that maintenance cost will again come off given that demobilized expenses and nothing there much left? Or do you think so again that lease assets will come into picture and that could affect the maintenance cost -- sorry demobilization...

Look, I think we cannot estimate how the maintenance cost will be during one specific quarter because, yes, so based on the existing plan, there will be no shutdowns. There will be no maintenance that will take place. But for reality, you never know. So there are sometimes some unexpected shutdowns or some unexpected maintenance that will need to take place, which we cannot assess at this stage. So it's only after the closing of the quarter, we will be able to have more visibility on those costs, and then we can assess them together. And we will definitely explain for you if there is any deviation from the standard cost.

Okay. Lastly, on the 2 additional, which you mentioned onshore, which has got offline, do you see a possibility in pursuing aggressively to get it back on contract in Q4 itself? We do see -- I mean, given the fact that oil prices are not recovering, do you see the possibility that you will wait and take at your own terms and conditions?

I think we cannot provide any commitment. And to be honest with you, taking -- based on the experience we had with the previous rig, which is still not contracted. So I think we tend to say that it probably take longer than 1 quarter to get them deployed, plus taking into consideration as well the lower, I would say, land activities, I think it will be probably very optimistic to say that it can be deployed during this quarter.

Okay. Okay. And just one last related question with the income tax. So company has seen an increase in income tax during the quarter. So I mean, any reason and what we expect for the overall year 2025?

Yes. I think in terms of income tax, the company is -- I mean, the company as GIS, the listed company is not taxable because it's a listed company. Now for the fully owned companies, all of the tax coming from these companies will be reverted as part of the -- probably as income tax. So it means there will be a natural position in terms of the income tax at the group company level. So group company are taxed, they will pay tax and their tax as per the MOU that we have with the GDI will be paid directly to GIS. So the only residual tax that will be in the income tax that will be shown in the P&L, it will be relating to the subsidiaries that are taxable like Redstar, which is based in Turkey, that's taxable. And then the other portion of tax, which are relating to some subsidiaries where we don't have an ownership of 100%. So if the activities at those companies will increase and their profits and their performance will increase, their tax will increase and then will be directly linked to the P&L of GIS. That's the only tax, which is not reversible, and that's the only tax that will be shown in our P&L.