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

Thank you for standing by, and welcome to the Gulf International Service First Quarter 2024 Results Call. This call is being recorded. I would like to welcome Bobby Sarkar from QNB FS to begin the call. Bobby, over to you.

Thank you, [ Polly ]. Hi, hello, everyone. This is Bobby Sarkar, Head of Research at QNB Financial Services. I wanted to welcome everyone to Gulf International Services First Quarter 2024 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 is the Assistant Manager in Financial Operations; and we have Saoud Abdul Ghani who is the Senior Financial Management Analyst. So we will conduct this conference with management first reviewing the company's results, followed by Q&A. I would like to now turn the call over to Sami. Sami, please go ahead.

Thank you, Bobby. 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 the investors of GIS and no media representatives should be attending this call. Moreover, please note that this call is subject to GIS's disclaimer statements, as detailed on Slide #2 of the IR deck. On Tuesday, April 30, GIS published its results for the year-ended 31st of March, 2024. And today, in this call we will go through these results and provide you with an update on the key financial and operational highlights. Today on this call, along with me I have Mr. Abdulla Yaqoob Al-Hay, Manager of Privatized Companies Affairs; and Mr. Saoud Abdul Ghani, Senior Financial Management Analyst. We have structured our call as follows. At first, I will provide you with a quick insight on GIS ownership structure, competitive advantages and overall governance structure by covering Slides 6 till 8 and Slides 28 and 29. Secondly, I will take you into GIS key financial and operational performance [ metrices ]. Later Saoud will provide you with segmental performance and review. And finally, we'll open the floor for Q&A session. To start with, as detailed on Slide #6 of the IR deck, the ownership sector of GIS comprises of QatarEnergy with 10% stake being the parent shareholder, well as GLSI was 22% stake is the largest shareholder. As detailed on Slide #5, QatarEnergy provides most of the head office functions throughout service level agreement. The operation of GIS subsidiaries are independently managed by their respective Board of Directors, along with the senior management team. The BD structure is detailed on Slide #7 of the IR presentation. In terms of competitive advantage, as detailed on Slide #8, all of GIS group companies are strategically placed, having significant market share in their respective business sectors within Qatar. For example, drilling segment is the only [ Qatari ] onshore drilling service provider and we have more than 50% market share in the offshore drilling service in Qatar. Similarly, the aviation business of GIS is the sole provider of helicopter services in Qatar oil and gas service sector and being one of the largest operator in the MENA region. In terms of insurance business, Alkoot is one of the leading medical insurance providers in Qatar. For the catering, the merger of Amwaj and Shaqab has established a permanent local champion in catering services. All of this is supported by an experienced senior leadership having expertise in the relevant business segments. In terms of 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. Starting with the financial performance updates. As detailed on Slide #12, during the first quarter of 2024, the group revenue reached QR 940 million with an increase of 12% noted compared to the same period of last year. All business segments witnessed growth in revenue compared to last year, supported by improved day rates, higher asset utilization from the aviation and drilling segments, and higher flying hours in addition to improved premiums from the insurance segment. The group reported an EBITDA of QR 268 million and recorded a net profit of QR 161 million for the 3 months period on the 31st of March, 2024. Growth in the group revenue coupled with a reduction in finance costs by 49% on the back of the new debt restructure contributed positively to the group profitability. Now we can move to the quarter-over-quarter comparison. Revenue for Q1 2024 increased by 4% compared to fourth quarter 2023, mainly on account of higher revenue reported from the aviation segment due to higher revenue from the domestic and MRO segments, in addition to higher revenue from the drilling segment due to the Rumaila commencing operations starting mid-March of this year. On the other hand, net profit of QR 161 million was reported during Q1 2024, as compared to a net loss of QR 23 million during the previous quarter. Significant increase by 801%. This increase in group net profitability was mainly due to higher profitability from the aviation segment, due to increase in revenue and lower net monetary losses arising from the accounting impact of hyperinflation from Gulf Helicopter Turkey subsidiaries. While the drilling segment reported profit compared to loss in the previous quarter mainly due to lower direct costs associated with lower maintenance costs and lower G&A expenses in addition to lower finance costs amid the debt restructure and one-off upfront fees related to the debt restructure paid in the previous quarter. Moreover, loss of QR 27 million was reported in the previous quarter as a result of the merger of Amwaj subsidiary. I will now hand over to Saoud to cover the segmental review.

Thank you, Sami. Moving on to the segmental revenue and starting with the drilling segment. As detailed on Slide 17, the drilling segment reported a revenue of QR 355 million for the 3 month period ended 31st of March, 2024, up by 5% compared to last year. Revenue growth has been driven by higher revenue from the offshore segment mainly due to higher management fees for certain rigs within the JV and the poor day rate for the offshore rigs this half. Moreover, the onshore segment also contributed positively to the revenue growth due to the deployment of the onshore drilling rig GDI-4 during late Q3 2023. The segment reported a net profit of QR 18 million for the 3 month period ended 31st March, 2024, compared to a net loss of QR 23 million for the first quarter. Profit reported was mainly attributed to the growth in revenue and reduction in finance costs by 49%, due to lower interest rates amid the [ debt ] structure. On a quarter-on-quarter basis, the company reported a net profit of QR 18 million, compared to a net loss of QR 14 million in the previous quarter. Profit reported was mainly due to reduction in direct costs, due to lower maintenance costs, in addition to lower finance costs and lower G&A expenses as compared to the previous quarter. Moreover, Rumaila commenced operations during mid-March of this year, which contributed positively to the revenue growth. Moving into the aviation segment. As detailed on Slide #20, the aviation segment recorded a total revenue of QR 270 million for the 3 month period ended 31st March, 2024, marking an increase of 19% compared to the corresponding period in the previous year. The increase was mainly attributed to higher flying activity recorded within both domestic and international operations. Total flying hour increased by 14% on a year-on-year basis, while locally the flying hour increased by 8%, while within the international segment flying hour increased by 23%. Within the international segment, the increase was mainly reported from the Turkish operation, in addition to the contracts in Oman and Dubai which were not present during the first quarter of 2023. During this period, the aviation segment achieved a net profit of QR 100 million, marking a strong increase of 22% compared to the corresponding period in the previous year. This increase in profit can be largely attributed to the revenue expansion witnessed across both the domestic and international segments. Moving into quarter-over-quarter. The segment revenue for the first quarter 2024 versus the previous quarter increased by 14%, mainly due to the additional revenue reported from the domestic and MRO segment. Q1 2024 profitability increased significantly, mainly due to improved revenue, lower net monetary losses recorded in the current quarter compared to the previous quarter arising from the accounting impact of hyperinflation in Turkey and reduction in direct costs mainly related to maintenance and staff costs. Now moving to the insurance segment. As detailed on Slide #23, revenue within the insurance segment for the 3 month period ended 31st March, 2024, increased by 15% as compared to last year to reach QR 315 million. Increase in revenue was mainly linked to renewal of major contracts within the energy and medical line of business. On the contrary, the segmental net earnings decreased by 11% as compared to the previous year to reach QR 31 million. The decrease in bottom line profitability was mainly driven by increase in re-insurance cost, which was partially offset by improved revenue and higher investment income recognized from the investment portfolio, and account of favorable movement in the capital market, which positively affected the market-to-market valuation of the investment portfolio. On a quarter-over-quarter basis, the segment revenue for the third quarter decreased marginally by 2%, however, segmental profitability for the first quarter increased significantly by 59%, mainly due to lower net gains reported, which was partially offset by lower investment income during the third quarter. To conclude with the catering segment. As detailed on Slide 26, the catering segment reported a share of revenue of QR 107 million compared to revenue of QR 119 million in the previous year. It's important to note that last year revenue included 100% Amwaj ownership, however, current year revenue considers only 30% share of revenue post-merger. The segment reported a share of net profit of QR 10 million as compared to QR 5 million in the previous year. Increase in net profit is mainly driven by the impact of the new merger of Shaqab and Atyab. I'll now hand over to Sami.

Okay. Now we can open the floor for the Q&A.

[Operator Instructions] And your first question comes from the line of Mark [ Crombus ] from TFI.

Just had a question about the drilling segment. Obviously, you've got -- you've mentioned in your presentation that there's one of the boats that started. But I just wanted to get an idea of your outlook for revenue growth overall for the portfolio in both repricing and improved utilization? If you could just give us some color on that, please?

Okay, sure. Thank you for the question. I think we'll start, first of all, that all of the offshore and onshore rigs are fully contracted and are fully generating revenues. So the latest one which was not contracted, now it's starting operations during this Q1 2024. In terms of evolution of revenues, so as you can see, so we were able to renew some of the contracts during last year with better rates. Other contracts, other rigs, they're still under the old contracts, while pricing is still not updated. So in terms of contract expiry, so we have one offshore rig coming to expiry during this year, at the end of the year, so on 31st of December. It's under discussion now with the customer, and we are discussing the renewal, and we are discussing as well the possibility of increasing the day rate. In 2025, we have -- most of the offshore fleet will come for renewal during that year. So we have around 3 rigs -- 3 offshore rigs to be renewed during that time. So we are hoping that by that time, we'll be able to increase the day rates, which will have an impact on the increase of revenue, because as you can see, so the revenue is dependent on 2 things. So first of all, utilization, and the second aspect is the daily rate. Utilization, I think there is no issue with that at this stage. The main point that will impact the revenue now is the increase in daily rates, which we are working on.

How much would the commencement of operation of Rumaila move the dial? Like, how much would that contribute, do you expect, for this year's -- in terms of revenue growth?

Well, I think Rumaila is not an offshore rig in itself. So Rumaila is one of the liftboats. The daily rates of liftboats are not significant if you compare it to the offshore rigs. It will have an impact, but it's not that amazing impact that will change the revenue to a huge level.

Okay. And were there any other sort of higher-priced rentals this year? Like -- Or should we just assume that the Q1 revenues should remain constant until you get the repricing in the following years when they come up for renewal?

Yes. I think Q1 could be slightly different, but I think you need to highlight -- we need to highlight as well that Rumaila started at the end of Q1 2024. So there will be some kind of revenue that should be reflected in Q2 as well, which was not there in the beginning of Q1. So I think a small increase in Q1 will be reflective of what could be expected during the year.

And do you think that the rig which you're negotiating that expires its contract at the end of this year, what kind of uplift might you expect in line with sort of markets improvement in your sphere? What kind of uplift might you expect?

Yes. I think if we look at what we have, what is the average and the spectrum we have today, so we are speaking about day rates between USD 70,000 to USD 90,000 per day for the fleet we have today. So our objective, it's always to find out the highest rate that we could achieve, which is, I would say, 10% to 15% from the existing rates.

Your next question comes from the line of Nafez Alabbas from Ajeej Capital.

I just wanted to get your view on, recently there was a contract in Qatar by, I think QatarEnergy to [ ADES], and I just wanted to get your input if you guys bid on that as well or not, or you're not active currently seeking to win more contracts until maybe you secure more assets? So just to get your view on that?

I think we are tendering on every rig in Qatar. But I think if you are referring to another competitor, I think we don't comment on this kind of information. So for us, we tender. We have the experience in getting markets in Qatar. All our fleets are already used, are already contracted. So if another competitor were able to get a market or to get a small share of that, at the moment this is not impacting our market share. We are still the existing market share that we have. So this will have no impact I think on the operations of GDI.

My last question, if you allow me, is on the JV rig. I mean, is there any update about the negotiations with Seadrill? Because I know last year, they announced publicly that they might want to sell the rigs that they have in the JV. I just wanted to get an update if you have any input to any developments on it?

I think the latest update is from Seadrill, because these -- so the JV I think for everyone understanding as well, is operating 5 offshore rigs. So 3 rigs are owned by Seadrill and another 2 rigs owned by another Chinese shipyard. It's correct, I think last year at Seadrill they have announced that they are intending to sell their rigs, but so far there is nothing concrete, so we haven't seen anything from Seadrill's side. From our side, I think we were able at GDI, at the Gulf Drill level, the joint venture level, we were able to extend the contract for another up to 2 years. So some of the JV rigs have been extended to mid-2025, beginning of 2026, with better rates compared to the rates that we had before. The question of the rigs and the ownership, that's another matter, and it can be disclosed, I think, by Seadrill based on their updates that they will have on the rigs. But the rigs have been extended up to [ 2026 ].

Your next question comes from the line of Zohaib Pervez from Al Rayan Investment.

What are your day rates for offshore and onshore segments?

Sorry, sorry again? What day rates?

What are the day rates -- what are the current day rates for offshore rigs and onshore rigs?

Yes. We provide averages -- not exactly averages, but we can tell you from where to where. As I said in the beginning of the call, so basically our rates are from [ USD 70,000 to USD 90,000 ] for the offshore. For the onshore rigs, I would say from USD 19,000 up to USD 25,000 per day. So that's the average rate that we have paid.

And did you have a look -- I mean recently as one of the other participants also mentioned that a recent contract was awarded in Qatar. Did you have a comparison of what day rates they are receiving and what could be -- at the end of the negotiation probably you can have the same kind of day rate provided your rigs have the same specs? Did you have a look at those numbers?

Look, we have a look -- I think we don't have the ability to have a look at those rates unless others or any listed company or any competitor would disclose those rates to the market. Otherwise, we don't have those things. But internally, of course, we have records of our external advisors to collect data regarding the market, regional market and international market. And we try to benchmark as well our rates against those available studies. But again, so rates could be different for many reasons. So you need to take into consideration the technical specs of the rig. You need to take into consideration the length of the contract. You need to take into consideration the terms and conditions of the contract and as well the content of the revenues because in some cases the day rate is including some components that are not mentioned and that -- for example, the moving of the rig, mobilization, sometimes catering, so it's part of the revenue. So we need to be a little bit careful as well from the rates that are announced publicly because sometimes it doesn't reflect the correct benchmark.

I mean, just to let you know, there is a company called ADES in Saudi Arabia.

We know it very well. Yes.

They have announced this [ QR 350 million ] contract, 1-year firm, 18-year optional. So that's what the contract is all about.

Yes. That's why I mentioned it in the beginning, when it's listed company, so basically, it's available on the public.

Your next question comes from the line of Nikhil Phutane from CBFS.

I mean, my couple of questions. The first one actually, just mentioned about your joint venture with Seadrill and from mid-2025 to 2026 you could be again renegotiating the rates. You mentioned about better rates than 2024. Am I right in this?

Your voice was not clear, Nikhil.

No, I was just saying in terms of your joint venture with Seadrill, you mentioned that you have given in terms of rates better deals which could be there as compared to 2024 for the ones which are coming up in mid-2025 to 2026. So is that right?