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

Hello, and welcome to the Gulf International Services conference call. Please note that this call is being recorded. You will have the opportunity to ask questions to our speakers later on during the Q&A session. [Operator Instructions] Thank you. Now I would like to hand the call over to Bobby. You may begin.

Thank you, Angela. Hi. Hello, everyone. This is Bobby Sarkar, Head of Research at QNB Financial Services. I wanted to welcome everyone to Gulf International Services' Fourth Quarter and Year-End 2024 Results Conference Call. So on this call from QatarEnergy's Privatized Companies Affairs Group, we have Abdulla Al-Hay, who is the Manager at Privatized Companies Affairs; Sami Mathlouthi, who is Assistant Manager Financial Operations; Saoud Alabdulghani, who is the Senior Financial Management Analyst; and Rashid Hamad Al-Mohannadi, who is the Head of IR and Communications. So we will conduct this conference with management first reviewing the company's results, followed by our Q&A. I would now like to turn the call over to Rashid. Rashid, please go ahead.

Thank you, Bobby. Good afternoon, and thank you all for joining us. Before we go into the business 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 disclaimer statements, as detailed on Slide #2 of the IR deck. Moving on to the call. On Tuesday, 4th of February 2025, GIS published its results for the year ended December 31, 2024. And today in this call, we'll go through these results and provide you an update on key financial and operational updates. Today on this call, along with me, I have Mr. Abdulla Yaqoob Al-Hay, Manager of our Privatized Company Affairs; Mr. Sami Mathlouthi, Assistant Manager for Financial Operations in the Privatized Company Affairs Department; and Saoud Alabdulghani, Senior Financial Management Analyst. We have structured our call as follows. At first, I'll provide you a quick insight on GIS' ownership structure, competitive advantages and overall government structure by covering Slides 6 until 8 and Slides 28 and 29; secondly, Abdulla will brief you on the financial results and dividend distribution proposal; then Sami will take you through the GIS key financial and operational performance matrices; and Saoud will present the segmental performance review. 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, whereas the GRSIA with 21.9% stake is the largest shareholder. As detailed on Slide #5, QatarEnergy provide most of the head office functions through a service level agreement. Operation of GIS subsidiaries are independently managed by their respective Board of Directors along with senior management team. The BOD structure, as detailed on Slide 7 of the IR presentation, you can see it there. In terms of the competitive advantages, as detailed on Slide #8, all of the GIS group companies are strategically placed, having a significant market share in their respective business sector within Qatar. For example, drilling business is the only Qatari onshore drilling service provider and has the majority share of market in the offshore drilling service in Qatar. The aviation business of GIS is the sole provider of the helicopter services in Qatar oil and gas services sector and being one of the largest operator in the MENA region. In terms of the insurance business, it is one of the leading medical insurance provider in Qatar. For the catering, the transaction of Amwaj with Shaqab and Atyab has established a predominant local champion in catering services. All of this is supported by the experienced senior leadership, having expertise in relevant business segment. In terms of the governance structure of GIS, you may refer to Slides #29 and 28 of the IR deck, which cover various aspects of GIS' Corporate Code of Governance in detail. I will now hand over to Abdulla.

[Foreign Language] Thank you, Rashid, and thank you all for joining us. 2024 has been a transformative year for GIS, marked by significant advancement and achievement across various sectors. Our commitment to the innovation and excellence has propelled us to the new heights. In the drilling segment, we have successfully turned a profit, supported by our latest debt restructure and the purchase of the 3 jack-up rigs. The aviation segment has presented commendable results, acquiring 5 helicopters: 3 helicopters delivered at the year end of 2024, with 2 more to be delivered next year with an option to purchase additional 5 helicopters. The insurance segment has had a great year as well, acquiring a new contract and venturing into a new insurance segment, paving the way for the IPO. Meanwhile, Amwaj reported a higher share of profit driven by the transaction synergies, and it's on the path for further growth both locally and regionally. We are pleased to announce that GIS has achieved a robust performance for the year 2024 with a net profit of QAR 711 million for the year equivalent to QAR 0.383 per share in comparison to QAR 366 million for the year equivalent to QAR 0.197 per share for the last year, making a significant growth of 94% versus last year. Given a strong recovery in terms of the group's financial results achieved during the current year, the Board of Directors recommends a dividend distribution for the year ended December 31, 2024 equivalent to a payout ratio -- equivalent to a payout of QAR 0.17 per share, subject to the general assembly approval. I will now hand over to Sami to cover the operational and financial results in more detail.

Thank you, Abdulla. We are pleased to announce that for 2024, the group reported revenues of QAR 4.5 billion, marking a 14% increase compared to QAR 4 billion during the same period of last year. This growth was primarily driven by the strong results from the aviation, drilling and insurance segments. Key contributors included higher day rates and improved asset utilization in the drilling segment, increased flying hours in the aviation segment and enhanced premiums in the insurance segment supported by major contract renewals. The group achieved an outstanding EBITDA of QAR 1.4 billion and a net profit of QAR 711 million during this year, representing a 94% increase in net profit compared to QAR 366 million during the last year. This growth was fueled by increased revenue, high investment income from the insurance segment and lower other expenses, mainly in relation to recording one-off loss on disposal of Amwaj in the previous year. In addition, despite the increase in debt during the current year relating to the acquisition of the new jack-up rigs, finance costs witnessed a reduction as a result of the successful debt restructuring concluded in the previous year. The group earnings per share for this period stood at QAR 0.383 as compared to QAR 0.197 for last year. Moving on the quarter-on-quarter comparison. The group revenues for Q4 2024 saw a 3% dip driven by lower revenue reported from the drilling and insurance segments. Drilling segment witnessed a reduction in revenue during the current quarter, mainly due to unplanned maintenance for one of its offshore rigs. Moreover, the insurance segment experienced a reduction in revenue in the current quarter due to expiration of policies sold in the previous quarter. Net profit for Q4 2024 decreased by 36% from QAR 216 million to QAR 138 million in Q4 2024. This reduction was mainly driven by overall reduction in revenue, in addition to higher operational costs from the aviation segment, in addition to lower gain reported from IAS 29 hyperinflation impact. The group maintained robust total assets of QAR 12.1 billion as of 31st of December 2024. The group total debt increased to QAR 5.6 billion as most of the Seadrill transaction was financed through additional loans as well as partially financing the purchase of the new helicopters. Now I will hand over to Saoud to cover the segmental review.

Thank you, Sami. Let's proceed with the segment revenue, beginning with the drilling segment. The drilling segment reported a significant revenue growth for the year ending December 31, 2024 reaching QAR 1.7 billion compared to QAR 1.3 billion from last year, a 31% increase. This impressive increase was mainly due to improved performance in the offshore rigs, lift boat and barge operation, supported by better day rates and higher asset utilization. Additionally, the recent acquisition of the 3 jack-up rigs positively impacted revenue growth as it allows for full consolidation of Gulfdrill and Gulf Jackup revenue. The segment achieved a remarkable turnaround, reporting a net profit of QAR 248 million for the year ending December 31, 2024 compared to a net loss of QAR 63 million for last year. This substantial improvement in bottom line profitability is primarily driven by robust revenue growth, reduced finance costs and one-off income from the transaction of with Seadrill. Quarter-on-quarter, the segment reported a decline in net profit from QAR 90 million in Q3 2024 to QAR 69 million in Q4 2024, a 23% decline. The decline was primarily due to lower revenue on the back of unplanned maintenance for one of the offshore rigs. Moving to the aviation segment. The aviation segment reported an increase in revenue for the year ended December 31, 2024 reaching QAR 1.2 billion compared to QAR 1 billion for last year, a 13% increase. This growth was primarily due to the increased flying hours on both domestic and international segments. The domestic segment also benefits from the redeployment of aircraft from international segment, which boosted fixed revenues. Meanwhile international operations, particularly those driven by the Turkish subsidiary, witnessed a growth due to increased flying hours and an expanded fleet size. The segment's net profit declined to QAR 303 million compared to QAR 343 million for last year, a 12% decrease. This was mainly due to increased operational expenses associated with the scheduled maintenance of certain aircraft. The reduction in net profit was further reimpacted by lower finance income stemming from lower deposit rate and higher foreign currency revaluation losses. The segment revenue for Q4 2024 versus the previous quarter increased from QAR 293 million to QAR 310 million, a 6% decline mainly due to higher revenue reported from the domestic and international segments and imposed flying hours. However, Q4 profitability declined due to lower net monetary gain recorded in the current quarter as compared to the previous quarter, which arises from the accounting impact of hyperinflation in Turkey, in addition to higher foreign currency revaluation losses, increase in G&A expenses and higher aircraft maintenance costs. Now we can move to the insurance segment. The insurance segment reported revenue of QAR 1.2 billion for the year ended December 31, 2024, an increase of 5% compared to the previous year. This increase of revenue was mainly linked to new contracts in the medical line business and the expansion of premiums in the general line of business. The net earnings of the segment demonstrated significant growth, reaching QAR 138 million compared to QAR 103 million for last year, reporting a 34% increase. This enhancement in bottom line profitability can be primarily attributed to higher revenue, complemented by the increase of the segment investment portfolio. The boost in the investment income was driven by the increase of unrealized gain recorded on the revaluation of held-for-trading investment securities in addition to higher finance income derived from fixed deposits. On a quarter-on-quarter basis, the segment revenue for Q4 2024 declined from QAR 332 million to QAR 301 million in Q4 2024, a 10% decline. However, segment profitability for the fourth quarter declined from QAR 27 million in Q3 2024 to QAR 33 million in Q4 2024, a 22% decrease, mainly due to lower net claims reported, which was partially offset by lower investment income due to net loss recorded on held-for-trading share during the current quarter. We can conclude our segment revenue with the catering segment. The catering segment reported a share of revenue of QAR 416 million for the year ended December 31, 2024. The segment experienced a significant increase in profit, reaching QAR 35 million compared to QAR 7 million last year, a 410% increase. This increase was primarily driven by the impact of the recent transaction with Shaqab and Atyab, which enhanced the segment's profitability despite the decline of revenue. Quarter-on-quarter, the segment's share of revenue for Q4 2024 increased from QAR 98 million in Q3 2024 to QAR 115 million in Q4 of '24, a 17% rise supported by higher revenue reported from the accommodation segment as a result of shutdown services in Ras Laffan. Q4 2024 profitability increased mainly due to revenue growth. I'll now hand over to Rashid.

Thank you, Saoud. Thank you all for your attention. We can open the call for the Q&A.

[Operator Instructions] And your first question comes from the line of [ Nikhil Phutane ].

Pertaining to your the drilling segment, you mentioned revenues come down due to unplanned maintenance of one of your offshore rigs. So can we know the number of days for that which was under maintenance? Also, I mean, last time we discussed about 3 rigs under onshore which were under maintenance. So now it has been contracted beginning from 2025. And also has there been any onetime OpEx apart from any maintenance costs in the fourth quarter?

[ Nikhil ], regarding the unplanned shutdown that's relating to one of the offshore rigs in Q4, it's for 22 days. The 3 rigs that went on operation, I think we have all the rigs. Offshore and onshore are operating under contract except one of the onshore rigs. And apart from the maintenance that we had for the unplanned shutdown during Q4, we don't have any extra OpEx that we have seen during the Q4. So probably, you will see a slight increase in the direct cost during Q3 and Q4, and this is mainly relating to the 3 offshore rigs that we have acquired. And they became now 100% under the ownership of GDI, and they are consolidated in the books of GDI, which were previously under equity accounting. And you don't see their direct cost directly consolidated under GDI.

Okay. So you are saying largely got to do with new vessels which are acquired. So no difference in the charter rates, I mean, for both onshore as well offshore during fourth quarter, right?

Yes. There is no difference during the Q4 2024.

Okay. Coming to your aviation segment, sir. I mean, just wanted to understand in terms of how much did foreign currency revaluation disturb your maintenance charges, other things which you have mentioned for the drop in aviation profit? I mean, can we quantify how much it was there so that we can then see how to proceed for 2025?

You mean how much in terms of what, in revaluation? Or...

Yes, yes. What has been the value terms?

Yes, yes. I think it's -- you have two components in the foreign exchange, And I think it was explaining a little bit the process. So basically, you have some operations. And the main operation for us in -- outside of Qatar is the Turkish operation, which is relating to Redstar. So the company functional currency in Turkey is the Turkish lira. And basically, they book all of their expenses and their revenues in Turkish lira. So any difference or devaluation of the Turkish lira against the other hard currencies, it will be booked as part of their P&L. Once translated onto the books of Gulf Helicopter, so we translate any losses directly to the books of Gulf Helicopter. So that's one aspect. So that part, it's around QAR 39 million to QAR 40 million loss during 2024 compared to a loss of QAR 17 million during 2023. So that's the first part. In terms of IAS 29, so that's the hyperinflationary treatment. So it's two parts. One part will be booked as part of the P&L, which is relating to the -- mainly the P&L accounts; and then the other part which is booked under the other comprehensive income, which is relating to the variation of the previous balances that has been revaluated before and now revaluated based on the latest exchange rate. So to answer your question, the impact in the P&L for the revaluation of losses, it's around QAR 40 million.

Okay. And just one last, I mean, pertaining to your dividend payout, sir. I mean, we can understand there is debt covenants on your books. And -- but it did look like payout has been quite significantly reduced. So it has come purely from the BOD decision? Or I mean, do you see -- I mean, is there any other reasons for that?

Can you repeat the question?

This is regarding your dividend, sir, which you have announced. Your payout actually percentage is -- as compared to the previous years, when you look at it in the 60, 70s zone, this time around is around 40s zone. So I wanted to know the reason behind a decline in terms of payout, not in terms of dividend, per se, but in payout.

Yes. There are a lot of aspects behind this decision. We need to have consideration for the debt level that we have at the level of GIS and about the growth and the future of the GIS as well. So we took a very solid step to bring this company to the current situation, where we have improved the performance for the last 3 or 4 years. A lot of work, a lot of effort and initiatives have been taken. So basically, it's not going to be wise to distribute dividends and put additional pressure on the company at this stage. So I'm assuming that even the shareholders are very well conscious about the sequences of paying a high dividend with the current situation. So basically keeping, I would say, a buffer and a good amount of cash for GIS would help us to remain very sustainable to pay good dividends for this year and even for the future.

And one last, I suppose, if I may. On your Pillar 2 Basel III reforms, I mean, do you see any effective tax rate increasing going forward 2025?

Thank you for the question. Regarding Pillar 2, the -- as you know, so the law has been issued in 24th of December 2024, if I'm not wrong and then -- but it's not yet enacted. And it will be most probably applicable during the year 2025. So however, we have made the assessment and we continue to make the assessment. And based on our final assessment, the exposure is very minimal for GIS group companies for two main reasons. So I think, first of all, that the companies, as you know, are taxed at the level of 10% tax rate. These are the underlying companies. And then for the Pillar 2 is permitting certain exemptions or certain deductions for a company which have huge assets in their books, which is the case for GIS group companies, especially GDI. And in addition to -- manpower is part of the deduction. So companies who have a huge number of employees and huge staff costs, in addition to huge CapEx, will have a huge reduction. And based on that, so the impact will be very minimal.

Your next question comes from the line of Ramzi Sidani with HSBC.

Sorry, I must have missed the first part of the call. So I just wanted to ask, I'm not sure if you've covered it, whether the onshore idle rig is now contracted in the first quarter of 2025 and then whether the offshore rig that went through the unplanned shutdown is back online. And then if you can just remind us, in the Q3 call, we talked about some of the renewals of the rigs. Basically, you were trying to extend or lengthening the contract and expecting maybe around a 3% to 5% increase in day rate. If you can just give us more information on this, on how many rigs would it apply.

Thank you for the question. Regarding the onshore rig, it's still not operational. So the management is working to discuss with potential customers to market the rigs or to find other solutions for that rig, either in Qatar or outside of Qatar. So that's regarding the onshore rig. And offshore rig...

And expectations on when -- I mean, just -- is it H2...

Yes. We cannot give any expectation on when this will happen. So it's all based on the discussion with the customers. Many aspects will need to be taken into consideration, especially pricing and the term of the agreements. So this will be disclosed -- whenever we reach an agreement with the customer, this will be disclosed. Regarding the offshore rig that went into unplanned shutdown. So this was during Q4. And now it's fully operational. It went back to operation without any issue. Your third question was relating to what exactly?

The contracts. So some of the contracts that were expiring this year, you were working on getting longer term and maybe like low single-digit increase when it comes to day rates.

Yes. I think this is applicable. We have a few rigs that came -- that will come to expiry during the 2025. We have been able to expand some of the rigs, as disclosed in the press release, for a good period of more than 4 years. This has been achieved with better day rates compared to the standard that we have during the last period. And we are working as well, still working with the customer to finalize the discussion for the extension of the additional rigs that are expiring during this year.

Do you foresee any risks that not all rigs might be extended?

I think it's very low risk. So these rigs are contracted. They are operational. We know the demand that is happening in Qatar. So we don't foresee any risk for the renewal of those rigs. So it's only a question of commercial discussions between the service provider and between the customer to agree on certain terms, which we hope that are favorable for GDI.

Got it. And maybe just on the -- finally, on the IPO of Al-Koot. Can you provide us with any additional information, time line?

Yes. We have announced that -- in our press release that we are working closely with the QNB Capital to do all the preparation for the IPO. We are expecting to have this IPO during the year, so it's going to be -- shall in the year 2025. If everything is going smooth, we're going to turn the business from the -- from insurance to a Takaful insurance, which require a lot of study and to get some Fatwa from the Shari'ah Committee. However, the plan so far to do the listing is during this year.

We will keep you posted with all the progress regarding the IPO. So as Abdulla mentioned, so QNB Capital has been appointed as -- to lead this transaction in terms of advisory. We are working together now with QNB Capital to appoint the other external consultant who will support us during this transaction. QNB Capital, they have the skills and the experience to support in this kind of IPOs. And we will work closely with them during the last -- the next few months to make this IPO project as successful for GIS shareholders.

Your next question comes from the line of Ildar Khaziev with HSBC.

So may I ask a question about the offshore rigs which are in Qatar. Can you tell us how many of those rigs are actually working on the North Field capacity expansion and how many are used basically elsewhere? And secondly, just based on your observations of the regional market, because there have been many new contracts, I think, announced recently. But based on observations, do you think the market has softened in terms of day rates compared to how it looked like a year ago?

Yes. I think -- so we cannot exactly define the rigs that are working directly in the North Field. But we do have rigs allocated to the offshore with different clients. And exactly how many, so we cannot specify, which is basically relating to our agreements with our customers. So these type of information are not disclosed in public. So however, in total, we have 10 offshore rigs. All of them, they're allocated for the Qatari offshore market. And out of these 10 rigs, so we have 10, they are fully owned by GDI; and then we have an additional 2 other offshore rigs that we are leasing from a Chinese shipyard, which are allocated as well in total to work for the offshore rig Qatar. In terms of market rates, I think we have highlighted this in our previous calls as well, so we believe that the market in Qatar is slightly different from the regional market due to its competitive, let's say, way. It's slightly different in terms of who is operating in the market, what are the market demands, and specifically, it's not as what you can see in probably Abu Dhabi or in Saudi Arabia in terms of rates. But we believe these are competitive rates. And we, as GDI, we are having good rates and we always try to maximize our revenues through discussion, trying to have the best rates that we can have in the market. But it's not exactly comparable to the rates that you will see outside of Qatar.

Your next question comes from the line of Seki Mutukwa with Ashmore Group.

Two questions, please, one linked to Ramzi's question on offshore. Just how many rigs are up for renewal in 2025 in the offshore? And the second question, just on the overall after the sort of refinancing and possibly some renegotiation on rates, what is the sort of run rate today for the interest expense on the quarter?

Okay. In terms of renewal of offshore rigs, so in total, we have 4 offshore rigs that are coming for renewal. These are the rigs that are directly under the ownership of GDI, and in addition to 2 other offshore rigs, which are under the ownership of Gulf Jackup. Most of them, they are coming for renewal starting from May. So I would say it's during Q2 and the Q3 of 2025. One of the rigs has been already agreed in terms of rates. And other rigs, so we are still under discussion with the clients. And we hope to get the best deal for GDI. So that's in terms of the number of offshore rigs that are coming for renewal. And again, we don't expect any issues in terms of the renewal of the rigs or having some of the rigs to be stuck. I think we still have market. So the discussion is mainly on the extension and how the number of years that we can agree with the customers to renew those rigs. So second question is...

Debt.

9 I think regarding the debt, so if you look and if you compare, the debt that we have compared to last year, so the interest has decreased compared to last year. So the last year, it's a specific year because one of the -- you will see that not all the loans has been restructured at the same period or starting from 1st of January 2023. So the restructure started from 14th of March 2023. And during 2023, there are lots of unexpected costs that are included in the interest rate, which are part of the fees that we need to pay for the restructure and additional costs that are highlighted during that period, in addition to the variable rate that we have from 1st of January 2023 to 24th of March 2023. I think you will see that the interest has decreased from QAR 216 million to QAR 189 million during this year. And if you calculate in addition, despite that the debt has increased in 2024 compared to 2023, we are still having a good rate. And if you calculate the rate by yourself for -- during the full year 2024, you will see that the effective rate didn't reach 4% during the year.

There are no further questions. I would now like to turn the call back over to Bobby for any remarks.

Okay. Thank you, Angela. If there are no further questions, we can end the call for today. I want to thank Abdulla, Sami, Saoud and Rashid for taking the time to go over the presentation and answering your questions. And we will pick this up again next quarter. Thanks, everyone.

Thank you.

That concludes today's conference call. Thank you all for joining. You may now disconnect.