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

Hello, and welcome to Gulf International Services Conference Call. Please note that this call is being recorded. I'd now like to hand the call over to our moderator, Shahan. Please go ahead, sir.

Thank you. Hello, and good afternoon. I want to welcome everyone to GIS' First Quarter 2025 Results Conference Call. So on this call from Qatar Energy's Privatized Companies Affairs Group, we have Abdulla Al-Hay, who is the Manager of Privatized Companies Affairs; Sami Mathlouthi, Assistant Manager of Financial Operations; and Rashid Al-Mohannadi, Head of IR and Communications. So as usual, we will conduct this conference with first management reviewing the company's results followed by a Q&A session. I will now turn the call over to Rashid. Please go ahead.

Thank you, Shahan. 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 disclaimer statement as detailed on Slide #2 of the IR deck. Moving on to the call. On Wednesday, 30 of April 2025, GIS published its results for the 3-month period ended 31 of March 2025. Today, in this call, we'll go through these results and provide you an update 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; Mr. Sami Mathlouthi, Assistant Manager for Financial Operations within the Privatized Company Affairs; and Mr. Saoud Alabdulghani, 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 Slide 6 till 8 and Slide 28 and 29 of the IR deck. Secondly, Sami will brief you about the latest business update and overall of the results. Later, Saoud will provide you with the segmental performance 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 compromises of QatarEnergy with 10% stake being the parent shareholder, whereas GRSI with 21.9% stake is the largest shareholder. As detailed on Slide #5 of the IR deck, QatarEnergy provides most of the head office functions through a comprehensive 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 to 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 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 services sector and being one of the largest operator in the MENA region. In terms of the insurance business, it's one of the leading medical insurance provider in Qatar. For catering, the transaction of [indiscernible] has established a local champion in catering services. All of this is supported by experienced senior leadership having expertise in relevant business segments. In terms of the governance structure of GIS, you may refer to Slide 28, 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, Sami.

Thank you, Rashid. 2024 has been a transformative year for GIS marked by significant advancements and achievements across various sectors. Continuing with this momentum, our Drilling segment has increased its profitability, both on quarterly basis and year-to-date compared to last year. The factor is the result of our segment efforts to maximize and utilize our rigs to the fullest while maintaining our cost reduction measures, making it the second largest segment to the group net earnings following Aviation. Additionally, our Aviation segment has been increased profitability backed by robust revenue generation due to increased flying hours and improved MRO revenue. So this is a testament to our group's commitment to growth and profit. GIS has reported results for the 3-month period ended 31 of March 2025 with an outstanding net profit of QAR 222 million, a surge of 38% compared to last year. The group is proud to announce that this is one of the highest quarterly results reported in the last decade for the company. We also reported earnings of QAR 0.119 per share compared to QAR 0.087 per share for the same period of last year. The group reported revenues of QAR 1.2 billion, marking a 19% increase compared to QAR 1 billion for the same period last year. This growth was primarily driven by the strong results from the aviation, drilling and insurance segments. Key contributors included full consolidation of Gulf Drill and Gulf jackup starting from 25 of June 2024 in addition to higher day rates and improved asset utilization for certain rigs in the drilling segment, improved MRO revenue in the Aviation segment and enhanced premiums in the insurance segment supported by new vehicle contracts. The group achieved an outstanding EBITDA of QAR 416 million and a net profit of QAR 222 million during the first quarter of 2025, representing a 38% increase in net profit compared to QAR 161 million for the same period of last year. This enhanced profitability was mainly driven by the strong growth in revenue from the business segment. Moving to the quarter-over-quarter comparison. The group revenue for first quarter 2025 saw a 3% rise primarily due to higher contribution from the Drilling, Aviation and Insurance segment. The Drilling segment recorded stronger performance driven by increased rig activity during the current quarter in addition to higher rig utilization. The Aviation segment benefited from higher contribution from the Amaru segment, supported by additional third-party engine overhaul works. Meanwhile, revenue growth in the insurance segment was attributed to higher portion of policies issued during the quarter. Net profit significantly increased by 60% compared to the previous quarter, mainly due to improved revenue and lower direct costs from the aviation and drilling segment. The group maintained robust total assets of QAR 11.6 billion as of 31 of March 2025. The group total debt marginally decreased to QAR 5.5 billion due to partial repayment of an existing overdraft facility and loan repayment within the Drilling segment. Now I will hand over to Saoud to cover the segment.

This is Saoud, I'll proceed to the segment review, beginning with the Drilling segment. The Drilling segment posted QAR 499 million of revenue for the 3-month period ended 31 March 2025. Revenue recorded a growth of [indiscernible] compared to the same period of last year, driven by higher revenue from the Offshore segment, mainly due to the acquisition of the 3 jackup rigs. This acquisition strengthened the segment financial results through the full consolidation of Gulfdrill and Gulf Jackup revenues. Additionally, the export and [indiscernible] segment contributed positively to the revenue growth due to higher average daily revenue and higher utilization. However, the onshore segment witnessed a downward trend due to [indiscernible] being contract since 2024. Outstanding net profit was recorded at QAR 83 million for the 3-month period ended 31 March 2025. This increase of 363% compared to the same period of last year was mainly attributed to the growth in revenue, which was partially offset by higher finance costs due to the additional loan obtained for the acquisition of the additional rig. On a quarter-on-quarter basis, the segment reported a significant increase in net profit by 20% compared to the previous year. This was mainly due to the higher revenue by 2% on the back of increased ancillary services, mainly from atmost higher utilization and lower direct cost. Moving to the Aviation segment. The Aviation segment experienced a revenue increase of 19% compared to the same period of last year. The increase in revenue was mainly attributed to the improved revenue from the MRO segment due to third-party engine repair work conducted as well as improved revenue from the Turkish subsidiary Redstar due to increased flying hours. The revenue increase was partially offset by the completion of certain international contracts, including ones in Libya, Oman and Morocco. The segment's net profit witnessed an increase of 9% compared to the previous quarter, mainly due to revenue growth noted across the international and MRO segments and as these higher share of profit of Morocco operation and higher gain in net monetary position in relation to IAS 29. The segment revenue for Q1 2025 versus Q4 2025, first of all, increased by 4%, mainly due to additional revenue reported from domestic and MRO segment. Q1 2025 profitability increased significantly by 233%, mainly due to a reduction in direct costs, particularly related to reduced overall aircraft maintenance expenses and lower staff costs from the Turkish subsidiary. Furthermore, significantly lower devaluation on foreign currency exchange loss was recognized compared to the previous quarter. Now we can move to the insurance segment. The insurance segment reported a margin increase in revenue for the 3-month period ended 31 March 2025. The increase in revenue was mainly driven by new contracts obtained within the medical line of business. Segment net earnings decreased by 8% compared to last year. The decrease in the bottom line profitability was mainly driven by lower investment income recognized from the investment portfolio due to unfavorable movements in the capital market, which negatively affected the market-to-market valuation of the investment portfolio. On a quarter-on-quarter basis, the segment revenue for Q1 2025 increased by 6% due to higher [indiscernible] portion of policy issued during the quarter. However, segment profitability for Q1 2025 decreased by 14%, impacted by lower investment income due to unfavorable movement in the capital market in addition to lower finance income resulting from lower interest rates. We can conclude our segment review with the catering segment. The catering segment which is a marginal reduction in share of revenue by 2% compared to the same period of the previous year. Mainly the lower revenue reported from the catering Manpower and accommodation segment due to the completion of shutdown-related services during the previous year and the demobilization of certain contracts within the manpower segment. This impacted the profitability with the segment share of net profiting a marginal decrease of 7% compared to the same period of last year. Share of revenue declined by 10% compared to the previous quarter, mainly due to shutdown services provided in the previous quarter and lower activities during this quarter, impacting both revenue and subsequent net profit on a sequential basis. I'll now hand over to Rashid.

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

[Operator Instructions] Our first question comes from the line of Nikhil Bhutani, CBFS.

A very good set of results for the first quarter. Well, to begin with, I [indiscernible] a few questions and maybe I'll ask it later in case I don't see the questions coming up. Coming to your drilling segment, sir, I mean, over the past few months, we are seeing Brent prices going below $70 per barrel and remaining lower. So do you see any significant risk for the drilling segment? Also, I mean, you mentioned about GDI not being utilized. So it has not been utilized entirely for the first quarter 2025. And going forward, what we see in terms of renewal, which are coming up maybe for 2025, rest of the year?

Thank you, Nikhil, for the questions. So at the moment, I think as part of the existing contracts that we have, so we have only 4 -- in total 4 offshore rigs that they are due for renewal during 2025 and 2 onshore rigs. So that -- we are in discussion with our customers for the renewal. At the moment, we don't see any impact on the existing contracts. But for the renewal, I think it's all based on the discussion. Probably, the oil prices might affect the daily prices, but this will be seen during our discussion with our customers. Regarding GDI -5, so at the moment, so the rig is not contracted yet. We are still in discussion with local and international customers [indiscernible] discuss are not concluding yet. But I think if there is any news in the next quarter, so we will disclose this to the market either during the quarter or during the press release discussion.

Okay. So I mean, just specifically, second quarter, are we seeing anything contract coming up for renewal?

For the second quarter, we don't have any contract coming for renewal. Most of the contracts, they will be coming for renewal at the second half of 2025. But again, as I told, so discussions, they don't come in just 1 day or 1 day prior to the expiry of the agreement. So these are lengthy discussions where we discuss with the customers, plenty of technical and commercial aspects that's are included in the contract.

Okay. Just one more on the aviation front. I see that you have added almost around 4 aircraft during first quarter. So just wanted to understand, has this helped in increasing flying hours because we are seeing actually a kind of an overall flying hours coming down. So what's it added at the end of the quarter? And of course, apart from that, you also mentioned about demobilization of the contract in Libya and Morocco and Oman also contracts. So overall, I wanted to get a hang of it, how we see going forward, I mean, the decrease in flying hours in first quarter, how we see it going forward in the second quarter, third quarter?

Yes. I think -- thank you, for the question. Yes, in overall, I think the number of hours in the flying segment has decreased, I think, by 1% in overall. But however, if you look at the local market, so we disclosed that it has increased compared to last year, I think, by 5% to 6%. So the impact is coming not only from the 4 aircraft that has been added because as you know, the 4 aircraft, part of them, they have been added, I think 3 have been added during Q4 2025 and one during 2024 and one during 2025. But as you know, so it needs some time to put these and for circulation. So we need some certifications. We need some admin work to have these aircraft up and running and generating revenue. But in general, the main impact that we have seen is relating to the reduction in the Libya contract. And the Libya contract has hugely impacted the number of flying hours. I think it has been reduced from 472 hours to almost 70 or 80 hours during this quarter. So that huge reduction has impacted. But this is not relating to reduction in the operations. It's one-one contract, which was running with Libya. So we have 2 contracts. One of them is demobilized and this has impacted the number of flying hours. In addition to the other international locations, these are short-term agreements in nature where we mobilize those aircraft for 3 or 6 months, the contract has ended and then this will have some impacts on the flying hours. But in general, I think we see that there is an increase for the operations in Qatar. We will try our best as well to mobilize to some of the aircraft that will be moved to the international locations from Qatar. And this will have a good impact once we have all the fleet operational, I mean, from those 4 new aircraft. In addition, we are adding another aircraft during this -- probably this quarter, I mean, for Q2 2025, where the total of the 5 new aircraft will be added to the fleet. And this will provide us with additional spare aircraft to be used for the international location.

Okay. So hopefully, looking forward, we could be seeing in the second half likely the fallout of all this in terms of flying hours increase, right?

Inshallah.

Our next question comes from the line of Seki Mutukwa from Ashmore.

Firstly, thanks for providing sort of segmental EBITDA data from this quarter onwards, and it's very helpful. And on that, just wanted to focus on the drilling, please. That sort of EBITDA margin expansion that we can see compared to same time last year, trying to understand how much of that is due to sort of consolidation on sort of Seadrill rigs, which may have been on higher rates versus how much you would say is actually due to operating leverage or efficiencies? I think Sami mentioned sort of cost efficiencies beforehand. So just trying to gauge what's happening there, please. And the second question is just in terms of since the end of the first quarter, what are you seeing in terms of day rates on the offshore side, both in Qatar and then maybe broader region? I understand they are very different markets, but just trying to see what sort of the market rates are looking like.

Thank you for the question again. So I think in EBITDA, we try to give I think, more certifications to our financial leaders by providing additional information that will be helpful for them to analyze the segments of the companies. So at the moment, we are providing this information to help you reading the segments, analyze the segments. Probably in the future, we can provide additional information in relation to that. We have 2 aspects, I think, in the GDI for the increase in revenue and which have impacted as well the EBITDA. I think the first one is the consolidation of the other 2 companies, Gulf Jackup and Gulfgrill. So that's one aspect. This has increased, I think, a lot. So if I can calculate, I would say it's around 80% is coming from the consolidation of the new -- the previous JV and the new company setup, which is Gulf Jackup. So the remaining are coming from 2 other aspects, utilization. So utilization compared to last year has increased a lot. And if I compare -- I look at the offshore side, I think most of the offshore rigs for this year in average, we have almost 0 non-generating revenue days. Last year, I think when I look at the data, I think in average, we have around 75 revenue-generating days. So it means that there is almost in average 15 non-revenue generating days. So that's another aspect that could be added as well to the increase in the EBITDA. And then in terms of cost reduction, cost reduction is impacted by the number of days running for those -- especially the offshore rigs. As you know, if the offshore rig is not working, so most probably it's not because it's not under contract, but there is a maintenance taking place. And that kind of maintenance will be added to the cost and will increase the direct cost for these rigs, and this will impact directly the EBITDA. I think we have been very lucky during Q1 2025 by having all of the offshore rigs operating without any downtime and thus we're having the benefit of the consolidation plus the benefit of the utilization and lower maintenance costs, all of this has impacted the EBITDA margin. For your second question regarding the market, I think at the moment, we are discussing some of the rigs for the renewal either at the offshore and the onshore side. So it's looking at the market, the market is slightly indexed to the oil prices, but it's not directly indexed to the price of oil. From what we see in -- outside of the region, we see a slight reduction in terms of day rates. We see some of the offshore rigs are out of contracts in some of the locations. But again, this is not exactly what's happening in Qatar. It's a different market depending -- again, prices are depending mainly on the demand of the customer is depending on many other aspects in addition to the oil prices. But based on what we have seen in general, there is a slight decline of day rates in the region.

Our next question comes from the line of Lee Beswick from QNB.

Excellent presentation. So the data outside the region shows rig rates have continued to move up in 2025. I just wondered sort of a more granular question in relation to what you mentioned before. How does the interaction -- the day rates in Qatar, how do you -- you said that they mentioned they're connected to oil price, but they're also connected to the global market. If the global market is -- day rates have continued to move up, which the data shows, but the oil price is down, what is the more sort of important influence on that? How do they interact?

I think depending on what sources you are using. So based on our own information, our own researchers and based, I think, on the timing probably of the report that we have been looking at, we see some reductions outside in the region. And I think based on all the uncertainties that is taking place in the international economy plus which impacted the oil prices. Based on our experience as well, we are following up those day rates since many years. So we see that there is a direct impact of the oil prices in the indexation of the day rates. That's true and we have seen that especially during the COVID time when the oil prices have reached 30,000 barrels, we have seen the day rates have decreased almost for the offshore rigs to USD 50,000 per day. So I think there is a direct rig between the oil prices and the day rates. But again, as I said, I think in Qatar, the market is specific, there is a limited number of rigs that are working in the country. We think about 22, I think, offshore rigs in total. And this is depending on the tenders, it's depending on the discussion, depending on the oil prices at the time of discussion with the customer, the day rate will be decided.

Okay. And just a second question on insurance because you've mentioned before that you've thought about IPO-ing the business or selling the business. What's the situation there? What are your latest thoughts on the insurance segment?

It's no thoughts. I think we have disclosed to the market that we are working on listing the company on listing IPO. So our initial plan is to finalize the listing during 2025 by the end of this year. We have been -- we appointed QMB Capital as the main adviser for this transaction to support us in the listing. So during this period, we appointed most of the advisers that will be working on the due diligence on the valuation on many, many other aspects in relation to the IPO. So we will provide more insights and more updates to the market in the next quarters once we get more work done by all the advisers. So this will be consolidated and will be updated either during the press releases or during the IR call so that the shareholders will have more updates about the IPO. But we are working on that and the progress is good so far. And hopefully, we can make the final listing during end of this year...

And is that -- do you know what percentage stake is likely to come? Is it a minority, majority? Do you know?

Do you know these kind of things, it will be mainly decided by GIS Board. It will be presented as well to the shareholders for their approvals. This will be done once we complete the due diligence, financial tax due diligence. And once we have more clarity and more visibility on the valuations, so the decision will be taken, and it will be disclosed on that.

Our next question comes back from the line of Seki Mutukwa from Ashmore.

Just back on insurance. Wondering if you're expecting any sort of meaningful update on the health insurance side in 2025 based on maybe conversations with the regulator and sort of time lines they're working with? Or is it still sort of a gray area with low visibility?

Unfortunately, it's still a gray area. So discussions are taking place between the insurance companies and between the ministry to finalize this. So I think there is a project. So many stakeholders on this project to have more visibility on this. So the confirmation we are getting, so this will take place. But the only issue is when this will take place, what will be the premiums. They are still under discussions. Once we get more visibility on that, this will be communicated to you.

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

Yes. Just a follow-up question. Again, on the aviation side, you mentioned about in your MRO business, which posted quite a huge amount of revenues. And you mentioned about third-party engine repair works. So I wanted to understand the nature of this. I mean, how is it? And is it recurring? How we look forward to it in terms of second, third quarter?

Okay. Thank you, Nikhil, for this question. Yes, I think the MRO business has been, I think, contributing positively to the net profit of Gulf Helicopter and directly to GIS. Revenue has increased from QAR 18 million to QAR 63 million and net profit increased from QAR 7 million to QAR 27 million for this specific segment. I think this has been one of the good achievements in Gulf Helicopter. I think it's how we work for the MRO, it's 2 parts. So MRO is divided between making the maintenance and the overall for our own aircraft. But in addition, we are providing service for some local clients in Qatar or outside, we are providing service as well for some of the external customers who are based outside of Qatar. So what we normally do, so we maintain, for example, the engines of some aircraft, especially the AW139 and the AW189. We have the expertise. This is not a recurrent business. It's depending on the demand of customers, depending on what the customer will have. But in addition, we have some fixed revenues are coming from existing customers where we provide kind of regular services to that. And this basically will provide additional revenue for Gulf Helicopter. But again, it's -- some part of the business is variable and depending again on the requirement of the external customers.

Okay. Coming again on the insurance part of it, sir, I mean just wanted to understand your share of medical segment and the insurance has increased, but overall margins at the PBT level looks like has decreased both on Q-o-Q and Y-o-Y basis. You mentioned about the investment portfolio. So I wanted to understand what has been the delta created by this? I mean, what has been the quantum of change? Is it medical segment has done well in terms of -- suppose you can just throw some clarity on this?

There are 2 things about the percentage of the medical insurance. The main reason for the increase in the medical percentage is the slight reduction in the general insurance. And the reduction in the general insurance is mainly coming from some timing of -- for the renewal of some of the general insurance contracts. So normally, in most of the cases, our general insurance contracts are renewed during Q1 of each year. But for this time, I think some of the renewals has been postponed for Q2 and this slightly impacted the revenue in the general insurance. And hence you will see that there is an increase in the medical insurance, which increased in absolute number and increase in percentage due to 2 things. So first of all, we have been able to renew some of the contracts during this period. We were able as well to gain a very big contract during this quarter, which was started in Q1 2025. So it's one of the largest, I think, clients that we are having in Qatar. So this has a positive impact on the general insurance. The investment portfolio, I think it has reduced by almost QAR 8 million by 57%. And this is due to 2 things. I think it's mainly to the adjustment that we have seen in the stock market. And this -- you can see that impact in most of the stock exchanges. So -- and this for us, the impact is not huge because these are only accounting, I would say, P&L. So there is no loss that has been made due to the sale of those shares. So it's only balancing numbers. So we actualized towards the end of each quarter. So we value those -- the fair value -- the shares that are fair value through P&L and the impact is negative, but it's not a cash impact that has been affecting our cash position.

There are no further questions at this time. I'll be passing the call back over to our moderator Shahah for final words.

Okay. Great. Thank you. So if there are no more questions, we can wrap up this call. I would like to thank management for giving us an update on the first quarter, and we will pick this up again in the second quarter. Thank you.

Thank you all.

Thank you.

The meeting has now concluded. Thank you all for joining. Have a pleasant day, and you may now disconnect.