Renaissance Services SAOG (RNSS) Earnings Call Transcript & Summary

Good afternoon, and a warm welcome to Renaissance Services investors and analysts conference call. Mr. Stephen Thomas, the group's CEO; and Mr. Vishal Goenka the group's CFO would be directly taking your questions. [Operator Instructions] Over to you, gentlemen. Please go ahead and thank you.

Thank you very much. And welcome to everyone from Stephen and Vishal here. It's a normal format. We are open to your questions. And we'll take the first question as soon as it comes in. Thank you.

[Operator Instructions] And your first question is from the line of Sameer Kattiparambil.

My first -- I have a couple of questions. First, on your occupancy rate in your Duqm in the first quarter, how it fared? And how was it in PDO PAC? That's the first set. And second set is, how you are expecting, in this current situation, how that -- it can impact on your business in general? And yes, if you can start with that, then I can -- I have some other couple of follow-up questions as well.

Okay. Thank you, Sameer. So to answer the first part of your question. In Duqm, and if you look at our capacity during the first quarter, capacity being just north of 17,370. So we were -- we reached up to 92% during that -- as an average, during that period. In our PDO villages, we were at 91% as an average over the first quarter. In terms of impact, the -- in both places, of course, there have been 2 things happening. One is that clients, of course, have taken the precaution that anyone who could work away from being in the field and could work from home safely was removed to do so. Similarly, there has been a general lockdown, as a generalization, there are a couple of exceptions, of new people coming in. In the first month also, there were some people coming back and been going into quarantine and then released into the facility in full. But the overall impact of that is that we see an approximately 5% fall in occupancy in the PDO oil and gas field. We see a larger fall, if we got up to around 16,700 people in Duqm, that's now a little below 14,500, and the -- but it's averaged about 15,400 for the first month. It will be lower than that in the second month. And we are anticipating a little higher in the third month. So we're thinking -- expecting an average of about 15,400 over the 3 months. Now of course, the caveat to that is none of us knows at this precise point when the lockdown will change. But we are in regular video conference with all our customers, clients in Duqm and in PDO to look at the different levers that would happen to change the current status of lockdown. But those are the occupancy figures that you've asked for, Sameer.

Yes. It's clear for that. That's one part on occupancy rate. But how do you see the room -- the rental part. Are your clients are negotiating on that side? Average room rent on both sides?

Okay. So there are 3 things to talk about. One is the -- at Duqm, we have an agreed rack rate for those rooms, and there is no change in that rack rate. We have, of course, our first priority is for the safety of our customers and our own people and keeping them safe from harm. And so we have put in a number of measures, whether it be our thermal temperature detection technology, social distancing, infrastructure, a lot of PPE, packed meals and so on. These things have a cost to them, which the advantage of those staying with us in Duqm is that they see that they get all of that coverage and protection and HSE coverage without us charging them anything different. So we're absorbing some additional costs, but the cost is absolutely worth it because there's nothing more important than keeping our customers and our own people safe. And of course, the corollary to that is it keeps our business going. Because our customers do feel safe and protected inside Renaissance facilities with all the sanitizing and everything else that goes on across the facility, with the medical backup that we have with our clinic and so on, our customers have been voicing to us their satisfaction that this has enabled their project in a vital area of the economy to continue, so there's no change there. In the PDO oil field, there's this -- at the present moment, there is still no change, but there is, obviously, well-publicized letter from the MD of PDO asking more contractors to look at their costs and to look at what is the potential of reducing costs by 30% is what the general letter is asking for. And so of course that -- to look at that, it applies to us as much as to any other contractor. So the -- of course, our contracts with PDO are slightly different to a rolling cyclical contract that has been priced within the last -- anything from within the last year to maximum, the last 7 years. It's a 5 plus 2, and being extended, where there may be elements of a project that can be put on hold, elements of a project that could be downsized in some way. In our case, of course, we have a sunk cost of the facilities. We have a workforce, which, of course, comprises a majority of Omani workforce as well, although we value our entire workforce irrespective of nationality. My point being is that one of the major issues, at the point of mentioning our Omani colleagues, is that it is of national imperative to keep those jobs going. And then it comes to the consumable costs. So we have been in a dialogue with our clients to discuss what may change either permanently or temporarily, in the scope of work that could be a reduction of costs that could be passed on to the client. And those discussions are ongoing. But what I would say is that the clients appreciate that we already contribute just from the fall in occupancy as a savings to them coming from our top line, but also that it is a unique type of contract that does not have the flexibility to have a massive reductions in costs in the manner that one might in a cyclical contract. So I hope that answers that question, Sameer.

Yes. Got you. And is there any kind of costs reduction plan that you're working on?

Yes. But it's one that we have to work on with our clients. I mean it's not only PDO that is asking for this. I think across government contracts, across other oil and gas field contracts. With the double whammy of the collapse in the oil price beyond the shock to the economy of the lockdown for COVID-19, there is an overall desire to find cost savings. And I think the important thing is that when you have long-term stable client relationships as we do, that, that is a collaborative exercise. It is not an exercise in the contractor or the service provider being penalized and having to come up with the entire brunt of the chain. So we are in dialogue with clients across our system to work with them to how can we either temporarily or permanently make some changes that would be a cost saving that we would pass on to them.

[Operator Instructions] And we also have a question from [ Jois Massie of United Goods ].

My question is on your expansion plans in Duqm. How was it progressing? And what are your plans? You've mentioned, the first phase, you are going ahead with the first phase. So the initial plan, if I was to understand, it was in -- sometime in June. So is there any change for that plan? And what's the current occupancy levels in Duqm? And when is the new occupancy levels are expected to be filled up?

Okay. Thank you, [ Jois ]. The -- yes is the short answer. So we are going ahead with our expansion plan, Phase 1. The -- we had indeed already started a lot of the preliminary work, the earthworks, the piling and so on. So that work is continuing. The nature of the construction methodology that we were using includes a rapid build solution with walls actually being constructed off site. So some of that is able to continue. The -- but we're applying the same lockdown rule to our own subcontractors in terms of mobilization of the full workforce to carry on at full steam. And so there's a little delay there, but that delay is in alignment with the delay of mobilization of increased occupancy. The increased occupancy will come. We have been in full discussions with all the clients who have booked beds and rooms with us. And what isn't clear is when that remobilization will start. And so will it be the end of this month, will it be at the end of next month, we don't know at this point in time. The -- as I mentioned earlier, if you like, the skeleton staff, the lockdown level occupancy is about 14,500. That would return to the pre-lockdown level of 16,700 when the lockdown is released. That would probably be -- just as it's been a gradual decline to that, it would be a gradual climb back to that. In terms of the actual requirements, in terms of bookings, we then quickly come up to our current capacity, which is just under 17,500. We will quickly come to 17,500 and stay at those kind of levels and above for over 24 months. Now that includes 17 months above 20,000, and that -- those 17 months include 7 months above 25,000. Those are the bookings that we have. And the histogram for that is not changed. It's the start that when we'd already started in terms of the buildup of 16,700, but it's the refiring of that start gun that will determine how quickly it comes to that. And then we will see that long-term high occupancy after that.

So Steve, are we seeing any further reductions in the level of occupancy there?

No, we're not. I think we are about the -- I mean the reality is if anyone leaves, they're not coming back in. So there might be dribs and drabs. But that's what we're seeing now is the odd couple of people leaving occasionally if they need to leave. But it's very important that whilst we can be -- I mean we've got lots of people giving pressure that they want to mobilize in, but with the authorities, with the refinery, we see that, with the ROP, we're all in alignment that to keep Duqm safe and to keep Renaissance Village Duqm safe, it is better that we go through a reduced period at 14,500 than to import a problem that might mean that there has to be an entire or partial close down because of any serious outbreak. We've prevented that with the measures that we've taken. We've used the time, actually, a program that Vishal, who's on the call, has led to relook at, actually, our expansion costs and see what else. It's not that we went into the expansion with any sort of luxury excess. But given what is happening in the marketplace, what are we able to say, what are we able to find efficiencies on? So there's been some exercise to drive down the costs of expansion while still keeping the expansion program going so that we can meet our customers' needs. And our customers have absolutely confirmed that their demand remains exactly the same as soon as this crisis has passed.

Okay. Steve, a follow-up question on Basel's. So you said right now, everything has stopped right now, the expansion plan. So how many months additional work is required for the total capacity to come up? What I'm saying is, how many months is required for us to reach 23,000 beds?

Yes. So the -- there are 2 elements to this, [ Jois ]. It's not that the work has stopped. All the preliminary work is carrying on, and that will be done and complete. And there's still work happening off site. Phase 1 will take -- from when we restart, will take 2 months. And actually, some rooms will be released earlier than that. So we will be able to meet the capacity demand as per the histograms as soon as the lockdown is released. To get up to the 25,000, we will need to look at our Phase 3. Now for that, we've put back on hold at the moment, because whilst it would always be sequential to Phase 1, and we, at the moment, suspended Phase 2 because it had some specialty buildings in relation to military. That is a separate conversation, but still, the demand is there, but the timing is not now. So that again would follow immediately. And within a couple of months of that, we would have those rooms open. Because we've gone for a rapid build solution with the pre-preparation of Muscat deployment building pre-preparation of walls, et cetera, off site.

Perfect. And another question that I have is on the initiative of COVID service in service to the nation. I appreciate and congratulate you on that effort. Just wanted some more color on that as to how much is the -- how much could be the cost? That if you are -- if you can quantify that, then that would be much appreciated.

Yes, certainly, [ Jois ]. Let me -- well, first of all, thank you for your kind words about it. And really, the absolute credit for this goes to our Board because this all started as a conversation between our Chairman, Samir Fancy, and our Senior Director, His Highness Sayyid Tarik, and saying what can we, as Renaissance, do to help the government in some free-of-cost way with our resources and services? And they went and they spoke to the key people at the Supreme Committee level, and the Ministry of Health and Ministry of Social Development were assigned to this program that started with dealing with the quarantine program, students coming back from abroad, others coming from what were then seen as the affected countries and so on. So we have to set up quarantine centers that will sanitize and prepare them, then provide meals. There was also a need for support centers where some crucial Ministry of Health staff not safe to go back into perhaps infected areas of -- where their homes are, et cetera, who needed to be kept closer to the hospitals, et cetera. And so we've been -- again, continue to look after those support centers. And now, of course, it has moved into the phase of not just dealing with quarantine and support, but dealing with outbreaks as well. And not everyone needs to go to hospital and not everyone needs to be in ICU. And I know that all of us, our hearts go out to all of those people and their families, and everyone hopefully will come through it from here on in. But the outbreak centers are for lesser cases, but nevertheless, they need to be contained. And we've been doing these all over the country. So this is up in Al Khasab, it's down in Salalah, it's in Duqm, it's in Haima, it's in Sohar, Doha. You name it as well as many centers here in the Muscat capital area. Now the issue of a quantum, there are many people who have done all sorts of things. I think private sector and private individuals who stepped up and done some wonderful things in cash and kind. This is what we can do. And we're not so worried about wanting to say, or it's worth this much or worth that much. It is what we can do to help. And hopefully, the value of that is the important thing. And there probably isn't another service provider with the logistic reach and presence in every single governor to be able to have staged this. So it's the appropriate thing to have done. Now -- and rather than quantum anything else, I could tell you that we've served more than 100,000 free meals as an example. We've dealt with infected laundry. We've dealt with sanitizing and preparing places. All of this is within our capability to do, and it's been our privilege to do it. And of course, we work for our shareholders just at the same time as wanting to play our part, along with everyone else, what can we do collaboratively to help our government through this crisis. This is what we can do. At the same time, one of our absolute priorities is to absorb the economic impact of this crisis and protect our shareholders from losses. And I know, sometimes, you do something that is the socially responsible thing to do, which is what we've done within the service of the nation. And at the same time, you realize, although this isn't the first thought when you go down that path, is that what we're doing helps what the government and everyone else is trying to do to make sure that this crisis is as short as possible. We have to have this lockdown with all the damage that it does to GDP and to the economy in order to save lives. And the more efficient we are in that, the sooner we get out of the lockdown and start rebuilding the economy and saving livelihoods. And so I think that is another factor that I know that our stakeholders in this company would not just appreciate that we are being socially responsible, it's also we're being economically responsible because if we help get through this crisis fast, then it will pay us our own dividend in the end of getting the economy going and playing our small part in that. I hope that deals with this sufficiently for you, [ Jois ].

[Operator Instructions] And it appears we have no further questions at this time. Please continue.

Vishal, can I bring you in? If there's -- while we're waiting for a question, is there anything that you felt needs further cover from the questions we've had that I've missed?

Thanks, Steve. We have covered all the questions and we have explained well so far. So I think we covered all the questions, Steve. Yes.

Well, we have some further questions that came through. And we have a question from the line of [ Vishen Balla ].

Once again, I think you guys doing a commendable job. So my congratulations to you and the entire team, and keep up the good work. Question is in regards to a statement I read in your company report, which basically put out a number of sort of the impact from this crisis. You mentioned that the full net financial impact may be in the region of OMR 1 million per month. Now given the fact that April was pretty much under -- you're on the lockdown and May seems to be the same, is this number sort of applicable from April and May? My apologies if this question has been answered because I joined in a couple of minutes late on the call.

Thanks, [ Balla ]. I think the -- and thanks for your kind words. It really is, Vishal and I would both say, and I'm so glad you used the word team because it's the team alongside us and with that, at every level of the organization, who really have done well, whether it's keeping the supply chain going in these very challenging times, to that sort of frontline service where the virus is actually raging, so thank you for that. In terms of this OMR 1 million, essentially, what we've done is we've looked at the impact over these couple of months. Now I think you're right that it is probably less in April, worse in May, we anticipate less in June. But we see that at the moment, that the average impact would be about OMR 1 million per month, and that is at this level of lockdown. And so where is the impact? We have certain areas of our services that are just not functioning at the moment. So schools are closed, so our services are not required there. That's a very obvious one. Everywhere where we have, within our facilities, cafeterias or any social outlets, et cetera, are all closed down, as you would expect, as in line with the instructions of the Supreme Committee. So all of those things -- and so the only things that are going are the -- where it's an essential area of the economy that we keep going, whether it's our work in the oil and gas fields, our work in Duqm, whether it's an essential area, the health service. We take care of every single hospital -- Ministry of Health Hospital in the country, and therefore, keeping them clean and sanitized, dealing with infected laundry, and feeding and taking care of patients is vital. Now even there, of course, there are less patients at the moment in the hospitals because anything other than critical care is not -- is very sensibly not being prioritized. The level of visitors et cetera to the hospitals are lower. So all of these things -- then there's the issue of the costs. We must make sure our people on the front line have the right PPE, where clients want diners closed, but meals to be served as packed meals. There's a cost to these disposables and expendables that are required in producing a packed meal and so on. Quite labor intensive in some respects as well. So we're taking on additional costs. There's the costs of the extra sanitizers, the extra temperature control measures and so on. And the general overview is it will average for us about OMR 1 million per month. Now that we can relook again at the end of this quarter as to whether or not that is going to have an impact in the third quarter. But certainly, that's the impact that we expect in the second quarter. I hope that covers it, [ Balla ].

We also have a question from -- a follow-up question from [ Jois Massie ].

That was the same question that Vishen just asked.

And we have a follow-up question from Sameer Kattiparambil.

Just one question. Your cash position is almost OMR 28 million at end of the quarter. I know earlier, you had some cash covenant -- sort of debt covenant factor with regards to top line that kept your cash position at that much higher level. So is there any specific risk you are holding such a large portion of cash in your book? Because you will have to pay almost 6 -- you're paying almost 6% interest rate, so it means if you can maybe take down your debt, you can at least save OMR 1 million a year. Have you looked at that level?

So I'll turn to Vishal on that.

Yes. Thanks, Sameer. Good point. So basically, first point is that this shows the strength of our balance sheet post the divestment of Topaz. And under the current circumstances, liquidity is very important because -- I must commend our selection team and our operations team, the way they have been collecting money despite the lockdown, despite the challenges, but our collection has been good. So this shows that. Second is we are saving significant interest costs already after paying perpetual and other stuff. Now this cash, we can't use it to pay the long-term loan. These long-term loans are for 10 years, 12 years. So using the short-term liquidity to pay the long-term and savings from finance costs is not the best thing, because we need to remember that we are going ahead with OMR 25 million, OMR 30 million expansion of the Duqm, correct? So banks financing will come in place. But under the current circumstances, everything is going to take longer than expected, yes? So apart from this cash, I just want to give you another picture that we have more than OMR 20 million of various committed lines available as well. So for us, this is a OMR 50 million of a very solid position to handle our expansion, to handle any dip in collection or any working capital challenges. So we just don't want to dry up our cash. We want to keep this cash so that we can handle any dip in collection, we can carry on our expansion program. And as you know, that we are not stopping here. COVID issue or oil prices issue are difficult. But we know that, ultimately, good things will emerge later on. We are talking about PDO Manazil project as well, yes? And we are talking about Duqm Phase 2 expansion, Phase 3 later on. So this cash is the real -- what is helping us in the current system. And we would like to carry on this fashion at this point of time. We don't want to compromise on our short-term and long-term mismatch. Though there is a cost, it's okay. On the other side, the cash we have kept in some of the good deposits. We are making some good treasury investments as well. So we are seeing that what best we can make out of this cash at this point of time, yes? And that, we are maximizing. So we will try to be as liquid as possible in the current time.

And there appears to be no further questions at this time. [Operator Instructions] And no further requests are coming through. Please continue.

Okay. In the absence of any further questions, if someone does put one in while I'm talking, of course, we shall take it. I'll bring this to a close in the absence of that final question coming in. So these are challenging times for everyone. And from all of us here at Renaissance, from Vishal, myself, with everyone who works with us, we really hope that you're all keeping well and staying safe. And between us all, we'll come through this together. I think everyone I speak to believes that our government here is doing a superb job, whether it's the work of the Ministry of Health, the work of ROP and Civil Defense, the decisions of the Supreme Committee, I think we really admire what's happened there. So I think the chances of them keeping our curve as flat as possible and then bending it downwards and bringing us out of the lockdown as quickly as humanly possible is strong. And then we've got to all collaborate together and work hard to rebuild our economy together. And sometimes, even with the oil price, the deeper it goes, the swifter the bounce back, and it may not come to the levels that we expected before or even at the start of the year. But between us all, things will be okay. And thank you to each and every one of you for your continued interest in us and for taking the time to join our call at this difficult time for all of you. It's great having you on the line, and we look forward to talking, hopefully in happier times, next quarter. Thank you very much, everyone. Goodbye.

Thank you and goodbye.

Thank you. That concludes the meeting today. Thank you for participating. You may disconnect.