Renaissance Services SAOG (RNSS) Earnings Call Transcript & Summary

A very good afternoon to you, ladies and gentlemen, or good day, depending which part of the world you are dialing in from. Welcome to our quarterly brokers and analysts and investors meeting call. For those of you who are familiar with the process, this is your meeting, not us. So, I'm here with my colleague, Haitham Al-Taie to take your questions, for those of you who might be here for the first time, you'll soon get the hang of it. So, I will hand over to the floor for the first question. Thank you.

We have a question from Mr. Sameer. Please?

Good afternoon, thank you for the call. I have a question on your -- by the way, congratulations on a good set of results. My question is more on your DUC project with the current demobilization and the delays in the new project and the challenges you are facing from the non cobrand accommodations. So what level of occupancy are you expecting for RS will be next year?

Okay. Thank you, Sameer, for that question. I put my headphones on. I was having trouble with my audio at this end, but I can hear you clearly now. So Renaissance's village Duqm, our occupancy as of today is 9,480. This is obviously below the average we've had so far this year at 12,259. And at the moment, it's not possible to give an accurate prediction for next year because we are waiting on some important information from existing and potential clients. We envisage that it will be around the 10,500 mark, but we cannot confirm that at this point in time, Sameer. There are obviously downward pressures as the OQ8 refinery project, although we will have valued guests from that project staying with us through to the first 6 months of next year. They are of course demobilizing and once the full commissioning is finished, there will be a move from those who have been building the project to the smaller numbers of those operating the project. At the same time, we have other permanent clients who are increasing. We have one major client who has 3,000 people with us at the moment who has a program to increase to 5,000 people. But what we're less clear on are some of the projects that are coming to pass. There are a couple of road projects that have been awarded. There is some debate going on as to one of the contractors wishing to build their own camp. Of course, we have no objection to that as long as that camp is compliant with the full UN international labor organization standards as espoused by the government of Oman, by OPAZ, by CZ by OQ8 and others. The problem, as you rightly referred to some areas, we have had challenges with people either building approved camps that do not meet that standard because if they meet that standard, they can't beat our price because of our economy of scale. Also those staying in much worse substandard accommodation. Well, the authorities have certainly done what they can to significantly reduce the absolutely substandard accommodation. What we can't change is those camps that were approved for the project that don't meet the standard. But what we can do is ensure that, that kind of approval doesn't happen again. So that's what we're working on in relation to the road projects. That's as much as I can say on that at the moment, Sameer, if there's anything further you wish to clarify, please say.

Sure. Thanks, Steve. That helps. But I'm just wondering, so you mentioned about almost 9,500 occupancy currently, which means only 50% occupancy. At what level -- How do you think that's impacting your profitability?

So obviously, we've averaged 12,000 for the year-to-date. We'd have been up above 10,000 in the last quarter. Obviously, there is some impact quarter-on-quarter that you've seen. Although you've also seen the positive impact on performance in the third quarter as well because we've seen corresponding rises in occupancy in the oil and gas fields, for example. We've got the impact of recalibrated rates in renewed contracts and so on. So, there's some downward pressure and some positive pressure coming from other areas as well. So yes, it's bound to have an effect on the actual Duqm performance, but that is mitigated by what's happening elsewhere. Thank you.

Okay. One more question from my side. So when are you expecting the MOH contract to be awarded. If I remember correctly, that's an 18 million contract you are expecting. Right?

So the -- you've got a very good memory, Sameer. It's actually is a 78 million bid dating from May 2021 -- now what we are expecting is, because we've had the current contract extended to December of this year. Therefore, the sort of full beneficial impact of recalibrating rates to account for the increases in cost of doing business over the intervening years, has not been realized, although you may recall the first extent we had -- did have a 10% rise and that rise remains the same through to the end of the year. Now this contract will actually be awarded at a lower overall revenue or RFP price than 78 million. Why? Because we have been working very closely with our clients at the Ministry of Health and the senior officials at the tender board to persuade them that the way to bring down that price is to have an output-driven contract rather than an input-driven contract? What do I mean by that? Where you have staffing levels prescribed and rigid does not necessarily allow for the potential sort of operational optimization that comes with peaks and troughs of service times and so on. So we've negotiated that with them. So, although it's a significant reduction, I'm pleased to say for the government because we all care about that, too. It has a similar impact to us at the lower level of the board than it would have had at the AED 78 million award, because it is based on outputs rather than input. So it's cost that has come out of it, not value to us. To answer the timing, if we are successful and we are cautiously optimistic as the 100% incumbent and as the party that has been negotiated with solidly over the intervening months, -- we are cautiously optimistic that, that will be awarded to us. We do expect that to happen before the end of the year. Thank you.

That's very clear. Thank you so much.

Thanks, Steve. Any other questions. Yes. Joyce, Please go ahead.

Thank you, Haitham. Thank you, Steve, for the call. Steve, the last segment that you've mentioned is you just mentioned that your consciously optimistic got a contract. But during the last 3, 4 quarters calls, we were very much optimistic about more contract. So what changed during this quarter in terms of the likely venerability of this contract?

Joyce, then I've chosen a bad choice of words because nothing has changed. So, excuse me if what I've said is in any way misleading. I'm merely being -- giving due not to the fact that the contract isn't awarded yet. The decision to award that contract lies with the tender board and the Ministry of Health. Whilst we have very, very clear indications that we have every reason to be optimistic or cautiously optimistic on whatever definition one chooses, I was merely saying that until it's actually awarded, I can't be giving a statement that this is 100% sure. But if I had to give percentages always allowed to keep them, it would not be far off that number. Thank you.

Understood. That's very clear. Steve, when you mentioned about the Duqm occupancy forecast, probably the 10,500, if I understood correctly, are we looking at only 10,500 as the average occupancy for Duqm for the next year? Can you please elaborate on that? Because what I got was maybe we are looking at 10,500 as the average occupancy levels.

Yes. We're not actually able to predict it at this point in time, Joyce. We are waiting on details and decisions on actual numbers for key contracts, key existing clients to be confirmed to be able to give a number. We are pressing for that because we need to have it for our plans as well as to be able to tell people like yourselves, what we're expecting. But we're not expecting it to be less than that, and we are waiting for detail to be able to give a more accurate number.

I understood that. See, for 10,500 when we talked about that number, that's a very low number in my view. What exactly is happening in Duqm from a general activity perspective? Can you throw some light on the -- in the Chairman's report, you have mentioned that there's a lot of demobilization happening because the contracts are over, but the new mobilizations are not happening as per the plan. So what exactly is happening there? Are we seeing a slowdown in Duqm of activity? Or are we -- Is it a normal course of part of normal course of business? What is your view on this yes.

Of course, this is our view as a company. We take a great deal of interest in it. There's plenty of information in the public domain as well that -- so please do reference those things. But I'm happy to give what we feel about it. So when we talk about demobilizations, obviously OQ8, which is Duqm Refinery, has been a major project that has been a significant factor in Duqm over the last 3 years and more. That is coming to its conclusion in terms of the construction phase, and although some of that construction phase will carry on through the first 6 months of next year, along with the commissioning phase, which again includes headcount, although not to the degree the highest level is you have -- when you're building the project, the next level is when you're commissioning the project and the next level down is when you're operating the project. So, it's not that there will be no occupancy from that, but the very high level of occupancy available from a project like that is drawing to a close. There were 3 EPC contractors, EPC 3 as the Samsung consortium doing the pipelines and liquid bulk jet, et cetera, have virtually finished. Of course, they still have people there. The other 2 APCI and 2 technical and Petrofac led still have people there. They will have people going through into next year, but some of their construction phases are finishing. So that's the demobilization. What we're seeing happening a little slower is the mobilization of the commissioning phase because we've been pledged occupancy and being told to be ready for occupancy for that. So the demobilization is happening to program the mobilization of those numbers seems to be slower than plan. The overall in Duqm -- if you look at any major industrial city development, and remember, Duqm has -- is multifaceted. It has heavy industrial city. It has light industry. It has the tourist element, and it has the smart city to be built. It happens to have other dimensions because it has become the favored port for friendly forces and friendly Navies collaborating with the Sultanate of Oman's Armed forces. So, it has all these aspects to it. It has major anchor projects like the port and the dry dock already built. It has the other infrastructure around at the airport and so on. Now what normally happens -- the first project in sort of in downstream in the hydrocarbons is the refinery. This refinery has been built to take 230,000 barrels input and output, is multidimensional across 6 products, ranging from diesel to naphtha and other products in between. It has the unique capability of being able to dial up or dial down 100% of 1 of the 6 or equal amounts of all 6 and every other dimension in between. Now to really optimize what happens if you look at [ Yanbu or al Jubail or al Jabali or even Sohar, ] where you see the first project come in, what happens is the second downstream project immediately follows. That was to be the petchem project for Duqm. Now as we know, for whatever reasons, because it's not necessarily asked to know the detail of those reasons, but with all the uncertainty that was going on in the world and oil price crash in early 2020 and COVID and other such things, that project got put on hold. Although an element of the feed project had already been carried out. Now what happens is, unfortunately, Duqm and the country misses out on the saving of the natural flow of one project for getting the next and then following petchem, you get the next downstream and so on as well as the jobs and small industries generated outside defense in the light industry zone. So -- and the reason the projects normally follow each other sequentially is because project owners, the country and other shareholders want to optimize the mobilized EPC contractors and their workforces and you take a couple of billion out of the price of the next project. So you don't want a gap. Now, the gap has been enforced by what's happened, and these have been extraordinary times. So none of us is judging why there's a delay. It's happened and there will be a hiatus between the end of the refinery project and the start of Petchem or any other projects, which we all hear the different things that are being looked at by various players, various countries involved, various shareholdings involved. So it's waiting for that next big project. If it were announced today, you'd likely see some activity -- small activity starting in 2023 and then the bigger ramp-up starting from 2024 and project moving on at that time. So, for someone like ourselves, whilst you don't want all these projects coming at the same time because if they do follow one another, then we get the peaks come one after the other, but we have to live with the way they come. What we will have this time is the trough between refinery and petchem or any successor project. Now the good news to the side of that is Oman is taking a world leadership position on renewables and green hydrogen in particular and other such projects. Duqm is one of the forefront locations for a number of those projects, there are a number of them being looked at specifically for Duqm, 2 of them in an advanced stage. Now again, we don't have numbers. We don't have the specific numbers that would affect the project in next year. I mean, one of them we've been advised will start during next year. For example, the refinery peaked at 20,000, whereas this would peak at about 10,000, but it's still a sizable project that it would be very important to us. So in the meantime, there are a number of smaller projects with 800 people, 700 people, 500 people, for example, that are coming along, and we're calibrating those and masking them together. But our overall belief in Duqm is the same belief shared by the government -- and that wants Duqm be developed into a smart city, there are things that are needed in a sense like our accommodation was needed upfront to enable projects like this to happen like OQ8 because only with that standard can you attract the foreign direct investment, only with that standard can you attract the international financiers' looking as a minimum for United Nations ILO standards. So, it's an enabler. The other enablers need to come as well. We need a major general hospital, for example, that is an enabler for projects and so on. But those smaller projects, whilst it's not a small issue to build a large hospital, they're smaller than building a refinery. It's only in that context. So these are the projects we're also expecting to come along. So we're expecting a hiatus of lower occupancy for a while as we recalibrate and reconfirm actual numbers from the miscellaneous smaller to medium projects that come in. Of course, we await the announcement of the next big project. Sorry to have gone on a little bit long, but it gives you a feel for a how industrial city projects do normally unfold why there's a hiatus at this time and why we remain optimistic about the future. Thank you, Jon.

I fully appreciate that, Steve. Steve, another segment, which we should be talking about is the permanent accommodation facilities and oil fields [ sales ]. Can you throw some light on how the occupancy levels was -- moved during the quarter? And how do you see the occupancy levels moving ahead, especially given that we have continuously growing oil production.

Yes. So obviously, what's happening in the world have meant higher oil prices. It's also meant a higher demand for energy of all sources while people seek to become energy self-reliant and so on and buy from friendly countries and so on. So we are affected by all that. We've seen the government have the benefit of the windfall of the higher oil price this year, that's meant to budget surplus. We're therefore seeing higher expenditure both in government expenditure and project expenditure. So our occupancy is in the 90 percentile now, and remember, we regard that range, 90% to 95% is full because you'll always have a churn of ship changes and everything else that means you're never really at 100%. I mean we've occasionally crossed that and had to manage. So we're reaching that high level. Now again, it's a little premature to announce anything because we need to get a confirmation of the position of our client, but our client is looking to us to expand our facilities. There are some contractors still living outside the park environment in tax temporary accommodation for contractors. The client has taken a clear decision that it does not want that anymore. Even if someone was in a temporary facility, they want them to have access to the full worker welfare and living standards and range medical backup recreation, lifestyle issues, et cetera, associated with staying in the parks. So we are on standby to expand, and that expansion will be required for at least 5 years as then the recalibrated Manazil project would follow in after that time. So, we are expecting additional -- as soon as that any announcement is made around that. This will result instantly in all the delta, although we're already at high 90%, the delta of existing capacity will fill immediately. We will go into rapid project mode to get the additional capacity built within a quarter and start to see the benefit of that straight after. We're expecting a decision on that fairly soon. Thank you.

Thank you Steve, So is this separate from the Manazil project, that [ pirius ] was looking at? Or how do you -- you just mentioned that there might be a transition or Manazil might get delayed over to 5 years?

So I feel a little bit awkward talking about our PDO clients, and I don't want to put words into them now. So I'm giving my interpretation. But yes, it is related, but you need to look at PDO, let me say, in 4 segments for us. Let me break it into that. One is our existing parks, So in the oil fields, there are 30,000 people living and 15,000 of those live in existing either PDO in terms of permanent facilities, either PDO camps or parks operated by ourselves and 2 others. Now of that 15,000, we accommodate just over 8,000. So our high 90 percentile means we're in the sort of high 7,000 level at the moment. What PDO wants to do is of the other 15,000 is to move as many as possible where there are existing parks, which is not every piece of the oil field, -- to move those adjacent and temporary but robust accommodation that will be there for at least 5 years so that they can be part of the parks and use the pack facilities and all the worker welfare and safety issues that, that involves…So, this is the second piece of the equation. Now of that, it will still leave some 7,500 outside the parks because there are locations where there are no parks, where there are no permanent bills, and that will require a permanent bill. But also, let me say, of that 7,500 that would move now, we can expect about 4,500 to come to us. So we would be raising our capacity by some 50-odd percent within a very short space of time. This is good news. You know that our parks whilst they are competitive, they're also a solid profitable income stream of our range of services that we have. So the third piece is in the existing PDO camps, there is an IFM contract that we were not successful in winning some years ago, it went to an international player at the time. We lost by 1.5%. I still haven't been able to get that out of my head. But that project is also coming up for rebid .Why? Because again, with the delay in Manazil and large number of people moving into the parks and the second piece. So the third bit is we are in the RFI stage of the IFM contract. We hope to move and be selected prequalified to go on to the RFP stage of that. So that's the third piece. The fourth piece is the Manazil contract. Now the Manazil contract has gone through various iterations, and the decision is to go ahead. But after an interim period, which would include that moving in of the temporary expansion of the parks as well as some refurbishment and upgrading work done on the PDO camps and so on so that they will be able to wait for a delayed Manazil. So during these 5 years, we'll see the Manazil project come back out. We'll see it rebid. We hope to be a player in serious contender, again, in that opportunity as we were in its first form. And then that would be something that segues in and replaces the temporary expansion. So they are interrelated, but they're sequential. I hope that's clear enough, Joyce.

That's very clear, Steve. I have a few questions if there is -- I'll take my position [indiscernible]. Yes, so you just said this expansion might be around 4,500 people, additional people. So what the kind of cost structure are we looking at in terms of the CapEx requirements and everything? In case we have to go ahead with this project.

So, I need to be careful. It's a live -- not big but live commercial situation where we've been very transparent and open with our clients with what is involved. So the CapEx would be just under 20 million, but it would be written off over the period of the contract and would have some residual use and value, by the way, in terms of shutdown camps and so on later, but I put that to one side at the moment. Essentially, this project would yield us the same kind of returns, the same kind of EBITDA, the same kind of contribution to profit as the existing pack. I think that's really as much as I could say, Joyce, to be fair to our clients.

I understand. I perfectly appreciate that. Also on the future growth aspects, which we might consider, PPP is something which we have been very seriously considered. So any developments on the PPP projects, which the government has announced a couple of months ago?

So PPP has moved slower in terms of opportunities coming to the market than originally that the [ fanfare ] may have intimated. And that's fine because there have been lots of changes and restructuring of government since then, stemming down and then recalibrating the projects. But what is clear is that the government is committed certainly to the privatization piece of PPP. But where it's actually projects, our position is very straightforward, is we will look at every PPP project, I come back to this point that we are in the services industry. Our services solutions, that's the maximum of what we do. Now we do lots of different services in that range from the soft FM to the hard FM to IFM waste management utilities, a whole range of things as we've diversified, but it's still the services. So, we are not into PPP as say, a real estate developer in terms of the government is looking for someone to build something and then gradually pass it over to their ownership over time. That's not for us. The real estate operators who would be the ideal players for that. Where we are willing to build is where we can see a long-term operational facilities management role for us. So, if someone wants a hospital to be built and passed over in time, that's not for us. If someone wants a hospital to be built so that they can provide all the medical care, but the entire spectrum of IFM from soft services to hard services to biomedical facilities management, critical equipment care and so on. If they want that, that's a project we're interested in. Read the same for a school, read the same for a university or whatever comes out as a PPP. So that's the other piece that we're interested in. Now the third piece is, again, unrelated to projects, and I do appreciate your question was project related. So, forgive me for babbling on a little bit longer on this. Is that -- remember we respect the fact that a lot of government contracts as well as institutional contracts and other clients in Oman today tend to come out as the single subject short-term cyclical contracts. So, one for catering over here, one for maintenance over there, one for landscaping over there, one for waste management and so on. Whereas we almost uniquely because we cover the span of IFM, soft FM hard FM and many other services, where you're not having margins on margins, if you're an IFM player because we self-perform most of the services. We are very interested in seeing this country, gradually migrate as many others have done around the world into longer-term IFM contracts, 7 years, 9 years, 10 years or 7 years renewable, et cetera, where you can drive in KPIs for innovation and automation. You can drive in KPIs on ICV, on organization, local goods and services, developing local SMEs, et cetera, et cetera, a whole range of things that you can do that are not necessarily going to be competitively possible to do over short-term cyclical single subject contracts. That is a direction of travel in terms of the privatization part. You also see that the government is and has for many years, self-performed a lot of things, and frankly, done it very well. I mean it's an accepted fact that private sector ought to do services better than government, just the same as government ought to do government better than private sector. So it's not about criticism, it's a recognized fact around the world. So, we're also -- we see as part of the PPP agenda, this increase in outsourcing pure services, not just projects, not just privatization, which will involve IPOs and listings and which we're all looking forward to. I think that's all great. But why have I done into a longer answer for you, Joyce, because I keep trying to make this point, Renaissance is playing where the ball is going to be sorry to use the World Cup example, but it's just around the corner. We're playing where the ball is going to be. We already provide a lot of those things, and that is the direction of travel. Thank you.

Any further question?

Yes, Steve just mentioned about the World Cup. So that was my next question, which I wanted to ask about. Is there any further update that is worth sharing, Steve, on your contract in Doha and your expansion plans on the international front, especially in [ Ubhai ] and Qatar, you have now present. So any further developments that were sharing or anything that we should be anticipating in the near future?

Sure. Well, the first thing I'll say to looking on my screen, I can see it hasn't quite worked. I'm sitting in Qatar and behind me is sort of part of that sort of panorama of high skyrise buildings I thought that'd be an interesting background, but it doesn't seem to work with the sun shining it. I happen to be in Qatar the moment. Now the reality is that there are some projects that we -- that bear no name because we're not allowed to announce the direct nature of a project. But we have been successful in winning some short-term projects around event catering and to 3 different venues. So, we have colleagues here on the ground who are working on that at the moment. As I've mentioned before, we're not expecting it to be a massive money spinner. It will have a positive impact, but it will have a great reputational impact. So that is carrying on like all mobilizations has its challenges, so that's been lots of fun, but it's good and coming into play very shortly. Our team have done a great job to be ready for that. Now at the same time, I'm in Qatar for another reason, which is we are doing a major presentation to a client who's a potential client who we've submitted a major bid for. We are on the short list. Now being on the short list is like the World Cup again, you don't get any prices to coming second. So you've got to come first. But we are knocking on the door, and this would be a project that in its own right, would really establish us in Qatar for the long term. It's a 5-year with options project. It's sizable. It's got a decent contribution that would be enabled the sort of overhead to build up around it and so on. So now we're not successful until we get it. But what is great is that our business development team, our commercial team are driving opportunity all the time, and we're starting to see more of that. In UAE, this is something that I'll comment on Haitham can add, he's actually been driving some of the transformation project there. We've got a new general manager on the ground. Our ambition, and I know it's taken us time, and those of you who are regulars at this quarterly session know we've struggled to make money in the UAE. It's a difficult market to break into. Even though we've grown an extra 1 million on the top line this year, we haven't inched over that bottom line yet. But we now have clear sight to do so with the program that's being implemented. One thing is absolutely sure for our growth ambitions under what we've announced as Renaissance 2.0 cannot be done by all the great stuff that's happening for us in Oman alone. It has to have success geographically and therefore, when we look at when we do our strategy sessions with our Board, we just had one recently, we're constantly looking at the gap. We're looking at the gap in knowledge, skill experience, boots on the ground that will help drive this agenda forward. That includes lessons from things we've not done so well to have got it to that stage already. So we are -- again, I'm going to use the term cautiously optimistic in Qatar as we pursue some major bid opportunities. We have a positive outlook that good things are happening on the ground in the UAE. Thank you, Joyce.

That's very nice to hear, and I wish you all the best for this specific project. Mr. Haitham, the next question that I have is for you, and that's on the investment side. We already have --we have around SAR 9 million to SAR 10 million in -- as the investment book, which is sitting on our balance sheet. And as I understand it correctly, it's primarily the fixed income. So, do you see any potential for any impairments for this fixed income instruments that is in your investment book?

No, there is no any impairments.

Yes, that's as of now. But future do you see any movements that [indiscernible].

I mean we are very cautious. We are taking enough what to call -- we've done our proper due diligence. We have invested in the proper portfolio, so there is no any worry on any impairments.

Perfect. That's it from my side, gentlemen. Thank you very much, and wish you all the best.

Thank you, Joyce, and we had a follow-up question, I guess.

Actually, the question is already questioned by Joyce.

Excellent. Any further questions -- so just to touch up of -- first of all, to thank Steve, I think you have covered a lot of things. If we just make take a brief to say what you have said. We have elaborated very well in a very detailed manner about Duqm and not only the occupancy, but also the drive for Duqm as a cluster and how that will impact directly to our own occupancy. And especially, we are very excited about the Duqm being greenfield for all this sustainability and green projects, which we are looking on. Hopefully, that all we start coming next year Inshallah and as well, the oil fields and the drive our clients to uplift all the welfares of the workers over there. And this is just to keep Oman in the leading countries that take care of the welfare of the workers. This is a very important aspect. Again, what's happening in Qatar and UAE and again, the 2.0. And I think a lot of interesting things are happening in the ground, which means that we are in the right path. Steve, the mic is to you again?

Thanks very much, Haitham. Yes, I feel that summed it up very nicely because -- and also, if you look at our Chairman statement, I think he just got the balance right talking about we've got this downward pressure on occupancy here. There are some other good things happening. So things like what I've described is happening with the MOH contract is, yes, it's good, it's extended to the end of December, but we actually wanted to see it recalibrated and on the new footing before that. We fully understand why it isn't. So some good things that could have impacted us nicely. We have to be a little more patient and wait for them to happen. The Duqm occupancy does put a downward pressure on Q4. There's a few things that can sort of keep it balanced up. So that's -- I think the tone of that is set very nicely by the Chairman statement. The tone of optimism of what's coming down the track to 2023, I think, was summarized very nicely by Haitham there. So, we'll give it one more chance if anyone else does want to ask anything else. If not, we are always conscious and respectful of your time. Okay. We're not seeing any hands raising. So I think Sameer and Joyce, you've covered everything for everyone, well done for that. Thank you all, as always, for your interest in our company. It's always a great pleasure spending this time. In this particular instance, about 45 minutes with you and 48 minutes instead of the 60. But maybe that's why we're getting a little more efficient. So thank you very much indeed, and we look forward to seeing you on the next call, which we'll be covering our year-end results. So thank you very much, indeed.

Bye for now.