Renaissance Services SAOG (RNSS) Earnings Call Transcript & Summary

Very good afternoon, everyone, and welcome to our quarterly analyst and investors meeting call, this being for the third quarter. For those of you who are regular attendees of this, you will realize you have with you, myself Stephen Thomas, the CEO; and my colleague, Raashid Ali, the CFO.

Good afternoon.

You've seen from our quarterly results and our Chairman's statement that has been issued along with it, that we continue to give you a consistent story this year. This is a year where our actual results are sort of in transition and therefore, similar to the prior year, principally because of the high ages of projects in Duqm, where last year, we had significantly higher occupancy. And this year, as we've been reporting along the lines between projects, we're at a lower level of occupancy, but of course, still remaining a bit positive from that project. The good thing is how we're keeping a similar pace with prior year is because of performance elsewhere in the business. We told you about recalibrating our rates in some of our key contracts last year and the work that was done last year. And that has brought savings and efficiencies to our clients and ourselves, and we're seeing it in performance numbers as well. One issue that's been a little delayed, we were telling you that we have been expanding our permanent accommodation for contractors at the Renaissance Villages in the PDO Oil and Gas fields. That project has come little later, but we have increased by 1,800 beds, and we'll start seeing that occupancy coming into those expansion areas starting from this month whereas we had expected that sales a little earlier, but at least that bodes well for next year going forward. The other very good thing for us is that we have -- we really got some good visibility on the future of Duqm and the new projects coming in and the alliances we're making with the people who are bringing those projects in 3 phases. There's the 3 green steel projects to break ground next year, one early the following year. There's what's happening in terms of downstream industry from the refinery itself looking at [indiscernible] and then there's the green projects and others that are coming to Duqm. So those are things that are giving us optimism that this transition period of Duqm will move into next year, but will then start to uptick later in the year. And in the meantime, we continue with our Renaissance 2.0 strategy, and we're starting to see the benefits of that as we go forward. With that sort of brief overview of where we are, the main purpose of this is you. And therefore, we hand over to you all. Thank you for attending to your questions. Thank you.

[Amit] you have a question?

So just wanted to understand what is the current occupancy level in both RSVD and PAC?

Yes. So the current occupancy level in RSVD is around 5,000. And the current occupancy level in the Renaissance Villages is around 7,000 across the system, and that will now start up rising as people come into the expanded facility.

And [Amit], just to -- I know I keep saying this and just to give you that comfort on all the work that has been done at the Duqm facility in terms of our Texas program, coupled with our cost rationalization. Today, as we stand, we are EBITDA positive even at a 3,800 level and are back to neutral at 5,000. I know Steve said the occupancy is 5,000. He's talking about as of today. But as of -- for Q3, occupancy is just south of 5,300.

Sure. Just one more question. So can you tell me what would be like the rough value of the contracts that you have now on your catering and others as a segment? I also remember, I think the last call, you had mentioned that you were in the last round for contact with Nama for smart metering rollout. So just wanted to know what is the status on that?

Yes. So we have got actually 3 very exciting projects that we have competed for. Of course, we have to wait for the results of that competition. We never so arrogant resume that we will win, but our understanding in all 3 is that we are still very much in the picture and the [indiscernible] in each of the opportunities. So the status as -- and clients quite rightly go into silence once you've got the bid in there. So we have had a 3-day session with Nama with our entire team having to present and discuss our solution. And -- so that has been very, very useful 3 days and that has included us bringing in our technical partners like Tata Power and Fluentgrid with us talking through the solutions. Those 3 days went very well. So I think we're through the technical evaluation, and we must now be patient while the client looks at the commercial evaluation.

And to answer your first question, [Amit], the order book is just south of OMR 100 million. I think Steve, while people are thinking about their questions, you may want to give them a brief of your attendance at the Duqm Economic Forum and the way forward how they look, what the key stakeholders are?

Yes, I'm happy to do that. The -- I don't know how many of you may have either read about or attended the Duqm Economic Forum. From the businesses point of view, it was exceptionally well attended by the -- at leadership levels, of course, government, but also the leaders of current businesses in Duqm, the refinery, the drydock, the port and all others as well as all the leadership teams are the new projects that are coming in. So you had Mitsui in from Japan, you had Jindal Steel or Vulcan Green Steel as it will be known in Duqm, [indiscernible], you had all the green hydrogen players there and you had petchem players down the line. Lot of people interested in renewables and the real message that came out of it was very interesting that -- and this is great for all of us, for Oman as well as for Duqm is that Duqm is proving to have a unique blend of qualities for expanding industry that wishes to improve on their green credentials because the first thing that you need to have in place, let's take the green steel. Why are they lining up 3 projects to come into Duqm is your need to have the gas allocation as an attractive price to make sure that you can start your industry and go through the transition as more and more renewable energy becomes available. But then you have companies like BP who are testing the potential of wind power around the world coming to the forum saying, and guess what, Duqm is coming out absolutely top of that list in terms of potential for capturing wind power. Of course, we are blessed with some time as well [indiscernible] total time it is there and SEZAD and OPAZ allocated huge stacks of land for renewables and solar, as well as for green hydrogen some 200 square kilometers. So for that reason -- the other thing that makes steel, which is one that huge contributor that we [indiscernible] nearly 10% of [indiscernible] steel production around the world and green steel can only be green. It has a really attractive volume source of renewables. And so that's why they're coming as they see Duqm as well placed to give them [indiscernible] for the transition as well as a number of renewable projects coming, for current technologies and future technologies as the green hydrogen develops and Duqm is seen as a unique place to really attract the green industry projects of the future. So I think what came out of this forum is we can expect much more than just green steel projects coming down the line. And I think the whole thing is very good news for Duqm and for Oman and of course, for our project going forward. I mean, we can see by 2024 us filling up and we can see by 2025, the demand of being significantly higher than our capacity.

Ali, you have a question?

I had a question. In the beginning, you mentioned in terms of the occupancy. I don't know if I missed it. Was it in terms of percentages also shared or just numbers? Maybe I missed the percentage.

So I'll share the percentage as well. Steve did share the numbers. So for Q3, our occupancy was just south of 5,300, which equates to just about 30% in terms of occupancy.

And for the [indiscernible] high getting into 90 percentile and it's going to come up in the high 90 percentile of a larger capacity in these last couple of months.

Great. So the 90% capacity is because the video support that you are having, I think the same support in Duqm is not available. Would you kind of try to maybe give us an idea if that similar support kind of comes in from Duqm because that is something -- for me, obviously, this is one of the major things that might -- that will definitely help increase the occupancy. Just wanted to see if any [indiscernible].

Absolutely. And we have had, and we've told you about some problems we had during some of the early projects in Duqm where some employers were breaking SEZAD's rules by putting people out in occupancy conditions that do not meet the International Labor Organization standard, which is the minimum standard required for Duqm in order to make sure that we're compliant or the projects are compliant with international financing requirements, a foreign direct investment attraction and so on. And that's why strategically for the government and for OPAZ and SEZAD, they are absolutely determined that people should comply with that minimum standard, which is good for their business as well. And this is unfortunately the point that some employers, some contractors don't appreciate. So what has happened is where we've seen there was some leakage out in the earlier projects. The authorities are 100% behind us. They are physically removing camps that had been set up. You can see the bare land where camps stood before, where they have had some approvals for camps. As those approvals expire, those camps are leaving as well. And they're working with the other local authorities to make sure while of course, anyone can rent a biller or an apartment in town, et cetera, it won't be rented as it is against the regulations for large numbers of blue-collar workers being [trammed] into residential homes. So the authorities are very much in support for us and we actually really want to thank them for how they've got behind this and it's -- even this is something that has been discussed in cabinets in terms of the importance of maintaining this standard. Oman deserves to have very high reputational credit of what we have put into. I know it does [indiscernible] actually been the enablers of doing the project, but this is to meet their standards and make sure that Duqm becomes a flagship of the right way to treat workers to deliver optimum worker welfare to those minimum United Nations standards. So the government very much behind us. Looking forward to introducing us, of course, making sure that all the people and the companies described attending the conference, all came around our facilities with us, with representatives from the authorities as well. So a lot of support coming. I think what went wrong before won't be allowed it to happen again.

Waiting for the next question, I'll just add one point to that, Ali, as well, which is that we have a 10-year exclusivity because as return on the risk, obviously, that's been taken to build an enabler before the projects actually come. And because of this hiatus, why is there a hiatus between the projects is the 2 things, the double whammy that happened in 2020 of COVID and the [Ven] oil price crash. Now the oil price crash has reversed itself, and we don't have to COVID anymore, but it didn't put projects getting postponed and [indiscernible]. So given that situation, it is our intention to talk to the authorities about extending that exclusivity period.

I think Bishen has a question.

Just one question for now. During the last con call, we had discussed some more details on the revenue split in such a way that it doesn't sort of cause any trouble for you with regards to your clients and gives us some more clarity because that's one thing we found a bit missing in the previous financial reports, the segment data. So can we expect to see that in the year-end numbers?

See, I'm not going to promise anything. I think we gave you several indicators to figure out our segmental information. It needs more to do with client confidentiality than to do with us because we are working with the governments and PDO, et cetera. So that is one reason why a smart analysts like you will always end up figuring it out. So that is the reason we don't -- it's not that we don't want to share it. I think it's more to do with client confidentiality. I think we gave you a good sense over the H1 results when we were [indiscernible] upon how our segmental information actually looks. If there's any specific question, I'm happy to take it.

Sure. Nothing for now, but probably a year-end once the numbers come out, maybe we can have that discussion. That's fine. Steve, the second question would be, you've given us clarity on sort of where we stand with regards to mobilization of projects and the big 3 players that are expected to come to Duqm. Now you've spoken about green steel. When it comes to green hydrogen, you mentioned during the economic forum in Duqm, people are excited about it, Oman was to be one of the -- at the forefront, probably of green hydrogen. Now we do understand this would take some time. But let's say, 2 to 3 years down the line, '25, '26, what sort of traction do you see from green hydrogen because of what we understand, at least from an infrastructure perspective, it requires entire re-laying or sort of fresh laying of pipelines because the existing pipelines aren't for green hydrogen to be transported. So in terms of the infrastructure that you see in Duqm, what are your thoughts on that?

So I'm not sure I've got the full question, Bishen. You're asking about the infrastructure around the green hydrogen projects when they're coming in. The -- you're right, there's still some development to be done on the concept of the projects, et cetera. Again, it's turning out that Duqm has beyond the space for these projects, it's got all the elements that they're looking for to be able to have successful green hydrogen projects. And the government wants Oman to lead in this space as well. So they've allocated a huge amount of land 200 square kilometers. The roads, of course, you have seen, it's great to have so many of you with us in Duqm last time, you can see the infrastructure that's there. Now some of these projects will be some distance away because of the size and scale and if you look at what we've done traditionally with the projects because the space allocated for blue-collar worker accommodation is where we're located, that entire area is called -- is named for that. It requires good transport connections, good duling of the road there. And it requires from us as we did the refinery and others that we actually provide services inside the fence of the projects as well. So we have a lot of diners out in -- even on the drydock, we've got some diners that we serve there and so on. So that would be the way the accommodation solution happens for them.

Thanks Steve, you have given such a good opening statement that no one has any further questions.

I sometimes think they know the business better than we do, but don't say that. We are still on mind. Any further questions. Just to give people a couple of minutes in case somebody wants to come back with a question. And if not, it's pointless us holding you back. But on the softer issues, I'd like to sort of reassure you that what we've told you, our Board is passionate about us implementing Renaissance 2.0, which is about future proofing the business and creating those platforms and opportunities for exponential growth. And so a lot of work continues to be done in terms of innovation, digitalization, automation, looking at what is new best practices, new ways of providing the services. Of course, it requires a good look at operational excellence as well, making us more efficient in what we do in even the manual and basic services that we provide. And so all of those things are going well. And of course, we're very much a people business. We employ nearly 10,000 people. And so it's very much about how we're looking at that news element, making sure we've got young imagination. So you've seen that the Youth Shadow Advisory Board has been formed so that where we're making sure that we're getting that 20-something mindset and imagination coming into the ideas that we generate for future potentials and so on. Looking very much at without having quotas, getting more and more female colleagues in at every level and making sure that we're a very safe and happy place for our female colleagues to work. And all those softer issues, a lot of work is being done. And you'll see some of it in some of the communications that we've put out, but I think it's worth mentioning that these things are a journey, and they're not an event, but that journey is really picking up pace. So I'll now after that little interlude just check if there are any more questions. Ali?

Just a question on this 2.0 journey. About the cloud kitchen concept, how many restaurants have you on-boarded to your platform until now?

So far, we are still in the discovery phase, and we continue to make sure that we first upscale ourselves should we embark on this journey to move into the B2C space. So it's still in the discovery phase. And once we are ready, we will let you know in advance that we are good to go. Yes. I mean, in the meantime, though, the actual brands that we have inside the company that we've developed on site in places like Duqm, we have our snack track, which is the sort of international food brand. We've got chai ho, which is our sort of Indian street food brand, proving very popular on the sites and those would be -- when we do make -- when we make that move, these would be some of the brands that we bring with that as well.

And Ali, we just want to make sure we get it right. We don't want to go just for the purpose of being there in that space. We want to make an impact. We want to be purposeful when we go to market with that.

I know we're only halfway through our allotted time, but we'll maybe wait until half past and see if there are any further questions coming. If not, that would be a logical time to cut there. And one thing that in terms of new things that we're looking at is that we are finding some very interesting opportunities in PPP. PPP around the world has had great success stories and some issues. So it's great to be able to approach it with all those lessons known and learnt by others. And we've found that we're looking at opportunities here and in Kingdom of Saudi Arabia with good partners to be looking at the investment, and we'd be looking at the long-term facilities management piece of that in partnership with them. So that could -- if successful in the game, we're competing for opportunities, there may be some interesting announcements to make on that in due course. Well, it does seem that that's for the questions today. We're just having one last scan up and down. But we'd like to thank everyone, as always, for your attendance and your interest in us. And we hope even if there are short sessions like this one that they are informative and helpful for you. It's certainly very nice for us to have you on board for these sessions. Thank you very much indeed, and have a great remainder of the day.

Thank you very much.