Renaissance Services SAOG (RNSS) Earnings Call Transcript & Summary

Good afternoon, good morning, evening to wherever you are, and welcome to the Renaissance SAOG Investor Briefing for the Full Year Results for Fiscal 2025. Thank you for taking the time to join us. By way of introduction, my name is Andrew Dawson. I'm the CEO for Renaissance. And with me is our CFO, Juma Al-Khamisi. So welcome to you all. As you know, from previous calls, I won't make any major introduction today as you have the company results for fiscal '25 posted and a very detailed Chairman's statement from Mr. Samir Fancy, our Chairman. So I think that very well summarizes the year. And I think it continues the themes that we have been discussing certainly throughout each of the quarterly calls in 2025. And I guess that's highlighting the mix of our business between Accommodation Solutions and our Contract Services business. and the relatively low but stable occupancy at Duqm. And then with the PDO, Permanent Accommodation villages for contractors, where we're seeing kind of a 2-speed economy in the oilfields at the moment with probably more depressed demand currently in the southern oil fields and a lot more activity and opportunity in the northern fields. We can continue to emphasize the strong and growing pipeline for new business opportunities. We saw some good wins, particularly in the second half of last year, and we're continuing a strong pipeline as we move into 2026. And I think overall, as we said, the results demonstrate the resilience of the operating model with this mix of Accommodation and Contract Services business, very strong underlying fundamentals, and very strong cash conversion, you'll see in the results. And I'm sure Juma is going to touch on some of that with your questions. So without further ado, to maximize the opportunity for the questions, we're going to do our best to answer them all in as much detail as possible. So please, we'll open up the floor, and we look forward to engaging with you. Thank you. Is there a first question, please?

So if you can please raise your hand if you have question and we will address it accordingly. Joyce, you can go ahead?

Andrew, you just mentioned in your introduction qualitatively about the Duqm accommodation, low but stable occupancy levels and lower occupancy levels in the PDO packs. So could you please give us some quantitative aspects into it? What's the kind of number that we are looking at for the year 2026? And what was the numbers in 2025?

Absolutely. Thank you, Joyce, and welcome again, and thanks for that question. So on Renaissance Village Duqm, what we saw in 2025 was we achieved an occupancy year-end of 29%. And if you think back to 2024, that was in comparison to 27% in 2024. So quite stable. What we did see was a little bit of a change in the mix of the accommodation down in Duqm, remembering we have everything from single person rooms up to 8 and in some cases, 10 people in rooms. So we saw a bit of a change through the year. Actually, the highest level of single-person accommodation, the executive rooms, we actually saw an increase. But across the total of single rooms, double, triple and 4 people in a room, we saw a decline, and we saw an uplift in the larger people per room. So that pushed the occupancy up but the average rate because of that down a little bit. So that's where you see a slight change there. What we are forecasting for 2026 is at a very similar level. We're forecasting from what we see at the moment an occupancy of 31%. What we've seen in Duqm recently, and you all see the announcements, we have seen some start of some new activity with the -- on the Jindal project and the [indiscernible] wind project is just in its very early phases of ramping up, and we anticipate some ramp-up there into -- starting in Q2 and then across the rest of the year. But with -- it's very -- fairly much from what we see in Duqm for 2026, a continued environment of what we've experienced in 2025. We -- you will have seen the announcements then for -- in the last few months for finally the long-awaited petchem plant and the associated activity around that. We're in discussions on those and what we anticipate at the moment is that which is really going to, I guess, take us back into a phase of much stronger occupancy is more in the second half of 2027 when that kind of activity is starting. So this year, we're forecasting a slight improvement on 2025.

Yes. So I mean, Joyce, just to elaborate a little bit on Duqm. So we see a very good outlook the moment is that actually those new equipment will come. There will be 0 investment required. So it will be straight away to our bottom line. So the outlook is good. A lot of announcements happen during this year. We are not sure when it's real physical movement to the accommodation will happen but we see very nice and good outlook for '26 and onwards.

Absolutely. We really -- I guess, our sense is just to add, look, this is -- we can clearly see the light at the end of the tunnel now. We had a lot of discussions last year about the delay in gas allocations and the -- as the government moved through some of those issues, we see resolution to those. We see these firm announcements. we really see that into 2027 and then very strong.

And this forum is not to discuss the forecast. It's more of like highlighting the result of 2025. However, we see also -- we are looking positively to the activities in the oil field. So progress will be happening in the Accommodation Solution, which give us a better outlook comparing to the 2025 results. So I hope I have answered your question but just, I mean, not to divert our discussion of to highlight the forecasted numbers.

I got it. That was on Duqm. So how is the PAC facilities performing?

In terms of the PDO, Permanent Accommodation for Contractors villages, I think what we saw across 2025 was really like what I would say is a reversion to the historic occupancy because remembering in 2024, there was about a 6-month period of increased occupancy because there was a change out of quite a few contractors with PDO. So there was new incoming contractors while there was outgoing contractors. So that elevated the first 6 months of 2024. So 2025 is actually very much in line with 2023 and historically. We see a lot of stability in those. And as I said, we actually see different levels of demand between the North and the South but there is anticipated ramp-up in demand, and we can see that in new contracts and activity with PDO and discussions, particularly in the northern fields. So we see positive environment there on what we did on 2025 and moving into this fiscal year.

Okay. So what was the occupancy levels on the enhanced capacity levels during 2025? When you say the absolute numbers, the number of occupants in the PAC facilities were stable. What's the kind of occupancy levels that we are talking about?

So actually, the occupancy in the PDO camps is always to the high level of north of 70%, 80% and 90% but it depends on the activity and which is fluctuating. So yes, it depends on what is happening in the PDO activity and the new labor projects are coming. So it's always a positive thing is but anything is always above 70% occupancy, which is normally the historical performance but it fluctuates from year-to-year depending on the activity in that areas.

And I think, Joyce, just to add, if you -- for those who are around then, if you think back to 2023, Renaissance committed with PDO to an expansion on the packs. We used to run at about 8,800 beds. We expanded to just north of 10,000, 10,123 beds as an expansion, preparing for increased activity in the oil fields. And that's the timing, I guess, gaps that we're referring to where those beds were opened in late '23. There was a spike in '24 but it's gone back to the 2023 levels, and we're anticipating there's opportunity there for that business, which is performing strongly to further improve with that investment that's already been made on that expansion.

So there's no further investment will be required to just -- to get these people in and that will be impacting the bottom line directly.

Yes. Yes. Got it. So what's the kind of average occupancy level for -- what was the kind of average occupancy level in 2025? Juma, I understand that it's very cyclical during the year. But if we look at the full year, what was the occupancy level in that PDO pack?

It's always above 70%. So it's a similar historical information. So the same level it never goes below 70%.

Okay. So are we looking at stable levels in 2026 as well?

Well, this is Joe actually predicting the number is not the aim of this forum. But however, we are seeing a very positive outlook from the activities in the oil field. Okay. Got it. Next question is...

I was just going to add, I think just to elaborate from Juma has said, what he's saying is we see a very stable base of where we are. And there is upside opportunity in terms of the investments being made. So we have additional capacity where we can absorb activity. And there is, as I said, particularly in the North, indications of that when that comes, what we said what we're forecasting for this year or not but there is opportunity -- upside opportunity there in the oilfields as activity emerges with sitting on a very strong base.

Yes, I understand we expanded activity expecting that there will be additional requirement but we don't see that requirement. So I was just trying to understand when is this new demand might come in and when are we going to get a benefit out of that? I perfectly respect your decision that you don't want to discuss that in the call. The next one is on the Sodexo acquisition. Could you please tell some more color on what's the size of the company and what's the kind of revenue EBITDA the company is already generating? And what's the kind of synergies that we are seeing in terms of operations and synergy opportunities?

The size of the company is actually is -- we can say a midsize of a company, which can contribute 10% of our top line. In terms of EBITDA and PAT, this is -- we will -- after the full transfer of the shares, we'll be able to capture the information and to understand the businesses. And there's a lot of synergies which can improve the EBITDA and the bottom line. So the business very good business for us, very good platform to focus more into the private sector and for a smaller size of businesses where we are actually now as Renaissance through our subsidiaries. We are very strong in the government tenders. And this actually will enhance our capability in focusing in more small fragmented businesses, which will increase to the sustainability and diversification of the company. The company used to be operated through -- Sodexo own the majority of it. And Sodexo is one of the major player worldwide. So you can expect a lot of synergies and you can expect a lot of good platform to start. And we are very optimistic on this opportunity. And soon, we will be having a transfer of the shares and then will be consolidated to our financial statements. So whenever there is a material information, we will disclose it to the market as we have disclosed the initial signing of the SPA. So it is a promising businesses. And actually, it's actually it's widened our network in Oman. And also it will enhance our practices by seeing a well-operated platform, which might -- we have synergies, both sides, us adding to Socat and also from Socat good experience might be adopted in where we are doing businesses. So that's a summarize of this acquisition. And this is actually a consistence of what we've been saying as a strategy of the company of the growth. This is the first opportunity we have materialized, and we are looking to many of opportunities in the market, whether it is in local or DCC. And also we can go beyond DCC wherever there is a good opportunistic businesses in line with what we do in the service sector.

Okay. So which are the segments -- now you said you are strong in the government side. Sodexo, which are the segments that they are operating, which we are not there and where there is significant scalable opportunity.

Socat basically work in similar businesses. Honestly speaking, there was also one of the good player and competitor to the tenders. But their main focus is in the private sector. And also, they have very good contracts in the government sector as well but it's not at our size. So basically, they do similar to what we do but to the smaller size. So for example, they are serving smaller labor camps of the contractors in oil field and other fields. So they do the catering services. Also, they do hard FM as well. Maybe, Andrew, if you want to elaborate on this?

Sure. Thank you. Yes. I think, look, we've got a very clear strategic priority prerogative with Socat. Obviously, it's a very strong brand on the market but we see it playing quite differently to where Renaissance traditionally plays. So with what we've done and we announced kind of a reorganization of the business into some very clear business units to really focus on key market sectors and to strengthen our client centricity and our sector expertise. So we have a business unit on energy and resources, which is all oil and gas and mining. We have a business unit focused on health and defense. You know we're very strong with the Ministry of Health. We re-signed a number of defense hospitals in 2025, and we have a lot of opportunity in that area. We have a business unit on what we call property and infrastructure. We have contracts like Al Mouj and numerous other contracts. These are all large utilities. So where we see Socat playing is perhaps on some of those sectors but in a different level of the market in terms of the size of market and the tier of contracting competitive where not necessarily as we play at, I guess, a different level of client expectations, size. So we see where they are on the market now, they've carved out a successful niche for themselves and operating as a another business unit for us, preserving their strong brand and their competitiveness. We really see we can expand on parts of the market where Renaissance has not traditionally played, and that's what drove us to this acquisition. So hopefully, that explains a little bit.

Yes. Yes. And I understand that Sodexo has a strategy to exit the region. And now they have exited Oman. So they have another operations in UAE as well. So I just wanted to check if you would be -- are you in conversation with them for a potential acquisition of that business as well?

[Foreign Language] Joyce, we are open to that discussion, especially as we are -- also we have operation in Abu Dhabi and Dubai. So we have our own central kitchen in Abu Dhabi and as well in Dubai. So we will be very much, I mean, optimistic to look to similar business setup in UAE if they want to exit. So -- and this will -- I mean, this is always the discussion has been happening. So we'll see once we close the Socat deal successfully, we will be looking to another and another deal. So this is one opportunity, which we are looking also as a turn.

Okay. So when are you planning to close this transaction?

It's actually -- it's as per the terms. There is one preceding conditions, which should be satisfied. And -- but we are hoping to close it very soon. So it will be in a few days' time. Other question in the line? Next question?

It's a very interactive session. I appreciate the management. My question is, as you have mentioned that the accommodation business has not been doing exceptionally well, and you obviously expect improvements in 2026 and 2027. My apologies for missing out a part. But if you don't mind, could you please explain once again how and from where exactly do you expect this improvement to come?

Thank you. Thanks for that question. So I guess we'll go back to the beginning because maybe that's where you missed a little, just talking about Duqm, so Renaissance village in Duqm. And obviously, what we've experienced in 2025 is a continuation of 2024. And I guess, I think post the COVID era when the last major projects. So we see a continued -- we saw a continued stable kind of base but a low base in 2025. As I said, we operated at about 29% occupancy. That was slightly up on 2024 where we operated a bit lower around 27%. And I was explaining we saw a slight change in the average rates because we just saw a change in the mix of rooms from the one PR and the lower density rooms, which attract a higher average rate versus the 6 and 8 PR rooms. We see 2026 this year as a continuation of 2025. We have a stable base. We do see some smaller uptakes in activity. We spoke about Jindal Steel project for a long time. That's now actually moving in the ground. We have some of those contractors starting to stay with us, and we expect Jindal to continue to be letting some new works packages and contracts through the year. And we do see some activity starting on the wind project, and where we see some uptake around those and some other small projects across 2026. On -- we have all seen the announcements and particularly the recent announcement on the petchem, the long-awaited petchem in Duqm. And from the early discussions we're having on that now in terms of boots coming on the ground and activity starting, we're anticipating the real ramp-up in that to be in the second half of 2027. So I think that's where we really see a strong uptick in the occupancy while we continue and we have a strong base, and we see a slow uptake across the year and then really a strong future into 2027 and '28 and beyond is the what we'll call the second phase of projects in Duqm. We are aware there's another very large steel project. I think everyone is aware, and we're anticipating that that's going to be announced in the coming month. But again, given the lead time and the size of these projects, we probably anticipate a real ramp-up in activity around that, again, back end of 2027. So continued activity at the moment but definitely, the lights at the end of the tunnel and a very strong future in Duqm.

Perfect. It makes perfect sense that these 2 projects should contribute to higher occupancies and therefore, as you guys have.

Actually this Accommodation solution always comes with the market risk. So we have taken the decisions to invest in the PDO concession, which goes very well. And Duqm also, we have invested in Duqm with the outlook actually -- it's actually the timing, it didn't help on materializing that investment but we can see this is a timing matter and a lot of projects will be coming in. So yes, the fluctuation on the timing that if you see 1 year results will be actually not the full picture but we need to see the entire duration of such projects. But yes, we can see the outlook is very good. And actually, what you are seeing also in the market, if you see the announcements of the project is coming up. So the timing is the critical issue for us, which nobody can time the market, as you know. Other than that, it's very positive to our side, we can see.

Hopefully, hopefully, we should very soon see positive numbers. We expect that. My next question is regarding this year's gross margin. So as you mentioned that the occupancy was a tad bit higher this year in 2025. And we have seen this in your top line. The top line was slightly higher year-over-year, but your profitability on gross level was declined by close to OMR 5 million or something. So if what -- if you could explain the reason behind this, similar top line, but a decline in gross profitability, please?

I think I will link this question to the also Q&A from Deepak, it's a similar question. So the reason behind this is because of the revenue mix. So the higher the revenue mix, which come from the accommodation solutions with a high margin, it's always give us a highest margin to the bottom line. So because of the decline in the activities in the Accommodation Solutions and there is a growth in the hard FM and soft FM contracts, which contributed to higher revenue and also come up with an operating cost. So that's the clear justification for that. So basically, the answer is that the revenue mix drive the operation -- operating cost and drive the margin and the bottom line. So that's the only reason in the operating of 2025.

I think just to add to like a little bit of flavor to that, what you see with the revenues is the growth in the Contract Services revenues, offsetting some of the softness in the Accommodation Solutions. But as Juma has said, there's -- the Accommodation Solutions is a higher-margin business. The Contract Services is a lower-margin business but a profitable -- still a very profitable business. So when you just mix those together, that's what you see quite a stable top line, you could look at it macro and just with that change in mix, then a softer bottom line.

So whereas the accommodation activity is reduced in 2025, the other services are increased with a good shape of increase actually to compensate the top line, which has been lost in the accommodation activities. This actually shows this diversification on our portfolio is very helpful and sustainable results for future.

And that is the confidence in the future with one that we've got that diversification. But then as we see what we're starting to see in the market in terms of the future uptick in the Accommodation Solutions, particularly at Duqm, okay, albeit maybe more 2027 than 2026 there, that is very strongly just flow through to the bottom line given the business model we have and the mix. So that puts us in a really strong position for the future in terms of earnings growth.

And the major 2 contracts, which we have announced actually during 2025 was the PDO hard FM, which has actually contributed to our top line. Similarly, we just also announced the SKU catering services for students, which has just started. So that will contribute in our 2026 onward also to our top line and bottom line.

Right. Perfect. It really helps. My last question is regarding your payout policy. So this year, you guys have maintained the payout, which is a very healthy sign for the company and the investors. But the company has a significant debt. And with the expansion plans that you guys have, acquisitions, do you plan on raising any additional funding through debt or equity? Or do you plan in the next couple of years to maybe curb the dividend payouts a little bit to these growth plans?

Actually, our debt structure is in declining mode. So the major debt, which we have is in Duqm. The other -- I mean, loans is declining and will be over by this year. So we don't have much debt. And if you see our gearing is barely below 0.5x of our equity. So the liquidity level of the company is very good. And also the cash conversion is actually very, very healthy in the company. So -- and that's the most important thing. And while we are actually also in the expansion mode, we are not seeing that, I mean, a ready platform to inject this investment. So our dividend strategy remains the same. And the final decision, of course, will be taken by AGM. So our Board sees that actually, we should continue to actually distribute the dividend similar to the last 3 years, which is at a OMR 0.030 level. And given that one thing is also that some of this money will come back since we are owning also treasury shares through our subsidiary. So our liquidity is healthy and actually supporting the business. In fact, also, we do have some money invested in treasury investment instruments, which actually always ready to inject. We have very strong firepower to grow our businesses. So in terms of the liquidity, we are in a very good position. And distribution of these dividends, which we have already announced and we will be discussed in the AGM will not affect our businesses, and we will not need further borrowings to compensate the business and run the business. I hope I have answered you clearly?

It's perfectly clear. And as I was saying, it's a great show of confidence. It really helps the confidence of the investors as well that the payout policy will be consistent.

I think one question was in Q&A, and we have addressed it while we are talking about why the results. So I think that has been addressed. So anything in the Q&A? Any other questions?

Let's just wait 1 minute in case there's any other questions. I certainly want to make the most of the opportunity. Okay. We don't think there's any other questions. So again, thank you very much for taking your time and your interest in -- we do have a question. My apologies. Thank you.

Do you see improvement in the margin going forward?

I think -- thank you for that question. Look, as we've explained with where we are in terms of the mix of our business between the Accommodation Solutions and the Contract Services, we see a healthy pipeline in the -- and a growing pipeline in the Contract Services business as Juma explained, some of the recent wins, which we've just mobilized in January, which will contribute for this year. And we have, in the first 6 weeks of the year, signed a number of other smaller new contracts. So we're going to see some good in-year impact from those. So with the opportunities we have there with the addition of the Socat, our acquisition that we've recently announced, which we are expecting to close imminently and with the base that we're sitting on the Accommodation Solutions, really, as the occupancy firms in that business, and the projects come to life, then that is going to really give a very strong earnings boost to the company. I think we're sitting on a very strong base now. And there is a lot of upside opportunity in both of those. And what will happen the accommodation firms into the future, particularly what we can see in Duqm in the coming years, then that's certainly going to be -- provide very strong earnings growth opportunity.

One more thing I want just to add to Andrew's answers. Also, we have been actually looking the last 2 years in optimizing our cost structure in terms of the new operating model, which Andrew have introduced it since he joined and where he's just briefed in the beginning. So that will enhance our cost structure and digitalization of the processes. And also, we put a focus on to controlling the overheads with smart spending and with controlling the cost. So yes, one thing will help us in increasing the margin is by tapping in accommodation activities and the other things by controlling the cost and in terms of operational excellency and controlling the overhead cost.

Yes. And I can add, what we saw in 2025 was inflation. If we just take our raw materials and obviously, a lot of that is food. We saw a net inflation of 2.3%. Obviously, we have some items which are increasing. We offset those. But we also saw an offset of that through our operational excellence program. But to Juma's point, we're really doubling down on with efficiencies with technology and very much focused on our overhead costs where we've -- there's opportunities, and we've been optimizing those as we move into this new model. So that will contribute to this very strong stable base. And then we're confident in the upside flowing through the growth.

There's other questions from Varun is what is the revenue down to PDO soft and soft FM contract? So actually -- Varun, actually, we prefer to show our company as revenue and top line as one segment for competitive advantages. So you can see the growth in the revenue as in one line in the income statement. So we are actually showing a growth even though the accommodation solution was going down. So I prefer not to break the businesses into contract or into segments in terms of this discussion. But if you have off the line discussion, we can come and discuss more detail. The other question about SKU contract, is it new or renewal? This is a new contract. It's a pretty new contract. We have been operating in SKU earlier a long time back. And now we win the contract back. It's in December 2025, and it will be a 5 years contract. So it is a new contract to answer your question precisely.

New contract just went live 1st of January 2026. And Varun, just to add also, we remember while we were disappointed that we were not successful in retaining the PDO soft services contract, we were successful in winning 2 new hard services, hard FM contracts with PDO. So while we demobilized the soft, we actually mobilized the hard services across all 11 PDO locations. And we were disappointed to lose, but we will continue to demonstrate very strong pricing discipline because we're not at all interested in gaining top line revenue, which is not going to have a positive contribution to our bottom line. We were -- we put in a very competitive bid on that soft services contract. And obviously, we weren't successful but we are confident in our pricing, and we're pleased with the new business that we're winning and the positive contribution it's getting to the earnings.

Thank you, Deepak. Thank you, Varun, for enriching this discussion with these questions, which actually give us a chance for information. So we will open the window a little bit for a few minutes if further question in Q&A or in someone who would raise his hand for discussion questions. So we will wait for a few minutes.

So I think I don't want to jump again in MD too early, and we really do very much appreciate the questions and give the opportunity for us to explain some more of the details of the business and where we -- what generated the results for 2025 and where we see and our confidence in the future. So again, thank you very much for taking the time and the interest in Renaissance and for the engaging questions. We hope we've helped to shed some light and continue to share where we see the company going. This will leave you that we have strong confidence in the future. And hopefully, from what we've explained to you, you share that with us. So thank you for your interest, and thank you for your support of Renaissance, and we look forward to engaging further.

Thank you very much. And Ramadan Kareem to all, InshaAllah we will meet in the quarter 1 session. And we can say from advances, happy Eid to everyone because we will not be having a chance to say the same. So goodbye. Thank you very much.