Renaissance Services SAOG ($RNSS)

Good afternoon, everybody. Welcome to the Renaissance SAOG Investor Briefing for the Q1 results for fiscal 2026. Thank you for your time. It's great to have you here. As a way of introduction, my name is Andrew Dawson, I'm the CEO of Renaissance Services. And with me is Juma Al-Khamisi, our CFO, who many of you heard from previous calls. So welcome to you all. I'll just make a short introduction since you've all seen the company results and our Chairman, Samir Fancy, he has provided a very detailed Chairman's statement that well summarizes what was, as you read, a challenging first quarter for us. And I'll just have a few remarks before we throw it open for questions. I think just to reinforce a few things. Firstly, the fundamentals of the Renaissance business remain very strong and unchanged. Q1, as you're reading that statement, reflects the continued themes that we were really talking about in each quarter across 2025 and the mix of business between the accommodation services and the contract services business. A few of the points. In Q1, we saw quite stable occupancy at Renaissance Services Village in Duqm, and then we faced a challenge in March where we had some business disruption linked to the regional crisis. And that's taken us the rest of the quarter and indeed early in Q2, early in April for us to recover to return to the full occupancy. But numbers are back to where they were there now. And as you can see, I think there's been many announcements recently through the government in terms of the potential. And I think for the mid- to long term, we're very confident on the potential of RSVD and the upcoming projects and development there. PDO, the other side, our permanent accommodation villages with PDO. Again, as we were talking about in the last couple of quarters of last year, we're seeing kind of a 2-speed economy in the oil fields at the moment with different demand between the southern and the northern fields and a much kind of higher activity in the northern fields. But given the current circumstances, I think what's highlighted there, there continues to be a mismatch between some of the contractors' choice of accommodation outside of the PACs compared to the PDO Worker Welfare Standards, which is why the villages were commissioned and built on behalf of PDO. So we're continuing to work very closely with PDO on specific areas where there are opportunities to increase the occupancy of PAC through improved compliance to PDO's Worker Welfare Standards. And we're hopeful to see results flowing through to the business in the second half of the year. And we're working very closely with all levels of PDO leadership, including at the highest level. I think the Chairman statement also highlighted we faced some specific one-off challenges in Q1. We had some challenges at the Port of Salalah there with the fire. We had a very fast significant mobilization contract for a very large new contract. We mobilized that in about 24 days. That's had an impact on Q1 in terms of the size of that mobilization. However, that contract, it's a long-term 5-year contract is now operating in line with our projections and will provide solid underlying sustainable long-term profit for the business moving forward. I think that Chairman's statement also highlighted the impact in our utilities division. We have some direct disruption there with the meter supply through Nama as they change meter suppliers from what was imported meters into locally produced meters. We do have contractually committed volumes there with them. And so while we're working on actions to try and match our workforce with the current availability of meters, we do expect those full volumes to flow through again in the second half of the year. I think we also highlighted a strong pipeline and some good new business wins, and we're continuing -- particularly we're happy with continuing to sign some new hard services, so maintenance and engineering contracts, which is a key part of our strategy in growing the capability of Renaissance in the hard services area. And at the same time, as we spoke last year, we've launched a new target operating model in January to be much closer to our clients focused and client-specific. And through that, we are working on optimizing our overhead costs, we've made some good progress in Q1. We're continuing across Q2, and we're going to have some good benefits to the bottom line of the business across this year and indeed into 2027. I think we continue with strong cash conversion. And although we faced some supply chain headwinds with the regional crisis, really very little impact in Q1, I've got to say. We are seeing obviously ongoing impact in Q2. But again, our teams are working with our clients, reengineering our menus and various discussions with clients. And our supply chain has really got ahead of the curve in building our stock holdings, and we've got good resilience in that supply chain. So disappointing results for us in Q1, which really reflects this convergence of a number of short-term challenges. But I just reiterate, it does not reflect any change to the strong, resilient underlying fundamentals of the business model of Renaissance. So I think hopefully, that gives a little bit of summary, and there's much more detail on the Chairman statement, as I said, and we'll utilize the time for you to take your questions and do our best to answer them in as much detail as we can. So again, welcome, and we'll throw it open for the first question, please.

Thank you, guys. We will start taking the question and answer. And just to remind ourselves and remind the audience on this, the reason for this seminar is to highlight the quarter 1 results without forecasting the numbers. So we request you to avoid going other than the meant for seminar. But however, we will try to address whatever we can address. And just to tell that we are -- both we can take the question in Arabic and English. So don't hesitate to ask us also in Arab required, we will be addressing them in Arabic as well. So please, we will start from the first question. So I could see in the list [indiscernible]. Please, go ahead.

First question is on whether you will be able to quantify the amount of lost business on the PDO PACs as a result of the private accommodation facilities being set up in different fields.

Yes. So [ Matthew ] again, we are treating this business as one segment. So we have accommodation solutions, which is, as you said, in the oil field and in Duqm as well. And we have the contracting businesses. Yes, disturbances have been happening during -- in the accommodation in both the oil field and in the Duqm as well. So we, unfortunately, we will not be able to, yes, I mean, quantify the numbers of -- between the 2 solutions because all of them are integrated. So we do also contracting businesses in our own facilities and similarly to the PDO and other oilfield clients. So we prefer to stay with this as -- for the competitive advantage.

Okay. And you mentioned about a very large new contract that is being mobilized in the first quarter of the year. Could you please throw some color on the nature of this contract and what is it relating to? And also on what are the additional impact that we have seen during the first quarter of the year for the -- especially for the mobilization?

Sure. So that contract we have already announced it last year. We have win a contract of SQU catering services. And that contract require us to do mobilization of a large number of people. And also there's a disturbance in the business compared to the number of days [indiscernible] of catering the students. So that's the contract we are talking to. But however, that has been sorted out. And going forward, that will be yielding very good business for us. Do you want to elaborate on this?

No, I think, I mean I think that [indiscernible] starting a large contract like that. I think there's 17 operational locations on the campus taking over a large and mobilizing a large workforce. And obviously in January with having to mobilize and then in very short time holidays and other complexities. So yes, that was the impact in bringing that to life. But we were, I guess, aware of that as we signed the contract, a long-term contract that's now settling into it with operational pace. So it's just on the PACs because I think we've shared -- I can just share a little bit more color for you in the PDO PACs. In terms of the occupancy, I think in Q1, our occupancy was around the 66%, 67% mark. Actually -- and I think we shared this before, really since Q4 of 2024, there's been a slow decline in the occupancy in the PACs when you look across the holistically. I think the first half of 2024 was very high because there was a change over contractors. And there's been a lot of change within PDO as well and within contractors. And look, this has been worked very closely with PDO, consider at all levels of management. And I think we're positive about the outcomes which are going to be achieved in addressing some of these challenges and yes, I see some improvements in the utilization of the occupancy of the PACs flowing through later in the year.

Just to remind us of the fundamentals, all our accommodation solution has been built on certain standards, whether it is in the oil field service or in SEZAD standard to enable those businesses. And those standards are being set once we build this building. Of course, due to the market conditions, everyone is trying to have some savings here and there. And our role is to bring the fundamentals back to the standard which should be actually adopted and the reason where we have invested in our accommodation solution. And we are engaged very closely with either with PDO in the oilfield or in SEDAZ and to enforce the standards, and we can see our clients' engagement on supporting the direction and bringing things to the fundamental of these accommodations that we are seeing. We are seeing progress, and we keep continue enforcing both standards for everyone who is actually around that area.

And I think as we've spoken about in previous quarters, this comes in to add up for Renaissance, this comes to the mix of the revenue and the percentage of our revenue flowing from the accommodation solutions. We've spoken about before, high CapEx, high return kind of business model, and we've made those investments over a long period of time versus the contract services business, where we're seeing continued good growth, which is much more low CapEx, lower margin business. So we -- it needs a lot of growth in the contract services business to offset any kind of declines in the accommodation solutions business. But the fundamentals are strong in both. We are working as we say, closely with SEZAD and PDO on these underlying -- their Worker Welfare Standards and the compliance with various contractors and we're confident on similar outcomes there to help with that occupancy on the accommodation solution side of our venture.

Okay. All right. And when you're saying your PAC occupancy is 66% for the first quarter, and you're expecting it to improve in the second half of the year, where do you see that -- the average PAC occupancy levels for the full year 2026?

I think -- actually, I was looking back, [ Joyce, ] I think that would be long-term average of the PAC occupancy, I think we look back over the last 11 years is something like 83%. So this is -- since 2024, this is quite a decline. I don't have the numbers in front of you actually to give you -- in front of me to give you the definitive forecast for this year, but we definitely see some strong potential, so significant numbers improving, as I said, in the second half across Q3 and into Q4. And I think we should expect over the medium term at least to be back at those numbers. I think if you remember being shared on previous calls in 2023, there was an expansion of the PACs for -- in collaboration with the support of PDO to prepare for some increases in activity in the oil fields. And working with them and all the discussions with them, we should still anticipate that to eventuate. So...

All right. Yes. So if you're unable to give me any proper guidance on that, what are the drivers that you are seeing that will drive the occupancy level higher?

I think the driver is the whole reason -- and it's -- if you look at the underlying business case and the rationale for both Renaissance Services Village in Duqm and the PACs, the permanent accommodation for contractors with PDO, both of them are built on the Worker Welfare Standards. So PDO has specific welfare standards to ensure the safety of the contractor workforce that they well rest the welfare that have access to clinics and specific facilities to ensure their safety, their productivity and their well-being. It's very, very similar, slightly different standards, we'll say, but very, very similar reason for RSVD with -- in line with the SEZAD standards, which are linked to the International Labor Organization standards. So those fundamentals have not changed and the commitment of those organizations to those standards have not changed. It's somewhat down to the enforcement of those standards and some of the maybe the changes in management, some of the short-term economic drivers, which maybe have caused some of this leakage, I'll call it. But I think we're confident with all the discussions we're having. There's no change to those commitments, those underlying fundamentals and hence, our confidence in the occupancy improving as we move forward.

But is there any concrete steps that you're taking with the PDO for moving these contractor employees from the village accommodations to PACs? And how soon do you see that this is getting fructified?

Indeed. So there's many concrete steps that are being taken in partnership with PDO and indeed with various contractors. So in certain areas, we're already seeing improvements and the inflow of new contractors. In other areas, then we're anticipating that coming -- across the coming months. So look, it's not one. I mean, it's multiple locations, it's multiple contractors. So there's many discussions, many initiatives. Some are happening, some are coming sooner, some are a little bit later. We're in a lot of -- there's a lot of work being done in collaboration.

Yes. So I link this to the questions asked by [indiscernible]. So his first question around occupancy. So occupancy go low in quarter 1 to 22% level, and that's also affected by the disturbances which happened in the region. And the numbers are coming back to the earlier level, which is also not that big. We are talking about 27%, 28% levels, and it is growing since the activities in [indiscernible] are coming back. So it's coming back to the earlier level. However, the outlook of Duqm is very positive. We saw a lot of move on new contracts coming out and signature. And this is a matter of timing is because our asset is ready, already invested. [indiscernible] very actually ingredients are there is yet to the timing when this project is coming out. And the second question is lead times of -- between the project agreements and milestone of work on site, what does the time typically look like and when we start seeing the revenue from it? It's a tough question. It's -- I can say it depends. Some projects can be mobilized easily and you can see people actually, especially the management, the people who arrange the logistics, the people who are actually trying to do the mobilization is starting and the time between the agreement signed to the physical work start can vary between 3 months to 2 years. So it depends on whether there's any obstacles between the organizations there. So we -- I don't have the exact timing on that. The third question, I'll ask Andrew to address it regarding the utility disruptions, smart meter reading and what we are doing about it to mitigate the down some of that business. So that's basically the question, what's the reading declining. So talking about the same utility disruption.

Yes. I can see the question there about the manual reading and physical bill becoming redundant. Absolutely. So with the -- in our utilities division, since we've been operating that with Nama, absolutely, we've been installing the smart meters. That's been a big part of the scope of the work. And subsequently, we've been retraining or redeploying the previous meter reading staff into various activities both in the utilities and across the rest of our business. That was part of the proposition. However, there's ongoing work in the smart meter installation. And as part of that, there's still teams for fixes and disruptions and various things. So across the rest of this year, we're not just on the single phase smart meter installations. We also have 3-phase meters there's larger, more complex meters around the distribution networks, the transformer meters. And with the -- we actually signed new scope just in 2025, which we are expecting this year with the distribution transformer meters. There's actually 12,000 additional of those meters. And we are just working through because it's a brand-new activity, brand new scope. We've been working through with Nama to certify and have signed off the safe work methods and actually methodology to install and bring online those meters. That's going through the regulatory process with Nama. We're working with them. And once that's been signed off, then that activity will be starting. So we do have substantial activity contracted in scope through the rest of the year. So I think it's a short-term delay in the meter supply and then in standing up this new certification for these distribution meters. And then there's been a substantial number of new tenders, which have been released around the utilities business over the last few months, which we have been responding to with significant volumes of potential new work. So hopefully, that gives some color there. And yes, as part of that on the trying to match our workforce with short-term disruption, then we've been working on further fast tracking some of the reskilling and into those workforce where we can into other parts of the business.

I hope we have addressed the question to, [indiscernible]. I am sorry we disturbed you earlier just to [indiscernible]. Go ahead, please.

Sure. Could you please tell me what was the additional cost impact due to the SQU contract mobilization during this quarter?

In terms of the one-off mobilization cost impact was, I think, in the region of about OMR 150,000 in terms of our mobilization costs, which will be recovered over the -- obviously over the term of the contract to stand up the labor, the equipment invested in various marketing initiatives and new areas to drive additional revenue over the contract term.

Yes. So also just to add to what Andrew mentioned, the kind of contracts, we need to mobilize with number of people. That's number of people in a certain time line. And if the revenue due to the low business at that time, that will impact us and will appear our cost is higher than the revenue. And there was a disruption due to Ramadan times and also due to the number of students on the campus. That's affecting it's onetime, I can say it one-off. Once the mobilization happen, then all the contracts will perform as usual. We are monitoring with -- through efficiencies and through operational excellence, we are trying to optimize. We see the contract is very good and profitable, but mobilization of a big contract always come with actually a planned cost. So this kind of course is not new to us. It's not when you mobilize such a large contract, not something we don't know about it. It's expected in many kind of large-scale contracts.

And we already see the good operational performance flowing through that contract now.

Yes. My next one is on your Sodexo acquisition. So you have mentioned that you'll be able to provide more color on operational performance as well as the financial performance of the company once the acquisition is over. So I would appreciate if you can give us some color on the financial aspects as well as the operational aspects of your acquisition and how -- what are the synergy benefits that you are expecting from this during 2026 and probably for medium-term outlook?

So we will share whatever we can share as this deal follow. Socat deal has been completed in March and it will be integrated in our books starting from 1st April. So the business is similar what we are doing in terms of the facility management and specifically with catering. The company has different set of customers, different set of platform. So we believe like as we are growing in a very good platform to expand. Regarding the numbers, actually, that business can contribute to us around 10% of our revenue. And also in terms of earnings per share, it can increase our earnings per share from 4% to 5% and this is the initial number. We are working on optimizing the cost and integrate that business and removing some of the cost layers which now be handled as the company run as standalone. So we are going to integrate it slowly without affecting the performance of the company. And we look at it as a very positive move to the right direction. We need such kind of inorganic growth in our business either in the local market or outside Oman. So we have also been looking to different kind of opportunity. And we will announce once it is materialized, but we have a very strong pipeline. And we -- as you know, it was -- M&A normally take longer time than expected. And sometimes we feel it will be happening tomorrow, then it gets extended for another 3 or 6 months. So this is always the case, but we have built a strong pipeline. We have invested in bringing in investment teams under my umbrella, which specifically look to the growth area in the inorganic space.

Just to add, just back on Socat synergies. So we're already seeing -- we've been together now at 6 weeks. We're already seeing some good synergies in the supply chain. So it's a quick win there in terms of combining some of our purchasing power and leveraging the volumes that we have. So we're actually already delivering some of those, which is great to see come through quickly. And there's numerous synergies the teams are working on, particularly in the back office. I think for [ Sergio ] on the market, we really want to preserve Socat's very unique position and different market positioning and offering to what Renaissance has. That was a strong rationale for why we've acquired. But in the back office around our IT systems and the HR and finance and as I said already in supply chain and some other areas, we're seeing some -- we've identified good opportunities for synergies and I think we're already seeing some of those benefits into the business.

And just to add to this, we are looking to this integration as a positive point of view because we are looking 2 sides of integrations. We are acquiring this business, a very good platform to be owned by Sodexo which is a global player where there is good set of platform and practices and SOP might be fit in our area to enhance our operation and operational excellency. So it's 2 ways of integration, and we see it's very good and working fine as we go. We don't see any obstacles, and we are dealing with very professional setup where the support is extended and where the relation is being fantastic as we go. And that's basically what we are seeing. So thanks to God, we have started cracking that in organic growth, and we have more to do in all the businesses which we are looking at from waste management to [indiscernible] where we need more strength. And also we are looking to different geography in our [indiscernible].

All right. My final question is on your Ministry of Health contract renewal process. Are there any updates that is worth sharing? Also, could you please remind me when is the current contract ending?

So there's no real update from last quarter. I think we shared that late in 2025 or maybe the end of Q3 in 2025, an extension to 2026, so 1-year contract extension. So the current contract runs till the end of 2026. And yes, that's where we're at present further updates.

To invest in the discussion and to share this questions and I hope we have addressed all. Any other questions. I couldn't see any raised hands.

So we are wrapping the questions, we will... yes, so there is quite few minutes. See if anyone else -- we don't want to miss for us. So we wait one more minute. Let's just be sure. We don't want to miss anyone or any opportunities. I think we've not seen any other questions. So I think we'll bring it to an end. Again, we'll just like to thank each of you for joining the call today. Thank you very much for your ongoing interest in Renaissance. We really appreciate the questions and the opportunity. And hopefully, we've been able to explain where we're at with the company. And we said we have really strong fundamentals underlying the business, some short-term challenges, and we're seeing the light for those as we continue to progress now halfway through Q2 and into the second half of the year. So thank you very much, and we'll leave you with strong confidence for the future and wish you well for the rest of the day.

Thank you. Thank you, everyone. Thank you.