Renaissance Services SAOG (RNSS) Earnings Call Transcript

We can start now, Steve, with the opening speech.

Okay. Good afternoon, everyone. Thank you for joining the Renaissance Investors and Analyst Meeting for Q3 2020. For all of you who are familiar with our format, I'm here with my colleague, the CFO, Vishal Goenka; myself, Stephen Thomas, the CEO, and we are here to answer any questions that you may have now that we have published our Q3 results, along with the Chairman's statement that accompanies that. So we're open for any questions. Thank you.

Thanks, Steve. [Operator Instructions] So first question comes from [ Sundar ]. [ Sundar ], please speak. You can unmute, [ Sundar ], and can speak -- ask the question.

I will start off with a couple of questions, and then I will come back to have more questions. First is on the Duqm operations. We just want to understand, because the Chairman's statement say that there is an improvement in the Duqm operations. So we just want to understand how the current occupancy levels of Duqm and what is your outlook for the coming quarters? This is regarding to the question on the existing operation. But in terms of the expansion, how is the progress now? And I believe the second phase, which is coming up for expansion is kind of delayed. We need to understand on your phases of expansion in terms of the Duqm project. This is related to Duqm. And my second question is on the overall, I would say, the cost factor. Because last time when we said the cost factor has been -- you're talking about OMR 1 million every month impact due to this COVID. With the things getting more opening up, do you see that impact of this cost to be lower? We just want to understand from your perspective on how this cost factor has reduced during these last 2 months and also going forward.

Okay. Well, thank you very much, [ Sundar ]. First of all, to talk about Duqm occupancy. I think as explained in the Chairman's statement, at the start of this, we were on a steady climb and at around 16,000 occupancy. During COVID, that fell to the sort of the low point of lockdown when we weren't taking anybody else in, in the interest of keeping everybody safe. And of course, people have thinned out in Duqm at the time. We went down to 10,500. And that has come back slowly to around 12,000. So we fluctuate between 11,500, 12,500 at the moment. Now the situation for the final quarter is fluid because there are 2 things. One of the issues that is preventing a more rapid buildup is part of the regulations, of course, in the interest of keeping us all safe. There are no labor clearances and visas being issued at the moment. There are some rare occasions of exemptions. But for the kind of numbers that the EPC contractors and their subcontractors need to bring in, there is no movement at the moment. So if we see a relaxation, and there's talk that it's being reviewed, in the labor clearances and visa situation for the project, and there's also discussions around exemption for the project, that is not a matter for us, that's a matter for the refinery and their contractors, then we would see a steady climb. But we're assuming for the moment that there won't be movement immediately. But that could change within 24 hours. Now of course, after that, they have to go through the process of getting the visas and labor clearances, et cetera. So there's a process to follow. But we are expecting -- so in the meantime, the refinery has announced that there is a delay. And so they're accepting the fact that there's a delay. And this starts me on the answer on expansion. Our expansion program is very much on time and in cost, most importantly. But we have been staggering it along with the -- what's happening in terms of the projects and the occupancy. So we -- this is our Phase 1 expansion, an element of Phase 2 with the additional senior executive accommodation we're putting in. We're not going to move on to Phase 3 unless and until there's visibility on the spike. So all of that is very much in hand, and we're going to take possession of the first rooms on expansion during this month, in the next month and then stagger 2 buildings at a time very quickly will follow through December and January. So we're very much on track with that. We were meeting yesterday with some of the EPC contractors who want to be sure that as soon as they get triggered that they can start bringing in their additional people to speed up the refinery, then that we will have the space for them. So everyone is very comfortable with that. So both on the need for them to bring in more people and that we will have the space for them. The issue, of course, with the delay in refinery, there's progress even with lower occupancy. And so whilst they're now talking about 6 to 9 months possible delay and it's all COVID permitting as well as to whether that goes longer, we have the prospect of having fewer people for longer rather than more people for shorter. And so that's what we're discussing and monitoring with the -- with our customers. But the prognosis on occupancy is very positive as soon as these restrictions are lifted. And in the meantime, we're continuing to perform well at around this 12,000 occupancy. So Vishal, is there anything else you wanted to add to that? Oh, sorry, the COVID impact. And you can see that -- but actually, Vishal, you can say that, but you can see how we have improved on that, [ Sundar ]. That OMR 1 million a month was very real at the start. And of course, we were also doing our In Service of the Nation program at that time to all the quarantine centers and outbreak centers, et cetera. So there's -- that is now not required at the same level. But the -- there have been some significant improvements where every one in the organization from the supply line through to the operations have really been working hard to make sure that we maintain our high standards, keep people safe, and there's extra cost involved in doing that, and -- but at the same time, doing it very efficiently. So that impact is coming down. Vishal, I don't know if you want to add to that.

Thanks, Steve. So on Duqm, you have covered very well that how long-term occupancy for Duqm and our project is very much intact. And just to add on there that 12,000 people are staying -- still staying in our accommodation. And on the margin side, when you look at the 12,000 people staying and the overall margin for Renaissance, even after taking COVID impact, is almost in line with the last year. So when you see our finance, in last year, we were producing 19% GP despite all the heat of COVID where we provided all extra services to our customers, free meals to -- as part of our In Service of the Nation program, still we were able to maintain our margin. So as an operation, company has done really well. And we feel that post-COVID even the margins will start improving overall. So Duqm is very much intact. We have made our payment plan in such a manner so that the contractors are paid on time, but it's not that property is ready, and we don't have an occupancy. So everything is planned in line with how COVID was coming and impacting us in Duqm. So we are very optimistic about the way Duqm is spanning out in the future.

Yes. And so [ Sundar ], moving the answer one step further from what Vishal was mentioning, the COVID issues there. And then so going a little bit beyond your question, but it's relevant, and it stems from your question. And I don't want this to sound as if we are being arrogant or boastful because we're not -- we accept our place in all of this. But the -- I'm using the words of our customers where they are delighted with the way we have handled COVID from all the stuff. And I know we spoke about this at the last quarter where we put in the thermal detection, we've got the social-distancing protocols, longer dining hours, packed meals to thin out in diners and so on, a whole range of actual sanitizing chambers to walk through as you go into the diners and a whole range of things that we've done. And the result of that is we have suppressed the virus inside Renaissance Village Duqm. And indeed, this is true of other operations where we work for clients elsewhere, around the oil and gas fields and other such places. Our absolute suppression of the virus by these means has been brought to our attention with much appreciation from our clients. So I want to say this is words coming from them, not me sounding boastful. The -- and it's terribly important. The first thing we said, I'm now going back to the first quarter, we've had a list of 7 priorities, and the first priority was about keeping our people and our customers safe and protecting them from harm in this pandemic. And I'm very, very proud of every one on our team who have really helped deliver this. And against that background, there is the incidence, the very high incidence of COVID outbreak in workforce camps without these kind of measures in place. And the whole debate is out now from municipalities and other authorities about how people are living in and around Duqm, there'll be people opting to do other things. That's being brought under great scrutiny now because even the international lenders are very, very specific about what the minimum standard should be for workforce in Duqm. And we comply and we almost uniquely comply. So there are events taking place in Duqm next week that we'll be looking at this. So I think the prognosis for us as the solution in Duqm is very, very strong and very good, and that's what Vishal was referring to as well in his prognosis on the long-term occupancy. So thank you, [ Sundar ].

Thank you, Steve. One thing I want to just add up. In terms of the receivable position Vishal was making, the collections were pretty good. I just want to understand how this position. I've been seeing the numbers are pretty okay. But still, I want to understand from your perspective how the government payment, everything is happening, anything surprising expected in Q4? We just want to understand from an IFRS 9 perspective.

Sure. The -- I'll give you the headlines of it. And the reason I'm stepping in here is because I actually want to highlight the work that Vishal and the various teams that he guides in this and leads on this issue of collection and what's been achieved. We have collected the equivalent or slightly more than the equivalent of our entire revenue this year. Now that doesn't mean that we don't have some delayed receivables. We do. And I don't want to speak about specific clients. I will say something generally about government where the government has acknowledged, not just for us, but talking about the market in general, that there is an issue with delayed payment and that they are working hard to get 80% of that up to date and finished during this year. And the dialogue with us directly around that kind of debt is consistent with that statement that's been made generally. So without -- because I think we all have to understand how difficult period it is for everyone, really, 2 main features: one, extraordinarily good collection. Now ultimately, contractors working in PDO oilfields or BP or in Duqm are all on projects that are fully financed and being paid on time by the likes of Duqm Refinery and the likes of PDO or the likes of BP, et cetera. So that side was very strong cash flow. The -- on the government side, where there has been general delay in the marketplace, they really are genuinely working on an 80% catch up. And then there's sort of miscellaneous other things around that. So our receivables, given the market that we're in, and I'm not saying it's not tough. I'm not saying that there's not a huge amount of effort that goes into getting that kind of performance on our receivables by our team. But it is as positive a statement as one could make in this incredibly difficult time for the whole economy. Vishal, anything further?

Thanks, Steve. You have covered everything. So just 2 adding points here. [ Sundar ], because of good collection, we were able to save finance costs. So one of the reasons of lower finance costs this year is better collection. So that you can see and then directly, it is filtering through our P&L as well. Second is the cultural change in how we use to manage our receivables or how the entire country used to manage receivables. Everyone was used to receiving hard copies of the invoice, stamping it, taking it back. And people were still like in 2 minds how to change in the environment. But our IT system and the way our collection team worked together, we moved on cultural change where people are accepting electronic invoices and certifying electronically. So that really helped us. So it was collection and the cultural change, what we have achieved during this time. And that's the reason we can see that our overdraft utilization is almost nil because of better collection. And as Steve correctly mentioned that in 1 or 2 accounts, which are government-led accounts, those we are accepting even 80% or more recovery by the year-end. So even our cash position should improve further. The reason in cash -- one of the reasons why we are still able to manage our entire expansion plan without raising a single debt because we didn't want to launch a debt program in the midst of the COVID, so better collection also helped us to support that. Now we have launched our debt program because the market has improved, sentiments are okay. And we will talk about that debt program for the financing later on. But better collection helped us in many, many ways. So that we are really happy about it as a company. So [ Sameer ], you can like ask your question. [ Sameer ], you can unmute yourself and ask your question.

I have a couple of questions. Just a follow-up on [ Sundar's ] questions. So what percentage of the Duqm Village revenue comes from the Duqm Refinery? Any ballpark number?

The -- I won't talk revenues. I'll sort of talk generally in terms of the occupancy numbers there. We have -- of that 12,000 at the moment, there is about 4,500 come from either permanent projects that are in the Duqm area and other clients associated with those projects. And the balance comes from Duqm Refinery. So the -- and that the -- those associated with the permanent projects, which is building up a sustainable occupancy, is also on the increase. And there are some other short-term projects for some of those that are coming in as well. So that balance will change at different points of time. But that's what it is at the moment.

Okay, understood. And in your last call, you have mentioned about the September quarter, September month, you were expecting some military project. So is it done? And is this 12,500 include those military project as well?

Yes. The -- again, I sometimes wonder what we're allowed to say and not allowed to say when it comes to some of these clients, [ Sameer ]. But yes, we do have U.K. military staying with us now, and they are going to be with us for 9 months, and already fully occupied and very happy, so I'm pleased to say. So yes, whether I should be saying any more than that, I don't know.

Understood, sir. So I have 1 more question. In the last 2 Chairman's report, it is highlighting the existence of non-compliant workforce accommodation in Oman. Could you elaborate a little more on how big the issue of non-compliant competitors are? And what potential are you expecting from a shift from these players to complaint company like Renaissance?

So again, I don't want to talk about competitors, but let's talk about the facts of what goes on. Now first of all, around -- this is not exclusive to Oman. There's issues around workforce accommodation, worker welfare in many countries and throughout the Gulf, et cetera. Oman has very clear and good standards laid out. I mean, the Ministry of Manpower is aligned with International Labour Organization standards. And this sets out things like how many square meters should be in shared accommodation around every bed. It sets out the ratios of how many ablution facilities you should have for each of a resident. It sets out the type of recreation and medical care availability, et cetera, that one should have on site when you get up to large numbers, et cetera. And Ministry of Manpower has all of those standards. Then there are many great companies, the leading companies in Oman's oil and gas sector, the leading projects like Duqm Refinery, et cetera, like the Port of Duqm, and so on, all have high spec standards, not high in the sense that will make them uncompetitive. Now what -- and SEZAD has those standards too and has laid out those things. So the framework for the correct way to look after a workforce is there. And so my comments in answering your question, [ Sameer ], are not to, in any way, knock either Oman or the responsible leading projects and companies in Oman who have laid out what is required. Now what happens in reality is there will always be some people who short circuit the system. And we saw it in the early stages of the outbreak of COVID here. A lot of it happened either in workforce camps or in apartment buildings where large numbers of workers had been crammed into apartments, some astonishing numbers from some quite small spaces how many people were living there. And that's where the outbreak was sort of became uncontrollable at first. And it's all about the sanitary. I mean the amount -- describing what we've done in terms of keeping people safe, I haven't gone into our sanitizing program and the PPE and what we do and how we keep everything clean anyway, but now ultra sanitizing anything that are touch points for our residents. So those kind of standards don't necessarily apply in these examples. And what that has brought into sharp relief and therefore, referred to in the Chairman's statement is the conversations being had here by worker organizations, by municipalities, by clients. We've got international lenders for projects coming to visit our facilities to make sure that people are compliant. The ILO themselves been to all of our PACs, and they've been to Duqm, et cetera, and we pass with flying colors. So I think we're aware with -- it's not about naming names. It's about we know that there are in existence some camps and some residential accommodation that is used that does not in any way comply with these minimum standards for worker welfare. And when you get something like a pandemic, it is no surprise that that's where people get struck down in largest numbers and fast. So it's just that the pandemic has brought it into sharp relief. And where we, as an organization, stand in a good position is we've demonstrated by our economies of scale that you can deliver these kind of standards at affordable cost. And that the benefits that come to those companies that do look after their people in this way, they are finding themselves with far less downtime for sickness, far less attrition, greater productivity because of people are happy. They've got great connections with home. They're getting a good night sleep in clean facilities, and they've got recreation and so on, and they're able to keep fit and well. So that's the debate that is very much going on around in a post-COVID environment, and that's what's being referred to by this. Thank you, [ Sameer ].

I have a couple of questions further. Maybe I'll come back later.

[ Joyce ], you had some question. Earlier, I could see that you wanted to ask some questions, [ Joyce ]. Yes.

Yes. My first question is regarding the PDO Manazil project. Where are we on that? Is there any significant progress that is worth mentioning during this quarter -- last quarter or this quarter? Because what I understand is the original plan was for the commercial submission to be around fourth quarter of this year, so can you just give us some update on that?

Yes, I will, [ Joyce ]. Although it is a live tender, so I'm really going to keep it as a minimum information as possible. The technical bid has closed. It's gone in, in recent weeks. And that is currently being analyzed, and there will be clarifications coming out to ourselves and the other bidders if clarifications are required. And the commercial bid is still on schedule to go in, in this fourth quarter. It's due to go in, in December. So they seem to be very much on schedule for that. And then the decision is due to be taken in the first quarter of next year. So it's a live tender. So please don't ask me anything more, but that's the status.

Yes, I understand. So there is -- we don't expect any major delay in awarding that?

Yes. It's very much on schedule and going fine.

[Operator Instructions] So [ Shaheen ], you can ask your question. Go ahead, [ Shaheen ].

This is just -- I would just like to go back to your Chairman's report. You spoke about expected gradual improvements in November and December. Could you further expand on that statement, especially on the improvements expected during this period?

Sure. The -- it's partly in reference to what I've answered already is that we've been given clear indications of a surge in occupancy expected in Duqm. But as I explained earlier, that is coming slowly because of the situation with visas and labor clearances. So that's one part of that. But there is other gradual improvement anyway, but that would have been something that if it still does happen even for 1 month would have a very positive effect. It may be that we don't see that till January. But they're certainly ready and chomping at the bit to go, and we were meeting with some of those clients only yesterday.

And [ Shaheen ], one more point to add, that in our contract services business where we operate MOH hospitals, LNG Salalah Port, BP, now with slowly things are opening up, our cafeterias in MOH will start opening up. So gradual improvements will -- we will see in our pure contract services business, which was a major -- like hit during the pandemic times, especially in the eye of the storm. So that also we are seeing slowly coming up. And November and December, we are seeing positive results in that business as well. So one is Duqm occupancy. Second is in contract services, we are seeing improvements in these 2 months.

Yes. And things that were closed, schools starting slowly to open and so on, the U.K. military coming in, et cetera, so there are a range of things that will bring gradual improvement. And that sort of quantum difference can still come with the surge in the project occupancy.