Renaissance Services SAOG (RNSS) Earnings Call Transcript
August 15, 2022
Earnings Call Speaker Segments
Very, very good afternoon, everyone. It is 1:30 and, therefore, time for us to start our quarterly, this for the half year, analysts and brokers meeting and investors. And for those of you who is familiar with the format, we don't make speeches. We have issued our quarterly results and our Chairman's Statement, and we open the floor. This is your session, so for you to ask your questions, which Vishal and I shall answer for you. So without further ado, we're open for the first question. Thank you.
So first question comes from [ Joys ].
Stephen, Vishal. See, the first question is on -- you have mentioned of JV partnership with Mekdam Holdings in Qatar. Can you give us some more color on that. You have mentioned about the boots on the ground, the successful early market entry with respect to this JV. So is it only related to FIFA World Cup? And what's the size of the market entry? And what kind of...
I see hands up and mic going, but I'm not getting any volume here.
So [ Joys ] is asking about Mekdam Holding and our entry into Qatar. So [ Joys ], we will see that how we can sort it out this volume issue, but Steve and I are able to hear clearly. So if [ Joys ], I heard your...
Yes, I'm sorry, there was a technical fault at my end. It is now clear, I'm now hearing. I'm very sorry, I did not hear the question. Sorry to start that way.
So Steve, this is regarding Qatar, our partnership with Mekdam and our entry and whether this partnership has to do with FIFA. That's the question from [ Joys ].
Thank you, Vishal. Sorry, [ Joys ], I missed your question. Welcome. So the piece of news that is already there is the fact that we have signed our joint venture and we have entered into the Qatar market. We have mentioned before that we are competing for major sporting events that are coming up in Qatar. And the fact is for that type of opportunity, first of all, there are very strict rules about announcements, et cetera, when anything happens. Obviously, we shall announce when anything is finalized and signed. The indication is that we are optimistic that we will win some business in this last part of the year. That will be temporary in its nature and that we'll seek to turn that temporary event into a long-term stay, that we are also bidding other longer-term opportunities in Qatar at the moment. We've got people on the ground doing that at the moment. The nature of the FIFA contract, if we were to get a signed contract with them, would be that we'd have to make a very simple announcement around how many stadiums. In principle, you can win 1 or 2 stadia of the 8 is what the principle is there. We're competing solidly for the biggest and the best for those. The -- and we're cautiously optimistic that we will be able to get a final signed award on something of that nature. Now the nature of the actual contract itself will be quite a small value in terms of the materiality of the contract with FIFA. What it does, of course, to is that opens up the opportunity to generate significantly higher revenue from the communities that we would then be serving and let me explain what the actual projects would be. We'd be serving all the officials and the volunteers and FIFA personnel, the referees, everyone who's involved at the stadium other than the fan. What we would be doing is providing services along the last mile to each of the stadia for all the organizers and volunteers, et cetera. So the volume of business comes above the actual fixed value of the contract. So the contract itself might sound minor, but the opportunity would be a positive increase for us in the final part of the year. Thank you.
So [ Joys ], just to add on to what Steve explained, that in any new geography, what is really important for us and that has been our strategy, to get the best local partner. And as Mekdam, we got a real good, strong partner. And if you see that Qatar's GDP is twice of Oman. So of course, in Oman, we have -- like in a strong foothold, we are keep growing here. But in Qatar, we are just starting. So Qatar market is as twice size of Oman. So this would be a starting point and with a strong partner in place. So before we address the partner issue, and that's where we are entering into the country, because this local content and local partner, real partner, not a sponsor, what we always wanted to enter into any geography, and that's what we got into Qatar. And that's very important for us, even any one-off contracts which we win or do, but how we look Qatar for next 25 years that's the real strategy when we are looking for a strong partner in Qatar.
And to add to that and, of course, this would apply to any market that we enter and, indeed, what we offer here in our home market of Oman. But in Qatar, we are finding a marketplace that is very interested in the range of things that we do. A huge amount of infrastructure has been built. And those of you who visited Doha recently will see not just all the stadia that have been built but all the hotels and other infrastructure that has gone up. And of course, from a facilities management or FM perspective, we provide life cycle value and life cycle care to the service offerings that we bring. And that is something that we're finding a big appetite for in Qatar. Another issue, some employers brought some difficult press reaction on worker welfare in the buildup to the Qatar World Cup and, of course, the Qatar authorities and government have responded clearly to that -- those behaviors. And therefore, the optimum worker welfare package that we bring with our accommodation solutions is also something that is -- we're finding a lot of welcoming voices to us as we go around that market. And along with the other things that we always make sure that we're doing these days in our -- not just Renaissance 2.0, but in our service offering, so we're giving responsible green solutions, we're giving -- always we have a positive local impact, I think that's something that Omani companies really excel at and they could take that into other markets in terms of employment, local goods and services and so on. And our future focus innovations that we're bringing with Renaissance 2.0. So we're finding a lot of excitement and interest in the market. Now we have to turn that into competition, and we have to turn that into results, but we're really excited about that market. Thank you.
My second question is on your early debt repayment, which happened in April. So why did you make this early repayment of loans for 2023? Was it voluntary or requested by the bank? And can you explain the background for this move, especially when -- now you guys as someone who knows the importance of an optimal capital dedicated mix in the capital structure. So why this OMR 10 million early repayment?
So thank you, [ Joys ]. So [ Joys ] some of our banking friends are here as well, and they were very kind to accept that prepayment without any charges. So first of all, thank you to all my banking friends here. It was not easy, but they always come by. So [ Joys ], OMR 10 million repayment is so important for us to save the cost. When we know that interest rates are on the rise, trade is increasing, CBO is increasing the repo rate, so we had 2 choices, that when the new projects are coming, when we are going to deploy these funds. And that's the reason if you have seen that we have just prepaid for next 12 months. Because the next 12 months will come and sit in my short-term loan. So anyhow, we have to pay over the next 12 months, so we paid now. So we are saving a great deal of interest costs compared to our plan or the budget. Even if you see compared to the last year, our interest cost is almost the same, despite we drawn down more than OMR 12 million on Duqm expansion and interest starts capitalizing. We have started capitalizing interest this year. So interest cost savings, when banks had given us [ 30-year ] money, 12-year money, whenever we have surplus, we always pay them because we know that we are working on some of great opportunities, yes. And if those opportunities come sooner, we will have enough headroom to go to the banks and really start investing in those opportunity. So immediate savings in interest costs. Second is good debt profile of the company, otherwise, where you deploy this cash. So this was not an easy task, [ Joys ], because banks won't accept the prepayment of next 12 months. They -- generally, if you see all the term loan agreements, it will be proportionate over the remaining period of time. But banks were super supportive and we were able to achieve this great deal where the first -- where the immediate 12 months we were able to prepay and able to, in fact, improve our current profile of the loan -- current maturities profile of the loan and able to save the interest cost. So -- and get ready for some of the good projects which are coming, so we can start working with the banks on those projects.
Okay, sorry, if I understand that correctly, is it the floating rate loans which you have prepaid or is it the long-term fixed rate loans which you have prepaid? Which one?
So [ Joys ], all our term loans, we have 2 term loans, and both the term loans are on annual reset basis. And I am happy to inform you that when the annual reset happened in June and July despite the way market is going up and repo rate in Oman is going up, we were able to bring down the interest rate even slightly, yes. And instead interest rates, going up, we were able to bring down. So these interest rates are on a annual reset basis. For the first 4 years of the life of the loan, those were on a fixed basis, but now it is on a -- like since last 3, 4 years, it is on an annual reset basis.
Okay. And what is this new drawdown of short-term loan?
This new drawdown of short-term loan, we have used some of the facilities which we have not been using for so many, like over 2 years. So in fact, we have used some of the short-term loan at a much lower interest rate and used to prepay as well.
Got it. Got it. Got it. And this new technical qualification in PPP model in Oman, the schools which are coming up. How long -- what's your thoughts on the implementation of plan or implementation profile of this [indiscernible] contract? When -- what's the time line? Probably if you can throw some more light. I don't know there are limitations to that. But what's your thought process on that? How do you see it getting implemented? And what kind of lease [ 3 ] will you be getting? What are your thoughts on that? And how should we look at it?
So we have long been interested in the governments' Public-Private Partnership Programs. And the -- we know that these have started with a lot of fanfare, that they've been a little slow to come to market. But we -- if you look at what we did in Duqm, it may not have been called a PPP project, but it certainly is that. It's a private sector investing for the public good in something that is a key enabler for Duqm to attract foreign direct investments and international financing for major projects because that is the minimum worker welfare standard expected compliance with United Nations ILO. And I mentioned Duqm before coming to this specific opportunity because that is the type of project that we're interested in. A project that we're able to support with design and build but that has long-term operational business to be had, so in terms of the services we provide. Now If you do it graphically, the project to build is just this, but the actual operation is for 20, 30, 40 years and so on. So we've prequalified and we've looked at each PPP project that has come out. There's one that came out to fisheries. We prequalified. We got it out. And then we saw that it's actually -- this is not for us. There was no long-term operational FM role or IFM roles for us. So this particular opportunity is for 41 schools. It will be for approximately 40,000 students. They're in the various governments of the country. And there was an RFQ stage, which was the request for qualification, we participated and we have qualified for that. It will not include any education services at all. The education services going into those schools will be from the government, from the Ministry of Education. But there is an element of operation to it. Now what we have to wait and see, because the RFP stage is about to happen the request for proposal, and that is when we will get the details. The RFQ stage is when the client is looking for information about us and our competitors. And now the RFP will be -- where they're looking for information must but we get all the information from them. So that will be at the stage where we look at our -- the probability of the project going forward. Now they've got in the pipeline other PPP projects that may fall into the description that I've described. So hospitals, for example. So this is a departure where we take our project design build capability, we outsource the construction to colleagues in the construction industry and we look at the own, operate, maintain and transfer piece. So it's taking all our experiences of the PDO villages and Duqm village and saying we can apply this in different ways. On this specific opportunity, Joys, we can't answer you on the specifics. I've given you scale, 41 schools, 40,000 students all over the country. But whether it has a profitable long-term operating role for us to bring advantage to our bid, we have to wait and see, and we'll make that project go decision when we've got the RFP. Thank you.
Thank you, Steve. So that's about the new projects and the existing projects give us some comments on Duqm occupancy usage, 67% occupancy level. So as a housekeeping question, I just wanted to reaffirm, what's the capacity at Duqm right now?
So the capacity is 18,860. And the occupancy over the first half of the year has been about 12,300. Occupancy today is about 1,000 lower than that, but we have some new mobilizations happening with us. The U.K. military have started their mobilization for the exercise that will fill this end of the year that will be got to 850 and peak at 1,000 people. We've got some road construction projects that have been awarded in Duqm and we have requests for 800 beds for that. We have one long-term major anchor tenant, who is being very successful in their business and growing, and they are going to increase from currently 3,500 up to 4,500, then 5,000. But the first 600 of those are coming now. So Duqm is -- we need those mobilizations to start on time. And the other thing where we see demobilization of the -- particularly the EPC 3 element and the construction elements of EPC 1 and 2 demobilizing, there is the commissioning teams mobilizing and the commissioning workforce. That seems to be happening a little slower than planned, although those teams will be with us through to the first half of next year. So some of these things, we need to get more clarity on in terms of the histogram -- demand histograms from clients as they work out their exact plans. But we have -- so we have a fluctuating position at the moment going down a little, expecting it to come back up, so that we envisage that we should at least have a similar average for the second half of the year. Although at this point in time, we're about 1,000 below that. So that's on Duqm.
So what should be the occupancy level that you are looking at maybe for 2023, for next year? And maybe for the next 2 years? When do we see Duqm reaching to 90%, 90% plus occupancy level?
So Joys, the -- we have got a list of new projects that are happening. We have got indicative numbers from those projects. If they all happened at the same time, then we would see us reaching those numbers in the second half of next year. That would be irresponsible of me to indicate to you that, that is definitely going to happen right now. There are projects in the pipeline. They need to -- projects have a habit of having a delay, particularly at the start. So we need to get confirmation of the start dates of those so that we could give you a more confident 2023 number. Certainly, the start of the year, we'll see some more demobilizations in the refinery project. Although as I say, we'll still have numbers with us through to -- halfway through from that project. But it's the starting points of the others that will define. And we'll try and give you some more color on that in the third quarter meeting that we have. It would be premature for me to do that now.
So just to add, Joys, on Duqm that Oman write-off, they were around 3,000 beds at the start of the year. They are -- the way ODC is growing that is great for Oman and great for us because we are expecting to grow -- they are growing and we are expecting them, they should be around 4,000 plus by the year-end. And they are keep growing because Oman is putting real emphasis on drydock, on Duqm port. So already, our anchor tenant, ODC, that was there with us from day 1, they are just keep growing. So we are seeing that demand is keep coming from other big customers as well.
I think it's a very good point, Vishal. And the -- in terms of the synergy between us and ODC, it's not just the fact that they are a customer with a long term, just remember, we told you earlier, we signed a new 5-year renewable contract to stay with us, is that they really are getting a tremendous reputation in their business and the quality of their service. And you're seeing that, and it's not just the merchant fleet that are putting vessels in either for repair or dry dock. It's major navies or military forces around the world that have started committing vessels there. And then there's a real symbiotic relationship because, at the port, we have been awarded the contract to do the Seafarers Club and that means that those people, the people either coming into the port or coming into the drydock who get a runner shore, the accommodation is with us. And similarly, the navies that come, so for example, HMS Montrose, we do the crew change every time it happens in Duqm and that's happening more and more often, where the incoming crew fly out and stay with us, then they go to the ship. And the outgoing through comes and stays with us and then flies out. So there's a lot of good synergy between major players in Duqm. And we've clearly been earmarked by the military as one of the major reasons why they're choosing Duqm just as the port and drydocker are the major reasons why they're choosing Duqm.
Just a clarification there on the capacity which we mentioned 18,860 but wasn't it the 2019 capacity? And didn't we do -- we did an expansion of around [indiscernible] beds odd but during the last 2 years. And shouldn't be the capacity be around 25,000?
Yes, Joys, and I could give you that number right now. The reality is that there are different types of rooms. And so what we -- to use our jargon, PR, so 6 PR is a shared room for 6 people per room. 4, PR, 3 PR, 2 PR, 1 PR, et cetera. And in this single category, it goes from senior executive rooms to premium rooms to standard single rooms, et cetera. Now the -- what changes the capacity. So for example, the U.K. military, I mentioned, where they're taking up to 1,000 beds, there, whilst they have some singles and some doubles, the vast majority are 4 PR. Now that room can take 6. So if we count these 6 everywhere, it can be 6, et cetera. And even in the premium single rooms can be 4 to a room in terms of capacity. In the longer-term future, there will be fewer exact staying as the city builds and more workforce staying as the residual workforce, the permanent workforce, builds up after each project. And so it's about the demographic of room utilization that we're giving you. So once a single person is in that potential 4-bedded room, we take the capacity down by 3. Or if 4 people are in that potential 6 per room, we take the capacity down by 2 as an overall thing. So that 18,860 is the current capacity based on the demographic where, interestingly, we've got a very large number of singles at the moment, which is a positive thing for us because then room occupancy is high, higher than necessarily bed occupancy. Thank you.
Just to add on, Joys, a very important data point, which has Steve touched on, is that if we look at our various room configuration, senior room and then junior room, I'm just using senior and junior for communication, senior room categories was single room, 2 in a room, 4 in a room, we have almost 90% occupancy. So exactly your point, when you will reach 90% occupancy there, we already reached. In terms of the lower junior rooms where there are some leakages happened as well, they are unauthorized buildings and all those [indiscernible], and those we are also working with authorities there. Why our margins are still holding good or better than our internal plan? Because the senior categories of room where we have more than 90% occupancy, their margins are even better. So we are finding that we are -- like you are still able to hold occupancy in higher senior rooms, higher-margin rooms. And once authorities, and we all solve out this issue of the leakage where people move out sometimes in unauthorized [indiscernible] and all. And generally, it takes time for them to come back like we will see that our junior category room occupancy goes up, even with the current junior categories of people who are staying in various unauthorized basis. We have next question coming from Sameer.
Vishal and Steve, I have a couple of questions on my side. Out of the 42 million contracts you secured in the last quarter, what portion of it is new business? And what's the average maturity of this contract?
So we've -- of that, that we've secured includes the recycled contracts where they're being retendered, the vast majority of these are in that category. So 90-plus percent of that win is from existing contracts. And there's a net because we have launched one contract that we've referred to one that we didn't retain, which perfectly understandable. And the reality is that in all cases across the board, we have been going back to clients and showing them that through a competitive -- tension through competitive tenders that we're still coming out lowest even though it has been necessary to recalibrate the pricing with the considerable increases in cost of doing business that have gone over the course of the pandemic and from before. But these contracts range from sort of 2- to 3-year contracts or it might be an extension of 1 year. But in all cases, we are enhancing our rates to reflect that cost increase that we've been absorbing in the interim until the contract came around the game. So that's the percentage, but it's also, the quantum is higher than the preceding prices.
Got you, Steve. And what's the average maturity of these contracts?
So I would say the average is about 2 years because there are 3 years -- 3-year contracts there. There's a couple that are slightly longer. But the one big piece is that Ministry of Health contract has been extended by 7 months to the end of the year while they actually make a full award of the actual 3-year tender award. So that sort of pulls that average down. And we're expecting that award to be made during these remaining 7 months.
Understood. And when you mentioned about the recalibrating the pricing side, so what kind of margin expansion are you looking from your -- like from 2021 numbers?
It varies. It varies from client to client because it depends on the impact that has been had on each of those clients and the mix of the services that they take. So I'm going to give just a guiding number of 10% to 15%. In some cases, by the way, that increase is reflected in an increased scope of work. It's not just about what's recouping the cost increases that we've had. So that would be my guidance on that. Thank you.
And Sameer, one important point is that this is a very competitive market, meaning, of course, we are the market leader, but no one can be unreasonable when the tendering is happening, yes? It will be ultimately we need to be very competitive. And what has Steve mentioned that despite the inflationary pressures and everything, we were the lowest in almost all the contracts we won because of our supply chain advantages and everything. So some of these improvements in our pricing is also to take care of the inflationary pressure. So last year, because some still -- there were some impacts of COVID last year and also the inflationary pressure was coming in, and we were not able to pass on those inflationary pressure to our clients because the contracts were still running. But what our business development commercial team did, that they were able to pass on most of the inflationary pressure plus some margin to our clients. And clients were very -- like very cooperative in that sense, that they understood that our price is very competitive compared to all other leaders but still we are able to absorb the inflation and still able to make some margin. So you might not see like our margins are better, definitely than last year in the pure contract services business. But you might not see that direct -- it is flowing to the bottom line because the majority of it is also taking care of the inflationary pressure, which was unprecedented over the last 12 months.
And just to add one quick point to that is that even in the contract that we lost, we were the low bidder. The client was concerned because they were seeing the significant increase in costs that have been reflected in the prices they got in the tender process. So they moved into a negotiating position which I accept is entirely their right to do. In our case, we respectfully declined the opportunity to bring our prices down further because we are competitive and we give best and final offer. We don't bid just in the hopes that we might make a bit more than if we went to our lowest possible price, we bid to win. And now one of our competitors did opt to negotiate and that brought them quite significantly a bit below our price. So I can perfectly understand the client's decision to award to them because it was a pricing issue for the client. Thank you.
Got you. Got it. And just one question on your MOH contract, you mentioned they got extended for 7 more months. So when is the next due, I mean, for retender of that project? And what's the size of that project in your [indiscernible] contract and percentage ballpark number?
Okay. I'm going to -- I know the answer, I'm going to pause that to the end because I do have to be careful with competitive information. Although that said, our tender price goes to tender board and so everyone can see it. So maybe I will then give you some flavor on that because it's sizable. We dominate the government health care services sector, where we operate in almost 100% of the hospitals in terms of the catering, cleaning, laundry, pest control services, et cetera. And it does -- if you take Duqm as one piece of what we do, you take the Renaissance villages or the PACs, as you come to know them, as another piece of what we do, and contract services is another piece in UAE and now Qatar is another piece, this is the largest contract in our contract services piece. Now if I give you the bid opening results because they are a matter of public record. On the main bid, the pricing -- the winning price is us. Across again, 100% of the opportunity is OMR 78.2 million over 3 years. And we've given an alternative price which is OMR 61.9 million over 3 years, where we're offering an output solution rather than input where they specify all the staffing numbers and so on. So that is something for -- and in either of those categories, we are the lowest bidder. So it's a sizable piece of work, and they just need some more time because it is higher than the equivalent bid that we were the 100% holder on the last time. When that was lasted, the bid went into 2017, it should have finished in 2021. That equivalent was OMR 52.1 million. Now it's not just the costs have gone up by that full OMR 10 million, there's some scope changes, there's some additional patient numbers in that. It is a growing industry in line with the population growing. So that gives you an idea of scale. And all those numbers are a matter of public record because they're open by the tender board and posted on their site.
Very helpful, Steve. Just one follow-up question on the Qatar and joint venture. You mentioned that there could be potential -- although the market side, you are entering into a lowest contract right now. How is the competition scenario there? Because a lot of these kind of the World Cup-related projects would end in the next 6 months, then there will be more competition in the market, right? So how do you see the competition scenario in Qatar?
So whenever I get asked competition question, as Sameer you always hear me say the same thing first, we very much respect our competitors and we very much respect our new competitors although some of them being the international players, we know from here in Oman and elsewhere, so we've been up against them before. What I find is they are good competitors there. So we expect, as we always do, to be in a fight when we're tendering for opportunities. But similarly, with our scale in the region, and we're bringing advantage from our supply chain to even our short-term opportunity that we discussed earlier in Qatar, we expect to be a serious contender. And the other point I would want to make, as some of you and, Sameer, you're one them, who know our company very well. In a certain sense, we're only people who do what we do. We're the only people who -- so we compete with the IFM competition, those who do the overall, taking everything away from the client that is not their core business and providing it for them. But those IFM providers tend to outsource to a mix of soft FM and hard FM providers whereas we self-perform the vast majority of those services. Our clients who are going for the IFM model don't get margins on margins. They get one margin from one-stop shop, if you like. And some of the other things that we really do regard as part of our service like solutions -- affordable solutions for optimum worker welfare. And the direction of travel globally on that issue is in our favor. We are playing where the ball is going to be. And that is something that Qatar has had some employers letting them down. And the authorities there and the government there are really putting that right. And so there's a number of things that I feel we're bringing something new to the market as well as that holistic fact that we are fairly unique in the full range of services that we provide.
So now we have questions from [ Bishan ]. Go ahead, Bishan.
Gentlemen, this is [indiscernible] Asset Management.
[ Abhas ], so I can see your name as Bishan. But yes, go ahead. Now we can see you. Yes, go ahead, Abhas.
I had a quick question in terms of just a bit of postmortem. Now if you look at the second quarter numbers, obviously, in the Chairman's Statement, the Chairman acknowledged that there was some cost pressures and the profitability sort of fell. Now how do you see this -- and then, of course, there were comments on a lot of retendering happen over the first half and some of those cost pressures have probably been passed on to the clients. In that -- in this sort of environment, how do you see from an earnings or from an EBITDA point of view the second half shaping up for Renaissance as we stand? That's my first question.
So Steve, I will just take the first portion of Abhas. So Abhas, the Q2 is lower than Q1 is not primarily because of the inflationary pressure, but this happens very -- like cyclical basis every year because of Ramadan and Eid, because we need to do extra offerings [indiscernible] both up during that period. So it's not primarily because of the inflationary pressure, that is one of the reasons, but that was there throughout the year and some months, it will go up, some months it will come down. So just to clarify the point that it is because of the cyclical nature of that particular quarter as well. Yes, over to you, Steve.
Yes. Thanks, Vishal. And Abhas, I'm not going to give a sort of forward-looking statements in terms of actual numbers because that wouldn't be appropriate and for the very good reason. We do not wish to mislead any of you in any way. But I think it's been -- the Chairman has described things very nicely in his report. And if you see, it's actually very balanced saying, look, there's a lot of good things happening in our organization that is going forward well. But there are some headwinds. One of those headwinds, everybody knows, is inflationary pressure. It's existential to Oman, but Oman is affected by it because of things happening around the world. And we have not been immune to that. It's part of the effect of Q2, as Vishal just explained. But the good things that are happening are also having a therapeutic effect to counterbalance that. And we do a lot of -- we've done a lot of work as well within the supply chain and within the operational mix where we are able to make optimum changes to mitigate inflation. So that's one good thing, and that will continue during the second half. I think the answer I gave on Duqm occupancy earlier is important where we're seeing a little bit of a lag in the new influx coming in. So that's fallen by about 1,000, but we're expecting that to catch back up and be similar to the first half. So I think you've got to read into the Chairman's Statement and see that there is that mix of really positive momentum, some recalibrated rates, retained contracts, increasing occupancy actually in the oil and gas fields as those projects are starting to get back. I'm expecting that to get back above pre-COVID levels. They're just below at the moment, expecting that in the second half to increase. So there's a mix of things that makes us feel that we're right to be giving the signal out, that things are going well and we're making progress. Even on the inflation, there are some things where we've seen its peaked and some commodities starting to turn. That's too early to say that, that would be a free [ full ]. And we're not expecting things, they tend not to go back to their original level very fast. But we're approaching the second half of the year very positive with the things we've achieved and put in place during the year. We are very excited about things that we could be winning and announcing in the second half of the year and feeling that the performance, the financial performance that you're asking about is going very well into the second half and we're expecting more of the same as we go.
My next question is, I remember reading in the first quarter of Chairman's report that you're expected to sort of tender for approximately OMR 100 million. This year, OMR 10 million you had already won in the first quarter and you were expecting, hopefully, award of another OMR 90 million which would take your order backlog to around OMR 150 million. Then in the second statement, the second quarter Chairman's report, you mentioned that you're close to OMR 43 million award wins. So you won a little more than OMR 33-odd million. Now I'm assuming this does not include the MoH contract. And so effectively, if you do win that contract, and you obviously spoke about it a lot, so it's not about that, but in terms of, if I had to reconcile what you spoke about in the first quarter with the numbers that you sort of showed us in the second quarter, what sort of contract backlog are you expecting -- contract services backlog are you expecting to end up if things go according to plan? My second question is what's the sort of book-to-bill ratio, which means your order backlog upon the TTM revenues of the contract services business. And the reason I'm asking is, I mean, we look at Renaissance exactly the way you do. It's 3, 4 major businesses, contract service is one of them. There's the PDO accommodation and the Duqm one. Now PDO, you're working at 90% utilization. Manazil will come when it comes. And you're doing what you can with the PDO business. So I don't see that as a growth business. Duqm, you've spoken about time and again the challenges Duqm is facing to ramp up occupancy levels. It's got nothing to do with what Renaissance provides as a company. It's got to do more with sub sort of standard accommodation that's been in the Duqm and that's something is there's going to be a work in progress. That's not going to be solved in the quarter. So I'm just trying to figure out if I look forward to Renaissance in '23, '24, where is the sort of growth coming in both on the top line and the bottom line. And it seems contract services is going to be the business driving that growth, so at least to me. And then there are these new businesses that you're taking a lot of initiatives in, but we'll wait to see when the meaningful contribution comes from that business. So you see, it's not so much asking about forward-looking numbers than what's going to be the next quarter earnings or next year's profitability to appreciate, what takes Renaissance to the next level. And that's the idea of why I'm asking these kind of questions.
Very good. So Abhas, to answer your thing on the backlog, you practically answered it yourself, because you've honed in on the absolute main reason why that has not been fulfilled is because of the delay in awarding the Ministry of Health contract and the request to extend until the end of the year. So -- and remember, our backlog, we just talked about our contract services, we don't do a backlog in relation to the Duqm numbers and the PDO numbers. So in that sense, it will be that OMR 150 million again, a little bit more. But we'll have then burned another OMR 30 million in the course of the second half of the year. So it will be about OMR 120 million. But that's my general forecast on it, but we'll see the actual when we get there. And I do -- I absolutely understand your definition of PDO concessionary permanent accommodation contractors being a nongrowth area. But I'm happy to tell you that we're working on that changing. When we discussed a lot of times in these sessions about the Manazil project and, of course, there was disappointment when that got put on hold. And I remember explaining to you that look whatever way it goes, whether it's PDO, as the O in the own rather -- and we do the design, build and then we operate, maintain piece, it's still an opportunity. And we are a serious contender. We've always won, when they set an award, the maximum amount we can win in those opportunities that's why we have 5 permanent accommodations versus 2 sets of competitors with 2 each. And -- so Manazil is being looked at again. And I don't want to say too much because the client is the one that will announce this in due course. But I can say this much that the solution for what we call Manazil 2.0, we seem to have a thing about 2.0 certainly, so the -- what we call Manazil 2.0, not the name given by the client, really does involve the potential of significant expansion of the PACs -- the existing PACs. And that, that should take numbers out of Manazil and Manazil would then be floated as the delta of the numbers that can't be accommodated. So that would be the PDO camps, it would be the places where there are no PACs currently, would need a new greenfield solution from Manazil. And so that is happening as we speak, really. We're in contact with our clients about the needs for potential PAC expansion. And I think that could be something interesting for us, but it could be decided in the course of the year. Thank you.
Okay. That's interesting. That's actually good news. Let's keep our fingers crossed. And Vishal, had a question to you. Now let's say -- I think Sameer asked, Steve, about when do you see sort of occupancy ramping up to 90%? And obviously, at this point in time, you don't have much color, but you're hoping that as projects pick up, hopefully by next year, occupancy goes up to 90%. Now when that happens, do you expect EBITDA margins to expand? Obviously, there will be an expansion in net margin because financial costs and both depreciation will be allocated to a larger sort of [ room ] base. So I understand that. But is there any sort of opportunity to expand the EBITDA margin as well once occupancy ramps up from 67% or to 90%?
Thanks, Abhas. So yes, there will be some expansion, but not dramatically. So I can say that our whatever margin we are currently making, or EBITDA margin, it should improve by between 3% to 5%. So I would say [ at least ] 5% our EBITDA mark. So let's say, if you are making -- I'm just giving a number, let's say if someone is making 40% EBITDA margin, it should improve by 5%. So let's say, 42% EBITDA margin, yes. And if it is 30% EBITDA margin, that it increased by another 5%, so 31.5%, yes. So there will be some expansion will happen, but you need to deploy more people and some of the variable costs will go up, but there will be definitely improvement in the EBITDA margin.
And on the net level, obviously, the expansion will be much larger than that, right, because depreciation is fixed, so is interest cost.
Depreciation is fixed, your interest cost is fixed and no tax, so it flows directly to the bottom line. So absolutely [indiscernible].
Okay. And how does Renaissance go from Renaissance 2.0 to Renaissance 3.0? Yes, Steve, and then I will add on.
So actually, we're talking about Renaissance 5.0 after 2.0. We're not met around with levels 3 and 4. The -- we do realize we're in the services business. And so you can understand us is that in our service solutions. But we have really made some important diversification where we told you a couple of years back we'd be diversifying our services, our sectors and our geography. And geography is tough, we know that. And so we're delighted with getting a breakthrough into Qatar and we see it as an interesting market for us. But we're looking at other geography as well. But it's actually this change in the other things we've got into. What we do in hard FM, what we do in IFM, there are not a huge number of IFM contracts in Oman. It is changing. This move from the short-term cyclical single subject as service contracts into longer-term integrated facilities management contracts is the way the industry is going globally, and it will happen in the market -- the core market here that we serve. Where we're in that, where we're in waste -- successfully broken into waste management, where we've successfully broken into the utility sector, all services, just diversifying our services and sectors that we're in, we have profitable small share of those markets. And we've brought competitive tension, and we bring those things that I always say that a part of our offering, whether it is bringing responsible green solutions, whether it is bringing more new technical innovation to the way those things are done. I mean I would like to give you a small example where we did take over in a utility contract an existing number of Omani colleagues who joined us as part of that, about 124 of them actually joined us. And they've been performing on that contract and hitting for that utility service provider KPIs of 75%. We took that up into the high 90 percentiles with the same people. And now we're bringing technology to that, that will make a number of those people's jobs redundant. And that's the second phase of the contract that we've gone. And what are we doing for those people? We're not making them redundant. We are upskilling them and moving them into our hard FM services, where we have jobs for them in their locale or they move to another place that we operate. And so I think it's in those areas that we're going to see more breakthroughs, more -- the government is taking its time. I know there are serious targets to hit on waste management in terms of the amount of municipal solid waste. There's -- 70% is meant to be the target in just a few years' time and it goes down to 30% 5 years later. There's a lot to be done in waste recycling, in waste treatment. And we've lined ourselves up with the right partners, the right technical knowledge and everything to be. So all of this is part of 2.0. But I think some of these areas are going to drive us more quickly because it's more problematic where we are the dominant players in some of our soft services areas and the accommodation solutions.
[Operator Instructions] So Sameer, you have a question? Okay.
Yes. One last question from my side. On your balance sheet side, it seems like your working capital cycle has been stretched in the first half. Are you seeing any risk material collections as I can see in the provisions where receivables also has increased 20% during the first half.
Thanks, Sameer. So first of all, we don't see any risk in terms of our receivables. We have collected almost 90% of all our revenue what we have built in H1. So there are some documentation issues with some of our government clients, so those are in the process. And generally, [indiscernible] Ramadan in H1, particularly those things were delayed. So we are expecting those things to be cleared in Q3. One major reasons for increase in receivable is VAT, yes. So it's still some of especially the big clients, government clients are still trying to understand VAT. Some people say that VAT is not applicable to them. Ministries are talking to each other and clarifying. And that's what we always see whenever the new regulations in terms of the tax and all accounts. So one is the increase in the VAT receivables from the clients. Second is some of these documents need to be certified and signed there because of the timing issue. So we feel that receivable situation should improve over the next 3 to 4 months. The provisions we have, like sufficient provision, and we always make sure that we are a little conservative in terms of the provisions. So we keep making provisions. And you have seen that in Q1, we won a tax scale, and we reversed OMR 200,000 when we actually [ receive ] the case. And that's what happens in terms of our -- most of the provisions that you will find that we are always on the excess side of the provision. So no risk in terms of the recovery, timing and documentation issue. Some amount buildup because of the VAT receivable, we are expecting the situation should improve in H2.
Okay. One more question on the tax side. Your effective tax is almost nil in the last couple of quarters. So when do you think you're starting to pay that 15% tax?
So if you see the big element of our profit is coming from Duqm and we have a 50-year tax holiday, correct? So that should continue unless there are any changes in the rules and regulations, which we are not expecting, because government is really encouraging the special economic zones and more investments in the country. Then rest of the business, we are -- because of this -- at the parent company, tax losses. I would use the word tax losses on [indiscernible] divestment. We are carrying those losses, and we are utilizing those, yes. So our effective tax rate in that case is nil. But we will -- once we have utilized that entire tax losses and the time to carry forward is 5 years, that will be completed by 2024. So we will start seeing tax in -- once the tax losses are down, then we will start seeing a tax on that income. [Operator Instructions]
Okay. So we've just crossed the 2:30 mark, took slightly longer than normal. But thank you all very much, as always, for your interesting and insightful questions. Your understanding of us is excellent. And it's always very nice to see you at these events. And we look forward to that again at the end of the third quarter. Thank you all very much indeed. Bye-bye.
Thank you. Bye.
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