- 2007  

At Renaissance we understand the business we are in. We have a clear Vision - We know where we are, and we know where we want to be. We have a clear strategy to direct us. We have clear values to guide us. We have best practice systems and processes to inform and instruct us. We have high performance targets and business plans to stretch us and keep us focused. Above all, we have great people. People to implement our programmes; realize our vision; strive for our high aspirational targets; and go about our daily business of exceeding customer expectations safely, efficiently and profitably.

Our task in 2007, like any other business year, is about implementation. The 2007 performance underlines the fact that the Renaissance team can be relied upon to do what we said we would do – and more. We have delivered another record year. We have delivered growth in the business and growth in shareholder value. We have made further strategic investments to drive sustained, superior performance over the years ahead. We have been decisive and consistent in implementing our declared strategy. As a result, we have a positive story to tell about 2007, and we have real momentum to carry forward into 2008 and beyond.

What is Renaissance; and what does Renaissance do?

Renaissance Services SAOG (Renaissance) is an international services company listed on the Muscat Securities Market in the Sultanate of Oman, with a primary focus on providing safe, quality, efficient services to the oil & gas industry.

Renaissance owns and operates a combined offshore support vessel fleet comprising of 61 vessels with another 11 vessels currently under construction. Renaissance has engineering businesses in oil & gas fabrication and afloat ship repair; and is a leading turnkey contract services provider, providing facilities management, facilities establishment, contract catering, operations & maintenance services.

Renaissance employs over 10,000 people operating in over 16 countries with principal bases in the Middle East and Caspian regions; and an increasing presence in South-East Asia, Africa and Europe. In 2007, the company has achieved revenue of RO 199.2 million (US$ 517.4 million) and profits of RO 17.3 million (US$ 45 million).

Renaissance core businesses are structured in two principal operating groups: The Marine & Engineering Group (MEG) and the Contract Services Group (CSG). The company also owns successful businesses engaged in Technology and Training: The Business Technology Group (BTG) and the Education & Training Group (ETG). An offer to acquire the company’s media businesses, the Media Communications Group (MCG), has been accepted at the end of the year, subject to completion of regulatory formalities.


How does Renaissance go about its business?

Renaissance has a clear vision: We want Renaissance to be recognized as a world-class, internationally competitive, premier service company; with a primary focus on oil & gas services.

We are confident that our vision shall be achieved through the quality of our customer service; good governance; outstanding systems - HSE (Health Safety & Environment), Quality and MIS (Management Information); a sustained growth and profit record; and a proven ability to improve the economic well-being and quality of life of all stakeholders: Customers, Employees, Shareholders, Suppliers and the Communities in which we serve.

Renaissance has a clear strategy: To focus primarily on oil & gas services; build market leadership positions in the markets where we serve; divest non-core businesses and investments; take a disciplined approach to long-term investment in assets to serve the oil & gas sector; create sustainable visibility through viable assets and long-term contracts with major international oil & gas producers; generate funds for these investments through highly cash-generative pure services initiatives; increase geographical spread in oil & gas based markets, with a balance between high-risk/higher-return and low-risk/lower-return environments.

Within this strategic framework, Renaissance also has a clear investment strategy focused on three core initiatives for the period 2007-09:
 • Increasing the size and reducing the age profile of the offshore support vessel fleet – prudently balancing investment 
   between the fleet engaged in high demand spot markets and the fleet engaged in long-term stable contracts with
   major oil and gas producers and operators
 • Developing additional capacity and capability in the oil & gas fabrication and ship repair businesses
 • Expanding capacity and geographical spread of the company’s permanent accommodation for contractors (PAC)
   facilities in remote oilfields

While each of these three investment areas are driven primarily by organic growth, we also actively seek out potential strategic acquisitions that match the investment criteria. The current planned investment value of RO 195 million (> US$ 0.5 billion) over this 3-year timeframe, was announced in the 2006 Annual Report, in addition the investments of RO 32.9 million (US$ 85 million) already made in that year. In 2007 we have invested RO 44.6 million (US$ 116 million) in new assets as part of this programme.

Within the same strategic framework, Renaissance also has a clear divestment strategy: We have always acted swiftly to remove non-performing assets and ensure the company only carries assets that maximize value. However, in order to rationalize the business portfolio with a primary focus on oil & gas services it has become necessary for the company to consider divestment of its high-performance, high-potential technology, media and training businesses. We shall divest these businesses if the price offers realization of value for shareholders; and if the investment strategy or industry focus of the buyer, offers a platform for these companies to meet their ongoing growth potential to the maximum advantage of employees and customers of these businesses. We have agreed an offer for the media businesses at the end of 2007, subject to completion of legal approvals and formalities for owning media businesses in Oman. We are currently considering serious offers for the technology businesses; and will shortly start the process for divestment of the training businesses. A strong performance by the training businesses in 2007 has naturally attracted the attention of potential investors in Oman and internationally.

Renaissance has clear values: We value People; Health, Safety & Environment (HSE); Integrity; Reward; Efficiency & Productivity; Customers; Growth; Merit; Social Responsibility; Transparency; Quality; and Profit. These values provide us with the necessary signposts and guidelines for how we behave in the conduct of our business.

Renaissance adopts and applies best practice systems and processes: The company aligns itself with the values, priorities and best practices of the oil & gas sector. The company is committed to gaining third party accreditation and certification of its systems and processes, which are set-up under the coverage and protection of the ISO loop and other appropriate industry standards. This serves to enhance the quality and value of the services we offer to all our customers, both inside and outside the oil & gas industry.

Renaissance sets itself high performance targets and business plans: Renaissance does not manage earnings nor provide earnings guidance. In fact, the company is prepared to make strategic decisions and complete strategic acquisitions that maximize expected value, even at the expense of lowering near terms earnings. This does not prevent us internally from driving our businesses forward with ambitious but realistic plans coupled with high but realistic aspirational targets. We work on the philosophy that it is better to have aimed high and fall short, than to aim low and reach the target.

Within the parameters of approved business plans and authorized expenditures; under the coverage and protection of clear policies on levels of authority; with unambiguous clarity of strategic direction; and with the immune system of a corporate culture built around principle-centered vision, purpose and values; Renaissance is able to operate through the empowerment of people. At Renaissance we actively encourage innovative thinking and action throughout every business, in an atmosphere of autonomy and entrepreneurship that is hands-on and values driven. Giving professional, trustworthy people the freedom to succeed releases talent, energy and commitment that is at the very heart of Renaissance’s success.

The final piece of the jigsaw of how Renaissance goes about its business is the conviction that staying close to the customer and making the loyal customer want to stay close to the company delivers benefits that go well beyond revenues and profits. Loyal and delighted customers act as ambassadors for the business, help to attract and retain the best employees and also serve to keep investors loyal and happy. “Customer centricity” creates a virtuous spiral of sustainable success. But customer needs and expectations change and those businesses that prosper on the back of delighted customers must keep in the forefront of timely change. We are in the business of giving customers what they want not what we think they want. We value each and every one of our clients and customers and we thank them for their patronage. In return, we assure them that Renaissance is committed to complying with customer specifications and contracts, underpinned by our corporate culture of exceeding customer expectations safely and profitably. That is why Renaissance needs to attract and retain the best employees; employees that are smart enough to be able to respond to the emerging needs of customers at lowest possible costs.

How has Renaissance performed in 2007?

The 2007 performance is encouraging in every respect. Renaissance again delivered consistent organic growth, with revenue up 39.4%, operating profit up 26.68%, EBITDA up 27.9%, and Net Profit up 21.7%. Alongside improved performance against all our measurement criteria, we have invested in the businesses with over RO 44.6 million (US$ 116 million) invested in 13 new vessels for the offshore support vessel fleet; we have expanded our onshore permanent accommodation for contractors (PAC) facilities by some 30% with 336 additional rooms; and we have expanded the capacity, capability and infrastructure of our engineering businesses. We have achieved this while delivering cash to shareholders and our share price hit a new high this year.

Revenue, Net profit and Equity

Amount in RO million

 

 

 

 

 

 

2003

2004

2005

2006

2007
           

Revenue

45.9 

62.6

106.4

142.9

199.2

Net Profit

5.0

13.5

13.9

14.3

17.3

Total equity

12.6 

24.9

82.2

91.8

109.4


Our dividend policy remains unchanged based on the proposition that cash is returned in the form of higher dividend payouts when there are no credible value-creating opportunities to invest in the business. Even in the midst of a US$508 million investment programme that is securing sustainable growth for the company we are still able to deliver cash and stock dividend to our shareholders consistent with last year.


Dividend track record

 

2003

2004

2005

2006

2007
 

%

RO’000

%

RO’000

%

RO’000

%

RO’000

%

RO’000

Cash dividend

25

1,572

 35

2,311

25

5,068

15

3,041

15

3,344

Stock dividend

 5

 315

10

661

62.5

7,415

10

2,027

10

2,229

Total dividend

30

1,887

45

2,972

87.5

12,483

25

5,068

25

5,573

The safety of our people and all those affected by our work remains the top priority in the service of our customers, and the efficient and profitable operation of our business. The group had far greater exposure this year with significant increases in the number of manhours worked and - with road safety a key risk area - the number of kilometers driven.

Safety performance 

 

2006

2007

Change

Total Manhours worked

22,716,247

31,034,893

+8,318,646

Number of Fatalities

0

1

+1

Number of Lost Time Incidents (LTI)

37

28

-9

Lost Time Incident Frequency (LTIF)

1.63

0.90

-0.73

Road Traffic Accidents (RTA)

16

25

+9

Total Kilometers Driven

8,690,044 

11,897,134

+3,207,090

The overall group target for Lost Time Incident Frequency (LTIF), which measures the number of lost time incidents per million manhours worked, was 0.90, down from 1.63 last year and below the target of 1.0. However, this improved performance was marred by the fatality suffered this year, when a colleague fell from height while working on an assignment for a client in Abu Dhabi. It should also be noted that 20 of the 25 LTIs occurred in one single line company outside the oil & gas sector. That company is improving its safety performance, but currently continues to bring down the overall safety performance of the group. We remain committed to improving the safety performance of all the companies in all operations. We shall not be satisfied until we achieve zero incidents.


What are the key challenges, obstacles and risks facing Renaissance going forward?

It is appropriate to observe that the business climate in which the 2007 performance has been delivered is becoming increasingly complex and frequently more testing as we seek to deliver further performance growth in 2008. Understanding challenges and changes in the business environment ensures they may be met and mitigated with confidence.

The outlook for Renaissance is positive: We have already made investments in assets and have won long-term contracts that ensure continued and sustainable economic growth; we have already got 11 vessels under construction to join our offshore support vessel fleet in 2008/09; we have already identified potential synergistic acquisition targets in the oil & gas sector to fast-track our growth ambitions. Our current cash-flows and balance sheet support our declared US$508 million investment programme – and improving cash flows suggest we may be able to do more.

The primary challenges, obstacles and risks we must be alert to in implementing our growth programme are: potential exposure to exchange rate issues, in particular the potential de-linking of various GCC currencies from the US Dollar; availability and cost of financing in the post-subprime period; rising inflation in several key markets; availability of resources in the oil & gas sector – people, materials and infrastructure; availability of shipyard capacity and demand and potential over-supply of vessels in the marine industry; and any negative volatility in the oil & gas sector, including volatility of oil price.

Balancing the cost benefit economics we have hedged some portion of our US Dollar denominated transactions to mitigate the possible exposure from any changes in currency policy in the GCC. So far, while there has been some post-subprime upward pressure on financing costs we have found our presence in the oil & gas sector and the nature of many of our assets being linked to long-term safe contracts, mean that our business remains an attractive proposition for financiers. Rising inflation in the region has been a matter of concern and we are keeping a close watch on rising costs especially while bidding for new contracts. Some contracts have inflation-proof clauses, others don’t. Whilst there is sometimes a time lag between rising costs filtering through to price, we are generally able to mitigate the impact through cyclical re-tendering. One inflationary issue that causes most concern is the spiraling cost of living and its impact on human resource costs. We are dealing with this by conducting fair independent reviews of cost of living in the markets that we serve. We have an excellent track record on people retention and this is a key factor when addressing shortage of resources in the booming oil & gas industry. We handle shortages in materials, infrastructure and shipyard capacity by maintaining a high level of industry expertise in our management team, focused on sourcing optimum economic and technical solutions to meet our growth needs.

We draw on the same industry expertise to ensure we are comfortable with concerns about potential over-supply of vessels in the coming years. For this we consider the markets we are in, the balance of long-term contracts with short-term contract assignments, and the type of offshore support vessels we own.

In 2007, 76% of Renaissance revenues of RO 199.2 million (US$ 517.4 million) were generated providing services to the oil & gas sector, and as we implement our declared strategy, the oil & gas content share of our business will increase further still. This does not mean that oil & gas customers are any more important than customers in other sectors like Healthcare, Defence, Education, Marine, Commerce & Industry, that generate the other 24% of our income. Not at all, each and every one of our customers is of intrinsic value to us. In fact, aligning ourselves with the values and priorities of the oil & gas sector enhances the quality and value of the services we offer to all our customers. However, this also requires us to consider any potential exposure to volatility in the energy sector and its dependence on stable and sufficient oil price. Here we consider three important factors: First, the energy sector is going through a boom cycle that is increasingly viewed as sustainable. The traditional volatility of boom and bust in the industry is increasingly seen as likely to enjoy higher-highs and lower-lows. This is driven by the increasing demand for energy in a growing and developing world, and the spectre of decreasing supply of a finite commodity – which demands greater investment in new technology to recover diminishing and previously inaccessible or economically unviable reserves. Second, we have to consider the services we provide – looking after people and infrastructure has proved to be generally far more immune to economic cycles in the industry, as the oilfields still have to be sustained during downturns. Third, we have a significant number of long-term 10, 20, 30 and more year contracts with leading oil & gas producers in many markets. We are convinced that the oil & gas sector is the right place for Renaissance to be for the long-term.

Beyond the generic risks and challenges discussed here, we do have two specific areas of concern that we are addressing: The first of these is our concern about changes in practice for taxing overseas dividend income applied retrospectively. This has been discussed at length in the Chairman’s Report and we are hopeful that the concerned authorities will understand our position on this and tax of overseas income in general. The second is a specific problem we have encountered in a contract given out by our subsidiary BUE Kazakh to build 4 barges in Ukraine:

BUE Kazakh is building 8 special purpose ice class barges for its contract with Agip Kazakhstan North Caspian Operating Company N.V. (Agip KCO). 4 of the barges under construction in Ukraine have met a delay problem with a change in ownership of the shipyard, which has given rise to questions of ownership of the work-in-progress on our barges. We have an exposure of US$10 million of materials and deposits. However, our international and Kazakh legal advisers are completely confident that the matter will be resolved in our favour. The dispute is effectively between the past and current owners of the shipyard and our project is temporarily caught in the middle. Our legal advisers are certain that the evidence of our rights is clear and our status as a valued foreign investor will prevail as soon as the local dispute is resolved. This of course takes time, so we have moved swiftly to provide alternative solutions to ensure uninterrupted service to our client. We have now decided to build 4 replacement barges in other shipyards and the Ukraine barges will subsequently be used as option barges on the contract when required. In a company of our size and international operations profile, we will always meet problems and challenges of this kind. It is the nature of business. But our scale, diversity and flexibility allow us to manage turbulence without deflecting us from our obligations, our vision and our purpose.

What is the outlook for Renaissance going forward?

In aligning ourselves with the oil & gas industry that we serve, there are three things that are already an integral part of our Renaissance leadership and operating paradigm that we are giving even greater focus in 2008; and these are of enormous importance to our oil & gas clients in all markets:

  • Continuous improvement of HSE

  • Serious commitment to local content

    • Training and development of indigenous workforce

    • Shortening the supply line to be as local as is efficiently and qualitatively possible

    • Local partners

    • Local community benefit and social responsibility initiatives

  • Drive efficiency and lower cost base

    • Sharing our clients’ own concern to drive down the unit cost of production

    • Programmes to measure and reduce our own energy usage

    • Conservation initiatives

    • Efficiency/ cost reduction suggestions for clients

These operational initiatives, allied to our investment and divestment strategies, supported and sustained by our values-driven culture, all blend to suggest an extremely positive outlook for Renaissance. Our vision will be accomplished with the continued support of our outstanding people employed throughout our group, who I cannot thank enough for their achievements and endeavours. Our purpose will be accomplished through our highly successful relationships with customers, suppliers, financiers, professional advisors and the communities in which we serve. We thank them all for their continued support and trust.

In 2008 we are committed to delivering further superior performance that will be sustainable over the long-term. We are committed to enhancing the economic well-being and quality of life of all those whose lives are touched by our business. Our commitment extends to every aspect of the way we do business. It is reflected in our determination to meet the highest standards of probity and transparency. It is our intention to build a business that is enduring. A business that consistently produces excellent results and a business that consistently does the right thing.



Stephen R. Thomas
Chief Executive Officer

 
 

© 2005 -  Renaissance Services SAOG, Sultanate Of Oman