For the period ended 31st Dec 2007

On behalf of the Board of Directors, it gives me great pleasure to present to you the annual report and audited accounts for Renaissance Services SAOG (Renaissance) for the year ended 31 December 2007. This report is in full compliance with the new guidelines on disclosure standards for Directors’ reports issued by the Capital Market Authority (CMA) effective 1 October 2007. It pleases me to say that in earlier years all these issues were always covered between our Chairman’s Statement and CEO Report.

2007 was another record year for Renaissance. We continued to deliver value to all our stakeholders and to make strategic investments that will drive sustained, superior performance over the long term.

We set a new safety record in 2007, our third consecutive year of improvement, with Lost Time Injury Frequency (LTIF) per million manhours worked, down from 1.63 to 0.9. However, we will never be satisfied until we reduce the number of safety-related incidents to zero.

For the sixth successive year, the 2007 financial results show the highest revenue and profits in the history of the company. The results also show strong growth in comparison to the previous record set in the last fiscal year with revenue up 39.4%, operating profit up 26.68%, EBITDA up 27.9%, and Net Profit up 21.7%.
 

These results show a compounded annual growth of 44.2% in revenue and 33.8% in operating profit over the last five years period (2003-2007). The return on shareholder funds has increased to 17.2% compared to 16.4% in the previous year. EPS has improved to 78 baizas per share against 66 baizas in 2006.

Our dividend policy is 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. Our ongoing growth plans require reinvestment of profits in the business to create substantial higher value for our shareholders. For the current fiscal year we have recommended a cash dividend of 15% and a stock dividend of 10%.

The current year profit of RO 17.3 million is before considering any capital gain from the divestment of our 100% subsidiary United Media Services LLC (UMS). In December 2007, we had announced that we have accepted an offer from a group of Omani led strategic investors to sell our 100% holding in UMS. The value of the deal is RO 3 million and is expected to realise a net capital gain of RO 1.5 million. The legal formalities related to the transfer of share ownership are yet to be completed, subject to approvals from the concerned authorities. As required under the International Financial Reporting Standards (IFRS) we will only account the full impact of UMS divestment in our financials if the transfer of ownership is approved, registered and completed.

In 2007 we have invested more than RO 44.6 million (US$ 116 million) in our businesses for capital assets required as part of our declared RO 195.5 million (US$508 million) investment programme.

During the year the company made public statements announcing each new contract win for all contracts valued above US$15 million. The aggregate value of the 9 contracts falling into this category amounted to US$767 million; and the aggregate value of all contracts won, including smaller contracts, contract renewals and contracts bound by confidentiality clauses, exceeded US$ 1 billion.

Each business had significant achievements in the year – to mention a few: the oil & gas fabrication business had its first jacket rollout, just one of many high-end oil & gas fabrication contracts completed in the year; the ship repair business completed its first year of operations in Bautino, Kazakhstan and Salalah, Oman; the offshore support vessel fleet businesses placed orders for 5 new vessels and 8 ice-class barges and signed new JV agreements in Azerbaijan and Saudi Arabia; and the contract services business completed the 30% expansion of its PAC facilities in Oman’s oilfields and fully established its contract operations in Angola.

These results; these investments; these contract wins; and these business achievements all combine to make 2007 a year of outstanding success for our company and, more importantly, provide a platform for sustained economic growth and value in the years ahead.

Underpinning this is a strong competitive position, strengthened by our diversity and geographical spread. The oil & gas fabrication business, based in Abu Dhabi, is the dominant local and regional player in its sector with a focus on offshore construction. The ship afloat repair business is the clear leader in the region and has strengthened its international reach with bases in Azerbaijan, Kazakhstan, Oman and multiple sites in UAE. The offshore support vessel fleet holds market leadership positions in the Caspian with approximately 70% of the Azerbaijan market and 44% of the Kazakhstan market. The contract services business leads its home market of Oman with 45% market share (up from 35% last year) and has established a creditable 11% share of business in its newer international markets.

This strong competitive position is reinforced by a primary focus across a robust oil & gas sector, with minimal reliance on any one single client or supplier. In individual markets, no single customer or supplier represents >10% of each individual company’s revenue with three exceptions: for contract services, Petroleum Development Oman (PDO) and its contractors represent 20% of business in Oman; and for the offshore support vessel fleet businesses BP represents 90% of revenue in Azerbaijan and Agip KCO represents 46% of business in Kazakhstan – but this reflects the current single dominant oil & gas producer status in the Caspian markets. These positions are mitigated by the companies concerned holding long-term contracts of 10, 20, 30 years and more with blue chip clients in the oil & gas sector.

Looking ahead, the company is committed to its strategy to strengthen and grow its primary oil & gas services focus. This shall be achieved through divestment of non-core businesses; capital investment in our oil & gas services businesses, onshore and offshore; strategic acquisitions in the oil & gas services sector; widening and strengthening geographical presence including formation of strategically important Joint Ventures (JV) to attract quality local content ownership to add value in key markets.

Specifically, the divestment programme is already well-advanced in sourcing new ownership for the technology and training businesses. Both of these businesses have performed superbly again this year, which is attracting interest from both financial investors and industry players locally, regionally and internationally, who want to invest in the future of these businesses to the benefit of all stakeholders, especially existing employees and customers.

We continue to invest in our existing businesses through the US$508 million 2007-09 investment strategy announced last year: to increase the size and reduce the age profile of our offshore support vessel fleet; to develop additional capacity and capability in our oil & gas fabrication and ship repair businesses; and to expand capacity and geographical spread of our permanent accommodation for contractors (PAC) facilities in remote oilfields.

At the present time we are close to concluding a major acquisition, which would increase the size and geographical spread of our offshore support vessel fleet businesses. We are bound by confidentiality so may not divulge more information at present. But if successful, this will give our growth plans a boost early in the year. If not, we have other opportunities under consideration, but these would not fructify until later in the year.

In 2007 we reaffirmed local JV content in Azerbaijan, where we have a long and successful relationship through the BUE-KMNF Alliance. A new Saudi JV is under formation between Topaz Energy and Marine Ltd. (Topaz) and Gentas Ltd. We are close to concluding arrangements for an important new JV in Kazakhstan. If we are successful in concluding this deal, we believe the new JV will be in a very strong position to build on our existing market leadership position for the OSV fleet. We have also concluded a JV agreement with Kazmortransflot and Caspian Services Incorporated for a boat yard and dry docking services in Bautino.

We are also considering optimum corporate structure for focus and value in our two principal business units: the oil & gas marine & engineering businesses; and the contract services and infrastructure businesses. It is clear that even at a time of volatility in international markets, with severe credit pressure arising from the sub-prime crisis, these businesses are sustaining and growing value. We continue to work closely with our advisors Simmons & Co. on strategies for growth and value creation.

Our financing structure in the balance sheet provides a robust balance between earning adequate returns on the capital employed and the need to cover financial and business risks. Our banking partners include Omani, regional and international banks which have been playing a major role in supporting our investments in capital assets. In 2007, the RO 44.6 million (US$ 116 million) investment in capital assets were funded from a mix of internal cash flows and term loan facilities. The gearing in our balance sheet continues to be below one, demonstrating that we have a strong balance sheet to support our future expansion plans. Our planned capex for 2008 shall be funded from internal cash flows and new funding facilities from banks. The divestment programme shall provide additional liquidity.

Renaissance is an Omani company with significant international operations. We are one of the largest exporters of services from Oman; and one of the largest publicly-listed owners of foreign assets bringing profit and wealth to Oman. However, current tax rules and export incentives in Oman do not provide any tax support for ‘services’ export initiatives. Recent changes in tax practices, applied retrospectively to all pending tax assessments, have resulted in dividend income from overseas subsidiaries being taxed in Oman. This is despite the fact that in the past overseas dividend income was not being taxed and dividends received locally continue not to be taxed. We should point out that such changes in tax practices have been initiated without any changes to the tax laws. This would have an impact, for example, on our Topaz businesses, raising additional tax liabilities applicable to the period prior to Renaissance ownership. The Renaissance acquisition of Topaz was carried out with full transparency and scrutiny required of a public company and the tax judgements we made were based on prevailing Omani tax law and prevailing Omani tax practices at that time. Most importantly, prior to the transaction, Topaz had already been assessed by the tax authorities for certain years and dividend income received from overseas subsidiaries were not taxed. If new tax practices are introduced in retrospect, then it would become impossible to identify and disclose all potential tax liabilities at the time of the transaction. In this particular case, the additional taxes are not material to the balance sheet but the issue of taxing overseas dividend income remains; and we are seeking assurance from the concerned authorities that this will not be applicable in this clear-cut case. Furthermore, due to the prospect of taxation on foreign venture income your company has been forced to provide for further tax. So we have also taken up these matters with the relevant government departments to seek the fairest possible deal for Omani companies engaged in international competition, where we perceive Omani companies are at a competitive tax disadvantage, including, in some cases, paying double-tax on the same profits (locally and overseas). Given the government’s strong support for private enterprise, we hope there may be a review of the principle of taxation of overseas income in the best interests of Omani competitiveness abroad.

One of the key drivers of our international competitiveness is our belief in independently accredited and certified Quality Systems that provide the coverage and protection of the ISO loop for all management systems and processes including Health, Safety and Environment (HSE) and Management Information Systems (MIS). All Renaissance companies have ISO 9001:2000 and many have additional esoteric accreditations where relevant, including ISO 14000, ISO 18000, HACCP, CIEH, IiP and others. Renaissance is driven by a continuous improvement credo: never satisfied, always innovative.

There have been no changes to the top management team during the financial year; with the exception that the company appointed a CFO at the beginning of the year, who only stayed with the company for a short period for personal reasons.

The Auditors have issued an unqualified report and the Board of Directors is pleased to commend the accounts for approval.

On 6 June 2007 Cyclone Gonu struck the Sultanate of Oman. Renaissance, as you would rightly expect, played its part in the relief effort with initiatives such as assisting the government in housing and feeding some 3,000 displaced individuals, helping with food lifts for remote afflicted areas, environmental clean up and assistance with rehabilitation of displaced families. These costs have been absorbed in the operating costs of the contract services group, as is our practice when providing any support or sponsorship in kind from within line company operations. In addition to these efforts, specific cash donations, pledges and cash sponsorships this year amount to RO 158,790. Further abroad, we were pleased to sponsor SANAD to showcase Omani fashion and young Omani fashion designers at the UNESCO fashion show in Paris. We have made donations towards the improvement of the Mosque in Aktau, Kazakhstan; provided gym equipment for an orphanage there; and made a donation to developing an international community library for expatriates in Azerbaijan. The Board has recommended a sum of RO 170,000 for Corporate Social responsibility Programmes in 2008.

We continue our commitment to the environment and the support of the local communities in which we serve. Specifically in Oman, the contract services group continues to invest in environmentally friendly technology and equipment for its facilities, including installation of auto sensors to control utility consumption, and deployment of CFC-free equipment. A specific donation of RO 100,000 has been pledged, but not yet expended, for a Ministry of Manpower initiative to provide technical training facilities for communities in Oman’s interior.

We continued our sponsorship of Adrian Hayes on his 3-poles challenge to reach the 3 summits of the earth: Mount Everest, and the North and South Poles. Under Renaissance sponsorship this year, Adrian reached the North Pole on 25 April 2007 and reached the South Pole on 29 December 2007, completing the 3-Poles challenge to all 3 summits in a world record 19 months. We are pleased to be associated with the charities supported by Adrian’s expeditions. Renaissance's spirit of enterprise is aligned with Adrian's spirit of adventure. The metaphors of reaching the highest summit and expanding our business horizons from Pole to Pole are obvious, but meaningful.

The 2007 performance is just part of a strategic journey. Our company has grown, is growing, and will continue to grow based on decisions already taken and investments already made. We continue to seek out new opportunities to blend into and add onto this established sustainable growth path. With a primary focus on oil and gas, we are in the right industry where global demand will continue to grow and where supply will rely on innovation and investment in new technologies, efficiency gains, energy conservation, and availability of resources. We have an ever-expanding source of assets, geographical presence, competencies, relationships and – above all – skilled people, to provide essential efficient services to keep the industry operational and moving forward in the markets where we operate.

Investors and other stakeholders see a consistency in our strategy and approach to the business; a consistency in our long-term view and our approach to creating value.

Customers and other stakeholders see clear integrity in our commitment to high ethical standards and operating excellence.

Bankers, professional advisers and other stakeholders see prudent discipline in our approach to investment in new assets, new projects and inorganic growth.

Above all, all our stakeholders see that Renaissance can be relied upon to deliver: This starts at the operating level where people trust Renaissance operations to be safer, more customer-focused, more efficient and more profitable; and permeates through to the corporate level where people trust Renaissance to be transparent, well resourced, well advised and well governed.

In this regard, I would like to thank my fellow board members for their effort, commitment and counsel in guiding and directing our company. The entire board joins me in thanking all our stakeholders for their continued support: Shareholders, customers, bankers, professional advisers, suppliers, contractors, local communities and, of course, our people.

At the centre of our success are our people; the men and women of Renaissance. They run our operations safely, reliably and efficiently, in some of the toughest conditions imaginable. They strive to exceed customer expectations. They adopt or develop best practices that improve our operations today and create new business opportunities for tomorrow. They ensure we contribute to a better quality of life in every community where we serve. They conduct themselves with integrity and dignity. They create meaningful and sustainable value. We thank them and applaud them for their outstanding performance.

We thank His Majesty Sultan Qaboos bin Said whose wise leadership has brought stability, progress, prosperity and opportunity to our home market of Oman. This has provided the platform upon which an Omani company like Renaissance has been able to establish world class credentials at home in order to seek opportunity abroad and challenge the very best in international competition.

Samir J. Fancy
Chairman