Gulf International Services (“GIS” or the “the group”; QE: GISS), the largest service group in Qatar with interests in a broad cross-section of industries, ranging from insurance, re-insurance, fund management, onshore and offshore drilling, helicopter transportation, and facilities management, announced its 2011 first quarter results today with revenue of QR 329.2 million and net profit of QR 86.3 million.
In a statement to the Qatar Exchange, Mr. Ebrahim Al-Mannai, Chief Coordinator, Gulf International Services stated, “The group has responded well to the difficult operating conditions we are currently in.  Net profit in the first quarter was up on the final quarter of 2010, buoyed by improved profitability in our Insurance segment.  The quarter was also marked by the return of the Al-Rayyan rig to service, meaning that all of the group’s onshore and offshore rigs are now fully employed.”
Social Unrest
“The market should be aware that to date the recent unrest in Bahrain, Egypt, Libya, Tunisia and Yemen, has had no direct, material impact on the operations of the group companies, or the safety of their operating assets,” continued Mr. Al-Mannai.
“We do not expect the operations or assets of our aviation subsidiary’s Libyan investment, Al Maha Aviation Company, to be materially impacted by the civil strife.  Furthermore, all of Gulf Drilling International’s rigs are strategically situated and operating in Qatari territorial waters, and likewise the investment properties of our real estate associate, Fereej, are located in the state of Qatar.  Finally, our insurance subsidiary, Al Koot, does not write any risks in the regions affected."
Financial Results
Revenue
Group revenue in the first quarter was QR 329.2 million, representing a decrease of QR 57.5 million over the same period last year, and QR 49.7 million on the fourth quarter of 2010.
Premiums and net commission income in the Insurance segment decreased by QR 9.1 million, or 7.7%, on the first quarter of 2010, to close the quarter at QR 108.8 million.  This decrease comes despite strong year-on-year growth in the Medical line of business, with revenue in this line increasing by QR4.6 million, or 15.9%, to total QR 33.7 million.  The core Energy business, which accounted for 63.7% of total Insurance revenue during the first quarter of 2011 (2010, Q1: 71.5%), recorded a drop in net premium revenue of QR 15.0 million, or 17.8%.  Net commission income, consisting of management fees and reinsurance commissions, registered an increase of QR 1.3 million, or 27.5%, on 2010.
Compared to the same period of last year, revenue in the Aviation segment increased by QR 9.5 million, or 8.8%, to QR 117.6 million.  The increase was mainly due to the expansion and modernisation of the helicopter fleet due to the acquisition of new AW139s, as the group’s closing helicopter count of 37 was an increase of 3 on the first quarter of 2010.  As a result, Qatar-based revenue grew by QR 17.2 million, or 19.4%, to QR 105.8 million.  Foreign direct operations and non-aviation related income accounted for the remaining QR 11.8 million of segmental revenue.
Drilling revenue for the first quarter was QR 102.9 million, a year-on-year decrease of QR 58.7 million, or 36.3%.  By the end of the first quarter, all of the group’s onshore and offshore rigs were under contract, with the Al-Rayyan rig, that underwent extensive upgrade, refurbishment and repair during 2010, commencing a new contract towards the end of March, 2011.  In addition, the Al-Khor rig, that was originally expected to be ex-contract in 2010, had its original contract extended into January, 2011, and then started work with a new client in March, 2011.  The year-on-year performance was also impacted by daily rate reductions in all offshore rigs. 
Direct Costs
Direct costs increased by QR 13.1 million, or 5.8%, on last year, and versus the last quarter, decreased by QR 31.6 million, or 11.7%.  Quarter-on-quarter, costs in the Insurance segment decreased by QR 47.7 million, or 34.2%, as no new, major claims were recorded during the quarter.    Direct operating costs in the Drilling segment marginally increased on the fourth quarter of 2010 by QR 3.2 million, or 4.3%, principally due to the commencement of Al-Rayyan operations.
Net Profit
Net profit for the quarter totaled QR 86.3 million, a quarter-on-quarter increase of QR 5.8 million or 7.2%.  The increase can be attributed to improved profitability in the Insurance segment and the deployment of the Al-Rayyan rig.  Profitability for the quarter was also better than budgeted, as the group recorded a net profit margin of 26.2%, +0.6% percentage points versus budget.
Financial Position, Cash Flows And Financial Measures
The group’s total assets marginally decreased by QR 0.1 billion, or 2.0%, closing at QR 4.1 billion, due mainly to the periodic depreciation charge and distribution of the 2010 cash dividend.  The distribution of the prior year dividend was also the main driver behind cash and short-term deposits reducing by QR 19.5 million, or 2.4%.  Cash realisation ratios remained strong, closing at 265.2%, and free cash flows were positive (2011, Q1: QR 211.0 million; 2010, Q1: QR -28.0 million).  Net debt remained positive (2011, Q1: QR 7.7 million; 2010, Q1: QR 148.0 million) and the group’s debt to equity ratio dropped below the 40% mark due to loan repayments made during the quarter.  As a result, total loans and borrowings decreased by QR 42.7 million, or 5.0%, to close at QR 815.0 million.
Conclusion
In conclusion, Mr. Al-Mannai stated, “I would like to assure the market that Gulf International Services is fully committed to transparency and open dialogue through the Qatar Exchange and the company’s website, www.gis.com.qa, and we will ensure that the market is informed of any developments that may materially impact our operations or finances, or the safety of our operational assets.
“The financial fundamentals of Gulf International Services are strong, and I look forward to the balance of the year with renewed optimism.”