Mediterranean Investments Holding plc - Interim Results

Monday, September 1st, 2014

On 29 August, Mediterranean Investments Holding plc published its 2014 interim results covering the six months ended 30 June 2014.

Performance Overview

During the first six months of 2014, MIH registered a 4% increase in revenues to €16.3 million. MIH reported that as at 30 June 2014, 388 of the 413 units were leased out representing an occupancy rate of 93.9%. MIH explained that there was a shift towards longer-term leases mainly arising from the reduced presence of NGO’s which typically only commit for the short to medium-term. This shift is part of MIH’s strategy for added stability and long-term income visibility.

Operating expenses surged by 38.5% to €3.4 million resulting in a decline in the gross profit to €13 million (June 2013: €13.3 million). The gross profit margin also declined to 79.4% (June 2013: 84.6%). MIH explained that the hike in operating expenses reflects the rental costs of generators to ensure uninterrupted power supply to the Palm City tenants and newly contracted service agreements entered into for the upkeep of the village. On the other hand, MIH incurred a lower level of administrative and marketing expenses leading to an operating profit of €12.2 million (June 2013: €12.1 million). The operating profit margin eased to 74.4% in the first half of 2014 from 76.9% during the first six months of last year.

Net finance costs increased to €4.1 million largely on account of a steep decline in finance income as a loan to a related party was settled towards the beginning of the period. Pre-tax profits during the first half of the year of €8 million represent a decrease of 9.5% from the profitability in the first six months of 2013. After accounting for a tax charge of €697,528, MIH registered a net profit of €7.3 million (June 2013: €8.5 million).

The Group’s asset base expanded by 2.6% to €360 million with shareholders’ funds increasing by 4.4% to €173.5 million. The Directors of MIH explained that given the downturn in business, the value of the property in Libya as at 30 June 2014 would normally need to be tested for impairment. However, in view of the unpredictable situation in Libya, the Directors felt it inappropriate to try to model outcomes of projected cash flows and as such, the asset valuation exercise has been postponed to a later date when there is some further clarity on the geopolitical situation.

Outlook

MIH reported that the shift in lease agreements from a short-term nature to longer-term leases during the first half of the year was a positive development for MIH since although most of the clients have physically evacuated the village due to the renewed conflict in July and August, none of the clients have, as yet, exercised the force majeure clause.  MIH clients can only claim a situation of force majeure three months following the start of an agreed force majeure date.

MIH confirmed that it has taken immediate measures to protect its employees and the property to minimise the impact on the operational performance. The number of employees has been downsized and a reduced number of facilities within the village are operational. However, the village is being kept operational with the hope that tenants will return shortly. While acknowledging that some tenants may terminate their contracts early due to a force majeure situation, MIH hopes that this is mitigated by the uniqueness of the product and the strong desire of the tenants to reserve accommodation for the long-term.

The Directors of MIH claim that if the current situation persists for much longer, the financial performance of the Palm City Residences will be negatively impacted.

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Mediterranean Investments Holding plc – Interim Results for the six months ended 30 June 2014

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