Medserv plc - Interim Results

Thursday, August 27th, 2015

On 27 August, Medserv plc published its interim results covering the six months ended 30 June 2015.

Performance Overview

During the period under review, the Medserv Group reported a significant increase in revenue to a record €26.9 million reflecting the growth at both the Malta and Cypriot bases. The Directors reported that the Group’s base in Malta was extremely busy as a number of leading international oil companies are operating out of this base, confirming Medserv’s strong position in the sector. Given the additional demand for its services, the Group will be expanding further its office block in Malta and has leased out a further 13,000 square metres at its site in Hal Far. Similarly, in Cyprus, the Group serviced ENI Cyprus as it drilled the first two wells of a four well programme. In the meantime, the Group also generated €0.9 million from its Tripoli office.

In view of the increased business activity described above, Medserv also recorded a significant increase in cost of sales to €19.1 million leading to a gross profit of €7.8 million compared to €1.8 million in the first six months of 2014. The gross profit margin also improved to 29% from 18.9% in the previous corresponding six months reflecting a lower incidence of low margin business which in turn had formed a substantial part of the income generated during the first six months of 2014.

Similarly, administrative expenses almost tripled to reached €2.8 million and net other operating income increased substantially to €0.23 million (H1 2014: €0.02 million). As a result, the Group’s operating profit jumped to €5.3 million compared to €0.91 million during the first six months of 2014. Excluding depreciation, the Group’s earnings before interest, tax, depreciation and amortisation (EBITDA) amounted to €6.56 million (H1 2014: €1.36 million) with the EBITDA margin reaching 24.4% (H1 2014: 14.3%), just below the Group’s record EBITDA margin of 24.5% reached in 2013.

Net interest expenses also increased to €0.78 million, up from €0.35 million during the first six months of 2014 reflecting the higher borrowing levels needed to fund the Group’s growing business activity.

Overall, the Medserv Group reported a pre-tax profit of €4.5 million (H1 2014: €0.56 million) and after deducting a tax charge of €1.3 million, the Group’s profit from continuing operations amounted to €3.2 million compared to €0.47 million in the first half of 2014. This translates into an earnings per share from continuing operations of €0.114 compared to €0.017 in the first six months of 2014.

During the period under review, the Medserv Group decide to divest itself from the 60% stake in the Misurata base which remained dormant in view of the challenges in Libya. An agreement was reached with the Group’s partner who took over Medserv’s 60% shareholding in Medserv Misurata Free Zone Company in exchange for a financial consideration and certain assets on the Misurata base that have been shipped over to Malta. As a result, the Group recognised a loss of €0.22 million in connection with this disposal and discontinuation of operations in Misurata.

After accounting for minority interest of €0.38 million, the Group’s net profit attributable to shareholders amounted to €2.6 million (H1 2014: €0.4 million).

The Statement of Financial Position as at 30 June 2015 shows that total assets were practically unchanged at €80.8 million compared to the figures as at 31 December 2014 as the additional €2.2 million property, plant and equipment acquired during the period and the 119.5% increase in cash balances to €2.4 million were counterbalanced by the elimination of the assets in Misurata, the reduction in the prepaid operating lease and deferred tax assets as well as the decline in trade receivables. On the other hand, total liabilities contracted by 1.9% to €70 million as the additional €4.6 million in borrowings were offset by the reduction in the Group’s deferred income. Overall, the Medserv Group’s equity base grew by 13.3% during the six months under review to €10.4 million mainly reflecting the profit registered during the first six months of 2015. This translates into a net asset value of €0.4177 per share (Dec 2014: €0.3686).

Dividend

The Directors did not declare an interim dividend.

Outlook

The Directors explained that although the results for the first half of 2015 substantially exceeded expectations, the results for the second half of the year, whilst remaining profitable, are not expected to exceed budgets. In May 2015, Medserv had issued its financial projections for the year showing pre-tax profits estimated at €4.3 million.

The Malta base is expected to remain very active. In fact, given the growing shortage of quay space in Malta, the Group has located a port in Greece which is suitable for quayside operations. The Greek port has already received its first vessel which is undergoing maintenance and other quayside operations.

In Cyprus, ENI Cyprus Ltd is currently evaluating the results of the first two wells that have been drilled. As a result, the base in Cyprus has reduced its operating costs in line with the presently reduced activity of its client.

Although the Group disposed of its investment in the Misurata base, Medserv reported that Libya will remain an important market and thus it is already positioning itself to be able to reopen a land base at the first opportunity. The location of the new Libyan base will be dependent on market considerations as well as political and economic changes one may expect in the new Libya. Furthermore, the Tripoli office remains active and secured an additional contract valued at €1 million with the possibility of extending it by a further €2 million in 2016. This represents another maintenance contract thereby confirming the solid development of the Group’s maintenance unit set up last year.

The Directors also noted that the Group is continuing to actively search for additional opportunities particularly in Portugal, Egypt and the Middle East.

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Medserv plc – Interim Results covering the six months ended 30 June 2015

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