Medserv plc - Interim Results

Thursday, August 24th, 2017

On 23 August, Medserv plc published its 2017 interim financial statements covering the six months ended 30 June 2017.

Performance Overview

During the period under review, Medserv plc registered a 21.3% drop in revenue to €13.6 million reflecting the slowdown in activity across all of the Group’s business lines in line with the trend in the global oil market.

As a result, notwithstanding a 14% drop in cost of sales to €12.45 million, the Group’s gross profit contracted by 58.6% to €1.2 million with the gross profit margin also retreating to 8.6% from 16.3% in the first half of 2016.

The Group’s results were further adversely affected by a 57.4% increase in administrative expenses to €2.78 million largely reflecting additional expenses incurred in the Group’s pursuit of further growth in new geographical markets as well as the implementation of a succession plan comprising the setting up of a strong management team.

Meanwhile, the Group registered €0.21 million in other operating income compared to €0.12 million in the first six months of 2016.

Overall, the Group incurred an operating loss of €1.4 million in contrast to the operating profit of €1.1 million in the first half of 2016.

Medserv’s financial results for the period under review were also adversely impacted by the 84.5% increase in net interest expense to almost €1.5 million largely reflecting the favourable foreign exchange movements recorded in the comparable period which were not repeated during the six months under review.

As a result, the Group reported a pre-tax loss of €2.9 million compared to a pre-tax profit of €0.28 million in the first half of 2016. After accounting for a tax charge of €0.55 million (H1 2016: €0.06 million) and minority interest of €0.18 million (H1 2016: nil), the Group’s net loss for the first six months of 2017 amounted to €3.3 million compared to a marginal profit in the first half of 2016. This translates into a negative earnings per share figure of €0.0607.

The Statement of Financial Position as at 30 June 2017 compared to the corresponding figures as at 31 December 2016, shows that total assets declined by 5.4% to €114.95 million reflecting reductions across a number of asset items including ‘property, plant and equipment’ (-7.2%), ‘intangible assets and goodwill’ (-6.4%), ‘trade and other receivables’ (-7%) and ‘cash at bank and in hand’ (-20%). Similarly, total liabilities dropped by 2.1% to just over €93 million on the back of a 1.8% drop in the Group’s bank borrowings to €52.2 million and a 10% reduction in ‘trade and other liabilities’ to €5.6 million. Overall, the Group’s equity base contracted by 16.3% to €22.1 million largely reflecting the loss incurred during the period under review. This translates into a net asset value per share of €0.4107 (Dec 2016: €0.49).

Dividend

The Directors did not declare an interim dividend.

Outlook

Looking ahead, the Directors noted that they are expecting substantial revenue growth for the years 2018 to 2020. This forecast is based on contracted works related to drilling projects and workover programs for the coming three years as well as securing an additional two new geographic markets by 2018.

The Group’s Integrated Logistic Support Services (ILSS) currently comprises shore bases in Malta, Portugal and Cyprus. The Group’s operations in Malta and Portugal are expected to remain in line with the first six months of 2017. However, in Cyprus, the Group has developed a second operating base in Limassol and will be supporting an intense drilling program from both Larnaca (storage) and Limassol (full operation). The drilling program offshore Cyprus is scheduled to start in the fourth quarter of 2017 and continue in 2018.

In the meantime, the Group is in advanced stages to conclude a strategically important long-term contract for the provision of shore base services in a new geographical area.  This contract is related to development and production works and if successful will offer the Medserv Group significant growth potential.

In the Group’s other main line of business, Oil Country Tubular Goods (OCTG), the operation in Oman is expected to remain a major contributor especially in view of the new base in Duqm which should become operational in the fourth quarter of 2017 and which will also kick-start the provision of additional services apart from the ones already offered from the existing base. Iraq has registered increased demand in the third quarter of this year and thus noticeable growth in revenue and EBITDA is expected in the coming years as the International Oil Companies (IOCs) resume their operations.

Additionally, the Group remains committed to expand its global presence by participating in various tenders in new markets.

The Directors concluded by stating that the second half of the year is expected to register an improved performance over the first half with robust growth in 2018. Nonetheless, the Group has revised downwards its revenue forecast for 2017 from €35.9 million to €30 million which should lead to an EBITDA of around €4 million compared to the previous forecast (published in April 2017) of €7.6 million.

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Medserv plc – Half-Year Report for the six months ended 30 June 2017

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