Medserv plc - Interim Report

Thursday, May 3rd, 2018

On 30 April 2018, Medserv plc published an Interim Report providing an overview of the company’s performance during the first three months of the current financial year ending 31 December 2018 (compared to the performance of Q1 2017), forecasted revenue and EBITDA for all of 2018, as well as insights on the Group’s pipeline of work in line with the company’s strategy of expanding internationally in different regions and through the provision of various specialised services.

In the first three months of 2018, revenue was 19% higher than the corresponding figure for the comparable period last year whilst EBITDA surged by 56% year-on-year. Moreover, this positive trend is expected to continue throughout 2018 and in 2019 as six out of the seven operating and active bases of Medserv are profitable on the back of long term contracts. In fact, Medserv is expecting revenues to grow by 27.4% to €36.7 million in 2018 and EBITDA to rebound to €6.8 million compared to €4.4 million in 2017.

Against this background, Medserv explained that its integrated logistics business (“ILSS”) is primarily made up of operations in Cyprus, Libya and Egypt. Improved business for the Group’s shore bases is being registered as offshore gas projects in each of these three countries are being developed. Particularly in Cyprus, the recent “Calypso” gas find earlier this year has the potential to be a source of work for the Group’s base in Limassol for years to come. Indeed, the “Calypso” field is considered to be as valuable as the Egyptian “Zohr” field, and further drilling is planned whilst other international oil companies (“IOCs”) are mobilising for new drilling activity. In this respect, Medserv noted that it submitted a tender to a new IOC for the provision of shore base logistics from the Limassol base which is in advance stage of evaluation.

Offshore Libya, Medserv has secured extensions to its long-term contracts to provide ongoing production support for the offshore activity. This core work is expected to increase in line with ENI’s published strategy to potentially develop two new structures in Bahr Essalam offshore gas and condensate field. This will increase the production support activities and add the potential for construction and subsea support activities for the Malta base. The Group expects its engineering support services to grow on the back of this development.

In Egypt, the award of a long-term logistics contract in December 2017 for the management of five logistics sites across the Nile delta has opened the market for the Group’s logistics and oil country tubular goods (“OCTG”) pipe businesses. Egypt is a well-established market and the Group is investing heavily in this country to maximise the advantages it brings to the market. In this respect, Medserv added that there is significant scope to provide both offshore and onshore logistics support to the market with the potential to further develop the scope of the current contract as well as secure new business from other IOCs and OCTG pipe suppliers.

In Portugal, Medserv’s base remains in mothball pending the resolution of environmental issues relating to the offshore drilling plans of Medserv’s client in this country.

The Group’s OCTG business in the Middle East region continues to gather momentum as this line of business is expected to provide significant growth for the Group in the near term. Supply Chain Management (“SCM”) in Oman continues to grow year-on-year, with a 15% volume (tonnage) increase. The addition of a new 117,000 sqm base in Duqm has added a range of new services for the Group, in particular the “Mill to Rig” integrated logistics service which provides rig-ready OCTG pipe at point of need. With the success of Duqm, the Sohar facility is now being downsized. However, there are sufficient new business projects to indicate that business will be maintained at Sohar for the foreseeable future.

The premium threading machine shop in the United Arab Emirates has its forward order book full for the first six months of 2018 as Medserv is again receiving and threading new pipe-activities which were non-existent for most of 2017. On the other hand, the business in Iraq remained weak through Q1 2018. However, the forward order position is much healthier for the second quarter of 2018 and such levels are expected to be maintained. In fact, the medium-term forecast on Iraq remains positive with the number of land rigs mobilised to oil fields showing a healthy increase over 2017.

The “Mill to Rig” model being applied in Oman between pipe manufacturers and their clients is expected to be adopted by other IOCs in the Middle East. This is expected to result in significant business growth in the Group’s OCTG business as it continues to successfully deliver SCM to the leading pipe manufacturers. Projects in new territories arising primarily from organic growth are scheduled to come online before the end of 2018. In this respect, Medserv is awaiting adjudication on a tender for the provision of machine shop services in Uganda. This is a long-term contract with consistent, dependable revenues. Moreover, Medserv is experiencing an increasing number of tendering opportunities within its core ILSS and OCTG competencies and is in discussions with IOCs to develop a service which encompasses both OCTG and ILSS service lines.

In conclusion, Medserv made reference to the company announcement dated 30 April 2018 and reiterated its view that the possible sourcing of a strategic purchaser is in line with the company’s objective of accelerating and augmenting its growth and internationalisation strategy. Nonetheless, Medserv added that it is confident that, with the Group’s strong business pipeline, the current and prospective business opportunities are achievable independently of the success in sourcing a strategic purchaser.

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