MedservRegis plc - Interim Results

On 27 August 2018, Medserv plc published its condensed interim financial statements covering the six-month period ended 30 June 2018.

Performance Overview

During the period under review, Medserv plc registered a 33.2% increase in revenues to €18.1 million (H1 2017: €13.6 million), driven by the significant increase in business activity related to integrated logistics support services (“ILSS”) which outweighed the drop in revenues in oil country tubular goods (“OCTG”) (-12.8% to €6.58 million) and the photovoltaic farm (-22.8% to €0.24 million). In fact, revenues from ILSS almost doubled to €11.3 million (H1 2017: €5.76 million) reflecting higher volumes of business in both Malta and Cyprus as a result of increased oil and gas exploration activities and engineering services.

Total net expenses, including other income and expenses, amounted to €19.2 million – an increase of almost 30% compared to the €14.8 million figure for the previous comparable period. In this respect, Medserv explained that the increase in costs reflects the growth in business activity and the further implementation of the Group’s diversification strategy in terms of geographic reach, client base as well as product and services offerings. In fact, the costs incurred by Medserv for setting up the necessary facilities related to the new contracts awarded this year in Egypt and Cyprus have all been included in the 2018 interim financial statements. Furthermore, Medserv also took a provision for impairment of a trade receivable amounting to €0.21 million which is related to a customer who is currently experiencing financial difficulties. Nonetheless, Medserv is seeking various alternatives to recover this amount.

Excluding depreciation and amortisation charges, as well as the aforementioned specific impairment of €0.21 million, EBITDA surged by 18.5% to just under €3.4 million from €2.87 million in the first half of 2017.

The financial performance of Medserv was also lifted by the occurrence of lower net finance costs. Indeed, these amounted to €1.66 million compared to €2.2 million in the first six months of 2017 as the 9.1% increase in finance costs to €2.41 million was outweighed by the significantly higher increase in finance income to €0.76 million (H1 2017: €0.01 million) that was mostly related to favourable foreign currency exchange differences.

Overall, Medserv reported a pre-tax loss of €2.67 million compared to a loss of €3.35 million in the first six months of last year. After accounting for tax income of €0.06 million (H1 2017: tax charge of €0.5 million), the net loss for the period under review amounted to €2.61 million compared to a higher loss of €3.85 million in the first half of 2017.

The Statement of Financial Position as at 30 June 2018, compared to the corresponding figures as at 31 December 2017, shows that total assets expanded by 4.3% to €159.9 million (31 December 2017: €153.3 million). The increase in total assets was driven by higher amounts related to property, plant and equipment mainly (reflecting the investments undertaken in Egypt), trade and other receivables, as well as a cash balance of €6.28 million compared to €3.63 million as at the end of 2017.

Total liabilities reached €134 million, representing an increase of 7.1% over the €125.2 million figure as at 31 December 2017. In particular, total borrowings increased by 12.2% (or €6.47 million) to €59.3 million and trade and other liabilities climbed to €8.93 million from €5.66 million as at the end of 2017. Overall, equity attributable to the shareholders of the company contracted by 7.3% to €26.2 million. This translates into a net asset value per share of €0.4875 (Dec 2017: €0.526).

Outlook

In their commentary to the 2018 interim financial results, the Directors of Medserv provided an overview on the outlook of the Group’s various operations in different geographic regions:

Malta & Libya – ILSS

Medserv explained that it is continues to service the Bahr Essalam Phase II project which is located offshore Libya. Work volume is anticipated to increase in line with ENI’s offshore development strategy plan to increase offshore field production volumes in Libya. This includes the potential construction of two new structures, known as the A & E structure. This major development will make heavy use of both the Group’s shore base logistics as well as the engineering services in Malta.

Egypt – ILSS

On 23 January 2018, Medserv announced the penetration into a new market that the industry considers it to be the big new energy source on Europe’s doorstep. In this respect, Medserv explained that such new operations in Egypt commenced at the beginning of the year and that, as in any start-up, contract implementation have so far have been challenging. Nonetheless, Medserv finalised both the recruitment of key personnel and the purchase of all required equipment. The majority of this new equipment has been commissioned and, as such, the increased income will be reflected in the second half of the year. Moreover, Medserv also added that it is already having discussions with other operators in Egypt to extend its services to them.

Cyprus – ILSS

On 25 June 2018, Medserv announced the award of a new contract related to exploration activities taking place offshore Cyprus. This has increased Medserv’s client portfolio and, coupled with the business already contracted with other international oil companies (“IOC”), Medserv is well positioned to capture new business opportunities especially when drilling programmes commence in the East Mediterranean. In fact, Medserv explained that an additional find in Cyprus by an IOC would fuel a multi-drilling programme and development project.

Portugal – ILSS

The Portugal base remains in mothball mode as environmental issues are hindering the start of offshore exploratory drilling in Portugal.

Oman – OCTG

OCTG business is expected to register an improvement in the second half of 2018, particularly in Oman. The long-term supply chain management (“SCM”) contract awarded by Sumitomo in Q1 2017 became operational towards the end of Q2 2018. Moreover, volumes of work in terms of amount of tonnage handled is expected to increase by 15% in the second half of this year.

Iraq – OCTG

Medserv acknowledged that its performance in Iraq remains weak. Nonetheless, METS Iraq continues to participate in long-term OCTG tenders which are being issued as a result of the improving conditions in this country. Adjudication of this work is scheduled towards the end of this year. Furthermore, Medserv is continuously reviewing the performance of this business unit especially given the premium sole threading license it presently holds in Iraq.

 

Overall, the Directors of Medserv noted that the company’s outlook is positive as major onshore and offshore projects, all with long term potential and already contracted to the Group, are commencing. This is further augmented by the overall industry pickup and the new opportunities the Group is positioned to secure.

ILSS business has picked up significant momentum as all shore bases registered positive cashflows and contributed to the Group’s EBITDA. Meanwhile, growth in the OCTG segment is forecasted to take place in 2019 as Medserv is in advanced stages to secure a long-term contract in Uganda for the provision of premium threading services with consistent and dependable revenues. More significantly, the Group is also geared towards securing additional potential major SCM contracts in the Middle East early in 2019. In this respect, Medserv is already participating in tenders for the provision of these services as more IOCs adopt the “Mill to Rig” model which the Group already provides in Oman between the pipe manufacturers and their clients.

The turnaround in the industry and the Group’s operational reach in the Middle East and Africa is presenting new tendering opportunities for both OCTG and ILSS business. West Africa is also being considered as a new supplier of energy and Medserv is being invited to bid by the IOCs for the provision of its services.

As such, the Group is confident that the forecasted EBITDA of €6.81 million (as per the Financial Analysis Summary dated 11 May 2018) will be achieved and significantly improved in 2019. These improved earnings will enable the Group to continue to grow organically, in line with its strategy towards achieving further diversification and creating long-term value to shareholders.

Download

Medserv plc – Condensed Interim Financial Statements as at 30 June 2018.