Medserv plc - Interim Results

The 2007 Half-Yearly Report of Medserv plc was published on 3 September 2007 following a Board of Directors’ meeting held on 28 August.

During the first six months of the year Medserv’s turnover amounted to only Lm526,745 compared to Lm1.4 million in the first half of 2006. The drop in turnover is due to the delays in the commencement of oil and exploration activities offshore Libya as a result of the shortage of available exploration rigs as well as a scarcity of steel and other equipment. Although the Directors noted in the Half-Year Report that in recent weeks the materials are arriving at the Group’s base in Malta for a number of contracts to begin, the delay in activities will undoubtedly negatively impact the Group’s 2007 performance. As a result, we believe it will be difficult, if not impossible, for Medserv to achieve its 2007 forecasted turnover of Lm4.8 million as noted during the Initial Public Offering in October 2006, which was mainly accounted for by two clients (ENI Oil and ENI Gas). In the Half-Year Report the Directors revealed that Medserv has signed a number of contracts with other international oil and contracting companies thus expanding its client base. This is perhaps one of the more positive notes emanating from the Half-Year Report and indicates management’s efforts in reducing dependency on a handful of key clients to a wider base. These contracts relate both to the Malta logistical base as well as the recently set-up base in the Misurata Free Trade Zone.

The gross profit of Lm106,101 generated in the first six months of 2007 results in a margin of 20.1% compared to 33.9% in the first half of 2006. This drop is due to the fact that the revenue generated during the period under review was mainly from storage activities at the Company’s logistical support base in Malta. This line of activity is less profitable than the direct services normally provided by the Group such as the quayside bulk plant facility for cement, barite and bentonite with oil or water based mud plants.

Administrative and distribution expenses increased by 27% to Lm312,703 resulting in an operating loss of Lm207,122 compared to a profit of Lm246,812 in the first half of last year. The increase in expenditure mainly relates to advertising and exhibition expenses as well as legal fees for the setting up of the subsidiary in Misurata.

Net finance costs increased to Lm20,300 in the first six months of 2007 following the hike in interest rates. This resulted in the Group incurring a pre-tax loss of Lm227,422 compared to a  profit of Lm233,044 in the six months to 30 June 2006. After accounting for a tax credit of Lm108,844 and the minimal loss attributable to minority interests, the loss for the period narrowed to Lm115,097.

As at 30 June 2007, Medserv’s total assets amounted to Lm3.7 million with shareholders’ funds of Lm2.45 million.

In February 2007 Medserv announced the setting up of its first logistical base in Libya in the Misurata Free Zone. A new company, Medserv Misurata Free Zone Company (MMFZC), was formed with Medserv holding a 60% shareholding and the balance in the hands of the Misurata Free Zone Authority. The Misurata Free Zone is an area free of taxes and customs duties which owns and operates the Misurata Free Trade Zone, including part of the Misurata sea port. MMFZC entered into a 30-year contract with the Misurata Free Zone for the provision of a dedicated 200-metre quay, 7,000m2 of quayside warehousing and an area covering 20,000 m2 of open storage. MMFZC commenced operations in July 2007 and in the Half-Year Report published on 3 September, Medserv’s Directors explained that the Group’s subsidiary has already been awarded a 2-year contract covering operations connected to onshore Libya while a second contract was also awarded for offshore operations to commence next year. As a result of these contracts, the 60% owned subsidiary is expected to positively contribute to the Group’s profitability in 2008.

The Half-Yearly Report also indicates that the Directors are continuing in their ‘efforts to maximise the return from the land and quay in Malta’, which at the time of the IPO was independently valued at Lm18 million. The Medserv base within the Malta Freeport occupies a total area of 56,500m2 including a 200-metre deep-water quay. Although the quay is normally used as a preparation, lay down and marshalling area for supply vessels, it is also suitable for Ro-Ro vessels. Medserv has exclusive rights to the land by title of temporary emphyteusis that expires on 29 May 2045.