Medserv plc - Interim Results

On 26 August, Medserv plc published its interim results covering the six months ended 30 June 2016.

Performance Overview

During the period under review, the Medserv Group registered a 36.4% drop in turnover to €17.3 million reflecting a slow-down in the provision of shore-base logistics after exploratory drilling activity in Cyprus was put on hold and the revenue from shore base logistics in Portugal was minimal as drilling activities were delayed. Furthermore, the Directors noted that this decrease was not supplemented to the same extent by the additional revenue, for four months, from the recently acquired Middle East Tubular Service (METS) group.

Given the downturn in the Group’s business activity, cost of sales also declined by 24.2% to €14.5 million leading to a gross profit of €2.8 million representing a 65.2% drop from the previous comparable period.

Similarly, administrative expenses contracted by 36.1% to €1.8 million. The income statement also includes net other income of €0.03 million compared to net other expenses of €0.05 million in the six months ended 30 June 2015.

As a result, the Group registered an operating profit of €1.09 million representing a 79.4% drop from the previous comparable period.

Net finance costs increased by 4.6% to €0.81 million reflecting the higher debt levels undertaken by the Group largely due to the aforementioned acquisition of the METS Group.

Overall, Medserv reported a pre-tax profit of €0.28 million during the period under review compared to €4.5 million in the first six months of 2015. The tax charge amounted to €0.06 million (H1 2015: €1.27 million) whilst the loss attributable to minority interests was marginal. The 2015 results also included a €0.22 million loss attributable to the Group’s discontinued operation in Misurata which had no impact during the period under. As a result, the Group’s net income amounted to €0.22 million compared to €2.63 million in the first six months of 2015. This translates into an earnings per share of €0.0041 (H1 2015: €0.0584).

The Statement of Financial Position as at 30 June 2016 compared to the figures as at 31 December 2015, reveals that total assets increased by 49.6% to €121.38 million reflecting the assets added following the acquisition of the METS Group with effect from February 2016. Similarly, total liabilities increased by 40.5% to €98.34 million largely representing the additional debt taken by the Group to finance the aforementioned acquisition. Overall, total equity of the Medserv Group amounted to €22.83 million compared to €11.11 million as at the end of the 2015 financial year mainly reflecting the additional equity capital raised by the Group ahead of the aforementioned acquisition. This translates into a net asset value of €0.4248 (Dec 2015:  €0.2469).

Outlook

Malta:

Shore base logistic service remain strong in Malta with a healthy business pipeline. The base has recently renewed a contract with an International Oil Company (IOC) for a further two years to provide integrated shore base services in support of further development of the Bahr Essalam field offshore Libya which will be followed by additional contracts with services and engineering contractors supporting the development of this field. In the meantime, the Group has also bid for similar work with another IOC which is currently adjudicating the tender documents.

Cyprus:

The Cypriot subsidiary has renewed its lease at the Larnaca base for a further 12 months to August 2017 and continues to provide services to ENI albeit at very low levels. This subsidiary has also participated in a tender from another IOC, the outcome of which has yet to be published. Furthermore, the Government of Cyprus has recently announced the names of bidders, which include a number of existing customers of Medserv, for blocks in a new licencing round for concessions to drill offshore Cyprus. However, drilling activity offshore Cyprus is only expected to resume in 2017.

Portugal:

Environment concerns raised by the local government have delayed the start of drilling activities which are now expected to commence in 2017. Nonetheless, the base is still yielding a small profit.

METS:

Following the recent METS acquisition, the business of integrated oil country tubular goods (OCTG) is exceeding profit expectations with regard to the Oman base which also has a healthy business pipeline. In fact, the subsidiary is in advanced negotiations with its main customer to secure a long term contract.

Meanwhile, the UAE operation is on budget but operations in Iraq are suffering significantly from the continued political instability in the country. Steps are being taken to reduce operational costs in Iraq, the benefits of which will be realised in next year’s results.

Synergies between the traditional Medserv shore base services and those of METS OCTG services are being developed. In this respect, a bid has been made for the provision of integrated shore base services in Oman to support an offshore exploratory drilling programme in the country.

Other Business Pipeline:

Trinidad & Tobago – Medserv has made a bid for a substantial shore base contract, the outcome of which is expected in the third quarter of this year.

Egypt – Medserv is actively working to penetrate the market as opportunities present themselves with a possibility of having the first breakthrough before the end of this year.

Projections:

Given the delay in the drilling activities offshore Portugal as well as the pressure on prices and margins across the Group resulting from the low oil price, the Directors now expect revenues for the whole of 2016 to be €38 million, 13.6% lower than the Group’s published forecast of €44 million. The Directors further explained that whilst the results for the second half of the year are expected to be in line with the published forecasts, it is only possible to determine the actual variance to the published forecasts at the time when the full year accounts are published. Should this result in any material variance in excess of 10%, an announcement will be published in accordance with the applicable listing rules.

Download

Medserv plc – Interim Financial Statements covering the six months ended 30 June 2016.