Medserv plc - Full-Year Results

On 30 April 2019, Medserv plc published the results for the financial year ended 31 December 2018.

Performance Overview

During 2018, Medserv plc generated €36.2 million in revenues, representing an increase of 25.7% compared to the €28.8 million in 2017 on the back of increased business activity in the Mediterranean region for the Integrated Logistics Support Services (ILSS) segment and the increased work in the Middle East for the Oil Country Tubular Goods (OCTG) segment. In fact, during 2018, the Medserv Group support drilling activity offshore Libya (as work contracts were extended), Cyprus (Medserv secured a second contract with a major IOC) and Egypt with the latter base commencing operations in the fourth quarter of 2018. In the OCTG segment, Medserv’s business was mainly related to METS Oman as the subsidiary continues to be driven by the Sumitomo contract. Meanwhile, the operations in Iraq continued to be a drag on the performance of the Group.

The increased activity led to a 26.4% increase in total costs to €39.65 million, reflecting the higher depreciation in line with the investment in plant and equipment in Egypt as well as the setting up of new facilities in Cyprus and Duqm (Oman). Furthermore, given that the operation in Egypt was still in its initial stages, this new operation generated lower margins.

As a result, Medserv reported an operating loss of €3.46 million compared to an operating loss of €4.1 million in 2017. Excluding depreciation and amortisation charges, EBITDA improved by 46.4% to €6.34 million. Furthermore, also adding back the net impairment losses in Oman and Iraq of €0.98 million, EBITDA would have amounted to €7.3 million compared to €4.3 million in 2017.

The financial performance of Medserv was also dented by higher net finance charges amounting to €5.4 million compared to €3.9 million in 2017 largely reflecting the 12.3% increase in financial borrowings to €59.3 million.

Overall, Medserv posted a pre-tax loss of €8.83 million compared to a pre-tax loss of €8.04 million in FY2017. After accounting for a tax charge of €0.7 million (FY2017: tax credit of €0.4 million) and a loss of €0.48 million attributable to minority interests (relating to the part of the Group’s business in Cyprus, Egypt and Iraq that is owned by third parties), the Group’s net loss attributable to shareholders amounted to €9.04 million compared to a loss of €7.42 million in 2017.

The Statement of Financial Position shows total assets of €156.78 million as at 31 December 2018 compared to €153.27 million as at the end of 2017. This increase is largely attributable to the investment in plant and equipment particularly in connection with the setting up of the Egyptian operation as well as the consolidation of the Group’s facilities in Limassol, Cyprus. Likewise, total liabilities increased to €138.1 million from €125.17 million as at 31 December 2017, largely reflecting the aforementioned increase in borrowings as well as higher lease liabilities and trade payables. Overall, shareholders’ funds declined by 31.5% to €19.35 million.

Dividend

For the third consecutive year, the Directors did not recommend the payment of a dividend.

Outlook

Looking ahead, the Directors explained that the Medserv Group is positioned for further growth as activity in the oil and gas industry is increasing. Following the commencement of operations in Egypt, Medserv is well positioned to secure services of similar scope with other operators in Egypt. In Cyprus, following the second contract with a major IOC in 2018, Medserv is in discussions for a possible third contract with a major IOC. Furthermore, business activity in Libya’s Bahr Essalam phase two project is expected to increase as the Group’s contracts were extended in line with the IOC’s offshore development plan to increase offshore field production volumes in the North Africa nation. Additionally, in the fourth quarter of 2018, Medserv secured a new shore base contract valued at US30.6 million in Suriname, South America. This fifteen-month contract, relates to an emerging region adjacent to recent discoveries in offshore Guyana, potentially providing further opportunities in the region for both the ILSS and OCTG segments of the Group.

The CEO also noted that although the Iraqi operation remains weak, it is currently undergoing a restructuring process as the Group remains committed to the Basra region as operators have reactivated their plans to boost their output which in turn are generating increased enquiries and work orders in 2019.

In the meantime, Medserv is still awaiting a final investment decision for the provision of machine shop services in Uganda – a long-term contract with consistent and dependable earnings from 2020 onwards. The Group is also awaiting adjudication of an award of additional Supply Chain Management contracts in the Middle East in 2019, the volumes of which are forecasted to be equivalent to those currently being managed by the subsidiary in Oman. Moreover, the Group is expected to benefit from synergies in cross-selling its services within existing facilities. In this respect, METS Oman could be the first business unit to benefit from cross-selling as the shore base may be used for exploratory drilling campaigns. The Group also intends to commercialise its management services, a new revenue stream which would generate additional growth without the need of significant additional capital expenditure.

On the basis of the above, the outlook for the Group remains optimistic as revenue is expected to double in 2019 with a consequent increase in EBITDA.

Strategic Shareholder

The Chairman noted that the initiative commenced by the two main shareholders to seek new strategic investors is ongoing but moving at a cautious pace and discussions with interested parties are progressing.

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Medserv plc – Annual Report & Financial Statements for the year ended 31 December 2018.