MedservRegis plc - Interim Results

August 30, 2019

On 30 August 2019, Medserv plc published its interim financial statements covering the six-month period ended 30 June 2019.

Performance Overview

During the period under review, revenues increased by 64.6% to €29.9 million (H1 2018: €18.1 million) as the company benefitted from the start of the new significant contract in Suriname. Furthermore, revenues were also higher due to improved business in Egypt as well as increased activity within the ‘oil country tubular goods’ (“OCTG”) segment particularly in Iraq.

On the expenditure side, operating costs (excluding depreciation and amortisation charges) increased to €23.7 million compared to €14.7 million in the first half of 2018. Nonetheless, given the much higher growth in revenues than costs, EBITDA surged to €6.18 million compared to €3.41 million in H1 2018. The majority of the EBITDA was generated from the ‘integrated logistics support services’ segment (66.9%) with the contribution of the OCTG segment at 28.7%. Furthermore, the EBITDA margin improved by almost 2 percentage points to 20.7% (H1 2018: 18.8%).

Despite an increase in depreciation and amortisation charges of 5.1% to €4.66 million, Medserv reported an operating profit of €1.52 million compared to an operating loss of €1.02 million in the first half of 2018.

Meanwhile, net finance costs amounted to €2.65 million (H1 2018: €1.66 million). As a result, Medserv reported a pre-tax loss of €1.13 million which is significantly lower than the €2.67 million pre-tax loss recorded in the first half of 2018. After accounting for tax income of €0.14 million and a profit of €0.4 million pertaining to minority interests, Medserv posted a net loss for the period of €1.38 million. This is also lower than the loss of €2.4 million recorded in the comparable period last year.

The Statement of Financial Position as at 30 June 2019 when compared to the corresponding figures as at 31 December 2018 shows that total assets increased by 1.8% (or €2.88 million) to €159.7 million whilst total liabilities grew by 2.7% (or €3.76 million) to €141.8 million. As a result, shareholders’ funds contracted by 4.5% to €18.5 million. Meanwhile, net borrowings (when also including lease liabilities) remained virtually unchanged at €84.2 million.

Outlook

In their commentary, the Directors of Medserv reiterated their optimism that the company will achieve its forecasted EBITDA of €14.1 million for the full year. Furthermore, a detailed overview of the company’s outlook was provided across its various operations in different geographic regions:

ILSS segment

Malta: The base located within the Malta Freeport continues to provide shore base services for the development of offshore Libya projects. Following the completion of the Bahr Essalam Phase II project in August 2019, Medserv will be acting as the logistics base for the development of two new gas offshore structures. This project, coupled with the increase in drilling activity in the Mediterranean basin, resulted in a new potential product offering being presented to the Malta facility which Medserv is currently evaluating.
Cyprus: The Cyprus shore base was active in Q1 2019 but was put in mothball in Q2 2019 until the International Oil Companies (“IOCs”) finalise their new drilling programmes. Recent gas discoveries by Eni and ExxonMobil, together with the recent award by a third IOC, are expected to increase the number of wells to be drilled in the next two years. Drilling is forecast to resume in Q4 2019 and continue late into year 2020. An increased level of activity is being seen across the Eastern Mediterranean region, with Medserv receiving enquiries from new IOCs for the provision of ILSS.
Egypt: Following the successful ongoing performance in Egypt, Medserv is scouting for tenders in Egypt to be rolled out by new potential IOCs within the company’s core competencies. Medserv is keen to increase its participation in this significant growing energy market especially given its proven in-country track record to date.
Suriname: Positive earnings continue to be generated from the newly setup shore base in Suriname and Medserv has been successful in cross-selling OCTG services. The company is also pursuing potential growth opportunities to increase both its client base in Suriname as well as increase its footprint in the region.

OCTG segment

The OCTG segment has continued to grow as Oman remains the overall consistent contributor to date. The business unit in Iraq registered significant recovery and generated positive earnings in the first six months of 2019. Iraq is also showing a healthy pipeline of projects which include the provision of both supply chain management services and machine shop services. Further growth is expected in Iraq in 2020. In addition, the recent award in the United Arab Emirates (“UAE”) by Abu Dhabi National Oil Company (“ADNOC”) to three steel pipe manufacturers for the provision of significant volume of casing and tubing is expected to result in demand for Medserv’s services. Discussions are being held with the pipe manufacturers for awarding the supply chain management of their product in the UAE to Medserv. The size and value of this work is still to be confirmed. Meanwhile, Medserv is still awaiting the final investment decision to be taken by the Uganda State Authority for the Uganda pipeline project to proceed. Should the project receive the necessary approvals, Medserv will be setting up a machine shop in Uganda as an exclusive supporting service provider for the construction of this pipeline.

Overall, the Directors of Medserv noted that the company remains focused on value growth. The geographical markets in which it operates continue to roll out new oil and gas projects and demand for the company’s niche service offering is increasing both in existing and new markets. The performance achieved in the first six months of the year is expected to improve in H2 2019 as Medserv continues to service existing and potential new contracts. Medserv has also strategically positioned itself both geographically and in product offering to allow minimum floor base earnings to be attained in the long-term as well as participate in upcoming new exploratory markets, the latter having variable levels of earnings.

Update on Sourcing of Strategic Purchaser

Further to the company announcement dated 20 May 2019, Medserv noted that the due diligence process in relating to the intention of Medserv’s two major shareholders, namely Mr Anthony S. Diacono and Malampaya Investments Limited, to source a strategic purchaser for the potential acquisition of their shareholding in Medserv (amounting to a total of 35.2 million shares, or 65.5% of the company’s total issued share capital) is still ongoing. Medserv will provide further information to the market once its major shareholders receive binding bids from bona fide offerors and notify the company accordingly. Medserv reiterated that its main focus remains delivering its strategy of value growth by continuing to build on its business pipeline. Medserv’s geographical reach, core competencies within a niche market and discipline in quality are the necessary contributors to achieving its commitment to increase shareholder value. The company’s target is to deliver positive results enabling resumption of dividend payment, the reduction in structural debt and the free cashflows to meet investment requirements.

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Medserv plc –Interim Financial Statements as at 30 June 2019.