MedservRegis plc - Interim Results

On 28 August 2020, Medserv plc published its interim financial statements covering the six-month period ended 30 June 2020.

Performance Overview

During the period under review, revenues dropped by 38% to €18.5 million (H1 2019: €29.9 million) reflecting the substantial income which was generated throughout 2019 from the ‘Integrated Logistics Support Services’ (“ILSS”) contract in Suriname which was not repeated in H1 2020. In fact, revenues generated by the ILSS segment amounted to only €9.55 million during the first half of 2020 compared to €22.4 million in H1 2019. Excluding the Suriname contract which contributed €11.7 million in revenues in H1 2019, on an adjusted basis, revenues were 10.4% lower during the period under review despite the various disruptions and delays brought about by ‘COVID-19’. Meanwhile, revenues generated by the ‘Oil Country Tubular Goods’ (“OCTG”) segment surged by 20.4% to €8.69 million (H1 2019: €7.22 million) as several national oil companies (“NOCs”) in the Middle East continued with their commitment to approved onshore drilling projects as well as increase production capabilities.

Given the decline in business activity within the ILSS segment, total operating costs contracted by 29% to €20.1 million (H1 2019: €28.3 million). Furthermore, Medserv also implemented various cost-savings measures with a view of mitigating the impact of ‘COVID-19’ and conserve liquidity. Excluding depreciation and amortisation charges, EBITDA dropped by half to €3.09 million (H1 2019: €6.18 million) as the higher profitability of the OCTG segment (+16.5% to €2.07 million) was offset by the sharp decline in the contribution generated by the ‘ILSS’ segment.

Despite the reduction in costs, Medserv still reported an operating loss of €1.61 million compared to an operating profit of €1.52 million in the first half of 2019. Meanwhile, net finance costs eased 10.8% lower to €2.36 million (H1 2019: €2.65 million) reflecting a reduction of €2.55 million in bank borrowings as well lower amounts in lease liabilities.

Overall, Medserv posted a pre-tax loss of €3.98 million (H1 2019: loss of €1.13 million). After accounting for tax income of €0.16 million and a loss of €0.14 million pertaining to minority interests, Medserv recorded a net loss for the period of €3.68 million.

The Statement of Financial Position as at 30 June 2020 when compared to the corresponding figures as at 31 December 2019 shows that total assets dropped by 8.2% to just under €142 million mostly due to the reduction in the amounts of ‘Right-of-Use Assets’ and trade and other receivables. On the other hand, cash balances increased by 8.7% to €6.24 million (31 December 2019: €5.74 million). Similarly, total liabilities contracted by 6.3% to €131.7 million reflecting lower amounts in lease liabilities, bank overdraft and trade and other payables. The company’s equity base decreased further to €11.1 million whilst the gearing ratio (calculated as total debt divided by total debt plus equity) deteriorated to 89.1% compared to 86.5% as at the end of 2019.

From a cash flow perspective, Medserv noted that cash generation from operations remained stable and improved when compared to the first six month of 2019 as a result of working capital movements following the receipt of amounts due to Medserv from trade debtors as well as lower receivable balances as at the end of June 2020 in view of the reduced activity within the ILSS segment. The company also added that cash generation from operations enabled it to sufficiently cover the cash flows related to financing activities, while cash flows expected to be used in investing activities are expected to amount to just under €0.5 million on the basis of subdued operations during 2020.

Outlook

In their commentary, the Directors of Medserv reiterated their optimism that the company will achieve its forecasted EBITDA of €5.48 million as indicated in the updated Financial Analysis Summary published on 15 July 2020. Furthermore, Medserv provided a detailed overview of its outlook across the various geographic regions in which it has a presence:

ILSS segment

The ILSS segment consists of the operations in Malta for the projects offshore Libya as well as the bases in Egypt, Cyprus and Suriname servicing most of the offshore oil and gas projects in these respective countries. In Malta, although offshore drilling activity in Libya has been suspended, on 23 March 2020, Medserv signed a long-term agreement with Air Liquide (through its subsidiary Air Liquide Oil & Gas Services Ltd) to install and operate a compressed gases filling plant to provide diving and welding gases to the offshore industry in Mediterranean. The required approvals have been received and the facility is currently in the process of being installed with the aim to commission the plant by Q4 2020. Furthermore, the subsidiary in Malta will be acting as the logistics base for the development of two new structures in the offshore Libyan gas field.

In Cyprus, the planned drilling offshore projects were postponed to 2021 as a result of the travel bans and closure of ports imposed by governments.

In Suriname, although the drilling campaign was terminated at the end of 2019, Medserv is committed to maintain a presence in the region (given the sizeable recent discoveries) but decided to resize its setup to minimise operating costs. The large finds in Guyana, Trinidad and Tobago, as well as the recent discovery and future planned activity in Suriname makes this region an exciting area for exploration in the oil and gas industry.

In Egypt, drilling and project developments remain ongoing and are expected to be maintained at current levels. Following the successful ongoing performance in this country, Medserv is scouting for additional tenders to be rolled out by other IOCs within the company’s core competencies. Medserv is also keen to increase its participation in this significant growing energy market especially given its proven in-country track record to date.

OCTG segment

The OCTG segment continued to register improved performances as the operations in Oman remain the overall consistent contributor to date. Meanwhile, the other business units are showing a healthy pipeline of projects which include the provision of both ‘Supply Chain Management’ and machine shop services.

 

Overall, Medserv explained that the recovery in the oil and gas industry is expected to be gradual as various energy research firms are predicting that global oil demand will return to normal levels by the end of 2021. In this respect, Medserv made reference to its strong business pipeline across its core markets (namely North Africa, Eastern Mediterranean and the Middle East) which is expected to come to fruition as travel restrictions due to ‘COVID-19’ are lifted. Moreover, it is anticipated that the long-term energy projects for which Medserv is already contracted will resume as the cost of commercialising them is relatively low reflecting the investment which has already been made by the various IOCs. Furthermore, such projects are located close to the market or are needed for national consumption.

Additionally, Medserv is awaiting adjudication of several tenders including ILSS services to an IOC operating offshore Egypt and Supply Chain Management for OCTG contracts in the United Arab Emirates. The projections of Medserv indicate that the project offshore exploratory drilling and development in the company’s operating markets will resume in Q2 2021, paving the way for Medserv to return to the pre-‘COVID-19’ trading levels.

Medserv added that it remains focused on delivering its strategy of value growth by continuing to build on its business pipeline. The company’s geographical reach, core competencies within a niche market and discipline in quality are the successful factors in achieving its sustainable growth and commitment to shareholder value. This will allow Medserv 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 2020.