Medserv reorganisation and new markets move company onwards to profit
The past years of crisis have not been easy ones for Medserv but the right decisions that were taken, together with opening of new markets, are leading the company towards a better future, a presentation to stockbrokers was told on Tuesday.
The Group’s principal activities consist of providing shore base logistics to the offshore oil and gas industry and engineering and supply chain management for Oil Country Tubular Goods to support the onshore oil and gas industry.
Shore base logistics is mainly provided from the Group’s bases set up in Mediterranean rim countries, supporting International Oil Companies in their offshore activities, ranging from exploration to development and production.
Engineering and supply chain management for OCTG are mainly provided by Middle East Tubular Services Group of Companies from its facilities in the Middle East. The Group is continuously working to cross-sell its services within its Group’s operating segments.
The Group’s turnover for the six-month period ended 30 June amounted to €18,137,739 compared to €13,619,788 registered in the comparative period of 30 June 2017, representing an increase in turnover of €4,517,951, equivalent to 33.2%.
The improvement in performance over the comparative period is mainly attributable to the Group’s Integrated Logistic Support Services segment, in particular the subsidiaries in Malta and Cyprus as a result of the increased oil and gas exploration activities and engineering services.
After adding back the amortisation charge of the contract costs, administrative expenses increased by 8% over the same period last year. Such increase is reflective of the Group’s implementation of its diversification strategy as it expands its geographic reach, client base and product services.
As announced in January, the Group secured a three-year contract in Egypt, with the option of extending for further periods to provide the integrated logistics support services for the production phase of offshore operations being conducted by an International Oil Company.
In addition, the Group has also secured another contract with a multinational oil and gas corporation to provide Shore Base Logistics services for exploration activities taking place offshore Cyprus.
The costs incurred to set up the necessary facilities have all been incurred during the first half of 2018 with positive earnings expected to be generated over the coming months.
The Group’s adjusted earnings before interest, tax, depreciation, amortisation and impairment losses on trade receivables for the six-month period ending 30 June amounted to €3,396,702, an improvement of 19% when compared with the restated amount of €2,865,388 for the first half of 2017.
After recognising depreciation amounting to €3,402,648 (2017: €2,827,953), amortisation amounting to €736,494 (2017: €833,006), net finance costs amounting to €1,657,490 (2017: €2,198,837), unrealised exchange gain amounting to €226,582 (2017: income of €196,941), amortisation of contract costs amounting to €291,573 (2017: €556,640) and impairment losses on trade receivables amounting to €208,986 (2017: Nil), the Group registered a loss before tax of €2,673,907 (2017: €3,354,106).
Loss after accounting for taxation amounted to €2,610,207 (2017: €3,851,571).
The Board reported that the Group’s out- look is positive.
Major onshore and offshore projects all with long-term potential and already contracted to the Group are commencing.
This is further augmented by the overall industry pickup and the new opportunities the Group is positioned to secure.
ILSS business has picked up significant momentum as all shore bases register positive cashflows and contribute to the Group’s EBITDA.
The recent award of a contract with a multinational oil and gas corporation to provide Shore Base Logistics Services for exploration activities offshore Cyprus has increased the company’s client portfolio.
This award, coupled with the business already contracted with other IOCs secured earlier this year in both Cyprus and Egypt, has positioned the Group to benefit significantly, especially when the drilling programmes commence in the Eastern Mediterranean.
An additional find in Cyprus by an IOC would fuel a multi-drilling programme and development.
Operations in Egypt commenced at the beginning of the year. As in any startup the contract implementation for the first six months were challenging.
However, the company has finalised both the recruitment of key personnel and the purchase of all its own equipment during the first six months of the reporting year.
The majority of this new equipment has been commissioned after the reporting period and the increased income will be reflected in the second half of the year.
Following the execution of this important contract, the Group is already in discussion with other operators in Egypt to provide services of similar scope.
The Portugal base remains in mothball mode as environmental issues persist over the offshore exploratory drilling in Portugal.
The Group continues to service the offshore Libya, Bahr Essalam Phase two project. Work volume is anticipated to increase in line with ENI’s offshore development strategy plan to increase offshore field production volumes in Libya. This includes the potential construction of two new structures, known as the A & E structure. This major development will make heavy use of both the Group’s shore base logistics and engineering services in Malta.
The current fighting in Libya has not affected the Group’s work as this is mainly offshore.
The results from Oman have not fulfilled the company’s expectations but OCTG is expected to register an improvement in the second half of the year, particularly in Oman.
The long-term supply chain management contract awarded by Sumitomo in the first quarter of 2017 became operational towards the end of the second quarter of this year, thereby increasing the scope of services. Moreover volume (tonnage) handled is expected to increase by 15% in the second half of this year.
The performance of the Group’s subsidiary in Iraq remains weak. Despite this, the subsidiary in Iraq continues to participate in long-term OCTG tenders, which are being issued as a result of the improving country conditions.
Adjudication of this work is scheduled towards the end of this year. The Group is continuously reviewing the performance of this business unit especially given the premium sole threading license it presently holds in the country.
Growth in the OCTG segment is forecast in the year 2019 as the Group is in advanced stages in securing a contract in Uganda for the provision of premium threading services. As previously reported this would be a long-term contract with consistent, dependable revenues.
Other areas where the Group is experiencing growth or hopes for penetration include Abu Dhabi, Senegal, Mauretania and Mozambique.
Of more significance is the potential award of additional major SCM contracts in the Middle East earlier next year. The Group is already participating in tenders for the provision of these services as more IOCs adopt the Mill to Rig model, which the Group already provides in Oman between the pipe manufacturers and their clients.
In conclusion, the turnaround in the industry and the Group’s operational reach in the Middle East and Africa is presenting new tendering opportunities for both OCTG and ILSS business.
West Africa is being considered as a new supplier of energy and the Group is being invited to bid by the IOCs for the provision of its services.
The Group is confident that current year forecast EBITDA will be achieved and significantly improved in the following year in both business segments, ILSS and OCTG. These improved earnings will enable the Group to continue growing organically.
No interim dividends are being recommended. The Group has chosen to cut dividends but retain the company’s workforce (now numbering just under 300) and expand operations into new markets. This strategy seems to be working and should lead to further improvements in the coming months.