Medserv made a €2.5 million loss in 2016, after making a profit of €6 million in 2015, with its total revenue down from €42.7 million to €32.8 million.
The group said that the significant decrease in results was attributable to the delay in the provision of logistical support services to major drilling contracts and pressure on profit margins.
“These drilling contracts are still in place and are expected to contribute in the fourth quarter of 2017,” it said in its annual report.
Profit after accounting for taxation amounted to €2,977,095 (2015: €4,710,305).
The cost of sales of the group amounted to €28,244,667 as against €29,762,920 incurred in 2015. This is significantly higher considering a 23 per cent decrease in revenue compared to last year, resulting in gross profit margins to decrease by 26 per cent over 2015. The main causes behind this decrease were the costs of maintaining the Cyprus and Portuguese shore bases operational despite not contributing any significant revenue; an increase in depreciation charge and amortisation of €2,206,036 compared to last year and the amortisation of a signing bonus subject to vesting period (non-cash item) amounting to €662,670 which was first time incurred in year 2016. The Iraq operation also drained the company’s cash flows.
No dividend was recommended by the directors.
In its report, London investment research company Edison highlighted the expected downturn in Medserv’s results for 2016 attributable to the current market conditions and delays in drilling programs. Edison also produced a two-year forecast which indicates that the delays are also likely to adversely affect prospects in the first part of 2017, but they expect a “solid recovery in profitability and cash returns should conditions continue to stabilise”.
The main reason for the downturn reported for 2016 is the persisting oversupply of fossil fuel on the global markets with a consequence that projects contracted to commence in 2016 in both Malta and Portugal have been postponed to the second half of 2017.
Trading conditions in Iraq were slow in year 2016 but are returning to normal.
The group also reports that it managed to retain all its existing major contracts for Malta and its shore bases in Portugal and Cyprus are expected to resume operations in the second half of 2017.
The group emphasised the importance of the successful implementation of its restructuring plan. Edison forecast that Medserv should experience “a progressive recovery in its offshore logistical base activity through 2018 which combined with continued growth at METS, should see a more meaningful improvement in earnings and cash flow”.