EXOVA, the material testing firm, has seen the revenues it generates from oil and gas firms plunge 27 per cent in the first half and is braced for conditions to worsen in areas such as the North Sea.
Chief executive Ian El Mokadem said there appeared to be no end in sight to the downturn triggered by the crude price fall, which has posed big challenges for the Edinburgh-based firm.
Demand for the specialist testing Exova completes on metals used on things like rigs has slumped around the world in response to cuts in investment by oil and gas firms.
Exova said it expects a continuing deterioration in the oil and gas market to act as a drag on growth for the group in the second half of the year.
“Oil and gas really is quite gloomy at the moment, the visibility is quite weak,” said Mr El Mokadem, who noted that conditions had deteriorated in the North Sea in the six months to June.
Asked if he could predict when conditions might improve he said: “The simple answer is no,” adding: “Right now there’s no trigger for a recovery.”
Exova’s experience underlines how tough conditions are in the North Sea. It provides further evidence of how the effects of the crude price plunge are rippling across the wider economy.
The company grew total revenues by only 1.7 per cent in the first half, stripping out the effect of acquisitions and the fall in the value of the pound following the Brexit vote.
Mr El Mokadem said the vote in favour of the UK leaving the European Union could make Exova less inclined to invest in UK laboratories rather than overseas facilities.
He noted that Exova valued the benefits of the free movement of labour.
However, asked if the head office or laboratories could be moved overseas, the company said it has no current plans to make any fundamental changes to the UK footprint.
Exova may still buy more businesses in the UK.
Mr El-Mokadem said Exova had made good progress in the first half helped by achieving strong organic growth in sectors other than oil and gas and industrials and by acquisitions.
Exova also serves markets such as aerospace and health sciences.
The company bought the Admaterials business in Singapore in the first half increasing its presence in the construction market. It also bought Jones Environmental Forensics in the UK.
Mr El Mokadem said it has a good pipeline of potential acquisitions.
Asked to comment on a report that it had called in Goldman Sachs amid potential takeover interest, Mr El Mokadem noted that the investment bank was one of the three brokers employed by stock market-listed Exova.
“We talk to them about all sorts of things but I have nothing further to say,” he said.
Mr El Mokadem noted that the private equity firm Clayton Dubilier and Rice retained a 54 per cent holding in Exova after its £550m stock market flotation in 2014. “Private equity being what it is they will want to do something with that but that’s their business,” he observed.
Exova increased first half underlying profits before tax by 9.8 per cent, to £20.1m, up from £18.3m last time.
Revenues increased by 13 per cent to £160.9m in sterling terms, from £142.4m, partly due to the fall in the value of the pound.
The numbers employed in Scotland remained fairly constant at around 200. Some 39 people left following the £18m sale of Exova’s food, pharmaceutical and water testing operations in May.
Mr El Mokadem said the company shed a small number of oil and gas testing jobs in Edinburgh and Aberdeen. The numbers employed in the firm’s central support operations in Edinburgh increased.
Exova employs 4,300 gobally.
Analysts at joint house broker Investec said: “End markets conditions are likely to remain broadly difficult so we expect low growth to be a recurring feature …Nevertheless, Exova remains fundamentally undervalued and of potential strategic interest.”
Shares in Exova closed up 0.5p at 197p, leaving the firm with a market capitalisation of £492m.
The company has cut 150 oil and gas jobs in the past 18 months. The cuts have reduced workforce numbers in that market by around 15 per cent.
Oil and gas accounted for 13 per cent of group revenues in the first half of 2015 but only nine per cent in the six months to 30 June.
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