THE Exova testing business has highlighted tough trading conditions in the North Sea and warned that things could get harder in the area.
Edinburgh-based Exova appointed oil services veteran Allister Langlands as chairman yesterday reflecting the importance of the energy market to the company.
However, chief executive Ian El-Mokadem noted that Exova saw the revenues it earned from testing metals and the like for use in the oil and gas industry fall 10 per cent in the first half as the plunge in the crude price weighed on activity.
With work on projects that were approved during the boom in the industry coming to an end, Exova is braced for what could be a long downturn in the North Sea.
“It is generally a very subdued situation in oil and gas,” said Mr El-Mokadem. “It was tough in the North Sea last year and it’s certainly got a bit worse this year.”
Noting there had been a slowdown of oil and gas activity of all types, he added: “We’re definitely expecting the second half to be a bit harder than the first.”
Mr El-Mokadem said he would not be drawn on whether he expected conditions to improve next year.
Exova’s experience shows how the effects of the slump in the oil and gas industry are rippling through the supply chain in Scotland.
The company, which has laboratories in Aberdeen and Edinburgh, cut 30 jobs from its European oil and gas operations in the first half, including one in Scotland.
Exova employs 225 people in Scotland out of the group total of around 4,500.
The company said it had incurred £1.4m restructuring costs in the first half primarily relating to steps taken to adapt the business to changes in the oil and gas market.
“Headcount reductions have been implemented in response to lower demand and we will continue to actively manage the cost base in response to market developments,” said Exova.
It shed 20 jobs in the Americas.
But while the oil and gas business accounts for around 16 per cent of group sales, Mr El-Mokadem noted: “Overall, we anticipate that full year performance will be in line with the Board’s expectations.”
He said Exova, which also does tests for firms in industries such as aerospace and health science, performed well in the first half.
The company grew revenues by 5.7 per cent in the six months to 30 June, to £142.4m from £134.7m in the same period last year.
It achieved 2.8 per cent organic growth in revenues with acquisitions boosting sales by 4.1 per cent.
The acquisitive firm completed six deals in the first half, the largest of which was the £22m takeover of the BM TRADA fire and building products testing business
The company said it has an encouraging pipeline of further acquisition opportunities. Mr El-Mokadem said there was a good chance it could get one or two more deals done this year, without disclosing details.
Exova grew operating profits to £13.1m in the first half, from £2.1m.
It incurred £13.3m costs associated with listing on the London Stock Exchange in the first half of 2014.
The company, which has a stock market worth of around £400m, announced yesterday that it will pay its first interim dividend, worth 1p per share.
Exova said Mr Langlands, currently senior independent director, will succeed Fred Kindle as chairman on 1 January next year.
Mr Langlands spent five years running Wood Group, the Aberdeen oil services giant, before joining Exova’s board last year.
Mr Kindle is a partner of Clayton, Dubilier & Rice, the US Private equity firm which is Exova’s largest shareholder. He will remain on the board as a non-executive director.
Exova said Anne Thorburn, who has been chief financial officer since 2009, has indicated
her intention to retire during 2016.
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