PLEXUS Holdings has seen its shares plunge 44 per cent after the Aberdeen-based company issued a profits warning amid a slump in activity in the North Sea and indications there could be significant job cuts at the firm.
The well technology specialist said results for the year to 30 June will be “very significantly below market expectations,” reflecting the effect of deep cuts in spending by oil and gas firms.
Plexus said the downward cycle in the industry accelerated sharply towards the end of 2015 and into the beginning of 2016, as the crude price tumbled from around $50 per barrel to less than $30/bbl.
The company said it has seen a significant slowdown in planned activity by its customers. The North Sea order book has been “severely impacted”.
Plexus added that “it cannot see the reduced activity levels being recovered in the current financial year as a result of a number of projects being delayed, postponed or cancelled”.
Led by chief executive Ben Van Bilderbeek, Plexus is planning to make deep cuts in its operating costs and in capital spending on durable assets. The programme looks likely to result in job losses in Aberdeen, where the company employs around 150 people.
The company said: “As a result of the disappointing financial performance, Plexus is currently taking significant cash conservation steps in terms of reduced capex, opex and personnel expenditure, which the Board believes will stabilise the Company during this difficult oil market cycle.”
Asked if the measures would include cuts in staffing, a spokesperson for Plexus said the company will be looking at job numbers but it is too early to give any details.
However, Ian McInally, analyst at house broker Cenkos wrote: “Going into FY (financial year) 2017 we are forecasting admin expenses falling a third compared to 2015, reflecting a 50 per cent decrease in personnel costs.”
Cenkos said oil services companies are dealing with the worst industry conditions in many years
The brokerage has slashed its forecast for Plexus’ full year sales to £12.1m from £26m and predicted the firm will tumble into the red in the current year.
The update provides further evidence of the scale of the challenges that oil services firms face in areas such as the North Sea as the effects of the oil price fall ripple through the supply chain.
Aim-listed Plexus noted conditions have been especially tough in the UK North Sea, where the company has done the bulk of its business supplying wellheads for use in exploration. This is an area in which spending has been under intense pressure as firms look to curb discretionary spending.
The update will stoke concern about the potential impact of the downturn in an area where firms have already shed thousands of jobs but the outlook seems to be deteriorating.
Earlier this month BP announced plans to cut a further 600 jobs.
Sector watchers will also be concerned that Plexus appears to be facing challenges overseas. Like other firms Plexus has been trying to grow to reduce its reliance on the mature North Sea.
In July China’s Yantai Jereh Oilfield Services Group invested £8m in Plexus for a five per cent stake and signed a licensing deal with the firm.
Mr Van Bilderbeek noted: “We had anticipated that the non-United Kingdom Continental Shelf territories would prove more resilient, and therefore we are naturally extremely disappointed to have had our financial performance impacted to such a degree.”
But Mr Van Bilderbeek predicted oil prices would increase as supply and demand get closer into line. He believes Plexus will be well positioned to benefit from an eventual upturn. The company says its technology boosts the efficiency of wells.
Plexus said it is in discussions regarding a number of potentially significant projects worldwide.
The company expects full year revenues of £12.6m compared with £28.5m last time.
Cenkos forecasts Plexus will lose £6.7m before tax in the year to June, after making a record £5.6m profit last time.
Shares in Plexus closed down 54.25p at 68.5p.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here