Plexus shares down 40% after profit warning

Shares in Aberdeen-based oil and gas engineering firm Plexus Holdings fell more than 40% on Monday morning after it said a slowdown in planned activity by its customers amid low oil prices “will have a very significant impact” on its financial results.

Plexus Holdings — which supplies wellhead equipment and has offices in London, Cairo, Kuala Lumpur, Singapore and Texas — said it anticipates that revenues for the first half of 2016 will be below £7 million, and revenues for the second half are expected to be 20%  below the first half.

The firm said in a trading statement its financial results for the year to 30 June 2016 will be “very significantly below” market expectations.

Plexus Holdings said it is currently “taking significant cash conservation steps” in terms of reduced capital expenditure, operational expenditure “and personnel expenditure” which it believes will stabilise the company.

The company said it has seen a significant slowdown in planned activity by its customers to the extent that it cannot see the reduced activity levels being recovered in the current financial year.

In the North Sea, where the company’s jack-up exploration drilling wellhead equipment has an almost 100% market share, specialist consultancy Hannon Westwood reported two weeks ago that only six exploration wells (jack-ups and semis) are expected to be drilled in 2016, the lowest number since 1964,” said Plexus.

“These negative trends have been reflected in the company’s order book and levels of visibility, and as a result its traditional organic rental exploration wellhead business, particularly in the UK North Sea, and to a lesser extent the European Continental Shelf, which together accounted for circa 87% of Plexus’ sales in FY 2015, have been severely impacted by this downturn in activity.

“Notably the chief executive of the Cromarty Firth Port Authority in Scotland went on record last week to say that the North Sea ‘doesn’t work at $30 a barrel’ and that activity has ‘pretty much fallen off a cliff’.”

Plexus Holdings chief executive Ben Van Bilderbeek said: “The combination of the oil price sitting at unprecedented lows of circa US$30 per barrel and ongoing geo-political tensions have resulted in extremely challenging trading conditions …

“We are hopeful however that the growing concerns regarding the downside overshooting and related worries about a ‘supply crunch’ and resultant spike in oil prices in the future if levels of drilling activity do not improve will lead to a consensus of what is the ‘right price’ for oil.

“Already, various parties including Saudi Aramco and BP out of Davos are talking about $50 oil by the end of 2016 …

 “We view the current situation as cyclical and we therefore expect to see the oil price strengthen as and when demand supply dynamics enter equilibrium. 

“While we cannot predict how long the current downturn will last, the one thing we remain certain of is the inherent and fundamental value of our intellectual property and the unique proven technical and safety advantages it offers.”