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LONDON (Alliance News) - Plexus Holdings PLC issued a profit warning on Monday with the oil and gas engineering services company saying it has taken a heavy hit from the sharp downturn in activity in the oil and gas industry.
Plexus shares were trading down 42% to 71.00 pence per share on Monday afternoon, by far the worst performer on AIM.
Plexus said that, amid the oil price dropping heavily and a subsequent slowdown in activity by its customers, it cannot see the reduced level of activity being recovered in its current financial year to the end of June, which will hit those results significantly.
Plexus said it anticipates its revenue for the first half to the end of December will be below GBP7.0 million, with revenue in the second half to fall around 20% from the first. Due to this weakness, Plexus said it financial results for the year to the end of June will be "very significantly below" market expectations.
That GBP7.0 million of estimated revenue in the first half of the current financial year is substantially below the GBP13.5 million reported in the corresponding period a year ago, and if the company's estimate that revenue will fall further in the second half comes true, full-year revenue is set to total around GBP12.6 million.
That would be a stark turnaround from its previous financial year to June 2015 when Plexus reported record revenue and profit of GBP28.5 million and GBP6.0 million, respectively, which prompted the company to almost treble its full year dividend.
"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 [the] 2015 [financial year], have been severely impacted by this downturn in activity," the company added.
Plexus is now taking steps to try to boost its cash conversion, cutting capital expenditure, operating expenditure and jobs, which it said should help to stabilise its position amid the tough oil market environment.
Plexus also is reviewing its resources to ensure it is utilising them effectively, and said it especially needs to continue to invest in research and development to progress its POS-GRIP range of products.
Plexus is of the view that its technology can save oil and gas companies substantial money - a huge selling point in the current climate - whilst offering superior performance and safety which will allow its technology to continue to thrive even once the cyclical oil cycle returns to better days.
The POS-GRIP jack-up drilling system is the company's main product which assists oil and gas producers drill high pressure, high temperature wells on conventional assets.
Plexus said it expects sales to "stabilise" going into the 2017 financial year before a recovery in exploration drilling activity as oil prices recover.
"The directors believe that Plexus' POS-GRIP technology enables the company to deliver best in class solutions to the industry, and that this clearly remains the case despite the current position within the oil price cycle," said the company.
"Furthermore, the directors have every expectation that once activity in the sector resumes Plexus will see a recovery in its order book," it added.
By Sam Unsted; samunsted@alliancenews.com; @SamUAtAlliance. Updated by Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance.
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