Oil services firm Amec Foster Wheeler (AMFW) picked a bad day to cut its dividend in half and warn of tough trading in 2016. Its shares fall 25% to 557.5p as the second half trading update follows an overnight plunge in oil prices on news of bumper US supplies.
As we argued in the summer the recovery in the oil services sector early in 2015 looked a false dawn. It is hard to find reasons to be positive about a collection of companies whose customer base has just seen the price of the commodity it produces fall nearly 60% in a matter of months and which itself is seeking to reduce costs and slash spending.
We can’t put it in any starker terms than Amec itself does in today’s statement: ‘For more than a year - across many parts of our business - we have seen customers reducing capital expenditure and putting more pricing pressure on the supply chain. We see no sign of these trends changing.’
As a result the company expects second half margins to below the first half, has increased its cost savings target by $55 million to $180 million by 2017 and says this year’s final dividend will at 14.2p be 50% lower than the level it paid last year.
The company will look to address its expected year-end net debt of £1.1 billion through a bond issue or through bank debt in the next six months. 2016 promises low single digit revenue growth but further margin erosion despite the targeted cost cuts.