Oil services firm Petrofac (PFC) nudged 1.2% higher to 199p despite suspending its dividend as part of its response to the coronavirus outbreak.

Firms which provide goods, materials, tools and services to the oil industry are likely to see orders drop off a cliff as spending is deferred or cancelled amid the collapse in oil prices.

Investment bank Goldman Sachs recently upgraded its recommendation on the company as it argued capital expenditure in its core markets in the Middle East should prove more resilient than elsewhere.

However, in addition to putting dividends on hold, Petrofac has cut planned capital expenditure by 40% and is reducing overhead and project support costs by at least $100m in 2020 and by up to $200m in 2021.

HEADCOUNT REDUCED

To achieve this, overall headcount is being reduced by 20% and pay cuts are being introduced. In previous downturns in the oil sector, companies have found it difficult to build up staff levels when activity has recovered so this could be a medium-term challenge for the business.

The company said it had liquidity of $1.1bn as at 2 April, following the planned repayment of a $75m debt facility in February, although it suspended its previous revenue and margin guidance.

'We have a resilient business model, strong competitive position and a differentiated in-country value proposition that is highly valued by our clients,' chief executive Ayman Asfari said.

'Nevertheless, we are taking swift, decisive action in response to the Covid-19 pandemic and lower oil prices to reduce costs, retain our competitiveness and preserve the strength of our balance sheet.'

READ MORE ON PETROFAC HERE

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Issue Date: 06 Apr 2020