Tuesday 2 August 2016 1:08 pm

Engineer Rotork tumbles as it warns on impact of low oil prices

Rotork fell to the bottom of the FTSE today as its clients deferred spending due to the oil price downturn.

The figures

Rotork's group revenue fell 3.7 per cent to £263.9m in the first six months of 2016, driven by weak order growth last year, and was down from £274.2m a year earlier.

The company's pre-tax profit fell 32 per cent to £38.3m during this period, from £56.3m a year earlier.

But its order book swelled two per cent year-on-year in the first half, helped by acquisitions the group made in 2015.

This helped push the company's shares as much as 11.80 per cent lower to 188.4p in mid-morning trading, before they parred some losses to settle around 196.80p.

Why it's interesting

Around half of Rotork's customers operate in the oil and gas sector which has been stuck in the doldrums since the middle of 2014. The uncertain outlook has prompted these firms to halt, and even abandon, a number of projects.

This prompted the engineer to announce a cost-cutting programme in 2015 and again as part of its full-year results in March. It delivered savings of £5.4m last year, with a further 4.9m earmarked for 2016.

It said today that efforts to diversify its geographic presence, end markets and product offering were "proving successful". The water, power and industrial processes division helped counter weakness in oil and gas.

What Rotork said

Peter France, chief executive of Rotork, said: "We anticipate that margins for the full year will be lower than in 2015 due to a combination of increased overheads, product mix and pricing pressure."

"We anticipate that activity in the oil and gas markets will remain subdued, and the timing of order placement will be difficult to forecast.

However, he added that "based on our current order book, project visibility and market-focused opportunities, the board believes that the group remains well placed for the current year and beyond."

What the analysts said

"Management guidance is directional. The outlook for oil and gas markets remains subdued. Full year margins will be lower than last year due to increased overheads, product mix and pricing pressure.

They continued: "The second half weighting is to be more pronounced, partly due to foreign exchange. Management are examining opportunities to drive improvements."