Amec Foster Wheeler halves dividend; raises cost saving target

Amec Foster Wheeler Plc, a British oil and gas services company, has reduced its dividend payout by 50 percent as continuous fall in oil prices puts pressure on customers' spending.

The company predicted lower margins during the second half of 2015. Amec will announce a final dividend of 14.2 pence for 2015, which is half of the dividend paid previous year.

It has also decided to exit some markets. The adverse conditions led its shares southwards pulling the market capitalization lower by 25 percent.

The target of cost savings at Amec Foster Wheeler has been up $55million to $180million to be achieved by 2017.

The oil price's lower level for long has been impacting the financial performance of Amec Foster Wheeler Plc as it finds it difficult to generate enough cash to sustain the previous year's dividend payout. Company's Chief Financial Officer Ian McHoul expected the dividend cut to save Amec about 85 million pounds ($131 million) a year.

McHoul further said: "With oil prices set to remain lower for even longer, the company would have been unable to generate enough cash to cover its previous dividend. We would have to borrow to cover the (previous) dividend each year. That is unsustainable."

The drop in spending of customers in the wake of lower oil prices has been taking a toll on the company. Europe's oil companies have slashed their spending programs by 15 percent to $107 billion. The oil and gas industry may witness more cuts in spending in 2016.

Indicating its lowest since 2009, Amec's stock tanked over 26 percent to 194pence. It was its worst trading session in Amec's 32 year history.

The mid-cap oil and gas services company has slashed down its capital expenditure as pricing pressure from customers eroding margins.

However, Chief Executive Samir Brikho said: "We're not immune to the ongoing tough market conditions and we're managing the business on the assumption of an extended period of weakness."

McHoul also said that any cut in dividend is always 'poorly received' and the company was also very disappointed over this decision. The decision to cut in half the dividend is taken to stabilize the company's financial performance, he said.

McHoul further said: "We're active in solar, wind and mining. So there are pockets of strength. But, what we're seeing from out oil and gas customers is a push down in pricing." The company's main objective is to make profits on a long-term basis.

The total revenues for the nine months were dropped by 1.8 percent to GBP3.87 billion. Amec in a statement said it was well on the way to reach GBP40million of savings this year-end. Oil services firms are suffering from drop in demand as customers prefer to lower their spending.