Hunting (LSE:HTG) — HY Results

0:01 Good morning, and welcome to the HUNTING PLC investor presentation. Throughout this quarter presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the q and a tab situated in the right corner of your screen. Just simply type in your questions and press send. Company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all the questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Jim Johnson, CEO. Good morning to you, sir.

0:29 Good morning. Thank you all for being in attendance today. My goal today is to educate you more on hunting, tell you how great a 150 year old company based in London is, how excited we are about the portfolio we have, and give you some updates also on our financial performance. Today, we delivered some very excellent results with gains across the board year over year in our financial performance. But the real question for, I think, you all is what do we do and how do we get the market and grow it. So if I look at our first slide here, we talk about our investment proposition. It's really the fact that we focus on intellectual property, extremely, difficult manufacturing items and components, everything from space to subsea, we'd like to say, making components that go on Elon Musk's rockets to products that go in 5,000 feet of water, 30,000 feet into the ground that have to hold extreme pressures and handle temperatures of high levels and things like that.

1:30 Over 90% of our business is oilfield related. We have a very heavy presence in North America. We have a number of different product lines. And as I go to the next page, you'll see a lot of those highlighted. I'll go into some more details later, but this kinda breaks down our balanced approach to the oilfield service business. We're not a company that just lives and dies off the Permian Basin in Texas. We're very international. We're very diverse, and it shows up whether it's a perforating system, which actually is involved specifically with fracking operations, numerous product lines in subsea, OCTG, which is stands for oil country tubular goods, which is tubing and casing that goes in the oil and gas wells, as well as geothermal and carbon capture applications, Advanced manufacturing, as I talked about, we're a supplier to the space industry as well as various defense and aviation, companies and in energy transition with a big focus right now on geothermal.

2:32 The company, again, we've been around for a hundred and fifty years in our oilfield side, really started in the late nineteen sixties out of the North Sea. We've advanced to the to today where the bulk of our business activity and headcount is in North America, but a very big presence in Southeast Asia and literally growing in most basins and areas of activity around the world. IP drives our business as we like to highlight over 500 patents in the company from a a huge volume of different products, gives us a competitive edge, gives us an edge in pricing out there, allows us to get top industry level margins on our products because of the IP and the technology we bring to our clients. I love to show the next slide. It's our customer slide, blue chip clients from around the world. I'm sure you recognize many of the names.

3:25 We do a lot of work with the people like Halliburton and Schlumberger on the service side, but then we also deal directly with the super majors around the world like Exxon, for example, on their project in Guyana, Chevron throughout the world and the like. But a good portfolio there where we're proud to display those people. Market indicators. We're showing you some things about global spending, offshore rig count. We're at a place right now where we we monitor rig count activity globally. The US rig count is one that's been pretty flat this year, actually down year over year, but a lot of the real growth in the future and today is happening offshore. And the nice thing about those markets, that's where the dollars are at. The margins are higher in the offshore segment because of the risk associated with what goes on in those fields. So, again, some good indicators there.

4:16 Talks about geothermal for a little bit, showing the growth we've anticipated there, and HUNTING is a company that has products to capitalize on that. I'll talk a little bit more now specifically on the product group. OCTG, it's a business where we do not buy pipe for inventory. So internationally, we buy it on a tender by tender basis. We announced a few months ago the biggest order in the company's history, which was $231,000,000 for the Kuwait Oil company, where we're utilizing our proprietary connections, which is our technology, applied to pipe at our manufacturing facility in China and then delivered to the client. It's a business model that is increasingly growing in scale.

5:02 If you'll look at the one column where years ago, a 10 or $15,000,000 order we we thought was a big order, now we're in the magnitude of a 100,000,000,200,000,000, and those things are growing as the industry continues to expand. A lot of exposure in The Middle East and in Southeast Asia. A recently opened joint venture in India is now running full speed. It should deliver strong profits for us going forward. That operation is booked into May of next year. It has, a great we have a joint venture venture partner by the name of Jindal who owns a seamless pipe mill in India, and that's who we've teamed up with to take our premium connection technology to the Indian market.

5:47 OCTG, it's not just an international business. I like to highlight the fact that our TechLock business, which was specifically designed for the shell applications onshore, has really bucked the trend in the rig count, and we've continued to grow market share and profitability in that product line. And along with all the OCTG, the accessory business, which is the bits and components that are attached primarily to the tubing strings, that business has had a very strong year in the export marketplace primarily in areas like Guyana and Brazil. Next product, I'll talk about perforating systems. That's our Titan business where we make perforating guns. In the upper right hand corner, you'll see a picture of some perforating guns. The one in the upper left hand corner is actually charges, explosive charges that are made. All these products are made in The USA and a facility in Mexico.

6:44 We are depending on what quarter it is, either the number one or number two supplier globally from an independent point of view with those products. Business is a good business, lots of IP, lots of product development continuing, but it's in it's been in a kinda tepid market space. So the North American u or US land is pretty flat right now, actually down year over year. And that's showing up in our results as volumes have just declined, primarily driven by weak natural gas prices in The US. Subsea, a business that our revenue is up over 80% year over year. One of the newest segments to the company that we have attempted to grow, the Stafford business that makes metal to metal seal couplings for subsea trees, we've owned that business for twenty years. The two newest ones in the last three to four years have been our business supplying titanium stress joints and the EnPro business.

7:41 Again, very high dollar products. Very, it's very costly for a client to gamble on other vendors in some of these areas, like in the titanium stress joint marketplace. We are the only people on earth that make titanium stress joints. And we do that. We supply to Exxon in Guyana. It's a product that has been proven over the years. We acquired that company about three and a half years ago, but growth is going pretty steady. And any place in the world where there's a FPSO, which is a floating productions and supply ship, basically, that's a market for those products. But subseason area, we wanna continue to grow. We see tremendous upside, and it's also one of the highest margin businesses in the company.

8:27 Advanced manufacturing really consists of two facilities, an electronics facility in Houston, Texas where we make high, environmentally strong products. And when I say that, it's products that have to withstand high temperature, high shake we call it shake and bake as far as shock to these boards. And so these components are going into things like defense equipment. They're primarily into oilfield products like MWD tools that have to withstand a lot of shock resistance 20,000 feet into the ground. So clients there are primarily oilfield service companies. The other one, the Dearborn facility, it's the largest percentage of our business that is nonoil and gas. For that business, we machine extremely exotic materials and make extremely high end products for the aerospace, defense, and oilfield business. But we like to say Elon Musk is one of our clients as well as Blue Origin on the rocket side, but also people like GE, Pratt and Whitney, and the like come to HUNTING for the quality we put into these products.

9:37 Organic oil recovery, Bruce Ferguson's project, and he can talk more about it. We just announced today a $60,000,000 worth of orders that'll start this year. This is a product that has an ESG spin to it where it's a nutrient based proprietary package that is injected into oil wells for enhanced oil recovery. It allows the oil to flow easier, basically, to sum it up, and it allows an operator to extend the life of an oil field. This should have a great impact and great opportunity upside, especially in areas like The UK sector, the North Sea, where governments are reining in the ability to drill new wells, but operators still need to crawl more dollars out of each each well they have in the ground right now.

10:25 Energy transition, we have focused on geothermal and carbon capture. It's one of those areas where on the geothermal side, we have been a supplier into that market for more than twenty five years. We have the technology. We understand the metallurgy. We continue to develop products and work with vendors on high alloy materials for that market. It's a small market, but it is growing. Carbon capture is another area similar. This will be premium connections on OCTG. It'll be exotic grades of material. It's just one that has had a very slow takeoff primarily due to government regulations and the like. Just try to get permitting and figure out how somebody makes money at it. On the, strategic framework we talked about, last September, our team put together, on what we rolled out was our hunting 2030 strategy.

11:17 This slide I'm not gonna read every one of them off, but this slide highlights our aspirations and what we're trying to get to. The announcements that we just made today show the steps that we've taken to get to that place, and we are making progress, and we are in line with what we said we were gonna do. Our revenue has continued to accelerate growth in revenue. We have a record backlog right now of 700,000,000 plus. We have continued to see the expansion of our EBITDA margins right now year to date around 12%

11:48 up from the depths of COVID and how the when the industry was basically in a very slow mode, but we're working to that 15% or better EBITDA margin. The rest of it talks about areas where we would like to grow that business. Some of that will come through, hopefully, acquisitions. We also announced today we raised our dividend 10%, so we're in line with that. But the HUNTING 2030 kinda shows you key points that we're looking at to improve our performance and our returns to shareholders. Capital allocation prod our our policy, we wanna continue to invest in our business. We haven't lasted a hundred and fifty years by being, cheapskates on capital equipment, the latest productivity enhancing items, things like that. So we'll continue to invest in the business.

12:35 We wanna continue to show that good times are bad. There's gonna be a return to our shareholders, which is why the dividend is important to us, and we wanna continue to see that grow. We've made two acquisitions in the last four years on the m and on the subsea side. We continue we are continuing to target that. Our goal is that by 2030, we have a couple $100,000,000 of new revenue through m and a. To date, we have not been successful on finding anything that makes sense because we're very focused on what we wanna buy. Something with IP, international scope, in areas like subsea or some others. And, again, we talked about shareholder distribution. The best way we think to do it today is through dividends. That's our plan as we stick forward to it now. But as surplus cash builds, you never know. I'm I'm not a big buyback fan, but we'll see how it how that plays out.

13:31 Next slide talks about some of the key points on our objectives to the HUNTING 2030 strategy. Again, we've looked at new markets. India is a big deal for us. Bruce Ferguson and I just returned from there. The business is going full speed ahead. We have a great partner. It shows our desire to grow in the international marketplace. The Titan product line on perforating continue to develop new products there, also focusing on international opportunities in some of the new shale plays like in Argentina. Subsea, we mentioned growth in all three of those product line offerings there. Extreme growth in Guyana. We should be on every project going forward for the next ten years in Guyana with Exxon. Advanced manufacturing, good opportunities there.

14:17 With the world at war, there's always opportunities with defense components. And so that I I hate to say that, but that's a reality. But we're seeing the defense and aviation business pick up. The backlog for that business is about a $100,000,000 right now going in the right direction. And then energy transition, I've already pretty much talked about. Cost management, we continue to look at our portfolio due to the flat market in US onshore. We just recently did some restructuring of our Titan business with closing one manufacturing facility and two distribution centers in order to enhance our profitability. And with that, I'm turning it over to Bruce Ferguson. Thanks, Jim. I'm gonna hit the high financial highlights of the half year.

15:04 Following from Jim comment around the the order book. We're now sitting at a record order book of $700,000,000. Just give some context. Two, three years ago, that would have been 250,000,000. So we've really seen a massive increase in our order book, which reflects the the big tender activity that's out there in the market and the strong growth in international and offshore markets. That gives a lot of comfort in the not just this year in terms of the financial performance, but also into '25 and element into '26. So real good line of sight there as well. Despite the fact that The US market has been has experienced some headwinds, we've seen revenue up by 3% led by our international and offshore business, which Jim has been talking around. That's given us really strong EPS up 61% year on year. We've also got a very positive free cash flow.

15:53 That compares to a negative cash flow last year, so we've really got a strong balance sheet in place, generating good cash. And we talked around this at the Capital Markets Day. We believe that 50% of our EBITDA can be converted into free cash flow, and that gives us great opportunities to return that to shareholders or to further invest into the business as well. Our margins are improving as those higher margin sales are coming through. We've seen our factories utilization is better, more opportunities to increase prices, and that is driving that EBITDA and also the bottom line. We have signaled that we wanna get that EBITDA margin to 15%, and we're well on track to achieve that. We have a non oil and gas business, and that's been pretty steady around the $36,000,000 mark. We've got aspirations to increase that in areas such as advanced manufacturing, but also into geothermal and carbon capture business as well. Fantastic growth in our subsea, up 85% year on year. It's a really strong segment for us.

16:46 We're seeing massive growth in terms of international basins, the likes of Guyana. This time last year, we had sold 14,000,000 of products into Guyana. That that's now up at 35,000,000. So really strong growth into key markets such as that. We're seeing other basins and regions such as Suriname, Mozambique, Namibia, all very much large projects, which we're gonna access as well. As Jim mentioned, we continue to look at costs. We'll continue to look at efficiencies when businesses aren't performing and when markets are tough. That's what we do, and we've taken the decision to close some facilities in The States and also to reduce some headcount. In terms of our EBITDA, good growth there, 23%. We're now up at 60,000,000. So some really good returns there for us. Our EBITDA per employee, it's something we keep keep an eye on. Just shows the efficiency of the business. You know, we have reduced employees through the COVID years, but our top line, we're doing more with less people, and that's reflected in that EBITDA per employee.

17:44 We like our dividends. We signal we wanna increase that by 10% per year. That's important for us to return our cash to to to shareholders and get decent return. And with that improved performance, we're seeing return on capital improve up to 7%. And the Capital Markets Day, we talked around our aspirations to get out to 15% by the end of twenty five, and we're confident we're gonna achieve that. This next graph shows a little bit spread around the key product lines. We like we've got five main product lines. This shows the last three years performance. You can see OCG is slightly flat. It's a big growth area for us. It's a big component of that order book, but we had a very strong contract for last year, which finished at the end of last year, but that's not that's not repeated. There's a slight reduction there. What we will see is the large KOC contract of over 230,000,000.

18:33 A big component of that comes through the second half. So we're gonna see growth through the OCG product line this year. Perfence perforating systems, we've seen a big reduction in terms of The US rig count. We've had some shelter on that perforating system sales for their international business, so we've held the line there as well. Subsea massive growth. You see that big chart at the end there on the right hand side, up over 80%. Advanced manufacturing growth and other manufacturing growth achieving key targets as well. In terms of offshore revenue now overtaking onshore, I think it's important. It shows that our our reach into that international offshore subsea basin, which has been driving our order book, been driving the the strong financials, that trend and trajectory is increasing. We're getting strong contribution from Asia Pacific. You were now able to reach into these major operators such as POC.

19:23 There's big tenders coming out for likes of Brazil and Petrobras. We've got tender pipeline consistently above a billion dollars, and we also anticipate improvements in The US onshore through '25 as that gas price improves as well.

19:39 In terms of profit and loss, we've got a strong p and l in front of you there. Our revenue growth is coming through for the half year is four nine three, so we're approaching that billion dollar mark. The last time we saw that was back in 2019, when we had just under, a billion dollars with an EBITDA of 140,000,000, and that support the share price of, over £8. So we're back to where we were pre COVID turn times. We're seeing a gross profit up two points year on year. It shows the strength of the business even with a softer US. That EBITDA is growing nicely up to 12% in absolute terms at 60,000,000. Your profit after tax is now at 26, giving us an EPS of 15.5¢. So all going the right way and a a strong set of numbers there.

20:29 A key thing for us has always been to maintain a strong balance sheet. We don't like excessive debt that allows us to give us opportunities to build a strong business, to to weather the storm, and also to build on things like m and a when that right opportunity comes along, and also to finance the big projects we've seen like like POC. So we've we've got good property plant equipment. We've got 250,000,000 across the world. That's things like factories and machines that operate in those facilities. Our working capital is a big chunk of the balance sheet, but we made we made sure that that's tightly controlled, but that is slightly increased as we service that large order book. That will come down over the back end of of the year as we do some inventory nears like the the Titan business and also in the North North America. We've also had some good arrangements with the banks, which allow us to accelerate those receivables in as well. So we've got very little debt. We're only sitting there at $10,000,000, and we believe that that cash figure will be into a positive cash figure of around 30,000,000 by the end of this year, which is a great position to be In terms of we do a little bit of analysis on the working capital. This does get a lot of interest from investors and analysts.

21:36 We've got a good EBITDA figure there driving the earnings and generating cash. There's a little bit of negative working capital, which as I said earlier, will reverse over the second half of the year as we get that inventory unwind,

21:48 and we get that letter of credit receivables in before the end of the year. So that's given us a positive cash flow. And if you look at last year, that was a negative 60. We're actually now into positive territory, that's really good turnaround there as well. So small negative cash outflow for the year. As I said, that will reverse, and we get positive cash of 30,000,000 or better by the end of the year. The order book, just just a little focus on that. That's a big measure for us, and I think we've made some real great success in terms of converting that tender pipeline into real orders. If you look at the biggest part of that pie chart is in our OCVG, reflects the 230,000,000 of the POC orders. It doesn't reflect the new 60,000,000 order in our organic whole recovery. So as we stand now, our order book is even higher than what we're portraying there.

22:36 Majority of that, 699 will be recognized in 2024,400,000,000 of that. We've got 250,000,000 that will be recognized in '25, another 50,000,000 even reaching into '26. So really good line of sight of what business is coming down the pipeline. In terms of guidance, we're with that that strength and comfort of our order book, we are reconfirming our EBITDA and all our major metrics guidance. EBITDA for this year is between 134,000,000 and 138,000,000. So that's a significant growth on what we saw last year.

23:13 EBITDA margins continue to strengthen, marching towards that 50%. We said we'd be at by the end of twenty five. Effective tax rate, and we've got some shelter from our deferred tax assets, so that's an effective place. CapEx, we're fairly light on our CapEx in terms of we we spend roughly what we our depreciation charges around that $3,035,000,000. Free cash convert conversion is excellent at 50% of our EBITDA. We generate lots of cash to the business. As I said, that will give us a strong cash position by the end of the year of between 30 and 40,000,000. Just hand back to Jim to to close off. Okay. Back. We're gonna touch on some ESG issues right now. I'm showing you some slides that talk about our quality and our health and safety record, which is stellar.

24:00 Typically, on the incident rate, anything two or under is considered excellent in our line of work. So we continue to work hard to keep our people safe globally and make sure that they're they're trained and have the right information they need to do the job properly. Measure you know, we're showing measures on our our our emissions, our scope one and scope two, renewable energy energy purchases. I'd like to say that HUNTING was well on its way down the ESG road before anybody ever talked about ESG. So we've been

24:30 a good corporate citizen for our hundred and fifty years. We're a good employer, a good place to work, and we have an outstanding reputation with our client base. Next slide talks about diversity on our board and within the company. We have a lot of long tenured employees at the company. Anyhow, I think the numbers speak for themselves. It's a great place to work, a great environment, and it nurtures all these great ideas that deliver the results that we have today. In summary, we've had a strong period of growth in the first half of this year even in light of a stagnant North America land business. We have confirmed with our results in the first half of the year that our thesis is right on how diversification is gonna drive our profitability through more international and offshore exposure.

25:19 And we've shown that our technology is paying off in areas like deepwater Gulf Of Mexico, subsea around the world. Our guidance remains strong. Financially, we're strong. We have no balance sheet issues, and we've raised our dividend to continue to give, shareholders some return regardless of what happens with the share price. Energy transition work continues. What I like to remind people is if you look at all of our opportunities and look at all of the things we've accomplished this year, whether it's the India project, whether it's some of our subsea work, whether it's the Kuwait oil oil orders that we've had, these are not something that you wake up on Monday and if you have the answer by the end of the month. Many

26:02 of these take years to develop just as Bruce has put a lot of time in our organic oil recovery, but we are making the investments today to make sure that this these opportunities can be crystallized two, three, four years down the road as we go into our second hundred and fifty years of existence. So with that, I am ending and turning it over to you all for questions. Back to you, Ben. Perfect. Jim, Bruce, thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab, which is situated on the top right hand corner of your screen. Just while the company take a few moments for you the questions that have been submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your investor dashboard. As you can see, we have received questions throughout today's presentation. And Ben, at this point, if I could just hand over to you to chair the Q and A, that would be great, and then I'll pick up from you at the end.

26:53 Certainly. Thank you very much. So the first question is from David who said, you mentioned you look at M and A opportunities and specifically for the Dearborn business. Would you also look at acquiring companies in The U. S. Energy service sector? The answer to that is yes, with a focus on primarily on subsea. That's been the one area where we would like to see a doubling of the size of our business right now. In areas like OCTG, I don't need to make any acquisitions.

27:22 So we're gonna be very choosy on what we decide to do. On the Titan side, there could be some opportunities we look at there. We would like to get something that adds to the completion work out there. But to date, we just we we recently haven't found anything that made sense from a buying point of view. Great. And another question from David. And Bruce, this is for you. You touched on inventory levels earlier. Can you give any guidance on end of year levels for your inventory? Yeah. We'll we'll tell you for the areas we believe it will move and reduce. And there's there's two specific areas. One is on our Titan inventory. We believe that will reduce. We've seen a reduction of 11,000,000 over the last two months. We believe that will continue. So it's currently around a 130,000,000. We believe that will come down another $25,000,000 by the end of the year.

28:10 And we believe there's also another 10,000,000 to come out of our electronics business. So just to lighten that as well. So that is gonna help our our year end balance despite a growing market. So I think that's gonna be if we can achieve that, it is achievable, and we'll get our inventory in good shape for the year end. Great. Thank you. Couple of questions from Steven here. How is HUNTING positioning itself to capitalize on strong demand in The Middle East, Asia, and Africa? So the demand there is primarily coming from our OCTG business. To for that demand, we have manufacturing facilities we own in China, Indonesia, and Singapore, which gives us a gateway into a lot of those markets. The newest venture in India opens up the Indian market for us. From a number of our other products, we supply from out of The States.

28:58 So we're not really today, I think, looking for more organic new locations. We have a footprint in The Middle East, an operation in Dubai, a small operation in Saudi Arabia. So we are in the markets, maybe not, you know, in those areas as a manufacturer, but we also have sales coverage around the globe. Great. And a and a follow on question from Steven, and I suspect the answer might be might be all of them. But which regional product lines offer the most growth potential for hunting? All of them. You were right then. All of them. Great. We did have some other questions submitted, which were either addressed during the presentation or we're not able to to answer them in in this forum, but that is all the questions submitted to date. So I'll hand back to to Alessandro.

29:48 Perfect. That's great then. What what I'll do now is just before redirecting investors, Jim, if I could just ask you for a few closing comments, that'd be great. Yeah. Like I said, last time I was on the shelves are on The the shares are on sale right now. So I looked at the price today. It was almost like a little buy on the rumor, sell on the news type of thing. I think that you have seen a great increase in our share price year over year. I think it's early stages, and that's only gonna accelerate as our multiples improve and our product offering description becomes more known by investors out there to just how significant it is and where the growth is gonna be. But I thank you for your time. This is this is a great HUNTING is a great company, has a great track record, and I hope to see us just continue to go from strength to strength. And that's it. So thank you all for taking time.

30:36 Perfect. Jim, Bruce, Ben, thank you very much for updating investors today. Could I please ask investors not to close this session? It should now be automatically redirected to provide your feedback in order the management team could better understand your views and expectations. This may take a few moments to complete, and I'm sure it'll be greatly valued by the company. Half the management team of HUNTING PLC, we'd like to thank you for attending today's presentation, and good morning to you all.