Hunting PLC · LSE:HTG
Hunting — FY2018 Earnings Presentation
31 slides from Hunting's earnings presentation, February 2019
Slide 1: Well positioned to capture market opportunities
Well positioned to capture market opportunities RESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2018 1 www.huntingplc.com
Slide 2: Group Summary
Group Summary 2018 remained US onshore centric Financials remain robust. - Year-end net cash of $61.3m - Strong cash generation in the year of $30.9m - Excellent year-on-year improvement in revenues, profits and margins - Return on capital employed continues to strengthen - Amend and extend bank f
Slide 3: Group Income Statement
Group Income Statement1 Strong performance underpinned by US onshore completions 2018 Margin 2017 Margin $m % $m % Revenue 911.4) 724.9) Gross profit 275.1) 30 175.4) 24 EBITDA 142.3) 16 56.0) 8 Profit from operations 104.7) 11 14.3) 2 Finance expense (0.7) (1.5) Profit before tax 104.0) 11.5) Tax c
Slide 4: Segmental Results
Segmental Results1 Cost control measures have contained losses outside North America 2018 2017 Results from Results from Revenue Operations Revenue Operations $m $m $m $m Hunting Titan 418.2) 106.9) 312.8) 66.4) US 327.1) 15.6) 218.9) (22.9) Canada 44.8) (1.8) 36.5) (3.3) Europe 86.2) (10.9) 89.2) (
Slide 5: Revenue by Product Grouping
Revenue by Product Grouping Particularly strong revenues from Perforating Systems 2018 2017 $m $m Change Perforating Systems 404.1 305.6 +32% OCTG and Premium Connections 277.4 254.8 +9% Advanced Manufacturing 98.5 61.1 +61% Intervention Tools 46.4 34.3 +35% Drilling Tools 27.6 25.8 +7% Subsea 30.5
Slide 6: Amortisation & Exceptional Items
Amortisation & Exceptional Items Reduced footprint in the African region 2018 2017 $m $m Amortisation of acquired intangible assets 29.3) 29.1 Closure of South African facility (2.0) 10.0 Closure of Kenya joint venture 2.0) - 29.3) 39.1 Results Presentation : February 2019 6
Slide 7: Group Balance Sheet
Group Balance Sheet Strong net cash position despite working capital increase 2018 2017 $m $m Property, plant and equipment 360.2) 383.3) Goodwill and intangible assets 329.7) 355.7) Working capital 436.5) 344.0) Taxation 13.7) (6.0) Provisions (14.2) (18.0) Other 3.9) 22.7) Net cash 61.3) 30.4) Net
Slide 8: Working Capital
Working Capital Hunting Titan main driver of working capital increase 2018 2017 $m $m Inventories - Raw materials 107.5) 92.2) - Work-in-progress 64.7) 44.7) - Finished goods 176.0) 144.1) 348.2) 281.0) Receivables 231.1) 185.5) Payables (142.8) (122.5) Total 436.5) 344.0) Inventory days 185) 167) R
Slide 9: Capital Investment
Capital Investment Spend constraints remain in place 2018 2017 $m $m Hunting Titan 12.6 - US – Drilling Tools – mud motor fleet 5.2 1.5 US – Dearborn – plant and machinery 1.5 - Other plant and machinery 10.8 9.9 30.1 11.4 Results Presentation : February 2019 9
Slide 10: Group Cash Flow
Group Cash Flow Working capital increase to meet 2019 requirements 2018 2017 $m $m EBITDA 142.3) 56.0) Add: share-based payments 13.2) 11.9) 155.5) 67.9) Working capital (96.6) (39.9) Finance charges (2.0) (2.4) Tax (paid) refund (2.6) 6.5) Proceeds from sale of PPE 16.4) 6.2) Pension scheme refund
Slide 11: A Balanced Portfolio
A Balanced Portfolio Operations Markets & Core Values Products Global Footprint All Phases Of The Customer focused North America Well Life Cycle Europe Construction Culture of Quality Asia Pacific Completion Middle East Intervention Social and Strong Asset Base All Environments Environmental Modern
Slide 12: Operational Overview
Operational Overview North America US AMG Hunting Titan Manufacturing All US segments profitable AMG group recovery in 2018 • Return to • Electronics • Produced 89% profitability in 130% increase more Record year for Hunting Titan 2018 in production perforating Connection technology sales
Slide 13: US Manufacturing
US Manufacturing Return to Profitability The US Manufacturing Division, accounting for almost 40% of Hunting’s footprint, manufactures proprietary products, customer specified products and is an internal supplier to other Hunting segments When the Gulf of Mexico was running more than forty rigs,
Slide 14: US - Advanced Manufacturing Group (AMG)
US - Advanced Manufacturing Group (AMG) Capturing Opportunities Hunting’s AMG segment, which includes the Electronics and Dearborn businesses, was hard hit in the downturn as customers reduced or delayed orders for components or complex expensive tools Managing through the cycle, Electronics and
Slide 15: US – AMG Dearborn Electronics
US – AMG Technology Shift and Integration While Dearborn and Electronics have stabilised, revenue opportunities continue to increase as well technology evolves As customers face increasingly difficult wellbore challenges, we continue to focus on innovation, developing specialised technological s
Slide 16: US Onshore OCTG – TEC-LOCK
US Onshore OCTG – TEC-LOCKTM Longer laterals require connection technology that can withstand extreme loads of compression and torque, while having a slim design to reduce drag when pushing the string out for extended reach Hunting’s TEC LOCKTM connection achieves this at an economic price point
Slide 17: US Onshore Intervention Tools
US Onshore Intervention Tools Once in production, wells require periodic maintenance Hunting has used the increasing number of completed wells as an opportunity to capture additional revenue streams by increasing our Pressure Control Equipment (PCE) production Utilising our distribution networ
Slide 18: Offshore Markets
Offshore Markets Global deepwater oil production is forecast to increase by 700,000 bpd in 2019 to a record high of 10.3m bpd Deepwater capex is expected to rise from $50bn today to $60bn by 2022 Adjusting to the lower price environment, the focus has turned to projects that are profitable wit
Slide 19: International Market
International Market We continue to adjust and adapt to the market • MENA reorganisation: • Moving OCTG sales under Asia Pacific umbrella, Well Intervention businesses under European Operations and Saudi Arabian Joint Venture focused on “in country” OSC opportunities • Asia Pacific and European bu
Slide 20: Hunting Titan New Products
Hunting Titan New Products HYPERfecta High Temperature charge used in high temperature completion environments - Next generation of Perfecta charge - Using HSX explosive technologies for use in ultra-high temperatures Power Charges Explosive device that activates a frac plug for isolating zones
Slide 21: Hunting Titan Well Completions – Guns and Instrumentation
Hunting Titan Well Completions – Guns and Instrumentation 2018 was a record year for Titan, leveraging our global footprint, strong distribution channels and continued development of new products We internally produce guns using our Titan and US Manufacturing capacity and our global facilities i
Slide 22: Hunting Titan Product Volume Drivers
Hunting Titan Product Volume Drivers Well Completion Activity 2018: 23% increase in Well Completions over 2017 • Titan revenue is directly correlated with the number of US wells completed 2019: Projections are the same number of Well Completions as 2018 Service Intensity The Permian basin today pull
Slide 23: Hunting Titan Service Intensity – The Consumption Multiplier
Hunting Titan Service Intensity – The Consumption Multiplier Based on a typical configuration today, for each stage added to a well, over 70 individual pieces of kit are required Each of these components incorporate varying levels of technology and specialisation For the industry, the cost of
Slide 24: Hunting Titan H-1 Gun Market Update
Hunting Titan H-1 Gun Market Update In 2018, the H-1 System helped push Titan beyond Perforating Gun Sales Trend Conventional v H-1 2014 revenue levels for gun sales with one out of four guns sold being an H-1 System 2014 Peak Revenue In 2019, we expect the ratio to improve to one out of The add
Slide 25: Hunting Titan US Onshore – Well Completion
Hunting Titan US Onshore – Well Completion The drilled but uncompleted (DUC) well count in the US grew by 31% during 2018 underpinned by a 77% DUC increase in the Permian basin Factors contributing to the Permian DUC increase include lack of pipeline capacity, oil price volatility and associated
Slide 26: Hunting Titan Capital Investment Update
Hunting Titan Capital Investment Update Shaped Charge Production - Milford, Texas Adds Over 30% Capacity $11.9m investment started in 2018, expected completion by end of May 2019 Market trend that charge consumption per well is up over 90% in the last four years This investment puts us in th
Slide 27: M&A Market Opportunities
M&A Market Opportunities Pursuing a strategy to acquire bolt on businesses or purchase intellectual property to complement our product lines Seeing more private equity and value escalation Private equity injected significant capital into the oilfield service space during the downturn Private
Slide 28: Summary of Investment Case
Summary of Investment Case Robust financial footing Broad technology based product portfolio focused on the oil and gas industry Modern, well-equipped and geographically well-positioned facilities within global energy markets Financial strength for bolt on technology-focused acquisitions E
Slide 29: Appendix: Pro-Forma IFRS 16 Group Income Statement
Appendix Estimated Pre-Tax Pro-Forma1 Adoption of IFRS 16 Lease Accounting Group Income Statement – Year Ended 31 December 20182 Deduct Reverse depreciation operating and finance Pro-forma Reported lease charge charge restated $m $m $m $m) Revenue 911.4) - - 911.4) Gross profit 275.1) 4.5 (4.3) 275.
Slide 30: Estimated Pre-Tax Pro-Forma Adoption of IFRS 16 Lease Accounting
Estimated Pre-Tax1 Pro-Forma Adoption of IFRS 16 Lease Accounting Group Balance Sheet – As at 31 December 2018 Reported as at 31.12.18 Lease liabilities Reported as at under IFRS Right of and Provision 31.12.18 under 17 use assets released IFRS 16 $m $m $m $m Property, plant and equipment 360.2) - -
Slide 31: Adoption of IFRS 16 – Key Points
Adoption of IFRS 16 – Key Points 1) Formal adoption is from 1 January 2019 2) Modified retrospective adoption with no restatement of prior years 3) Approximately 100 leased assets being capitalised as “Right-of-use Assets” – mainly leasehold properties 4) Bank covenants measured against pre IFRS 16