Hunting (LSE:HTG) — Year-End Trading Update

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, they can be submitted at any time via the Q and A tab situated in the right corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question that receives you in meeting itself. However, the company can review the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to CEO, Jim Johnson. Good morning to you, sir. Well, good morning, everybody. I appreciate you all taking the time this morning to, come on this call, learn more about the company that I've been associated with for numerous decades here. And, it's great to start off this conference with some good news about our full year trading statement that was just released this morning.

0:48 So just kinda some highlights on that as I flick over to that. At the end of the day, we ended up having a very, very good year in in 2024. It was much improved over '23. A lot of hard work from the team at HUNTING, and it was appropriate that in the past year, we celebrated our one hundred and fifty year anniversary. And so it was good to make sure that that was on a high note business wise. I mean, the key for the financials for the, or to just to talk about the company before I even get into that more for those that don't know what is. HUNTING has been in the oilfield service business since the late nineteen sixties where our business is global in nature. We have a number of product lines that are very, focused on large portions of intellectual property.

1:35 We have, first and foremost, an OCTG business, which for those that don't know what that is, that's really the tubing and the casing and the completion equipment that goes with the drilling and completion of an oil and gas well. That product line also has implications into energy transition with geothermal and with carbon capture. Our Titan business, our second major platform is our perforating gun, perforating equipment business. It is a, one of the largest suppliers independently globally for perforating guns and explosives, primarily used for fracking wells, but also associated with things like plug and abandonment work. Bulk of that business is North America focused with the shell plays dominating the use of those products, but it does have an international applications and basically offshore or anywhere in the world that that that oil and gas is being produced.

2:32 Our advanced manufacturing business is an area that has a large portion of non oil and gas to it. It is a high precision machining, business on one side and a high, level of IP generated electronics business on the other. Both of those businesses are very unique. Both of them have a large oil and gas footprint. But on the machining side, the bulk of the business is actually more aerospace and defense. So people like Elon Musk are clients of ours in the rocket business as well as companies like Pratt and Whitney and others in the defense side. And then lastly, one that has had the most exciting growth for us this year along with OCTG is our subsea business.

3:18 And it's one that we have built through acquisition with two acquisitions in the last four years. Prior to that, we were in the subsea business with one business unit that made proprietary couplings for subsea trees. So that was one of the first businesses subsea wise that we participated in. It has, had a had a very good year, but it's one of those areas also where we see a lot of growth in an area that we like and will focus on for future m and a opportunities because of the high level of IP associated with those type of product lines. But we made two acquisitions, as I mentioned, in the last four years. One of them was a company called RTI, which put us in the titanium stress joint business, which is very, high dollar, high IP products primarily associated with FPSOs, which are floating production storage units used in deepwater applications in areas like Guyana, Gulf Of Mexico, and others. And then the last portion of our subsea business is our EnPro business, which makes numerous different kit to, let's call it, speed first oil and enhance the economics of subsea developments as well as provide some equipment for a plug in abandonment work or abandonment work. So that's kind of a snapshot at HUNTING as a general. The key is I'm proud of this organization.

4:38 It's over 2,000 employees globally with a footprint basically where our customers are at and growing, year after year. The trading statement, I'll flick over to that. Just some top topic on that. We, we're guiding again, our our final numbers will be out in March. But right now, EBITDA in the range of one twenty three to one twenty six. That's up over 20% year over year. EBITDA margins at 12%. Bruce Ferguson and the finance team and and the rest of the team, great job generating cash, 100 to 105,000,000 in cash and and bank at the end of the year. Sales order book of over $500,000,000. And I'll highlight that that does not include any of our Titan business, which is the perforating business because the order book on that, it's a very short cycle, business.

5:28 Typically, we don't have visibility on more than a month out. But I'm pleased with our results and what we did, a lot of hard work by the team, and it really was another step in the direction from what we outlined in our Capital Markets Day. I go to the next slide. I think for investors that are just looking like, why would I buy shares in HUNTING and what am I looking for? I think these graphs, all four of them tell a really good story. If you look at it again, I like graphs from a positive point of view on revenue and margins and the like, lower left to upper right, and that's what you're seeing on all of these. So we came out of the depths of COVID where the industry had literally shut down. You've seen a strong rebound in our revenue growth. You've seen an improvement in our EBITDA performance. We continue to be big believers that shareholders need to see a return back in some measure, and we prefer that in dividends, and we intend to continue to focus on trying to increase that cash back to shareholders.

6:28 And, again, I had already talked earlier about the cash position. I I you would be hard pressed to find another energy related company in the service sector with a better balance sheet than what we have right now. Next slide talks about our change in our revenue profile from offshore to onshore. You'll see that, you know, it's it's been pretty static that we are seeing more growth in the offshore business, primarily due to the acquisitions we've made and their impact in areas like Guyana and Brazil and deepwater Gulf Of Mexico. Then other slide beside it shows the breakdown North America and rest of world. We're very focused on North America, and that's driven by the huge amount of business we're generating in the Titan product line, again, primarily for the Shell plays in US and Canada.

7:22 Revenue profile, well, a strengthening OCT and sub sea sales. Those were really the two leaders going into '24 as far as market share or or or share of our business goes. OCTG, we really saw a lot of things come together in '24 through our investment in India in that venture there as well as pick up an opportunity in The Middle East and Southeast Asia and strong, OCTG completion work in South America, primarily driven by guy by Exxon in Guyana as well as a really good position in the onshore shale plays with our premium connections in North America. The key again, this next slide kinda just goes into a snapshot, talks about things that I've already mentioned before, highlights the oil and gas, non oil and gas side. Again, a lot of IP. We're not at we we we like to stay away from commodity products. We like to focus on technology, and there's a lot of technology embedded in literally everything we do, whether it's the critical nature of our premium connections.

8:29 One of the highlights we had in the past year that was noted in the press was the fact that some of our premium connections were used on the anchor project with Chevron in the Gulf Of Mexico, which was a 20,000 PSI application. And, again, working with people like Exxon in Guyana, it's just been it just validates our story that we have technology for this industry. Customer base that you're seeing on this slide pretty much says it all. That's just a small fraction of the hundreds and hundreds of clients that we have globally, especially when you look at North America. There's lots of independent E and P operators or other, service providers that we do business with. But we're proud to have all these companies on our list as customers.

9:15 And some of these, I know, for example, the Chevrons and the Exons and the Halliburton's and the like, they've been customers as long as I've worked for this company, which is over thirty years, and and it continues. IP, mentioned a little bit about earlier. And, again, some of these, I'm not spending a whole lot of time on, but a lot of patents that we focus on, a lot of them in the subsea side, in the premium connection side, in the Titan side. That's where most of that is driven from from the patent point of view. IP, when you look at our advanced manufacturing in areas like our electronics business and our advanced machining business, there's a lot of embedded IP there that really separates us from our competitors in the crowd and is why people come to us for critical work being performed.

10:02 The HUNTING twenty thirty for this, some of you, I'm sure, remember when we did our Capital Markets Day. This just kinda outlines what we were wanting to do, and it talks about revenue growth from where we were at, improving our EBITDA margins to 15%, generating 25% of our revenue by non oil and gas by 2030. Again, growing through m and a that we plan to do. We have a portion of our of our plans based on that, which leads me to just comment that I think 2025 will be an excellent year for the company on the m and a front. Continuing to increase our dividend, as I mentioned earlier, it's important to us. We think that investors need to get a return, good times and bad. I'll remind people that it's never nothing's ever a straight line and trees don't grow to the moon. But as you saw from the previous or earlier slides, our trends are going all in the right direction.

10:56 I'm not gonna go in. I hate reading PowerPoints directly, but it's all there in front of you whether it's ESG focused. We continue to improve on our ESG scores and ratings. I tell people that we were very focused on ESG before most investors knew what it even stood for. So we've always been a company that has looked after our employees, our shareholders, the environment, and tried to be an excellent employer. So that pretty much sums up the HUNTING 2030, and I'll just talk about some of the progress we made on this next right slide. I had mentioned in OCTG last year, we had record orders from Kuwait Oil Company. We have a joint venture in India with the people at Jindal.

11:42 That that venture is going very well. We received our API license here. I think it was late third quarter. So we're now tendering for opportunities in India. But it's our technology on the connection side married with pipe from the Jindal mill. And primarily, all that product is staying in India. We have a investment with a company called Cumberland Additive based out of Austin, Texas. We own about a third of that company equity wise, but it's a focus on three d printing, additive manufacturing. It's one of those businesses that we invented invested in in order to gain more knowledge of that growing segment of of manufacturing. And we're, we're seeing continued growth with our Cumberland investment.

12:28 On perforating systems, we continue to focus on developing the latest and greatest technology out there that makes our clients, which are primarily wireline customers who work for the E and P customers more efficient. You read a lot about the E and Ps doing, more with less. And a lot of that, it comes down to the IP from companies like us that allows them to get quicker and faster at the well site. Things like our h four perforating system do that by reducing the chance of failures downhole as well as just, again, a quicker, more seamless operation for the wireline companies. Subsea, I talked about earlier, excellent business, generated in the past year with Exxon in Guyana. They have standardized on our titanium stress joints for that market. We've added other clients in areas like the Black Sea with the Turkish National Oil Company as well as continued business in the Gulf Of Mexico.

13:24 I'm gonna skip. I've mentioned earlier about advanced manufacturing. I'm gonna talk a little bit about energy transition. We have picked up some geothermal work in the year. We've seen that business be a little slower than what we anticipated just due to the regulatory issues with it and how long it takes for projects to get moving forward. But one of the things we did do was really firm up our supply chain to supply into those markets with a relationship with the Julee Mill, for example, in China, our investment in CRA tubulars for, composite type products for for geothermal and carbon capture. And then on another part of the energy transition has been the big success we've had in our organic oil recovery business with $60,000,000 of contracts secured in the period.

14:17 Cost management remains a focus of of the company. We, went through some cost cutting last year at Titan. And today, we had a press release talking about further reductions going on in our EMEA business to rightsize things. KOC order, I won't spend a lot of time on. That order, occurred last year. Part of it was delivered in '24. Part of it will be the remaining of it will be delivered in '25. We're anticipating more business coming from just not Kuwait, but also The Middle East in the year ahead. So we're excited about our opportunities in that marketplace. Organic oil recovery, as I mentioned earlier, a good product that when you look at challenged areas such as The UK sector, the North Sea, where the government has been pretty anti oil, you've got infrastructure in place and you've got reserves still in the ground. And operators are continuing to challenge themselves on how are they gonna get those resources out of the ground without putting more holes in the ground. Well, our our organic oil recovery product is one of those solutions.

15:23 And to date, we've had some really good, testing as well as orders placed from operators, but not just in the North Sea, in The Middle East, in Malaysia, throughout the globe, and we're excited about the traction that we've gained in that product line. Energy transition, I mentioned a little bit about on on a previous slide. This just highlights a couple of the other areas done. The CRA project is is one where we think that due to the scarcity in a lot of the high nickel based alloys in the world marketplace, when you look at the tonnages people are talking about globally that they're gonna have to have for carbon capture and for geothermal, There's gonna have to be other materials used, and and we think we're at the forefront of that with our partnership with CRA tubulars for composite materials.

16:14 Geothermal, again, is one of the areas I'm most excited about over carbon capture just because the, a simple fact is hunting has been a player in the geothermal market for thirty years. So if you looked at areas like The Philippines, Indonesia, Iceland, Southern California, We already have a track record of supplying products into those areas. And as that accelerates, we'll be we're well positioned to see that grow for us. New technologies. Again, I've kinda jumped around on a few of these. The I've talked about the new h four gun at at Titan. The TechLock product line continues to be one that continues to develop applications for now, for example, in things like the refrac market where different sizes are needed. But it's a product line that our team in Houston engineering team in Houston has done just an amazing job on on on bringing these products to market quickly.

17:10 We have our own, testing facility in Houston, Texas that we spent in excess of $10,000,000 on a few years ago where we do a lot of our connection testing to customer specifications that allow us to participate in new business. Subsea, we talk about the again, we list some new technologies there in areas such as nPro, which is the fan product that it talks about on the bottom, as well as different applications for our RTI business unit, which is the titanium stress joint related opportunities. ESG, we are very focused on making sure we do things right. We take care of our people. We take care of our our environment. And I think after a hundred and fifty years, the one thing that's unique about HUNTING is the fact that we are a company with a culture.

18:00 So so many businesses out there you see are put together by private equity, this, that, and the other. I'm I'm really thankful that I'm associated with this company. I spent most of my career here. I'm fortunate that the bulk of the team that I work with is many of them have been here ten, twenty years, and that expertise is priceless when you look at the whole nature of the company and how we need to have customer relations, be agile in the marketplace, and develop IP. It all comes down to people. So, again, strong quality assurance, industry leading, robust health safety and environment. We take we go the extra mile to make sure we'd have nobody hurt. Our people are safe. And, again, compared to the industry standards, our results are very, very good.

18:50 Again, some other things that talks about on this next slide just talks about our our emissions ratings, our renewable energy purchases. I'm not gonna spend a lot of time on that. Again, I think it shows we're doing the right things and working to to make ourselves more efficient, save money. A lot of that with the e with the emissions comes with the fact that that we continue to while the number went up slightly, it didn't go. It went up less than our growth in revenue on a year on year basis. So, again, I think I think the traction is right and things are going in the right direction. Kind of so just some top topics about the industry. We're big believers that oil and gas is here to stay for a long, long time. I just don't think that, renewables, while they're important and they will grow, the world cannot just run on renewables.

19:42 So even in areas that we're not into that much, for example, nuclear, our our advanced manufacturing business, we're a supplier of products to the nuclear industry. But I just think oil and gas is still gonna be a driver. In 2030, they're gonna we're gonna need more of it then than we do today. CapEx is always going to be a little rocky in this business. It's never a straight line, but the trend again is going all in the right direction, especially as you see more deep water coming online because, again, 70% of the world's covered by water, and there's a lot of areas to explore out there. And while it's costly, I remember a study done just a few years ago where Exxon came out and made basically made a statement that, I think it was seven or eight subsea wells in Guyana equaled the results of 1,400 shell wells in North Dakota as far as production goes and the volumes you get out of it. So a good trend. Customers are gonna continue to spend, and we're very happy to take their purchase orders.

20:46 Market outlook again. I mean, who knows what's gonna happen in '28? We think it's gonna continue to improve. We think twenties '25 is kind of a pause that refreshes is what I'll say. We saw we noticed that q q four was kinda quiet in the industry, but what encourages us is the change of administration in The US, which I think is gonna be very positive. You're also about to see a change in administration in Canada, which is another positive. And just the world coming to the reality that you have to drill or you're gonna be out of business, and you're not gonna have the hydrocarbons you need to support the growth in GDP and people's living standards around the world. The, guidance that we've issued, there it is. You can all see it.

21:33 EBITDA in that one thirty five to 145% or dot million dollar range. Sorry. I'm looking at the EBITDA number in the 12% range. Tax rates are there. CapEx close to depreciation. The real thing is, though, this business is generating a lot of cash. We did we did in the past year. We will continue to do that. And I just think the outlook, when you look at our peers out there and what's happening, I think it's very positive. And I really believe that we're setting ourselves up for a boom in '26 as the regulatory environment clears up in The US with the new administration and the like. The fact that natural gas is now at the $4 range in The US, LNG will continue to be an important product line. And internationally, there's lots of projects on the on the drawing board and in the development stages in places like West Africa, obviously, South America, Gulf Of Mexico, and the like. So in summary, '24 was I think our team did a great job. I think they would they performed exceedingly well. I think, like, every year, we had some winners and some losers.

22:39 The real highlight in '24 was our was our OCTG business, our subsea business, strong performance out of The US assets. The problems were the weaknesses we saw in our EMEA business primarily in the North Sea, which is, let's be honest, is being driven by government policies in The UK, which are not friendly to oil and gas. And, again, a challenging year at Titan, though I think things will improve in '25, and I think we're on the right track track there. Company has lots of liquidity. For me, the one of the big stories for '25 is gonna be on m and a. We're we're very focused on that. We have some things we're looking at pursuing now, but our goal is to make '25 the year where we spend some money and do some bolt on acquisitions that strategically fit a good price for both buyer and seller.

23:29 And so with that, I am done with the presentation. I hope, you know, again, I was like I say, the shares are on sale today, so it's time to buy. I really believe that the company is undervalued today. I think if you look at the multiple we're trading at, it's low. I think that we've demonstrated you know, we've managed well coming out of COVID. We've done the strategic moves we needed to to take to make the company strong. And I'm just, again, thankful for the team that I work with, and I just think good better days are ahead. So I'll throw it up. Perfect. Thanks very much for your presentation. Ladies and gentlemen, please do continue to submit your questions, and you can do that just by using the q and a tab that's situated on the top right corner of your screen. As you can see, we have received a number of questions throughout today's presentation. And at this point, if I could hand over to you, Ben, to share the Q and A, that'd be great, and I'll pick up from you at the end.

24:20 Thank you, Alessandro. So Jim, Bruce, first question is from David. He says, what type of companies are you looking to acquire? And how will these acquisitions support growth? So we've laid out kind of what we're looking for a couple of different areas of growth within the count in the business. One of them is obviously continued to focus on the oil and gas business. We think there's opportunities in especially in areas like subsea where we like the margin profile. We like the technology profile. So that's one of our top priorities. The second area of priority would be in non oil and gas. That's an area that's been a little challenging because multiples have been a lot higher than what you've seen in the energy sector. And to date, we've we've had some tire kicking, I would say, but there hasn't been a lot of opportunities that have been present. And a lot of that comes down when I talked about '25.

25:16 It's the cycle of when buying can happen. So out of COVID, everybody had lower earnings. Most people were not prepared to be selling at that time, but that's why I think it's opening up now. So again, nonoil and gas with a focus on aerospace, defense and technology or subsea. Those are the two main areas. Great. Thank you. Got a few questions on the the restructuring restructuring initiative that you announced today. One from Rich is saying the restructuring aims to eliminate $10,000,000 in costs. Are these cost reductions expected to fully materialize in 2025? And are there additional cost saving opportunities identified? Well, we've been very diligent on focusing on cost. Last year was a lot of that was done on the Titan side. So when when I look at the plan that we've laid out in the $10,000,000, it is primarily focused on our North Sea assets.

26:06 We had agreements in place. If many of you might remember three years ago, we sold our pipe business in The UK. So we had some commitments to service that client that bought that business for three years. So those commitments ended December 31. And so now we just need to fine tune the business for the size of the market that is there. Those cuts will be permanent. Obviously, it's not $10,000,000 day one, but the bulk of them will be in 2025. Great. And Rebecca asks, how many staff do you currently have in The UK? We have 150 staff in The UK. And then Nathan asks, as it relates to restructuring, could that restructuring of the EMEA business result in a US listing at some point?

26:55 No. That's not the focus on. The focus is to improve our overall performance. So the the two are not related. Okay. So I've got a question from Peter here. He says with a robust tender pipeline, can you provide insight into the competitive landscape and how you position yourself to convert these opportunities? Well, I think it comes down to IP, but I will say this that literally I mean, every part of our business has competitive pressures out there. So there's there's things that we do. For example, in titanium stress joints, we're the only ones that make that product. So it's not that we would compete against another titanium stress joint supplier, but there are other applications that can do the same job, but we don't feel they're as efficient. In areas like OCTG, it is a very competitive marketplace.

27:43 It's hard to predict when you're gonna have a win or a success because we're competing against, you know, some of the best in the industry like the Tenaris' and the Valorix and the Sumitomo's of the world. So it depends on qualification of your product. And we I mentioned earlier about our testing lab. We spend a lot of money doing premium connection testing, for example, to be on the bid list for the right sizes of casing that we want to. So I guess I can't give you a lot more clarity on that except it's always competitive. There's always an opportune customers always have another opportunity, but we believe that our strong strength in our IP and our people and our track record of excellent service to the clients is really what drives us to the value we give, and we work hard to secure what we can.

28:32 Thanks, Jim. We've got another question on the same theme of competitive landscape, but as it relates to Titan. So in perforating systems, energy prices and North American rig count are very visible metrics. How's the competitive landscape and Titan's position within the industry evolved during 2024? I think it's been pretty stable from a market share point of view. I mean, depending on what month we're either the largest or second largest supplier in North America. It has been one that there is a lot of competition. Pricing has not been strong in that marketplace in '24. It's stable. But right now, because of a rig count of, you know, five eight five eighty completion crews, frac spread counts down to one ninety, there's not a lot of pricing power today in that. But we anticipate the improvement in the natural gas market, which is one of the key areas for our Titan business historically, is that, that is going to significantly improve in the year ahead, which will give us more opportunities and hopefully better pricing point.

29:36 Okay. I've got a question from Peter here. He says, given the IP and the specialism in your business, are your margin targets conservative? Oh, I mean, you look at '24, some of our product lines have exceeded our margin targets. Some of them aren't because of, like, areas like the Titan and the influence of our EMEA operations. So I don't think they're conservative. I just think they're realistic. Okay. And then another question from Peter. He asked about your cash conversion rate benefiting from the stock reduction you achieved in 2024. What's your expectation of cash conversion rate for the current fiscal year? We set that out in the Capital Markets Day. For 2024, was over 110%, which is exceptional.

30:24 And that benefited from the inventory reduction and also some of the working capital instruments. For 2025, we're looking at 50%. Okay. Thank you, Bruce. And then another question from Peter. Is the rig count still a driver for the business? Yes. Always has been, always will be. But is it as important as it used to be as a as a metric for your business? Always has been, always will be. Would tell. Peter, it's always I mean, it's the first thing I looked at at 12:05PM every Friday is what is the Baker user account. And it tells the health of the industry. And in areas like Titan, it's extremely important. Our premium connection business onshore is important. Even, you can go and see what the activity is in the Gulf Of Mexico, but it's really the blood pressure of the industry.

31:11 Okay. Thank you. I've got a a final question here, which kinda relates to your closing comments about valuation. You know, what do you what do you make of your current rating and and the opportunity for for new investors to to come in? I mean, have to sell my own book here. So I'm always gonna say that we're undervalued. But I think that we seriously are when you look at the multiple, what we're at now based on our EBITDA and what we're generating. I just I think the whole industry is underrated right now. Part of that is just, I think, due to the momentum that we've seen or lack of momentum in the second half of the year. But I just think that we're very underrated. We're gonna continue to deliver improving results. We've got a great portfolio of product lines that really touch the hot buttons of what's going on out there, whether it's Shell in the North American Shell place, whether it's Deepwater, Gulf Of Mexico or Guyana or Brazil, whether it is enhanced opportunities with o with our organic oil recovery, which allows operators to do more with less.

32:17 I just think throw in some advanced manufacturing, which gives us diversification with people like Elon Musk with the SpaceX. I just think it's a great company with a great opportunities and a good future ahead. Thanks, Jim. Well, the the market seems to agree with your shares trading up 11% today. So congratulations on a on another strong trading update. Thanks. And with that, I'll hand back to Alessandro. Perfect. Thanks very much for answering those questions from investors. Of course, company can view the questions for today, and we will publish out the responses on investment company platform. But just before redirecting investors, probably get their feedback, which is particularly important to the company, Jim, was just wondering if I could ask you for a few closing comments. Yeah. Sure. You know, I just I appreciate everybody taking the time, first and foremost, to be on here today. I think we've got a great story.

33:05 Again, you know, it's interesting that if you're looking at an oilfield service play in Europe, it's a there's a very limited universe of people out there. And I think that we our heads and tails, I think, the class act of what is out there. I think that the momentum is gonna continue to go in the right direction for us. I think after a hundred and fifty years of being in business, we don't need to practice a lot of things. I think we know what we what we need to do. And so it's executing on that. Market considerations always play. You're never gonna be smarter than the market, but it's a matter of making sure that that you capture those opportunities in the market when they're available. And I'm just you know, I go to bed at night thankful with the team that's here knowing that they're they're driven, they're motivated to make this company a continued success, and that's part of the reason that we're all still here. So, again, thank you all for your time. Like I always say, shares are on sale. So if by by now, you'll regret it in '26.

34:08 But that's that's kind of my closing remarks. Perfect. Thank you once again for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This line take a few moments to complete, but some should be greatly valued by the company. On behalf of the management team of HUNTING PLC, we'd like to thank you for attending today's presentation, and good morning to you all. Thank you.