Hunting PLC

Good morning everyone and good to have you in attendance today to listen to Bruce and I talk about our results for the first half of the year. Before we get started, as always, I just want to do a thanks out to the team at Hunting. Again, we delivered excellent results in the first half of the year and a lot of hard work to make that happen. Special thanks today to Graham Goodall and the team in the Middle East. As everybody knows, it's a very challenging environment and a lot of stress in that area these days. And so I just want to say thanks for all that they do. Getting into our results today, we're very pleased with what has happened in the first six months of the year. I think the results today show that our strategy that we've laid out and put in place is definitely working. We've delivered a diversified array of results and opportunities that have come into our fold. But we've performed very, very well, and we're not focused on just one basin or one geographic area. And it played out today with the broad positive results that we had. So today, as we get started, there's really three points that I want to get across. There are three main themes, and we'll go into more detail with everything throughout this report. But I think the first theme is the incredible turnaround that we've seen in the performance of our Titan perforating business. And credit to the team for all the advances that they've made from a sales point of view, from a cost point of view, supply chain point of view, and maintaining our technology lead in that field. And as clients continue to have more challenging wells in the unconventionals regarding the length of these wells, I think the Titan products continue to be the call of choice when it comes to those type of equipment needs. Additionally, our international business with Titan has been very, very strong. We're looking at a 50% increase there year over year. The second part of the story that is amazing to me as well has been the success we've had in our subsea business. And that is really a catalyst on how we've decided to change the company and change our strategy to really again be in markets globally. So if you look at pre-2019, we had one very small segment in the subsea business. Today, with the acquisitions we've done, we've expanded that greatly. And that has led to a higher margin profile. And even if you look at our performance so far this year, our second quarter overall margin profile increased with EBITDA ranges close to 15%. And a lot of that's driven by the subsea business and a lot of the optimism we have in the future because of things like energy security, reserve life, and the like is really going to be focused on that subsea business. And then the third point is really to address what I would call the 800-pound elephant in the room, and that is what is going on in the Middle East and what is going on with KOC. um our virtual mill concept proved how successful it could be earlier this year with a number of big tenders out from KOC and we were in first place to receive what would have been the largest tender awards in the company's history and I'm talking well in excess of 300 million dollars As you all know, the war came on, dragging on, dragging on. How do you get material through the Strait of Hormuz? Long and short of it is, we were asked to re-verify delivery times and pricing like our competitors in our war. And even up until the last announcement that we put up in July, we had actually received a purchase order for $20 million for one of the line items. So we felt confident that this was going to happen. We were, you know, what was the mill deliveries going to be like? When would it fall into our P&L statement and like? There was still challenges there. But long and short of it is those tenders have all been canceled. So KOC has canceled everything in that tender, and it will be coming out again, we think, within the next 60 days. So at the end of the day, we performed well. We were so close to getting the award, but now it's being pushed out, and it'll definitely be a 27 event. I would say the good news about all this, if there is any good news, is the fact that as of just this week, a new tender has been placed out in the market by KOC for a different field. So this is not the redo, but this tender value alone is in that $120 to $180 million range. So we will be bidding that within the next 60 days. It is for delivery starting in June of next year. And with the retender process of the major projects, we still are very optimistic that giving our technology, our relationship with KOC, and in the fact that we have our virtual meal concept that can do a competitive package, that we will be successful on those tenders in 27. So now I'll get into the presentation. Again, the highlights, I've talked a lot about that already. I mean, again, it's been a subsea story with a high margin. It's been a Titan turnaround story. It's been a steady business in North America on the OCTG side. On the accessory business, Guyana continues to be a strong part of our business. On top of all the good sales work being done, we continue to focus on our cost reductions. OUR CONSOLIDATION OF FACILITIES IS NEARLY COMPLETE IN AMEA AS FAR AS SPECIFICALLY ON THE EUROPEAN ASSETS AND WE LOOK FORWARD TO GETTING MORE SYNERGIES AS NEXT YEAR WE MOVE INTO AN INTERNATIONAL PRESENTATION, INTERNATIONAL COMBINATION AND NORTH AMERICA. Supporting the market itself, there's a strong demand out there, again, for hydrocarbon security. And one of the upsides to the events in the Middle East has been the new light, I would say, or positive outlook for more international markets and more offshore markets. On top of that, the whole AI-driven power demand issue is really playing into the strengths we have in our Titan business as well as our North American OCTG business. FINANCIAL NUMBERS, YOU ALL HAVE THESE HERE. I'M NOT GOING TO GO INTO A WHOLE LOT OF DETAILS ON THEM, BUT YOU CAN SEE THE DIFFERENCE. NEARLY 500 MILLION IN REVENUE IN THE FIRST HALF OF THE YEAR. THE KEY NUMBER, THE 62.1 MILLION OF EBITDA IN THE PERIOD. WE CONTINUED OUR SHARE BUYBACK. WE WANT TO CONTINUE TO BE SHAREHOLDER FRIENDLY AND TAKE EXCESS OF CASH AND SHOW THAT THERE IS GOING TO BE A RETURN WITH THIS COMPANY, HOPEFULLY THROUGH UPS AND DOWNS IN THE MARKET, AND WE REMAIN A GOOD PLACE TO INVEST. We've announced an increase in our dividend proposal. The next one will be $0.07 a share. Again, capital outlays are continuing to rise in areas like offshore, the market in the U.S., so capital spending should be on the uptick right now due to the fact that I think people are more comfortable that we're not going to see a big reversal in oil prices anytime soon. This slide here really shows to the fact that what I mentioned from a revenue point of view on the diversification we've had in the product lines going back to 2019 versus today, you'll see the big, big growth in the subsea side of the business. It is, again, one of the highest margin business that we have right now, but it's a nice balance. So one of the keys when we looked at our strategy and where we were at years ago is we just don't want to be one basin focus, one country focus, or one product line focus. And fortunately, this year, it's really proven out the recovery at Titan has been strong. The international opportunities both in OCTG and subsea remain healthy. And our advanced manufacturing business continues to book good business, partly due to aerospace and defense as well as to power gen business. We continue to focus on cost, as I mentioned. We've had a lean manufacturing program in, we're well into our second decade of that. There's never a time when that ends. It's kind of in the same line of the efficiency you see in our customers drilling wells in the Permian. Today they're drilling in 14 days what used to be 28. And we look at that same kind of philosophy in our manufacturing shops to see how we can do it quicker, faster, and better. We talk about versus 2019, a 24% decrease in our head count. The fact that we are more efficient, we are using things like AI and some back office applications to speed up processes. And I think a key note is the fact that our treasury share purchases, we talk about a 300% increase there to fund our LTIP programs and the like, but we have not issued any shares, so there is no dilution. The buyback, as we mentioned, kind of a newer thing for us in the past year. We're continuing that and we'll give you some more highlights on that later on. And then just one other thing on the cost reduction side. I would also like to comment that our health and safety record, our quality record remains stellar. Oil and gas demand, I'm a big believer that the world's going to use hydrocarbons for a long, long time. And if you look at the trends, especially as it relates to the need for more and more electrons globally for things like data centers and the like, natural gas is going to be a key driver of supplying those needs. AND FOR OUR BUSINESS, IT REALLY NATURAL GAS OR OIL REALLY DOESN'T MATTER. WE ALSO CONTINUE TO PLAY IN THE GEOTHERMAL MARKET. WE LANDED A SUCCESSFUL ORDER IN OCTG IN THE RECENT MONTH FOR SOME GEOTHERMAL WORK ON PREMIUM CONNECTIONS. WE CONTINUE TO SUPPLY PERFORATING EQUIPMENT IN GEOTHERMAL APPLICATIONS AND WE LOOK AT THAT AS WHILE IT'S SMALL, IT'S AN AREA THAT WE WANT TO PLAY IN AND WE CONTINUE TO PURSUE. Power demand, as I mentioned earlier, most of you have probably seen these slides before. There is just a huge amount of need for, like I said, the electrons. This isn't going away. All you have to do is look at the spending that's going on by the major players in the data world. AND THIS IS AN ISSUE THAT IS GOING TO SEE GROWTH INTERNATIONALLY BECAUSE YOU'RE SEEING THE NEED FOR DATA CENTERS IN EUROPE AND OTHER MARKETS IN JAPAN. ALL OF THIS HAS TO HAVE A STEADY STREAM OF ELECTRICITY TO MAKE SURE THEY DON'T TURN OFF. One of the main parts of our story or our thesis on why I think we're in kind of the earlier days of a really upswing in activity is this page here. And what it really shows is the fact that we've had a lost decade or so when it comes to exploration. And across the board, the majors are out there right now saying, where are we going to extend our reserve life? We know what's there in the unconventionals in places like North America. So the alternative is more unconventional development in areas from Algeria to obviously Argentina, Mexico. Literally, there's not an area around the world where there's not unconventional opportunities. On top of that, one of the big drivers, when you see the names up there, like the Petrobras, the Exxons, the Chevrons, the Shells, it's offshore. And that plays into the strength of our subsea business. But it's a trend that these companies need to correct because they can't produce themselves out of business. And with that, I'm turning it to Bruce.

Thanks, Jim. I'm pleased to talk to a strong set of results for the first half of the year. As Jim mentioned, EBITDA for the first half was 62.1 million with an EBITDA margin of 12. Now, 12%. These results don't include the KOC results we saw in last year. Pleasing to see the non-island gas revenues increase year-on-year to 38 million. Our EPS slightly down from 19.6 cents to 15.2. That reflects the lower profitability. Order book normalized now. We don't have the KOC order through there, but 386. 260 of that will get booked in 26, which supports the 26 outturn as well. It's important to us to see that dividend increase. That's up 13% to 7 cents declared for the first half. Return on capital, key metric for us. That's slightly down at 9.1% for the first half of the year, but we see that improve as our phasing, our activity improves the second half, and that should get us back to over 10% by the end of the year. Working capital. Our phasing for the first half of the year, we had 24 million EBITDA for quarter one, 38 for the second quarter. So we've got a bit of a build there. June was a good month in terms of sales. So those receivables are sitting on the balance sheet and that's up the working capital ratios there, but will unwind over the second half of the year. In terms of the income statements, we've got our revenue sitting there at 497. 38 million of that is the non-oiling gas. Gross profit sitting fairly steady at 27%. We've seen an improvement in terms of margins coming through perforating, in terms of the volumes coming through, in terms of the international business coming through as well, which tends to be a higher margin. We've also got, if you go through to the profit after tax, 24.8 million. That gives us an EPS of 15.2 with a dividend sitting at 7 cents. One of the reasons for the strong performance was in terms of the segments. We've got two strong segments there in terms of Titan. We saw that the revenues increased 45% year on year. That's a combination of a strong US market. We've seen the rig count increase 45%. We've seen international sales double in the likes of Argentina and into the Middle East as well. So that's really a really stellar performance into Titan. North America steady. Subsea, fantastic growth there. We're looking at 95% year on year. 15 million of that comes from our recent acquisition in terms of FES. So really good to see there, but really good activity in our subsea key markets there. The likes of Guyana are picking up really well. EMEA, again, lots of restructure been going on, lots of disruption in terms of the Middle East, but they're getting through that. We believe the second half of the year will be stronger. We've seen July being profitable as well. Asia-Pac, you'll see the difference between this time last year and first half this year. That's basically the absence of KOC. And then that gives us the 4.97 for the first half. If we look at the balance sheet, balance sheet's in great order. Not much difference in terms of our assets, our depreciation, our capex tend to wash each other out. Working capital build is probably a key feature of this. We're 60 million higher in terms of working capital. That has affected cash flow, but that's a timing issue and that will unwind over the second half of the year as well. That does leave us with a slight net borrowings position of 19 million. But that in terms of leverage is very low in terms of our EBITDA. So we're in a really good pristine position there in terms of future capital allocations or optionality over M&A. Our working capital, a little bit more detail here. Really, the key number here is on the receivables. That has increased 60 million from up to 293. And in many ways, that's a positive thing. That strong June trading position, that's come through in terms of receivables. And it also shows the build for some of the large subsea contracts as well. Okay. Cash flow, in terms of main items there, you'll see the 58 million coming off the working capital movements. We've also had a net one-off import tax liability that was paid. That was a one-off. That comes through to negative 27.8 million in terms of our cash flow. We started on a strong position in terms of the year at 62 million. So we're still in good place. We've made 33 million in terms of share buybacks. dividends at 10 million. And again, as Jim said, we're ahead of the game in terms of purchase of treasury shares for the LTEP program as well. A little bit of commentary around our order book. We're sitting at 386. We've got a tender pipeline behind that, which gives us comfort as well of just under a billion dollars. 260 million of this 380 will be booked in 26, which gives us support for the second half of the year. We do see the order book upside near the Middle East. The subsidy orders for Guyana. Organical recovery coming through in terms of got some really great opportunities commercializing on that side. We're very excited about that. And that sets us well for the second half and beyond. So in terms of guidance, a little bit of trimming in terms of EBITDA to reflect the delay in that KOC tender. We're now looking at 138 to 141, so roughly 10 million down from that side. EBITDA margins reflecting the stronger tightening coming through there. The product mix of subsea as well, so at 12% to 13%. Really key metric for us to get up to 15% as per our capital markets day targets, and we believe we're on track to do that as well. CAPEX will step up slightly in the second half of the year. We're forecasting that around about 40 to 50 million. And the free cash conversion still at 50%. And with that, please hand back to... Thank you, Bruce.

IN MARKET DIVERSIFICATION, AGAIN, IT'S ONE OF THE THINGS THAT WE WANTED TO DO WHEN WE LAID OUT OUR BUSINESSES. HOW DO WE DIVERSIFY THE BUSINESS? AND ONE OF THE UPSIDES THAT WE'VE SEEN EVEN MORE RECENTLY HAS BEEN THE GREAT STRIVES WE'VE MADE AT OUR DEARBORN OPERATION. IF YOU LOOK IN RECENT MONTHS, UP TO 90% OF THE BUSINESS HAS BEEN NON-OIL AND GAS. AND THAT HAS BEEN A HEAVY FOCUS ON AEROSPACE DEFENSE AND POWER GEN. But subsea, again, a big driver. We're looking for growth in those regions around the world that are going to utilize all of our products. We're working hard to make sure that we're bundling in front of the client and that we can give more opportunities to tender different products. And we're seeing that come through already with the FES acquisition. We're seeing it in the decommissioning side in the UK. So lots of upside there. And then North America, we have a continuous strong position in the onshore marketplace there, both in perforating and in the premium connection business. Strong market outlook, you guys see all this. I mean, what I'm really excited about is the opportunities. We talk a lot about the offshore market, but if you look at unconventionals, as I've always said, it's the most common hydrocarbon rock in the world, and it's all over the place. And we've seen a huge amount of growth coming from Argentina, where we're a key supplier down there. Mexico is kind of fits and starts, but there is a market there. Algeria, a new one. But one of the interesting facts in this period has been that the unconventional work that we're doing in Saudi Arabia really has not been affected by anything going on in the Gulf. So we continue in some cases even flying in product, but the unconventional work remains very healthy there and is a huge resource base that's going to continue to be utilized. And even in areas like the UAE, we have supplied OCTG products with our Tek-Lok product line for some of the first unconventional wells there. So there's a huge upside, we think. One of them that's not listed there, for example, is Australia, where you see people like the Venture with Liberty looking at a huge resource in Australia. And we have supplied product there and see that also as a growth area. I've talked about this, kind of just some examples of what we're doing. We don't want to be slacking on our technology. Part of the reason we get to the table with KOC is because of our test lab in Houston and the design greatness, I will say, of our design teams in solving customers' problems with new connection technology. And you would think after all these years, there can't be anything more, but there always is. Again, it's pushing the envelope. How do you get more performance out of these tubulars, whether it's through metallurgical issues and grades of material or designs of connections? So we're on top of that. We've got a busy schedule. We continue to look at CRA opportunities, which will be more on the high spec end for areas like high temperature geothermal and the like. On the gun system side, we're rolling out our H5 perforating system. Really on that, what I will say is it's more of a lean initiative for us. As we look at our products, how can we make them quicker, faster, and better? So you'll see more about that six months from now as this gets more introduced into the marketplace. South America, we talked about a strong, strong area for us. Guyana has just been the gift that keeps on giving. And we expect, thanks to our relationship with Exxon, to see many, many years of strong business there for multiple product lines. The domestic North American business remains steady. As we mentioned, the rig count in the U.S. is up about 40 to 50 rigs year over year. The frack spread count has increased. We think that that business is going to stay steady throughout the year with some growth. We've been exceptionally happy with what we've also seen in Canada. So we've seen a nice uptick in the Canadian market, some of that driven by unconventionals. But overall, I think the U.S. is still poised for further expansion. We had a recent Gulf of Mexico lease sale two weeks ago, brought in the U.S. government another $84 million. You're seeing a lot of interest in the majors looking at their asset base and potential asset base in the Gulf of America. And that'll play into, again, not only our subsea business, but our premium connection business and our accessory business as well. Middle East, as I mentioned, there's lots of plans with people like the UAE leaving OPEC. They want to ramp up production. Kuwait wants to ramp up production. At the end of the day, you've got to put holes in the ground. And while the war has been disruptive, it's not like these projects are going away. So they will happen, and we are well prepared. I just can't today give you a time on when we're going to see purchase orders and start threading tubulars for Kuwait. Again, we talked about South America. This is just a graph that just shows some of the subsea offerings and where we're at. Organic oil recovery, we'll talk about that in a little bit more for questions. We're seeing a lot of optimism in there, a lot of work going forward as far as trials turning into actual field projects. West Africa, we've seen tender activity pick up there on the subsea side as well as OCTG. And Brazil, with the establishment of a new office there two years ago, we're ingrained with some of the independents there. What a lot of people don't look at, they only think of Petrobras. But there is a group of independents also working down there. And within the last month, we secured a significant order on OOR for one of the independents in Brazil. Going into the next slide. Dearborn, as I talked about earlier, just kind of a list right now on some of the key clients. Again, it's aerospace, it's power generation, and it has been a lot less oil and gas. And so as I've mentioned in the past, we've had a bit of a transformation in that operation in Maine because if you go back 10 years ago, it was literally 80%, 90% oil and gas. And so that has shifted right now. And companies like Solar, which is the division of Caterpillar, they remain very trusting in hunting and a long term relationship. And that is strictly power generation demand that we see accelerating. Enhanced oil technology. Bruce, again, I always pass to Bruce because I give him credit for bringing that to the table and developing it. But at the end of the day, customers or clients going back to the reserve replacement life, it's how do you get more barrels out of each foot of wellbore? And what are you going to do to push out things like the abandonment issues in the North Sea? And we think OOR is one of the solutions to that. We've had very good results back from Harbor that we can talk to later, but we are seeing positive indications on trials that we've done and a lot of those moving to the next phase. So we're very optimistic that it's early days for OOR, but it's a process and a product that really the industry should be embracing more, but nobody ever wants to be first. So you're always in that process of dealing with the clients and working on the trials. But we see light at the end of the tunnel for sure. Again, there's some of the acceleration that talks about the steps that we do. You can see the players up there. I think the most exciting ones we're dealing with right now are Exxon for a number of projects globally. And again, there's some opportunities in the Middle East as well. Harbor, again, it's been positive. We should be getting more purchase orders from them. It's an area where it's enhancing production. And again, the results have been very, very good. In summary, this company is well positioned to take advantage of what I think is early days of a strong bull market in the oil field service business. It comes down to energy security. It comes down to the cost involved for the standard of living of people. It comes down to things like the AI revolution that is ramping up power demand that has to be supplied to a large extent by natural gas. And it's a portfolio that we have today that is really the broadest I've seen in the company's history as far as oilfield services go. So everything from, you know, we'll take part in wells in 5,000 feet of water in the Gulf of America to onshore wells in Alberta, Canada, to whatever. So we play in a lot of different areas right now. And that exposure puts us in the clients, in front of the client in a lot of places. And so I just think the list of opportunities is is just going to continue to expand. And I give credit, our sales team, commercial team has done an excellent job, again, solving customers' needs, which is the number one thing that hunting does. And with that, we are about ready to go to questions.