Hunting PLC (HTG) Earnings Call Transcript & Summary

Hello, and welcome to the Hunting full year results. [Operator Instructions] Just to remind you, this conference call is being recorded. Today, I'm pleased to present Jim Johnson, CEO; and Bruce Ferguson, FD. Please go ahead with your meeting.

All right. Thank you. Hello, everybody out there, and thank you for taking part in our virtual call today to go over our 2020 results and talk about the business in general and the industry and the outlook. And I'm really hoping that this is the last time I have to do this virtually. And the next time for half year, it will be face-to-face because you just miss something with the connectivity of trying to sit in front of the phone and not see all of you. So trust all of you are healthy and well and onward we go. So today, I think that there's sort of 3 points that I want to get across in today's presentation and talk. The first one is that I am today more bullish about our business and the industry than I have definitely been in the past year. And that is directly correlated to the price of oil for obvious reasons, but also for the fact that with the improvement we've had with the virus issue and all, the outlook to me is increasingly bullish. And make no mistake about it, that 2020 was a brutal year for our industry. It was a brutal year for the company. But it was one in which we showed our resilience throughout a very, very challenging environment, definitely the most challenging in my career. And as people in the industry talk about, this was probably this generation's 1986 when you try to compare metrics for how badly a collapse we had in activity. So I'm bullish going forward. But the second point is that I view 2021 really as a year where the industry is in the healing mode. And I say that because if you talk to people in the shale plays, for example, they reference today as being a Shale 3.0. So as this business has continued to evolve and change, the downturn due to the COVID induced economic issues in the marketplace have really made everybody in the industry take a harder look at their capital structure, the way they operate, their expenses, their anticipated growth plans for the future. And right now, we have an industry that is going to be capital constrained going forward because of a lack of interest from the investment community. As well as one that has to start showing profits to get its share prices and return to shareholders back. And so I think as we have this healing moment in 2021, it will prepare us for what I think will be a boom year in 2022. But it's going to have something fixed. And those are things like the repair of balance sheets for a lot of our clients, the return of value and capital back to shareholders and just prioritizing profits over pure production. And I so I think that is obviously ongoing right now. And ultimately, it will make for a healthier industry. And the third point is that goes into my presentation is we are a much leaner organization today. We went through a lot of blood, sweat and tears in the last 12 months getting to where we are today. And I think we've done a lot of things really right and been ahead of the game as far as the reaction to this downturn goes. And with that, I just want to give my thanks out to the Hunting team out there, who I think went above and beyond the call of duty. I've never been more proud of a group of people than the ones I work with on a daily basis for how we hit the challenges of this downturn head on and adapted to them and to the marketplace. So I'll go now to Slide #2. There, the main thing is we're ticking the boxes. We ticked a lot of boxes in 2020. A lot of these that I have on there, I'm going to talk to in more detail, such as some of the acquisitions and the investments that we made. But I think the key point on a lot of this is we were very conscious going forward and through the year that even as bad as things were, we were looking to get returns back to the shareholders. We announced our proposed dividend this morning. We continue to pay a dividend throughout the year. We did a small share buyback that started the year right when COVID was kicking in. So it shows our intent to understand the sensitivities of our shareholders and know that they're in this for a return. The other key point on this slide is really the fact that we were able to generate a positive EBITDA in literally the worst market ever. And if you had told me that we would have a U.S. rig count that started with a 2, I'd say that it must be the apocalypse out there. But it happened, and we adapted to that, and we continue to, I think, handle the downturn in a very, very good manner, taking the steps needed to be where we're at today. On Slide 3, on the group's summary financial overview, you have all the numbers on that in front of you. Obviously, the revenue declined. None of this should be a big surprise to anybody that's followed the trends in the industry. The key is that CapEx in our industry totally collapsed in Q2 and Q3. And at the end of the day, the team at Hunting lives and dies by CapEx in this industry, and we were affected like everybody else and the numbers reflect that. One note on the margin side, and Bruce can talk about that later. We actually had better margins in 2020 overall than what we did in the last downturn -- major downturn in 2016 area. On our balance sheet, it remains very strong. It's the envy of the industry. As far as our peers out there, I get calls from lots of investment bankers, knowing that, that's the case. And we're viewing this as, one, its stability for the company going forward, but it also provides us the potential fuel for growth going forward, whether it's organic or on the M&A side. Restructuring. Obviously, the worst part of this whole exercise was the last sentence which was talking about or a reduction in head count. We hate to see that happen. This affects people's lives. It's a terrible situation to be in, but we got ahead of the game. I remember visiting with the team back in March when this was coming to light. We've all -- because of the experience in this organization, we've all seen this movie before. We know how it ends and what the next act is. And so we took the steps to adjust quickly. On the group summary, again, on Page 4. Bullet points there, acquisitions in the subsea front. We've made 2 of those. As you know, the Enpro was in 2020. That followed RTI, which was in September of 2019, shows our focus then to play in all basins and all geographic areas, that we are not just an onshore U.S.A. supplier of kit. We like the offshore subsea segment because of the IP that it provides and just the opportunities there to really showcase technology. Drilling Tools issue that we took care of with Rival. I'll talk about more about that in detail, but that was a great accomplishment for us to get done. Well Data Labs, I think that shows some thinking outside the box in the way that we're trying to enhance our offering to our clients. And also find a way to pick up on new talents and traits and knowledge. Jumping down, product development continues. Product development and IP development are in our DNA. Always have been, always will continue to be. And so we remain focused on that. Continuing to strengthen our engineering expertise within the company. And so I'm very thankful for the teams for bringing out these new products. The last paragraph on the non-oil and gas revenue side, that area had a good year. It's very, very important to us. It shows diversity within the company. But make no mistake about it, that whether you were in the oil and gas business or the automotive industry or microchips or pick one, COVID had an effect on all businesses with its effect on the supply chains and just decision-making and the like. So numbers were down a little bit, but I think it was a good result considering the whole global issue going on with everybody facing the challenges of COVID. And with that, I'll turn it to Bruce for Slide #5.

Thanks, Jim. If I can just take you to Slide 5. This shows our group income statement. So if we go to the top line, the revenue we reported in that $626 million for the year -- for the period, which is a 35% reduction year-on-year. Our quarter 1's revenue actually held up quite well, and then we start to see the full impact of the pandemic in quarter 2 onwards. Gross profit came in at $124.8 million, just down from $266 million, and 20% gross margin. I think it compares quite favorably, as Jim mentioned, back to 2016 when we saw gross margins drop to 11%. So I think that talks to about the resilience of the model. EBITDA, we generated $26.1 million, [ amortized, most of that ] was generated to $28 million in the first quarter. And then it was more holding the line, trying to cut costs to ensure that we finished as close to that number by the year-end. And we managed to deploy $86 million of cost savings, annualized cost savings throughout the year as well. Our loss from operations came in at $16.4 million, that's down from $94.3 million in 2019, which gives a loss before tax of $19.4 million. As Jim mentioned, we're proposing a final dividend of $0.04 to give us a total dividend per share of $0.09. If I go in to Slide 6, this gives a little bit more break then in terms of the segments, I mean, revenues and operating results. As you can see, Hunting Titan being severely affected by the contraction in the U.S. onshore market, coming down 57% to $161.7 million with a loss from operations of $5.6 million. In U.S., we have a smaller decline, it's still 20%. And a little bit shelter from the order book we took in from subsea, good year for U.S. connections. And that helped us give us a little bit of protection there. Canada, another tough trading period. We saw revenues down by 49%. We saw a 38% decline in drilling expenditure. And that led to a decision in August to close our Calgary facility. Europe, Middle East and Africa, again, a tough period. 35% drop in revenues year-on-year, a loss of $12 million from our operations. We saw North Sea rig count drop from 15 to 6. And that led to a lot of deferred and canceled drilling activity during the period for them. Asia Pac, a solid year and actually made an operating profit, coming in at $4.7 million profit from the ops with $109 million revenue. We did see the intersegment sales dropped from $83.7 million to $36 million, and that reflects that electronics were not manufacturing [ TMX ] switches for Titan. And also China was not manufacturing [ similar ] guns for Titan as well. If you move to Slide 7, a little more detail here on the product groupings. Perforating systems has tightened. So as I mentioned, that was 57% down. OCTG reflects a smaller drop. Average stronger sales coming through from Asia Pac for some Middle East contracts, U.S. connections, with a little bit of an offset with the weakened North Sea business coming through, that was down 26%. Advanced manufacturing. Dearborn electronics, as Jim mentioned, were adversely affected, but we had a little bit of shelter from the non-oil and gas business coming through there on the medical and aviation space. Intervention tools were really hurt by the curtailment of the capital budgets from our customers, and that's a 31% drop. Subsea recorded a good increase year-on-year, growing from $44.5 million to $69.8 million. That was supported by the acquisition of Enpro and RTI, but also, again, momentum from the heritage Stafford coupling business. Drilling Tools, that shows the decline of 56%, and that's in line with the decline in the U.S. onshore drilling market. And that led to our investment, taking our assets to investing in Rival Downhole to get 23.5% equity. A little break down the bottom between our $626 million, which has been predominantly showing 94% for oil and gas. But the non-oil and gas business holding up better, a bit more resilient there. If we move on to Slide 8, that's given us a breakdown of our impairment and exceptional items. We only added most of the impairments taken in the half year, and there's only additional $3 million of impairment taken at year-end, tidying up some of the property leases in Canada and less than $1 million for inventory. We had some further exceptional costs, predominantly was restructuring for redundancy costs that came through to give us a total for the year for $203.6 million. Moving on to Slide 9, shows our balance sheet. But the focus for this year was ensuring liquidity and working capital management. Highlighting 3 areas here, we do see the net assets dropping to $976 million and that reflects impairments we took strongly at the half year. We did see an improvement in the net working capital position. And then we see our cash balance through a strong figure of $101.7 million, which we're happy with. We also -- the RCF of $160 million remains untouched. So we believe that's a good, strong balance sheet. Moving on to Slide 10, which gives a little bit more breakdown on our working capital. We see gross inventories down from $377 million to $325 million. That's a reduction of $52 million. And that's a real focus for the year for the whole management team. Net, we're down to $288.4 million. We're looking at receivables. Both receivables and payables are down, reflecting the lower trading elements. And we've got inventory days slightly higher at 270, reflecting the slower sales. With receivable days, we're a little bit sticky at 92 days as customers looking to hold on their cash. But no bad debt reflecting there at all. So that's a positive thing as well. If we move on to Slide 11, that's showing us our group cash flow movement of the year. We see that EBITDA plus a share-based payments at $35 million, a positive working capital management coming through at $38 million. A little bit of tax, some lease payments to IFRS 16 stated there, the restructuring cost, to give us a free cash flow of $47.8 million. That was utilized with our CapEx. If we look at the breaks on that, the CapEx and intangible asset investments of $19 million. We got -- this shows the acquisition of Enpro at $34 million, our dividends of $9 million, purchase of employee -- of shares from employee share trust and the share buyback with a little bit of FX to give a reduction in our cash of $25.3 million for the year. The last slide on here is just going a little bit more detail on our CapEx that shows that, that's really been a really critical equipment replacement spend of $14.7 million. And the largest element there was on the Milford det cord facility, but -- and then some other critical spend across the divisions. That concludes the finance section, and I'll hand it back to Jim.

Okay. Thanks, Bruce. So the next slide talk about my -- Slide 13 talks about some of the reasons why I am bullish right now. The -- basically highlights some of the fundamentals looking at projected oil demand going forward. I think that the most -- the #1 most important thing to our industry's recovery, obviously, is going to be the ending of all the COVID restrictions and that we get ahead of that game. And so with the progress being made with -- as of yesterday, the governor of the great state of Texas announced more of an opening of measures here. And hopefully, those things take hold across the globe and will help the energy demand come back. Some other key points I'd like to make is the other part of this is the lack of investment in the industry. So in the last 6 to 9 months with this total shutdown of CapEx, we've seen the fall in production already in the U.S. onshore marketplace. And it happens very, very quickly, especially in those shale plays. So this lack of investment sooner or later is going to come back to haunt the economy as far as energy prices go. And we think that we're in the early stages of that right now. We've seen Brent and WTI over the $60 a barrel mark, which is good for the outlook going forward. There's strong demand internationally for LNG, and there continues to be growth opportunities in that area of the business. And even in the natural gas marketplace, we now see prices in the high $2 to $3 an MCF range in the U.S., which all bode well for the businesses going forward and activity levels. On Slide 14, we talk about the activity levels improving. You can see the different points on there. We now have a rig count in the U.S. back to 402, which I never thought I'd be thrilled with a number that was 402. But considering where we were, it is a big improvement. We've seen an increase in the frac spread numbers out there. And again, balance sheets are going to start to be better repaired for our clients. One of the points to make going forward, though, is there is a lag, which is one of the reasons why we think that the recovery will be more important in the second half of the year than the first because if you look at our clients, especially those in North America today, many of them have hedges in place into the periods we're at right now, where they're not receiving the $60 a barrel WTI price or $59 a barrel. So hedges need to come off. I've seen from some of our clients, the actual realized price right now is still actually in the high 40s. So those will all roll off and add to cash flows going throughout -- or increasing throughout 2021. In the rig count internationally, it's been good to see that finally quit deteriorating. January, we saw the first increase on the international rig count according to Baker Hughes, really since the COVID event started hitting at the end of Q1. Gulf of Mexico, one of our key market drivers for us in that area with that rig count, we've now seen a recovery back to 17 today. We hit a miserable low in the middle of this year when we went down to 11 rigs in the Gulf of Mexico. So all of that goes and shows the lack of CapEx. And just as a reference point, back in 2014, the Gulf of Mexico rig count was in the range of 60. So still a lot of compression out there, but activity levels are improving. And I think going forward, you're going to see, at least for the first half of the year, the trend is going to continue with maintenance CapEx and the future growth will be driven by the increase in oil price. On Slide 15, the more talk about the decisive actions that we've taken, and a few of these I'll go into some more detail. I've already talked about the head count reduction. We'll talk a little bit further about our change of strategy in Canada and some of these. But it really just gives a view of a list of decisive actions that we're taking, facilities that were closed. Compensation was frozen during the period. We reacted very, very quickly, as Bruce mentioned, to put the brakes on CapEx. And annualized cost savings of $86 million, those numbers are probably light. I think the real numbers are probably over $90 million when you look at inventory costs and things like that for businesses that were either closed, merged or reconfigured as well as some other cost savings. So try to get ahead of that game in a very difficult market. In Slide #16, I think everybody has their COVID slide, and so this is ours there. No -- because no presentation is complete without it. We worked very hard to make sure that we took care of our employees. We adjusted all of our in-house work requirements to fall in line with government requirements wherever they be, whether it's Singapore, China, Scotland, U.S.A. The team did a great job of this. And hats off to them for just an exceptional performance when there wasn't a real good rule book written on how do you do something like this. So running -- I can't overstate enough how challenging it has been running a manufacturing operation in a COVID environment. But having said that, with all of these challenges, we did a -- I think we did a great job of safely and efficiently continuing to supply our clients with all the products that they needed. Nobody, that I am aware of, missed an order or a delivery because of a COVID-related issue. And so we figured out how to get it done, and that's just the Hunting way of doing things. The next few slides, I'm going to try to get into some more detail on. On Slide 17 talks about the strategic exit of our U.S. Drilling Tools with Rival. This is a case where we recognized quite early on for quite some time that this was a segment of the market that needed some consolidation. And through a relationship that started with the Enpro acquisition with our friends of EV Equity Partners in Norway, we had a successful deal and transaction with them on Enpro. It opened up the doors to further discussions. And so down the road, we talked to them about the Drilling Tools business. They had one, we had one. We're both fighting for the same clients out there. And it just made sense to look at consolidation. So we're very thrilled with this combination. We think that the 1 plus 1 is better than 2. It takes a -- some businesses that had some different geographic strengths. Combines them to now give us more coverage throughout the U.S. marketplace for sure. It gives us probably the most modern fleet out there as far as motors go in the U.S. marketplace. And it allows us to have some supply agreements on things like related to the power section, refurbishment and supply that I think is going to be a good advantage for us going forward. This was a business from Hunting's perspective, that while it generated EBITDA and profits at times in the years, it was a very highly cash consuming business from a CapEx point of view because you're constantly replacing motors from wear and tear, new different power sections come out. And it was one where we thought that there would be -- that needed a consolidation so that you could get strengths of added scale in the business. And so ultimately, this will reduce Hunting's CapEx needs going forward. Neil Fletcher, who runs the business, a great guy, ex NOV. He leads the new Rival business out there. Keith Edwards, who was -- who headed our Drilling Tools business is now part of Rival. So we wish them the best. We think they've got a winning combination out there, and I think the business will be thriving going forward and is definitely now one of the top-tier players in that business. On Slide 18, we talk about our investment in Well Data Labs. That is a interesting opportunity for Hunting going forward. It's one in which we realize that the world is changing, whether it's in additive manufacturing, whether it's in machine learning, big data, analytics, it's one in which you're just seeing more technology coming into the decision-making process of our E&P customers. And so we wanted to find somebody to partner with this -- it took over a year, if I would say, from start to finish to do this, mainly identifying the right partner. I had talked to a couple of other companies in -- earlier. But Well Data Lab seems us to be the company that had the best platform out there in which we could enhance our product lines primarily related to Titan as well as find a way to make an investment in a company that we think has outstanding growth potential. Josh Churlik is the CEO of this company based in Denver. They have done a great job over the years, building up a strong client base with a lot of the major independents and a couple of the super majors as well. They have a great technology portfolio with some products that were, for example, developed and came from Devon, which we have now -- Well Data Labs now has license with and is using in solutions to clients. And so we're very excited about this business. Slide 19, I'm now -- it gives us a little bit of a commercial for Well Data Labs. But what they really do is they simplify the client's massive amount of data and take all that in, make it real-time and applicable to decisions that need to be made at the frac site today. And so this Software as a Service is what they do. This offering, along with our technology, related around the ControlFire technology, we think, has a lot of upside going forward. And I think there'll be more to talk about with that on the half year call. But for right now, if you have any more questions on that, there's case studies on the Well Data Labs site. But I think the one key is it really shows that we're trying to think outside the box in enhancing our offering to our clients and our product lines. On Slide 20, we talk about Titan. To kind of go over that, the first slide I wanted to talk about was really the fact that this downturn, it really hampered -- obviously hampered our sales in Q2 and Q3. It was a case where, just like we were based with a lot of inventory we didn't need at the time, most of our customers had a huge inventory overhang. And as we've always stated, we supply all aspects of the perforating marketplace out there, whether it's complete systems or whether it's by component. And a number of our customers are component purchasers. And so we really went through a lot of issues related to them being overstocked, pure and simple. Those issues are fading away right now as are pricing pressures. And so we're happy to see that correction start to go away. On the Titan business itself, we're very excited about where we are today. No other customer out there or no other competitor out there has an offering better than what we have out there. We have continued to develop our technology. And we've continued -- we've seen a significant increase in sales in the fourth quarter and going forward. So we think the business is coming back. It is making all the -- we are making all the right moves right there. We have reopened one distribution center. We are rehiring in Tampa in our Milford facility, and those are all good steps for us. From a marketing sales trend point of view, we saw -- we actually did see our Q4 sales were actually up 33% over Q3. And I'm just throwing that number out there because all my other competitors put out their Q3 to Q4 numbers as well. But at the end of the day, it was from a very, very low base. But the business has recovered a lot more strongly ahead of the trends in the industry. Areas where we've seen the above trend has been in the Appalachia area and in the Rockies. Our sales have increased in all regions, including internationally for the year. And Canadian sales actually were very strong in the fourth quarter. So good trends there. On Slide 21, we go into some of the Titan technology. Again, we spent a lot of time. We have continued even in the downturn, keeping our engineers very, very busy. The ControlFire Recon up in the upper left-hand side, it's a new version of the ControlFire switch. It's a smarter version of the switch, and there'll be more talking about that going forward as it relates to other products in our total system offerings that, for competitive reasons, I'm not going to talk a whole lot more about on this cost. The E-gun Prewired Gun continues to be a success for us. The advantage to that is for those customers that just want to shop charges and aren't -- don't want to be tied into one supplier, we can take any vendor's charge and put it into this e-gun. We can also -- and we are shipping this factory direct. So it's been a big plus for us. It's a lower cost point than the H1 gun, but it's a significant part of our business right now. Perfecta rock charges in the lower left-hand corner, basically, that's not a shale application. So that is international, Gulf of Mexico, hard rock applications. Continue -- we continue to make progress on that and are doing a very good business on the Perfecta rock charge. Powerset Recon. Again, it's trying to put more intelligence into the setting tool business. And with the ControlFire technology, it really allows us to be the only one out there. I don't think anybody else has this, but we can actually confirm that the power charge works. And believe it or not, we can actually confirm and identify before the setting tool is used that, hey, somebody actually put the power charge in because that still happens out there. So it's a cost avoidance issue for clients. We think we're the only ones that have it out there, and that was a great accomplishment from our engineering team at Titan. The modular weight bar, that really is an issue that goes in line with the H2 gun. Because of the smaller size of the gun because -- because you don't have as much weight to push those guns down, you do things like this weight bar. And so the H2 product line, while it's been a very, very small part of our business, again, it's one of those offerings out there that the client wants that we have it. Operationally, on Slide 22, a lot of bullet points there to talk about. You can read them all. The key is that ControlFire continues to be the industry standard of this technology out there today. It was the leading edge a couple of years ago, continues to be, as far as we're concerned, the best. The pie chart to the right is basically our internal information on where we think the market was at the end of 2020. And you see there's still a lot of, as you can see with the 39%, still a lot of component purchasing out there. Though a lot of that we see is shifting. And so the move to factory-assembled guns, we're on that train right now. Our factory-assembled gun sales have done extraordinarily well, since really just starting at the end of November and the 1st of December. So we're doing that right now with totally preloaded guns. And we see that 39% of the wireline company assemble, we see that continuing to decline. And part of that is COVID related. Because there have been issues with personnel, there were issues on rig sites because of all the COVID restrictions. There's issues in gun loading shops, and it's just -- it's a people issue. And so just like we developed the H1 to reduce cost and eliminate people at the well site, our clients, we think, are going to continue to want to keep people off the well site, want to kind of make these systems full proof. And right now, we have an offering out there that is what we think is better than anybody's. But we're offering whatever the clients want. If they get -- if they want to continue to buy components, we're very happy to keep doing that. But the focus now continues to be on the H1, the e-gun and on factory totally preloaded guns in that market out there, which we think that, that will continue to grow. The key right now is all of our other -- my other 3 competitors, we're all in that same game right now. So all of us are doing it. It's -- as the market changed, I think all of us have adapted quickly to what the customers need, or most of them have anyhow. Slide number 23 just shows the horrific decline in the frac spread count. When you look at the Titan numbers, you have never known anything about the oilfield and looked at our 2019 numbers versus 2020 at Titan and say, well, what the heck happened? Well, I mean, this is what happened. And so while we're happy with seeing activity levels going in the right direction right now, keep in mind, they're still a far cry from where we were. And so as I've mentioned earlier, I'm very bullish. I think at the end of the day, our clients are fighting one thing every day, which is depletion. And so they have to spend money to keep at least maintenance CapEx going. And that's still a lot of holes in the ground. So we're -- we continue to be bullish going forward on that. Slide 24. One of the success stories of the year was our premium connection business. This is our U.S.-based TEC-LOCK business, where Mike Mock and his team did a great job. By any stretch of the imagination, this shows market share gains. I believe the numbers that I saw from Pipe Logix, I wish I had it more in front of me, but I think the U.S. OCTG consumption declined by something like 2 million tons in 2020 versus 2019. So a significant decline. Obviously, it's totally related to the rig count. And we actually continue to gain orders and business on this product line. So thanks for the distribution network that we work with out there, along with a few of the mills that we've aligned with, the business is very buoyant, has done very, very well -- did very well last year, and we think it will have -- has continued upside in 2021. On that connection business, the only area of weakness that we did see was in the Gulf of Mexico. And as I mentioned with the rig count earlier, we just need that Gulf of Mexico business to come back because that is a higher-dollar, higher-margin part of the premium connection business. On the Asia Pac side, which is heavily focused on our premium connection business, as Bruce mentioned, they had a very good year in light of all the issues related to COVID. Slide 25 touches on our subsea business. I mentioned earlier about my excitement in that business right now with the new product offering. Dane Tipton and the team that he has there have done a great job in the past year of building these businesses up. For the case of RTI, it is now a business, as I mentioned. When we did this acquisition, a business that was once in hibernation is now going forward at a very nice clip. We secured in December, the company's first ever orders for the titanium stress joints in Brazil with Equinor. Very excited about that. Lots of doors open because of that. And the real decision, it wasn't a pricing decision. It was a dependability decision that led to this selection being made. And with Brazil being a very active marketplace, I'm just very excited about that in the future. The traditional subsea coupling business, as Bruce talked about earlier, had a very, very good year. Again, with everything subsea related, there is a lag right there. So while the Titan business saw an immediate quick drop within 30 days when rig counts fell, subsea is different. And so there is -- the lag involved is due to the scale and the scope and the size of these projects. So we anticipate a slow first half in the subsea business with strengthening as projects become green lighted and activity picks up. The Enpro acquisition, great business for us. Again, impacted by decision-making and the delaying of projects in the offshore space. Slide 26, just talking about some of which -- talking about some of our regions. Europe, Middle East, Africa, difficult marketplace to say the least. We think there is light at the end of the tunnel. We are trying to look at every -- keep every stone unturned and looking for business opportunities. We are taking part in the Eden Project down in Cornwall for geothermal activity in the U.K. We're looking at more geothermal activities in Germany and on the onshore play in Europe. We think that the North Sea activity level will continue to increase throughout the year. Our existing customers are telling us they're going to, with Brent now at the $60 level, that a lot of the independents need to get some production out. So we're well placed for that. Our Dutch facility has seen an improvement in the order book there for exports going out of non-North Sea marketplace. So overall, we're expecting a better 2021 there. Asia Pac on Slide 27. Daniel Tan and his team had a very good year. They was actually the first ones to see COVID and react to it. We actually approved the CapEx that Daniel requested to actually make personal protective equipment in Asia Pac for our clients as well as to help supply the communities in which we are involved in. So a good ESG touch there as well as the fact that it saved us money in the business and operating and allowed us to keep our employees safe. But business-wise, we had -- we ended -- we started 2020 with a pretty strong order book. And so the results reflected that throughout the year. The order book started to weaken really in the fourth quarter. So it's a rebuild process. It's -- international projects are longer lead time than what you find domestically onshore in the U.S. and some of those projects. So we think that the marketplace will respond to the oil price and the demand for natural gas. And we still think we'll have a positive good year in Asia Pac in 2021. Canada, Slide 28, difficult decision but one that needed to be made. We have been manufacturing in Canada for a decade. With this downturn and the reality of the business and environment up there, it just didn't make any more sense for us to be there from a manufacturing point of view. And so we took the tough decision of closing that facility. We actually auctioned and liquidated the final equipment in January. And we've now adapted the same premium connection market up there that we use in the U.S., which is working through distributors. One of the pluses with that is it gets Hunting out of the inventory gain. And where typically, we would have $20 million to $25 million of OCTG on the ground, that's literally going to fall away to about nothing. And so we just think it's a successful business plan with great high potential for a Canadian market to like our product but we just don't need to make them and there's licensees and infrastructure up there that can do that forth while we can preserve cash. Titan Canada, my hats off to the team up there, a very strong fourth quarter. We've always continued to be what we feel as the #1 player in the Canadian market. And actually, that continues to generate -- they continue to generate some good returns for us there. Slide 29, briefly, I'm not going to read it all, but it goes through all the ESG points that are out there today. My key on ESG has always been that Hunting has always valued this. We didn't need what I call a little bit of a hysteria over the last 2 years. We were doing these things way before it became into the public light as much as it is today. We've always done a good job on the environment. We've always taken care to make sure we protect the places that we work in and the environment around us and look at that very closely. On the social and governance side, I don't think anybody does a better job than what we do, and we'll continue to try to improve and do that going forward. And, let's see -- and even on the -- one of the things on the ESG, on the governance. In 2020, we actually had the best quality record and HSE record in the company's history. So in light of all the challenges of people being made redundant, changing jobs, social distancing. To Greg Farmer and his team, they did a great job. Our safety record, as I said, a record performance in 2020. The last slide is our investment case. You see this every time we do a presentation. And I don't want to take up any more time on that because I want to hear your questions and give you some comments on that. So I am going to go directly now and open up the lines to questions.

[Operator Instructions] Our first question comes from Amy Wong from UBS.

A couple of questions from me, please. The first one is a bit more about the strategy. In your prepared remarks, you talked about -- you mentioned your employees given the [ IFRS or GAAP ] CapEx. And oil and gas CapEx has always been a cyclical, but it is your core business. You know it very well. That's where your core competencies are and where you can add the most value to your customers. So my question is, what can you -- and you started answering this a little bit by talking about the well labs data (sic) [ Well Data Labs ] and the diversification there. But I just want to think a little bit for long term, what you can do to stay focused in oil and gas but take some of the cyclicality out of the business, out of the earnings, out of the activity level to really kind of build the business up so it would be just more -- even more resilient down the line. So that's my first question.

Okay. Well, on that question, Amy, I think today, when you look at the business, companies like us have a choice. And you can be a really good oilfield service company or -- and to be less than that -- and take your eye off the ball, I think you really are doing yourself and your shareholders a disservice. So it's going to be a cyclical business, no doubt about it. We want to be a great oilfield service company, so that is our primary focus. But we are open to expanding into other tangential businesses would benefit us. And I'll give you a case in point that, for example, AMG, we talk about that. It's a small portion of our overall business. But we love that business. We are doing -- we are working very, very hard to expand that product offering going forward. We received some additional certification in 2020. We have got our first military orders in the electronics business in 2020. And so there's still a lot of growth there. And we are actually, for the year going forward, we're looking at things like expanding into more additive manufacturing, 3D printing and those type of things to grow the business. But I think it's a mistake to think that I'm going to start making windmills tomorrow or getting into something on the green energy side, or delving into something that we know totally nothing about. The Well Data Labs is a good investment because that is a new area that the analytics and big data that Well Data Labs provides, and we're talking to that team up there. There are other areas outside of oil and gas where this has a place. So I would say that it would be great to be more diversified, but we don't want to take our eye off the ball from our core businesses. And we will look and value those opportunities like any business opportunity. I hope I'm answering your question.

Yes. That's very helpful to understand your [ view to a degree there. ] So I also saw this together using OCTG and geothermal, [ which, if ] [indiscernible] to be a great new application as well. Okay. That's -- my second question is actually just a bit more on the numbers. Your cost savings number annualized is running at 86. I think last time you guys mentioned 25% of that is structural and fixed and 75% is a bit variable. Now given that, going into 2021, you've got some areas trying to grow a revenue like Titan. In the U.S. business, some areas are still [ clawing ] into the first half. My question is, how -- do you think you'll benefit from the full annualization, like you have $40 million or so benefit in 2021? Or [ you used ] some of that because you've actually started to see some recovery in that part of your business?

Well, I think a lot of the structural costs, they are here for the long term. And those relate to Canada, amalgamation of some businesses in Singapore, just some general cost structure changes we made in the U.S., some other business structure changes here. But a lot of our costs, they will come back along with the increases in activity because we're just going to have to bring people back. And at the end of the day, people costs are the biggest cost that we have. Bruce, do you want to add anything else for that?

No, I think you're right, Jim, in terms of that. Variable costs, we are obviously working on things like automation and efficiency so that when the market does come back, perhaps that automation will lead to less variable costs coming on. But that is the biggest cost. And as the market comes back, that will continue to be so.

Yes. I mean, for 2020, for example, we have been fanatical about our lean manufacturing program over the year. And with the headcount reductions, it probably wasn't as strong as what it could have been this year because of the focus on the task in front of us daily. But we identified over $4 million worth of lean initiatives last year in our manufacturing businesses. And those are permanent cost reductions, gone for good. So it's kind of -- it's a mixed bag out there, Amy, dependent on how the business responds and where it comes back.

Our next question comes from Victoria McCulloch from RBC.

If I could just ask a question. A couple for me. What are your CapEx requirements for 2021?

The CapEx for 2021 should be similar to 2020. The -- we're still fortunate to be holding a lot of very late model, good equipment that obviously didn't have the hours used. And machine tool, equipment and [ that ] is like a car. As long -- the hours, it's an hour issue. Technology changes somewhat. But long and short of it is we're very well equipped globally. And so it should be minimum in 2021 as well. I would say it's going to be similar to 2020's final numbers.

Okay. So there's not a drop because of the exit from Drilling Tools?

Yes, that's -- well, but again, I'm relating it to 2020. So we did not spend a lot of CapEx in 2020. So -- long term, yes. But I mean, for apples-to-apples, it should still be the same because we'll probably have increased CapEx in places like Titan. So I'm just saying it's going to probably be a wash.

Super. And looking at the non-oil and gas opportunity in advanced manufacturing, particularly, what's the outlook for these businesses? Are there any growth opportunities, maybe similar to Amy's question, that you've identified, but maybe your lines are -- or you want to be targeting in the next year.

Well, one of the interesting businesses that we've been fortunate to capture in the last has been the space business. And so we've picked up that business. As I mentioned earlier, Elon Musk is one of my customers right now, which is a great thing to have. Blue Horizon was a customer this year, which is the Jeff Bezos rocket company. So anything along that side is aerospace related and high tech and high precision. And so we're continuing to work on those sides of the business. The Navy submarine business improved from where it was 2 years ago. And that's a function of defense contracts, and it's a business that Hunting has been in for years and years on an off and on basis. So I would say, if you look at the outlook for defense, aviation, those areas, the outlook is still very strong. But I temper that with the fact you also saw what happened with Boeing in the past year. So we consider the aircraft marketplace will be -- continue to be strong, and we'll benefit from that. On areas like electronics, we -- again, we're very happy to finally get some military business there. The medical business continues to expand there. So those are kind of the main areas for diversification that we're going to continue to go after.

Super. And in terms of Titan, it might be too early for you to be able to provide any color on this, but how is competitor behavior been, I guess, since the middle of last year -- or maybe October last year when you've begun to see a slight pickup. Have you seen anything that surprised you?

I -- having way too many gray hairs in this business, nothing surprises me, Victoria. So let me tell you, I've seen it all, I think. But, no, it was business as usual. What we saw in Q2 and Q3 was some panic selling of inventory. We had some of our competitors really needed to raise cash because of debt issues. And so we saw pricing that you couldn't draw -- you couldn't connect the dots on where it was on a daily basis. So Q2 and Q3, pricing fluctuated on a daily basis. Q4, a lot more disciplined. I can tell you on the pricing front that pricing has to go up and is going to go up on the gun business. And that is a function of the fact that raw material prices are rising. We see pricing from steel rising. We had one of our competitors contact us through a third-party wanting to buy some of our gun material, and we obviously told them no. And so I think the worst is over for pricing in the industry, and there will be more discipline, and there will be price increases in 2021.

[Operator Instructions] Our next question comes from Kevin Roger with Kepler Cheuvreux.

I have 2 questions for you. The first one is in terms of technology development. Did you see any kind of break in terms of market acceptance in 2020 because of the COVID-19 situation? And in a way do you expect in 2021, the end of that and probably more or less the revenue coming from the H2 gun, things like that. And the second question is really simple. How do you consider the consensus for 2021 compared to your business plan that today you have in front of you, please?

Sorry, you broke up on the second question. What was that again, Kevin?

Yes, sorry, for the second question, it's just related [ stupidly ] on how do you consider yourself compared to the consensus for 2021 in terms of top line and EBITDA? When you look at the consensus and your business plan, does it in a way match? Or do you see any big difference?

Okay. So on the first question on the technology, I think because of COVID, technology -- the use and the need for technology has actually accelerated. And I'd say that -- 2 points to be made on that. In point number one, you had -- let's look at Titan, for example. You had clients that in Q2 and Q3, their answer to every call was, give me the cheapest out there. And so it was the [ falling ice syndrome ], bleeding cash. Technology in that segment was probably not in the forefront of everybody as much as it was, what's the lowest price. I think that, that has changed now. I think the reality -- the panic's over, the businesses are not getting worse. So I think technology is as important today as it ever has been. I think it's increasingly important because it comes down to ultimately reducing cost and knowing more about what you're doing in the field. And that plays into whether it's Enpro, the RTI business, the premium connection business. The oilfield will always be a business of technology and never more so than what it is today. And you're seeing a lot of push for more digital, that's the big buzzword out there. Hence, why we did things like with Well Data Labs. So that's not going to stop. I mean as far as consensus going forward, I really am not spending any time looking at the consensus with today's numbers. I think there's too much unknown out there right now. We need to get COVID under control. We have an OPEC meeting today, and that could throw -- pull the rug out from all of us as far as what's going to happen with that balance. The Saudis gave us a gift in December with the cut they made in the production. But the suppliers have to have some discipline, too, for the business to be healthy. So it's too early days right now for me to really make any comments on market consensus going forward.

Okay. Okay. Understood for that. And maybe as a follow-up, strong improvement in working capital this year. With the increasing activity, we should expect a deterioration in 2021. I guess, any, let's say, tool in terms of the magnitude that we should expect for 2021?

No, I'll let you guys put that into your own formula. I mean, it's a function of revenue and what the business activity is out there, pure and simple. And so we're focused on inventory management. We're focused on trying to get our customers to pay us quicker. All the right things we need to be doing. But obviously, if business takes up, that's going to affect -- that's going to change working capital numbers. Bruce, I don't know if you want to comment any more about that? I'm really not giving any guidance on that.

No. Nothing much to add on that, Jim. I think you covered it. Just it's all dependent on activity levels coming back. Obviously, we are still focused on inventory. And the payables and receivables are really a function of activity. And we'll just try and keep a lid on the inventory where we can. But obviously, if the business and market dictates, then that might perk up.

Our next question comes from Mick Pickup from Barclays.

A couple of quick questions, if I may. Can I just talk about the connections business. Obviously, your number of connections is growing quite strongly. But that U.S. market has gone from 5 million tons down to 2 million tons. You've seen a closing down of a lot of the domestic capacity who don't have connections and what's left is a lot of seamless capacity from companies who do have connections. Do you still think there's a chance to grow in this market given the dynamics of the suppliers [ getting to us ]?

The answer is yes. We're putting our connections on ERW as well as seamless pipes. So yes, I think that there is.

Okay. And then can I ask about Gulf of Mexico. Obviously, very important to your region. Been changes at governmental level and talk about stricter permitting. Do you think the impact of government is going to be significant in the medium term?

I think the answer is no. I think -- I don't think there's going to be any impact on existing licenses in blocks in the Gulf of Mexico. These projects -- these licenses were done, royalty agreements were made. So I just don't see a big impact there, Mick. I think that it will be business as usual as far as the government goes. Yes, there's a holiday right now, but I think that will get fixed.

Okay. And then finally, just on the subsea business. Obviously, you talked about a lag to the downturn last year. But I'm starting to get signs from some of the companies involved in subsea that they can see light at the end of the tunnel. What are you seeing on that subsea side?

The same thing. I know that our -- for example, our coupling business, the results in January and February looked better than what I had anticipated to start with. So yes, we follow -- I read every press release that FMC puts out because that's a big indicator for us as well as a valued client of ours. And so yes, I think, again, it's -- the business can react quickly. It's just a matter that it takes projects longer to be engaged. And so while we didn't feel any bumps in the road in the first 6 months of 2020 subsea-wise, that lag from the lack of orders being issued is what is affecting the business today. But that should come to an end soon.

Okay. Let's hope this year is easier than last year.

Absolutely.

Thank you. There appears to be no further questions. So I'll hand back to the speakers for any of our remarks.

Yes. No, I want to thank everybody for taking part in the call today. Appreciate your time. I want to thank our clients out there for their continued support. We all made it through the snowmageddon here at the end of the year. And so February was a little bit tough with the issue we had in the state -- in Texas from the storm. But other than that, like I said, I am bullish going forward. The company is in a great place, and thanks for your time. And that's it.

Thank you. This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.