Hunting PLC (HTG) Earnings Call Transcript & Summary

Good morning, everybody. For all those here, thank you for struggling through the Tube strikes and everything else to make it here today. For those listening online, good morning or good evening from wherever you're at, and thanks for taking the time to join us on our call. I'll start -- I'll first start off on the Page 1 that says the world has changed. But before I get into the details on that, a lot of things have changed more recently in the last 7 days, more -- as much so in the last month or so. But one of the changes that I just want to acknowledge today is with Richard Hunting. Richard is leaving the Board and is ending 50 years of service with the company. So Richard, on behalf of all the employees and all of us at the team, we just want to thank you for your contribution over the years and wish you a great retirement. So I just wanted to go and say that first before we get into this.

Thank you, Jim.

Getting into the presentation now, as I mentioned, it is amazing, the changes that we've seen in the outlook for our business and in the world just in the last couple of months. When I talked to everybody, all the analysts and investors and that like a year ago, I made the comment that 2021 would be a year of healing within the industry. Well, that healing definitely happened. And all you have to do is look at the earnings announcements from the major E&P companies around the world and look at the amount of cash that these companies have been throwing off in the last 12 months. They have reduced debt dramatically. They have paid increased dividends. They have bought back shares. They've done about everything that put a lot of money back into the drill bit. And we had -- in most of 2021, Wall Street has just been thrilled with this, and you've seen the uptick in share price and the like. So fast forward now to the end of this year, even taking away the fact that the crisis in the Ukraine, we ended up in 2021, probably with the most momentum I've seen going forward in the company in at least the last couple of years. And so we'll talk a lot more about that as we go forward. But the key points for us were, the COVID restrictions are finally being lifted. And I can't understate -- or can't overstate enough the effect that COVID has had on our operation, and I believe everybody else in the oilfield service business for the last 2 years. So the results that we showed today -- maybe it was a tough year, just as a reference point, realized that in 2021, we had the whole year of COVID in 2020 as the reference we go back to, I have to remind people, we actually had a good Q1 in 2020. So when you're looking at the comparisons. But 2021 is definitely the bottom. COVID was a horrible -- I mean a horrible operating environment throughout the group. When we saw the rise of the new variant in the -- hit the world, it very much affected our results, especially in December and January. Because due to social distancing and what we had to do with government regulations, it just made it a horrible operating environment and a huge struggle, to the tune that we could quantify over $1 million effect to the bottom line in each of the months of December and January. So the good news is that is over. It is improving in February, and we look forward to putting this behind us as all the people in the world do in getting the economy going forward without these constraints. The effect of the last couple -- in the last couple of days, energy security, I'm putting on there. With all the money that these oil companies had, a lot of them are now running into the problem as you've heard this week from the BPs and the Shells and the Exxons. All of a sudden, a lot of their barrels are now going to be off the market. And I think with the political issues going on, energy security is taking -- going to take a big page just like defense spending is going to increase. I think you're going to have to see a large ramp up in E&P spending as people look to replace lost barrels and also want more security in their energy supply. For us, the third point, our order book has accelerated dramatically. Every business unit in the company has seen an uptick in business on orders and inquiries since, I would say, the end -- since Christmas or middle of December. And a lot of our businesses where we instructed -- we went to our clients, "Hey, you need to be placing orders. You need to do this." The budget constraints that most of our clients were under really hindered them being proactive in getting a jump on activity for 2022 and beyond. But we have seen that change dramatically in the last couple of weeks. Again, starting in late last year, and I am extremely optimistic that we are in the early stages of a boom. And this company, through all the changes that we've done, the restructuring that we've done in the past 2 years, is in a very excellent position to benefit from these changes for the years forward. So with that, I'm going to pass it on to Bruce to go through the finances, and then I'll come back for a narrative on any questions.

Thanks, Jim. If I can take everyone to see on Slide 2. And this slide captures the main financial highlights here. First point is that we ended the year with $114.2 million of cash and bank. Again, reflecting our strong balance sheet and strong cash focus during the year. We secured, after months of work, the asset-based lending facility, which will allow us liquidity of $150 million. Our balance sheet remains strong, finished with $871 million of assets. Our EBITDA for the year finished at $3.1 million for the full year. And that was split between a $3.6 million loss for the first half. As Jim mentioned, momentum picked up in the second half, and we had an EBITDA profit of $6.7 million. Revenue was $521 million against $626 million. As Jim mentioned, 2020 benefited from a strong quarter 1. 2021 had the full year impact of COVID and a final dividend of $0.04 per share declared, given $0.08 for '21. Two slides, that is our Group income statement. We're showing a revenue at $521 million, which is $104 million lower than we saw in 2020. Again, that's a slower anticipated growth, continuing disruption through COVID and a lot of capital discipline throughout the year from a customer base as well. Gross profit finished at $100.6 million with a 19% margin against the 20% we saw in 2020. Some pricing pressures continued throughout the year. EBITDA, as I mentioned earlier, was at $3.1 million versus the $26.1 million in 2020. Majority of that, $26 million in 2020 was generated in the first quarter. That's widening of the loss from operations in 2021 to $35.1 million. We have a loss before tax of $40.6 million. A small tax charge gives us a loss after tax of $45.5 million. I mentioned the final dividend per share of $0.04 to give us a total dividend of 8. If we move to Slide 4, we've got a breakdown of our sales by our main segments. Titan reporting an increase of 17% year-on-year. Again, that shows the stronger completion activity in the U.S. on the -- and also Canada. We also saw international sales up 23% throughout the year as well. So that gave us a 17% uplift on the revenue. Small operational loss of $0.9 million. Also, we didn't make an operational profit for quarter 4. In North America, we were down 18%, with an operating loss of $16.1 million. Again, the results were impacted by the continuing effect of COVID. We've also got the capital discipline from our -- our customers kicking in there as well, meaning less purchases. And the decline in main offshore basins like the Gulf of Mexico, which we support to North America. EMEA reported sales of $58.1 million, again, 26% down on 2020. Capital discipline kicking in there, less drilling for the North Sea. So that impacted our numbers there. A tough year for Asia Pac. We saw the biggest drop there from $109 million in 2020 to $48.1 million. Again, some of our key markets, like the Middle East, that was down 22% in terms of rig count. Again, the Chinese supply was less compared to last year as the government removed some export rebates as well. So that was 56% down on our previous revenues. If we move on to Slide 5, what was done here is break down the H1 and H2 numbers, just to give a little bit of more analysis. We see the 5-1 split from H1 and H2. So we see the first half of the year was $244 million, and that increased 14% to $277 million. If you look at the Titan sales on that, we're up from $88 million in H1, up $100.6 million. A larger increase, if we look at H2 2020, where we're down at $59.2 million. So we're 70% higher in H2 2021 compared to H2 2020. If we look at the results from operations, we had a loss of $23 million in H1, and that decreased to $12 million in H2, again, showing an improvement through H2. Moving on to Slide 6. We break down our sales by our key product groups. And not surprisingly, the perforating systems, which affect our Titan business, was the largest product line for the year. And we saw an 18% improvement on sales on 2020. OCTG is a product line were the hardest hit, 35% down. Majority of that came through our APAC division, and the remainder slight evenly over EMEA and North America. Advanced manufacturing was 20% down. Again, that was impacted by the reduction in capital spend for some our main customers. Subsea, the decline is a little bit more modest. Good gains in our RTI acquisition, but there was some decline in the Stafford and Enpro business. Intervention tools, which is dependent on CapEx from customer base, was affected by the capital discipline, and that was down at 25.8. So that gave us a $521.6 million. Out of that, oil and gas was $484 million, non-oil and gas $37.6 million, which is 7% -- which is similar to previous year. On to Slide 7, the breakdown of our amortization and exceptional items. $7 million from amortization of acquired intangible assets, which relates to Enpro and Titan acquisitions. We -- in terms of impairments, our largest item was $25.9 million relating to our inventory. This is normally low levels of trading, reduced our turn rates and increased the aging of inventory. $5.2 million of that relates to the North Sea restructuring. There was $10 million for PC equipment in The States as well. But a lot of this equipment is still good equipment, it's not obsolete, and we believe we'll get value for that going forward as well. The $8.6 million on the property that leads to Fordoun property up in Aberdeen, and that was a result of the write-down after the North Sea restructuring. And remainder, of course, the restructuring costs with some redundancy costs in U.S. and Asia Pac, and that all came to the $44.9 million. Moving on to Slide 8, a breakdown of our balance sheet. We see our PPE coming down from $307 million to $274 million. That reflects a low CapEx of only about $6.5 million of CapEx during the year. We've got $29 million of depreciation, and we've got a $8.6 million impairment on the Fordoun property. We've got the IFRS 16 $24.7 million asset there. Goodwill, quite constant. We hold our rival in Cumberland investments in $19.4 million. Working capital showed a good reduction from $358 million to $278 million. Majority of that is through our inventory reductions. We've got $114 million of banking cash, and that gives us our net assets of $871 million, in total versus $976 million from 2020. Further break down our working capital, showing our gross inventories coming down from $325 million to $263 million. That was good progress there. It does reflect $31.5 million that came -- a reduction due to the North Sea restructuring. After the provision for inventories, we see that, that was included $25.9 million. That gives a net inventory position at the end of the year of $204 million. We see receivables perked up a little bit as the trading improves, and payables reflecting some more purchases coming through as well. In terms of the ratios, more favorable with that reduced inventory figure, down to 163 days and receivable days going the right way down to 87. Just take you through the group cash flow. For the year with a free cash flow of $54 million, 2 main components to that. One was the proceeds from the North Sea restructuring and a small assets held for sale of $4.4 million. That gives the $34.9 million. And then we put the working capital improvements as well. It gave us $54.4 million free cash flow, which helped. We then had some spend -- limited spend on capital intangible assets, investments in businesses in terms of Well Data and Cumberland. The dividends of $12.8 million, some treasury shares for future share awards, and that gave us an improvement of $12.5 million in our cash and bank. Next slide, Slide 11. Looks at that minimal CapEx amount. Nothing much really on here, other than just some maintenance spend and some equipment upgrades from airport and transit for $6.6 million, in total, along with intangible assets $2.7 million. Slide 12. Just a little more information on our order book, as Jim mentioned, has increased over the period. Just to the graphic at the bottom show that order books have increased 41% since 31 December 2020. Majority of that is in North America. Subsea Spring, which is our RTI acquisition was $31.8 million of orders. A lot of that is for stress joints for the Gulf of Mexico and South America. We're seeing improvement that's not reflected on these numbers, then Asia Pac another $26 million of orders from China. All businesses across the board are reporting an increase in inquiries RFQs, and orders. Our book-to-bill ratio in quarter 4 was 1.45. The last slide is just to mention at the start, our asset-based lending facilities, which we completed in February. That's $150 million ABL. We have 2 banks participating, HSBC and Wells Fargo. We had an additional accordion feature of $50 million, which is subject to the lending group's consent. It is a flexible funding arrangement, which is on the back of our balance sheet. And it reduces our sensitivity to the earnings base covenants. It makes sense in that the balance sheet values are more stable than EBITDA, given our volatile sector. And then the classes of assets we look to borrow against our receivables inventories and receivable properties. So we've opening availability of $100 million. The freehold properties will be coming on by the end of the month, and that will give us around about the $150 million mark. Okay. And that will finish my slides. Back to Jim.

Okay. Thanks, Bruce. On Slide 13, just some bullet points there on our thoughts on the E&P CapEx optimism that we feel out there right now. And again, we put this slide together before the events of the last 7 days. So really, at the end of the day, this is following a cycle that is not new, that we have seen many times over the last 30 years. The price of oil and gas is the fuel that's going to drive activity. And right now, that fuel price is an overdrive. And so we think that animal instincts will once again kick in. Depletion does not go away. The lack of investments since 2014 is showing up on the reserve base of a lot of operators around the world. And at the end of the day, you got to put the drill bit to work. the ESG pressures, while they've been very pronounced in the last couple of years, they will still be there on the E side that I believe that the energy security issue and the outrage from consumers over high -- the high effects of natural gas prices and gasoline prices are going to have an effect to get people back to work. Keep in mind also for the last 2 years, even if you weren't a company like Hunting, the service companies at the rig site, the drilling contractors, I know from numerous conversations I had with our team in Southeast Asia, COVID restrained a lot of potential activity. I mean, especially Malaysia was hard to hit. There were a lot of things there that did not happen because of COVID. So again, we're just very, very optimistic that this thing is going to take off. And I've never -- I don't feel I've ever sat in a position like I am today as far as seeing what I think is just a stellar outlook going forward. On Slide 15, and we're going to take a few minutes to talk regional wise. Slide 15 is focused on the DUC count and the rig activity in the U.S. We have seen the rig count accelerate back. Still, in my many years in business, this would be a very poor rig count in total. But rigs today are more efficient. We've been hearing of spud to completion -- spud to the end of drilling times, averaging something like 17 days in parts of the Permian. So because of the technology, the oilfield service industry has put in place, the drilling in that is much more efficient. So 600 rigs today is probably the same as 700 rigs 5 years ago. So that's efficiency factor to keep in place. The DUC level is continuing to decline. You can see the graph showing the December '21 number. And in reality, I think half of those don't even exist, because as I've stated in the past, some of these were bad wells, wells drilled to hold acreage, companies went bankrupt, whatever the situation is. The bottom line to it is that you got to keep drilling to stay in business. And so as the easy money was made -- keep in mind, entering the downturn, these wells were already drilled just sitting there. So half the cost was already done. Now with that being -- when those being completed away, again, it's a fundamental that's going to make the future look, I think, very, very bright for us. One of the areas that I don't have a slide on though is in the Gulf of Mexico. It has been a laggard in its response back activity-wise. A week ago, the rig count was down to a historic low of 12, but I have been encouraged by the recent dialogue that I've seen from Transocean and some of the other drillers on new contracts being picked up in the Gulf of Mexico and in the international market. And keep in mind, this is a long cycle business. So you can't just pick up a rig and start putting the hole in the ground in a month. So the trend is going positive in the offshore marketplace. You've seen Transocean announce day rate increases. So even though the number today is not healthy, I think that it will be a significant improvement by year-end. Slide #16, we kind of go around the world. I'm not going to go through and read all of these. Canada was a very nice surprise for us last year. Our Canadian business from Titan increased 24% year-over-year, and the new business model, our team in Canada, has managed where we got out of OCTG distribution business and into using the distributor model, turn that from losses to profits in the year. And so we're happy that -- on how that has turned out. And again, good returns with limited capital employed. North Sea, Bruce kind of touched on. A big issue for us there was the disposal of our U.K. OCTG business, and I'll talk more about that later. But the company, I think we're well positioned in that marketplace going forward, with some additional optionality we didn't have prior to that disposal. Asia Pac, the team there struggled last year. That was the last of the regions -- one of the last regions to see the downturn affect them so they've been later in seeing the recovery. The good news is that they've started the year off with a bang. I think that we'll have a very good year in Asia Pac. Middle East, they always say the last barrel of oil ever produced is going to come out of Saudi Arabia. So capital spend has been restrained there. The rig count in the Middle East is still significantly below where it was pre-COVID. But again, depletion doesn't sleep and they'll have to pick up the drilling again. Offshore South America has been an area that I have really been pleased with for Hunting. And I think probably our business in 2022 in offshore Brazil and in the Guyana Suriname region will be the biggest ever in the company's history, based on the success, the titanium stress joint businesses had in those 2 markets as well as the general recovery in subsea. So great job for our team there. And then Africa. Africa is still tough. There's talks of things changing there as far as government fiscal policies and the like. I think everybody probably saw Shell announced a big find of Namibia earlier this week. So to me, that's an evolving story. But at the end of the day, it's still -- you still deal with the difficulties of Africa. On Slide 17, just some points on Titan. Jason Mai and his team, I think, did a very, very good job in the year in a very, very challenging marketplace. They continue to improve year-on-year, focusing on technology, focusing on new products coming into line. A list of those are all there. For us, again, we saw our business improve 9% quarter-on-quarter at the end of 2021. We were the first ones to come out and announce price increases in late Q3 of 2021. We've announced another round of price increases in the neighborhood of 7% in February for these product lines. And our job is to try to make sure we stay ahead of the inflation in the industry, which we will do. And continue to enjoy our #1 market position in place in this segment. System sales continued to increase. And right now, about 20% of our total revenue dollars in Titan are now factory loaded guns going out to the field. We're still selling components. We sell systems. We sell guns. One of the changes that we have done is we have, on purpose, left some of the commodity and gun business because I'm just not going to play in the dirt in those low levels of pricing in today's marketplace. So again, a good year overall relative to the rest of the market, not what we had seen in the past, but we did see good growth in a number of geographic areas. And like Bruce had said earlier, we were very pleased with the uptick in our international sales year-over-year. Slide #18. I'm not going to spend a lot of time on this, but it just shows that the team and Titan has not been standing still. A lot of development time going into developing our charge technology, even more responding to the needs of our clients, working on areas within our existing product lines to reduce the cost basis because I really believe our performance levels are second to none out there as far as safety and dependability go. So right now, it's looking at the product and just making sure that we can maximize our ability to play in the business. Slide #19, going into North America. Tough year overall. Again, the COVID downturn hit literally every business, we've had effects. '21's passed, we're on to '22. There's encouraging upside in everything -- in every business unit in the U.S. for '22. Our AMG business is seeing backlogs expand aggressively. The subsea business I talked about doing very, very well. Premium connections, our U.S. manufacturing business, all of them seeing an uptick in activity, and we believe it will go back to delivering very good results this year. Slide #20, the EMEA update. Tough year last year. The restructuring in place. Bruce and I lost a lot of -- had a lot of sleepless nights. I mean it was just very long, drawn-out process to get this done, but one of our strategic goals to exit a business that a, we didn't -- we really didn't sell our own products through this. So strategically, it was questionable. The market has changed. And again, the amount of capital tied up was just -- it's just too much for that size of the marketplace. So going forward, we're a much leaner operation. I mean even looking at February's results, which we're just starting to come in off, I mean, we have positive results in EMEA driven by a change of profitability in Aberdeen. So I'm excited. I'm thankful for what the team did. We were able to reduce some SG&A costs with this transaction. So for those Hunting employees that were part of the transaction, I do want to say a special thanks for all that you did, and we wish Marubeni-Itochu all the best in the future because we'll be working a lot with those guys. But the opportunities going forward, I think we have more optionality with our business now because we're not competing in that certain segment of the pipe business. And yet, we are continuing to look at things like the enhanced oil recovery, improvements in well intervention and the like to enhance our profitability in that region. Asia Pac, a tough year for the guys in Singapore. It was even compounded more by some of the fiscal terms in China affecting OCTG. But the bulk -- the thing I got to highlight is the bulk of the dollars flowing into Asia Pac are actually OCTG sales, and a lot of it was to the Middle East. And as I said earlier, with the Middle East rig count down 33%, we just had not seen that recovery in demand. Going forward into '22, we are very fortunate to have the relationship with Jindal, which we'll talk about some more going in the next couple of slides. That has already paid to us with orders with ONGC and other players in the Indian market. So we're very thankful for that. And Daniel Tan and his team have done a great job on pushing that across the line for us for the joint venture. But Chinese fiscal terms regarding taxes and the like have improved in China. But one important other note that nobody has talked about yet is with the situation in the Ukraine and Russia, there's all of a sudden going to be a gap of many, many thousands of tons of Russian pipe that will not be in the international marketplace. So we see people like the TMKs and the like as competitors in the Middle East and Southeast Asia, I'm pretty sure those tons are going away now with all the sanctions in place. So that has to be a positive for our OCTG opportunities going forward in 2022, even though it's driven by a sad state of affairs. Slide #22 talks about our strategic accomplishments. Bruce has talked some about the ABL. We've talked about the Aberdeen selling at the OCTG. We still look internally for ways to save money, reduce our cost. We've done some things on consolidating some business units. You'll see a slide later where we'll talk about Singapore. So we're not resting on our laurels as far as where we're today, and we continue to put our lean manufacturing initiatives in place and the like to drive our cost base down. Middle slide investment in non-oil and gas. When we look at our current portfolio, we like what we have, but we want to enhance it. We want to find out how to grow better in new areas and pick up new technologies, 2 investments, one Well Data Labs Denver-based company, focusing on analytics and machine learning. We have been collaborating with them on the lines of with the Titan -- our Titan business unit to look for ways to provide better analytics and machine learning data for our customers and to sell our products better in the perforating side of the business. And so we're pleased with that relationship, and it continues to go forward, and we continue to learn more. On Cumberland, when we look at our advanced manufacturing business, it was an area where we can see the trend in -- especially in non-oil and gas areas like aerospace, defense, where 3D printing is become more and more prevalent and more and more the way to have things done. Organically, it would be extremely difficult and costly for us to do that. We came across -- made a relationship, came across some people, and so we're very pleased with that investment. And we've already been funneling opportunities to the Cumberland people and kind of using them as our 3D printing option when we look at supplying product. Expanding markets in the next slide. The Jindal relationship, again, I'll talk some more about a great accomplishment for the team this year to get done. The Nammo defense system delayed -- time-delayed fuse deal. Jason Mai put that together, great job. It is primarily focused on the TCP market, which is more offshore. But it's also going to open up some doors for us for military applications and aerospace that we are working with right now. The organic oil recovery finally making steps with positive purchase orders, nobody probably knows that business better than Bruce. So I'll let him take the questions on that. But good results there. And again, it's one of those ESG stories where the companies can do more with less. And so we're happy to see that continue to be nurtured. And then lastly, the Eaton Geothermal project in the U.K., that just highlights to me a fact that for 30 years, Hunting has been involved in the geothermal market, whether it's been the Eaton project, whether it's been in the Philippines, Indonesia, Southern California. So we have a good history of that. Today, it's a small market. So we're hoping that, that does expand. Slide 23, just some more bullet points on the Jindal relationship and the joint venture that we have going on there. We're hoping this is up and running and threading pipe by the end of the year. And again, with the supply issues in Asia Pac, with what we see as a potential for accelerated drilling in India and in the Middle East, we think this is a great relationship going -- going to be a great relationship for this company going forward. And we're very, very thankful to the Jindal people for working with us to put this together. So I think it will be very good. Along the lines of pipe and OCTG, on Slide 24, just wanted to give you a shot there of showing the continued growth in our TEC-LOCK product line. It continues to expand, connection business continues to do well. We continue to work with a group of independent mills that supply us access into the marketplace. But again, all this is through distribution. So Hunting is not owning the pipe on this. We're selling connection technology. We're threading the product at our own facilities in Houston or Marrero, Louisiana or through licenses in the South Coast or through licensees in Canada. But just kind of a snapshot there. Next, Slide 25, big home run for our subsea business this year. The -- I mean I'm just thrilled with how this has progressed, considering what we paid for this business in September of 2019. As the line shows, we booked $68 million worth of business in 2 years. I think this will continue to accelerate. The business we picked up at the end of the year with Exxon in Guyana is the largest order that I think has ever been secured for the titanium stress joints with the company. It exceeds $20 million. And again, because of that technology, because of some cost savings measures, clients are seeing by utilizing this over some other solutions, I think there's a big, big upside into this. Enpro had a tough year. A lot of it's stagnant because of the COVID affected downturn, but the inquiry levels are up, and we're expecting a good year for Enpro this year, as well as our historic business at Stafford on the coupling side, which is directly related to subsea tree awards. We continue to be the market leader in supplying those products, and we just need the activity to pick up, which it will. Slides 26 and 27, I've already kind of talked about, but just some bullet points there for everybody on Cumberland and on Well Data Labs. Slide #28 talks about one of our cost savings initiatives. It's a consolidation move we're making in Singapore right now, consolidating 3 -- basically 3 into 1, reducing our footprint, getting more efficient. And it shows you that when real estate issues allow us and we can make these moves, we're constantly looking at ways to improve our performance, and that's one that we're doing. Slide #29, our ESG slide. A lot of points on there. I'm not going to go through them all. We continue to strive to be a high performer in all of those areas and to do the best. It's nothing that we haven't done in the past. For the year in 2021, just to kind of bring it all together, we had record HS&E performance, great quality performance. So Greg Farmer and his team did a super job. It continues to be part of the culture at Hunting. And I just want to say my thanks to all of the Hunting team for their efforts in that area as well as for all the contributions made in a very difficult marketplace in 2021. Lastly, on Page 30, our summary of our investment case. And honestly, it's kind of like when I look at our oil company clients and say, "Well, if you don't drill now, when?" When I look at our share price and our value in the marketplace today and talk to investors, like, "If you don't buy now, then when will you?" Because honestly, we've got a great runway ahead of us, a great product line that has been streamlined and made more efficient, new product technologies, which are taking off for us. And I just believe, again, we're in the early stages of a boom that's going to be multi-year. So with that, I think I'm done. And I will now open it up to questions, if anybody has any.

Thank you, Jim and Bruce. We're going to take questions from the room first. I'll ask anyone asking the questions, say their name and company for the benefit of those on the webcast.

Mick Pickup, Barclays. Can you just talk about the tight of business? Obviously, you've seen the frac count, [indiscernible] and if I look at the number of completions, it's back up at 900 a month, and I think it peaked about 1,300. So it's come back a long way. Your revenues in that business aren't what it used to be on the line on the right base trend. You're starting talking about pricing it 7% now. But you used to do 20% margins in that business. So when the competition come and get back to 20% margin, because this price has got a long way to go?

Well, I can tell you, for the year, the margins were not. But I can tell you in Q4, margins were over 23%. So they are trending the right way and should continue to go positive. On the revenue dollars themselves, the market is not what it was 2 years ago as far as the quantity of completions out there. We also -- as I had mentioned, we are passing on some of the commodity end of the business mix because it's just -- you're just burning up and using steel for no purpose. So we want to focus more on the technology side. Pricing is not -- obviously not where we want it and not where it was in 2018. And that will be an evolution of suppliers getting back to that level. But in certain segments of the business, like on the chart side, one of our competitors have been out there leading the low end of the pricing. I'm not going to say who. On the system side, I think we're pretty consistent with our -- the number -- us and the #2 supplier. Others out there, it's kind of -- still kind of -- there's still kind of too much inconsistency out there in the marketplace. So what we all need is demand. What we all need to do is realize replacement costs are going to be needed to go forward because steel has risen, powder prices have risen. But it's not a -- I can't give you a quick answer and say, June 13, pricing will be up $50 a gun. But I think the steps are that it's going in the right direction.

Okay. And then secondly, you said you order book was up 40-something percent year on year so the bulk of your business is quite factored over...

Correct.

So what has it been on end of 3Q and 4Q, about run rates today for this year or than the U.S. spend is going to be at best 30%? Thinking, so how is that progressing in the future?

Well, I mean, Mick, it's all [ blowing ] positive. I mean the key point with the number we gave was the order volume is accelerating rapidly. I mean it's -- I can't give you that number. Bruce, do you have anything you can add to that?

Certainly, quarter 4 is what we're seeing coming through with [ U.S. ] subsea, as we mentioned there as well. And then post year-end as well, with the orders we mentioned in Asia Pac and also RTI, again, proceeding Guyana coming through as well. The trade towards quarter 4 is definitely -- it's not an upward trend that we saw through back in the last year May.

And the Titan business -- as we've always said, the Titan business stays the same. There's still visibility. Like I couldn't tell you what the number is going to be in April, because you are basically month-to-month. And I think as one graph even shows, as we track that, you'll see the number for Titan. You're never going to walk in and say, "I have a $100 million backlog in Titan." So it's really the AMG business, the Subsea business. The Asia Pac premium connection business with pipe. Those are the areas where you establish a backlog, and it takes the time to get those through the system.

Erwan from RBC. So my first question, pricing has been answered. I guess, I have 2 other questions. First on potential small targeted M&A. I remember 2 years ago, deepwater proprietary acquisition into well, like the main area of focus. How do you think about it now? How has it changed?

It hasn't changed. Unfortunately, what you just explained was RTI, and that's been a home run for us. So I think we've proved that. But going forward, it's one of those cases that we're continuing to look at acquisitions. We've got the firepower to do it. Our focus is on, same thing, hasn't changed. Deepwater, proprietary, technology, completion related in that side on the oilfield services. On non-oil and gas, more on the high-technology industrial side, perhaps aerospace industrial product side. The issue is it's no different than us, not wanting to sell our shares at GBP 2 apiece. Everybody had poor earnings to try to do multiples on -- for '20 and '21. So what are you basing this on? And so companies that we have had dialogue with that fit the bill of what I'm talking about, the main message has been, we've got to at least wait until the end of this year. Because, one, we need to prove out, pay the new products we brought online are generating earnings. We don't want to sell ourselves short. And unless it's a private equity firm needing to exit, there's just thin pickings whether it's oil and gas or non-oil and gas right now, just because of the value you're trying to relate to putting a value to EBITDA earnings, for example.

Okay. And maybe follow-up to that. But getting back to the Russian situation. So for other companies under coverage, we do see companies diverting -- or coercing away from Russia, including the North Sea oil. So you touched on this a little bit, but can you clarify that you've seen -- that you heard more interesting conversations for the last couple of weeks in terms of pickup [ Russia offshore ] in your areas? And then getting back to the previous question, not only has a potential area of interest in terms of the growth and does the situation changes?

No. I mean we will -- we are an oilfield service company, we're going to always be an oilfield service company. On the diversification front, the key is, is that we recognized that -- we've had -- you have rainy days, the sun's going to shine, right? So the sun is coming out right now in our industry, but there will be another rainy day at some time. I don't know when. What would be an advantage would be to have the skills of the company in the engineering, in our technology, be able to broaden to other product lines that can get a more steady stream of earnings long term across the board. As far as the topic of the Russian impact and all, we've -- again, we saw a big uptick in activity literally since Christmas. A lot of it was clients were told, you cannot spend money in 2021 period. And we had many cases where we went out and told them, "You need to get orders in place now. You need to do is, we can't." And then January 1 hits, and it's like we have a new budget. We can now spend money. So there's still been a lot of capital discipline in the industry, but we're just seeing all the right signs that, that is going to be changing. And especially when you look in the U.S., at the amount of private operators that are out there. I mean, we're doing business with companies I never heard us 3 years ago. I'll bet you guys haven't heard half of them. And they're small operators running 5 rigs in the Haynesville drill and natural gas, or 3 rigs in the Permian and it's private equity money, and they're not worried about returning cash to shareholders today. They're worrying about which they are, I'm getting that $90 a barrel and off we go. And another factor, I think, that's going to benefit us all going forward is last year, much of the production produced by a lot of the big companies, a lot of the big independents, they had hedges way under what the $80, $90 barrel range was that they were seeing in the open marketplace. So these guys were not realizing $80 or $90 a barrel, or realizing $4 or $5 an MCF gas price. Those are all falling off. If you thought the cash flow was great in 2021, the cash flow is going to be extraordinary in '22 for E&P players in North America.

Tom Rands from Investec. One for Bruce, organic oil recovery, your specialty subjects. Can you give us an update on where that is with the agreement with the kind of the IP owner? And how you see against that product expanding in the Middle East, but also what the opportunity is available?

Sure. In terms of agreements, Tom, we've worked really closely with owners of IP over the last 4 or 5 years. So we really start step in step with them. We're in discussions around [ I'll just leave it at types ] of security, a longer-term agreement from that side. The Middle East has been really exciting. That's been a target area for us. I think every major operator is either testing the product or a commercial status. So it's an area that lends itself well to the technology itself, in terms of the land wells, in terms of the geology and the ease of getting the product to the rig site as well. So we have secured some purchase orders out there for some of the major operators. So we're really looking to build on that success in the Middle East and just really roll that product out into the region. We're also in other areas such as Pakistan, Far East as well. In terms of the North Sea, we have a major product -- major project coming up in North Sea with one of the major operators there. That should be deployed around about May time. So that will give us our offshore focus as well. So we have our U.S., we'll have our alliance project in the Middle East, we'll also have the commercial project in the North Sea as well. So that's -- it's going to be an exciting year because it does take a long time to get acceptance on new technology. The test results have been very good. We're now getting proven out with these major guys, and we're seeing the benefits of the POs coming through as well. So really '22 is about just building on that success.

This is Thomas Streater from Streater Research. Just a quick question on Russia, I'm sure you do have sales into Russia over the last couple of years. So what sort of percentage would that be?

Sales in Russia last year and the Ukraine were less than $300,000. So it's not -- it's meaningless.

And the year before?

About, probably less.

Okay. And I saw that you have an energy transition project team in Aberdeen to look at different projects. Could you just talk about that a little bit, sort of what things are they looking at? What things have they executed so far? what is sort of vision for that team in Aberdeen?

Do you want me to take that one?

Yes.

Well, the team has set up. Obviously, the traditional core business on the drilling side declined over the last -- since 2015. So looking to diversify into areas that -- such as we sold some casing to the Eden project, the geothermal well. Other areas looking at is on the carbon capture side. And then more medium term is looking at things, what's going to happen with [ Acorn ] project [ Paige ] and et cetera, as well. So there's a lot of wind projects, floating wind, fixed wind there, and looking at how we consider to deploy our assets to help secure new work into those areas.

We're going to take some questions that have been submitted by the -- via the webcast now. The first one comes from Mark Wilson of Jefferies. He says, can you speak to the quantum of defense market exposure to advanced manufacturing business? And as a follow-up question is do you expect to grow that market -- into that market strategically, maybe through M&A?

So the defense business that we're doing right now has hit 3 areas of the company. And Dearborn in Fryeburg, Maine is the largest segment of it. And there, about 60% of the business is non-oil and gas. And so I would say 30% of that is defense related. And those numbers -- I'd have to take a minute to go calculate all that out. But I mean, when you look at our overall numbers being 8%, let's say, of revenue, you're talking maybe 2% defense then -- 2% or 3% on of total Hunting revenue when you look at defense. And then on the growth side -- or I'm sorry, the other areas, we have picked up defense business in electronics and in our U.S. manufacturing business. The recent one has been with Textron. But again, it's a small number today. So defense aviation, together 60% of Dearborn then and that includes the satellite business. And then the rest of it has been oil and gas. So it's small and growing, but it's a focus of ours to continue to grow that business.

Another question from Mark Wilson of Jefferies, which relates to the bottom line for 2020 and guidance. Order book is up and consensus shows a 15% year-on-year growth. But where do you see EBITDA trending? And do you think a net profit in absolute terms should be expected?

Well, I'm not going to give guidance right now. But I mean, our goal is to have, yes, a net profit in whole for the year and for massively exceed what we did this year. How I see the year playing out is the first quarter is going to be still relatively flat or comparable to Q4. Part of it is because, as I've mentioned, much of the backlog we're building right now is not short lead time. So you just don't walk down to the corner store and get 30 feet of titanium to Mars. So it takes time to get all of this into the system. I think also the first quarter, I'm hoping, will be the last quarter that we had severe effects on COVID within the operation of the company. Because as I had mentioned, January's impact to the bottom line alone was over $1 million, just in excess of inventory, lost absorption and the like throughout the company. So I think this will be an expanding year quarter-by-quarter improvement. And how that comes along in place with supply chain issues and the like remains to be seen. But I'm extremely optimistic for the year.

I had a question from Kevin Roger of Kepler. It seems that frac crews are almost sold out in the U.S. How should we think about the impact of your activity going forward? And is there any bottleneck on?

Well, frac crews available are sold out, but I read last week of somebody just turning back on 2 more. So I believe it's the old story, money talks. And as money improves, whether it's Transocean saying they're going to reactivate one of their deepwater rigs from cold stack. The clients calling and asking the units will be reactivated, and they'll be there. It all comes down to what are the economics. I do believe that these frac operators are going to be much more disciplined understanding that we're just not bringing this out for one job. You're going to have to do a long-term contract for us. So I think on the frac spread count in the U.S., one, they're more efficient today. So they are doing more. You can go and look -- I've looked at a half a dozen of them in the last month, whether it's EOG or Devon and the like, or even EQT back in Pennsylvania. They all talk about how much faster they're completing these wells than they were 2 years ago. So you have the same kind of dynamics, I think, moving forward with the efficiency of the frac spread crews. But the other upside for us is international. And I think we're going to -- we had -- I thought we had a very good year on the international side. And I think we're going to see even faster growth in the international segment for Titan and what you do domestically.

Question from James Thompson of JPMorgan. Could you provide a bit more color on the revenue generation through H2? And what were the key drivers there? And how much of an improvement in top line do you see sequentially in the first half of '22?

In terms of -- our H2 numbers, we're 14% higher in H2 '21 compared to the first half of the year. I think as Jim mentioned there, it's difficult to see through everything together to see how that's going to play out. We are looking at a more tepid growth, I guess, quarter 1, that Jim just outlined. And in quarter 2, once we're through our COVID disruptions and operations, we've got the demand there, especially for the short cycle in Titan. And we see that improving as well. But there is a lot of uncertainty there as well. Certainly second half '21 was 14% higher than first half '21.

Long and short of it is I'm not going to give numbers. With supply chain issues and the like, all I can tell you is it's going to get better. It should significantly get better. The backlog is speaking to that. The oil price is speaking to that. The industry comments from our clients is speaking to that. Where that hits, whether it hits in May or July or -- at this point, it's too much of a moving target to try to put a number and then be held to it.

Another question for James at JPMorgan. You talked about more orders and more inquiries. Can you add any more color to those comments?

On the inquiry front, keep in mind, a lot of what we do is provide capital equipment to operators. So if you look at our well intervention business, that's basically a CapEx. And in the last 2 years, the amount of CapEx spend needed by our big -- other big OFS customers was 0. When you have 9 -- and you have 1,200 rigs and 600 of them are sitting doing nothing, you go steal from Joe's rig to put it on your rig. That happens a lot in downturns. It's not anything extraordinary, and it happened big time in this downturn. I can tell you specifically in areas like our specialty supply business, had a good month in February. A nice turnaround after a horrible year or so. That's a division of our company that makes replacement parts for MWD equipment. Same part of the cycle. It's a business that a couple of years ago generated $10 million in earnings that last year lost $1 million. Just to kind of show you the swing. But it's a business that relies on CapEx spend. And so no different. When you had 1,000 MWD units out there, and 500 of them are sitting on the shelf, not being used, you don't go buy a replacement kit. So that's one anecdotal thing that I can tell you, we're seeing a pickup in that, for example, that one thing there. We're seeing -- actually, I can tell you the backlog for well intervention equipment in Aberdeen for Q1 almost exceeds the whole revenue for last year, and that's only happened in the last 60 days. So like I said, we're seeing indications that people have got to start replacing this equipment, and that's driving my optimism for the year going forward.

We've got no more questions via the webcast. So if anybody else in the room have any other questions? Back to Mick.

A couple of questions, if I may. Can I just ask about your views on the U.S. OCTG market? Obviously, market has been dominated by the a couple of major seamless players over recent years, and HRC prices are collapsing, and have come down. So at some point, you've got to assume that the domestic mills will start. And I think that gives you an option for threading of those pipes for you as that happens. So what you're seeing in that U.S. market? How do you view it? -- appreciate…

The U.S. market is -- I won't say which mill, but I talk to my competitors in the industry on a regular basis. You do with industry things just like I see the guys from Oil States or whatever, pick one. I can tell you that some of the mills in the U.S. are already completely booked into -- well into Q4. And right now, you can't make enough 5.5-inch P110 collapse seamless product for the U.S. marketplace, because that's the Shale wells. And then there are some changes in sizes but all of them are doing well. Tenaris has reactivated their operation in Pennsylvania. So they're going to start making tubing again. U.S. Steel, they still have not fired up their Lorain operation, but their Fairfield, Alabama operation is running full tilt. Other independent mills that we're working with are very, very busy. OCTG prices are very high in the US. They're some of the highest in the world. That's not -- it's not going to change this year for sure. So a very buoyant market, strong for steel.

And new domestic supply reactivating, does that give you an opportunity?

Yes. I mean the thing was for a while there, seamless price -- seamless was actually less expensive than ERW. Like you said, the hot-rolled coil prices had just gone astronomically through the roof. That is starting to change. So I think ERW mills will become more efficient in the year -- as the year goes on. That will -- it might put a lid on pricing, but it's not going to reduce it because the demand is so strong, and that means 5.5-inch for an ERW mill is a sweet spot, or 7-inch or 8 5/8 that they use on these mills or these wells. So we have a certain number of mills that we work with. Some of our competitors' mills have our connections put on them for our offshore business. So again, remember, it's a distribution market, so except for Tenaris, which is doing the rig direct model, distributors are out there buying plane in, buying whatever. And that's how we've been able to benefit in the marketplace, plus we're -- some of independents out there.

Can I ask about the subsea coupling business? I think what surprised last week was one of the subsea tree manufacturers saying the back [indiscernible] what are you seeing, because you should a direct impact [indiscernible]?

No, we will. And that's one of the things that I'm excited about going -- to me, that's not a today issue. I mean they order those trees, you're talking the forging. I mean, their lead times are way out on that. our couplings are going to be later in the cycle. But honestly, when I look at our subsea business today, there's no business I probably have more optimism about in general than that going forward. Because, again, we have the technology, the proprietary product line. I just am very optimistic. And yes, I follow FMC and see what they said, and that will feed directly into our Stafford coupling business. We're all done? Great. Well, again thank you for everybody that's listening. Again, I want to thank the team at Hunting for all the accomplishments that were made in a very, very challenging year. Glad COVID is getting behind us. We're all sitting here, by the way, nobody has a mask on. So that's a wonderful thing today. So again, stay tuned I think this is -- in baseball terms, this is probably the second inning of what I think is a long-term gain for us. And we're well positioned for, I think, a super year. So thanks for being here.

Thank you.

Thank you.