Hunting PLC (HTG) Earnings Call Transcript & Summary

Right. I have a few minutes after 1:30. So I'm going to call the meeting to order. Let me begin by saying good afternoon to everyone. I want to welcome you to the 2022 Hunting Annual General Meeting, and I declare the meeting open. First of all, I want to say it's nice to see everybody in-person because after 2-year hiatus of not being able to get together, it's really fantastic to be able to see people's faces as we go through the AGM. My name is Jay Glick, I'm the Hunting Non-Executive Chairman. And let me start now with a brief introduction of the non-execs and executive directors. And I'm going to do this introducing face-to-face, even though all of our photographs are in the annual report, we look a lot younger in person. So I'll start with Carol Chesney at the end. To my right, Carol is Non-executive Director, who also heads up our Audit Committee. Next to Carol is Richard Hunting, Non-Executive Director, much more on Richard Hunting as we go through this presentation, the Chief Executive Officer is Jim, Jim Johnson. And Jim has been on the Board for a good while and he's doing a great job as CEO. To my left is Ben Willey, and Ben is our company Secretary. To Ben's left is Bruce Ferguson, and Bruce is the Chief Financial Officer or the Finance Director in U.K. parlance. Next to Bruce is Annell Bay, and Annell heads up our RemCo in addition to being a nonexecutive director, and on the far end is Keith Lough, and Keith is our Senior Independent Director, for his end. So this is the company directors. So the meeting will note from the 2021 annual report and also from the 2022 notice of AGM, that today's meeting will mark the retirement of Richard Hunting and on behalf of my fellow directors, Hunting shareholders, the Hunting family, directors past and present, Chairmans past and present, I want to wish Richard the very best in retirement. And go on to say that on a personal note, I appreciate all of the support Richard has given me when I transitioned into this role. It's been great. I valued Richard's judgment and his input. So Richard, we will celebrate more later, but for now, I want to recognize your retirement and wish you all the very best. In addition to Richard, though, I also want to recognize the contribution and support of Richard's Life Penny throughout his time with the company. And I know a lot of people say behind every great man as a woman, and I prefer to say that behind every great spouse is typically another spouse walking side by side and supporting you in your new role. And so for Penny's contribution, please tell her thank you a lot for all that she's done for the company and helping this be as successful as we've been. I asked Richard if he would like to say a few words to this group at the end, and he graciously agreed. So everyone be ready and Richard is going to have a few words to say when we conclude the meeting. Additionally, on March 2022, the Board announced the proposed appointment of Paula Harris, and as a new independent Non-Executive Director. Paula has spent over 33 years with Schlumberger in a variety of roles. Schlumberger is obviously the international service company -- oil services company, and it's probably the benchmark for a lot of us in this industry. And the directors strongly supported Paula's joining the Board and the conclusion of the meeting, I would encourage everyone to spend a few minutes and get to know Paula, and I know Paula is looking forward to that as well. Paula, you might want to raise your hand so everyone knows if you haven't had a chance to meet Paula yet. Okay. In advance of this meeting, the shareholders were invited to submit questions in writing, answers to those questions have been published on the company's website and will be addressed after Jim Johnson's presentation, and we will continue to take questions from shareholders during the AGM. These can be submitted to the e-mail address, [email protected], which is shown at the bottom of most of Jim's slides in the presentation for those participating virtually. Following the question-and-answer session, we will move into the main business of the AGM, which will include a poll. The poll will close at the conclusion of the meeting. We will commence the AGM with the presentation by Jim Johnson. Following Jim's presentation, there will be an opportunity for any shareholder questions which can include questions on today's trading statement or the 2021 annual report and accounts. After the question and answers, we will move to the formal business of the meeting. Following conclusion of the meeting, all directors will be available to meet with shareholders at which point, refreshments will also be served for anyone who didn't get them earlier. At this time, I would like to pass the meeting over to Jim for his presentation based on the information in today's trading statement. Okay.

Thank you, Jay. I'll get over here by the food that way I'll know I have everybody's attention here. You can look here. But anyhow -- let me see. I just want to start off again by thanking everybody for being here or listening online to our presentation today and to the meeting today and all that we have to accomplish. My! How things have changed. So if you look at this business that we're in, the volatility and it has just been immeasurable for the last couple of years, literally 2 weeks -- 2 years ago this week, oil prices for WTI went to minus $39 a barrel. Today, we're up over $100 a barrel. Natural gas prices are strong. Energy security is now a huge issue. And our industry is starting to benefit with recovery driven from also the fact that for the last 7 years, we've had a drought as far as capital expenditures go in our industry. So I stand here today extremely bullish on the go-forward plan. We had a difficult 2021, but thanks to the hard work and the staff that I'm fortunate to work with every day, we were able to still make a lot of accomplishments that I think will continue to pay improved dividends for us as an organization going forward. Market drivers, and I'm going to go through this pretty quick, and I'm not one to read PowerPoint presentations, but you can see the spending up there. We are seeing a rebound in activity. Everybody that's in the oil business, I think the first thing they do on Friday afternoon is check out the Baker Hughes rig count. And we are seeing that expand. There's still pockets of weakness and for the market in general, capital discipline is still a key theme for a lot of our client base out there. For the company in this slide, what it shows is the performance in Q1 but what is stark is looking at the performance of the company in 2020. And in my 40 years plus in this industry, that is the closest I think we, as an industry, came to 0 activity. and we had a rig count that just fell off the charts. We had a dinner last night, we talked about 1986. This was even a magnitude worse than 1986 as far as what decline that we felt. And yet, we continue to execute what we could. And again, the good news is better days are on the horizon, and we've already started to see that. Our order book, when I talk about starting to see it, we've now went to exceed pre-COVID levels. And literally, every single business unit within the company right now is seeing a stronger order book demand improving, whether it's capital equipment items or whether it's short-term items like delivered by the Titan business unit. But anyhow, order book is improving. One of the things that we are taking are following the playbook of others in our industry, we're proud of the fact that we continue to pay a dividend even through these very, very dark times. A lot of people totally suspended them. We've kept a payment going on. Our ultimate goal is hopefully to increase that. But like the investor world is asking, we want to make sure that there is a return going back to our shareholders. And so we have in our proposal to vote on, again, the next dividend payment. One of the things we accomplished through the year was getting our asset-based lending facility in place -- we -- it takes away from the earnings-based vehicle that we had before. But this allows us more firepower for hopefully, further investment in our business either through acquisition or whatever we need to ride out the storm. But Bruce Ferguson and the team did a great job on working to put this together. And so we thank our banks as well for getting this done. Shareholders, Hunting family, I see many of you here today, very much respect your position in the company. We are thankful for all of our shareholders. a lot of longevity in our shareholder listing right now, but that kind of gives you the overview with the heavy balance of it being in the U.K. But again, our top shareholder register as of April. Core competencies. I'm pretty sure anybody is on this call understands what we do, but one of the things about Hunting is very unique is we're not a one-trick pony. We have a multitude of product lines focused on extracting hydrocarbons from out of the ground and also for some other businesses that are non-oil and gas. But at the end of the day, we're an oilfield service company. We're proud of being an oilfield service company. We see the demand for hydrocarbons continuing to expand even in light of the ESG issues out there. and we want to grow and continue to nurture that business, but keep our eye out for opportunities to grow in the non-oil and gas business as the transition takes place. But again, at our core, we are excellent manufacturers. We put the procedures in place. More importantly, we put the right people in place. And we have the greatest -- we have a high level of respect from world-leading energy companies from Exxon to Halliburton to Schlumberger to Devon to name them. We're supplying basically -- there's basically nobody out there we're not able to supply product to. Overview of 2021 and in the Q1 2020, '22, again, we are seeing good momentum starting the year. I have told the Board and told investors we literally saw like a light switch flipping about mid-December of last year. And it was all of a sudden people waking up to maybe this energy price rise is not a fluke. Maybe there's something that's going to drive this further. We saw budget start to be restarted again for the new year and people worrying about supply chain issues and thinking maybe I better start ordering product now. So the momentum that we saw in mid-December has carried through throughout the year or year so far. As I showed earlier, our backlog is growing, and we're very optimistic that this trend is going to continue to accelerate throughout this year. Strategic milestones throughout the year. We didn't have a [ Wowie ] attitude at Hunting. We worked hard to continue to improve the company and improve our performance. Restructuring happened. The most major one was the selling of our OCTG assets, our trading business in Aberdeen in December, but we also did some restructuring internally, such as the merger of our trenchless and U.S. pipe business. We are currently in the process of consolidating facilities in Singapore, which will drive further cost savings for the company. We have entered new markets. One of the big home runs in the last year for us has been the success of our subsea business in Spring, Texas that was the previous RTI business. We've had huge wins. We just announced this week a huge win with Exxon for Guyana. We're currently talking to other operators in that area. Brazil has become a hot market for us. and we're expecting a lot of increased activity in orders from that business line. Our Jindal joint venture was concluded. Daniel Tan and our guys in Singapore did a great job of putting this together that process is moving forward. It probably won't have any impact on our earnings this year, but hopefully, will start up in Q1 of '23. While we're looking at our portfolio of products and businesses and opportunities out there, we also wanted to stay ahead of what's going on in the world of technology. We want to look at things that could enhance our business and provide us leadership into new areas that we hadn't previously taken part on. Hence, the investment with Well Data Labs, our friends in Denver, Colorado, begin to Machine Learning, Data Analytics for downhole completion activity. So we're working with them on pilot projects marrying some of the control fire technology of our Titan business. Cumberland Additive was our solution to partner with somebody and make an investment, which we now own 27% of that company, but to get into the world of 3D printing. And when I talk 3D printing with Cumberland, this is high, extremely high end. So this is not something you're going to find an amusement work that was made out of plastic. This is high alloy materials, aerospace-related, satellite-related defense related, but we're focusing on Cumberland to be our go-to source for 3D printing opportunities that will also enhance our existing advanced manufacturing business. And then lastly, thinking outside the box, we did a license with Nammo, company in Norway, which will provide us -- is providing us technology for time-delayed fuses which is primarily used in tubing perforated guns in that application, but there's also military applications with that, that we're going after right now as well. And again, new products we talked about new charge development debt core expansion that we did about 18 months ago has been a home run that is performing very, very well. And the H3 system has been launched this year as well and is doing good, doing well. Financial summary. Again, a disappointing year. There's no putting lipstick on this, as I like to say. It was a tough year in the industry. Again, I take my hat off to the team that I work with every day throughout all the challenges we were able to give results, at least generate some positive EBITDA for the year. Keep in mind, being a manufacturing company in the world dominated by COVID disruptions was probably one of the biggest challenges I've ever seen in my career. We had constant starting, stopping, isolation of employees, absenteeism, to the fact that in, for example, December of '21 and then January and February of this year, we were extremely impacted by the disease and its effect on the workforce from absenteeism over time that we had to do. I'm just throwing that out because it was such an anomaly for how you would normally run a business that it's -- there was no guidebook on how to handle something like this. Fortunately, March's results have shown that's behind us. The incident rates are well down and we're seeing the industry accelerate, and so I'm happy to say goodbye COVID. What we manufacture just kind of an overview there. You can see the revenue by product line. One of the things I'd like to highlight is, it's like, well, why is this down? And why is that up and vice versa? Perforating system had a nice recovery last year. But keep in mind, if that was -- if that -- this scale was taken back a year, you would have seen the opposite, right? So because of the short cycle nature of the Titan product line, that was the first one that got hit hard when the COVID downturn originally hit in '20. At that time, the subsea business our OCTG business in Asia, those areas were performing fine. But as the backlog of those business and order intake declined, so too did obviously the performance. And now we're at a point where all of this is coming into balance and all of it accelerating. So the different times are -- have played out in things like intervention tools. That is a pure play on capital equipment by our major oilfield service clients. And we're seeing new life come back into that segment. Just a couple more slides on the other investments that we've made. Again, the Jindal joint venture, extremely excited about that moving forward, the Jindal Saw people are a Class Act in India. We will be the premium connection supplier in India. India has a Made-in-India program going on where they're wanting to have as much local content as possible. We're excited to be a partner with these people and look forward to that being a key strategic supply chain link for us. And it also, at the same time, reduces our exposure to our supply chain in China. On the subsea technology thing, I've talked about already the successes at the Spring facility. The key number up there is that $68 million in 2 years, and that's in revenue generator from a business that was basically doing 0 and was in hibernation. So we were fortunate when we did this deal with Arconic that they didn't want in that business anymore. It was an opportunity for us. And like I said, I'm just thrilled at the work that, that team has done to get this product line rejuvenated and for the first time in the international marketplace. The rest of the businesses, the chemical injection hydraulic coupling business. It's directly tied to Subsea tree awards. We see that accelerating throughout the year. and then our -- one of our other new acquisitions with Enpro off to a slow start because again, it's all offshore, all subsea-related but good momentum starting to take shape in places like West Africa. Again, just a quick slide point on Well Data Labs, like everybody, they tell me back pre-COVID the ability to capture a new business was a whole lot easier than what it was when COVID would happen when you got to a point where you needed 9 people to give you -- sign a purchase order for $10,000. So those days are ending, spending is improving, and we like the fact that great people in Denver that we're working with Well Data Labs, and we like the learning that we've been able to get from this product line and offering with our Titan Group. Advanced Manufacturing, I've already talked about that to a degree. It's expanding right now. The Pittsburgh site will be up and running this year, which will give more -- bring more capacity online and again, expands our knowledge base as well as our opportunities with clients. Technology leadership, most all of this is Titan. One of the biggest groupings of engineering strength in the company is with our completion business with the Titan team led by Jason Mai. We haven't [ split still ] bad year. One of the things we don't do in a downturn is we don't throw away our seed corn as we say in the states. And so our engineers stayed engaged. We continue to develop new products and improvements to existing products. And there, you'll see a list on that, whether it's charges, new guns, software for control fire panels and the like, but always working to try to do better. ESG, we've got our ESG slides up here. I'm not going to spend a lot of time on that except to tell you that having been with this company as long as I have, there has never been a time where we did not take all the tenants of ESG seriously. We continue to work to be better tomorrow than what we are today in things like monitoring our greenhouse gases, all those things we need to do, social issues within the company, all across the board. And so we'd like to consider ourselves a leader in making sure that we're a good corporate citizen doing the right things. Gender diversity, we show some Board composition management and workforce there. I'm not going to go over all of it, but they are -- it is what it is. Carbon footprint, the thing that kind of -- it annoys me to a degree, but it's right is we are a manufacturing company. If you look at our facilities, you don't see smoke stacks belching out. I mean we run a very clean organization I would compare our manufacturing facilities to somebody like a Tesla. It's clean, it's environmentally friendly. We constantly look for ways to reduce our carbon footprint, and we run, I think, a very good operation when it comes to that in our governance with our carbon issues. So a summary of investment case. The company today is in an extremely strong position. The strength of our balance sheet gives us a lot of leeway to think about acquisitions and investment in the companies and expansion into new areas. The ABL is in place, providing us more liquidity and there's other things on there. We went through the product line, but the really other key that's an intangible one there is really the strength of the team that you have at Hunting. So again, the experience level that we're here, this is not our first rodeo. We know how to run cycles, whether it's up or down. And with that, I can't think of a better placed oilfield service company than Hunting to profit from the recovery that's going on. And with that, I'll turn it back over to Jay.

Thanks, Jim. Okay. At this point, we are open for questions. If any shareholder has a question, please raise your hand, state your name and state the shareholders you represent. Surely after that presentation, we'll get some questions. Okay. [indiscernible], Jim. So thanks Okay. With no further questions from the attendees of the AGM in London. The next section, we'll look at questions received from those listening or submitted electronically. And we have one question, and we don't know who this is from, but the question is, can you comment on the results you've been attaining in organic oil recovery division? And the answer is we don't report financial performance of the organic oil recovery business at present. The commercial development of the business has been reported under the EMEA operations with a case study in the annual report, which provides technical results from a field test completed in 2020 which are being replicated in fields elsewhere. So that's as much as we can disclose at this point in time. Do we have any other questions from the audience, we need to address.

Okay. Hearing none. With no further questions, I would like to commence the formal business of the Annual General Meeting, and I can confirm that a quorum is present. I trust that the notice calling the meeting having been made available to all members, be taken as read. And we will move from that. Thank you. As we stated in the notice of meeting, voting on all resolutions will be on a poll rather than a show of hands. On a poll, each shareholder has one vote for every share held. Building on a poll ensures that all voters -- all shareholders are included. The votes of all shareholders are included, including the majority of our institutional investors who cannot attend the meeting today but have submitted a form of proxy. Before describing the procedures that we will be adopting and taking the poll, I would like to appoint Equiniti, our registrar as a poll scrutineer. Equiniti will collate all the votes received during the meeting. Those of you entitled to vote will have been given a poll card at registration. If you do not have a poll card or if you need additional poll cards, please raise your hand and someone will help you by delivering a poll card, anyone missing a poll card. Okay. If you've already voted by proxy and you do not wish to change your votes, then you do not need to complete the poll card. Your vote will be taken into account automatically. If you have voted by proxy and wish to change your vote, you can now complete the poll card and your new voting instructions will be taken into account. Please complete the poll card by inserting your full name, address and signature. If you're a proxy or a corporate representative, please insert the full name -- your full name and the full name and address the shareholder you are representing. Please ensure that your poll card is signed and handed to our registrar at the exit as you leave the room. I now propose formally that each of the resolutions set out in the notice of meeting and also numbered on the poll card are put to the meeting resolutions 1 through 13 our ordinary resolutions and require a simple majority of the votes cast to be in favor in order to pass. Resolutions 14 to 17 require 75% of the votes cast to be in favor in order to pass. I now declare the poll formally open. The poll closes in -- 10 minutes after the end of the meeting. If you have questions about filing the poll card or if you require any assistance, please speak to the registrar. The registrar will calculate the results at the close of the meeting. These will be announced at the stock exchange later today and will also be published on the company's website. That concludes the formal business of this Annual General Meeting and on behalf of the Board, I would like to thank you for attending today, and I now declare the meeting closed.