Edited Transcript of HTG.L earnings conference call or presentation 27-Feb-20 10:30am GMT

And so I guess what I’m leading into is, whether it’s 10 months ago, 10 years ago, 5 years from now, this is — we’re always going to have a lot of volatility in our business and in the economy in general. And there are some things going on right now to put more uncertainty in the guidance going forward, but I don’t know a company that’s in better shape and better positioned than Hunting to ride through these — the turmoil and the ups and downs and the uncertainty. And so when I came up with this, we actually made this slide very late in the day because I said, “Here’s key messages, and we’re going to tick the box on all the things that we said we wanted to do.”

We — I mentioned earlier about thanking our people. Our excellence in operation is unmatched. When I look at Rick Bradleys, the Scott Georges, the Daniel Tans, the people out there fighting the battle daily, fine-tuning our cost structure, working on efficiencies, Brad Gould, who oversees our lean manufacturing efforts, these people live this religiously, and they’re out there continuing to drive us to be a more efficient operation and do it safely and provide quality.

So I’m kind of going backwards, but we have taken the unprecedented steps this recently, in the last day, to do a share buyback, and these are things that we have never done in the company’s history. We’re doing it because we just feel our share price is grossly undervalued. When you look at the value of our assets sitting in the company right now, the intellectual property we have, the soft things, like the culture, and as I mentioned, our history, our customer relationships, we just can’t get our heads around why we were trading and what we’re trading at.

So because — another thing, because of the strength of our balance sheet, we can tick these boxes. We can go on and buy shares back. We can buy shares also for our employee stock fund, which we’re going to talk about a little bit later, and we can make acquisitions.

And so recently, I hope all of you got to read and see the blurb about Enpro. We are very happy to have Ian Donald and his team at Aberdeen join us. We like to remind people that while there’s lots of focus on Titan, which — and rightly, there should be, Hunting’s legacy businesses and really core start in the oilfield came from the offshore market. So it’s an area that we love, we like, we understand it, but it’s finding those parts of the business that have technology, proprietary products and great minds, like we have with the Enpro people that are coming to us now, that really turn us on and give us some excitement for the future in a way to diversify our business.

Kind of the group summary, and you have all this, and I’m — pretty much don’t like to just read PowerPoint presentations. But you can see our revenue was up year-over-year. We had the effects of a down — some downward movement in the Titan business. But I want to remind everybody that in January — from January of 2019 to December of 2019, the rig count in the U.S. did nothing but fall, and I’m talking falling a lot. We lost — I think it was 26%, 27% of our rig count. Activity declined and yet we still had a great year at Hunting Titan, and I think great results as far as the company goes.

We generate and continue to generate a lot of cash. We ended up with a great net cash position. We have increased our dividend. We talk about the 2 million share buyback on the bottom, and we’re continuing to look for more acquisitions, and we added 2 in the past year to our offshore portfolio. And other areas of our business continued to expand and perform strongly. Our OCTG business in the U.S. performed very well. Our AMG business, which is our Dearborn and our electronics facility, had very, very good years. And our Asia Pacific business expanded.

We’ve had a recovery of sorts in our North Sea business, and I’m even happy to report that as of today, our Dutch facility, for example, an OCTG is booked into the fourth quarter. So a lot of positive things. I think the team did a great job in managing in this difficult marketplace.

And with that, I’m turning it over to Peter.

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Peter Rose, Hunting PLC – Finance Director & Director [2]

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Thanks, Jim. Good morning, everyone. I just want to emphasize, again, the share buyback, 2 million shares, we think we’ll complete that in the next month or so. That will absorb about $8 million. We’re also buying shares, as Jim mentioned, for the share award program that exists in the group. That’s up to 1.5 million shares. That will absorb about $6 million and will also — we’re also paying a dividend, again, as Jim said, $10 million in May. So that’s nearly $30 million that we’re sending out indirectly or directly to shareholders. That’s a pretty good return. There’s been a lot of comment about why aren’t you doing a higher share buyback. And Jim will mention later on, the option to make more share buybacks later on in the future is there.

Revenue is up 5%. That’s a mixture of Titan coming down, but the other businesses, particularly the international offshore business is coming back and more than offsetting the decline we saw at Titan. Our margins, whether you look at the gross profit margin, the EBITDA or the profit from operations and margins, dipped slightly, not a huge amount. Again, there’s a mix of ups and downs in there, we’ll come down to that when we look at the segmentals.

The tax charge of $17 million, that’s a rate of 18%. We are benefiting from some additional U.S. state tax losses, which were brought on to the balance sheet. Those are a result of our reorganization we did in ’18. So that’s good, that’s a one-off $3 million credit. The run rate going forward for the tax rate is about 22%, and we’ll give guidance as the year progresses.

Final dividend $0.06, May, $10 million total dividend, $11 million — $0.11 for the year with a return on capital of 8%, which is pretty good in these circumstances.

Looking at the segmentals. Titan has dipped in revenues and results. Their margin has dipped from 26% to 18%. That’s 8 percentage points of a dip. We think it’s flatter there. Time will tell. But it’s dipped because of pricing pressure, because of competition, but we’ve maintained our market share with bringing new technologies, cheaper manufacturing, the efficiencies that some of you guys saw in the May trips around Pampa and Milford. So we remain well positioned and well respected in the community.

U.S., as Jim said, strong performances from electronics, Dearborn coming through in our U.S. manufacturing and also our connections business there, they’re helping these improved results coming through from the U.S. segment.

Canada is doing the best it can. There are some restructuring costs in there in 2019. But under Randy Walliser, our new MD up there, he’s taking some initiatives to try and push that business forward.

Europe, we’re still struggling in terms of volume. We need more volumes to come through and fund that, feed that cost base. We’ve got 4 main facilities in Europe. That’s a fairly high cost base. We need to just try and create the revenues to get a recovery on that.

And Asia Pacific has done well with a lot of contracts into the Middle East service out of our Asia Pacific mills and facilities. We’re still quite a high intersegment revenue, which, again, reflects the interaction within the segments and the guys are working together as one group.

Revenue by our product. Perforating systems, that’s the Titan business showing the dip, the decline. OCTG and Premium Connections is a big hike up there from our European, Asian and also our U.S. operations, pushing more OCTG business through and our Premium Connections with the TEC-LOCK, WEDGE-LOCK that Jim will refer to later on.

Advanced manufacturing doing well under the Dearborn and electronics businesses. Intervention tools, holding its own, but with good prospects. Subsea, a big hike up there from our traditional subsea business, but it’s going to benefit from the RTI acquisition that we did last year in August and also the Enpro acquisition we did in February.

Drilling Tools, we’ve had an impairment go-through of $19 million. That’s old technology, old drill tools that we haven’t used for the past year, and we see no prospect for using them in this current environment because of competition. So we’ve written these off. That’s a full write-off and full tax credit coming through on that.

Amortization. We’ve got the regular intangible asset amortization charge coming through of nearly $30 million, and the drill tool impairment coming through is $19 million charge, as I say, a full credit for that in the tax line.

Looking at the balance sheet, PP&E hasn’t moved that much. We spent $36 million on a new kit. Less depreciation, $34 million, less the impairment. That’s the — those are the broad components for the year-on-year.

Right-of-use assets, that’s the new accounting standard, at least it’s coming in. There’s about 70 assets being capitalized in the balance sheet, mainly properties, and they will come on and just be depreciated in the normal course of events.

Not a huge amount of movement on goodwill and intangible assets underpinned by Titan, which accounts for nearly 80% of that figure there. So good, solid base there. Working capital hasn’t changed much. We’ll come on — the next slide shows a bit more detail there.

Tax is an asset, so that reflects the losses we’ve still got that we’ll utilize and protect us for many large cash tax outflows in the years ahead. And we’ve got a strong amount of cash sitting there, $123 million, which funds the share buyback program, the dividend, the Enpro acquisition. Even after that, we will still have about $40 million available for future acquisitions or just maintaining the financial health of the group.

Inventory — working capital. Net overall inventories hasn’t changed that much. Pleasingly, Titan has reduced, despite them bringing on new products, new technologies. U.S. is gearing itself up for its increased activity levels, particularly with U.S. connections, U.S. manufacturing.

Receivables, payables behaving themselves. No concerns about receivables at this point in time, but we monitor it and we’ve got a credit insurance policy in place that — to comply with the terms of that policy, we need to maintain Don and Brad’s [straight] and credit limits and all that kind of — So we look after that very well.

We’ve only spent $36 million in the year. I expect probably 40-ish or a similar number in 2020.

Within the U.S. manufacturing, Ameriport expansion, some of you guys here visited that with us in May last year. We’ve put on an extra threading line there to cope with the demand for our TEC-LOCK and WEDGE-LOCK requirements — coupling manufacturing requirements.

Cash flow, we’ve probably covered most of the points here. I just want to emphasize that working capital has rose slightly but modestly. Tax and interest is modest. We’ve had a bit of proceeds from sale of assets and gains coming through, but strong free cash flow, $149 million.

Capital spend is, itself, explanatory. Dividends, $16 million back to shareholders. Acquisition is the RTI acquisition we made in August. There’s no earn-out on that as there is with Enpro. There’s potentially another $3 million going out in Enpro sometime in 2021.

But on that, I will hand back to Jim.

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Arthur James Johnson, Hunting PLC – CEO & Director [3]

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Thanks, Peter. So look, we’re going to go through here and hit some high points about the company and where we’re at today, but one of the best things to continue to talk about for Hunting is the balanced portfolio the company has. It’s onshore, it’s offshore, it’s North America, it’s Latin America, it’s worldwide. And we have products where we continue with well construction, well completion and well intervention. There’s something in those 3 areas which makes up everything going on out there that Hunting touches, and we’ll get into some more details on that later.

But this is a slide that you’ve seen and probably seen in the past, maybe with a few modifications. It really hasn’t changed. But it helps when you have this portfolio to rough out the unruly edges when you have, for example, downturns right now in the natural gas market in the U.S. Well, I’m not just relying on that business. If I was, I’d be in trouble right now, but we have other areas that are showing growth. So we always like to show all of that.

The company continues to be focused on new products and technologies. We will show in one of the other slides the patents this year that were awarded at Hunting Titan, but we continued to work with our clients — these are not science projects. We sit down with people and say, “What do you need? What do you see coming down the pike?”

In our subsea business, you’ll see 20,000 subsea hydraulic couplings. That’s the next challenge in state-of-the-art area that we’re now supplying product to, where in the past, it was 10,000, 10,000 psi, 15,000 psi. The challenges are increasing in deepwater, and we’re right there making components to build with them.

On the new charges, the EQUAfrac limited charge, we — again, talking to our clients, they — we found out that we’re seeing a change in some of the ways people want to complete, they rather have larger hole size rather than so much penetration in the formation. That’s what that charge has been developed for. It’s selling well. It’s in the marketplace right now.

On the top, you’ll see a number of products. A lot of them we’ve talked about in the past. The key is we’re not standing — we’re not sitting still, and we’re going to continue to roll out new products. We continue to nurture the engineering groups within the company. We’re doing things organically that we’ve never done before as far as bringing engineering groups together for basically strategy meetings on making sure that we’re taking the best available knowledge from multiple product lines and saying, what if, as we look forward to demands in our industry in the years ahead.

One area that I really want to highlight today as — I think many of you 9 or 10 months ago remember me talking about the fact that I thought there would be a change onshore in the U.S. with some certain acquisitions happening and consolidation over there, how it would benefit us. This graph kind of shows you that that happened. Along with it — that helped us, but the real key was the work that was put in by Mike Mock and his team in our Premium Connection business in this onshore product line in the U.S. The business has done fantastic results this year. We’ve been booking a lot of new orders with a broad range of clients and so we’re very excited about this. And again, the team did a great job, and there’s still more growth to come in this marketplace.

On North America onshore, just kind of looking over the landscape. Everybody asked me, well, what’s my outlook for onshore in the U.S., and I can go by CapEx summaries that I read. It — today, it still is very uncertain. And some of you may say, “Well, how can that be?” Well, the bottom line is a lot of the clients that are — that we have out there today, and I’m talking especially on the operator side, these people are really struggling to generate free cash flow. You read about it, you see the indebtedness that they have. And they’re really trying to balance that cash coming in with what they can spend. Many of them are underwater. Many of them are leveraged 3 and 4x. Many of them have seen their share price fall to pennies, and all that is going to have effect on the amount of oilfield service activity going on in North America.

We’re — we think right now, according to most results, North America onshore is going to be down somewhere between 10% and 15%, but that was based on a WTI price that started with a 5. So these are just kind of some things, again, from Spears that talks about it. We’ve seen major oilfield service companies, like Halliburton and Schlumberger, take the torch to pressure pumping equipment. They’re not doing that if they thought the market was going to go to the moon. And so you are seeing a — let’s call it, maybe a normalization of North American onshore business.

On the offshore segment, we’re pretty positive on the offshore. Well, here’s more onshore stuff. But we are positive on the offshore play, both in the U.S. and internationally. But getting to this, there’s some data out there talking about Tier 1 acreage. When it comes to these shale plays, operators are still very much — there is a lot of science, but there’s still also a little art to this as well. And so that’s why you see changes and thought processes on integrated gun news, what size of integrated gun, how many charges are going into these guns. There’s still a moving target for a lot of these areas. The shale business is not going away, it’s just going to be different.

International markets, we see — like everybody else, we see upticks in the international activity. Our Asia Pac business did very, very well last year, primarily due to activity in the Middle East. One of the things that I wanted to highlight on the Hunting Titan side was we had a record year in international sales with that business unit. So it’s still a small portion of the total, but it was up more than 50% year-over-year.

Some more operations here on North America. RTI, we made that acquisition quite a few months ago. We took a company that was basically orphaned from its owners. We now have let the marketplace know we’re alive. We’re open for business. The $11 million mentioned in the Gulf of Mexico, that was orders just booked year-to-date. So we think that Dane Tipton and the team there have done a very, very good job of getting that product line, that brand back out in the marketplace, giving the customers the security that Hunting now owns it. In that way, hey, we’re not going out of business. We’re here for the long haul.

The acquisition of Enpro, I got a few more slides about that that we’ll talk about later. AMG business has been performing very, very well. We see that as not stopping and continuing to grow. One interesting point on the AMG business, we talk about on electronics getting aerospace, military, medical certification, which is one of the things Mike Blehm and his team have worked hard to do, we have that now. We’re actually supplying kit for medical tools as we speak.

But on the Dearborn facility, actually, last year, 47% of the business there was non-oil and gas. So Elon Musk and SpaceX, the defense business that we do, the aerospace business, has been a great contributor to that, and we don’t see any signs of that letting up.

As we mentioned, more on North America. Canada is still depressed. The story this week that — or last week, the tech resources walked away from their $20 billion oil sands project because of lack of clarity from the federal government up there. That’s a big negative for the Canadian market. And I think people in Alberta right now are pretty much — pretty depressed. I think unemployment is the highest it’s been in Alberta in a number of years, and a lot of this is self-inflicted. So we’ll stay tuned and see what happens there.

Canada, for us, we have got out of the OCTG business as far as pipe distribution goes. We’re trying to do only premium connections up there and work with other distributors where they’re holding the cost of capital in the pipe, and the Titan business up there is actually generating profits and is pretty strong. And we use the Canadian operation as a manufacturing base to support that business up there.

Subsea, somebody made a comment, “Oh, I didn’t know you were in the offshore and all that.” So it’s a reminder that there is more to the company than Hunting Titan. And offshore, as I mentioned, Hunting got its start in the offshore market years and years ago. We now have 3 components of our offshore portfolio. Those businesses are going to expand. Offshore is going to expand.

Evercore came out just a week ago and said, in January, as the trend goes, in January, I think, was the highest rig booking month in years with something like 98 years’ worth of recontracts let in January for offshore operators.

Companies know that in shale — shale’s going to be around and be fine, but it is a treadmill. It’s a constant investment. And when you look at the shale plays versus some of these offshore plays and people like Hess and Exxon have highlighted this with what’s going on in Guyana, this is a no-brainer to put money into these deepwater offshore plays. The wells last a long, long time, they produce large, large volumes, and it’s just — they just don’t have that treadmill effect. I think the comment from Hess was they could produce in 10 wells in Guyana what it would take 1,500 wells in North Dakota to produce, kind of the equivalent and the spend. So we’re big believers in that marketplace.

Subsea. I’m basically going to go over and just touch on the 3 businesses are — again, we’ve been in the Subsea business, the offshore business for a long time. National Coupling was a company we bought in 2009, was specifically offshore — an offshore business. Company has performed well, had a great year last year. It should have a very good year this year. These are our clients, they are people like the Oceaneerings, the FMCs, the Dril-Quips, the Schlumberger-Camerons, those type of guys. And it’s following the trend for offshore work.

The second one we talked about, just another slide again on the RTI, titanium has lots of advantages. It has big weight advantages. The other thing that talks about that we really highlight on here is for these titanium products, they can actually park these on the floor of the Gulf of Mexico, and it really reduces the cost of installation. When you’re looking at installation boats and cranes and things like that, you can have a lot more flexibility with completing your project with these products. And again, they’ve been proven forever. There — it’s a great team. We’re so happy to have them on board and just look for that business getting back to life, and they get — if they get to half of what it used to be, it’s a big home run for us.

Just another slide there on titanium, you’ve seen it in our earlier presentations. And then the newest one from Enpro. I mentioned earlier, I’m very, very pleased to have made this acquisition. The Enpro people have been just a joy to work with. We’re excited to bring them on the team. This allows us to add another platform, add another bit of technology and patents to it as good margin products and lots of growth opportunities. And there’s a number of different product lines that this company had. The main one is the FAM product, and that is the product — the Flow Access Module.

That product, the #1 thing to it, and I’ll go to the next slide, it allows operators to get first oil quicker. It allows people to — I don’t want to say dumb down, but you don’t have to fine-tune your Christmas tree design and all if you have this product. You can install it into the jumpers, which are those lines that you see in the picture up there, and it allows access to modify whatever you need to do to modify your operation for the well conditions that may change later on or you might find out later on that, “Hey, we needed to do this. This chemical injection issue has to be handled. This metering issue has to be handled.”

But the key with these economics offshore is getting first oil quicker. You — the project — some of these projects, when I look back in the earlier Gulf of Mexico days, and my age is showing, it was a 10-year timetable from first — from finding the field to first oil, and that’s just way, way too long. That’s a lifetime for any of us in the oil patch.

The graphs in the right are — very much show you in picture how that can be cut in sometimes to half, and it’s worked extremely well. The client base is excellent. It’s people like BP, Eni, LLOG, Kosmos, very good customer base.

The intellectual property for the business came from a team that has grown up and been leaders in the offshore marketplace. Ian Donald and his team, many, many years in the industry, they’re all extremely experienced, and there are a lot of smart guys that sit there and say, “How can we solve our clients’ problems, and again, help them ring the cash register quicker?”

Just for my international overviews. Our Jindal SAW arrangement is up and running. Daniel Tan from our Asia Pac business unit manages that relationship. We have orders in place already for tubing in India. We expect that to accelerate. There’s quite a few big tenders that we’ve been on right now with Jindal SAW. So we’re looking forward to that continuing to grow.

The electronics agreement, we mentioned that that affects the Titan business, especially benefits us in the Middle East with those tools coming out of Well-sun. I mentioned earlier about the Netherlands business. The Aberdeen market appears to be stable right now. And then to the right, we just give a couple more comments on Subsea that I’ve talked about already. Pressure control business intake has improved in places like, I believe, in Africa and in the Middle East. OCTG, we’ve talked about.

And then the case — the summary case goes back. There is — you’re going to be hard-stretched to find peers of ours that are sitting in a greater position as we are right now. The balance sheet is excellent. The cash generation is excellent. You can go through all of that list up there from the equipment and the facilities being world-class, the IP that we have within all of our product lines and we continue to develop the technology and patents going forward, and where we’re sitting at as far as now doing things like share buyback and increasing our dividend. So I’m very positive on the company, very bullish on our future. I think there is a lot of uncertainty going forward, but there’s nobody better prepared, I think, to handle it.

And with that, and I don’t read — Peter, do you want to talk any on this? You didn’t want to go into a detail on IFRS? I’m shocked. Anyhow, we’ll go throw it open to any questions. Mick?

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Questions and Answers

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Tarryn Riley, Hunting PLC – Head of IR [1]

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If you could say your name first and your company before asking the question.

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Michael Brennan Pickup, Barclays Bank PLC, Research Division – MD & Senior European Oilfield Services Analyst [2]

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It’s Mick Pickup here at Barclays. Two questions, if I may. Firstly, on Titan, obviously, we’ve seen your competitors introducing competing products to H-2. So can you talk about acceptance of H-2, market share dynamics you’re seeing at the higher end of the market?

And secondly, on the U.S. business, you talk a good story about Subsea and OCTG under a U.S. business that’s under pressure next year. How are you seeing the demand for your couplings into 2020? And is it enough to offset demand that may be weaker at gross level?

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Arthur James Johnson, Hunting PLC – CEO & Director [3]

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Okay. On the first question, the H-2 gun has been introduced, been tested in the marketplace, not taking off. Like, neither is some of — I think of our competitors’ smaller guns, and I think they commented on the same thing. It’s almost like we all invented a product we were told by end users and customers, “This is what we would like to do. We want smaller guns, more intensities on shots, blah, blah, blah.” We designed it. We worked hard on and tested it.

I — it’s a product that will get legs underneath it. It hasn’t yet, and part of it comes down to strictly cost. It’s actually — when you look at a per-foot basis, that’s going to be the more costly solution out there. And right now, we just haven’t seen the momentum in there, Mick.

On the U.S. businesses, the — we see the connection business in the U.S. being strong throughout the year. Our — as I mentioned, the onshore business has changed with some of the dynamics relative to distribution in the U.S. That benefits us. We’re happy about that. We have fine-tuned our manufacturing at Ameriport. As Peter said, many of you were there. We added another threading line. We feel pretty bullish on that segment of the business and all of our U.S. segments of the business. Probably the only one we don’t is Drilling Tools. And it’s not — there’s nothing that management has done or any issue other than it is really directly related to rig count, and right now, pricing in that segment is just very, very bad.

But if you’re asking me, can we make up, can this do, I don’t know yet. I know when — I should have said this earlier, I know, for example, on Hunting Titan because I’ll answer this before I get the question. We focus that business on our technology, things like the H-1, the H-2, the ESUB, the other, this new setting tools that we’ve brought out. We focus on technology.

We also defended our market share last year. We did not lose market share. We kept our #1 position in the market, and we are going to do — we did some strategic pricing to make sure that happened in a very uncertain era right now. We’re not about to see your plants go down and shut down to have no throughput in them. The issue is, I think, in today’s market, the business — the pricing has stabilized. I’m hoping that’s the case that we don’t have people doing foolish things out there.

One of the interesting anecdotes that has come out in the last week to 10 days, on the conventional gun side of the business, there’s been a number of people sourcing directly from third-party Chinese unknown suppliers. And we’re getting calls now, “Hey, can you sell us some guns? Hey, you — do you have product?” We have not been affected or had supply chain issues. We did source some small guns from China. But quickly on, a lot of that’s been done in Canada, Mexico and the U.S. right now.

So for those people that were not long-term clients for us, you’re at the back of the line right now. And I’m hoping that one of the positives on this coronavirus issue in supply chain is you will see a firming and increasing in pricing on the commodity side of the business, the conventional side.

Kevin?

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Kevin Roger, Kepler Cheuvreux, Research Division – Research Analyst [4]

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Kevin Roger from Kepler Cheuvreux. One question on Titan International, please, because you mentioned the increase in ’19. Saudi Arabia has announced recently its shared revolution or so. They invest something like $110 billion. Is it an opportunity for Titan International? Or it would be a locked market? Or…

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Arthur James Johnson, Hunting PLC – CEO & Director [5]

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No, I think it’ll — I think that will be — that’s a good question. I think there will be opportunities for us. Our Titan International business went from about $14 million in ’18 to $24 million in ’19. It was driven by sales in places like Argentina, Colombia, Mexico, and I’m talking ex Canada. So it was going to the Middle East. It was in the Thailand and those type of places.

The bulk of the international business is still managed by the — at least the 2 big guys, which is Halliburton and Schlumberger. That’s where the bulk of their kit goes. Their — they make charges and their charges go. But as that business expands, that opens up opportunities for us. It’s why we’ve continued with our presence in Dubai. We sold our Thru-Tubing business, but we’re still there. We’re still making sales calls throughout the Asia Pac region on the Hunting Titan business. And I think, if anything, that business will be up next year — or this year, I’m sorry.

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Sahar Islam, Goldman Sachs Group Inc., Research Division – Analyst [6]

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Sahar Islam from Goldman Sachs. Two questions, please. Firstly, just M&A seems like it’s in focus. You obviously have the balance sheet to do it. Should we expect more bolt-ons? Or could you do something bigger and more strategic? And then secondly, just a follow-up on Mick’s question on the competitive dynamics. We heard a lot last year about preloaded charges. Has that been a trend that has continued? And has that changed the competitive landscape at all currently?

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Arthur James Johnson, Hunting PLC – CEO & Director [7]

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First question is the M&A front is totally unpredictable. We didn’t know 9 months ago we were going to be getting Enpro. We didn’t — you just don’t know. Do we want to make more? The answer is yes, when they can tick all the boxes we’re looking at as far as proprietary technology, maybe a geographic — special geographic strength somewhere. We really — we are not going to strain our balance sheet. I’m not saying that there won’t be — there couldn’t be a big revolutionary deal. But right now, I don’t know what that would be, and there’s nothing on the horizon.

We still like areas like subsea. We still like areas like completion equipment. So we’re always looking. And the good thing is all the bankers and all the people selling businesses know we can write a check and have a good balance sheet. And so we get to see a lot of opportunities that come by.

The problem has been the level of private equity ownership in these businesses, the fact that many of them are so underwater on investments they made in 2013, 2014, and there’s still a massive gap between buyer and seller.

On the Titan side, what was — tender your question again on…

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Peter Rose, Hunting PLC – Finance Director & Director [8]

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Preloaded.

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Sahar Islam, Goldman Sachs Group Inc., Research Division – Analyst [9]

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Preloaded charges.

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Arthur James Johnson, Hunting PLC – CEO & Director [10]

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Oh, the preloaded charges. That, we think, is — it is going to become a more — a larger part of our business. And we actually are selling — we are now selling preloaded, fully loaded guns, shipping them out of our Pampa facility and supplying clients with that if they want to.

I think it will continue to be an area that expands. I don’t know if it’s — I don’t know if we’re adding sales or just complementing any existing sales right now by doing that because of just the unsure nature of the business, but we are doing a factory-loaded product and sending it out now.

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Vladimir Maximovich Sergievskii, BofA Merrill Lynch, Research Division – Research Analyst [11]

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Vlad Sergievskii, Bank of America. Two questions and mainly on your international part. First of all, what your order books are telling you in terms of a direction of travel for businesses outside U.S.? Where are those books compared to where they were 12 months ago, 6 months ago? Also what sort of visibility you have on direction of revenues in 2020? Or it’s too early to say in the year?

And lastly, on profitability on the international side as well. I mean obviously, you had nice revenue growth last year, with profits moving in the right direction but still a relatively small component of the group. What could change that? Is it like more work you need to absorb costs? Is it different product mix?

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Arthur James Johnson, Hunting PLC – CEO & Director [12]

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So international, in general, is all moving in the right direction for us. We see it continuing to expand year-over-year. The big part of our international business is OCTG sales, and it really has been the expansion of international offshore business doing that and adding more opportunities to us. We picked up a number of nice frame contracts in the Middle East. I don’t want to talk any names right now, but some very, very good business there, but that’s — the bulk of the business is OCTG.

The Hunting Titan business, another big segment, as I mentioned the numbers earlier, that’s really a hit-and-miss business that you don’t know. I don’t know next month what’s going to happen with that. But one of the things that’s going to further enhance our business for — I think, for Hunting Titan internationally, the second half of the year is going to be the completion of our det cord facility and our ability to supply det cord in the international markets, where today, we’ve been walked out of many tenders because we’ve either had to go to a competitor to buy det cord or we couldn’t get the delivery we needed from one of our existing suppliers based on keeping our current U.S. suppliers stocked up.

As far as visibility goes, there’s not a lot of visibility. I don’t — we don’t have real long-term contracts. On things like our Subsea business, we follow the trees. So a lot of that — yes, a lot of our Subsea business goes internationally. We don’t necessarily know it when the purchase order comes in because you’re shipping at an FOB to FMC someplace. But that trend is positive and followed it — follow the orders for Subsea trees, that’s going to be a good indicator for us, again, internationally.

On the AMG side, a lot of that business is actually international. And that is people like the Halliburtons and Schlumbergers and Bakers replacing kit or buying new kit and new technology, and we’re making that product for them. And I can’t put a dollar figure on it, but as that trend internationally goes, it’s usually a less commoditized product, and I think pricing and margins are probably better.

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Erwan Kerouredan, RBC Capital Markets, Research Division – Assistant VP [13]

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So we understand that the margin for Titan is going — is not going to get anywhere. So can you just clarify one more time what’s driving this through 2020? And my second question is on the interesting growth prospects in — for advanced manufacturing in the U.S. division, especially non-oil and gas. I’m just curious, sorry, another question on margins, but like, what’s the kind of margin that you’re expecting from aerospace and medical devices, if you can?

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Arthur James Johnson, Hunting PLC – CEO & Director [14]

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I don’t really want to go into the margins on those businesses and publicly say that. There’s enough detail, I think, put into that. As you can see, the AMG business as a whole is going to follow that trend. The margins are — it’s similar to what we do in the oil and gas side, whether it’s oil or gas or defense or aviation, because of the level of precision and the lack of players that are into that that can make that kind of work and have those certifications with the military, the government and all those types of things.

On the Hunting Titan biz, I’m pretty confident that they should stay — that margins should stay where they’re at or improve. I think that we’ve had a couple of new entrants from people that are well established in the business that are really trying to gain a foothold into the business with their new integrated guns that have not seen or penetrated the market yet. One of the oldest stories in the oil patch is, if you want an order, as long as you know that 7 is less than 8, you might be able to get one a whole lot easier. And so with an industry where nobody wants to be second, the first thing that happens is there are price concessions made at times to either introduce new technology to be the first and try those type of things.

But I think going forward, we all need to focus on our technology, which is what we’re trying to focus on delivering value. One of the things that we don’t probably talk enough about at Hunting is the strength of our distribution network. And that, to me, has been — it’s almost been like the Amazon-factored Hunting. I think we outservice our competitors. All things equal, we’re there. We have it today. We have the distribution that nobody else can come close to touching, and that helps as well.

On the downside, we did take some issues last year and did some inventory, sold off some stuff that was higher cost as far as our overall yearly margin for Hunting Titan. But we also had some areas in whole, where we may have been hurt more than others. If I look year-over-year, we actually had — in Hunting Titan, we actually had sales increases in the Permian year-over-year. So I — and we know what the numbers are as far as our market share goes.

But one of the areas where we had — nobody else was even close to us in share, for example, was in the natural gas markets back in Appalachia, Haynesville, again, because of our distribution networks, and those businesses are horrible right now. I don’t know why anybody would drill a gas well today. But that has affected — people don’t talk enough about that. The whole North American play for years and years and years, it was dominated by natural gas drilling. And that kit is now being shut down and people sent home. Did I answer your question?

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Erwan Kerouredan, RBC Capital Markets, Research Division – Assistant VP [15]

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It does. And that was Erwan from RBC, by the way.

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David Richard Edward Farrell, Crédit Suisse AG, Research Division – Research Analyst [16]

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David Farrell, Crédit Suisse. Just going back to the Enpro deal. I guess almost 10x EBITDA compared to you trading on sub-5x, that’s quite expensive. Could you talk through the benefits of in-housing the manufacturing there in terms of potential EBITDA uplift?

And my second question was around head count, kind of which direction do you see that going for perhaps a non-Titan business? Do you — can you kind of expand your revenue and activity internationally without putting more head count in?

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Arthur James Johnson, Hunting PLC – CEO & Director [17]

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We may have to add — I’ll answer that one first. We may have to do some head count expansion internationally. Today, the answer is I don’t have to. But we may do that for more offices or whatever. It will probably be a sales function more than anything else.

We actually — in January, we did — I’ve told many of you, we had a reduction in head count in the U.S. about — unfortunately, about 118 of our coworkers were let go in January. About 100 of those were in the Titan business unit through various locations there. So we took prudent measures, focused on our costs. Unfortunately, we had to scale down with some of those people. So that’s kind of answers that question.

On the Enpro side, the synergies right now, there are some small ones we looked at. We — but we really viewed that acquisition as paying a fair price for what we view as a technology company. This is not a commodity business, this is an early-stage company. We think the sky is — there’s a big sky, blue sky ahead of us with this product line.

And Ian Donald and the team and the private equity folks that were owner — part owners of that business, they were at a time where they were ready to harvest. We did not want to go through the hassle of an auction process, and so I think it was a win-win for all sides. There’s an earn-out function to this based on performance from the Enpro Group, which I think is a great way to go do an acquisition, and it’s just up — to buy something cheap today, it’s the old story, you get what you pay for. And sometimes, in cases when you’re out there, you’re going to have to pay the multiple that we did for an Enpro or you’re not going to get a deal done. And we’ve really viewed it as critical for us to expand our portfolio with technology, with patents on the books. And I just think that Enpro is going to be a home run for us.

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Mark Wilson, Jefferies LLC, Research Division – Oil and Gas Equity Analyst [18]

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Mark Wilson, Jefferies. Given where you’re trading, your valuation metrics compared to peers, what you’re prepared to pay in the market for M&A? Do you worry about acquisitions towards yourself? Or you being a takeout candidate?

And secondly, on that point, given the way you’re trading, can you just remind us what the U.K. listing gives you over a U.S. listing? And whether there’s any thoughts on that?

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Arthur James Johnson, Hunting PLC – CEO & Director [19]

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First of all, I’m not worried about those issues. It’ll be what it’ll be, and that’ll be something out of my control. If somebody wants to take a run at the company, there’s going to be a bunch of shareholders to satisfy. My job is to run the company the best I can, deliver value today and work to get that share price up, using our capital to pay dividends, increase dividends, the share buyback, trying to send a message that we do feel we’re extremely undervalued. But the what ifs on that, I can’t really comment on that.

What was the second question? I guess folks…

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Mark Wilson, Jefferies LLC, Research Division – Oil and Gas Equity Analyst [20]

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The U.K. listing.

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Arthur James Johnson, Hunting PLC – CEO & Director [21]

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Oh, the U.K. listing. No. London is our home base. The cost base is the reporting 4 times a year. Today, this isn’t the same stock markets that you had 10 years ago. The fluid nature of money and transactions today is much easier than what it was in the past. We have no thoughts about moving to New York or changing the listing right now. We are a U.K.-based oilfield service company. The bulk of our business is in the U.S., but that’s not unusual. But London is home. That’s where we’re staying.

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Mark Wilson, Jefferies LLC, Research Division – Oil and Gas Equity Analyst [22]

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Okay. And then like — to follow with an operational question. So that large fall in rig count in 2019 but relatively stable Titan business, is this also because of the efficiencies in drilling that keep coming through, so the actual footage that is being completed has continued to rise even as the rig count has fallen?

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Arthur James Johnson, Hunting PLC – CEO & Director [23]

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The footage has risen, the length of laterals has increased, but there still has been a big decline in activity. So it’s been — yes, they are more efficient, right? 800 rigs today is probably doing what 1,000 rigs was doing a few years ago, and that — those efficiencies are there. I think we’re at the end of that efficiency chain, to be honest with you. I think that there’s only so fast you can push things. They’ve got it out to a science. There’s limitations on length of laterals, whether it’s a lease issue, whether it’s the fact that you’re going to now have to start using tractors or heavier equipment. I think they’re there.

The science right now is more along how to get more oil or gas out of those rocks that you crack. And so that’s where there’s a lot of R&D going on. Am I doing enough water? Too much sand. How big are the holes? Do the holes need to be small? There’s all those things because we actually — we’ve actually looked at some investments on people that would do some analytic work, for example, on completions and found out that this — the amount of variables, and this is just unbelievable.

So I think there’s going to be a lot of still work on the completion side, and I think that the rig count mainly would drop because of the commodity price and the poor financial shape of our clients.

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Alexander Samuel Brooks, Canaccord Genuity Corp., Research Division – Analyst [24]

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It’s Alex Brooks from Canaccord, and I thought I might ask Peter a question. The — you quoted $40 million is the available cash today. And I don’t understand how you’re getting to that because you seem to have spent $63 million on the basis of what you talked. So can you help me…

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Peter Rose, Hunting PLC – Finance Director & Director [25]

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I was taking the year-end figure of $123 million, ignoring leases. I was just taking account of the unwind of creditors post year-end, gives you about $100 million. Take off $33 million. Take off the $10 million dividend. Take off the $8 million share buyback. Take off the $6 million shares for share awards. That gives you around about $40 million mark. That’s the pro forma as of now. It doesn’t take kind of any profits we make going forward or cash generated going forward.

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Tarryn Riley, Hunting PLC – Head of IR [26]

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Are there any further questions? Great.

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Arthur James Johnson, Hunting PLC – CEO & Director [27]

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Thank you all for your time.