REG - Hunting PLC - 2014 Full Year Results <Origin Href="QuoteRef">HTG.L</Origin> - Part 4
05/03/2015 07:01
- Part 4: For the preceding part double click ID:nRSE5858Gc
Unit 2014 2013 2012
Industry E&P spend1 $bn 679.5 642.1 617.0
US E&P spend1 $bn 196.1 179.2 141.0
Industry footage drilled2 m ft 877.5 819.7 818.1
US footage drilled2 m ft 405.0 369.2 367.2
Average oil price3 $/barrel 92.91 97.61 94.05
Average natural gas price3 $/mmBtu 4.26 3.73 2.83
Internal KPIs * Unit 2014 2013 2012
Revenue $m 1,386.5 1,293.6 1,265.4
EBITDA $m 269.8 244.0 240.7
Profit from operations $m 217.8 200.0 200.6
Operating margin % 16 15 16
Profit before tax $m 212.4 197.5 193.4
Diluted earnings per share cents 100.0 94.5 90.0
ROCE % 13 12 13
Capital investment $m 123.5 94.8 97.2
Free cash flow $m 182.3 145.6 137.1
* KPIs are calculated using underlying results for the year i.e. continuing before amortisation and exceptional items. Prior years have been restated for the designation of Gibson Shipbrokers as a discontinued operation. KPIs other than revenue are non-GAAP measures.
1 Source: Barclays Global 2015 Spending Outlook2 Source: Spears and Associates, Inc - Drilling and Production Outlook, December 2014 and January 20153 Source: Bloomberg
Performance Indicators
Supplementary indicators are used to provide additional information on the development, business performance and position
of the Group and its business segments. Performance measures are looked at for continuing operations on an underlying basis
and are regularly reviewed to ensure they remain appropriate and meaningful monitors of the Group's performance.
Unit 2014 2013**
Financial:
Gross profit* $m 443.9 394.7
Gross margin* % 32 31
Inventory days days 101 109
Trade receivable days days 67 61
Effective tax rate* % 27 26
Dividend per share - declared in respect of the year cents 31.0 29.5
Year end net debt $m 131.0 205.8
Gearing ratio % 9 15
Health and Safety:
Year end employees 4,003 3,821
Injuries to employees:
Number of recordable incidents 81 63
Incident rate - based on OSHA method 1.92 1.54
Average rig count1:
US 1,862 1,762
Canada 382 353
Far East, Central Asia and China 1,506 1,493
EMEA (Europe, Middle East and Africa) 662 612
Other 1,385 1,374
Total 5,797 5,594
Wells drilled1:
US 48,500 44,917
Canada 11,517 10,878
Far East, Central Asia and China 28,814 28,238
EMEA (Europe, Middle East and Africa) 6,413 5,922
Other 12,474 12,201
Total 107,718 102,156
Footage drilled1 (millions of feet):
US m ft 405.0 369.2
Canada m ft 84.9 74.8
Far East, Central Asia and China m ft 223.6 218.1
EMEA (Europe, Middle East and Africa) m ft 56.7 52.0
Other m ft 107.3 105.6
Total m ft 877.5 819.7
1. Source: Spears and Associates, Inc - Drilling and Production Outlook, December 2014 and January 2015.
* Continuing operations before amortisation and exceptional items.
** Restated for the designation of Gibson Shipbrokers as a discontinued operation.
Principal risks and uncertainties
In its day-to-day operations, the group is exposed to a wide variety of commercial, operational and financial risks and the
board has established an internal control process to manage, monitor and review these risks. This process is described in
more detail in the corporate governance report. Group risks are formally reviewed by the Board at least three times a year
and are discussed at every Board meeting.
The group's principal risks are those that the Board considers could have a major impact on the operational, financial and
reported performance of the business and are therefore of heightened importance.
Risks specific to the nature of Hunting group businesses
Raw material and commodity prices
Hunting is exposed to the consequences of fluctuations in the price of oil and gas as the supply and demand for energy is a
key driver of demand for Hunting's products.
Oil and gas exploration companies may reduce or curtail operations if oil and gas prices fall to levels where exploration
and production activities become uneconomical. Therefore, the continuation of prices above these levels is, in part,
critical to the industry and the financial viability of the Hunting Group.
Controls and Actions
Working capital and, in particular, inventory levels are closely managed to ensure the Group maintains flexibility to meet
changes in demand.
The Group maintains three operating platforms: the Well Construction and Well Completion segments expect to benefit when
exploration companies are active in their drilling operations and the Well Intervention segment benefits when wells are
subject to maintenance or require testing or repair work.
Movement in Year
The decline in global oil and gas prices during 2014 continues to be closely monitored by the Group. Regular contact with
customers provides management with the ability to assess the potential impact on demand for the Group's products and
services and for management to respond accordingly.
Shale drilling
The Group provides products to the oil and gas shale drilling industry. Although it is now an established practice in the
US, significant sections of the public continue to view this activity as high risk and any consequent moratorium or new
laws may unfavourably impact the industry.
Controls and Actions
The Board monitors public and political opinion and maintains an awareness of the potential for changes to legislation
especially with regard to the US where the Group is mainly exposed.
The Group maintains a diverse portfolio of products that extends beyond supplying the shale drilling industry, including
the supplies for conventional drilling and the manufacture of high precision and advanced technology components for both
the onshore and offshore markets.
Many of the Group's facilities have the flexibility to reconfigure their manufacturing processes to meet with a change in
the pattern of demand.
Movement in Year
The Board believes that US consumers remain aware of the relative benefits and risks associated with shale drilling and
that the public in general remains in favour of the activity.
Following the recent fall in oil and gas prices, the Board expects to see reduced levels of shale drilling in the US.
Appropriate measures are being implemented to address the consequential reduction in demand for products and services
supplied to the shale industry.
Competition
The Group's ability to win and maintain contracts is defined by its relationships with its key customers and its ability to
provide a quality of product that is superior to that of its competitors. A material reduction in orders from a major
customer may arise for a variety of reasons including from direct competitive action or through competitors taking
advantage of a weakening customer relationship, which may be due to a contractual dispute, a business consolidation or a
change in Group strategy.
Controls and Actions
Senior management maintains close relationships with key customers and seeks to maintain the highest level of service to
preserve Hunting's reputation for quality.
The Board is committed to strengthening product quality in order to stay ahead of increasing competition. A new product
testing facility, new lean manufacturing processes and increased spend on research and development are all expected to
raise the Group's competitive position and reputation for supplying superior products and services.
The Group has a wide customer base that includes many of the major oil and gas service providers.
Movement in Year
The Board believes that the risks associated with competitor action and the loss of key customers in general increased
during 2014 and going into 2015 particularly with the deteriorating market environment.
Acquisitions and Capital Investment
Acquisitions and capital investment form the basis of the Group's strategy of expansion and development. Such activity
incurs the potential for business disruption, management distraction, interruption to IT systems and the consequent poor
financial returns that would emanate from these issues if not controlled properly.
Controls and Actions
The Board reviews and challenges each potential acquisition prior to approval and frequently engages consultants to provide
expert analysis of the key issues.
The success of each acquisition or major capital investment programme is assessed through a post-acquisition/investment
appraisal process that provides a learning platform for future business combinations.
The Board and senior management follow a rigorous process of approving, managing and monitoring capital investments along
with planning for contingencies. Capital investment above discretionary limits requires Board approval prior to
commitment.
Movement in Year
During 2014 the Board remained focused on organic expansion and consequently the Group's exposure to the risks associated
with capital investment were unchanged during the year.
Product quality and reliability
The Group has an established reputation for producing a range of high quality components capable of operating within high
pressure, high temperature environments.
A failure of any one of these components could adversely impact the Group's reputation and demand for the Group's range of
products and services.
Controls and Actions
Quality assurance standards are monitored, measured and regulated within the Group under the authority of a Quality
Assurance Director, who reports directly to the Chief Executive.
Movement in Year
Internal procedures continue to be enhanced to mitigate the risk of a product failure materially impacting the Group.
Regional Training Centres are now established in Houston and Singapore, where product quality training is a key agenda
item.
Risks common to international manufacturing businesses
Economic and geopolitics
The economic and political environments in which the Group operates have the potential to impact demand for energy or
disrupt business activity and therefore may affect output of the Group's products and services.
The Group's principal presence remains located in the stable regions of North America and the UK. However the growing
presence in the Asia Pacific region has proportionately increased the Group's exposure to the emerging markets in that part
of the world. The Group has also commenced its expansion into sub-Sahara Africa and as part of this process has policies
and procedures in place to manage and monitor the economic and geopolitical risk profile in that region.
The Group has limited exposure to the Eurozone and Ukraine/Russia.
Controls and Actions
Management and the Board closely monitor projected economic trends in order to match capacity to regional demand.
Areas exposed to high geopolitical risk are noted by the Board and are also monitored closely.
Movement in Year
Notwithstanding the Group's strongest presence remaining in North America, the risk of exposure to geopolitical uncertainty
has increased during the year with the current global expansion programme under way.
Key executives
The Group is highly reliant on the continued service of its key executives and senior management, who possess commercial,
engineering, technical and financial skills that are critical to the success of the Group.
Controls and Actions
Remuneration packages are regularly reviewed to ensure that key executives are remunerated in line with market rates.
External consultants are engaged to provide guidance on best practice.
Senior management regularly review the availability of the necessary skills within the Group and seeks to engage suitable
staff where they feel there is vulnerability.
The Board regards succession planning as an important factor in ensuring the longer-term success of the Group. Succession
planning is an annual topic of discussion at Board meetings and senior management is held responsible for ensuring this is
addressed throughout the organisation.
Movement in Year
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