Hunting Annual Report 2016

FY2016 Annual Report · Hunting

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TECHNOLOGY
TO DR IVE GR OWTH

2 01 6 ANNUAL REPORT
A ND ACCO UNTS

HUNTING PLC
AT A G LA NCE

HUNTING IS A KE Y SUPPLIER TO THE
UPSTRE A M OIL AND GA S INDUSTRY.

OUR STR ATEGY IS TO M ANUFAC TURE PRODUC TS
AND DELIVER SERVICES TO OUR CUSTOMER S
WHERE VER IN THE WORLD THE Y ARE OPER ATING.

HUNTING’S PRODUC T OFFERING EX TENDS ACROSS
THE LIFEC YCLE OF AN OIL AND GA S WELL,
AND THIS FOCUS ALLOWS US TO CRE ATE, DISTRIBUTE
AND SUSTAIN VALUE FOR OUR SHAREHOLDER S.

HUNTING IS QUOTED ON THE LONDON
STOCK EXCHANGE AND IS A CONSTITUENT
OF THE F TSE 250 INDEX.

SEE OUR BUSINESS MODEL ON PAGES 12 TO 27.

OPER ATING
SITES

DISTRIBUTION
CENTRES

COUNTRIES OF
OPER ATION

428

PATENTS

2,107

EMPLOYEES

0.6 %

M ANUFAC TURING
REJEC T R ATE

CONTENTS

HUNTING’S PERFOR M ANCE IN 2016
CONTINUED TO BE IMPAC TED BY
THE DOWNTURN IN THE GLOBAL
ENERGY M ARKE T.

DESPITE THIS, HUNTING HA S
M AINTAINED ITS CORE C APABILITIES
ACROSS ALL GEOGR APHIC REGIONS
TO BE RE ADY FOR A M ARKE T
RECOVERY.

STR ATEGIC REPORT

CORPOR ATE GOVERNANCE

2 Operational and financial summary
4 Chairman’s statement
6 Chief Executive’s review and outlook
9 Market review
12 Our business model
28 Our business strategy
30 Risk management
40 Key performance indicators
42 Group performance and development
48 Group funding and position at year end

50 Board of Directors
52 Corporate governance report
56 Directors’ report
57 Audit committee report
61 Remuneration committee report
63 Directors’ remuneration policy
72 Annual report on remuneration

FINANCIAL STATEMENTS

OTHER INFOR M ATION

80 Independent auditors’ report
87 Consolidated income statement
88 Consolidated statement of comprehensive income
89 Consolidated balance sheet
90 Consolidated statement of changes in equity
91 Consolidated statement of cash flows
92 Notes to the consolidated financial statements
132 Company balance sheet
133 Company statement of changes in equity
134 Company statement of cash flows
135 Notes to the Company financial statements

141 Non-GAAP measures
146 Financial record
147 Shareholder and statutory information
150 Glossary
152 Professional advisers

Hunting PLC
2016 Annual Report and Accounts
01

OPER ATIONAL AND
FINANCIAL SUMM ARY

OPER ATIONAL

Facility expansion programme now completed:
• commissioning of Ameriport, US, facility in the year; and
• global operational footprint of 3.1m sq ft.

Cost cutting measures continued during the year
and include:
• 24% reduction in headcount to 2,107 since 31 December

2015; and

New product lines continue to be developed and rolled
out to customers to lower their operational costs and
increase project efficiencies including:
• further commercialisation of the H-1 Perforating System,

which is now being used by major oil companies in the US;

• broadening of the WEDGE-LOCK™ premium connection

family to include 14” and 16” variants for commercialisation in
2017; and

• introduction of EQUAfracTM charge technology, providing

• 3 manufacturing facilities and 10 distribution centres

uniform hole technology in the wellbore.

decommissioned during 2016.

OPER ATIONAL DATA

M ARKE T DATA

G L O B A L F A C I L I T Y F O O T P R I N T
( s q f t m )

A V E R A G E W T I C R U D E O I L P R I C E
( $ p e r b a r r e l )

2016

2015

2014

2016

2015

2014

E M P L O Y E E S Y E A R E N D

3.1

3.2

2.8

2,107

2,784

4,003

2016

2015

2014

Source: Bloomberg

43.46

48.01

92.91

GLOBAL DRILLING AND PRODUCTION
EXPENDITURE ($bn)

2016

2015

2014

Source: Spears & Associates

199.9

296.1

408.2

Hunting PLC
2016 Annual Report and Accounts
02

FINANCIAL

Focus on debt reduction with initiatives including:
• $61.7m reduction in inventories since 31 December 2015;
• $31.3m received in net tax refunds; and
• $17.2m capital investment made in year – limited to contracted

or essential spend.

Borrowing facilities’ terms revised:
• profit-based covenants for the committed bank facilities

suspended up to and including 30 June 2018 bank covenant
test date;

• committed facilities reduced from $350m to $200m;
• drawings under the bank facilities secured on assets;
• capping of annual capital investment; and
• no dividend payments until the end of the Suspension Period.

Placing of 14.6m new Ordinary shares raising $83.9m
net of transaction expenses completed:
• proceeds used to reduce borrowings and increase financial

flexibility; and

• placing price of 485.0 pence per share.

Net debt at year end reduced to $1.9m:
• achieved by working capital reduction and equity raise.

Revenue of $455.8m recorded in the year:
• declining in line with average US rig count data.

Loss from operations:
• underlying loss of $92.2m; and
• reported loss of $140.7m.

Diluted loss per share:
• underlying diluted loss per share of 45.3 cents; and
• reported diluted loss per share of 76.8 cents.

Underlying – results for the year as reported under IFRS adjusted
for the amortisation of acquired intangible assets and exceptional items.

Reported – results for the year under IFRS.

FINANCIAL OVERVIE W

R E V E NU E

$455.8m

2015 – $810.5m

UN D E R LYING LO S S FRO M
O PE R ATI ON S*

$92.2m

2015 – $16.4m underlying profit

N E T D E B T

$1.9m

2015 – $110.5m

N E T PRO C E E D S
O F E QUIT Y PL ACING

$83.9m

* Non-GAAP measure (“NGM”) (see pages 141 to 145).

Hunting PLC
2016 Annual Report and Accounts
03

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONCHAIR M AN’S STATEMENT

R I C H A R D H U N T I N G , C . B . E .
C H A I R M A N

“OUR STR ATEGY OF RE TAINING CORE
OPER ATING C APABILITIES IN ANTICIPATION
OF A RECOVERY WA S TESTED DURING
THE YE AR, BUT WE INTEND TO SHOW
THAT IT WA S THE RIGHT THING TO DO.”

Hunting PLC
2016 Annual Report and Accounts
04

Market Backdrop
The year was one of the most difficult in Hunting’s long history
due to factors outside the control of management. Fortunately,
these factors are now showing signs of reversing and the
hydrocarbon glut, which caused the problem, is slowly being
reined in.

Our strategy of retaining core operating capabilities in anticipation
of a recovery was tested during the year, but we intend to show
that it was the right thing to do.

Financial Performance
Financial performance on most metrics was, unsurprisingly,
dismal. The Group’s underlying loss before tax* was $93.2m
(2015 – $9.4m profit), with the reported loss before tax being
$144.2m (2015 – $289.2m), reflecting the severity of the energy
downturn, driven by the low price of crude oil recorded
throughout 2016.

However, we had decided early on that control of cash was
crucial and our performance in this area was, we believe,
creditable. Working capital has been tightly managed during the
year, with inventories reducing significantly to generate cash.

Bank Facility Terms and Equity Placing
Although we had low borrowings at the beginning of the crisis,
it became clear towards mid-year that we would not be able to
comply with those bank covenants relating to earnings, so we
entered negotiations with our bank lending group to ensure
that sufficient lines of credit remained available to us. These
negotiations completed in July, with more appropriate balance
sheet based covenants and conditions put in place. One of
the conditions of the revised bank facility was that no dividends
should be paid to shareholders until we could reinstate
an earnings covenant regime. This condition has caused grief
to some of our loyal shareholders, and we will start paying
dividends again as soon as we sensibly can.

In order to ensure that we weathered the storm in good shape,
we sought further funding from shareholders in the form of an
equity placing in October. This was well received and taken up in
full, at a low discount to the prevailing share price. The resulting
cash inflow has ensured a very low borrowings figure at the year
end, allowing us to respond rapidly as working capital builds up
during the recovery.

P R O D U C T T E S T I N G O F P E R F O R AT I N G
S YS T E M S I N PA M PA , T E X A S .

Governance
Our governance arrangements have continued in good order.
The wise counsel of our compact Board, whose members are
unchanged from last year, has continued to be willingly given.

Finally, I wish to thank all of our employees for their stalwart
efforts in testing times. Thanks to them, we are in good shape
to take advantage of the pending recovery.

R I C H A R D H . H U N T I N G , C . B . E .
C H A I R M A N

2 March 2017

* Non-GAAP measure (“NGM”) (see pages 141 to 145).

Hunting PLC
2016 Annual Report and Accounts
05

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONCHIEF EXECUTIVE’S RE VIE W

D E N N I S P R O C T O R
C H I EF E X E C U T I V E

“A S HUNTING RE ACHED THE END OF THE YE AR,
SOME FR AGILE OP TIMISM RE TURNED TO THE M ARKE T.
A NUMBER OF M ARKE T COMMENTATOR S ARE
SPECUL ATING THAT THE ‘BOT TOM OF THE C YCLE’
HA S BEEN RE ACHED AND INVESTMENT LE VELS WILL
GROW THROUGHOUT THE YE AR AHE AD.”

Hunting PLC
2016 Annual Report and Accounts
06

Introduction
Hunting’s financial performance during 2016 reflects the poor
trading environment within the global oil and gas industry, driven
by a sustained low oil price. 2016 will be remembered not only
for the continued contraction in industry investment, which
started in 2014, but also for the loss of many valuable employees,
as companies across the oil and gas supply chain were forced
to respond to low activity and investment levels by reducing
headcount.

As Hunting reached the end of the year, some fragile optimism
returned to the market. On the back of slowly rising oil prices,
activity levels in the Permian basin, West Texas, US, steadily
improved in the second half of 2016. Market sentiment was
also supported by the production cuts announced by OPEC in
September. A number of market commentators are speculating
that the ‘bottom of the cycle’ has been reached and investment
levels will grow throughout the year ahead.

For Hunting, operations continue to be aligned with the short to
medium-term outlook for each business unit within the Group.
Hunting’s Perforating Systems business has reported increases
in demand, as the price of crude oil climbed from its low point in
February. This has led to increases in the number of shifts for
certain product lines, as activity levels grow in the US. The
Group’s Premium Connection business also benefited from key
customers who continued to drill in the Gulf of Mexico throughout
the year. Outside of the US, activity remains subdued and
therefore cost reduction measures continue to be enforced
across the Group’s operations.

The Board of Hunting continues to be cautious about the timing
of a Group-wide return to growth. However, with an enhanced
manufacturing footprint, the Company remains well equipped
and positioned to respond to an improving trading environment.

Market Summary
The price of WTI crude oil started 2016 at $37.04 per barrel
and ended the year at $53.72 per barrel, an increase of 45%.
The low point in the oil price of $26.21 per barrel was recorded
in February, which adversely impacted investment sentiment for
the remainder of the first half of the year, with the price averaging
$39.78 per barrel. During the second half of 2016, the average
WTI oil price increased to $47.11 per barrel.

US rig counts reached a low of 404 units in May as a direct
consequence of the decline in oil price. However, from this point
the rig count trended upwards, with the improving oil price,
to close the year at 658 units. From an international perspective,
where drilling is biased towards offshore activity, rig counts
declined 15% in the year to close at 929 active units.

Total industry investment declined from approximately $296.1 billion
in 2015 to $199.9 billion in 2016, a reduction of 32%, which led to
further decreases in equipment procurement by customers and the
consequent losses reported by the Group.

Operational Development
Hunting ended 2016 with core capabilities generally unchanged
from the start of the year, with 40 manufacturing facilities and
25 distribution centres, occupying 3.1m square feet (2015 – 3.2m
square feet).

Hunting’s high throughput premium connection facility at
Ameriport, US, was commissioned early in the year, concluding
Hunting’s investment programme in more efficient and modern
facilities. As the Group selectively rationalised its operations,
three manufacturing facilities and 10 distribution centres were
closed. Overall, this has led to only a marginal decrease in
operational capacity.

Throughout the year, the Group has remained focused on
developing new technologies and maintaining high-end services
for its customer base, to ensure projects can be completed at
lower cost or more efficiently, given the intense competitive
environment the industry has been experiencing during the
downturn. Hunting has successfully commercialised and secured
increasing sales of its H-1 Perforating System, with 3,796 units
used in the field during the year, including 3,030 systems being
used in the Permian basin by leading operators. The family of
WEDGE-LOCK™ connections has also been expanded, with
three new sizes being tested and certified during 2016 to add to
the existing connections in the product group. WEDGE-LOCK™
connections have become more attractive to customers
throughout the year as the product reduces casing wear, which
is an issue faced by operators when drilling highly deviated wells.

As the market downturn intensified during the early months of
the year, the Group reduced its headcount to lower its cost base,
with 2,107 employees at year end, a reduction of 24% since the
start of 2016. Annualised savings from headcount reductions in
the two years ending 31 December 2016 now exceed $100m.

Financial Summary
The key areas of focus for the management team during the
year were:

• maintaining the financial strength of the Group’s balance

sheet, ensuring adequate levels of funding remain in place
to manage through the downturn and provide flexibility to
respond to a market recovery; and

• continue to manage the cost base while maintaining the
capability to deliver finished product and respond to
customer demands.

The Group’s inventory levels have reduced during the year
to assist in the generation of cash. At 31 December 2016,
the Group recorded inventory of $259.7m (2015 – $331.2m),
a reduction of 22%.

Continuing operations:
Revenue
EBITDAi (loss)
(Loss) profit from operations
(Loss) profit before tax
(Loss) profit for the year
Discontinued operations:
Profit for the year
Total (loss) profit for the year
Diluted EPS – continuing operations (cents)

i. Non-GAAP Measure

Hunting PLC
2016 Annual Report and Accounts
07

Underlying

2016
$m

455.8
(48.9)
(92.2)
(93.2)
(73.3)

–
(73.3)
(45.3)

2015
$m

810.5
61.9
16.4
9.4
4.0

–
4.0
3.1

Reported

2016
$m

2015
$m

455.8
(60.7)
(140.7)
(144.2)
(121.3)

8.2
(113.1)
(76.8)

810.5
54.8
(282.2)
(289.2)
(231.4)

4.2
(227.2)
(156.1)

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONCHIEF EXECUTIVE’S RE VIE W
C ONTIN UED

Capital investment during the year was $17.2m (2015 – $81.1m),
reflecting the completion of Hunting’s facility investment
programme and to be compliant with the revised terms of the
Group’s revolving credit facility agreement, as noted below.

Following the trading losses recorded during the year, Hunting
renegotiated the covenants attached to the Group’s $350.0m
revolving credit facility. Revised terms for the Group’s bank
facilities were agreed on 20 July 2016, which included
suspending dividends, capping capital investment and reducing
the quantum of committed bank facilities to $200.0m. The
revised facility terms will be in place up to and including the
30 June 2018 bank covenant test date. As at 31 December 2016,
all covenants were covered with adequate headroom for the
Group’s medium-term funding requirements.

To provide additional balance sheet flexibility and to improve the
Group’s ability to react to the upturn, the Board elected to raise
equity capital from new and existing investors to increase
financial flexibility and reduce borrowings. On 31 October 2016,
the Company placed 14.6m new Ordinary shares, raising $83.9m
net of expenses, the proceeds of which significantly improved the
Group’s net debt position. All of these proactive measures have
contributed to a strong balance sheet at the year end, with net
debt of $1.9m (2015 – $110.5m) and net assets of $1,117.4m
(2015 – $1,168.1m).

Hunting’s revenues reduced 44% year-on-year to $455.8m
(2015 – $810.5m). This led to an underlying loss from continuing
operations of $92.2m (2015 – $16.4m profit) and an underlying
diluted loss per share of 45.3 cents (2015 – 3.1 cents earnings
per share).

In light of the tough trading conditions experienced in 2016,
the Group conducted impairment reviews as part of its preparation
of both the interim and year end accounts. In both cases, our
assessment of short to medium-term performance, based on
internal projections and those forecasts published by leading
market commentators, concluded that no impairments to goodwill,
property, plant and equipment (“PPE”) or intangible assets were
required to be recorded. In the prior year, impairments to goodwill,
PPE and intangible assets totalled $252.6m.

During the year, exceptional items impacting loss from continuing
operations totalled $15.3m, incorporating $12.2m of costs of
restructuring the Group’s operations (2015 – $7.1m) and a $3.1m
charge related to closure of the defined benefit pension section
of Hunting’s UK pension scheme (2015 – $nil).

Amortisation of acquired intangible assets for the year was
$33.2m (2015 – $38.9m).

Total charges for amortisation and exceptional items impacting
loss from continuing operations were $48.5m in the year
(2015 – $298.6m).

The reported loss from continuing operations was therefore
$140.7m (2015 – $282.2m) and the reported diluted loss per
share was 76.8 cents (2015 – 156.1 cents).

Outlook
Does the 2016 recovery in oil prices signal a recovery for the oil
service industry? The answer is simply yes – and no. More than
half of all the rigs added back to the US onshore count since it
troughed in May 2016, have gone to the Permian basin in West
Texas. Conversely, no drilling permits have been issued in the
Gulf of Mexico shelf for the past five months. Over 100 offshore
rigs sit idle worldwide and will most likely be cannibalised,
decommissioned or both. The global onshore rig count remains
50% below its 2014 peak.

Shale oil operators are bravely raising annual budgets to increase
activity in Texas, New Mexico, Oklahoma and North Dakota.
International oil companies such as ExxonMobil, Chevron,
Shell and BP are cautiously holding back spending at levels up
to 15% below 2016. At $50 per barrel of oil, both groups of E&P
companies in North America will spend in excess of $43 billion
($101 billion in 2016) more than they expect to receive from
operations. Each has a different perspective on the strength of
OPEC’s production commitment. Regardless, at current oil and
gas prices, US production will increase thus impacting OPEC
production decreases.

Offshore activity improvement will require more confidence in
OPEC production policy and higher oil prices. However, after two
years of declining offshore E&P budgets, a drastic decline in new
discoveries and continual depletion, the offshore recovery may
begin sooner than many anticipate.

Within the last 90 days, we have witnessed the following;

• our North Sea assets are now operating two shifts in Scotland
– three shifts in the Netherlands for the remainder of the year.
Much of the work is destined for US shale activity.

• the Hunting Electronics business has a current backlog which

exceeds total revenue for 2016.

• in China, our OCTG facility is fully booked through to

September of this year.

• the Marrero, Louisiana, threading facility has been and

remains a three shift operation primarily for three deepwater
projects in the Gulf of Mexico.

• Hunting Perforating Systems is faced with people and

capacity constraints due to shale operators overwhelming
acceptance of recently introduced technologies. The
increased activity is global, but predominantly in the
US and Canada. Price increases have been initiated.
• within the Advanced Manufacturing Group, order book

positions are strengthening, with expectations of continued
improvement throughout the year.

During the same period:

• Hunting Subsea is experiencing a slow erosion of

their backlog.

• our Well Intervention group remains a witness to dismal

competitor pricing and low volumes.

• south east Asia continues to experience low activity,

large inventory surpluses and excess capacity throughout
the region.

• margin pressure and surplus tools will challenge our Drilling

Tools group for the remainder of the year.

The past two years have been trying on industry personnel.
Once again, as with previous recoveries, manpower will become
a serious constraint. Hunting’s 20 person global management
team, who have an average 30 years of experience (most with
Hunting) will assist in the recovery of a decimated oil service
industry.

With stable oil and gas prices, the rising North American onshore
rig count drilling “super laterals” up to total measured depth of
30,000 feet and some opportunities for ultra-deep offshore wells,
Hunting’s prior capacity investment, technology development,
cost containment and strong balance sheet will provide
significant potential for improvement over 2016.

As 2017 progresses we will continue to keep the market informed
with regular updates on activity levels and trading results. To
predict the 2017 outturn at this stage remains difficult given the
number of variable factors which could impact our markets.

Hunting PLC
2016 Annual Report and Accounts
08

M ARKE T RE VIE W

GROWTH REMA INS PRED ICATE D ON GL OBA L
PRO DUC TION RE DU CING TO BR IN G C RU DE O IL
SUPP LY/DEMA ND BAC K IN TO BA L A NC E, C O UP LED
WITH AN INC REA SIN G OIL PRIC E A N D THE WORL D’S
GEO POLITICAL ENV IRON MEN T REM A INING S TA BL E.

Industry Spend
Given the low commodity price environment, the global oil and
gas industry has focused on maximising cash flows by reducing
capital investments by an estimated $208.3 billion since 2014,
which recorded nearly $408.2 billion spent across the industry,
declining to approximately $199.9 billion in 2016.

GLOBAL DRILLING AND PRODUCTION EXPENDITURE
($bn)

450

400

350

300

250

200

150

100

2012

2013

2014

2015

2016

North America
Central and South America
Europe
Africa

Middle East
China
Russia
Other

Source: Spears & Associates – Drilling and Production Outlook: December 2016

While the largest of the year-on-year cuts in capital investment
was in North America, all regions are estimated to have
declined between 6% (in the Middle East) and 46% (in the US),
which impacted drilling activity and associated margins for
all participants.

In the US, capital investment is estimated to have reduced in
2016 to $54.2 billion compared to over $101.1 billion committed
in 2015, reflecting both offshore and onshore projects being
deferred or cancelled. Expenditure on US offshore projects has
declined by an estimated 66% since 2014 to $4.6 billion in 2016,
while similar declines onshore have been estimated, with
expenditures totalling $49.7 billion in 2016 compared to $144.3
billion in 2014.

Conditions in the global oil and gas market during 2016 were a
continuation of those reported in 2015, where low commodity
prices drove further declines in capital investment across the
energy industry, leading to low rig count and drilling activity.
This continued decline in investment, particularly seen in North
America where a significant number of Hunting’s operations are
located, resulted in lower volumes of products manufactured and
the losses reported by the Group, as summarised in the Chief
Executive’s Review on pages 6 to 8 and the Group Performance
and Development Summary on pages 42 to 47.

Throughout the second half of 2016, key market indicators
showed signs of recovery, with specific regions of the US
increasing activity levels. This improvement, driven by a more
stable oil price particularly in the final quarter of 2016, has
given rise to some optimism within the industry. Some market
commentators suggest 2017 will see increased levels of
global capital investment, however, the focus of this spend
is likely to be on low cost onshore basins in the US or on well
completion activities where the well construction cost has
already been expensed.

Commodity Prices
The price of WTI crude oil started the year at $37.04 per barrel
and closed 2016 at $53.72 per barrel an increase of 45% across
2016. The average price recorded was $43.46 per barrel across
the year as a whole.

C O M M O D I T Y P R I C E S
( $ p e r b a r r e l / m m B t u)

e
c
i
r

l
i

O
e
d
u
r
C

T
W

5.0

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

e
c
i
r

P
s
a
G
b
u
H
y
r
n
e
H

Jan 2016

WTI Crude Oil

Henry Hub Gas

Source: Bloomberg

Dec 2016

A 13 year low was recorded in February 2016 of $26.21 per
barrel, which led to operators cutting further investment plans
for the remainder of the year. The high for the year of $54.06
per barrel was recorded in December following the OPEC
announcements regarding an agreement by its members to cut
production during 2017. Average prices in H1 2016 were $39.78
per barrel, which led to record low US rig numbers being
reported. The average price in H2 2016 was 18% higher at $47.11
per barrel, reflecting the more stable pricing environment noted
above. Henry Hub natural gas prices in the US averaged $2.49
per mmBtu in the year, a 1% increase compared to 2015, which
averaged at $2.48 per mmBtu.

Hunting PLC
2016 Annual Report and Accounts
09

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION

M ARKE T RE VIE W
C ONTIN UED

Rig Counts
Global rig counts reflect a similar decline to that seen for capital
investment, with large declines being reported throughout North
and South America, with the average rig count reducing from
2,819 units in 2014 to 991 units in 2016, a decline of 65%.

In Europe and Africa rig counts declined approximately 42%
between 2014 and 2016, while in the Middle East drilling rig
activity remained relatively unchanged as new production from
Iraq and Iran, coupled with strong production data from Saudi
Arabia, led to only a 3% decline between 2014 and 2016. In Asia
rig counts have declined 29% since 2014.

G L O B A L R I G C O U N T S

Global Footage Drilled
In line with other key data indicators, the total footage drilled by
the global oil and gas industry is estimated to have declined
since 2014, albeit at a lower rate than other metrics due to
improvements in drilling technology and lower operating costs
being realised.

Total footage drilled was estimated to be 464.7 million feet in
2016 compared to 847.9 million feet in 2014. In the US, the total
decline was 63% to approximately 150.9 million feet in 2016
compared to over 404.5 million feet in 2014.

Europe, Africa and Asia all recorded declines, while the Middle
East and Russia are estimated to be in line with those recorded
in 2015.

3,000

2,500

2,000

1,500

1,000

500

2012

2013

2014

2015

2016

Americas

Europe, Middle East, Africa

Asia

Source: Spears & Associates – Drilling and Production Outlook,
December 2016

Despite the large reductions in the rig count across North
America, in the second half of the year the stabilising crude oil
price meant that activity within certain onshore basins in the US
increased. This contributed to a partial recovery within some of
Hunting’s businesses, particularly the Group’s Perforating
Systems business.

In the Permian basin, West Texas, US, the total rig count started
the year with 209 units, which declined to 134 in April, rising to
264 units by the close of the year, an overall increase of 26% in
the year. Other low cost basins are now showing signs of
improving activity.

P E R M I A N B A S I N R I G C O U N T S

300

250

200

150

100

Jan 2016

Source: Baker Hughes

G L O B A L F O O T A G E D R I L L E D
( m f t)

900

800

700

600

500

400

300

200

100

2012

2013

2014

2015

2016

North America
Central and South America
Europe
Africa

Middle East
China
Russia
Other

Source: Spears & Associates – Drilling and Production Outlook,
December 2016; Baker Hughes

Market Outlook
Looking ahead, market commentators are currently forecasting
2017 to be a year of growth for the global energy industry, with
some projecting double digit increases.

While there is fragile optimism across the industry, this forecast
growth remains predicated on global production reducing to
bring crude oil supply/demand back into balance, coupled with
an increasing oil price and the world’s geopolitical environment
remaining stable, with continued investment by exploration and
production companies.

Dec 2016

Activity is likely to remain focused on lower cost onshore
projects, given that many offshore projects require an oil price
in excess of $60 per barrel to be sanctioned.

North America is likely to be the focus for much of this new
activity, with other regions returning to growth, if and when the
oil price continues to increase past its current $50-55 per barrel
trading range.

Hunting PLC
2016 Annual Report and Accounts
10

THROUGHOUT THE SECOND HALF
OF 2016, KE Y M ARKE T INDIC ATOR S
SHOWED SIGNS OF RECOVERY,
WITH SPECIFIC REGIONS OF THE
US INCRE A SING AC TIVIT Y LE VELS.
THIS IMPROVEMENT HA S GIVEN RISE
TO SOME OP TIMISM WITHIN
THE INDUSTRY.

Hunting PLC
2016 Annual Report and Accounts
11

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONOUR BUSINESS MODEL

A N OV E RVI E W
HOW WE CRE ATE, DISTRIBUTE
AND SUSTAIN VALUE

OIL AND GA S E X TR AC TION C YCLE
S TR AT E GI C F O CU S ON TH E W E LLB O R E (S EE PAGE 14)

RE SOURCES
WE USE

OUR BUSINESS
AC TIVITIES

OUR PRODUC TS
AND SERVICES

FINANCIAL

HE ALTH, SAFE T Y AND
ENVIRONM ENT (“H SE” )

INTELLEC TUAL

M ANUFAC TURING

OIL COUNTRY TUBUL AR
GO ODS (“O C TG” )

O PER ATIONAL

EQUIPM ENT R ENTAL

PERFOR ATING SYSTE M S

E M PLOYE ES

TR ADING

ADVANCED
M ANUFAC TURING
GROUP (“A MG” )

R EL ATIONSHIP S

QUALIT Y AND
O PER ATIONAL E XCELLENCE

PAG E S 15 TO 19.

PAG E S 19 TO 21.

PAG E S 22 TO 2 5.

Hunting PLC
2016 Annual Report and Accounts
12

OUR CUSTOM ER S AND
CHANNEL S TO M ARK E T

SUSTAINABLE VALUE
CR E ATION FOR OUR :

SHAR EHOLDER S

DRILLING TO OL S

O PER ATOR S

E M PLOYE ES

INTERVENTION TO OL S

SERVICE COM PANIES

CUSTOM ER S
AND SUPPLIER S

SUBSE A

STE EL MILL S & OTHER

COM MUNITIES

GOVERNM ENTS

PAG E 26 .

PAG E 27.

Hunting PLC
2016 Annual Report and Accounts
13

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONOUR BUSINESS MODEL
C ONTIN UED

O IL A ND G A S E X TR AC TI ON
S TR AT E GI C F O CU S ON TH E W E LLB O R E

W E LL CON S TRUC TI ON
The well construction phase
includes all activities related
to setting up the infrastructure of the
wellbore. Hunting supplies OCTG,
AMG and Drilling Tool products
from this segment.

W E LL CO M PLE TI ON
Well completion is the process
of initiating the flow of hydrocarbons
to the surface. Hunting supplies
OCTG and Perforating Systems and
accessories from
this segment.

W E LL INT E RV E NTI ON
Well intervention occurs while a well
is in production to enable the flow
to be maintained and to operate
efficiently. In this segment Hunting
supplies intervention tools to be
used downhole and provides
hydraulic subsea equipment.

R E V E N U E

U N D E R L Y I N G L O S S
F R O M O P E R A T I O N S

A V E R A G E N U M B E R
O F E M P L O Y E E S

1. W E LL CON S TRUC TI ON

1. W E LL CON S TRU C TI ON

$105.5m

2015 – $211. 4 m

$24.2m loss

2015 – $1.9 m p r of i t

568

2015 – 8 6 6

2 . W E LL CO M PLE TI ON

$295.1m

2015 – $ 4 8 8 .6 m

$45.9m loss

2015 – $14. 2 m p r of i t

1,291

2015 – 1, 87 7

3. W E LL INT E RV E NTI ON

$52.2m

2015 – $10 6 . 3 m

$19.5m loss

2015 – $ 4.6 m p r of i t

356

2015 – 49 9

Hunting PLC
2016 Annual Report and Accounts
14

R E S OURC E S W E U S E

FINA N CIA L

Financial capital is provided to the Group
through equity invested by shareholders
and debt facilities, principally provided
by the Group’s banking syndicate. The
balance of debt and equity is managed
with due regard to the respective cost of
funds and their availability.

Hunting PLC is quoted on the London
Stock Exchange and has a premium
listed status. As such, the Company
has to meet the highest standards of
regulation and corporate governance
as published by the Financial Conduct
Authority. Equity shareholders receive
returns in the form of dividends and
through capital appreciation, which can
be measured as total shareholder return.

The Group has $219.2m of debt facilities
available of which $200m are committed.
The committed facilities include a $179.5m
mutli-currency revolving credit facility,
which expires in 2020, and a multi-
currency overnight money market line.
The committed facilities were amended
during 2016 with total committed facility
limits reduced from $350m to $200m
and security provided over selected trade
receivables, inventories and principal
properties. Profit-based covenants have
been suspended up to and including the
30 June 2018 covenant test date and have
been replaced by asset-based covenants,
minimum cash flow requirements,
limitations on capital investment and
a suspension of dividends.

With low oil prices likely to impact the
market for some time, there is a strong
focus in the industry on technological
improvement and process innovation,
which can help deliver cost efficiencies
for customers whilst maintaining
or improving margins for suppliers.
The use of technology in our business
illustrates the different ways we partner
with participants in the supply chain:

Hunting proprietary technology
Developing our own proprietary
technologies has been a strategic focus
for the Group. Through developing our own
technologies and proprietary know-how,
we are well positioned to secure market
share by protecting our intellectual
property (“IP”). Our substantial IP
portfolio is a significant barrier to entry
for competitors and allows us to enjoy
better margins and more operational
flexibility. In 2016 we registered one
patent on the H-1 Perforating System
and made a further 10 patent applications,
bringing the number of pending patents
for the H-1 Perforating System to 23. In
2016 we also developed three additional
sizes for the WEDGE-LOCK™ premium
connection range.

INT E LLE C TUA L

Jointly developed technology
Some innovations involve collaborating
with other industry partners. For example,
Hunting is working with ExxonMobil to
create an autonomous perforating gun
system with on-board navigation thereby
eliminating the need for a wireline crew.
This represents potential cost savings
for the operator and improves efficiency
of the operation.

Third party technology
In some cases, we make use of third party
proprietary technologies in our operations.
For certain product lines we are engaged
as a specialist manufacturer using our
customers’ IP. In other areas we license
technologies from third parties, such as
non-Hunting thread forms for OCTG.

Hunting PLC
2016 Annual Report and Accounts
15

N E T D E B T

$1.9m

A NNUALI S E D 5 Y E AR T S R

-1.5%

M A R K E T C A PITA LI SATI ON
(AT 31.12 .16)

$1.27 billion

N E T BA N K FE E S
A ND INT E R E S T PAID

$4.3m

PAT E NT S

428

N E W PAT E NT S
IN TH E Y E AR

PAT E NT S PE N DING

166

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONOUR BUSINESS MODEL
C ONTIN UED

R E S OURC E S W E U S E
CON T INUED

O PE R ATI ONA L

Operating footprint
We have an established global network
of operating sites and distribution centres
located close to our customers and near
the main oil and gas producing regions
(see pages 20 and 21).

Business activities and
development of know-how
Over many years we have refined our
operating processes, building considerable
know-how as our business evolves to
meet changing customer needs.

Our operating sites are used for the
manufacture, rental or trading of products.
The manufacture of goods and the
provision of related services is, by far,
the main source of income for the Group.
The bulk of our manufacturing occurs
in high-end specialist facilities utilising
sophisticated CNC machines.

O PE R ATING S IT E S

DI S TR IBUTI ON C E NTR E S

M A NUFAC TUR ING F O OT PR INT
(S Q F T )

3.1m

M ACH IN E S

1,228

N E T B O O K VALU E O F PPE

$419.0m

In Hunting’s rental businesses it is critical
that an appropriate range of equipment
is stored and maintained. Generally this
must be configured to meet specific
customer requirements.

In certain product lines, particularly OCTG,
Hunting holds goods for trading to support
customer service and to take advantage of
particular market opportunities.

Our distribution centres are primarily
used in the Perforating Systems and
Drilling Tools businesses where close
proximity to drilling operations is important.

Management approach

D E V E LO P
O UR P E O PLE

E M P OW E R O UR
B U S I N E S S UN IT S

People are at the heart of our business.
Our broad product portfolio demands
experienced engineering and production
staff across many manufacturing
disciplines.

The oil and gas industry is a fast-paced
sector where product requirements and
customer demands can operate on short
lead times. Our business leaders are
empowered to react quickly to local
market conditions as and when
opportunities arise.

A P PLY UN I FI E D O P E R ATI NG
S TA N DA R D S A N D PRO C E DUR E S

M A I N TA I N A S T RO N G
G OV E R NA N C E FR A M E WO R K

Demanding health, safety and quality
policies are developed centrally and then
applied locally. We continually monitor
and raise our operating standards.

The Group’s leaders and their teams
operate within a tight framework of
controls, monitored and directed at both
a regional and central level but ultimately
under the direction of the Board.

Hunting PLC
2016 Annual Report and Accounts
16

Hunting’s employees are a key driver in
fulfilling the Group’s strategic objectives.
Hunting’s reputation is underpinned by our
highly skilled workforce, which has been
built over many years.

At 31 December 2016, the Group had
2,107 employees (2015 – 2,784) across
its global operations. The reduction
in the Group’s workforce has been
necessitated by the global downturn in
the oil and gas market, however, efforts
have been made to retain employees
across all disciplines, in readiness for the
anticipated industry recovery. The chart
opposite illustrates the geographic split
of our workforce.

Responsibility for our employees lies
with local management, to enable local
cultural differences to be taken into
account, with all businesses complying
with the Group’s ethical employment and
human rights policies as published in the
Hunting PLC Code of Conduct (located
at www.huntingplc.com). The Group is
committed to training and developing all
employees, which includes health and
safety training, professional development
and general career development
initiatives. In 2017, Hunting will be rolling
out a Group-wide Code of Conduct
training programme for employees,
to ensure our workforce is trained in
our published ethics-focused policies.

E M PLOY E E S

Hunting complies with all relevant regional
laws covering employment and minimum
wage legislation. As a responsible
employer, full and fair consideration is
given to applications for positions from
disabled persons. The Group’s ethics
policies support equal employment
opportunities across all of Hunting’s
operations. The Group’s diversity profile
for 2016 is shown below. Employees
are offered benefits on joining the Group,
including healthcare cover, post-
retirement benefits and, in certain
instances when Group outperformance
in terms of operational or financial
targets has been delivered, participation
in bonus arrangements.

Employees are encouraged to further
their development and network of
contacts within the global energy industry
by membership of industry groups.
In 2016, the following organisations
were supported by Hunting’s employees:
American Petroleum Institute, Society of
Petroleum Engineers, International Coiled
Tubing Association and the American
Society for Quality.

The Board of Hunting has established
procedures in place whereby employees
can raise concerns in confidence,
including contacting the Chairman or
Senior Independent Director. The Group
also uses an independent whistleblowing
reporting service operated by SafeCall.
Contact information for both these lines
of reporting are published on staff
noticeboards across the Group’s facilities.

E M PLOY E E S

2,107

Y E A R E N D E M P L O Y E E S

5 6

1. US
2. Asia Pacific
3. UK
4. Canada
5. Other
6. Rest of Europe

1,265
359
229
117
86
51

TOTAL R E MUN E R ATI ON

$157.2m

E M P L O Y E E D I V E R S I T Y

Board

86% (6)

14% (1)

Senior Management

132

93% (123)

Total Employees

7% (9)

2,107

79% (1,674)

21% (433)

Male

Female

Hunting PLC
2016 Annual Report and Accounts
17

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONOUR BUSINESS MODEL
C ONTIN UED

R E S OURC E S W E U S E
CON T INUED

R E L ATI ON S HI P S

Customers and suppliers
Hunting’s approach to all its customers
and suppliers is based on honesty and
transparency, to provide best in class
products and services delivered through
a rigorous quality assurance programme.

The Group’s policies support a strong
culture of building close client
relationships, based on our reputation
of industry-leading service and delivery
and our drive to understand the needs
of each customer and supplier to ensure
absolute client satisfaction is achieved.
For more information on our customers
and channels to market see page 26.
Our entertainment and hospitality policies
ensure our business decisions are
completed on an arms length basis,
with client entertaining closely monitored
and proportionate.

Governments
Hunting is committed to developing good
relationships with the governments of the
countries in which we operate. Certain
customers and suppliers of the Group
are subject to state ownership, therefore
monitoring procedures for interaction
with Public Officials are in place to ensure
compliance with the UK Bribery Act.

Where appropriate, Hunting’s business
units participate in government supported
groups and “think-tanks”. Hunting’s
Perforating Systems business regularly
supports or has membership of groups
which develop regulations on products
used for hydraulic fracturing. In line with
Group policy, Hunting does not allow any
form of political donations to be made.
In 2016, the Group issued its “Payments
to Governments” statement in compliance
with new legislation enacted in the UK.
Further, Hunting is a signatory to the
UK’s Prompt Payment Code.

Relationships developed with stakeholders
are critical to the Group’s business
success and to ensure future growth.
Hunting constantly evaluates
ways to strengthen links with investors,
employees, customers, suppliers,
governments and the communities in
which its businesses operate.

Ethical behaviour
The Group’s Code of Conduct is the
basis of its commitment to stakeholders.
Hunting’s policies on anti-bribery
and corruption, ethical employment,
responsible business partnerships and
proportionate client entertaining are key
to its success. The Code of Conduct is
sent to the Group’s major customers and
suppliers to promote our values within
Hunting’s known supply chain. Hunting’s
policies on human rights and its approach
to the issues of modern slavery and
trafficking continue to be enhanced,
to ensure our stance on responsible
corporate behaviour is shared with our
business partners.

Shareholders
Communication with investors is a key
activity of the Board. Our strategy and
plans for future growth are discussed
with shareholders throughout the year,
primarily following our half and full
year results announcements with its
supporting webcasts.

The executive Directors undertake an
annual investor relations programme
where presentations are given to existing
shareholders or potential investors.
The Chairman and Senior Independent
Director also meet investors annually to
discuss strategy and governance, with
feedback being provided to the Board.

All shareholders are invited to the
Company’s Annual General Meeting,
which provides an opportunity for the
Board to answer questions from our
investor base.

Communities
Hunting operates in 13 countries and is
committed to being a responsible corporate
citizen. Each business unit across the Group
is encouraged to promote good community
relations and, where appropriate, to support
causes including local sponsorships and
communal events.

Environment
Hunting is committed to the protection
of the environment, by developing
manufacturing procedures which minimise
the Group’s impact on the landscape and
communities in which we operate.

All new facilities take into account
environmental considerations including
storm and flooding protection while
utilising energy efficient materials.
Hunting’s environment policy is located
at www.huntingplc.com.

To monitor the impact of Hunting’s
operations on the environment, and in
compliance with UK Company Law, the
Group collects greenhouse gas data in
accordance with the principles of the Kyoto
Protocol. Hunting’s 2016 Scope 1 and 2
emissions, as designated by international
reporting guidelines, are detailed in the
accompanying chart, with the emissions
factors applied based on those published
by DEFRA in the UK and the International
Energy Agency.

NUM B E R O F
S H AR E H O LD E R S

1,749

Hunting PLC
2016 Annual Report and Accounts
18

CO 2 E QUIVA LE NT E M I S S I ON S

27,659 tonnes

OUR BU S IN E S S AC TIVITI E S

C A R B O N D I O X I D E
E Q U I V A L E N T E M I S S I O N S

O
C
s
e
n
n
o
T

r
o
t
c
a

y
t
i
s
n
e
t
n

2016

2015

Scope 1

Scope 2

Intensity

Scope 1 and 2 emissions in 2016 totalled
27,659 tonnes (2015 – 32,710 tonnes) of
carbon dioxide equivalent. The reduction
in the Group’s emissions between 2015
and 2016 is due to the reduced levels of
activity, with Scope 2 electricity usage
declining as the number of shifts reduced
by each operating unit and some facilities
were decommissioned.

The Group’s Intensity Factor, based on
total carbon dioxide emissions divided
by total operational square footage, in
2016 was 8.8 kg/sq ft, compared to
10.4 kg/sq ft in 2015.

At 31 December 2016, the Group’s
facilities totalled 3.1m square feet (2015
– 3.2m square feet).

Water usage in the year was 230k cubic
metres compared to 223k cubic metres
in 2015.

H E A LTH , SA FE T Y &
E NVIRONM E NT (“H S E” )

QUA LIT Y A N D O PE R ATI ONAL
E XC E LLE N C E

The Group operates across the globe and
is committed to achieving and maintaining
the highest standards of safety for its
employees, customers, suppliers and
the public.

Hunting has a proven culture of aiming for
best practice and employs rigorous health
and safety practices.

The Group is committed to enhancing
its production and operational quality
with a number of facilities being certified
ISO 9001 (quality), 14001 (environment)
and 18001 (health and safety) compliant,
indicating that globally recognised
standards and systems are in place.
The manufacturing reject rate in 2016
was 0.6% (2015 – 0.8%).

Health and safety policies include:

• Regular audit and maintenance reviews

of facilities;

• Appropriate training and education of

all staff;

• Regular reporting to Board level;
• Seeking accreditation and aligning
long-standing internal programmes
with internationally recognised
standards; and

• Publication of the Group policy on
health, safety and environmental
matters on the Company’s website
at www.huntingplc.com.

Hunting’s Director of Health, Safety and
Environment reports directly to the Chief
Executive and a report is considered by
the Board of Directors at each meeting.
The Group’s target is to achieve zero
recordable incidents. Each local business
is required to develop tailored policies to
suit their environment. These incorporate
the Group’s approach to putting safety
first and, at a minimum, to comply with
local regulatory requirements. Training is
given to employees throughout the Group.

During the year, there were no fatalities
across the Group’s operations with 25
recordable incidents (2015 – 36). The
incident rate, as calculated from guidance
issued by the Occupational Safety and
Health Administration (“OSHA”) in the US,
was 1.15 compared to 1.13 in 2015.
The increase in the incident rate reflects
a 31% year-on-year decline, with the
number of hours worked declining by
32% to 4.4m hours (2015 – 6.4m hours).
The industry average incident rate in 2016
was 4.3 (2015 – 4.3).

More facilities across the Group are
working towards these ISO accreditations,
continuing the Group’s commitment to
monitor and reduce the environmental
impact of its operations and increasing
HSE standards.

Operational and production excellence
is a key component of our relationship
with customers. Quality assurance for
each component manufactured is a key
differentiator in our drive to be an industry
leading provider of critical components
and measurement tools. In 2016, the
Group continued its programme to
introduce lean manufacturing processes
into global operations. This resulted in
efficiency gains in a number of key
business units.

P E R C E N T A G E O F I S O
C E R T I F I E D F A C I L I T I E S

1. ISO 9001
2. ISO 14001
3. ISO 18001

60%
28%
18%

INT E N S IT Y FAC TO R

IN CID E NT R AT E (O S HA)

8.8kg/sq ft

1.15

R EJ E C T R AT E

0.6%

Hunting PLC
2016 Annual Report and Accounts
19

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION

OUR BUSINESS MODEL
C ONTIN UED

OUR BU S IN E S S AC TIVITI E S
OUR BU S IN E S S E S N E E D TO B E
CLO S E TO OUR CU S TO M E R S A ND
AR E TH E R E F O R E BA S E D IN O R
N E AR TH E M AIN O IL A ND G A S
PRO DUCING R E GI ON S .

R E V E NU E

$455.8m

1. US
2. Canada
3. Europe
4. Middle East, Africa and other
5. Asia Pacific R E V E N U E

GROU P OV E RVI E W

U S

C A NA DA

$455.8m
REVENUE

2,308
AVERAGE EMPLOYEES

$293.5m
REVENUE

1,379
AVERAGE EMPLOYEES

$38.8m
REVENUE

115
AVERAGE EMPLOYEES

40
OPERATING SITES

2,814k
SQUARE FEET

20
OPERATING SITES

1,756k
SQUARE FEET

1
OPERATING SITE

96k
SQUARE FEET

25
DISTRIBUTION CENTRES

321k
SQUARE FEET

16
DISTRIBUTION CENTRES

230k
SQUARE FEET

7
DISTRIBUTION CENTRES

56k
SQUARE FEET

The Group operates across five
geographic regions spread across the
globe, with locations close to major
centres of oil and gas activity. Hunting
generally has a conservative risk appetite
for developing operations in countries
with significant geopolitical risks and
transparency concerns.

The US is our primary market and has the
broadest product portfolio. Our products
are used both onshore and offshore in the
Gulf of Mexico. The US has the largest
manufacturing footprint and benefits from
economies of scale and the impact of
Hunting’s Perforating Systems product
lines and a higher use of proprietary
technologies. The Group also has a broad
distribution network available across the
region, giving Hunting a closer proximity
to its customer base.

Hunting PLC
2016 Annual Report and Accounts
20

The Canadian market is seasonal and
can be impacted by prevailing weather
conditions. Many oil and gas projects in
the region are based on tar sands/heavy
oil and have high break-even costs,
therefore making the market sensitive
to changes in global commodity prices.

Conventional oil and gas basin

Unconventional oil and gas basin

Key Operating Locations

EURO PE

$70.2m
REVENUE

MIDDLE EAST, AFRICA AND OTHER

A S IA PACI FI C

325
AVERAGE EMPLOYEES

$9.6m
REVENUE

88
AVERAGE EMPLOYEES

$43.7m
REVENUE

401
AVERAGE EMPLOYEES

8
OPERATING SITES

223k
SQUARE FEET

5
OPERATING SITES

154k
SQUARE FEET

6
OPERATING SITES

585k
SQUARE FEET

1
DISTRIBUTION CENTRE

30k
SQUARE FEET

-
DISTRIBUTION CENTRE

-
SQUARE FEET

1
DISTRIBUTION CENTRE

5k
SQUARE FEET

Our European operations principally
service the North Sea and are located
in the UK, the Netherlands and Norway.
OCTG are the major products for the
region and margins are influenced by
the high usage of third-party licensed
threading technology in this market.
This region has been at the forefront of
developing our well intervention products.

We have an established operation in Dubai
supplying well intervention tools and
OCTG. We have expanded our operations
in the Middle East through a joint venture
in Saudi Arabia. We are also building a
presence in Africa with operations recently
set up in South Africa and Kenya.

Asia Pacific is one of our largest regions
and we have operations in Singapore,
China and Indonesia. The region
is expanding from its OCTG base
and is developing perforating system
product sales.

Hunting PLC
2016 Annual Report and Accounts
21

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONOUR BUSINESS MODEL
C ONTIN UED

OUR PRO DU C T S A ND S E RVI C E S

C A S ING
API and premium
threaded casing and
Oil Country Tubular
Goods.

CONN E C TI ON
T E CHN O LO GY
Proprietary range of
SEAL-LOCKTM premium
connections for
threaded pipe and
couplings.

A PR S
Proprietary Annular
Pressure Relief
System.

DR ILLING
TO O L S
Mud motors, vibration
dampeners, stabilisers
and reamers.

M A NUFAC TUR ING
Completion accessories,
premium threading
services.

W E DG E - LO C K ™
New proprietary
premium threading
products, research,
development and
testing.

E LE C TRONI C S
MWD/LWD
components and
downhole power
supply units, printed
circuit boards and
manufacturing
services.

D OWN H O LE
SUPPLY
Screens, MWD/LWD
electrical and running
gear components, float
valve assemblies and
handling equipment.

Hunting PLC
2016 Annual Report and Accounts
22

PR E CI S I ON
M ACHINING
Deep bore machining for
directional drilling and
geo-steering tools,
inserts and collars for
MWD/LWD tools.

PE R F O R ATING
SYS T E M S
Perforating guns and
setting tools, energetics,
wireline and Tubular
Conveyed Perforating
hardware.

LO GGING
SYS T E M S
Production logging tools
and instruments.

SUB S E A
Hydraulic valves, couplings
and chemical injection
systems.

SWITCH G E A R
Wireline selective firing
systems, EBFire™
switches, radio frequency
safe ControlFire™ and
shooting power software.

W E LL
INT E RV E NTI ON
Pressure control
equipment, Bottom Hole
Assembly services,
slickline and wireline tools.

VA R IBALL
Proprietary rolling system
for the delivery of tools in
highly deviated wellbores.

TH RU -TUB ING
Advanced, tailored
solutions for a wide range
of work-over and coiled
tubing interventions.

Hunting PLC
2016 Annual Report and Accounts
23

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONOUR BUSINESS MODEL
C ONTIN UED

OUR PRO DU C T S A ND S E RVI C E S
CON T INUED

HUNTING’ S S IX M AJ O R
PRO DUC T GROUP S

O IL COUNTRY TUBUL AR
G O O D S (“O C TG” )

PE R F O R ATING
SYS T E M S

A DVA N C E D

M A NUFAC TUR ING

G ROU P (“A M G” )

DR ILLING

TO O L S

INT E RV E NTI ON

TO O L S

SUB S E A

O PE R ATING AC TIVITI E S

Manufacturing, Trading

Manufacturing

Equipment Rental, Trading

Manufacturing, Equipment Rental

Manufacturing

OV E RVI E W

DI FFE R E NTIATO R S

GLO BAL O PE R ATING PR E S E N C E

O U R B U S I N E S S AC T I V I T I E S
PAG E S 2 0 A N D 21.

R E L AT E D S TR AT E GI C F O CU S A R E A S

O U R B U S I N E S S S T R AT E GY
PAG E S 2 8 A N D 2 9.

R E L AT E D PR IN CI PA L R I S K S

M O R E I N F O R M AT I O N O N R I S K M A N AG E M E N T
PAG E S 3 0 TO 3 8 .

OCTG are steel alloy products and
comprise casing and tubing used
in the construction and completion
of the wellbore. Hunting machines
threads to connect OCTG using
flush or semi-flush joints and can
manufacture premium connections
and accessories using our own
technologies such as SEAL-
LOCKTM and WEDGE-LOCKTM.
We are licensed to apply a variety
of competitor thread forms and
generic API threads. We source
OCTG products from a significant
number of major global steel
producers and have strong,
long-term relationships in the US,
Europe and Asia. Hunting trades
pipe, which is a lower margin
activity, to help support customer
relationships.

Hunting is one of the largest
independent providers of OCTG
connection technology, including
premium connections.

Hunting’s Perforating Systems
business manufactures perforating
guns, energetics, firing systems
and logging tools. Products are
mainly used in the completion
phase of a well. The production,
storage and distribution of
energetics is highly regulated and
there are significant barriers for
new entrants to the market. The
business mainly “manufactures
to stock” and hence uses a wide
distribution network. Some
manufacturing is done to order,
sourced from international
telesales.

and Trading

This division includes the Hunting

Rental of a large portfolio of

A range of downhole intervention

Produces high quality products

Dearborn business, which carries

downhole tools including mud

tools including slickline tools,

and solutions for the global

out deephole drilling and precision

motors, non-magnetic drill collars,

e-line tools, mechanical plant,

subsea industry covering

machining of complex MWD/LWD

vibration dampeners, reamers and

coiled tubing and pressure control

hydraulic couplings, chemical

and formation evaluation tool

hole openers. Tools are configured

equipment. This business is

injection systems, specialty

components, and the Hunting

to the customers’ specifications.

capital intensive and results are

valves and weldment services.

Electronics business, which

This business is capital intensive

dependent on asset utilisation and

produces printed circuit boards

and results are dependent on fleet

rental rates.

capable of operating in extreme

utilisation and rental rates. In

conditions. These businesses

limited instances rental equipment

work collaboratively with

customers implementing their

designs to their specifications.

is sold outright.

Market leading position in the US.
Strong portfolio of patented and
unpatented technology.

Hunting Dearborn is a world leader

Leaders in progressive cavity,

Hunting offers a comprehensive

For more than 30 years, a

in the deep drilling of high grade,

positive displacement mud

range of tools, including innovative

provider of high quality metal-to-

non-magnetic components. As a

motors.

and proprietary technologies.

metal sealing hydraulic coupling

solutions to operate in the

harshest environments with a

strong, long-term patent base.

Hunting has extensive machining
capacity in the US, Canada,
Europe, Asia and Africa.

Manufacturing centres in the US,
Canada, Mexico and China.
Distribution centres in the US,
Canada, UK and Asia.

New products – broadened the
WEDGE-LOCK™ premium
connection range.

Cost control – one operating site
and seven distribution
centres closed.

Enhance existing capacity, lean
manufacturing – completed the
new threading facility at Ameriport,
US.

Develop global presence –
developing sales locations in
Europe, Africa and Asia.

Develop global presence –
established presence in Kenya.

Commodity prices, Shale drilling,
Competition, Product quality.

New products – commercialised
EQUAfracTM shaped charges and
continued development of
autonomous perforating
technology.

Commodity prices, Shale drilling.

Hunting PLC
2016 Annual Report and Accounts
24

Group, Hunting has the ability to

produce fully integrated advanced

downhole tools and equipment,

manufactured, assembled and

tested to the customer’s

specifications using its proprietary

know-how.

US.

US, Canada, Europe, Asia,

US.

Middle East.

Growth – Non-oil and gas

Growth – Opened shared facility

Develop global presence –

New products – Continued to

business opportunities developed.

in Odessa with Hunting Perforating

developing operating presence

develop new metal seals and

Systems business, to take

in Kenya.

couplings.

Enhance existing capacity –

Dearborn campus expansion

completed at Fryeburg, US.

advantage of West

Texas opportunities.

New products – introduction of

lightweight pressure control

Cost control – closed European

equipment systems.

Drilling Tools operations.

Commodity prices,

Product quality.

Competition.

Commodity prices, Shale drilling,

Commodity prices, Competition.

Commodity prices, Product

quality.

OV E RVI E W

DI FFE R E NTIATO R S

O U R B U S I N E S S AC T I V I T I E S

PAG E S 2 0 A N D 21.

O U R B U S I N E S S S T R AT E GY

PAG E S 2 8 A N D 2 9.

OCTG are steel alloy products and

Hunting’s Perforating Systems

comprise casing and tubing used

business manufactures perforating

in the construction and completion

guns, energetics, firing systems

of the wellbore. Hunting machines

and logging tools. Products are

threads to connect OCTG using

mainly used in the completion

flush or semi-flush joints and can

phase of a well. The production,

manufacture premium connections

storage and distribution of

and accessories using our own

energetics is highly regulated and

technologies such as SEAL-

there are significant barriers for

LOCKTM and WEDGE-LOCKTM.

new entrants to the market. The

We are licensed to apply a variety

business mainly “manufactures

of competitor thread forms and

to stock” and hence uses a wide

generic API threads. We source

distribution network. Some

OCTG products from a significant

manufacturing is done to order,

sourced from international

telesales.

number of major global steel

producers and have strong,

long-term relationships in the US,

Europe and Asia. Hunting trades

pipe, which is a lower margin

activity, to help support customer

relationships.

Hunting is one of the largest

Market leading position in the US.

independent providers of OCTG

Strong portfolio of patented and

connection technology, including

unpatented technology.

premium connections.

capacity in the US, Canada,

Canada, Mexico and China.

Europe, Asia and Africa.

Distribution centres in the US,

Canada, UK and Asia.

WEDGE-LOCK™ premium

and seven distribution

connection range.

centres closed.

Enhance existing capacity, lean

Develop global presence –

manufacturing – completed the

developing sales locations in

new threading facility at Ameriport,

Europe, Africa and Asia.

US.

Develop global presence –

established presence in Kenya.

continued development of

New products – commercialised

EQUAfracTM shaped charges and

autonomous perforating

technology.

HUNTING’ S S IX M AJ O R

PRO DUC T GROU P S

O IL COUNTRY TUBUL AR

PE R F O R ATING

G O O D S (“O C TG” )

SYS T E M S

A DVA N C E D
M A NUFAC TUR ING
GROUP (“A M G” )

DR ILLING
TO O L S

INT E RV E NTI ON
TO O L S

SUB S E A

O PE R ATING AC TIVITI E S

Manufacturing, Trading

Manufacturing

Equipment Rental, Trading

This division includes the Hunting
Dearborn business, which carries
out deephole drilling and precision
machining of complex MWD/LWD
and formation evaluation tool
components, and the Hunting
Electronics business, which
produces printed circuit boards
capable of operating in extreme
conditions. These businesses
work collaboratively with
customers implementing their
designs to their specifications.

Rental of a large portfolio of
downhole tools including mud
motors, non-magnetic drill collars,
vibration dampeners, reamers and
hole openers. Tools are configured
to the customers’ specifications.
This business is capital intensive
and results are dependent on fleet
utilisation and rental rates. In
limited instances rental equipment
is sold outright.

Manufacturing, Equipment Rental
and Trading

Manufacturing

A range of downhole intervention
tools including slickline tools,
e-line tools, mechanical plant,
coiled tubing and pressure control
equipment. This business is
capital intensive and results are
dependent on asset utilisation and
rental rates.

Produces high quality products
and solutions for the global
subsea industry covering
hydraulic couplings, chemical
injection systems, specialty
valves and weldment services.

Hunting Dearborn is a world leader
in the deep drilling of high grade,
non-magnetic components. As a
Group, Hunting has the ability to
produce fully integrated advanced
downhole tools and equipment,
manufactured, assembled and
tested to the customer’s
specifications using its proprietary
know-how.

Leaders in progressive cavity,
positive displacement mud
motors.

Hunting offers a comprehensive
range of tools, including innovative
and proprietary technologies.

For more than 30 years, a
provider of high quality metal-to-
metal sealing hydraulic coupling
solutions to operate in the
harshest environments with a
strong, long-term patent base.

G LO BAL O PE R ATING PR E S E N C E

Hunting has extensive machining

Manufacturing centres in the US,

US.

US, Canada, Europe, Asia,
Middle East.

US.

R E L AT E D S TR AT E GI C F O CU S A R E A S

New products – broadened the

Cost control – one operating site

Growth – Non-oil and gas
business opportunities developed.

Enhance existing capacity –
Dearborn campus expansion
completed at Fryeburg, US.

Growth – Opened shared facility
in Odessa with Hunting Perforating
Systems business, to take
advantage of West
Texas opportunities.

Cost control – closed European
Drilling Tools operations.

Develop global presence –
developing operating presence
in Kenya.

New products – Continued to
develop new metal seals and
couplings.

New products – introduction of
lightweight pressure control
equipment systems.

R E L AT E D PR IN CI PAL R I S K S

Commodity prices, Shale drilling,

Commodity prices, Shale drilling.

M O R E I N F O R M AT I O N O N R I S K M A N AG E M E N T

PAG E S 3 0 TO 3 8 .

Competition, Product quality.

Commodity prices,
Product quality.

Commodity prices, Shale drilling,
Competition.

Commodity prices, Competition.

Commodity prices, Product
quality.

Hunting PLC
2016 Annual Report and Accounts
25

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONOUR BUSINESS MODEL
C ONTIN UED

OUR CU S TO M E R S A ND C HA NN E L S TO M A R K E T
HUNTING HA S A B ROAD R A NG E O F CU S TO M E R S
A ND CHA NN E L S TO M A R K E T.

O PE R ATO R S

S E RVI C E CO M PA NI E S

S T E E L M ILL S & OTH E R

O PE R ATO R S
Operators are the end consumers of our
products and related services. These
include National Oil Companies (“NOCs”),
International Oil Companies (“IOCs”) and
Independents. Approximately 30% of our
sales are made directly to operators. Key
direct customers include Chevron,
Apache and Enquest.

S E RVI C E CO M PA NI E S
Our primary route to market is via other
service providers, which generate c.60%
of our revenue. These include “1st tier”
service companies who can provide
project management services to the
operators. Key customers include
Halliburton, Baker Hughes, Schlumberger
and Weatherford.

S T E E L M ILL S & OTH E R
Steel mills are key suppliers to our
business, however, in some
circumstances we can perform threading
services for them or supply OCTG
products. Other sales include oil and gas
related sales through agents or
intermediaries, together with non-oil and
gas sector sales made by our Trenchless,
Dearborn and Electronics operations.

c.30%

of our revenue

c.60%

of our revenue

c.10%

of our revenue

OUR T OP TEN CUSTOMERS
REPRESENT c.36 % OF REVEN UE

OUR LA RGE ST C US TOM E R
REPR ESE NTS c.9% OF REV ENUE

Hunting PLC
2016 Annual Report and Accounts
26

WE CRE ATE, DISTRIBUTE
AND SUSTAIN VALUE BY:

CLE AR STR ATEGIC FO CUS
ON THE WELLBORE

STRONG TECHNOLOGY BA SE

DIVER SE R ANGE OF PRODUC TS
AND SERVICES

E XPERIENCED M ANAGEMENT TE A M
AND EMPOWERED WORK FORCE

AT TENTION TO QUALIT Y

TRUSTED LONG -TER M REL ATIONSHIP S
WITH CUSTOMER S AND SUPPLIER S

UTILISATION OF OUR GLOBAL
M ANUFAC TURING FO OTPRINT

BEING WHERE OUR CUSTOMER S
NEED US TO BE

AC TING WITH INTEGRIT Y

Hunting PLC
2016 Annual Report and Accounts
27

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
OUR BUSINESS STR ATEGY

HUNTING’ S S TR AT E GI C PR I O R ITI E S A R E BA S E D ON A
BU S IN E S S M O D E L D E S IGN E D TO D E LIV E R SU S TAINA B LE
LONG -T E R M S HAR E H O LD E R VA LU E W HILE
R E CO GNI S ING OUR CO R P O R AT E R E S P ON S IB ILITI E S .

S TR AT E GI C PR I O R IT Y

S TR AT E GI C F O CU S A R E A S

2016 PRO GR E S S

R E L AT E D K PI s

R E L AT E D R I S K S

GROW TH
Our aim is to continue to develop
our global presence and supply a
comprehensive range of products
for use in the wellbore. We will
grow through capital investment
in existing businesses and through
acquisitions.

• Extend global presence.
• Acquire complementary businesses.
• Enhance existing capacity.
• Develop new products.

• New facility in Ameriport, US,

fully operational.

• Kenyan joint venture operations
relocated to an enhanced facility.

• Non oil and gas business

opportunities developed by
a number of business units.

R E V E N U E

CO U N T R I E S W I T H

O P E R AT I O N S

$455.8m

2 015 – $ 810 . 5m

2 015 – 15

C A P I TA L

I N V E S TM E N T

$17.2m

2 015 – $ 81.1m

O P E R AT I N G

F O OT P R I N T

3.1m sq ft

2 015 – 3 . 2 m s q f t

• Geopolitics

• Investment

• Competition

• Product quality

• Commodity prices

• Shale drilling

O PE R ATI ONA L E XC E LLE N C E
We operate in a highly competitive
and cyclical sector, which is high
profile and strongly regulated.
To be successful we must deliver
high quality and reliable products
and services cost effectively.

• Leverage strong brand.
• Enhance quality control.
• Maintain operational flexibility.
• Leverage lean manufacturing.
• Strengthen relationships with customers

and suppliers.

• Lean manufacturing initiatives

contributed to reduced
operating costs.

• New WEDGE-LOCKTM premium

connections developed
and commercialised.

• H-1 Perforating System now fully
commercialised in the market.

I S O 9 0 01 (Q UA LI T Y )

AC C R E D I T E D

O P E R AT I N G S I T E S

I N T E R N A L

M A N U FAC T U R I N G

R E J E C T R AT E

60%

2 015 – 5 0%

0.6%

2 015 – 0 . 8%

• Product quality

• Key executives

• Competition

S TRONG R E TUR N S
In normal phases of the oil and
gas cycle our business has the
capability to produce high
levels of profitability, strong cash
generation, growing dividends
for shareholders and good returns
on capital.

• Introduce new and proprietary products.
• Develop sales synergies.
• Increase market share.
• Maintain close cost control.

• Underlying gross margin of

11% achieved.

• Free cash flow of $36.6m generated

with a significant release of
working capital.

• Annualised cost savings from

headcount reductions in the two
years ending 31 December 2016 now
exceed $100m.

U N D E R LY I N G G R O S S

FR E E C A S H

FLOW

RETURN ON AVER AGE

C A P I TA L E M P LOY E D

• Commodity prices

• Competition

M A RG I N

11%

2 015 – 24%

$36.6m

2 015 – $118 . 0 m

(8)%

2 015 – 1%

CO R P O R AT E R E S P ON S IB ILIT Y
We are committed to act with high
standards of integrity and to create
positive, long-lasting relationships
with our customers, suppliers,
employees and the wider
communities in which we operate.

• Retain experienced senior

management team.

• Skilled workforce.
• Safe operations.
• Protect the environment.
• Compliance.

• Implementation of new ethics

compliance procedures and policies.
• Improved environmental capabilities

in new facilities.

• Supply chain risk analysis completed

to comply with UK Modern
Slavery Act.

I N C I D E N T

R AT E

CO 2 E M I S S I O N S

I N T E N S I T Y FAC TO R

1.15

2 015 – 1.13

8.8kg/sq ft

2 015 – 10 . 4 k g /s q f t

• Key executives

• Health, safety and

environment

Hunting PLC
2016 Annual Report and Accounts
28

FU R T H E R K P I I N F O R M AT I O N ,

I N C LU D I N G P E R F O R M A N C E T R E N D S

S E E PAG E S 4 0 A N D 41.

FU R T H E R I N F O R M AT I O N

O N T H E P R I N C I PA L R I S K S

S E E PAG E S 33 TO 37.

S TR AT E GI C PR I O R IT Y

S TR AT E GI C F O CU S A R E A S

2016 PRO GR E S S

R E L AT E D K PI s

R E L AT E D R I S K S

G ROW TH

Our aim is to continue to develop

our global presence and supply a

comprehensive range of products

for use in the wellbore. We will

grow through capital investment

in existing businesses and through

acquisitions.

• Extend global presence.

• New facility in Ameriport, US,

• Acquire complementary businesses.

fully operational.

• Enhance existing capacity.

• Develop new products.

• Kenyan joint venture operations

relocated to an enhanced facility.

• Non oil and gas business

opportunities developed by

a number of business units.

R E V E N U E

CO U N T R I E S W I T H
O P E R AT I O N S

$455.8m

2 015 – $ 810 . 5m

2 015 – 15

C A P I TA L
I N V E S TM E N T

$17.2m

2 015 – $ 81.1m

O P E R AT I N G
F O OT P R I N T

3.1m sq ft

2 015 – 3 . 2 m s q f t

• Geopolitics
• Investment
• Competition
• Product quality
• Commodity prices
• Shale drilling

O PE R ATI ONA L E XC E LLE N C E

We operate in a highly competitive

and cyclical sector, which is high

profile and strongly regulated.

To be successful we must deliver

high quality and reliable products

and services cost effectively.

• Leverage strong brand.

• Enhance quality control.

• Maintain operational flexibility.

• Leverage lean manufacturing.

• Strengthen relationships with customers

and suppliers.

• Lean manufacturing initiatives

contributed to reduced

operating costs.

• New WEDGE-LOCKTM premium

connections developed

and commercialised.

• H-1 Perforating System now fully

commercialised in the market.

I S O 9 0 01 (Q UA LI T Y )
AC C R E D I T E D
O P E R AT I N G S I T E S

I N T E R N A L
M A N U FAC T U R I N G
R E J E C T R AT E

60%

2 015 – 5 0%

0.6%

2 015 – 0 . 8%

• Product quality
• Key executives
• Competition

S TRONG R E TUR N S

In normal phases of the oil and

gas cycle our business has the

capability to produce high

levels of profitability, strong cash

generation, growing dividends

for shareholders and good returns

on capital.

• Introduce new and proprietary products.

• Underlying gross margin of

• Develop sales synergies.

• Increase market share.

• Maintain close cost control.

11% achieved.

• Free cash flow of $36.6m generated

with a significant release of

working capital.

• Annualised cost savings from

headcount reductions in the two

years ending 31 December 2016 now

exceed $100m.

U N D E R LY I N G G R O S S
M A RG I N

FR E E C A S H
FLOW

RETURN ON AVER AGE
C A P I TA L E M P LOY E D

11%

2 015 – 24%

$36.6m

2 015 – $118 . 0 m

(8)%

2 015 – 1%

• Commodity prices
• Competition

CO R P O R AT E R E S P ON S IB ILIT Y

We are committed to act with high

standards of integrity and to create

positive, long-lasting relationships

with our customers, suppliers,

employees and the wider

communities in which we operate.

• Retain experienced senior

management team.

• Skilled workforce.

• Safe operations.

• Protect the environment.

• Compliance.

• Implementation of new ethics

compliance procedures and policies.

• Improved environmental capabilities

in new facilities.

• Supply chain risk analysis completed

to comply with UK Modern

Slavery Act.

I N C I D E N T
R AT E

CO 2 E M I S S I O N S
I N T E N S I T Y FAC TO R

1.15

2 015 – 1.13

8.8kg/sq ft

2 015 – 10 . 4 k g /s q f t

• Key executives
• Health, safety and

environment

FU R T H E R K P I I N F O R M AT I O N ,
I N C LU D I N G P E R F O R M A N C E T R E N D S
S E E PAG E S 4 0 A N D 41.

FU R T H E R I N F O R M AT I O N
O N T H E P R I N C I PA L R I S K S
S E E PAG E S 33 TO 37.

Hunting PLC
2016 Annual Report and Accounts
29

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONRISK M ANAGEMENT

RISK M ANAGEMENT ROLES
& RESPONSIBILITIES
TH E B OAR D HA S D E FIN E D R I S K M A NAG E M E NT RO LE S
A ND R E S P ON S IB ILITI E S A S ILLU S TR AT E D B E LOW.

B OA R D
• Determines the Group’s risk appetite and culture
• Sets the risk management framework
• Ensures the risk management processes and internal

controls are effective

AUDIT CO M M IT T E E
• Controls the Group’s risk management processes
• Reviews business risks
• Gains assurance that the risk management processes and

controls are effective

C E NTR AL & R E GI ONAL M A NAG E M E NT
• Establishes detailed Group policies and procedures
• Manages centrally controlled risks
• Reviews local business risks

LO C AL M A NAG E M E NT
• Ensures Group policies and procedures are applied
• Manages locally controlled risks

Hunting PLC
2016 Annual Report and Accounts
30

A S SUR A N C E – INT E R NAL
AUDIT D E PARTM E NT
Reviews internal controls and risk
management processes for their
existence, relevance and effectiveness.
Actions are recommended and graded
in terms of importance and timeliness
for change.

Introduction
The oil and gas industry is tightly regulated and demands high
specification products, which meet stringent quality criteria,
given the challenging environments in which these products are
used. Hunting’s risk management and internal control processes
are therefore designed to appropriately mitigate the risks inherent
by operating in this sector while allowing the Group to achieve its
strategic objectives and deliver value to shareholders.

The Board
The Board of Hunting has responsibility for developing and
maintaining a robust risk management framework and for
monitoring the Group’s system of internal control to ensure
it remains effective and fit for purpose. The Board is also
responsible for developing the Group’s strategic objectives.
The balance between the Board’s desire to meet these strategic
objectives and its appetite for risk creates the risk culture within
the Group.

The Board’s appetite for risk is key to establishing effective
systems of internal control and risk management processes.
By reviewing and debating the relevant evidence, the Board
develops an appreciation of the contributory factors that
generate a particular risk. Subsequently, through delegation,
the Board establishes the extent to which the risk should be
mitigated and at what cost to the Group. The Board, for example,
has little appetite for high levels of exposure to geopolitical risk
and consequently the Group’s expansion strategy has avoided
countries that are considered to be significantly unstable or too
high risk to maintain a physical presence, notwithstanding the
potential benefits that may be generated.

Advice on risk management is sought by the Board from both
internal and external sources. The risk management processes
are further supported by:

• understanding the current and evolving market environment;
• challenging executive management on new growth opportunities;
• reviewing proposed new product developments and capital

investment projects.

Audit Committee
Local management establishes and undertakes risk
management processes that are relevant to the distinct risk
profile of each business unit. These are reported to central
management three times a year from which a Group Risk
Register is maintained covering the key risks to the Group,
including all financial, operational and compliance matters.
On behalf of the Board, the Audit Committee seeks to ensure
that risk management processes are established within the
framework set out by the Board and, as part of this assessment,
it conducts a formal review of the Group’s Risk Register three
times a year. The Group’s Principal Risks are disclosed on pages
33 to 37. In addition, once a year, the Audit Committee seeks
assurance with regard to the effectiveness of the internal financial
controls based on a self-assessment exercise carried out by local
management. The appropriateness of the self assessments is
checked by Internal Audit, on a sample basis, following its
programme of work.

The Internal Audit department reports directly to the Audit
Committee. The relationship with external audit is also controlled
by the Audit Committee, including the annual review of
effectiveness.

(Refer also to the Audit Committee Report on pages 57 to 60)

Central and Regional Management
Hunting requires that all Group business units operate in
accordance with the Hunting Group Manual, which sets out
Group policies and procedures, together with related authority

levels, and identifies matters requiring approval or notification to
central management or to the Board. Included within the Group
Manual are policies covering a range of areas including general
finance requirements, taxation responsibilities, information on
Hunting’s internal control and risk management framework
and governance. Compliance is also monitored and subject to
scrutiny by the Internal Audit function.

Central and regional management are responsible for ensuring
the risk management processes established by the Audit
Committee are implemented across the Group. Central
management is also responsible for managing group-wide
treasury related risks such as currency and interest rate
exposures and managing the global insurance programme.

Local Management
The management of each business unit has the responsibility of
establishing an effective system of controls and processes for
their business which, at a minimum, meets the requirements set
out in the Group Manual and complies with any additional local
requirements. Local management is empowered under Hunting’s
de-centralised philosophy to manage the risks in their market.

Assurance
The Board use a number of functions and reporting procedures
to provide assurance that the risks identified by management
are appropriate and proportionate for the Group as a whole.
Hunting’s Internal Audit function covers the Group’s businesses
addressing the following operational areas, raising control
improvement recommendations where necessary:

• inventory management;
• purchasing supply chain;
• large project risk;
• IT controls;
• customer credit risk; and
• ethics compliance, including bribery and corruption.

The Group’s risk management processes are further supported
by an internal Quality Assurance department that is headed by
a HSE and Quality Assurance Director who reports directly to the
Chief Executive. This department also undertakes periodic audits
that monitor quality control within the Group’s product lines.

Hunting also receives guidance from a number of external
advisers. In particular, guidance from the Group’s principal
insurance broker, which arranges worldwide credit insurance
for the Group, has been implemented throughout the business
units with respect to, for example, vetting new customers
and maintaining appropriate creditworthiness data that further
strengthens the Group’s credit management processes. Hunting’s
external auditors provide assurance to the Board of the accuracy
and probity of Hunting’s financial statements. The auditor
also reads all of Hunting’s non-financial statements, including
governance disclosures included in the Annual Report, and
provides recommendations on the financial controls in operation
across the Group, based on the external audit.

Hunting’s legal advisers assist in ensuring that Hunting is
compliant with the UKLA’s Listing Rules, Disclosure Guidance
and Transparency Rules sourcebook and UK Company Law, and
that there is an understanding across the Group of its obligations
under current sanctions legislation. Additionally, Hunting relies
on market and investor advice from its corporate brokers and
financial advisers.

The Board is satisfied that the above sources of assurance have
sufficient authority, independence and expertise to enable them
to provide objective advice and information to the Board and also
takes this into account when assessing the robustness of the risk
management and control process.

Hunting PLC
2016 Annual Report and Accounts
31

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONRISK M ANAGEMENT
C ONTIN UED

RISK M ANAGEMENT PROCEDURES
TH E B OAR D HA S R E VI E W E D IT S R I S K M A NAG E M E NT
A ND INT E R NA L CONTRO L PRO C E DUR E S A N D
CON FIR M S THAT TH E PRO C E DUR E S IN PL AC E A R E
RO BU S T A ND PRO P O RTI ONAT E TO HUNTING’ S GLO BA L
O PE R ATI ON S A ND P O S ITI ON IN IT S C H O S E N M A R K E T.

Hunting’s internal control system, which has been in place
throughout 2016 and up to the date of approval of these
accounts, is an ongoing evolutionary process designed to
identify, evaluate and manage the significant risks to which
the Group is exposed.

This system of internal control is designed to manage rather than
eliminate risks, therefore it can only provide reasonable, but not
absolute, assurance against material misstatement or loss in the
financial statements and of meeting internal control objectives.

The Directors have reviewed the effectiveness of the Group’s
system of internal control and have taken into account feedback
from the Audit Committee for the period covered by the financial
statements. No significant failings or weaknesses were identified
in the review process.

The key elements to understanding, establishing and assessing
Hunting’s internal control system are as follows:

Business Risk Reporting
Three times a year, local management formally reviews the
specific risks faced by their businesses, based on current
trading, future prospects and the local market environment.
The review is a qualitative assessment of the likelihood of a risk
materialising and the probable financial impact if such an event
were to arise. All assessments are performed on a pre- and
post-controls basis, which allows management to continually
assess the effectiveness of its internal controls with separate
regard to mitigating the likelihood of occurrence and the probable
financial impact. The risks are reported to central management.
The local risks that have the greatest potential impact on the
Group are identified from these assessments and incorporated
into the Group Risk Register, which is also reviewed by the Audit
Committee three times a year. An appropriate Director, together
with local management, is allocated responsibility for managing
each separate risk identified in the Group Risk Register.

Financial Controls Self-assessment
Local management completes an annual self-assessment of the
financial controls in place at their business units. The assessment
is qualitative and is undertaken in context with the recommended
controls identified within the Group Manual. Gaps between
the recommended controls and those in place are assessed
and improvements are actioned within a targeted time frame
when these are identified as a necessary requirement. Results
of the assessments are summarised and presented to the
Audit Committee.

Reporting and Consolidation
All subsidiaries submit detailed financial information in
accordance with a pre-set reporting timetable. This includes
weekly, bi-monthly and quarterly treasury reports, annual
budgets, monthly management accounts, periodic extended
forecasts giving a medium term view, together with half-year
and annual statutory reporting.

The Group’s consolidation process is maintained and regularly
updated, including distribution of a Group Manual to all
reporting units. All data is subject to review and assessment by
management through the monitoring of key performance ratios
and comparison to targets and budgets. The Group monitors
and reviews new UK Listing Rules, the Disclosure Guidance
and Transparency Rules sourcebook, accounting standards,
interpretations and amendments, legislation and other statutory
requirements.

Strategic Planning and Budgeting
Strategic plans, annual budgets and long-term viability financial
projections are formally presented to the Board for adoption and
approval and form the basis for monitoring performance. These
are supported by regularly updated forecasts that project for a
12-month period beyond the date of preparation.

Quality Assurance
Most of the business sectors within which the Group operates
are highly regulated and subsidiaries are invariably required to be
accredited, by the customer or an industry regulator, to national
or international quality organisations. These organisations
undertake regular audits and checks on subsidiary procedures
and practices ensuring compliance with regulatory requirements.
The Board monitors compliance by receiving Quality Assurance
reports at each meeting from the Director of Quality of Assurance
who also reports directly to the Chief Executive. The Group has
received accreditations from many organisations including the
American Petroleum Institute (for example API Spec 5CT
and API Spec Q1 certifications), the International Organisation
for Standardisation (for example ISO 9001 and ISO 14001
certifications) and the Occupational Health and Safety
Assessment Series (for example OHSAS 18001 certification).

Health, Safety and Environment (“HSE”)
All facilities have designated HSE personnel appointed to ensure
the Group’s policies and procedures are adopted and adhered
to. All local HSE personnel report to the Group’s HSE and
Quality Assurance Director, who in turn reports to the Chief
Executive. All facilities arrange regular training and review
sessions to ensure day-to-day risks are managed and shared
with the wider workforce.

Expenditure Assessment and Approval Limits
All significant capital investment (business acquisitions and
asset purchases) and capital divestments must be approved by
the Chief Executive. Major capital expenditures or divestments
require approval by the Board. Detailed compliance and
assurance procedures are completed during a capital investment
programme and project reviews and appraisals are completed to
ensure each capital investment has delivered the forecast value
for the Group.

Updates to the Group’s policies and procedures are
communicated to the relevant personnel by way of periodic
revisions to the Group Manual, which is issued to all
business units.

Hunting PLC
2016 Annual Report and Accounts
32

CURRENT STATUS OF THE GROUP ’S
PRINCIPAL RISK S

The status of Hunting’s exposure to each of its principal risks,
the movement in these risks (post-controls) during the year and
the effectiveness of the Group’s internal controls in mitigating
risks are summarised in the accompanying two graphs.

The extent of Hunting’s exposure to any one risk may increase
or decrease over a period of time. This movement is due either
to a shift in the extent of the risk arising from external influences,
or is due to a change in the effectiveness of the Group’s internal
control processes in mitigating the risk.

Detailed descriptions of each principal risk, the controls and
actions in place and the movement in the year are given in the
following section.

Investment Spend
At 31 December 2015, the Group’s principal risks included
an investment risk associated with company acquisitions
and organic capital investment. Given the significant reduction
in investment spend by the Group, largely associated with
the industry downturn, this is no longer considered to be a
principal risk.

UK leaving the European Union
The Board has considered the consequences to the Group
of the United Kingdom’s decision to withdraw from the European
Union and has concluded that, given its limited exposure to this
market, Brexit will not have a material impact on the business.
Consequently, this is not a principal risk to the Group.

MOVEMENT IN RISKS (POST-CONTROLS) DURING THE YEAR

EFFECTIVENESS OF INTERNAL CONTROLS

h
g
H

t
c
a
p
m

a
c
n
a
n
F

h
g
H

t
c
a
p
m

a
c
n
a
n
F

w
o
L

Low

Probability

High

Low

Probability

High

w
o
L

Current status

Prior year status

Post-control status

Pre-control status

1
2

Commodity prices
Shale drilling

3
4

Competition
Key executives

5
6

Geopolitics
HSE

Investment

Hunting PLC
2016 Annual Report and Accounts
33

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION

RISK M ANAGEMENT
C ONTIN UED

PRINCIPAL RISK S
TH E GROUP ’ S PR IN CI PAL R I S K S A R E ID E NTI FI E D B E LOW.
W HILE W E HAV E PR E S E NT E D TH E S E A S S E PA R AT E LY
ID E NTI FI E D R I S K S, DI S CR E T E E V E NT S WILL O F T E N A FFE C T
MULTI PLE R I S K S A ND THI S I S CON S ID E R E D BY TH E
B OA R D W H E N A S S E S S ING TH E I M PAC T ON TH E G ROUP.

No movement in risk

Increase in risk

Decrease in risk

1. CO M M O DIT Y PR I C E S

2 . S H ALE DR ILLING

3. CO M PE TITI ON

4. K E Y E XE CUTIV E S

Nature of the risk
Hunting is exposed to the influence of oil and gas prices 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 prices become, or are expected to become,
uneconomical and therefore continuation of prices above
these levels is critical to the industry and the financial viability
of the Hunting Group.

Adverse movements in commodity prices may also heighten
the Group’s exposure to the risks associated with shale drilling
(see the risks associated with shale drilling).

Nature of the risk
The Group provides products to the oil and gas shale drilling
industry. Although shale drilling is now an established activity
in the US, significant sections of the public continue to
view it as high risk. Any consequent moratorium or new laws
may unfavourably impact shale drilling activity levels and
subsequently reduce demand for the Group’s products that
service the operators in this industry.

In addition, oil and gas produced from shale is a relatively
expensive source of hydrocarbons. Consequently, shale drilling
is more sensitive to a decline in commodity prices compared
with conventional sources so it is more likely to be curtailed
and therefore negatively impact what has become a steadily
increasing revenue stream for the Group (see the risks
associated with commodity prices).

Nature of the risk

The provision of goods and services to oil and gas drilling

The Group is highly reliant on the continued service of its key

companies is highly competitive. In current market conditions

executives and senior management, who possess commercial,

there are considerable pressures to reduce prices. Competitors

engineering, technical and financial skills that are critical to the

may also be customers and/or suppliers which can increase the

success of the Group.

risk of any potential impact.

Technological advancements in the oil and gas industry

continue at pace and failure to keep ahead will result in lost

revenues and market share.

Looking further ahead, advancements in alternative energy

sources are considered a possible risk to the oil and gas market

in the long term.

Movement in the year
Hunting’s exposure to this risk remains as high as last year due
to the low activity levels as a result of low commodity prices.

Movement in the year
Hunting’s exposure to this risk remains unchanged from last
year due to the impact of continuing low commodity prices
affecting the shale drilling activity particularly in the US and the
public’s appetite for shale drilling has remained unchanged.

Movement in the year

During the year, the competitive environment within the markets

Although the turnover of Hunting’s key personnel is small,

that Hunting serves remained strong. Continued downward

current trading conditions, recent cuts in the workforce and

pressure on prices, combined with reduced activity levels,

freezing of remuneration packages have increased pressure

particularly in offshore markets, has consequently heightened

on the remaining personnel and the Board recognises that

competition risk.

the risk of losing key executives has heightened as a result

of these changes.

Controls and actions
Working capital, and in particular inventory levels, are closely
managed to ensure the Group remains sufficiently adaptable
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.

The sustained decline in oil and gas prices has impacted the
industry worldwide. Hunting’s management has mitigated the
impact by introducing a number of cost reduction programmes
throughout the Group and continues to adapt the business
to meet new challenges generated by the current trading
environment, for example by developing new product lines
as described within the Business Model and Strategy.

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
products 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 re-configure
their manufacturing processes to meet a change in the pattern
of demand.

Controls and actions

Hunting has a number of high specification proprietary products

Remuneration packages are regularly reviewed to ensure that

that offer operational advantages to its customers. The Group

key executives are remunerated in line with market rates.

continually invests in research and development that enables

External consultants are regularly engaged to provide guidance

it to provide technological advancement and a strong, ever

on best practice.

widening, product offering. Hunting continues to maintain its

standards of delivering high quality products which has gone

Senior management regularly reviews the availability of the

some way in sheltering the pricing pressure impact on margins.

necessary skills within the Group and seek to engage suitable

staff where they feel there is vulnerability.

Hunting’s operations are established close to their markets,

which enables the Group to offer reduced lead times and a

focused product range appropriate to each region. Local

management maintains an awareness of competitor pricing

and product offering. In addition, 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 Group has a wide customer base that includes

many of the major oil and gas service providers and no one

customer represents an overly significant portion of

Group revenue.

Alternative energy sources have been considered but are not

believed to be a threat within the short to medium term.

FU R T H E R I N F O R M AT I O N O N T H E M OV E M E N T I N CO M M O D I T Y
P R I C E S D U R I N G T H E Y E A R I S D E TA I L E D O N PAG E 9.

T H E G R O U P ’ S O P E R AT I N G AC T I V I T I E S A R E D E S C R I B E D
I N D E TA I L O N PAG E S 2 0 TO 2 5.

T H E G R O U P ’ S O P E R AT I N G AC T I V I T I E S A R E D E S C R I B E D

I N D E TA I L O N PAG E S 2 0 TO 2 5.

D E TA I L S O F E X E CU T I V E D I R E C TO R R E M U N E R AT I O N A R E

P R OV I D E D I N T H E R E M U N E R AT I O N CO M M I T T E E R E P O R T

O N PAG E S 73 A N D 74 .

Hunting PLC
2016 Annual Report and Accounts
34

1. CO M M O DIT Y PR I C E S

2 . S HA LE DR ILLING

3. CO M PE TITI ON

4. K E Y E XE CUTIV E S

Hunting is exposed to the influence of oil and gas prices as the

The Group provides products to the oil and gas shale drilling

supply and demand for energy is a key driver of demand for

industry. Although shale drilling is now an established activity

Nature of the risk

Hunting’s products.

Oil and gas exploration companies may reduce or curtail

operations if prices become, or are expected to become,

uneconomical and therefore continuation of prices above

these levels is critical to the industry and the financial viability

of the Hunting Group.

in the US, significant sections of the public continue to

view it as high risk. Any consequent moratorium or new laws

may unfavourably impact shale drilling activity levels and

subsequently reduce demand for the Group’s products that

service the operators in this industry.

In addition, oil and gas produced from shale is a relatively

expensive source of hydrocarbons. Consequently, shale drilling

Adverse movements in commodity prices may also heighten

is more sensitive to a decline in commodity prices compared

the Group’s exposure to the risks associated with shale drilling

with conventional sources so it is more likely to be curtailed

(see the risks associated with shale drilling).

and therefore negatively impact what has become a steadily

increasing revenue stream for the Group (see the risks

associated with commodity prices).

Nature of the risk
The provision of goods and services to oil and gas drilling
companies is highly competitive. In current market conditions
there are considerable pressures to reduce prices. Competitors
may also be customers and/or suppliers which can increase the
risk of any potential impact.

Nature of the risk
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.

Technological advancements in the oil and gas industry
continue at pace and failure to keep ahead will result in lost
revenues and market share.

Looking further ahead, advancements in alternative energy
sources are considered a possible risk to the oil and gas market
in the long term.

Movement in the year

Hunting’s exposure to this risk remains as high as last year due

Hunting’s exposure to this risk remains unchanged from last

to the low activity levels as a result of low commodity prices.

year due to the impact of continuing low commodity prices

affecting the shale drilling activity particularly in the US and the

public’s appetite for shale drilling has remained unchanged.

Movement in the year
During the year, the competitive environment within the markets
that Hunting serves remained strong. Continued downward
pressure on prices, combined with reduced activity levels,
particularly in offshore markets, has consequently heightened
competition risk.

Movement in the year
Although the turnover of Hunting’s key personnel is small,
current trading conditions, recent cuts in the workforce and
freezing of remuneration packages have increased pressure
on the remaining personnel and the Board recognises that
the risk of losing key executives has heightened as a result
of these changes.

Controls and actions

Working capital, and in particular inventory levels, are closely

The Board monitors public and political opinion and

managed to ensure the Group remains sufficiently adaptable

maintains an awareness of the potential for changes to

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

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

drilling operations, and the Well Intervention segment benefits

products for conventional drilling and the manufacture of high

when wells are subject to maintenance or require testing or

precision and advanced technology components for both the

repair work.

onshore and offshore markets.

The sustained decline in oil and gas prices has impacted the

Many of the Group’s facilities have the flexibility to re-configure

industry worldwide. Hunting’s management has mitigated the

their manufacturing processes to meet a change in the pattern

impact by introducing a number of cost reduction programmes

of demand.

throughout the Group and continues to adapt the business

to meet new challenges generated by the current trading

environment, for example by developing new product lines

as described within the Business Model and Strategy.

Controls and actions
Remuneration packages are regularly reviewed to ensure that
key executives are remunerated in line with market rates.
External consultants are regularly engaged to provide guidance
on best practice.

Senior management regularly reviews the availability of the
necessary skills within the Group and seek to engage suitable
staff where they feel there is vulnerability.

Controls and actions
Hunting has a number of high specification proprietary products
that offer operational advantages to its customers. The Group
continually invests in research and development that enables
it to provide technological advancement and a strong, ever
widening, product offering. Hunting continues to maintain its
standards of delivering high quality products which has gone
some way in sheltering the pricing pressure impact on margins.

Hunting’s operations are established close to their markets,
which enables the Group to offer reduced lead times and a
focused product range appropriate to each region. Local
management maintains an awareness of competitor pricing
and product offering. In addition, 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 Group has a wide customer base that includes
many of the major oil and gas service providers and no one
customer represents an overly significant portion of
Group revenue.

Alternative energy sources have been considered but are not
believed to be a threat within the short to medium term.

FU R T H E R I N F O R M AT I O N O N T H E M OV E M E N T I N CO M M O D I T Y

T H E G R O U P ’ S O P E R AT I N G AC T I V I T I E S A R E D E S C R I B E D

P R I C E S D U R I N G T H E Y E A R I S D E TA I L E D O N PAG E 9.

I N D E TA I L O N PAG E S 2 0 TO 2 5 .

T H E G R O U P ’ S O P E R AT I N G AC T I V I T I E S A R E D E S C R I B E D
I N D E TA I L O N PAG E S 2 0 TO 2 5.

D E TA I L S O F E X E CU T I V E D I R E C TO R R E M U N E R AT I O N A R E
P R OV I D E D I N T H E R E M U N E R AT I O N CO M M I T T E E R E P O R T
O N PAG E S 73 A N D 74 .

Hunting PLC
2016 Annual Report and Accounts
35

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONRISK M ANAGEMENT
C ONTIN UED

No movement in risk

Increase in risk

Decrease in risk

5. G E O P O LITI C S

6 . H E A LTH , SA FE T Y A ND TH E
E NVIRONM E NT (“H S E” )

7. PRO DU C T QUALIT Y

Nature of the risk
The locations of the Group’s markets are determined by the
location of Hunting’s customers’ drill sites – Hunting’s products
must go where the drilling companies choose to operate. To
compete effectively, Hunting often establishes a local operation
in those regions, however, significantly volatile environments
are avoided.

The Board has a strategy to develop its global presence and
diversify geographically.

Operations have been established in Asia Pacific, the Middle
East and Africa, recognising the high growth potential these
regions offer. The Group carefully selects which countries
in these regions to operate from, however, these operations
will face a higher economic and geopolitical risk than the
established businesses in North America and Europe.

Movement in the year
Geopolitical issues remain a feature of the modern world in
which the Hunting Group operates. Notwithstanding the recent
developments in the global political environment, including the
UK’s Brexit vote, the potential policy changes following the
US presidential elections, and the continuation of quantitative
easing by the European Central Bank, among other events,
the Board does not consider these to have a material adverse
impact on the Group’s trading activities. Consequently,
the Board has concluded that there has been no reportable
movement in the Group’s geopolitical risk.

Controls and actions
Areas exposed to high political risk are noted by the Board and
are strategically avoided. Management and the Board closely
monitors projected economic trends in order to match capacity
to regional demand.

Nature of the risk
Due to the wide nature of the Group’s activities, it is subject to a
relatively high number of HSE risks and the laws and regulations
issued by each of the jurisdictions in which the Group operates.

Nature of the risk

The Group has an established reputation for producing high

quality products capable of withstanding the hostile and

corrosive environments encountered in the wellbore.

The Group’s exposure to risk therefore includes the potential
for the occurrence of a reportable incident, the financial risk
of a breach of HSE regulations, and the risk of unexpected
compliance expenditure whenever a law or regulation is
renewed or enhanced.

A failure of any one of these products could adversely impact

the Group’s reputation and demand for the Group’s entire range

of products and services.

Movement in the year
The Group’s manufacturing and other operating processes
have not materially changed during the year notwithstanding
the scaling down in activity levels. Consequently, the Group’s
potential exposure to HSE incidents remains materially
unchanged. The Group experienced a small number of
minor HSE incidents in the year, which is significantly below
the industry average and is similar to the Group’s record in
prior years.

Controls and actions
The Board targets to achieve a record of nil incidents and full
compliance with the laws and regulations in each jurisdiction in
which the Group operates.

Every Group facility is overseen by a health and safety officer
with the responsibility for ensuring compliance with current and
newly issued HSE standards.

The Board receives a Group HSE compliance report at every
Board meeting.

Movement in the year

The risk of poor product quality or reliability has remained

unchanged during the year with no significant issues raised

by the Group’s customers or during the Board’s internal

monitoring process.

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.

T H E D I V E R S I T Y O F T H E G R O U P ’ S E X P O S U R E TO D I F F E R E N T
G E O G R A P H I C R E G I O N S I S D E S C R I B E D O N PAG E S 2 0 A N D 21.

T H E G R O U P ’ S H S E P E R F O R M A N C E I S D E TA I L E D O N PAG E 41.
FURTH E R COM M ENT ON H S E I S PROVID E D ON PAG E S 18 A ND 19.

T H E G R O U P ’ S CO M M I TM E N T TO P R O D U C T Q UA LI T Y I S

D E TA I L E D O N PAG E 41. FU R T H E R CO M M E N T O N T H E G R O U P ’ S

COM M ITM ENT TO PRO DUC T QUALIT Y I S PROVID E D ON PAG E 19.

Hunting PLC
2016 Annual Report and Accounts
36

5. G E O P O LITI C S

6 . H E ALTH , SA FE T Y A ND TH E

E NVIRONM E NT (“H S E” )

7. PRO DUC T QUA LIT Y

Nature of the risk

The locations of the Group’s markets are determined by the

Due to the wide nature of the Group’s activities, it is subject to a

location of Hunting’s customers’ drill sites – Hunting’s products

relatively high number of HSE risks and the laws and regulations

must go where the drilling companies choose to operate. To

issued by each of the jurisdictions in which the Group operates.

compete effectively, Hunting often establishes a local operation

in those regions, however, significantly volatile environments

The Group’s exposure to risk therefore includes the potential

are avoided.

for the occurrence of a reportable incident, the financial risk

of a breach of HSE regulations, and the risk of unexpected

The Board has a strategy to develop its global presence and

compliance expenditure whenever a law or regulation is

diversify geographically.

renewed or enhanced.

Nature of the risk
The Group has an established reputation for producing high
quality products capable of withstanding the hostile and
corrosive environments encountered in the wellbore.

A failure of any one of these products could adversely impact
the Group’s reputation and demand for the Group’s entire range
of products and services.

Operations have been established in Asia Pacific, the Middle

East and Africa, recognising the high growth potential these

regions offer. The Group carefully selects which countries

in these regions to operate from, however, these operations

will face a higher economic and geopolitical risk than the

established businesses in North America and Europe.

Movement in the year

Geopolitical issues remain a feature of the modern world in

The Group’s manufacturing and other operating processes

which the Hunting Group operates. Notwithstanding the recent

have not materially changed during the year notwithstanding

developments in the global political environment, including the

the scaling down in activity levels. Consequently, the Group’s

UK’s Brexit vote, the potential policy changes following the

potential exposure to HSE incidents remains materially

US presidential elections, and the continuation of quantitative

unchanged. The Group experienced a small number of

easing by the European Central Bank, among other events,

minor HSE incidents in the year, which is significantly below

the Board does not consider these to have a material adverse

the industry average and is similar to the Group’s record in

impact on the Group’s trading activities. Consequently,

prior years.

the Board has concluded that there has been no reportable

movement in the Group’s geopolitical risk.

Movement in the year
The risk of poor product quality or reliability has remained
unchanged during the year with no significant issues raised
by the Group’s customers or during the Board’s internal
monitoring process.

Controls and actions

Areas exposed to high political risk are noted by the Board and

The Board targets to achieve a record of nil incidents and full

are strategically avoided. Management and the Board closely

compliance with the laws and regulations in each jurisdiction in

monitors projected economic trends in order to match capacity

which the Group operates.

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.

to regional demand.

Every Group facility is overseen by a health and safety officer

with the responsibility for ensuring compliance with current and

newly issued HSE standards.

The Board receives a Group HSE compliance report at every

Board meeting.

T H E D I V E R S I T Y O F T H E G R O U P ’ S E X P O S U R E TO D I F F E R E N T

G E O G R A P H I C R E G I O N S I S D E S C R I B E D O N PAG E S 2 0 A N D 21.

T H E G R O U P ’ S H S E P E R F O R M A N C E I S D E TA I L E D O N PAG E 41.

FURTH E R COM M ENT ON H S E I S PROVID E D ON PAG E S 18 A ND 19.

T H E G R O U P ’ S CO M M I TM E N T TO P R O D U C T Q UA LI T Y I S
D E TA I L E D O N PAG E 41. FU R T H E R CO M M E N T O N T H E G R O U P ’ S
COM M ITM ENT TO PRO DUC T QUALIT Y I S PROVID E D ON PAG E 19.

Hunting PLC
2016 Annual Report and Accounts
37

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONRISK M ANAGEMENT
C ONTIN UED

VIABILIT Y A SSESSMENT AND
GOING CONCERN BA SIS

Viability Assessment
Hunting has a wide global customer base underpinned by strong,
long-term relationships. The Group provides a large range of
products and services through its manufacturing and distribution
facilities, which are located in a number of countries across
the globe.

In considering the Group’s long-term viability, the Board regularly
assesses the risks to its business model, strategy, future
performance, solvency and liquidity. These assessments are
supported by the risk management processes described on
page 32 and include a review of the Group’s exposure to the
oil and gas industry, competitor action, customer plans and
the robustness of the supply chain.

Assessment Period
The Group’s customers are principally involved in the exploration
for and production of oil and gas. Given the nature of the industry
and the planning cycles involved, these activities can cover
periods of no more than several weeks up to several years from
start to end. Hunting’s management works closely with its
customers over this period, discussing their operational plans
and reviewing their longer-term capital expenditure programmes.

The outlook for the Group beyond this period is generated from
management’s assessment of industrial data and projections
published by industry commentators and analysts, including
statistics on exploration and production expenditure, footage
drilled and rig activity. The Board believes that a three-year
forward looking period, commencing on the date the annual
accounts are approved by the Board, is the appropriate length
of time to reasonably assess the Group’s viability. The Group’s
annual budget process and mid-term projections cover this
period and help to support the Board’s assessment.

Consideration of Principal Risks
The nature of the Group’s operations exposes the business to
a variety of risks, which are noted on pages 33 to 37. The Board
regularly reviews the principal risks and assesses the appropriate
controls and further actions as described on pages 30 to 32.
The Board has further considered their potential impact within
the context of the Group’s viability.

Assumptions
In assessing the long-term viability of the Group, the Board made
the following assumptions:

• The raw material pricing environment within the energy

industry remains weak in the short-term and becomes positive
in the medium to long-term, given the global outlook for oil
and gas demand, which is driven by growth within emerging
markets and sustained demand from developed markets.
These are the fundamental drivers of Hunting’s core business
of manufacturing, supplying and distributing products and
services which enable the extraction of oil and gas.

• Actions taken over the past two years to reduce the Group’s
cost base enable the business to endure the period of weak
commodity prices and reduced shale drilling activity.
• The development of the global shale drilling industry

remains focused in the US where government support
remains positive.

• The Group will continue to have a medium to low exposure
to higher risk countries given the proportion of its current
revenues and profits derived from politically stable regions
such as North America, Europe and South East Asia.

In addition, the three-year financial projections were stress tested
to simulate a further deterioration in market conditions.

Conclusion
Despite the current downturn within the oil and gas industry, the
Board believes that the Group’s strategy for growth, its diverse
customer and product base, and the positive outlook for the oil
and gas industry in the medium-term provide Hunting with a
strong platform on which to continue its business. The Directors
therefore have a reasonable expectation that Hunting will be able
to continue in operation and meet its liabilities as they fall due
over the three-year period of their assessment.

Going Concern Basis
The Group’s principal cash outflows include capital investment,
labour costs and inventory purchases. The timing and extent of
these cash flows are controlled by local management and the
Board. The Group’s principal cash inflows are generated from the
sale of its products and services, the level of which is dependent
on the variety of its products and ability to retain strong customer
relationships. Cash inflows are further supported by the Group’s
credit insurance cover against customer default that, at
31 December 2016, covered the majority of its trade receivables,
subject to certain limits. Current and forecast cash/debt balances
are reported on a weekly basis by each of the business units to a
centralised treasury function that uses the information to manage
the Group’s day-to-day liquidity and longer-term funding needs
through effective cash management programmes.

Due to the losses made during 2016, the Group’s $350m
revolving credit facility was re-negotiated on 20 July 2016.
Consequently, total committed facilities were reduced to $200m
and the EBITDA and interest cover measures were temporarily
suspended and replaced with balance sheet based covenants.
Further details of the amendment are provided in note 27. In
addition, the Board undertook an equity placing, raising a net
consideration of $83.9m which completed on 31 October 2016,
further strengthening the balance sheet.

The Group continues to have access to sufficient financial
resources, including $200m of secured committed facilities
of which $179.5m was undrawn at 31 December 2016.
At 31 December 2016, the Group had sufficient headroom
over all the covenants and the Group’s internal financial
projections indicate that this will remain the case over the
next 12 months and beyond.

Review
In conducting its review of the Group’s ability to remain as a
going concern, the Board assessed the Group’s recent trading
performance and its latest forecasts, and took account of
reasonably predictable changes in future trading performance.
The Board also considered the potential financial impact of the
estimates, judgements and assumptions that were used to
prepare these financial statements. The Board is satisfied that
all material uncertainties have been identified.

Conclusion
The Board is satisfied that it has conducted a robust review of
the Group’s going concern and has a high level of confidence
that the Group has the necessary liquid resources to meet its
liabilities as they fall due. Consequently, the Board considered
it appropriate to adopt the going concern basis of accounting
in preparing these consolidated financial statements.

Hunting PLC
2016 Annual Report and Accounts
38

THE BOARD IS SATISFIED THAT IT HA S
CONDUC TED A ROBUST RE VIE W OF THE
GROUP ’S GOING CONCERN AND HA S A
HIGH LE VEL OF CONFIDENCE THAT THE
GROUP HA S THE NECESSARY LIQUID
RESOURCES TO MEE T ITS LIABILITIES A S
THE Y FALL DUE.

Hunting PLC
2016 Annual Report and Accounts
39

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONKE Y PERFOR M ANCE INDIC ATOR S

A NUM B E R O F K E Y PE R F O R M A N C E IN DI C ATO R S A R E U S E D TO
CO M PAR E TH E D E V E LO PM E NT, BU S IN E S S PE R F O R M A N C E A ND
P O S ITI ON O F TH E GROU P. TH E S E A R E R E GUL A R LY R E VI E W E D TO
E N SUR E TH E Y R E M AIN A PPRO PR IAT E M E A SUR E S O F TH E GROUP ’ S
PE R F O R M A N C E . F O R D E TAIL S ON TH E M OV E M E NT S O F TH E S E
M E TR I C S PLE A S E R E FE R TO TH E GROUP PE R F O R M A N C E A N D
D E V E LO PM E NT S E C TI ON O F TH E A NNUA L R E P O RT.

FINANCIAL

R E V E N U E ( $ m )

UNDERLYING EBITDA * (LOSS) ($m)

U N D E R L Y I N G ( L O S S ) P R O F I T
F R O M O P E R A T I O N S * ( $ m )

2016

2015

2014

455.8

2016

810.5

2015

1,386.5

2014

(48.9)

2016

61.9

2015

269.8

2014

(92.2)

16.4

217.8

Revenue is earned from products and services sold
to customers from the Group’s principal activities
for continuing operations (see notes 3 and 4).

Underlying results before share of associates’
post-tax results, interest, tax, depreciation,
impairment and amortisation for continuing
operations (see NGM A).

Underlying (loss) profit from operations before net
finance costs and tax (see consolidated income
statement and note 3).

Cash spend on tangible non-current assets

Underlying (loss) profit from continuing operations

Inventory at the year end divided by underlying

(see NGM J).

adjusted for working capital, tax, replacement

capital investment and interest (see NGM L).

cost of sales for the last three months of the year

multiplied by 92 days (see NGM D).

U N D E R L Y I N G O P E R A T I N G
M A R G I N * ( % )

U N D E R L Y I N G D I L U T E D ( L O S S )
E A R N I N G S P E R S H A R E * ( c e n t s )

D I V I D E N D P E R S H A R E
D E C L A R E D * ( c e n t s )

2016

2015

2014

(20)

2016

2015

2014

(45.3)

2016

3.1

2015

100.0

2014

8.0

31.0

Underlying (loss) profit from operations as a
percentage of revenue.

Underlying (loss) earnings attributable to ordinary
shareholders, divided by the weighted average
number of ordinary shares in issue during the year
adjusted for all potentially dilutive ordinary shares
(see note 13).

Dividends per share declared in respect of
the financial year including the interim dividend,
paid during the year, and the final dividend,
neither paid nor accrued at year end (see NGM M).

Net debt comprises bank overdrafts, current

Gearing is calculated as net debt as a percentage

Underlying (loss) profit before interest and tax from

and non-current borrowings less cash and cash

of total equity (see NGM H).

equivalents and investments (see note 23).

continuing operations, adjusted for the share of

associates post-tax results, as a percentage of

average gross capital employed (see NGM O).

* Non-GAAP measure (“NGM”) (see pages 141 to 145).

OPER ATIONAL

CO U N T R I E S W I T H
AC T I V E O P E R AT I O N S

O P E R AT I N G F O OT P R I N T
(M I L LI O N S Q F T )

2 015 – 15

3.1

2 015 – 3 . 2

Y E A R E N D
E M P LOY E E S

2,107

2 015 – 2 , 78 4

I S O 9 0 01 (Q UA LI T Y )
AC C R E D I T E D O P E R AT I N G S I T E S

N O. O F R E CO R DA B L E

I N C I D E N T S

I N C I D E N T R AT E

(O S H A M E T H O D)

CO 2 I N T E N S I T Y FAC TO R

I N T E R N A L M A N U FAC T U R I N G

60%

2 015 – 5 0%

2 015 – 3 6

1.15

2 015 – 1.13

8.8kg/sq ft

2 015 – 10 . 4 k g /s q f t

R E J E C T R AT E

0.6%

2 015 – 0 . 8%

Countries in which Hunting has an
active operating site or distribution
centre. This does not include countries
that only have a sales presence.

Operation and distribution site square
footage at year end. This closely
corresponds to “roofline” and
includes administrative space within
operating units.

The December headcount for Hunting
employees, including part-time staff
(see note 9).

Percentage of operating sites
with ISO 9001 accreditation.

An incident is recordable if it results in

death, days away from work or transfer

to another job, medical treatment

The US Occupational Safety and

Health Administration (“OSHA”)

incident rate is calculated by

Scope 1 and 2 carbon dioxide

equivalent metric, reported as

kilogrammes per square foot of

beyond first aid or loss of

multiplying the number of recordable

operating footprint.

Percentage of parts rejected during

manufacturing processes.

consciousness, or if significant injuries

incidents by 200,000 and then dividing

or illnesses are diagnosed by relevant

that number by the number of labour

medical authorities.

hours worked.

Hunting PLC
2016 Annual Report and Accounts
40

FINANCIAL

FINA N CIAL PE R F O R M A N C E I S M E A SUR E D ON A N
UND E R LYING BA S I S FRO M CONTINUING O PE R ATI ON S
A ND, OTH E R TH A N R E V E NU E , A R E N ON - G A A P
M E A SUR E S ( FURTH E R IN F O R M ATI ON ON FINA N CIA L
N ON - G A A P M E A SUR E S (“NG M” ) C A N B E F OUND ON
PAG E S 141 TO 145).

C A P I T A L I N V E S T M E N T * ( $ m )

F R E E C A S H F L O W * ( $ m )

I N V E N T O R Y D A Y S *

2016

2015

2014

17.2

2016

81.1

2015

123.5

2014

36.6

2016

118.0

2015

182.3

2014

225.0

241.0

138.0

Revenue is earned from products and services sold

Underlying results before share of associates’

to customers from the Group’s principal activities

for continuing operations (see notes 3 and 4).

post-tax results, interest, tax, depreciation,

impairment and amortisation for continuing

Underlying (loss) profit from operations before net

finance costs and tax (see consolidated income

statement and note 3).

Cash spend on tangible non-current assets
(see NGM J).

Underlying (loss) profit from continuing operations
adjusted for working capital, tax, replacement
capital investment and interest (see NGM L).

Inventory at the year end divided by underlying
cost of sales for the last three months of the year
multiplied by 92 days (see NGM D).

operations (see NGM A).

N E T D E B T ( $ m )

G E A R I N G R A T I O * ( % )

R E T U R N O N A V E R A G E
C A P I T A L E M P L O Y E D * ( % )

2016

2015

2014

1.9

2016

110.5

2015

131.0

2014

2016

2015

2014

(8)

Underlying (loss) profit from operations as a

Underlying (loss) earnings attributable to ordinary

Dividends per share declared in respect of

percentage of revenue.

shareholders, divided by the weighted average

the financial year including the interim dividend,

number of ordinary shares in issue during the year

paid during the year, and the final dividend,

adjusted for all potentially dilutive ordinary shares

neither paid nor accrued at year end (see NGM M).

(see note 13).

Net debt comprises bank overdrafts, current
and non-current borrowings less cash and cash
equivalents and investments (see note 23).

Gearing is calculated as net debt as a percentage
of total equity (see NGM H).

Underlying (loss) profit before interest and tax from
continuing operations, adjusted for the share of
associates post-tax results, as a percentage of
average gross capital employed (see NGM O).

* Non-GAAP measure (“NGM”) (see pages 141 to 145).

CO U N T R I E S W I T H

AC T I V E O P E R AT I O N S

O P E R AT I N G F O OT P R I N T

(M I L LI O N S Q F T )

I S O 9 0 01 (Q UA LI T Y )

AC C R E D I T E D O P E R AT I N G S I T E S

N O. O F R E CO R DA B L E
I N C I D E N T S

I N C I D E N T R AT E
(O S H A M E T H O D)

CO 2 I N T E N S I T Y FAC TO R

I N T E R N A L M A N U FAC T U R I N G
R E J E C T R AT E

2 015 – 3 6

1.15

2 015 – 1.13

An incident is recordable if it results in
death, days away from work or transfer
to another job, medical treatment
beyond first aid or loss of
consciousness, or if significant injuries
or illnesses are diagnosed by relevant
medical authorities.

The US Occupational Safety and
Health Administration (“OSHA”)
incident rate is calculated by
multiplying the number of recordable
incidents by 200,000 and then dividing
that number by the number of labour
hours worked.

8.8kg/sq ft

2 015 – 10 . 4 k g /s q f t

Scope 1 and 2 carbon dioxide
equivalent metric, reported as
kilogrammes per square foot of
operating footprint.

0.6%

2 015 – 0 . 8%

Percentage of parts rejected during
manufacturing processes.

Hunting PLC
2016 Annual Report and Accounts
41

OPER ATIONAL

2 015 – 15

3.1

2 015 – 3 . 2

Y E A R E N D

E M P LOY E E S

2,107

2 015 – 2 , 78 4

60%

2 015 – 5 0%

Countries in which Hunting has an

active operating site or distribution

centre. This does not include countries

Operation and distribution site square

The December headcount for Hunting

footage at year end. This closely

corresponds to “roofline” and

employees, including part-time staff

(see note 9).

Percentage of operating sites

with ISO 9001 accreditation.

that only have a sales presence.

includes administrative space within

operating units.

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION

GROUP PERFOR M ANCE
AND DE VELOPMENT

P E T E R R O S E
F I N A N C E D I R E C TO R

“ THE PRIM ARY FOCUS FOR THE GROUP DURING
THE YE AR HA S BEEN TO SECURE FINANCIAL
FLEXIBILIT Y AND STRENGTHEN THE BAL ANCE
SHEE T A S THE SE VERE M ARKE T DOWNTURN
PER SISTED THROUGHOUT THE YE AR.”

Hunting PLC
2016 Annual Report and Accounts
42

Results from Continuing Operations
The dramatic decrease in volumes across the oil and gas
industry in 2016, as a consequence of the low oil price, coupled
with the reduced capital expenditures recorded by all market
participants, has led Hunting to report a revenue decline of
44% in the year to $455.8m. Revenue in H1 2016 was $228.4m
(2015 – $463.6m) compared to $227.4m in the second half
(2015 – $346.9m).

In the year, underlying gross profit was $52.1m (2015 – $195.2m).
Gross profit margin in the first half of 2016 was 10%, which
improved to 12% in the second half, reflecting the lower cost
base and improving volumes in certain areas. Gross profit margin
for the year was 11% (2015 – 24%).

The Group has continued to reduce its cost base during the year,
particularly through the reduction in workforce programmes by
each business unit. However, management has also targeted to
maintain core operational capabilities in the year in anticipation
of an eventual market recovery, resulting in an additional layer of
overhead being borne by the Group. This has partly contributed
to Hunting reporting an underlying EBITDA loss of $48.9m
(2015 – $61.9m profit).

The underlying loss from continuing operations was $92.2m
in the year (2015 – $16.4m profit) and the underlying margin
correspondingly was -20% in 2016 (2015 – +2%).

The charge in the year for the amortisation of acquired intangible
assets held by the Group totalled $33.2m (2015 – $38.9m).
At the half and full year, management carried out balance sheet
impairment reviews, which included the assessment of medium
term growth forecasts. These exercises did not result in any
charges being recorded. In 2015, a $252.6m impairment charge
was recorded. Further details of the impairment assessments
can be found in note 15. During the year, management continued
to implement cost controls, giving rise to restructuring costs of
$12.2m (2015 – $7.1m). Other exceptional items, impacting loss
from operations, totalled $3.1m (2015 – $nil).

Hunting’s reported loss from continuing operations was therefore
$140.7m in the year (2015 – $282.2m).

The underlying net finance expense during the year was $0.7m
(2015 – $6.8m), principally reflecting reduced interest costs and
fees on the lower level of borrowings and an increase in net
foreign exchange gains. The reported net finance expense was
$3.2m, after the exceptional charge of $2.5m for the write off of
capitalised loan facility fees.

In total, amortisation and exceptional items charged to the
Group’s income statement were $51.0m in the year
(2015 – $298.6m).

The underlying loss before tax was $93.2m (2015 – $9.4m profit).
Following the charges for acquired intangible asset amortisation
and other exceptional items, the reported loss before tax was
$144.2m (2015 – $289.2m).

In 2016, a tax credit of $19.9m (2015 – $5.4m charge) was
recorded following the losses incurred by the Group, to give an
underlying tax rate of 21% (2015 – 57%). The Group’s effective
tax rate for 2017 is difficult to predict but is currently expected to
be around 20%, however, this will depend on the regional mix of
profits, and the ability to utilise currently unrecognised tax losses.
Further guidance will be provided on the anticipated tax rate in
the course of 2017.

The underlying diluted loss per share was 45.3 cents in 2016
(2015 – 3.1 cents earnings per share) and the reported diluted
loss per share was 76.8 cents (2015 – 156.1 cents).

Results from Discontinued Operations
In the year, the Group received $7.9m from the Canadian tax
authorities, following settlement of matters relating to its former
Canadian subsidiary Gibson Energy Inc, which was disposed of
in 2008. All historic tax matters relating to Gibson Energy have
now been resolved.

In 2015, the Group recorded a $3.8m gain on the sale of Gibson
Shipbrokers and $0.4m relating to Gibson Energy. $3.0m of the
proceeds from the Gibson Shipbrokers disposal were recognised
as deferred. $0.7m was received during the year with a balance
of $1.8m remaining at 31 December 2016.

Segmental Trading Review
A summary of the financial performance of each operating segment is detailed below:

Underlying
(loss) from
continuing
operations
$m
(24.2)
(45.9)
(19.5)

2016

Amortisationi
and
Exceptional
Items
$m
(8.9)
(34.6)
(1.9)

Reported
loss from
continuing
operations
$m
(33.1)
(80.5)
(21.4)

Underlying
(loss) profit from
continuing
operations
$m
1.9
14.2
4.6

2015
Amortisationi
and
Exceptional

Items
$m
(113.8)
(146.8)
(31.6)

Reported
loss from
continuing
operations
$m
(111.9)
(132.6)
(27.0)

(89.6)

(45.4)

(135.0)

20.7

(4.3)

16.4

(292.2)

(271.5)

(6.4)

(10.7)

(298.6)

(282.2)

Business unit
Well Construction
Well Completion
Well Intervention

Total HES

Exploration and Production

(2.6)

–

(2.6)

Group segmental total

(92.2)

(45.4)

(137.6)

i. Relates to amortisation of acquired intangible assets.

Hunting PLC
2016 Annual Report and Accounts
43

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONGROUP PERFOR M ANCE
AND DE VELOPMENT
C ONTIN UED

Capital investment within the segment totalled $11.0m, mainly
associated with the completion of the expansion at Hunting
Dearborn and on its facility at Ameriport, US. With the reduction
in workforce programme completed within the year, the year end
number of employees reduced to 524 (2015 – 717).

Premium Connections
Hunting’s Premium Connections business reported a profit in
the year as customer activity, mainly focused on activities in the
Gulf of Mexico, continued throughout the year. Hunting’s Marrero
facility in Louisiana, US, remained busy throughout 2016,
as large diameter threading orders were completed for clients,
which contributed to the positive performance of the business
unit in the year. During the second half of 2016, and as reported
elsewhere in this report, increasing activity in the Permian
basin contributed to new sales opportunities as onshore
drilling increased.

The business has increased sales of its WEDGE-LOCK™
premium connection as key clients utilised the threadform in
deepwater drilling programmes. Hunting introduced this
connection in 2015, which has been further commercialised
during 2016. A primary advantage of Hunting’s WEDGE-LOCK™
connection is that casing wear issues are reduced, particularly
in highly deviated well environments. During 2016, Hunting’s
engineering team developed and introduced a wider range of
16 inch connections and commenced testing and certification
of 14 inch connection variants for commercialisation in 2017.

Drilling Tools
The US Drilling Tools business continued its restructuring
throughout the early months of the year, with further reductions
in headcount being recorded to align with market demand.

Following the price of WTI crude oil bottoming out in Q1 2016,
drilling in the more profitable onshore basins continued to
improve, particularly in the Permian basin, where smaller
operators slowly recommenced drilling. The business opened
a shared facility with Hunting’s Perforating Systems business
in Odessa during 2016 to capitalise on the higher activity levels
in West Texas. Towards the end of the year, new gas-focused
drilling programmes also supported activity at the Group’s
Latrobe facility in Pennsylvania, US.

Construction OCTG
Activity in South Africa and Kenya, where Hunting has recently
opened a facility and established a joint venture respectively,
has been subdued, driven by the lower levels of drilling across
sub-Sahara Africa. Despite this, the Group has marketed
extensively across the region and, in 2016, Hunting’s
manufacturing facility in Cape Town was audited by the American
Petroleum Institute, which certified its quality assurance and
manufacturing procedures, a further milestone in securing
customer acceptance. A number of small orders have been
completed in the year, including a number of inspection services
for customers across the region, which led to revenues being
booked, to offset ongoing costs.

Hunting Energy Services
Hunting Energy Services comprises the Well Construction,
Well Completion and Well Intervention segments.

In 2016, Hunting Energy Services reported revenue of $452.8m
(2015 – $806.3m). As a consequence of the significant decline in
revenue, Hunting Energy Services recorded an underlying loss
from continuing operations in the year of $89.6m (2015 – $20.7m
profit). Charges for amortisation of acquired intangible assets
and exceptional items recorded in the year totalled $45.4m
(2015 – $292.2m), leading to a reported loss from continuing
operations of $135.0m (2015 – $271.5m).

N E W T E S T C H A M B E R AT
A M E R I P O R T, T E X A S , U S

A summary of the financial performance of each operating
segment is detailed below:

Well Construction

Revenue
Underlying (loss) profit from operations
Underlying operating margin
Reported loss from operations
Capital investment
Average employees
Year end employees

2016
$m 105.5
$m (24.2)
%
(23)
$m (33.1)
$m 11.0
568
524

2015
211.4
1.9
1
(111.9)
49.4
866
717

The Well Construction segment includes Hunting’s Premium
Connections, Drilling Tools, Construction OCTG, AMG
(comprising Hunting Dearborn and Hunting Electronics), Hunting
Specialty and Hunting Trenchless business units.

The segment reported a 50% decline in revenue in 2016 to
$105.5m (2015 – $211.4m). With the exception of the Premium
Connections unit, all businesses within the segment recorded
a loss from operations in the year. This led to an underlying loss
from continuing operations of $24.2m in the year (2015 – $1.9m
profit). No impairments were recorded against goodwill in the
year, following the $66.1m charge in 2015. Similarly, there were
no charges for the impairment of customer relationships or
property plant and equipment, which in 2015 totalled $38.0m.
Charges for the amortisation of acquired intangible assets and
restructuring were $8.9m (2015 – $9.7m). This led to a reported
loss from continuing operations for the segment of $33.1m
(2015 – $111.9m).

Hunting PLC
2016 Annual Report and Accounts
44

Advanced Manufacturing Group
The Group’s Advanced Manufacturing Group comprises the
Hunting Dearborn and Hunting Electronics business units. During
2016, both units focused on diversifying revenue streams outside
of the oil and gas sector and by year end had successfully
increased order backlogs to supply to the medical, space and
aviation sectors. Headcounts were also reduced in the year, with
a 16% reduction being recorded by the year end. The business
group has reviewed its presence in Singapore and during Q3
2016 suspended its Asia Pacific operations, given the outlook
for MWD/LWD purchasing in the region for the medium term.

Hunting Specialty
Hunting Specialty was impacted by clients bringing
manufacturing in-house as volumes across the industry declined.
However, as the Permian basin rig count improved throughout
the year, business levels improved as customers recommenced
purchasing key products.

Hunting Trenchless
Hunting Trenchless has signed new international distribution
agreements in the year to further the reach of its drill-stem
product lines. The unit has reduced inventory and headcount
in the year to contain losses.

Well Completion

Revenue
Underlying (loss) profit from operations
Underlying operating margin
Reported loss from operations
Capital investment
Average employees
Year end employees

2016
$m 295.1
$m (45.9)
%
(16)
$m (80.5)
$m
4.1
1,291
1,115

2015
488.6
14.2
3
(132.6)
20.0
1,877
1,574

The Well Completion segment comprises Hunting Perforating
Systems, Manufacturing and Accessories and Hunting’s
International Completion businesses.

Revenue in the segment declined 40% in the year to $295.1m
(2015 – $488.6m), with an underlying loss from continuing
operations of $45.9m (2015 – $14.2m profit) being recorded.
No impairments to the carrying value of goodwill were recorded
in the year compared to a total of $112.2m in 2015. Other
charges, comprising amortisation of acquired intangible assets,
and restructuring costs, including costs associated with the
closure of the Group’s European Drilling Tools business, totalled
$34.6m (2015 – $34.6m), which led to a reported loss from
continuing operations of $80.5m (2015 – $132.6m).

Capital investment within the segment totalled $4.1m. Following
the reduction in the workforce, the year end number of
employees reduced to 1,115 (2015 – 1,574).

Hunting Perforating Systems
Hunting Perforating Systems’ performance during the year has
tracked the US rig count, with activity declining throughout H1
2016 and then steadily improving throughout H2 2016. New
activity has focused almost wholly on the onshore US market,
in particular as rig counts in the Permian basin increased from
134 at the low point of the year to close 2016 at 264 active units.

The business reduced inventory during the year, in line with
cost cutting initiatives across the rest of the Group, and
decommissioned its Tyler manufacturing facility as the market
decline accelerated in the first quarter of the year. In addition,
seven distribution centres were also closed. As part of the
wider reduction in workforce programme, 161 employees
were released, however, as the end of year approached,
new appointments were made to meet rising demand levels.

The business unit has introduced new technology during the
year to meet customer expectations of providing more efficient
or lower cost well completion solutions. The H-1 Perforating
System increased commercial sales throughout the year, with
major operators utilising the technology, which allows for quicker
perforating times and safer operating conditions. The business
has also introduced its new EQUAfrac™ shaped charge
technology, which has been used by clients across the US.
This charge ensures uniform hole perforations along the wellbore,
providing enhanced production and recovery from the reservoir.
The business continues to manufacture perforating guns in
Canada, China and Mexico, where cost efficiencies and lower
material cost benefits can be captured.

Sales increased 24% in the second half of 2016 compared
to the first half of the year, with this increase in momentum
continuing to date. In particular, the unit’s shared facility with US
Drilling Tools at Odessa, Texas, US, located in the Permian basin,
reported strong increases in sales as the year progressed.
To meet growing demand, additional production shifts have
been added in Q4 2016 to satisfy supply.

Manufacturing and Accessories
The Group’s Manufacturing and Accessories business has
been particularly hit by the market downturn. During the year,
the business reduced headcount by 31%, as activity levels
reduced as a consequence of the low oil prices recorded earlier
in the year. To address the reduction in activity, the business
closed one facility in Houston, US, to reduce its fixed cost base,
relocating production assets to other facilities within the
business unit.

International Completion
Hunting’s Canadian business has been adversely impacted by
the declining North American rig count and the reduction in
the number of wells being drilled in the country. To address the
market downturn, the business has reduced its operations to
a four day week to minimise losses. Despite this contraction in
activity, the business has retained key clients, with ongoing
demand seen for a number of product lines, including Hunting’s
“Vacuum Insulated Tubing” lines. As the oil price stabilised in the
second half of the year, marginal improvements in activity levels
were reported.

The Group’s European operations have reduced headcount in
the year as activity in the North Sea declined to an average of
eight drilling rigs operating throughout the year. The business
has, however, been successful in retaining key pipe supply
contracts with major customers, despite the intense competition
across the industry. During the year, activity in Italy was also
wound down.

Hunting PLC
2016 Annual Report and Accounts
45

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONGROUP PERFOR M ANCE
AND DE VELOPMENT
C ONTIN UED

In the Middle East, Hunting has continued to build its regional
presence following the formation of its joint venture with
SG Petroleum in Saudi Arabia. The business had broadened
its licences in the Kingdom to enable a wider number of
product lines to be distributed. Towards the end of the year,
activity levels also increased in Northern Iraq, as the security
situation improved.

Hunting’s Asia Pacific business has reduced its headcount
by 19% as demand declined across the region. The business
has suspended its AMG-related business at its Tuas facility
and has put on hold its plans to consolidate facilities, given the
need to reduce capital expenditure. Further, the Group’s facility
in Thailand was closed as part of the reorganisation of the
Group’s regional presence. Cross training of staff has been an
area of focus, to allow remaining employees to assist with the
manufacture and sale of a wider range of product lines, as and
when the market returns to growth.

Well Intervention

S U B - S A H A R A R E G I O N A L H Q
I N C A P E TOW N

Revenue
Underlying (loss) profit from operations
Underlying operating margin
Reported loss from operations
Capital investment
Average employees
Year end employees

2016
$m
52.2
$m (19.5)
%
(37)
$m (21.4)
$m
1.6
356
353

2015
106.3
4.6
4
(27.0)
8.6
499
428

Well Intervention
Hunting’s well intervention business has been particularly
impacted by competitor actions in the year, as intervention tools
and services were used across the industry as a loss leader for
other product lines. The business has introduced new valve and
blow-out preventer product lines in the year, which have seen
reasonable market acceptance. Hunting has also progressed its
entry into the Norwegian market, gaining regulatory approval for
a number of products.

The Well Intervention segment comprises the Hunting Subsea
and well intervention businesses.

Revenue in the segment declined 51% in the year to $52.2m
(2015 – $106.3m), with an underlying loss from continuing
operations of $19.5m being recorded (2015 – $4.6m profit).
There were no impairments to the carrying value of goodwill
(2015 – $29.9m). Other charges, comprising amortisation of
acquired intangible assets and restructuring costs totalled
$1.9m (2015 – $1.7m), leading to a reported loss from continuing
operations of $21.4m (2015 – $27.0m).

Exploration and Production
Hunting’s exploration and production business has oil and natural
gas well investments mainly in the Southern US and offshore
shallow waters in the Gulf of Mexico, holding equity interests in
34 producing properties.

During 2016, the unit did not participate in any drilling.

On a Barrel of Oil Equivalent basis (“BOE”), production in the
year was 96,000 BOE (2015 – 118,000 BOE), with reserves
at 31 December 2016 being 0.6m BOE (2015 – 0.6m BOE).

Capital investment within the segment totalled $1.6m. With the
programme to reduce the workforce completed, the year end
number of employees was 353 (2015 – 428).

In 2016, the business reported an underlying loss from
operations of $2.6m (2015 – $4.3m).

Hunting Subsea
Hunting Subsea has been adversely impacted by the slowing
offshore drilling environment as the oil price continued to
decrease in the early part of the year, leading to customers
deferring or cancelling deepwater projects. To reduce losses,
the business reduced its headcount by 28% in the year.

The business has continued to develop new products
in the year, including metal seals and couplings for use
in deepwater applications.

Following a year end valuation of reserves, no impairments have
been recorded (2015 – $6.4m).

The reported loss from operations for 2016 was therefore
$2.6m (2015 – $10.7m).

Hunting PLC
2016 Annual Report and Accounts
46

Summary Group Cash Flow

Underlying EBITDA (loss) (NGM A)
Working capital movements (NGM I)
Net interest paid and bank fees
Tax received (paid)
Restructuring costs (note 7)
Replacement capital investment (NGM J)
Other operating cash and non-cash movements
(NGM K)
Free cash flow (NGM L)
Expansion capital investment (NGM J)
Dividends to PLC equity holders (note 33)
Tax indemnity receipt
Cash received from equity placing to shareholders
(note 31)
Other
Net cash inflow

2016
$m
(48.9)
58.4
(4.6)
31.3
(5.9)
(4.2)

10.5
36.6
(13.0)
(5.9)
7.9

83.9
(0.9)
108.6

2015
$m
61.9
96.0
(7.4)
(10.5)
(5.9)
(22.0)

5.9
118.0
(59.1)
(39.8)
–

–
1.4
20.5

Cash Flow
The underlying EBITDA loss in the year was $48.9m
(2015 – $61.9m profit), reflecting the severe market downturn,
which persisted throughout the year across the oil and
gas industry.

Working capital movements generated $58.4m of cash inflows
(2015 – $96.0m), reflecting the Group’s focus on working capital
management, in particular the Group-wide drive to reduce
inventory across all business units.

Net interest paid and bank fees reduced in the year to $4.6m
from $7.4m in 2015, reflecting lower levels of borrowings within
the Group’s revolving credit facility.

Tax received in the year was $31.3m, largely reflecting tax
refunds from the carry-back of losses.

Restructuring costs gave rise to cash outflows of $5.9m
(2015 – $5.9m) mainly as a result of workforce reduction
programmes.

Replacement capital investment decreased to $4.2m in 2016
(2015 – $22.0m), as the Group cut non-essential expenditures
and curtailed new equipment purchases. In the year, the key
components included $1.8m on drilling tools and $1.9m on
machinery and equipment. Exploration and production capital
investment totalled $0.5m during the year.

As a result of the above, free cash inflow was $36.6m in the year
(2015 – $118.0m).

Expansion capital investment during 2016 fell to $13.0m
(2015 – $59.1m) as the Group’s facility expansion programme
concluded. The Group incurred $3.6m on its facility at Ameriport,
US, $4.4m at Hunting Dearborn, $1.8m at Velsen-Noord in the
Netherlands, $0.5m on drilling tools and rental equipment and
$1.4m on machinery and equipment. Other expansion capital
investments totalled $1.3m.

Total dividends paid in the year to PLC equity shareholders
were $5.9m being the final dividend for 2015 of 4.0 cents per
share, which was approved at the Company’s Annual General
Meeting in April 2016 and paid to shareholders on 6 July 2016.

During the year, a $7.9m tax indemnity receipt from Canada,
relating to the disposal of Gibson Energy, was received.
All historic tax matters in relation to Gibson Energy have now
been concluded.

On 31 October 2016, the Group placed 14.6m new Ordinary
shares raising $83.9m net of transaction expenses.

With the proceeds of the placing and other cash management
initiatives outlined above, borrowings have been virtually
eliminated with a net debt position of $1.9m at 31 December
2016 (2015 – $110.5m).

Hunting PLC
2016 Annual Report and Accounts
47

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONGROUP FUNDING AND POSITION
AT YE AR END

TH E GROUP ’ S FUNDING P O S ITI ON R E M AIN S RO BU S T, WITH
CO M M IT T E D BA N K FACILITI E S O F $20 0 M IN PL AC E .

The primary focus for the Group during the year has been to
secure financial flexibility and strengthen the balance sheet as
the severe market downturn persisted throughout the year.

In the first half of 2016, the loss making position of the Group
necessitated the renegotiation of the terms of the borrowing
facilities that were available, resulting in a reduction in the overall
quantum of facilities available to the Group from approximately
$415m to $219m.

A series of amendments to the Group’s borrowing facilities
became effective on 20 July 2016, including suspension of the
covenant package that was agreed as part of the October 2015
refinancing. The revised terms will be in place during the period
up to and including the 30 June 2018 covenant test date (the
“Suspension Period”). The net debt to EBITDA and interest cover
measures were replaced with balance sheet based covenants.
Minimum cash flow requirements and restrictions on capital
investment and dividends were also implemented. In addition to
the amended financial covenants, first priority security in favour
of the Group’s lending banks was created over certain inventory,
trade receivables and accrued revenue of US, Canadian and UK
subsidiaries and certain freehold properties in the US and UK.

The amended terms and conditions can be summarised
as follows:

• Tangible net worth (defined as total equity less non-controlling
interests, goodwill and other intangible assets) – must be
greater than $450.0m;

• Asset cover – drawings under the Group’s committed bank
facilities are required to be covered by the discounted value
of the secured assets;

• Discounted asset cover – the balance of discounted trade
receivables and accrued revenue values shall not be less
than 40% of the utilisation of the committed facilities; and

• Cash flow – targets measured semi-annually.

In addition to the amended financial covenants, capital
investment was restricted to $20.0m or less in the 12 months to
31 December 2016 and must not exceed $30.0m annually at any
point during the remainder of the suspension period. Finally, the
declaration and payment of dividends throughout the suspension
period is prohibited.

As the onshore market showed signs of recovery throughout
H2 2016, enquiry levels and sales within Hunting’s Perforating
Systems business increased. The Board therefore elected in
October to raise new equity capital through a placing with new
and existing investors to increase financial flexibility and reduce
borrowings. The equity placing, which completed on 31 October
2016, raised $83.9m net of transaction expenses, through the
issue of 14.6m new Ordinary shares or 9.8% of the issued share
capital. The proceeds of the placing allowed the Group to reduce
borrowings and at 31 December 2016, net debt was $1.9m
(31 December 2015 – $110.5m).

Financial Capital Management
Capital employed is managed in order to ensure an appropriate
level of financing is available for the Group’s activities. The
balance of debt and equity is managed having due regard to
the respective cost of funds and their availability.

The Group operates a centralised treasury function, with policies
and procedures approved by the Board. These cover funding,
banking relationships, foreign currency and interest rate
exposures and cash management, together with the investment
of surplus cash.

The Group operates in a number of geographic territories
and results are generated in a number of different currencies.
The US dollar is the most significant functional currency,
however, where this is not the case, the Group is subject to
the effects of foreign exchange rate fluctuations with respect
to currency conversions. Currency exposure on the balance
sheet is, where practical, reduced by financing assets with
borrowings in the same currency. Spot and forward foreign
exchange contracts are used to cover the net exposure of
purchases and sales in non-domestic currencies.

Total equity
Net debt
Capital employed
Gearing

2016
$m
1,117.4
1.9
1,119.3
0%

2015
$m
1,168.1
110.5
1,278.6
9%

The Group’s net debt position is monitored by the central
treasury function on a daily basis and a variety of cash forecasts,
looking at different time horizons, are prepared on a periodic
basis.

The Group’s funding position remains robust, with total credit
facilities of $219.2m in place (2015 – $414.6m) of which $200.0m
(2015 – $350.0m) is committed. The lending group, who provide
the committed facilities, comprises of five banks: Lloyds,
Barclays, HSBC, Wells Fargo and DBS. Further details of the
facility, including the terms and conditions, are in note 27.

Management’s judgement is that the level of headroom available
under the Group’s total credit facilities provides ongoing flexibility
and continues to support the business as outlined in this
Strategic Report.

Further detail on financial risks is provided within note 27.

Hunting PLC
2016 Annual Report and Accounts
48

Balance Sheet

Property, plant and equipment
Goodwill
Other intangible assets
Working capital (NGM C)
Taxation (current and deferred)
Provisions
Other net assets
Capital employed
Net debt (note 23)
Net assets
Non-controlling interests
Equity attributable to owners of the parent

2016
$m
419.0
229.8
150.7
300.2
(3.4)
(15.7)
38.7
1,119.3
(1.9)
1,117.4
(19.3)
1,098.1

2015
$m
460.8
230.6
180.4
365.8
10.7
(18.0)
48.3
1,278.6
(110.5)
1,168.1
(26.2)
1,141.9

Property, plant and equipment has decreased by $41.8m.
Additions of $15.4m were offset by depreciation of $41.2m,
impairment of assets of $3.5m, $1.6m transferred to held for sale
assets and $0.1m transferred to inventories. The net book value
on disposals amounted to $3.3m and adverse foreign exchange
adjustments totalled $7.5m.

Given the continued downturn across the energy industry
during 2016, management undertook an impairment review
exercise ahead of the Group’s half and full-year results. Both
exercises analysed the carrying value of goodwill for each
relevant cash generating unit across the Group, based on future
cash projections, while adopting appropriate discount rates.
As a result of these exercises, no impairments were recorded
in the year. Further details of the impairment reviews are detailed
in note 15.

S U B S E A VA LV E
A S S E M B LY C E L L S

Working capital has decreased by $65.6m. The reduction in
activity levels, together with management’s focus on working
capital, led to cash inflows of $58.4m. Foreign exchange had a
$9.1m favourable impact on working capital, but this was offset
by $1.9m of non-cash adjustments.

Tax balances show net liabilities of $3.4m at 31 December 2016
(2015 – $10.7m net assets) reflecting the absence of taxable
profits generated in 2016.

Provisions have reduced by $2.3m principally due to the further
reduction of vacant leasehold property obligations.

As a result of the above changes, capital employed in the Group
has reduced by $159.3m to $1,119.3m.

Cash generation has been a primary focus during the year,
resulting in an overall cash inflow in 2016 which, including the
proceeds from the equity placing, reduced net debt to $1.9m
at 31 December 2016.

Net assets at 31 December 2016 were $1,117.4m, which, after
non-controlling interests of $19.3m, result in equity shareholders’
funds of $1,098.1m (2015 – $1,141.9m). This is a decrease of
$43.8m over 31 December 2015, which reflects the loss for the
year attributable to equity shareholders of $107.5m, $5.9m
of dividend payments and foreign exchange losses of $18.3m,
offset by the net proceeds from the equity placing of $83.9m
and other items of $4.0m.

T H E N E W E ZI - S H E A R
S E A L VA LV E

Other intangible assets have reduced by $29.7m, the main
movements being an amortisation charge for the year of $35.3m,
disposals of $0.3m and foreign exchange of $0.5m, offset by
the capitalisation of technology and software development costs
of $6.4m.

D E N N I S P R O C T O R
C H I EF E X E C U T I V E

P E T E R R O S E
F I N A N C E D I R E C TO R

2 March 2017

Hunting PLC
2016 Annual Report and Accounts
49

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION

BOARD OF DIREC TOR S

J o h n
N i c h o l a s

J o h n
H o f m e i s t e r

P e t e r
R o s e

R i c h a r d
H u n t i n g C . B . E .

D e n n i s
P r o c t o r

A n n e l l
B a y

J o h n
G l i c k

Hunting PLC
2016 Annual Report and Accounts
50

R I C H A R D H U N T I N G C . B . E .
N O N - E X E C U T I V E C H A I R M A N

Nationality
British

Length of service
44 years; elected an executive Director and
Deputy Chairman on the formation of Hunting
PLC in 1989 and has been Chairman of the
Board since 1991. In 2011, Richard moved
from an executive to a non-executive role.

Skills and experience
Prior to his appointment as Chairman, Richard
held a variety of management positions around
the Hunting Group.

External appointments
None.

Committee membership
Nomination Committee (Chairman)
and by invitation.

J O H N H O F M E I S T E R
S EN I O R I N D EP EN D EN T D I R E C TO R
A N D N O N - E X E C U T I V E D I R E C TO R

Nationality
American

J O H N G L I C K
N O N - E X E C U T I V E D I R E C TO R

Nationality
American

Length of service
8 years; appointed to the Board as
a non-executive Director in 2009.

Length of service
2 years; appointed to the Board as
a non-executive Director in 2015.

Skills and experience
John is the former president of Shell Oil
Company and a former group director of Royal
Dutch Shell PLC in The Hague, Netherlands.

External appointments
John is the founder and chief executive officer
of the not-for-profit organisation Citizens for
Affordable Energy Inc, non-executive chairman
of Erin Energy Corporation and a non-executive
director of Applus Services SA.

Committee membership
Audit Committee.
Nomination Committee.
Remuneration Committee (Chairman).

Skills and experience
John (“Jay”) was formerly the president and
chief executive officer of Lufkin Industries Inc
and, prior to that, held several senior
management roles within Cameron
International Corporation.

External appointments
Jay is currently a non-executive director of
TETRA Technologies Inc.

Committee membership
Audit Committee.
Nomination Committee.
Remuneration Committee.

D E N N I S P R O C T O R
C H I EF E X E C U T I V E

A N N E L L B A Y
N O N - E X E C U T I V E D I R E C TO R

J O H N N I C H O L A S
N O N - E X E C U T I V E D I R E C TO R

Nationality
American

Nationality
British

Length of service
24 years; appointed to the Board as a Director
in 2000 and Chief Executive in 2001. Dennis
was appointed chief executive of Hunting
Energy Services from March 2000 after joining
the Group in 1993.

Skills and experience
Dennis has held senior positions in the oil
services industry in Europe, the Middle East
and North America.

External appointments
None.

Committee membership
Nomination Committee and by invitation.

Length of service
2 years; appointed to the Board as
a non-executive Director in 2015.

Length of service
8 years; appointed to the Board as
a non-executive Director in 2009.

Skills and experience
Annell was formerly a vice-president of
global exploration at Marathon Oil Corporation
and, prior to that, vice-president of Americas
Exploration at Shell Exploration and
Production Company.

Skills and experience
John is a Fellow of the Association of Chartered
Certified Accountants. He was formerly the
group finance director of Tate & Lyle PLC and,
prior to that, the group finance director of
Kidde PLC.

External appointments
Annell is currently a non-executive director
of Apache Corporation and Verisk
Analytics Inc.

External appointments
John is currently the non-executive chairman
of Diploma PLC and a non-executive director
of Mondi plc.

Committee membership
Audit Committee.
Nomination Committee.
Remuneration Committee.

Committee membership
Audit Committee (Chairman).
Nomination Committee.
Remuneration Committee.

P E T E R R O S E
F I N A N C E D I R E C TO R

Nationality
British

Length of service
20 years; appointed to the Board as Finance
Director in 2008.

Skills and experience
Peter is a Chartered Accountant and prior to
joining Hunting held senior financial positions
with Babcock International.

External appointments
None.

Committee membership
By invitation.

Hunting PLC
2016 Annual Report and Accounts
51

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONCORP OR ATE GOVERNANCE REPORT

“HUNTING CONTINU E D TO A PPLY TH E
PR IN CI PLE S O F TH E UK CO R P O R AT E G OV E R NA N C E
CO D E DUR ING 2016 . W HILE TH E CO M P O S ITI ON
O F TH E B OAR D R E M AIN E D UN C HA NG E D
TH ROUGH OUT TH E Y E AR , I M PROV E M E NT S TO
IN F O R M ATI ON FLOWS W E R E INTRO DUC E D,
TO A LLOW TH E DIR E C TO R S TO UND E R S TA N D TH E
I M PAC T O F TH E PRO LONG E D E N E RGY M A R K E T
D OWNTUR N A ND TH E AC TI ON S TA K E N BY
M A NAG E M E NT TO A DDR E S S TH E SUB DU E D
M A R K E T E NVIRONM E NT.

“ TH E B OAR D AL S O UND E RTO O K A N INT E R NA LLY
FACILITAT E D E VALUATI ON DUR ING TH E FINA L
M ONTH S O F TH E Y E AR , W HI CH CON FIR M E D
IT S TILL O PE R AT E D E FFE C TIV E LY, WITH A C LE A R
S TR AT E GY IN PL AC E TO W E ATH E R TH E S E V E R E
M AR K E T E NVIRONM E NT S E E N S IN C E 2014.”

R I C H A R D H U N T I N G C . B . E .
C H A I R M A N

Compliance
The Board of Hunting PLC has adopted governance principles
aligned with the 2014 UK Corporate Governance Code (the
“Code” which can be found at www.frc.org.uk). The Company
is reporting its corporate governance compliance against this
Code. In April 2016, the Financial Reporting Council issued
an update to the Code. Hunting will report its governance
compliance against the revised Code in its 2017 Annual Report
and Accounts.

During the year, Hunting was compliant with the provisions of the
Code, with the exception of the following:

Provision A.3.1 requires the Chairman, on appointment, to be
independent. For information regarding non-compliance with
this provision see below. Provision C.3.7 requires the Company
to put the external audit contract out to tender at least once
every 10 years. For information regarding non-compliance with
this provision refer to page 60 of the Audit Committee report.

Governance Framework
Subject to the Company’s Articles of Association, UK legislation
and any directions prescribed by resolution at a general meeting,
the business of the Company is managed by the Hunting PLC
Board. The Board is responsible for the management and
strategic direction of the Company, with three committees to
which it delegates key governance and compliance procedures:
the Nomination Committee, whose activities are incorporated
into this report; the Audit Committee, whose report can be found
on pages 57 to 60 and the Remuneration Committee, whose
report can be found on pages 61 to 79.

Board Composition
The Board comprises the Chairman, Chief Executive, Finance
Director and four independent non-executive Directors, which
includes the Senior Independent Director.

There is a clear division of responsibilities between the Chairman
and Chief Executive. The Chairman is responsible for leading the
Board, including setting its agendas and ensuring that materials
are distributed in a timely manner. He also facilitates the
discussion of key matters between all the Directors. The Chief
Executive’s responsibilities include managing the day-to-day
running of the Company and recommending the strategic
direction of Hunting’s activities, while ensuring internal controls
and operating and financial reporting procedures are
implemented and remain appropriate.

The independent non-executive Directors are a key source
of expertise and contribute to the delivery of the Company’s
strategic goals. Non-executive Directors are chosen from the
oil and gas industry and regulatory sectors in which Hunting
operates. Three non-executive Directors have a strong track
record within the US energy industry, where the majority of
Hunting’s operations are based and where a high proportion
of the Company’s results are derived.

All non-executive Directors of the Company are believed to be
independent, with the exception of the Chairman, who was an
executive Director of the Company from the formation of Hunting
PLC in 1989 until 2011. As at 31 December 2016, and excluding
the Chairman, the Board was comprised of 67% independent
non-executive Directors. All the non-executive Directors have
access to professional advisers, at the Company’s expense,
to fulfil their various Board and Committee duties.

The Directors, together with brief biographical details, are
identified on pages 50 and 51. All independent non-executive
Directors are appointed to all Board committees.

Hunting PLC
2016 Annual Report and Accounts
52

The Company Secretary is appointed by the Board and supports
the Chairman in providing all board materials and information
flows between the executive and non-executive Directors,
specifically in matters of governance and regulatory compliance.
The Company Secretary is also available to the Board and all its
Committees for advice and ensures that all procedures
are followed.

Directors’ and Officers’ Liability Insurance
Hunting maintains insurance against certain liabilities, which
could arise from a negligent act or a breach of duty by the
Directors and Officers in the discharge of their duties. This is
a qualifying third-party indemnity provision that was in force
throughout the year.

Work Undertaken by the Board During 2016
The Board met seven times in 2016, on six occasions as regularly
timetabled, and on one further occasion, on 20 October 2016 to
approve plans for an equity placing, which was completed on
31 October 2016.

All Directors attended the regularly scheduled Board meetings.
Mr Glick was absent from the additional Board meeting that
discussed the equity placing, due to an unavoidable prior
commitment. Mr Glick was fully briefed on the equity placing,
reviewing copies of all meeting papers and subsequent minutes
of the meeting.

The attendance of the Directors at Board and Committee
meetings during 2016 is detailed in the table below:

Number of
meetings held
Number of meetings
attended actual/
possible:
Richard Hunting
Dennis Proctor
Peter Rose
Annell Bay
Jay Glick
John Hofmeister
John Nicholas

Board

Nomination
Committee

Audit
Committee

Remuneration
Committee

7/7
7/7
7/7
7/7
6/7
7/7
7/7

5/5
5/5
–
5/5
5/5
5/5
5/5

–
–
–
4/4
4/4
4/4
4/4

–
–
–
6/6
6/6
6/6
6/6

At each Board meeting, the Chief Executive updates the Board
on key operational developments, provides an overview of the
market, reports on health and safety, and highlights important
milestones reached towards the delivery of Hunting’s strategic
objectives.

The Finance Director provides an update on the Group’s financial
performance and position, banking arrangements, legal issues,
analyst discussions and statutory reporting developments
relevant to Hunting. These topics lead to discussion, debate and
challenge amongst the Directors.

During 2016, the standing items and other items for regular
Board meetings included the following business:

Mar Apr

Jun Sep Oct Dec

Standing items
Chief Executive Update
Finance Director Report
Operational Reports
Quality, HSE Reports
Shareholder Report
Other items
Annual Report and Accounts
Board Evaluation
Risk Review
AGM Preparation
Trading Statement
Strategy
Financial Personnel Succession
Half Year Report
Annual Budget
Non-executive Director Remuneration
Chairman/Senior Independent Director
Investor Feedback

Board Appointments and Nomination Committee
Hunting’s Nomination Committee comprises the Company’s
non-executive Chairman (Committee Chairman), Chief Executive
and the independent non-executive Directors. The terms
of reference of the Nomination Committee can be found
on the Company’s website at www.huntingplc.com.
At 31 December 2016, 67% of the Committee comprised
of independent non-executive Directors.

During 2016, the Nomination Committee met five times
to consider senior management development and general
succession matters, as recommended by the Code.

The Committee met in June to consider the reappointment
of Richard Hunting for a further three-year term from
1 August 2016. The Committee, led by the Senior Independent
Director, undertook a formal performance evaluation of
Mr Hunting as part of the process, concluding that he remained
an effective and able Chairman of the Company.

All appointments to the Board are in accordance with the
Company’s Articles of Association and the Code.

The Chairman has also met with the non-executive Directors
throughout the year to discuss and agree, among other matters,
training and development.

On appointment, each non-executive Director is provided with
a letter of appointment, outlining the time commitments,
responsibilities and fiduciary duties required under Company
Law and, following Company policy, are appointed for a three-
year term. All appointment letters are available for inspection
at the Company’s AGM or at Hunting’s registered office.

Hunting PLC
2016 Annual Report and Accounts
53

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONCORP OR ATE GOVERNANCE REPORT
C ONTIN UED

As prescribed by the Code, all the Directors submit themselves
for annual re-election at the Company’s AGM and at the 2016
AGM all Directors were re-elected by shareholders.

During the year, management succession was a regular
discussion topic of the Board and Nomination Committee,
with key positions and succession plans being considered.

In 2012, the Company issued its gender diversity policy for new
Director appointments. Hunting’s diversity policy commits the
Group to:

• an embedded culture of equal opportunities for all employees,

regardless of gender;

• require external recruitment consultants to submit their
diversity policies to the Group prior to appointment;

• ensure that external consultants appointed by Hunting provide

candidate shortlists comprising of an appropriate gender
balance for consideration by the Nomination Committee;
• a target of at least one female Director of the Company when

practicable; and

• a periodic review by the Nomination Committee of its progress

in complying with best practice recommendations.

Following the appointment of Annell Bay in 2015, Hunting
has met its stated diversity target and is more aligned with
current recommendations.

Board Evaluation
The Directors undertake an annual evaluation of the Board
and its Committees, which includes completion of a detailed
questionnaire on the operation and governance responsibilities
in relation to the Company’s governance framework. Both the
executive and non-executive Directors are appraised collectively
and individually, with the results of the process reported to
the Board through the Chairman. This process was undertaken
in December 2016, with the Board concluding that each
Director, the Committees of the Board and the Board itself
remained effective.

Furthermore, the Chairman’s performance was evaluated in a
separate exercise by the non-executive Directors led by John
Hofmeister, the Company’s Senior Independent Director. The
non-executive Directors concluded that Mr Hunting had been an
effective and able Chairman of the Company throughout the year.

In 2015, the Company completed an externally facilitated
evaluation which was managed by IDDAS. This process will be
repeated in 2018.

Board Accountability
The Board has procedures in place to review all shareholder
communications, including the financial statements and Stock
Exchange announcements issued by the Company. Hunting’s
business model and strategy is detailed on pages 12 to 29.
The Board has delegated the responsibility of assessing whether
the financial statements are fair, balanced and understandable
to the Audit Committee. Further details of the responsibilities of
the Audit Committee can be found within its report.

Going Concern Basis and Viability Statement
The Audit Committee and Board review the Going Concern Basis
twice a year and the Group’s Viability Statement annually, in
parallel to supporting reports from the executive Directors and
Hunting’s central finance function.

On 2 March 2017, the Board approved the Going Concern Basis
and Viability Statement for the 2016 year end, which is detailed
on page 38.

Risk Management Procedures
The Board acknowledges its responsibility for monitoring the
Group’s principal risks and system of internal control and for
reviewing its effectiveness as required by the Code, with key
authorities being delegated to the Audit Committee.

Hunting’s principal risks, risk management framework and
systems of internal control are reviewed by the Board annually
and are detailed in the Strategic Report on pages 30 to 37.

Annual General Meeting (“AGM”)
The AGM of the Company will take place on Wednesday,
12 April 2017 at The Royal Automobile Club, 89 Pall Mall, London
SW1Y 5HS, commencing at 10.30 a.m. to which all shareholders
are invited. Shareholder voting procedures follow the provisions
of the Articles of Association and the Code, including a separate
resolution on each material item of business, the availability of
voting via proxy and the offer of a “vote withheld”. At the 2017
AGM, all resolutions will be voted on by way of a poll.

Further details of the resolutions and voting procedures are set
out in the Notice of AGM. Shareholders can vote by completing
the form of proxy sent with the Notice of Meeting, or by
submitting votes electronically via the Registrars’ website
www.sharevote.co.uk or via their online portfolio service,
Shareview, if registered as a member. Alternatively, shares held
in CREST may be voted through the CREST Proxy Voting
Service. To be valid, all votes must be received no later than
48 hours before the time set for the meeting.

The Directors have been authorised to allot and issue Ordinary
shares and to disapply statutory pre-emption rights. These
powers are exercised under authority of resolutions of the
Company passed at its AGM. During the financial year ended
31 December 2016, 289,407 Ordinary shares were issued
pursuant to the Company’s various share plans. Further, on
31 October 2016, the Company issued 14,608,771 Ordinary
shares as part of an equity placing, raising $86.0m before
expenses, which was undertaken to reduce net debt and
increase financial flexibility.

The Company has authority, renewed annually, to purchase up
to 14.99% of the issued share capital, equating to 22,311,342
shares. Any shares purchased will either be cancelled, and the
number of Ordinary shares in issue reduced accordingly, or held
in Treasury. During 2016, no Ordinary shares were purchased by
the Company, under this authority.

These powers are effective for 15 months from the date of
shareholder approval, or up to the next general meeting where
new authorities are sought. The Directors will be seeking new
authorities for these powers at the 2017 AGM.

Employee Share Trust
The Group operates an Employee Share Trust (the “Trust”) as a
vehicle to satisfy share options and awards granted to employees
who participate in the Company’s share-based incentive
schemes. At 31 December 2016, the Trust held 791,852 Ordinary
shares in the Company (2015 – 914,225). The Trust has a policy
to purchase shares in the market or subscribe for new shares to
partially meet the future requirements of these incentive
schemes. During the year, the Trust subscribed for 289,407
Ordinary shares at the nominal value of 25 pence per share.

In accordance with Listing Rule 9.8.4C, the Trust has waived all
dividends payable by the Company and voting rights in respect
of the Ordinary shares held by it. Total dividends waived by the
Trust in the financial year to 31 December 2016 were $33,490.

Hunting PLC
2016 Annual Report and Accounts
54

Shareholders
The Company uses a number of processes for communicating
with shareholders, including Stock Exchange announcements,
the annual and half-year reports, webcasts, trading statements
and the AGM to which all shareholders are invited. In addition,
the Chief Executive and Finance Director meet on a one-to-one
basis with principal shareholders at least twice a year, following
the Group’s annual and half-year results, or when requested to
update them on Group performance and strategy. The Board is in
turn briefed by the Chief Executive, when appropriate, on matters
raised by shareholders. During the year, the Chairman and Senior
Independent Director also met with a number of shareholders to
discuss strategy, governance and other matters. Their comments
were passed on to the Board by the Chairman. The non-executive
Directors are also available to meet shareholders.

Share Capital
As at 31 December 2016, the Company’s issued share capital
totalled 163,739,686 Ordinary shares of 25 pence each
(31 December 2015 – 148,841,508). For further information
please refer to the Shareholder and Statutory Information on
pages 147 to 149.

By Order of the Board

The Company’s major shareholders, as at 31 December 2016,
are listed below:

R I C H A R D H U N T I N G C . B . E .
CHA IR M AN

2 March 2017

BlackRock
AXA group of companies
Wellington Management
Hunting Investments Limited
Franklin Templeton group
of companies
Slaley Investments Limited
J Trafford – as trustee
Nordea Asset Management
David RL Hunting
– as trustee
– other beneficial

Number of
Ordinary
shares
20,705,121
17,729,582
12,735,152
11,073,487

9,157,367
6,411,679
6,025,864
4,926,622
199,910
2,549,117
2,484,583

Percentage
of issued
Ordinary
shares
12.6
10.8
7.8
6.8

5.6
3.9
3.7
3.0
0.1
1.6
1.5

Notes

(7)

(8)

(1/4/5)

(5)

(2/5)

(6)

(5)

(2/5)

(3/5)

Notes:
1.

Included in this holding are 9,437,743 Ordinary shares held by Huntridge Limited, a wholly
owned subsidiary of Hunting Investments Limited. Neither of these companies is owned by
Hunting PLC either directly or indirectly.

2. After elimination of duplicate holdings, the total Hunting family trustee interests shown

above amount to 6,025,864 Ordinary shares.

3. Arise because David RL Hunting and his children are or could become beneficiaries under

the relevant family trusts of which David RL Hunting is a trustee.

4. Richard H Hunting (Chairman of Hunting PLC) and David RL Hunting are both directors of

Hunting Investments Limited.
In 2014, Hunting Investments Limited, Slaley Investments Limited, certain Hunting family
members, including Richard H Hunting and David RL Hunting and the Hunting family trusts,
to which James Trafford is a trustee (together known as “the Hunting Family Interests”)
entered into a voting agreement. The voting agreement has the legal effect of transferring all
voting rights of Hunting PLC Ordinary shares held by the Hunting Family Interests to a voting
committee. The beneficial ownership of Hunting PLC Ordinary shares remains as per the
table shown above. At 2 March 2017, the Hunting Family Interests party to the agreement
totalled 25,513,715 Ordinary shares in the Company, representing 15.6% of the total voting
rights.

6. On 10 January 2017, the Company was notified by Nordea that its holding had reduced

to 4,669,815 Ordinary shares, representing 2.9% of the issued share capital.

7. On 13 January 2017, the Company was notified by BlackRock that its holding had increased

to 21,355,252 Ordinary shares, representing 13.0% of the issued share capital. On
31 January 2017, the Company was notified that BlackRock’s holding had increased to
22,324,087 Ordinary shares, representing 13.6% of the issued share capital. On 6 February
2017, the Company was notified that BlackRock’s holding had increased to 23,005,671
Ordinary shares representing 14.1% of the issued share capital. On 7 February 2017, the
Company was notified that BlackRock’s holding had increased to 23,130,009 Ordinary
shares representing 14.1% of the issued share capital. On 21 February 2017, the Company
was notified that BlackRock’s holding had increased to 24,052,917 Ordinary shares
representing 14.7% of the issued share capital. On 24 February 2017, the Company
was notified that BlackRock’s holding had increased to 24,780,548 Ordinary shares
representing 15.1% of the issued share capital.

8. On 10 February 2017, Wellington Management Group LLP notified the Company that its

holding was 8,027,808 Ordinary shares, representing 4.9% of the issued share capital.
9. On 27 January 2017, Norges Bank notified the Company that it had increased its holding

to 4,993,506 Ordinary shares, representing 3.0% of the issued share capital.

Hunting PLC
2016 Annual Report and Accounts
55

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
DIREC TOR S’ REPORT

For the purpose of section 415 of the Companies Act 2006,
the Directors present their report and the audited financial
statements of Hunting PLC for the year ended
31 December 2016.

The Strategic Report, incorporating the Chairman’s Statement,
Chief Executive’s Review and Outlook, Business Model and
Strategy, Key Performance Indicators, Risk and Management,
Group Performance and Development, Group Funding and
Position, is located on pages 2 to 49.

As permitted by legislation, the Board has chosen to set out
within the Strategic Report some of the matters required to
be disclosed in the Directors’ Report which it considers to be
complementary to communicating Hunting’s performance and
position, as follows:

• changes in the Group and its interests (pages 7 and 8);
• future developments (page 8);
• risk management, objectives and policies (pages 30 to 37);
• inclusion and diversity (page 17); and
• greenhouse gas emissions (pages 18 and 19).

Up to the date of this report, there have been no events after
the reporting period that require disclosure.

In addition, information relating to the Directors’ indemnity
provisions, substantial shareholder interests and dividend
waivers, as required by legislation, are disclosed within the
Corporate Governance report on pages 53 to 55.

Investor-related information and further disclosures incorporated
into the Directors’ Report, such as information relating to the
AGM, dividends, Directors’ powers and interests, share capital,
political donations, research and development and significant
agreements, can be found within the Shareholders’ Information
section located on pages 147 to 149.

Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report,
the Audit and Remuneration Committee Reports, and the
financial statements in accordance with applicable laws
and regulations.

Company Law requires the Directors to prepare financial
statements for each financial year. Under that law, the Directors
have prepared the Group and parent Company financial
statements in accordance with International Financial Reporting
Standards (“IFRSs”) as adopted by the European Union (“EU”).

Under Company Law, the Directors must not approve the
financial statements unless they are satisfied that they give a true
and fair view of the state of affairs of the Group and the Company
and of the results of the Group for the year.

In preparing these financial statements, the Directors are
required to:

• select suitable accounting policies and apply

them consistently;

• make judgements and accounting estimates that are

reasonable and prudent;

• state whether applicable IFRSs as adopted by the EU have
been followed, subject to any material departures disclosed
and explained in the financial statements; and

• prepare the financial statements on a going concern basis,
unless it is inappropriate to presume that the Company will
continue in business.

The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group’s and
Company’s transactions, disclose with reasonable accuracy at
any time the financial position of the Group and the Company
and to enable them to ensure that the financial statements
and the Remuneration Committee Report comply with the
Companies Act 2006 and, as regards the Group financial
statements, Article 4 of the IAS Regulation. The Directors are
also responsible for safeguarding the assets of the Group and
the Company and for taking reasonable steps for the prevention
and detection of fraud and other irregularities.

The Directors are also responsible for the maintenance and
integrity of the Group’s website, www.huntingplc.com.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.

Pursuant to the Financial Conduct Authority’s Listing Rules,
Disclosure Guidance and Transparency Rules sourcebook and
the UK Corporate Governance Code, each of the Directors,
whose names and responsibilities are listed on pages 50 and 51,
confirm that, to the best of their knowledge and belief:

• the financial statements, prepared in accordance with IFRSs
as adopted by the EU, give a true and fair view of the assets,
liabilities, financial position and loss of the Group and profit of
the Company;

• the Strategic Report on pages 2 to 49 includes a fair

review of the development and performance of the Group’s
operations and the year end position of the Group and the
Company, together with a description of the principal risks
and uncertainties they face. The Strategic Report also details
the Group’s policies on human rights, gender balance and
its Scope 1 and 2 greenhouse gas emissions; and

• the Annual Report, taken as a whole, is fair, balanced and
understandable and provides the information necessary
for shareholders to assess a Company’s performance and
position, business model and strategy.

By Order of the Board

B E N W I L L E Y
CO M PA N Y S E C R E TA RY

2 March 2017

Hunting PLC
2016 Annual Report and Accounts
56

AUDIT COMMIT TEE REPORT
FOR THE YEAR EN DE D 31 DE C E MB E R 2 016

“DUR ING 2016 , TH E AUDIT CO M M IT T E E
CONTINU E D IT S PRO GR A M M E O F WO R K , W HI C H
IN CLUD E D R E VI E WING A ND M ONITO R ING K E Y
A S PE C T S O F FINA N CIAL R E P O R TING , R I S K
M A NAG E M E NT A ND INT E R NAL CONTRO L , IN LIN E
WITH R E CO M M E NDATI ON S PUB LI S H E D BY TH E
FINA N CIAL R E P O RTING COUN CIL .

“A S PART O F TH E PR E PAR ATI ON O F TH E HA LF
Y E AR A ND FULL Y E AR R E SULT S, TH E CO M M IT T E E
R E VI E W E D R E P O RT S ON G O O DWILL I M PAIR M E NT
A ND G O ING CON C E R N, F O LLOWING TH E LO S S E S
R E P O RT E D IN TH E Y E AR , WITH TH E CO M M IT T E E
B E ING SATI S FI E D THAT TH E DI S C LO SUR E S A ND
PR E PAR ATI ON O F TH E ACCOUNT S W E R E
A PPRO PR IAT E , GIV E N TH E FINA N CIA L
PE R F O R M A N C E A ND P O S ITI ON O F TH E GROUP.”

J O H N N I C H O L A S
C H A I R M A N O F T H E AUD I T CO M M I T T EE

Composition and Frequency of Meetings
The Committee currently comprises all of the independent
non-executive Directors of the Company and is chaired by
John Nicholas.

Mr Nicholas has a professional accounting qualification and is
considered to have recent and relevant financial experience.
Messrs Glick and Hofmeister and Ms Bay have extensive
experience of the global energy industry, with particular expertise
in the US oil and gas market. Further details of the Committee’s
experience can be found in the biographical summaries set out
on page 51.

The Committee meets four times a year and operates under
written terms of reference approved by the Board, which are
published on the Company’s website at www.huntingplc.com.

The Committee met in March, April, September and December,
and the attendance record of Committee members during the
year is noted on page 53. The Chairman, Chief Executive,
Finance Director, internal and external auditors are normally
invited to attend meetings.

During the year, the Committee reviewed its effectiveness and
the Committee Chairman reported these findings to the Board.

Responsibilities
The principal responsibilities of the Audit Committee are to:

• monitor and review reports from the executive Directors,
including the Group’s financial statements and Stock
Exchange announcements;

• provide to the Board a recommendation about the Annual
Report and Accounts, including whether they are fair,
balanced and understandable;

• review the Company’s and Group’s Going Concern Basis

and Viability Statement;

• monitor and review the Group’s systems of risk management

and internal control;

• assess the effectiveness of the Group’s systems of risk

management and internal control;

• review reports from the Group’s external auditors;
• review reports from the Group’s internal auditors, including

details of the internal audit programme and its scope;
• consider and recommend to the Board the appointment
or reappointment of the external auditors as applicable;

• agree the scope and fees of the external audit;
• monitor and approve engagements of the external auditors

to provide non-audit services to the Group;

• review the external auditors’ independence, effectiveness of
the audit process, and assess the level and quality of service
in relation to fees paid;

• monitor corporate governance and accounting developments;
• monitor the Group’s Bribery Act compliance procedures; and
• review the work to comply with the UK Modern Slavery Act.

Hunting PLC
2016 Annual Report and Accounts
57

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONAUDIT COMMIT TEE REPORT
FOR THE YEAR EN DE D 31 DE C E MB E R 2 016
C ONTIN UED

Work Undertaken by the Committee During 2016
The Committee discussed, reviewed and made a number of
decisions on key areas throughout 2016 which are set out below:

Mar Apr Sep Dec

Financial Reporting
Annual Report and Full Year Results announcement
Going Concern Basis
Viability Statement
Dividend Proposals
Interim Report and Interim Results
announcement
Draft Annual Report
Review Accounting Policies
Internal Control and Risk Management
Risk management and internal control report
Key risks and mitigating controls
Effectiveness of internal controls and internal
audit function
Internal Audit Report
Procedures for preventing bribery and corruption
Procedures for complying with the Modern
Slavery Act
Bribery policy review
Internal audit programme and resourcing
External Auditors
Auditor objectivity, independence and
re-appointment
Full year report to the Audit Committee
Final Management Letter on internal controls
Auditor performance and effectiveness
Proposed year end audit plan including scope,
fees and engagement letter
Interim review report to the Audit Committee
Risk of auditor leaving the market
Other Business
Whistleblowing policy review
Committee effectiveness
Terms of Reference

Review of the 2016 Financial Statements
The Committee reviews final drafts of the Group’s Annual Report
and Accounts for both the half and full year. As part of this
process, the performance of the Group’s major divisions is
considered, with key judgements, estimates and accounting
policies being approved by the Committee ahead of a
recommendation to the Board.

In addition to briefings and supporting reports from the central
finance team on significant issues, the Committee engages in
discussion with the Group’s external auditors.

Significant issues reviewed by the Committee in connection
with the 2016 Annual Report and Accounts were as follows:

Impairment Reviews
During 2016, the Group reported significant underlying and
reported losses from continuing operations, given the prolonged
downturn in Hunting’s core markets. Given this trading
environment, management completed impairment reviews on
the carrying values of assets held on the Group’s balance sheet
at the half and full year reporting dates.

Property, Plant and Equipment (“PPE”)
The year end balance sheet includes PPE of $419.0m
(2015 – $460.8m). This represents approximately 37% of the
Group’s net assets (2015 – 39%). With the market slowdown
impacting Hunting’s Asia Pacific operations, certain regional
assets were impaired with a $0.6m charge recognised. In
Europe, the closure of the Group’s European Drilling Tools
business led to a $2.9m impairment of assets. The Committee
reviewed the PPE impairment tests and, following discussion,
was satisfied that the assumptions and the disclosures in the
year end accounts were appropriate.

Goodwill
The year end balance sheet includes goodwill of $229.8m
(2015 – $230.6m). This represents approximately 21% of the
Group’s net assets (2015 – 20%). Detailed reviews on the
carrying values of goodwill held by Hunting’s relevant businesses
were undertaken at the half and full year, which confirmed that
Hunting’s projections supported no further impairments beyond
those recorded in 2015. The Committee considered the
appropriateness of the assumptions and challenged the discount
rates and the factors used in the review process. After
discussion, it was satisfied that the assumptions and the
disclosures in the year end accounts were appropriate.

Other Intangible Assets
The carrying value of the Group’s intangible assets was also
reviewed resulting in no impairments (2015 – $11.2m) being
recorded in the year. The amortisation charge recorded in the
income statement was $35.3m (2015 – $40.8m). As with the
goodwill impairment review, the Committee considered the
appropriateness of the assumptions, discount rates and factors
used in the review process.

Inventory
At the year end, the Group recorded $259.7m of inventory
(2015 – $331.2m). Due to the prolonged energy market
downturn, the carrying values have been closely monitored, with
management regularly reviewing the position to ensure slower
moving stock was booked appropriately. In 2016, a $10.3m net
impairment against the Group’s inventory carrying values was
booked, which is recorded within cost of sales (2015 – $9.3m).
The Committee reviewed the impairment calculations and
following discussion was satisfied that the assumptions and
the disclosures in the year end accounts were appropriate.

Taxation
In view of the international spread of operations, the Committee
monitors tax risk, tax audits and provisions held for taxation.
The Finance Director briefed the Committee on developments
during the year.

Exceptional Items Charged to the Consolidated
Income Statement
The Group reports a middle column within the consolidated
income statement, which includes amortisation and exceptional
items. The Committee considered the accounting policy
definition of exceptional items and the items included within
this column to ensure consistency of treatment and adherence
to policy. The Committee also reviewed the calculation and
composition of each exceptional item and has satisfied itself that
they are reported appropriately.

Hunting PLC
2016 Annual Report and Accounts
58

Going Concern Basis and Viability Statement
Given the trading losses reported by the Group during the year,
combined with the need to renegotiate banking covenants in the
summer months, the Committee closely monitored assumptions
around going concern at the half and full year, as well as those
around the Group’s Viability Statement for the full year. The
assumptions considered by the Committee included reviews
of the regular forecast updates provided by management and
reviewing bank covenant compliance reports on the renegotiated
revolving credit facility. The Committee also took into account
in their assessment the equity placing by the Company which
completed on Monday 31 October 2016 raising a net $83.9m.

Further information on the going concern assumption can be
found on page 38.

On 27 February 2017, the Audit Committee approved the Viability
Statement, detailed on page 38 of the Strategic Report, noting
that it presented a reasonable outlook for the Group for the next
three years.

Fair, Balanced and Understandable Assessment
The Committee has reviewed the financial statements together
with the narrative contained within the Strategic Report set
out on pages 2 to 49 and believes that the Annual Report and
Accounts, taken as a whole, is fair, balanced and understandable.

In arriving at this conclusion the Committee undertook
the following:

• review of early drafts of the Annual Report and Accounts,
providing relevant feedback to the executive Directors;
• regular review and discussion of the financial results during

the year, including briefings by Group finance and operational
management; and

• receipt and review of reports from the external and

Audit Scope
The Audit Committee also considered the audit scope and
materiality threshold. The audit scope was planned to cover
Group-wide risks and local statutory reporting, enhanced by
desk top reviews for smaller, low risk entities. Approximately 94%
of the Group’s reported revenue and over 90% of the absolute
result before tax from continuing operations, adjusted for the
impairment of goodwill and other non-current assets, was
audited, covering 22 reporting units across seven countries.

Materiality
The Committee has discussed materiality with the auditors both
as regards accounting errors that will be brought to the Audit
Committee’s attention and as regards amounts that would need
to be adjusted so that the financial statements give a true and fair
view. Overall audit materiality was set at $5.0m (2015 – $5.0m).
This equates to approximately 5% of the Group’s average
reported absolute result before tax from continuing operations,
adjusted for the impairment of goodwill and other non-current
assets, for the past three years. This is within the range that audit
opinions are considered to be reliable. Furthermore, the auditors
agreed to draw to the Audit Committee’s attention all identified
uncorrected misstatements greater than $0.3m.

Audit Effectiveness
The external auditor’s full year report includes a statement on
their independence, their ability to remain objective and their
ability to undertake an effective audit. The Committee considers
and assesses this independence statement on behalf of the
Board, taking into account the level of fees paid, particularly for
non-audit services.

The effectiveness of the audit process is considered throughout
the year with a formal review undertaken at the April meeting of
the Committee. The assessment considers the following matters:

internal auditors.

• the auditor’s understanding of the Group’s business and

industry sector;

• the planning and execution of the audit plan approved by

the Committee;

• the communication between the Group and audit

engagement team;

• the auditor’s response to questions from the

Committee, including during private meetings without
management present;

• the independence, objectivity and scepticism of the auditor;
• responses to a formal questionnaire on conduct of the audit

from the senior financial managers of the Group;

• a report from the Finance Director and the Group Financial

Controller; and

• finalisation of the audit work ahead of completion of the

Annual Report and Accounts.

In addition, the Committee reviewed and took account of
the reports from the Financial Reporting Council on
PricewaterhouseCoopers LLP. After considering these matters,
the Committee was satisfied with the effectiveness of the year
end audit process.

The Committee advised the Board of its conclusion that the
2016 Annual Report and Accounts, taken as a whole, were fair,
balanced and understandable at a Meeting of the Directors on
28 February 2017.

Internal Audit
The Committee receives reports from the Internal Audit
department and reviews the internal audit process and
effectiveness as part of the Group’s internal control and risk
assessment programme. An annual programme of internal audit
assignments is reviewed by the Committee. The Committee
met with the head of Internal Audit without the presence of the
executive Directors on three occasions during the year. The
effectiveness of the Internal Audit function was also considered
by the Committee at its March meeting.

External Audit
The external auditors presented reports at the March, April,
September and December meetings for consideration by the
Committee. In March, a full year report was considered ahead of
publication of the Group’s Annual Report and Accounts; in April
an internal control report was presented, following the year end
audit and in September an interim report was presented, which
includes the proposed full year audit scope and fees. An update
to the full year plan was presented at the December meeting.
The Committee considers the reappointment of the auditors
annually at its March meeting and makes a recommendation
to the Board. The Committee normally meets with the external
auditors, without executive Directors present, at the end of each
formal meeting.

Hunting PLC
2016 Annual Report and Accounts
59

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONAUDIT COMMIT TEE REPORT
FOR THE YEAR EN DE D 31 DE C E MB E R 2 016
C ONTIN UED

Modern Slavery Act
The Modern Slavery Act 2015 was enacted during 2016 and
requires companies to evaluate internal and external risks related
to human trafficking and modern slavery. Procedures were
introduced during the second half of 2016, whereby each
business unit across the Hunting group completed due diligence
on its workforce to highlight employment risks in relation to
trafficking and slavery. All businesses within the Group also
completed a risk-mapping exercise of their known supply chain
to evaluate those customers and suppliers to the Group who
operate in those jurisdictions where trafficking and slavery
is more prevalent.

A summary report on compliance with the Modern Slavery
Act, which encompassed a roadmap for the further evolution
of Hunting’s due diligence and compliance procedures in
this area, was reviewed by the Audit Committee at its
December 2016 meeting.

Code of Conduct
The Group’s Code of Conduct contains policies and procedures
covering how the Group conducts business and maintains its
relationships with business partners. The Code of Conduct is
available on the Group’s website.

Whistleblowing
The Company’s Senior Independent Director, John Hofmeister,
is the primary point of contact for staff of the Group to raise, in
confidence, concerns they may have over possible improprieties,
financial or otherwise.

In addition, the Group engages the services of Safecall Limited to
provide an independent and anonymous whistleblowing service
available to staff across all of Hunting’s operations.

All employees have been notified of these arrangements through
the corporate magazine, Group notice boards and the
Group’s website.

J O H N N I C H O L A S
C H A I R M A N O F T H E AUD I T CO M M I T T EE

2 March 2017

Audit Tender
The Committee values the importance of maintaining high
standards in the external audit process. During the year, the
Company complied with the provisions of the Statutory Audit
Services for Large Companies Market Investigation (Mandatory
Use of Competitive Tender Processes and Audit Committee
Responsibilities) Order 2014 (the CMA Audit Order) throughout
the year.

PricewaterhouseCoopers LLP have been auditors to the Group
since the Company’s formation on 7 August 1989 and under the
firm’s audit partner rotation rules, the current Senior Statutory
Auditor will rotate off the audit following completion of the 2018
statutory audit. The Committee has considered the EU Audit
Directive implemented in the UK during the year relating to
external auditor’s rotation and will complete a tender process
during 2017. PricewaterhouseCoopers LLP will not be eligible to
participate in the tender. The new firm of auditors selected will
assume audit responsibilities from 1 January 2019.

Non-Audit Services
The Committee closely monitors fees paid to the auditors in
respect of non-audit services, which are analysed within note 8.
In 2016, fees for non-audit services were $nil. The scope and
extent of non-audit work undertaken by the external auditors is
monitored by and, above certain thresholds, requires prior
approval from the Committee to ensure that the provision of such
services does not impair their independence or objectivity.

In line with the EU’s Audit Directive, the Audit Committee
reviewed and approved a new policy in December 2016 for the
provision of non-audit services by the external auditor, in line
with the Directive’s requirements.

The Board received copies of all reports submitted to
the Committee.

Internal Controls
The Group has an established risk management and internal
control environment, which was in operation throughout the year.
The Committee monitors these arrangements on behalf of the
Board, which are detailed in the Risk Management section of the
Strategic Report on pages 30 to 37.

Bribery Act Compliance
In compliance with the UK Bribery Act, Hunting has procedures
in place, including the publication of Bribery and Corruption
policies and detailed guidelines on interacting with customers,
suppliers and agents, including specific policies for gifts,
entertainment and hospitality. Senior managers across the Group
are required to report their compliance activities, including an
evaluation of risk areas. The Group has completed a screening
exercise to identify relevant employees who face a heightened
risk of bribery, with all relevant personnel completing a formal
training and compliance course, in line with the Group’s
procedures. The Committee reviews the compliance procedures
relating to the Bribery Act at its April and December meetings,
which incorporate risk assessments completed by each business
unit and gifts and entertainment disclosures made during the
reporting period. The Group’s internal audit function reviews
local compliance with the Bribery Act and reports control
improvements and recommendations to the Committee
where appropriate.

Hunting PLC
2016 Annual Report and Accounts
60

REMUNER ATION COMMIT TEE REPORT
FOR THE YEAR EN DE D 31 DE C E MB E R 2 016

“ TH E R E MUN E R ATI ON O F TH E E XE CUTIV E
DIR E C TO R S IN 2016 R E FLE C T S TH E C HALLE NGING
CONDITI ON S WITHIN HUNTING’ S CO R E M AR K E T S ,
WITH SAL AR I E S R E M AINING FROZE N A ND N O
B ONU S E S PAYA B LE . E ACH CO M P ON E NT O F
R E MUN E R ATI ON HA S O PE R AT E D IN LIN E WITH
TH E S HAR E H O LD E R A PPROV E D DIR E C TO R S’
R E MUN E R ATI ON P O LI C Y.

“DUR ING TH E S E COND HALF O F TH E Y E A R
TH E CO M M IT T E E R E VI E W E D TH E DIR E C TO R S’
R E MUN E R ATI ON P O LI C Y AH E A D O F SUB M IT TING
A R E VI S E D P O LI C Y F O R S HAR E H O LD E R A PPROVA L
IN A PR IL 2017. TH E R E VI E W PRO C E S S CON C LUD E D
THAT TH E OV E R ALL R E MUN E R ATI ON S TRU C TUR E
R E M AIN E D S OUND F O R TH E CUR R E NT E XE CUTIV E
DIR E C TO R S A ND N O M AT E R IAL CHA NG E S
AR E PRO P O S E D.”

Letter From The Remuneration Committee Chairman

Introduction
The Directors’ Remuneration Policy and 2016 Annual Report on
Remuneration that follow reflect the Remuneration Committee’s
(the “Committee”) reporting requirements under the amended
Companies Act 2006 and the Large and Medium-sized
Companies and Groups (Accounts and Reports) (Amendment)
Regulations 2013.

The Directors’ Remuneration Policy, to be tabled to shareholders
for approval at the Company’s Annual General Meeting (“AGM”)
on 12 April 2017, has not materially changed from the approved
2014 Policy, but does reflect a review exercise undertaken by
the Committee.

The Annual Report on Remuneration, which includes this letter,
details how the approved Directors’ Remuneration Policy was
applied during 2016 and will also be tabled for shareholder
approval at the AGM.

J O H N H O F M E I S T E R
C H A I R M A N O F T H E R E M UN ER AT I O N CO M M I T T EE

Major decisions made by the Committee in 2016:

• Policy review: The Committee completed a review of the

Directors’ Remuneration Policy in the final months of 2016,
which included a review of the appropriateness of the fixed
and variable incentive structures in place for the executive
Directors. No major amendments were recommended by
the Committee following this process, with the proposed
2017 Policy remaining materially unchanged from the
approved 2014 Policy. Disclosures relating to Committee
discretion have, however, been enhanced compared with
the 2014 Policy.

• Salary review: The Committee considered the challenging

environment in which the Company operated during the year,
including the reduction in workforce programme completed,
and concluded that it was inappropriate to award base
salary increases to the executive Directors in the year. Any
movements reported in the remuneration tables that follow
are attributable to fluctuations in the exchange rates of the
currency in which the executive Director is paid.

• Fee review: The responsibility of the annual fees of the

non-executive Directors is a Board decision. No changes
were made to the annual fees paid to the independent non-
executive Directors in the year. As noted in the 2015 Annual
Report on Remuneration, the Chairman’s annual fee was
reduced to $135,540 (£100,000) from 1 April 2016.

• Pension arrangements for Hunting’s Finance Director: On

30 June 2016, the Group ceased contributions to the Defined
Benefit section of the Hunting Pension Scheme operated in
the UK. Given that the Group’s Finance Director is a participant
of this Scheme, the Committee agreed in 2016 to compensate
Peter Rose for this loss of benefit, by agreeing a cash sum in
lieu of a pension contribution, totalling 25% of annual base
salary. This arrangement was effective from 1 July 2016.

• Annual Bonus: The Committee noted the trading performance

of the Company in the year, which resulted in no bonus
awards to the executive Directors.

• Hunting Performance Share Plan: On 11 March 2016, share
awards were made to the executive Directors in line with the
rules of the Hunting Performance Share Plan (the “HPSP”).
Subject to the achievement of the performance conditions,
these awards will vest on 11 March 2019.

• Vesting of HPSP awards: On 27 February 2017, the

Committee reviewed the vesting report for the 2014 share
awards granted under the HPSP. Given the financial
performance of the Group during the vesting period, a nil
vesting has been recorded for the Earnings Per Share (“EPS”)
and Return on Capital Employed (“ROCE”) performance
conditions. The Total Shareholder Return (“TSR”) performance
condition was measured by Kepler Associates, the

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FOR THE YEAR EN DE D 31 DE C E MB E R 2 016
C ONTIN UED

Principal Activities Undertaken by the Remuneration
Committee During 2016
The Committee’s principal activities and matters addressed
during 2016 are as follows:

Mar Apr Sep Dec

Overall Remuneration
Annual Base Salary review
Review senior management emoluments
Review total remuneration against
benchmarked data
Items specific to Annual Bonus
Approve Annual Bonus
Review Annual Bonus Plan Rules
Interim review of Annual Bonus calculations
Review personal performance targets and
approve bonus adjustor to be applied
Agree personal performance targets for
year ahead
Items specific to Long-Term Incentives
Approve HPSP vesting
Review outstanding Long-Term Incentives
Approve HPSP grants
Review HPSP performance conditions
Interim review of HPSP vesting report
Review HPSP grant performance targets
Governance and other matters
Approve Annual Report on Remuneration
Review and Approve Remuneration Policy
(as required)
Review governance voting reports
Review AGM proxy votes received for
Annual Statement of Remuneration and Policy
(as required)
Review Committee Effectiveness
Review Committee Terms of Reference
Review draft Annual Report on Remuneration
including Letter from Committee Chairman
Review Stock Ownership Schedules

J O H N H O F M E I S T E R
C H A I R M A N O F T H E R E M UN ER AT I O N CO M M I T T EE

2 March 2017

Committee’s appointed advisers. The terms of the awards
as granted, require the TSR performance condition to be
measured in UK Sterling, unless the Committee determines
otherwise. With TSR measured in UK Sterling the calculation
resulted in nil vesting. This basis of comparison was new to
this plan; prior plans were measured on a domestic currency
basis. The Committee noted this change in methodology and
other operational factors to the determination of TSR including
Hunting’s US$ based operations and reporting currency,
the percentage of employees domiciled in the US and that
the majority of the HPSP comparator group are located in
North America and concluded that a domestic currency
basis would be more appropriate for the TSR performance
condition. The Committee therefore decided to consult major
shareholders on changing the method of measurement for
TSR in February 2017 and a resolution is being submitted to
shareholders for approval at the Company’s April 2017 AGM
to seek confirmation of this change for future and subsisting
awards. Conditional on shareholder approval, the Committee
is proposing to use domestic currencies in comparing TSRs
for all HPSP awards, including the maiden HPSP award which
vests on 1 May 2017, providing consistency for management
and shareholders, rather than introducing a fundamental
change to the way the TSR is calibrated. The remeasurement
using domestic currencies gave an above median position
and would result in a 49.9% vesting of the TSR portion of the
award, equivalent to 16.63% vesting of the total award. On
this basis, and conditional on shareholder approval, Dennis
Proctor would receive 42,423 Ordinary shares and Peter Rose
would receive 12,016 Ordinary shares on 1 May 2017. The
balance of the awards granted to the executive Directors will
lapse on the vesting date. In line with the rules of the HPSP,
dividends paid during the performance period, totalling
60.8 cents per vested share will be added to the award.
Although the exercise of this discretion to produce this result
is fully within the scope of the Directors’ Remuneration Policy
and the terms of the awards, the Committee has decided that
it is appropriate to table a resolution at the AGM on this point.
Accordingly a resolution is being put forward at the AGM on
12 April 2017 to obtain formal shareholder approval for this
decision affecting HPSP awards which vest on 1 May 2017,
and awards which have been granted under the HPSP but
which are due to vest between 2018-2020 and future awards
to be granted under the HPSP.

At the AGM on 13 April 2016, 90.71% of the votes cast by
shareholders were in favour of the Annual Report on
Remuneration for 2015.

Performance and Context of Remuneration Awarded in 2016
The Group has reported in 2016 an underlying loss before tax of
$93.2m (2015 – $9.4m profit) and a return on capital employed of
7.7% negative (2015 – 1.1% positive). As both measures failed to
meet the threshold targets contained within the Annual Budget
as approved by the Board in December 2015, no bonus awards
were payable to the executive Directors.

On 31 December 2016, the three-year performance period
of the 2014 awards under the HPSP ended. The performance
conditions of the awards are detailed in the Directors’
Remuneration Policy on page 65. As noted above, 16.63%
of the awards granted to the executive Directors will vest on
1 May 2017. Further details of this result can be found in
the Annual Report on Remuneration. Further details of the
emoluments of the executive Directors can be found within
the Annual Report on Remuneration on pages 72 to 79.

Hunting PLC
2016 Annual Report and Accounts
62

DIREC TOR S’ REMUNER ATION POLIC Y

Policy Overview
This report outlines the Directors’ Remuneration Policy (the “Policy”) which will be applied by the Hunting Board for the executive and
non-executive Directors of the Company, subject to approval at the AGM. Minor revisions have been made to the Policy approved by
shareholders in 2014. In line with recommendations made by various regulatory and investor groups, including the Financial Reporting
Council and GC100 advisory group, disclosures on Remuneration Committee discretion have been enhanced for both the operation
of the executive Director Annual Bonus Plan and the HPSP. This revised Policy is to be tabled for approval by shareholders at the
Company’s Annual General Meeting on 12 April 2017.

The Policy for executive Director remuneration is designed to comply with the principles of the UK Corporate Governance Code and
the Companies Act 2006 regarding remuneration and to ensure that each Director is attracted, retained and motivated to promote
and achieve the long-term success of the Group. The Policy is divided between fixed and variable incentives and is structured to link
total reward to both corporate and individual performance.

The remuneration structures of the Chief Executive and Finance Director are based on externally benchmarked data aimed at
providing the executive Directors with competitive levels of remuneration. The Chief Executive’s remuneration is benchmarked to the
global energy industry, while the Finance Director is benchmarked to the UK listed market.

Non-executive Director fees are set at levels which take into account the time commitment and responsibilities of each role. Given the
small size of the Hunting Board, each non-executive Director is required to give an above average time commitment to Group matters.
The non-executive Directors do not receive cash bonuses or other variable emoluments. The fees are benchmarked to other
companies of a similar size, profile and profitability and are reviewed annually by the executive Directors. The Chairman’s fee is set by
the Remuneration Committee.

Fixed Emoluments
Fixed emoluments to the executive Directors comprise of base salary, benefits including healthcare insurance, the provision of a
company vehicle and fuel, and pension contributions appropriate to the geographic location of the executive. Base salaries are aimed
at the market mid-point.

Variable Emoluments
Variable emoluments comprise of an Annual Cash Bonus and participation in a single long-term performance-based share plan.

The Remuneration Committee (the “Committee”) applies the Group’s Budget, agreed annually at each December meeting of the
Board, to benchmark the performance-linked annual cash bonus, which is indexed to the Group’s actual performance against
Budget. The bonus award is subject to possible adjustment through the application of a personal performance adjustor, which
recognises the delivery of individual targets set by the Committee. The preset Budget performance targets are retrospectively
disclosed annually, along with supporting narrative on the personal performance adjustor and its impact on the bonuses paid to each
executive Director.

The Company operates a single long-term performance-based share plan, the Hunting Performance Share Plan (the “HPSP”),
whereby the executive Directors receive awards over Hunting shares that vest after three years, subject to performance conditions.
Awards under the HPSP for the executive Directors are equally divided into three categories with each category subject to a
performance condition: (i) relative total shareholder return (“TSR”), (ii) absolute earnings per share (“EPS”) and (iii) return on capital
employed (“ROCE”). The Committee believes that the HPSP is a demanding and stretching long-term incentive, encourages strong
performance from the executive Directors. As part of each annual award, the Committee has discretion to set different performance
targets if, in the opinion of the Committee, the new targets are not materially less challenging. These targets take into account the
outlook for the Group over the long-term, with the Committee committed to ensuring these targets remain demanding.

Executive Director Remuneration Policy Table
Fixed Emoluments

Remuneration Component – Base Salary
Purpose and Link to Strategy
• Attract, retain and reward

executives with the necessary
skills to effectively deliver the
Company strategy.

Operation and Award Basis
• Base salaries are set at competitive rates, which take
into account the individual’s country of residence and
primary operating location as well as companies in the
same market segment.

• Aimed at the market mid-point.
• Annual increases take into account inflation in the UK,

US and increases across the total workforce.
• Relocation and tax equalisation agreements are

also in place for employees working across multiple
geographic jurisdictions.

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2016 Annual Report and Accounts
63

Maximum
• There is no prescribed maximum
annual increase. The Committee
is guided by the general increase
for the broader employee
population, but on occasions
may need to recognise, for
example, development in role,
change in responsibility, and/or
specific retention issues.

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONREMUNER ATION COMMIT TEE REPORT
FOR THE YEAR EN DE D 31 DE C E MB E R 2 016
C ONTIN UED

DIREC TOR S’ REMUNER ATION POLIC Y (CON T INUED)

Maximum
• N/A

Maximum
• Chief Executive

200% of base salary.

• Finance Director

150% of base salary.

Remuneration Component – Pension Arrangements and Benefits
Purpose and Link to Strategy
• Provide normal pension and
benefit schemes appropriate
to the country of residence.
• Each executive Director is
provided with healthcare
insurance and a company
car with fuel benefits.

Operation and Award Basis
• The Group contributes on behalf of the Chief Executive
(currently resident in the US), to a US 401K deferred
savings plan and an additional deferred compensation
scheme.

Finance Director (currently resident in the UK) in lieu
of contributions to a company pension scheme.

• The Group provides an annual cash sum to the

• Additional benefits may be provided to ensure

the Group remains competitive within the relevant
local market.

Variable Emoluments

Remuneration Component – Annual Performance-Linked Cash Bonus Plan
Purpose and Link to Strategy
• To incentivise annual delivery of
financial and operational targets.

Operation and Award Basis
• Awards are subject to the Annual Bonus Plan rules

adopted by the Board in 2010.

• High reward potential for

• Awards are subject to measurement against the

exceeding demanding targets.

Annual Budget.

• Bonus is weighted 70% to budgeted PBT and 30%

to budgeted ROCE.

• Budgeted PBT, for plan purposes, is before

amortisation and items deemed exceptional within
the Annual Budget.

• Budgeted ROCE, for plan purposes, is profit from
operations before amortisation and items deemed
exceptional within the Annual Budget divided by the
budgeted average capital employed.

• Bonus begins to accrue when 80% of the Budget

targets are achieved.

• Level of bonus increases on a straight-line basis from
zero payment when 80% of Budget is achieved to a
maximum when 120% of Budget is achieved.

• For an on-target performance, defined as actual results
equal to the Budget, the Chief Executive is paid 100%
of base salary and the Finance Director is paid 75%
of base salary. The Annual Bonus is not pensionable.

• The Committee operates a personal performance
adjustor to the annual bonus arrangements. The
Committee has the discretion to adjust the annual
bonus using the performance adjustor. The adjustor
range is from 0 to 1.25 times the annual bonus figure,
however this adjustment, if implemented, will not
exceed the stated maximum.

• The personal performance targets linked to the

performance adjustor will be disclosed on award
of the bonus.

• The Committee reserves the discretion to adjust
the amount of any Bonus to reflect any fact or
circumstance which the Committee considers to
be relevant (including for the avoidance of doubt,
adjustment to zero).

• Clawback provisions are incorporated into the annual

bonus plan rules and allow for the bonus to be
adjusted to zero.

Hunting PLC
2016 Annual Report and Accounts
64

Remuneration Component – HPSP
Purpose and Link to Strategy
• Recognition and reward
to executive Directors for
the creation of shareholder
value over the longer term.
This element provides full
alignment with shareholder
interests.

Operation and Award Basis
• Annual grant of shares or nil cost options.
• Vesting levels determined by Company performance
over a three year period against (i) TSR of a bespoke
peer group; (ii) EPS; and (iii) ROCE.

• Grant value of 450% of base salary for the Chief Executive

and 210% of base salary for the Finance Director.

• Achievement of minimum performance target results in a

Maximum
• Chief Executive

550% of base salary.

• Finance Director

450% of base salary.

25% vesting of any element of the award.

• Awards subject to clawback and malus provisions.
• The maximum award noted provides the Committee with
flexibility in cases such as recruitment. The Committee
has set the award levels of the current executive Directors
and does not intend to increase these further.

• The Committee has the ability to exercise discretion to

override the HPSP outcome in circumstances where strict
application of the performance conditions would produce
a result inconsistent with the Company’s remuneration
principles. Any upward discretion would be subject to
prior shareholder consultation.

Remuneration Component – Stock Ownership Requirement
Purpose and Link to Strategy
• To encourage the retention
of shares under award to
the executive.

Operation and Award Basis
• The target holding of the Chief Executive is equal to
the market value of 500% of base salary and for the
Finance Director 200% of base salary.

Maximum
• N/A

• To align the long-term

interests of the executive
with shareholders.

• All vested shares are to be retained, following the
payment of relevant taxes, until the ownership
requirement is achieved.

• Directors have five years to achieve the required

holding level from 1 January 2014 or from the date
of their appointment to the Board.

• The Board has discretion to extend this time period

if warranted by individual circumstances.

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FOR THE YEAR EN DE D 31 DE C E MB E R 2 016
C ONTIN UED

DIREC TOR S’ REMUNER ATION POLIC Y (CON T INUED)

Non-executive Director Remuneration Policy Table
The remuneration of the non-executive Directors is designed to reflect the time and commitment of each to their respective roles.

Element
Chairman’s
fees.

Purpose and link to strategy
• To attract and

retain a high-calibre
Chairman by offering
a market competitive
fee level.

Non-executive
Director fees.

• To attract and retain
high-calibre non-
executive Directors
by offering a market
competitive fee level.

Fee detail
• The fee for the

Chairman is currently
$135,540 (£100,000).

• Fees are set in UK

Sterling and reviewed
annually in December.

• The basic Board fee
is currently $81,324
(£60,000) with an
additional fee of
$13,554 (£10,000)
for chairing the Audit
and Remuneration
Committees, and
for the role of Senior
Independent Director.

• Fees are set in UK

Sterling and reviewed
annually in December.

Maximum
• The fees paid to the

non-executive Directors
are benchmarked to
other UK companies
of a similar size and
profile to the Group.
• Given the small size
of the Board, each
non-executive Director
is expected to give
an above average
time commitment to
Group matters and
fees are based on this
increased commitment.

• The Company’s

Articles of Association
prescribe aggregate
maximum fees for
all non-executive
Directors of $677,750
(£500,000) per annum.

Operation
• The Chairman is paid a single
fee for all his responsibilities
including chairing the
Nomination Committee.
• Fees are determined by
the Board as a whole on
recommendation of the
executive Directors following
receipt of external fee
information and an assessment
of the time commitment and
responsibilities involved.
• The non-executive Directors
are paid a basic fee. The
Directors who chair the Board’s
subcommittees and the Senior
Independent Director are paid
an additional fee to reflect their
extra responsibilities.

• Non-executive Director fees are
determined by the Board as
a whole, on recommendation
of the executive Directors,
following receipt of external fee
information and an assessment
of the time commitment and
responsibilities involved.

• The non-executive Directors do
not participate in the Group’s
share plans and do not receive
a cash bonus or any other
benefits.

Stock
Ownership
Requirements.

• To align the non-

• Non-executive Directors are

• N/A

executive Directors’
interests with the
long-term interests
of shareholders.

required to build up a holding
of shares in the Company equal
to a market value of 100% of the
annual fees paid and have five
years to achieve the required
holding level from 1 January
2014, or from the date of their
appointment to the Board.

Amendments to the Policy
The oil and gas industry has historically been a competitive marketplace, therefore recruiting and retaining the right individuals
to deliver long-term shareholder growth is a key management focus and that of the Remuneration Committee.

As the industry recovers from the current market conditions, it is anticipated that recruitment and retention will continue to be
a challenge for the Group and, therefore, the Committee intends to keep the approved Policy under review, and will make any
necessary revisions after appropriate consultation and approval from shareholders has been received.

Relevance to Employee Pay
The Policy described above provides an overview of the structure that also operates and applies to the most senior executives
in the Group.

While bonus and pensions arrangements are in place for most of the Group’s employees, lower aggregate remuneration operates
at below the executive Director and senior manager level with total remuneration driven by market comparatives and the individual
responsibilities of each role.

Hunting PLC
2016 Annual Report and Accounts
66

Choice of Performance Metrics
The corporate strategy includes promoting the long-term success of the Group by investing in its existing products and services
portfolio through capital investment or by acquisition and growing the business in a way that is aligned with the evolving global
energy industry.

The performance of the executive Directors in executing this strategy is evaluated by the following key performance indicators (“KPIs”),
which drive the variable components of the executive Directors’ emoluments.

KPI
Underlying Profit before Taxation.

Element of remuneration
Annual Bonus

Underlying Return on
Capital Employed.

Annual Bonus/
HPSP

Reason for use
• PBT is a management KPI used to measure the

underlying performance of the Group.

• PBT reflects the achievements of the Group in a given
financial year and recognises sustained profitability
measured against an agreed Annual Budget.

• ROCE is a management KPI used to measure the

underlying performance of the Group.

• ROCE reflects the value created on funds invested

in the short and medium term.

Total Shareholder Return.

HPSP

• To achieve sustained levels of shareholder return

over the long-term.

Underlying Earnings Per Share.

HPSP

• To achieve sustained levels of earnings growth

over the long-term.

The HPSP performance conditions and growth targets can be amended by the Remuneration Committee, with the targets set
annually when each award is granted, following an assessment of the growth prospects of the Group.

Taken together, the Committee believe that the executive Directors are appropriately incentivised to deliver both short and long-term
performance based on these metrics.

Remuneration Committee Discretion
The Committee has defined areas of discretion within the Directors’ Policy framework. Where discretion is applied, the Committee
will disclose the rationale for the application of discretion.

The Committee will operate the annual performance-linked cash bonus plan and HPSP in accordance with the relevant plan rules
and this Policy. The Committee retains discretion as to the operation and administration of these plans as follows:

Annual Performance-Linked Cash Bonus Plan
• Determination of the personal performance adjustor to the financial performance outcome, which reflects the delivery against

personal and strategic performance targets by each executive Director and has the potential to be applied to increase the bonus
by up to 25% or decrease it to zero.

• The assessment of part-year performance in the event of the exit of a Director, including but not limited to, reviewing forecast

financial performance of the Group and the outlook of the business in the context of wider market conditions. Bonus awards for
good-leavers will generally be pro-rated for the period of service completed.

• The Committee may settle an award in cash or shares.

HPSP
• Selection of the TSR comparator group for the HPSP. The Committee reviews the comparator group annually ahead of each
grant made to the executive Directors under the HPSP. The Committee also retains the discretion to make adjustments to the
comparator group for subsisting awards if it believes that a constituent of the comparator group has distorted the vesting outcome
if, for example, a constituent company has been subject to a material corporate action.

• The Committee may amend the performance conditions applying to an award in exceptional circumstances if the new

performance conditions are considered fair and reasonable, and are neither materially more nor materially less challenging than
the original performance conditions when set. The oil and gas industry is a highly cyclical industry, where sentiment is driven by oil
and gas commodity prices and activity levels across the industry. Given that these market conditions are outside of management’s
control, the Committee retains the discretion to partially adjust the performance targets of the performance conditions adopted
for the HPSP, to align with the general market outlook, while continuing to be a demanding and stretching incentive. Any upward
discretion would be subject to prior shareholder consultation.

Other
The Committee reserves the right to make any remuneration payments and payments for loss of office (including exercising any
discretions available to it in connection with such payments) that are not in line with the Policy outlined above where the terms of the
payment were agreed either:
• before the Policy came into effect; or
• at a time when the relevant individual was not a Director of the Company and, in the opinion of the Committee, the payment was

not in consideration for the individual becoming a Director of the Company.

Hunting PLC
2016 Annual Report and Accounts
67

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONREMUNER ATION COMMIT TEE REP ORT
FOR THE YEAR EN DE D 31 DE C E MB E R 2 016
C ONTIN UED

DIREC TOR S’ REMUNER ATION POLIC Y (CON T INUED)

Detailed Policy
Base Salaries and Fees
Base salaries and fees are reviewed annually. In considering appropriate salary levels for the executive Directors, the Committee takes
into account their experience and personal performance, the remuneration paid by comparable companies in terms of asset size,
revenues, profits, number of employees, market capitalisation and the complexity and international spread of Group operations,
as well as Group wide salary increases and applicable rates of inflation. Other relocation and taxation agreements are also in place
for key executives.

Base fee increases for the non-executive Directors are based on benchmarked market data for fees paid by comparable companies.

Benefits
Other benefits provided to the executive Directors as part of their remuneration package include the provision of appropriate health
cover, life and disability insurance, car and fuel benefits.

Pension
The Group contributes to the pension arrangements of both the Chief Executive and Finance Director.

Being a US-based citizen, Dennis Proctor participates in the Group’s US 401K deferred savings plan. In addition, the Group
contributes to a deferred compensation scheme. In practice, this compensation scheme is operated on a money purchase basis.

Peter Rose is a member of the Defined Benefit (“DB Section”) section of the Hunting Pension Scheme (the “Scheme”). On
30 June 2016, the DB Section was closed to future accrual, with all members’ benefits fixed at that date. To compensate Peter Rose
for this loss of benefit, a cash sum in lieu of a company contribution to an alternative pension scheme has been agreed by the
Remuneration Committee, to a value of 25% of his annual base salary. Richard Hunting, as a beneficiary of the Scheme, is not
impacted by the closure of the Scheme to future accrual. Under the terms of the DB Section, the normal retirement age for Directors
in the Scheme is 60. Mr Rose is able to draw his pension on an unreduced basis with the consent of the Company. Pensionable
salary is the annual salary less an amount equal to the State Lower Earnings Limit. Richard Hunting contributed 8.5% of his
pensionable salary up until his Scheme retirement date of 31 July 2006. Peter Rose contributed a similar proportion of his salary up
until 30 June 2016. Scheme members are also provided with a lump sum death in service benefit of four times base salary and a
spouse’s pension of broadly two thirds of the member’s pension on the member’s death. Bonuses and benefits do not qualify as
pensionable salary.

Annual Performance-Linked Cash Bonus
An annual performance-linked cash bonus plan is in place for the executive Directors, which was adopted by the Board in 2010.
The plan, which is not pensionable, is designed to provide an incentive reward for performance and reflects the competitive markets
in which the Group conducts its business.

The bonus plan allows the Committee to incorporate a personal performance adjustor to the bonus, ranging from 0 to 1.25 times the
award value. The Committee is committed to publishing the personal targets set for the executive Directors and, where the personal
performance adjustor is applied, will provide detailed disclosures to investors. This amendment allows the Committee to reduce the
formula-driven bonus to zero or increase the bonus up to 1.25 times the award value but not greater than the maximum payable
under the plan rules.

Long-term Performance Related Incentives
Between 2001 and 2013 the Group granted awards to the executive Directors under three long-term incentive plans, including an
Executive Share Option Plan (“ESOP”) between 2001 and 2008; a Performance Share Plan (“PSP”) between 2009 and 2013; and a
Long-Term Incentive Plan (“LTIP”) between 2004 and 2013. The executive Directors still hold vested share options under the ESOP,
as detailed in the table on page 77, while the vesting of the final awards under the PSP and LTIP occurred in 2016. As such,
the current Policy does not include information on the operation of these legacy plans, and stakeholders should refer to the 2014
Directors’ Remuneration Policy which can be found at www.huntingplc.com.

The PSP and LTIP were replaced by the HPSP in 2014, with the first awards under the new plan due to vest on 1 May 2017.

Hunting Performance Share Plan (“HPSP”)
The HPSP was approved by shareholders in April 2014. Share awards granted to the executive Directors under the HPSP are divided
equally into three tranches. Each tranche is subject to a three-year vesting period, and is also subject to the performance conditions
listed below:

• Total Shareholder Return.
• Earnings Per Share.
• Return on Capital Employed.

Hunting PLC
2016 Annual Report and Accounts
68

More detail on the performance conditions of the HPSP is provided in the following table:

Proportion of award
One-third

Performance condition
TSR

One-third

Underlying EPS

Detail
• The Group’s TSR will be measured over a three-year

period against a bespoke peer group selected from the
same global market sector as Hunting.

• 25% of the award will vest if a median performance
against the peer group is achieved, increasing on a
straight-line basis to 100% if a top quartile performance
against the peer group is achieved.

• The Group’s EPS performance will be measured across

the three-year vesting period.

• 25% of the award will vest if a minimum growth target set
by the Committee is achieved, increasing on a straight-
line basis to 100% if a stretch target set by the Committee
is achieved.

One-third

Underlying ROCE

• The Group’s ROCE will be measured across the three-

year vesting period.

• 25% of the award will vest if ROCE achieves a minimum
target set by the Committee increasing on a straight-line
basis to 100% if a stretch target set by the Committee
is achieved.

The respective performance conditions will be measured at the end of the three year vesting period and awards to the executive
Directors will be proportional to the total vesting level achieved.

The face value of the grant to the Chief Executive is 450% of base salary and 210% of base salary for the Finance Director. A cash
sum equivalent to dividends paid by the Company during the vesting period is added to the awards once the final vesting levels have
been determined.

Stock Ownership Policy
The Company operates a stock ownership policy whereby the Directors and senior managers are required to build and maintain a
minimum shareholding in the Company’s Ordinary shares. For executive Directors and senior managers, the primary mechanism of
building the required shareholding is by retaining those vested shares received from the long-term incentive schemes operated by
Hunting. Those subject to this requirement have a period of five years from 1 January 2014 or, for new employees, from the date of
employment by Hunting, to comply.

The Chief Executive is required to maintain a minimum holding of shares equal to a market value of 500% of base salary; the Finance
Director a minimum holding of 200% of base salary and the non-executive Directors a minimum holding of 100% of annual fees.
Certain executives of the Group are required to build and maintain a minimum holding of shares in the Company equal to a market
value of between 100% and 200% of base salary.

The value of holding in shares reported in the Annual Report on Remuneration includes Ordinary shares held by the individual and
also the post-tax value of vested, but unexercised, share awards and options.

Executive Director Service Contracts
All existing executive Directors’ Service Contracts are rolling one year agreements and contain standard provisions allowing the
Company to terminate summarily for cause, such as gross misconduct.

The Chief Executive entered into an Employment Agreement with Hunting Energy Services Inc., a wholly owned subsidiary of the
Group, on 7 February 2001. This Agreement is governed by the laws of the State of Delaware, US. Under the terms of the Agreement
both Hunting Energy Services Inc. and the Chief Executive are required to give one year’s notice of termination. The Agreement
contains a pay in lieu of notice clause, which provides for the payment of base salary, up to a maximum of one year, a performance
bonus if earned and vacation pay based on an annual entitlement of five weeks. There are special provisions on a change of control.
These provide for payment of an amount equal to the total of the base salary for one year and the average Performance Bonus over
the immediately preceding two year period. In addition, the Chief Executive would be entitled to continue to participate in the Group
insurance programmes for 18 months following the change of control, and, unless otherwise provided in the relevant agreement, all
share-based awards granted to him shall immediately accelerate and become exercisable as of the date of change of control.

The Finance Director entered into a Service Agreement with the Company on 23 April 2008. Under the terms of the Service
Agreement both the Company and the Director are required to give one year’s notice of termination. The Company reserves the right
to pay the Finance Director in lieu of notice (whether given by the Company or by him) which provides for the payment of base salary
up to a maximum of one year and a bonus, which he would have been entitled to receive under his contract between the date of
termination and the earliest date the appointment could otherwise be lawfully terminated, less income tax and National Insurance
Contributions. The Company also has the option to put the Finance Director on paid leave of absence following payment of a sum
equivalent to his salary and bonus (based on the previous twelve month period), subject to him complying with the terms of his
Service Agreement. These conditions also apply on termination following a change of control and, in addition, the Finance Director
would be entitled to an acceleration of all share-based awards, which would immediately vest at the date of the change of control.

Hunting PLC
2016 Annual Report and Accounts
69

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONREMUNER ATION COMMIT TEE REPORT
FOR THE YEAR EN DE D 31 DE C E MB E R 2 016
C ONTIN UED

DIREC TOR S’ REMUNER ATION POLIC Y (CON T INUED)

External Board Appointments
The Company has authorised the executive Directors to undertake non-executive directorships outside of the Group provided these
do not interfere with their primary duties. During the year neither executive Director held any external positions.

Non-executive Director Letters of Appointment
On appointment, each non-executive Director is provided with a letter of appointment which sets out the responsibilities and time
commitments for the role. Additional duties, as requested by the Nomination Committee, including chairing a Board subcommittee,
are also incorporated into the letters of appointment and fees paid. Non-executive Director appointments are usually for a fixed
three-year term, which can be terminated by either party at any time.

Payment for Loss of Office
The Committee has considered the Company’s policy on remuneration for executive Directors leaving the Company and is committed
to applying a consistent approach to ensure that the Company pays no more than is necessary. The loss of office payment policy is
subject to existing Service Contract agreements, which the Remuneration Committee will honour.

The policy is generally aligned with market practice and depends on whether the departing executive Director is, or is deemed to be
treated as, a “good leaver” or “bad leaver”. A good leaver is defined as an employee who has ceased to be employed by the Group
due to death, ill-health, injury, disability, redundancy, retirement, the employee’s company ceasing to be a Group member or for any
other reason if the Committee so decides.

In the case of a good leaver the policy, taking account of local conditions, normally allows:

• payment in lieu of notice equal to twelve months’ base salary, pension contributions, contractual benefits and any other

legal entitlements;

• payment of a bonus for the period worked subject to the achievement of the relevant performance conditions; and
• any unvested long-term incentives to vest subject to the achievement of the performance conditions and pro-rated based

on the period of service.

If an employee departs the Group for any other reason than those specified in the good leaver definition above then he/she is treated
as a bad leaver and unvested long-term incentives lapse immediately on cessation of employment. The Committee retains discretion
to satisfy bonus payments to those executive Directors deemed to be bad leavers.

New Director Policies
As the Board of Hunting is refreshed with new executive and non-executive Director appointments, the policy for remuneration for the
new Board members will align with those detailed above.

Hunting needs to be able to attract and retain the best executive and non-executive Directors in the market place. The Remuneration
Committee believes that the framework now in place will enable the Company to achieve its recruitment aims.

For executive Director appointments, the fixed component of total emoluments will target the market mid-point, subject to geographic
considerations of the candidate and the specific labour market conditions. The Service Contracts will be rolling one-year agreements
with standard provisions. The fixed component of the emoluments will comprise base salary, including any appropriate relocation or
tax equalisation agreements, benefits including healthcare insurance, pension contributions, car benefits and any other components
deemed necessary to secure an appointment. The variable component to the emoluments will be implemented in line with the
policies above, subject to any future amendments to these arrangements being approved by shareholders. Annual performance-
linked cash bonus arrangements will include awards up to 150% and 200% of base salary for a new Finance Director and Chief
Executive respectively. The maximum awards under the HPSP will be up to 450% and 550% of base salary for a new Finance Director
and Chief Executive respectively. The Committee anticipates market standard change of control provisions within new Service Contracts.

In addition, for new appointees, the Committee may offer additional cash and/or share-based elements when it considers these to
be in the best interests of the Company and therefore the shareholders. Any such payments would take account of remuneration
relinquished when leaving the former employer and would reflect the nature, time horizons and performance requirements attaching
to that remuneration. Shareholders will be informed of any such payments at the time of appointment.

For non-executive Director appointments, benchmarked fees to companies of similar size and profile to Hunting will be applied.

Consideration of Employment Conditions Elsewhere in the Group
The Committee considers the general basic salary increases for the broader employee population when determining the annual salary
increases for the executive Directors. Employees have not been consulted in respect of the design of the Company’s senior executive
remuneration policy.

Shareholder Consultation and Feedback
When determining remuneration, the Committee takes into account views of leading shareholders and best practice guidelines issued
by institutional shareholder bodies.

The Committee is always open to feedback from shareholders on remuneration policy and arrangements, and commits to undergoing
consultation with leading shareholders in advance of any significant changes to remuneration policy. The Committee will continue to
monitor trends and developments in corporate governance and market practice to ensure the structure of executive remuneration
remains appropriate.

Hunting PLC
2016 Annual Report and Accounts
70

Remuneration Scenarios for Executive Directors
The remuneration scenarios of the executive Directors for a fixed, target and maximum performance are presented in the charts
below. The charts are based on 2016 remuneration data.

C H I E F E X E C U T I V E

F I N A N C E D I R E C T O R

Maximum

16%

26%

58%

$6,046k

Maximum

32%

28%

40%

Target

26%

23%

51%

$3,493k

Target

48%

22%

30%

Fixed

100%

$940k

Fixed

100%

Fixed

Annual Bonus

HPSP

$2,132k

$1,405k

$678k

Note:
These charts are indicative as share price movement and dividend accruals have been excluded. Assumptions made for each scenario are as follows:

• Fixed: latest known salary, benefits and normal pension contributions or payments in lieu of pension contributions.
• Target: fixed remuneration plus half of maximum annual cash bonus opportunity plus 50% vesting of awards under the HPSP.
• Maximum: fixed remuneration plus maximum annual cash bonus opportunity plus 100% vesting of all long-term incentives.
• The Finance Director is paid in Sterling and the equivalent total remuneration scenarios are as follows – fixed £500k; target £1,037k and maximum £1,573k.

J O H N H O F M E I S T E R
C H A I R M A N O F T H E R E M UN ER AT I O N CO M M I T T EE

2 March 2017

Hunting PLC
2016 Annual Report and Accounts
71

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
REMUNER ATION COMMIT TEE REP ORT
FOR THE YEAR EN DE D 31 DE C E MB E R 2 016
C ONTIN UED

ANNUAL REP ORT ON REMUNER ATION

Introduction
The principles noted within the Directors’ Remuneration Policy (the “Policy”) detailed on pages 63 to 71 have been in operation
throughout 2016 and are detailed in the following report. The Policy can also be viewed on the Group’s website at
www.huntingplc.com.

The Remuneration Committee (the “Committee”) will continue to implement these policies throughout 2017, subject to reapproval
by shareholders.

Role, Membership and Attendance
The Committee is responsible for setting the remuneration of the executive Directors. The Chairman and Chief Executive are
consulted on proposals relating to the remuneration of the Finance Director and designated senior management and, where
appropriate, are invited by the Committee to attend meetings, but are not present when their own remuneration is considered.
Remuneration of the non-executive Directors is agreed by the Board as a whole.

The full scope of the role of the Committee is set out in its terms of reference, which are reviewed annually, and can be found on the
Group’s website at www.huntingplc.com.

The Committee consists entirely of independent non-executive Directors. The Committee met 6 times during the year and attendance
details are shown in the table on page 53.

During the year, and to the date of signature of the accounts, the members of the Committee and their unexpired term of office were:

Director
John Hofmeister (Committee Chairman)
Annell Bay
Jay Glick
John Nicholas

Latest appointment date
29 August 2015
2 February 2015
2 February 2015
29 August 2015

Unexpired term as at 2 March 2017
18 months
11 months
11 months
18 months

External Advisers
During the year, Kepler Associates, New Bridge Street (a trading name of Aon Hewitt Ltd) and Pearl Meyer and Partners were
engaged by the Committee to provide remuneration consultancy services. All firms were subject to a formal tender process prior to
appointment and are regarded as independent having been appointed by and acting under direction of the Committee. The total cost
of advice to the Committee over the year to 31 December 2016 was $49,073 (2015 – $164,913) and reflects fees paid in respect of the
review of remuneration, share plans and the remuneration reporting disclosure requirements. These fees were charged on a time
incurred basis for the provision of these services.

Shareholder Voting at the 2016 Annual General Meeting (“AGM”)
At the AGM of the Company held in April 2016, the resolution to approve the Annual Report on Remuneration received the following
votes from shareholders:

For
Against
Votes withheldi
Total votes cast

Number of votes % of votes cast
90.7
9.3
–
100.0

97,591,261
9,990,406
6,719
107,588,386

i. A vote withheld is not a vote in law and is not included in the calculation of the % of votes cast.

The current Directors’ Remuneration Policy was approved by shareholders at the Company’s 2014 AGM, following the receipt of
91.5% votes for the resolution.

Development of a new Directors’ Remuneration Policy
During the latter part of 2016, the Committee reviewed the shareholder approved Directors’ Remuneration Policy and concluded that
no material amendments were required. Certain minor amendments were incorporated to the revised Policy, which reflect guidance
issued by the Financial Reporting Council and GC100 group and other parties since 2014. The amendments focus on the area of
Committee discretion and the likely operation of discretion for the period of the next policy. As no major amendments were proposed
following this review, shareholders were not consulted on the new 2017 Directors’ Remuneration Policy. The revised Policy will be
tabled for shareholder approval on 12 April 2017.

Hunting PLC
2016 Annual Report and Accounts
72

Director Remuneration (audited)

2016
Executives
Dennis Proctor
Peter Rose
Non-executives
Annell Bayx
Jay Glickx
John Hofmeisterxi
Richard Huntingxii
John Nicholasxi
Total

2015
Executives
Dennis Proctor
Peter Rose
Non-executives
Annell Bayx
Jay Glickx
John Hofmeisterxi
Richard Huntingxii
John Nicholasxi
Total

Fixed remuneration

Variable remuneration

Base
salary/
feesi
$’000

786
404

81
81
108
167
95
1,722

Benefitsii
$’000

Pensioniii
$’000

Sub total
$’000

Annual
cash
bonusiv
$’000

HPSP
awardsvi
$’000

Sub total
$’000

Other
remunerationix
$’000

Total
remuneration
2016
$’000

73
30

–
–
–
–
–
103

82
244

–
–
–
–
–
326

941
678

81
81
108
167
95
2,151

–
–

–
–
–
–
–
–

309
87

–
–
–
–
–
396

309
87

–
–
–
–
–
396

–
–

–
–
–
–
–
–

1,250
765

81
81
108
167
95
2,547

Fixed remuneration

Base
salary/
feesi
$’000

786
456

84
84
122
296
107
1,935

Benefitsii
$’000

Pensioniii
$’000

Sub total
$’000

71
44

–
–
–
–
–
115

174
60

–
–
–
–
–
234

1,031
560

84
84
122
296
107
2,284

Variable remuneration
PSP/
LTIP
awardsvii/viii
$’000

Annual
cash
bonusv
$’000

Sub total
$’000

Other
remunerationix
$’000

Total
remuneration
2015
$’000

–
–

–
–
–
–
–
–

–
–

–
–
–
–
–
–

–
–

–
–
–
–
–
–

–
–

–
–
–
–
–
–

1,031
560

84
84
122
296
107
2,284

Notes:
i. Executive Directors’ salaries and non-executive Director fees were frozen during 2016. The movement in the £:$ exchange rate in the year has the effect of showing

a year-on-year decrease for the majority of Board members with the exception of Dennis Proctor whose base salary is determined and paid in US dollars. Average
£:$ exchange rate in the year was 1.3554 (2015 – 1.5286).

ii. Benefits include the provision of healthcare insurance, a company car and fuel benefits.
iii. Dennis Proctor’s single figure pension remuneration represents the total Company contributions paid to his US pension arrangements. Up to 30 June 2016,

Peter Rose contributed to the Defined Benefit section of the Hunting Pension Scheme operated in the UK. From 1 July 2016, Mr Rose received a cash sum in lieu of
a pension contribution. Mr Rose’s 2016 single figure pension remuneration has therefore been calculated in a consistent way in accordance with the regulations and
represents 20 times the increase in his accrued pension over 2015 after allowing for CPI inflation and deducting his own pension contributions for the first six months
of the year (totalling $193,822), with his pro-rated cash sum added to this figure for the last six months of 2016 (totalling $50,489).

iv. As noted in the Letter from the Chairman of the Remuneration Committee, there were no annual bonus awards made to the executive Directors during 2016.
v. There were no annual bonus awards made to the executive Directors during 2015.
vi. The 2014 awards under the HPSP had a three-year performance period to 31 December 2016. The performance conditions, as noted in the Letter from the

Remuneration Committee Chairman on pages 61 and 62, were measured in Sterling at the end of the performance period by Kepler Associates resulting in a nil
vesting. Subject to shareholder approval at the AGM on 12 April 2017, the Remuneration Committee is proposing exercising discretion to remeasure the TSR
performance condition using the domestic currencies of each member of the comparator group to approve a 49.9% vesting of the TSR portion of the 2014 HPSP
award, being equivalent to 16.63% vesting of the total award value. On this basis, and conditional on shareholder approval at the AGM of the Remuneration
Committee exercising its discretion to remeasure the TSR using domestic currencies of each member of the comparator group of the TSR, 42,423 Ordinary shares
would be awarded to Dennis Proctor and 12,016 Ordinary shares would be awarded to Peter Rose on 1 May 2017. For the purposes of the single figure noted above,
the average share price across the final quarter of 2016 was adopted, being 539.4 pence and a foreign exchange rate of 1.2357 being the £:$ exchange rate as at
31 December 2016 was applied to the value of this award. Dividends paid in the period, totalling 60.8 cents per vested share were added to the value of the award,
in line with the rules of the HPSP. Final award values will be recorded in the 2017 Annual Report on Remuneration.

vii. The 2013 awards under the PSP had a three-year performance period to 20 March 2016. The awards were measured on this date against the performance

conditions, with a nil vesting recorded. No payments were therefore made to the executive Directors.

viii. In accordance with the rules under the 2004 Long-Term Incentive Plan (“LTIP”) and the three-year cycle ending 31 December 2015, the incentive pool was $nil,

resulting in no payments to either Dennis Proctor or Peter Rose.

ix. Other remuneration represents additional UK tax payable under a tax equalisation agreement, where applicable.
x. Annell Bay and Jay Glick were appointed as Directors on 2 February 2015.
xi. John Hofmeister receives additional fees as Senior Independent Director and as Chairman of the Remuneration Committee. John Nicholas receives an additional fee

as Chairman of the Audit Committee.

xii. Richard Hunting’s annual fee was reduced to $135,540 (£100,000), effective from 1 April 2016.

Hunting PLC
2016 Annual Report and Accounts
73

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONREMUNER ATION COMMIT TEE REPORT
FOR THE YEAR EN DE D 31 DE C E MB E R 2 016
C ONTIN UED

ANNUAL REP ORT ON REMUNER ATION (CON T INUED)

The remuneration of Richard Hunting, Peter Rose and the non-executive Directors is originally denominated in Sterling and is
as follows:

2016
Executives
Peter Rose
Non-executives
Annell Bayi
Jay Glicki
John Hofmeisterii
Richard Huntingiii
John Nicholasii

2015
Executives
Peter Rose
Non-executives
Annell Bayi
Jay Glicki
John Hofmeisterii
Richard Huntingiii
John Nicholasii

Fixed remuneration

Variable remuneration

Base
salary/
fees
£’000

Benefits
£’000

Pension
£’000

Sub total
£’000

Annual
cash
bonus
£’000

HPSP
awards
£’000

Sub total
£’000

Total
remuneration
2016
£’000

298

180

500

60
60
80
123
70

–
–
–
–
–

60
60
80
123
70

–

–
–
–
–
–

570

60
60
80
123
70

Fixed remuneration

Base
salary/
fees
£’000

Benefits
£’000

Pension
£’000

Sub total
£’000

Variable remuneration
PSP/
LTIP
awards
£’000

Annual
cash
bonus
£’000

Total
remuneration
2015
£’000

Sub total
£’000

298

366

55
55
80
194
70

–
–
–
–
–

55
55
80
194
70

–

–
–
–
–
–

–

–
–
–
–
–

–

–
–
–
–
–

366

55
55
80
194
70

Notes:
i. Annell Bay and Jay Glick were appointed as Directors on 2 February 2015.
ii. John Hofmeister receives additional fees as Senior Independent Director and as Chairman of the Remuneration Committee and John Nicholas receives an additional

fee as Chairman of the Audit Committee.

iii. Richard Hunting’s fee was reduced to £100,000 with effect from 1 April 2016.

Salary and Fees
In December 2015, the executive Directors reviewed the independent non-executive Directors’ fees, which resulted in no changes
being made for 2016.

Further, in March 2016, the Committee met to discuss adjustments to the base salaries of the executive Directors. Following
discussion, and recognising the prevailing market conditions that Hunting operates within, the Committee decided again to freeze
base salaries for 2016.

Pensions (audited)
Dennis Proctor is a member of a deferred compensation scheme in the US, which is anticipated to provide a cash lump sum on
his retirement. In practice, this scheme is administered and operated on a money purchase basis. In 2016, the Group contributed
$65,802 (2015 – $158,589) to that arrangement. There are no additional benefits provided on early retirement from this arrangement.
The Group also contributed $15,900 in 2016 (2015 – $15,900) to his US 401K deferred savings plan.

During 2016, Peter Rose’s pension arrangements were amended following the decision by the Group to cease contributions to the
defined benefit section of the Hunting Pension Scheme (the “Scheme”) operated in the UK. As a member of the Scheme, Mr Rose
contributed to the Pension Scheme up to 30 June 2016, the date on which all Group contributions ceased. Following consultation
with the Committee’s independent remuneration advisors, Mr Rose has been compensated for this loss of benefit by a cash
sum in lieu of a company pension contribution to the value of 25% of his annual base salary. This arrangement was effective from
1 July 2016. Mr Rose’s single figure pension contribution noted on page 73 reflects the Group’s net increase to the accruals of
the Scheme, multiplied by the HMRC multiple of 20, totalling $193,822, with his cash lump sum of $50,489 added to this figure,
reflecting contributions received in lieu of a pension contribution. Mr Rose’s accrued pension as at 31 December 2016 amounted
to $167,000 p.a. (2015 – $177,000 p.a.). He is able to retire on 24 October 2018 age 60, his normal retirement age in that scheme,
without any reduction on his main scheme benefits (although there is a small part of his pension that is payable only from age 62
without reduction). With Company consent, Peter Rose is able to retire without any actuarial reduction for early retirement applied
to his accrued pension.

Annual Performance-Linked Cash Bonus Plan (audited)
The annual performance-linked cash bonus plan entitles the executive Directors to cash bonus payments when the actual financial
results of the Group achieve pre-set financial targets based on the Group’s Annual Budget. The bonus has the potential to be
adjusted to reflect the delivery of personal performance targets.

Hunting PLC
2016 Annual Report and Accounts
74

The approved Annual Budget reflected the prevailing market conditions across the energy sector, with the 2016 budgeted underlying
PBT and ROCE being set at $29.8m and 2.4% respectively. Underlying PBT and ROCE reported in 2016 were a loss of $93.2m and
-7.7% respectively. Due to the 2016 outturn, no annual bonus was payable to either executive Director. In January 2016, the
Committee set personal performance targets for each executive Director. The targets and outcome, including the personal
performance adjustor applied to the bonus, of each executive Director are summarised below:

Description of target
• Strategic Planning
• Dynamic Leadership in a Volatile Period
• Succession (Chief Executive only)
• Organisational Effectiveness (Finance

Director only)

Assessment and outcome
The Committee reviewed the delivery of the 2016 personal performance objectives by
the executive Directors and agreed that each Target had been delivered. In particular
the Committee noted the leadership by the executive Directors during the current
subdued trading environment. However, given that the threshold vesting performance
conditions had not been met, no bonuses were paid to the executive Directors.

The 2015 actual results also failed to meet the annual budgeted underlying PBT and ROCE targets, resulting in no bonus payments
to the executive Directors.

2014 HPSP Vesting (audited)
On 31 December 2016, the 2014 awards under the HPSP were measured against the performance conditions following completion
of the three-year performance period. The performance conditions are noted on page 65 and include: underlying diluted EPS;
underlying ROCE; and relative TSR against a comparator group of 38 companies. A summary of the three-year EPS and ROCE
performance is detailed below:

Underlying diluted EPS
Underlying ROCE

2013
(Base year)
94.5c
12.3%

2014
100.0c
13.1%

2015
3.1c
1.1%

2016
-45.3c
-7.7%

Reported three-year
performance
Negative
Average = 2.2%

Required threshold

vesting target
6.0%
12.0%

% Vesting
outcome
Nil
Nil

The Total Shareholder Return performance condition as set out in the award was measured by Kepler Associates and resulted in a nil
vesting. The performance condition, as set out in the award, required the TSR performance condition to be measured in UK Sterling,
unless the Remuneration Committee determines otherwise. This basis of comparison was new to this plan; prior plans were
measured on a domestic currency basis. The Committee noted this change in methodology and other operational factors to the
determination of TSR, including Hunting’s US$ based operations and reporting currency, the percentage of employees domiciled in
the US and that the majority of the HPSP comparator group are located in North America and concluded that a domestic currency
basis would be more appropriate for the TSR performance condition. Other considerations to this proposal included the currency
volatility, particularly between the US$ and Sterling during the 2014-2016 performance period which also affects other subsisting
awards and also the Committee’s belief that the industry environment is improving and that retention of key management is imperative
(as noted in the Group’s Principal Risks) in the short to medium term. The Committee therefore decided to consult shareholders on
changing the method of measurement for TSR in February 2017 and a resolution is being submitted to shareholders for approval
at the Company’s April 2017 AGM to seek confirmation of this change for future and subsisting awards. Conditional on shareholder
approval, the Committee is proposing to use domestic currencies in comparing TSRs for all HPSP awards, including the maiden
HPSP award which vests on 1 May 2017, providing consistency for management and shareholders, rather than introducing a
fundamental change to the way the TSR is calibrated. The Committee intends to continue using this basis for all future cycles.
The remeasurement resulted in a 49.9% vesting of this segment of the award, given an above median performance against the
comparator group, which corresponds to a vesting of 16.63% of the total awards granted to the executive Directors in 2014, subject
to shareholder approval being received. This partial vesting would lead to 42,423 Ordinary shares being awarded to Dennis Proctor
and 12,016 Ordinary shares being awarded to Peter Rose on 1 May 2017, the vesting date of the awards. For the purposes of the
single figure table on page 73, the value of the awards corresponds with the number of vested shares, multiplied by the average share
price of Hunting PLC across the final quarter of 2016 of 539.4 pence, applying a £:$ exchange rate of 1.2357, being the £:$ exchange
rate as at 31 December 2016. Dividends paid during the performance period totalling 60.8 cents per share were added to the value of
the award. The total award value to Dennis Proctor was determined to be $308,558 and the award to Peter Rose was determined to
be $87,397. The final value of the awards to both executive Directors following vesting, will be recorded in the 2017 Annual Report
on Remuneration.

2013 PSP Vesting (audited)
The 2013 awards granted under the PSP were measured by New Bridge Street on 20 March 2016 and resulted in a zero vesting.
The 2013 awards to the Chief Executive and Finance Director duly lapsed with no shares vesting for either executive Director.

2013 LTIP Vesting (audited)
On 31 December 2015, the 2013 award under the LTIP for the three-year period commencing 1 January 2013 was measured in
accordance with the plan rules and resulted in an incentive pool of $nil. As a result of this, no payments were made to either
executive Director.

Hunting PLC
2016 Annual Report and Accounts
75

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONREMUNER ATION COMMIT TEE REPORT
FOR THE YEAR EN DE D 31 DE C E MB E R 2 016
C ONTIN UED

ANNUAL REP ORT ON REMUNER ATION (CON T INUED)

2016 HPSP Grant (audited)
On 11 March 2016, the Committee approved the allocation of nil-cost share awards to Dennis Proctor and nil-cost options to Peter
Rose under the rules of the HPSP. Awards will vest on 11 March 2019, subject to the achievement of the performance conditions
detailed on page 65 of the Policy. Details of the grant are as follows:

Director
Dennis Proctor
Peter Rose

The targets for each performance condition are as follows:

Performance condition
TSR
EPSi
ROCEi

i. Averaged over the three-year performance period

Award as % of
base salary
450%
210%

Number of shares
awarded
589,593
166,991

Face value of
award at
threshold vesting
of 25%
$
794,426
225,006

Face value of
maximum award
vesting at 100%
$
3,177,703
900,024

Threshold vesting target
Median
4%
10%

Maximum vesting target
Upper Quartile
15%
17%

The following quoted businesses comprise the TSR comparator group for the 2016 award:

Aker Solutions
Dril-Quip
Flotek Industries
FMC Technologies
Forum Energy Technologies
Frank’s International
National Oilwell Varco

Oil States International
Schoeller-Bleckmann
Superior Energy Services
Tenaris
Vallourec
Weatherford International
Weir Group

The face value of the 2016 award is based on the closing mid-market share price on 11 March 2016, which was 374.75 pence.
In 2016, the Committee incorporated a fourth performance condition to the HPSP, based on Hunting’s Quality Assurance data,
for senior managers of the Group. The awards to the executive Directors do not incorporate this additional performance condition.

Payments to Past Directors and for Loss of Office (audited)
No payments were made in the year to past Directors or in respect of loss of office.

Directors’ Shareholdings, Ownership Policy and Share Interests (audited)
The beneficial interests of the Directors in the issued Ordinary shares of the Company are as follows:

Directori
Non-executive Chairman
Richard Hunting
– as trustee
– as Director of Hunting Investments Limited
Executives
Dennis Proctor
Peter Rose
Non-executives
Annell Bay
Jay Glick
John Hofmeister
John Nicholas

At
31 December
2016

At
31 December
2015

466,583
979,049
11,073,487

463,306
979,049
11,073,487

1,748,544
87,923

1,748,544
86,864

8,000
13,500
25,000
11,000

3,500
13,500
25,000
11,000

i. Beneficial share interests are those Ordinary shares owned by the Director or spouse which the Director is free to dispose of.

There have been no further changes to the Directors’ share interests in the period 31 December 2016 to 2 March 2017.

Hunting PLC
2016 Annual Report and Accounts
76

In 2014, the Group implemented a share ownership policy that requires Directors and certain senior executives within the Group to
build up a holding in shares equal in value to a certain multiple of their base salary or annual fee. The multiple takes into account the
post-tax value of vested but unexercised share awards or options.

The required shareholding of each Director and the current shareholding as a multiple of base salary as at 31 December 2016 is
presented below:

Director
Dennis Proctor
Peter Rose
Annell Bay
Jay Glick
Richard Hunting
John Hofmeister
John Nicholas

Required holding
expressed as a multiple of
base salary or fee
5
2
1
1
1
1
1

Value of holding in shares including the post-tax value of vested but unexercised share

awards and options expressed as a multiple of base salary or fee as at 31 December 2016
17.3
1.9
0.8
1.4
29.3
2.0
1.0

Directors have five years from 1 January 2014 (or from the date of appointment to the Board) in which to satisfy the
shareholding requirement.

The interests of the executive Directors over Ordinary shares of the Group under the ESOP, PSP and HPSP are set out below:

The vesting of options and awards are subject to performance conditions set out within the Policy on pages 68 and 69.

Director
Dennis Proctor

Sub total

Sub total
Total

Peter Rose

Sub total

Sub total
Total

Interests at
1 January
2016
104,178
64,688
55,449
224,315
52,516
52,516
255,050
372,534

Options/
Options/
awards
awards
exercised in
granted in
year
year
–
(104,178)
–
–
–
–
–
(104,178)
–
–
–
–
–
–
–
–
– 589,593
–
–
627,584 589,593
904,415 589,593 (104,178)

Options/
awards
lapsed
in year
–
–
–
–
(52,516)
(52,516)
–
–
–
–

Interests at
31 December
2016
–
64,688+
55,449+
120,137
–
–
255,050^
372,534^
589,593^
1,217,177
(52,516) 1,337,314

18,277
15,000
21,670
54,947
21,119
21,119
72,238
105,513

(18,277)
–
–
–
–
–
(18,277)
–
–
–
–
–
–
–
–
–
–
– 166,991
177,751 166,991
–
253,817 166,991 (18,277)

–
–
–
–
(21,119)
(21,119)
–
–
–
–
(21,119)

–
15,000+
21,670+
36,670
–
–
72,238~
105,513~
166,991~
344,742
381,412

Exercise
price
p

Date from
which
exercisable

Grant date

Expiry date
383.0 08.03.06 08.03.09 07.03.16
640.0 06.03.07 06.03.10 05.03.17
784.5 04.03.08 04.03.11 03.03.18

nil 20.03.13 20.03.16

nil 01.05.14 01.05.17
nil 28.04.15 28.04.18
nil 11.03.16 11.03.19

–

–
–
–

383.0 08.03.06 08.03.09 07.03.16
640.0 06.03.07 06.03.10 05.03.17
784.5 04.03.08 04.03.11 03.03.18

Scheme
ESOP
ESOP
ESOP

PSP

HPSP
HPSP
HPSP

ESOP
ESOP
ESOP

nil 20.03.13 20.03.16 19.03.23

PSP

nil 01.05.14 01.05.17 30.04.24
nil 28.04.15 28.04.18 27.04.25
nil 11.03.16 11.03.19 11.03.26

HPSP
HPSP
HPSP

+ Vested and currently exercisable.
^ Nil-cost share awards which are not yet vested or exercisable and still subject to the performance conditions being measured in accordance with the HPSP rules.
~ Nil-cost share options which are not yet vested or exercisable and still subject to the performance conditions being measured in accordance with the HPSP rules.

On 4 March 2016, under the rules of the Hunting PLC Executive Share Option Plan, Mr Proctor exercised 104,178 share options at a
price of 383.0 pence per share and subsequently sold them at 430.0 pence per share. On the same day, Mr Rose exercised 18,277
share options at a price of 383.0 pence per share. Mr Rose subsequently sold 17,218 Ordinary shares in order to cover tax and
exercise costs at a price of 430.0 pence per Ordinary share and retained 1,059 Ordinary shares.

Hunting PLC
2016 Annual Report and Accounts
77

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
REMUNER ATION COMMIT TEE REPORT
FOR THE YEAR EN DE D 31 DE C E MB E R 2 016
C ONTIN UED

ANNUAL REP ORT ON REMUNER ATION (CON T INUED)

Executive Director Remuneration and the Wider Workforce
The changes to the remuneration of the Chief Executive in 2016 compared to 2015 and those of the total workforce are as follows:

Base salary
Bonus
Benefits

Chief
Executive
Nil
Nil
+2.8%

Average
employee
+3.6%
-100.0%
+12.8%

Relative Importance of Spend on Pay
The table below shows the relative importance of spend on employee remuneration in relation to corporate taxation, dividends and
capital investment. The choice of performance metrics represents certain operating costs of the Group and the use of operating cash
flows in delivering long-term shareholder value.

Employee remunerationi
Corporate tax (received) paidii
Dividends paidii
Capital investmentii

2016
$m
187.7
(31.3)
5.9
17.2

2015
$m
247.5
10.5
39.8
81.1

Change
-24.2%
n/a
-85.2%
-78.8%

Includes staff costs for the year (note 9) plus benefits in kind of $30.5m (2015 – $39.9m) which primarily comprises US medical insurance costs.

i.
ii. Please refer to the Consolidated Statement of Cash Flows on page 91.

Executive Director Remuneration and Shareholder Returns
The following chart compares the TSR of Hunting PLC between 2008 and 2016 to the DJ Stoxx TM Oil Equipment, Services and
Distribution and DJ US Oil Equipment and Services indices. In the opinion of the Directors, these indices are the most appropriate
indices against which the shareholder return of the Company’s shares should be compared because they comprise other companies
in the oil and gas services sector.

T O T A L S H A R E H O L D E R R E T U R N
( R E B A S E D T O 1 0 0 A T 3 1 D E C E M B E R 2 0 0 8 )

350

300

250

200

150

100

350

300

250

200

150

100

31/12/08

31/12/09

31/12/10

31/12/11

31/12/12

31/12/13

31/12/14

31/12/15

31/12/16

Hunting PLC

DJ US Oil Equipment & Services

DJ Stoxx TM Oil Equipment, Services & Distribution

Hunting PLC
2016 Annual Report and Accounts
78

Summary Table of Chief Executive’s Remuneration
The accompanying table details remuneration of the Chief Executive:

2016
2015
2014
2013
2012
2011
2010
2009

Single figure
remunerationi
$’000
1,250
1,031
4,808
4,442
5,497
3,261
1,876
2,363

Annual
cash bonus
%ii
Nil
Nil
57
42
75
100
100
17

ESOP/PSP/
HPSP
% vestingiii
17
Nil
Nil
Nil
66
Nil
100
100

LTIP
% awardiv
n/a
Nil
100
100
100
31
5
62

i. Single figure remuneration reflects the aggregate remuneration paid to the Chief Executive as defined within the Directors’ Remuneration Policy located at

www.huntingplc.com.

ii. Annual cash bonus percentages reflect the bonus received by the Chief Executive each year expressed as a percentage of maximum bonus opportunity.
iii. Percentage vesting reflects the % of the ESOP that vested in the financial year and the % of the PSP and HPSP where a substantial portion of the performance period

was completed at the financial year end.

iv. LTIP award percentage reflects the award value expressed as a percentage of maximum award opportunity received each year measured at 31 December. The LTIP

expired in 2015, with no further awards outstanding.

Implementation of Policies in 2017
The remuneration policies for 2017 will be applied in line with those detailed on pages 63 to 71. The revised Directors’ Remuneration
Policy to be tabled at the Company’s Annual General Meeting on 12 April 2017 can be found on pages 63 to 71 or on the Company’s
website at www.huntingplc.com.

In December 2016, the Board concluded that in the current trading environment there would be no changes made to fees payable to
the non-executive Directors for 2017.

In February 2017, the Committee met to discuss base salary changes for the executive Directors, and concluded that due to the poor
market environment in which the Company operated in during the year, including the reduction in workforce programme, that there
would be no change to the base salaries payable to the executive Directors for 2017.

The annual performance-linked cash bonus for 2017 will be operated in line with the Policy detailed on page 64. The Committee will
disclose details of the retrospective performance against the pre-set financial and personal performance targets, as the Board
believes that forward disclosure of these targets is commercially sensitive.

The Committee plans to grant nil-cost share awards or options to the Chief Executive and Finance Director under the HPSP in March
2017. The awards will be in line with the rules of the HPSP and subject to the following performance conditions:

Maximum performance target
100% vests if an upper quartile performance against
a comparator group of companies is achieved.
100% vests if the EPS in 2019 is 60 cents
per share.
100% vests if ROCE in 2019 is 15%.

Proportion of awards
One-third

Performance conditions Minimum performance target
TSR

One-third

Underlying EPS

25% vests if median performance against a
comparator group of companies is achieved.
25% vests if the EPS in 2019 is 40 cents
per share.

One-third

Underlying ROCE 25% vests if ROCE in 2019 is 8%.

J O H N H O F M E I S T E R
C H A I R M A N O F T H E R E M UN ER AT I O N CO M M I T T EE

2 March 2017

Hunting PLC
2016 Annual Report and Accounts
79

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
INDEPENDENT AUDITOR S’ REPORT
TO THE MEMBER S OF HUNTING PLC

Report on the Financial Statements
Our opinion
In our opinion:

• Hunting PLC’s Group financial statements and Company financial statements (the “financial statements”) give a true and fair view
of the state of the Group’s and of the Company’s affairs as at 31 December 2016 and of the Group’s loss and the Group’s and the
Company’s cash flows for the year then ended;

• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards

(“IFRSs”) as adopted by the European Union;

• the Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and

as applied in accordance with the provisions of the Companies Act 2006; and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the

Group financial statements, Article 4 of the IAS Regulation.

What we have audited
The financial statements, included within the Annual Report and Accounts (the “Annual Report”), comprise:

• the Consolidated and Company Balance Sheets as at 31 December 2016;
• the Consolidated Income Statement and the Consolidated Statement of Comprehensive Income for the year then ended;
• the Consolidated and Company Statements of Cash Flows for the year then ended;
• the Consolidated and Company Statements of Changes in Equity for the year then ended; and
• the notes to the Group and Company financial statements, which include a summary of principal accounting policies and other

explanatory information.

The financial reporting framework that has been applied in the preparation of the financial statements is IFRSs as adopted by the
European Union and, as regards the Company financial statements, as applied in accordance with the provisions of the Companies
Act 2006, and applicable law.

Our audit approach
Overview

Materiality

• Overall Group materiality was set at $5.0 million which represents approximately 5% of three year average
absolute profit or loss before tax from continuing operations adjusted for the impairment of goodwill and
other non-current assets.

Audit scope

• We conducted audit work in seven countries covering 22 reporting units and visited a number of audit

locations, including the one financially significant component, Hunting Perforating Systems.

• Components where we performed audit work accounted for approximately 94% of Group revenues and

over 90% of Group absolute adjusted profit or loss before tax from continuing operations.

Areas of focus

• Goodwill and non-current asset impairment assessment.
• Inventory valuation.
• Direct tax exposures and recognition of deferred tax assets.
• Refinancing and equity raising.

The scope of our audit and our areas of focus
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements.
In particular, we looked at where the Directors made subjective judgements, for example in respect of significant accounting
estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we
also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the
Directors that represented a risk of material misstatement due to fraud.

The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort,
are identified as “areas of focus” in the table below. We have also set out how we tailored our audit to address these specific areas
in order to provide an opinion on the financial statements as a whole, and any comments we make on the results of our procedures
should be read in this context. This is not a complete list of all risks identified by our audit.

Hunting PLC
2016 Annual Report and Accounts
80

Area of focus
Goodwill and non-current asset impairment
assessment
Refer to page 58 (Audit Committee report), Note 2
(critical accounting estimates and judgements), Note 37
(principal accounting policies) and Notes 14, 15 and 16.

The Group holds $229.8 million of goodwill on the
balance sheet which is tested at least annually for
impairment. Additional intangible assets held by the
Group, including customer relationships, unpatented
technology and patents & trademarks, total
$150.7 million and the Group has property, plant
and equipment of $419.0 million. Other non-current
assets are tested for impairment if impairment triggers
are identified.

Determining the recoverable amount of non-current
assets for impairment purposes is a judgemental and
complex area as it depends on the future financial
performance of the cash generating unit (“CGU”) and
future market performance. While there have been
signs of improvement in the oil and gas market towards
the end of 2016, there remains uncertainty as a result
of the impact of the relatively low oil prices. As such,
the key area of focus is the carrying value of assets,
with our focus on judgemental areas being the forecast
revenue and margin growth rate, terminal growth rates
and discount rates.

Management’s calculated recoverable amounts
exceed the carrying value of all CGUs. As a result,
there have been no impairment charges recognised
in the current year. Several CGUs remain sensitive to
reasonably possible changes in key assumptions and,
as such, sensitivity analysis has been included in notes
14 and 15.

Inventory valuation
Refer to page 58 (Audit Committee Report), Note 2
(critical accounting estimates and judgements),
Note 37 (principal accounting policies) and Note 20.

The Group holds inventory of $259.7 million. This
inventory is subject to the changing industry demands
of the oil and gas market. As a result of the decline
experienced in the market over the last two years,
pricing pressure has increased the risk of inventory
being carried at an amount greater than its net
realisable value. Consideration as to inventory
obsolescence is additionally required following the
slowdown in the oil and gas market.

Key to these judgements is management’s
expectations for future sales and inventory
utilisation plans.

How our audit addressed the area of focus
We tested management’s identification of the CGUs, considering business
changes that would prompt a change to the classification of CGUs.

In order to test the impairment models, we challenged whether the future cash
flow forecasts and the timing of the forecast recovery in performance of these
forecasts for the identified CGUs were appropriate.

More specifically, we challenged the key assumptions as follows:

• Forecast revenue and margin growth rate assumptions and how

management has incorporated the impact of the decline in oil prices,
by comparing them to historical results, comparing the short and medium
term growth rates to independent specialist third party published reports
and considering the impact already observed within the market;
• Terminal growth rates by comparing them to economic and industry

forecasts; and

• Discount rates by comparing the cost of capital assumption for each

CGU against comparable organisations and our independently calculated
discount rates.

We found the above assumptions to be in line with our expectations and that
management has followed a clear process for drawing up the future cash flow
forecasts, which was subject to oversight and challenge by the Directors and
which was consistent with Board approved budgets and mid-term forecasts.

In addition to evaluating management’s assessments, a “sum of the parts”
valuation exercise was undertaken by comparing the Group’s net book value
and recoverable amount valuation to the Group’s market capitalisation. We
compared the results with observable implied premiums for similar groups
within the industry, noting that the Group’s result was within that range.

In respect of all CGUs, we sensitised each key driver of the cash flow
forecasts, including the underlying assumptions listed above, by determining
what we considered to be a reasonably possible change in the assumptions,
based on current market data and historical and current business
performance. In addition we calculated the degree to which the key
assumptions would need to change before an impairment was triggered.

Having satisfied ourselves on the key assumptions, sensitivities and “sum
of the parts” valuation, we assessed the likelihood of movements in key
assumptions required to trigger an impairment and by comparison to
sensitised forecasts and possible change in discount rates and concluded
that it was unlikely.
For all categories of inventory, we have critically reviewed the basis for the
provisions recorded to reduce the carrying value of inventory below cost,
the consistency of provisioning in line with the Group’s accounting policy and
the rationale for the recording of provisions.

We assessed the nature of the Group’s inventory and the durability thereof
through discussion with management, inspection of inventory and review of
the utilisation of aged inventory products. We agreed with management that
the evidence obtained demonstrated that the nature of the Group’s inventory
is not perishable and the risk of technical obsolescence by age is low.
Specifically, we have:

• Considered the available support, including current sales transactions,

used to determine an appropriate net realisable value;

• Understood the ageing profile of the Group’s inventory and

management's assessment for obsolescence; and

• Confirmed that where the cost of inventory is higher than its net realisable

value, an appropriate provision has been made.

From the procedures performed, we obtained evidence that the inventory was
not carried at amounts higher than net realisable value and concluded that it
was unlikely that additional inventory provisions were required.

Hunting PLC
2016 Annual Report and Accounts
81

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONINDEPENDENT AUDITOR S’ REPORT
TO THE MEMBER S OF HUNTING PLC
C ONTIN UED

Area of focus
Direct tax exposures and recognition of deferred
tax assets
Refer to page 58 (Audit Committee Report), Note 2
(critical accounting estimates and judgements), Note
37 (principal accounting policies) and Notes 11 and 19.

The Group operates in a number of different countries
and is therefore subject to many tax regimes around
the world. Provisions are estimated for uncertain tax
positions and disputes with tax authorities, including
transactions between Group companies.

In addition, following taxable losses incurred in the
current and prior year, there are estimates made in
relation to the recoverability and recognition of deferred
tax assets arising from such losses. The Group has
recognised deferred tax assets of $5.6 million in
relation to tax losses, with related unrecognised
deferred tax assets of $30.9 million.

We considered this an area of focus because of the
judgement required by management to assess matters
across multiple jurisdictions and to determine the
recoverability of assets into the future.

Refinancing and equity raising
Refer to page 59 (Audit Committee Report), Note 37
(principal accounting policies) and Notes 22, 23, 27
and 30.

As a result of the decline in financial performance of
the Group during the previous financial year and the
first half of the current year, there was significant
pressure on the Group’s revolving credit facility (“RCF”)
covenants.

In order to address this and to increase the flexibility of
the Group’s balance sheet, management renegotiated
the Group’s RCF, resulting in a reduction in the size of
the available facility, limits on capital expenditure and
new asset-based debt and cash flow covenants.

Additionally, the Group undertook an equity placing,
raising net proceeds of $83.9 million in October 2016.
These funds were used by the Group to pay down
debt, providing additional headroom against the
amended covenant requirements.

How our audit addressed the area of focus
We discussed potential direct tax exposures with senior Group management,
and the basis for their positions with the Group’s in-house tax specialists.

We evaluated the calculations of the provisions, and considered:

• The accuracy of the calculations and ensured that appropriate tax rates

have been used; and

• Key judgements made by management in determining the probability of

potential outcomes.

Our evaluation of these judgements included using our tax specialists, in the
UK and overseas, and with experience in the oilfield services industry as well
as our experience of similar challenges elsewhere.

We evaluated the recognition of deferred tax assets in relation to tax losses
and considered:

• The accuracy of the calculations of total deferred tax assets available

and ensured that appropriate tax rates have been used;

• Key judgements made by management in determining the probability
of future forecast taxable profits to utilise brought forward tax losses,
consistent with the cash flow forecasts used for impairment assessments;
and

• Assessed the basis on which deferred tax assets have been recognised

by comparison to forecast taxable profits.

Through these procedures we evaluated the level of the provisions recognised,
the recognition of deferred tax assets and the disclosures included in the
financial statements, which we consider to be in line with the Group’s policies
and methodology and relevant accounting standards.

With regards to the renegotiation of the RCF, we tested the cash flows on
refinancing to the terms of the renegotiated agreement.

We considered covenant compliance under the terms of the RCF through
management’s extended forecast period, including downside sensitivities.

With regards to the equity placement, we have validated the funds raised
to the transaction documents and cash receipts to test the shares issued.
We assessed the classification of amounts credited to equity by comparison
to the terms of the transaction documents.

Through these procedures we considered the accounting adopted for the
refinancing and equity raising, and the related disclosures, to be in line with
relevant accounting standards.

Hunting PLC
2016 Annual Report and Accounts
82

How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements
as a whole, taking into account the geographic structure of the Group, the accounting processes and controls, and the industry in
which the Group operates.

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”).

The Group financial statements are a consolidation of entities covering non-trading legal entities, centralised functions and operating
units, totalling 60 reporting units.

In establishing the overall approach to the Group audit, we considered the type of work that needed to be performed at the reporting
units by us, as the Group engagement team, or component auditors within PwC UK and from other PwC network firms operating
under our instruction. Where the work was performed by component auditors, we determined the extent of audit work needed at
those reporting units to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our
opinion on the Group financial statements as a whole.

The Group’s reporting units vary significantly in size and we identified 10 reporting units that, in our view, required an audit of their
complete financial information, due to their size or risk characteristics. Specific audit procedures over certain balances and
transactions were performed at a further 12 reporting units, to give appropriate coverage of all material balances at the Group level.
In doing so we conducted work in seven countries and the Group audit team visited certain reporting locations in the US, including
Hunting Perforating Systems, the one financially significant component. Together, the reporting units subject to audit procedures
accounted for approximately 94% of Group revenues and over 90% of Group absolute adjusted profit or loss before tax from
continuing operations. Further, specific audit procedures over central functions and areas of significant judgement, including taxation,
treasury, pensions and impairment, were performed by the Group audit team centrally.

Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of
our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements,
both individually and on the financial statements as a whole.

Hunting PLC
2016 Annual Report and Accounts
83

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONINDEPENDENT AUDITOR S’ REPORT
TO THE MEMBER S OF HUNTING PLC
C ONTIN UED

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Overall group materiality
How we determined it

Rationale for
benchmark applied

Component materiality

$5.0 million (2015 – $5.0 million).
Approximately 5% of three year average absolute profit or loss before tax from continuing operations,
adjusted for the impairment of goodwill and other non-current assets.
We applied this benchmark because, in our view, this is an appropriate metric against which the
performance of the Group is measured and of the recurring Group performance. This is consistent
with the prior year benchmark and reflects the fact that Hunting’s 2016 result is significantly lower than
more normalised levels due to the current downturn in the market.
For each component in our audit scope, we allocated a materiality that is less than our overall Group
materiality. The range of materiality allocated across components was between $0.5 million and
$4.5 million. Certain components were audited to a local statutory audit materiality that was also less
than our overall Group materiality.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above $0.3 million
(2015 – $0.3 million) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

Going concern
Under the Listing Rules we are required to review the Directors’ statement, set out on page 56, in relation to going concern.
We have nothing to report having performed our review.

Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to
the Directors’ statement about whether they considered it appropriate to adopt the going concern basis in preparing the financial
statements. We have nothing material to add or to draw attention to.

As noted in the Directors’ statement, the Directors have concluded that it is appropriate to adopt the going concern basis in preparing
the financial statements. The going concern basis presumes that the Group and Company have adequate resources to remain in
operation, and that the Directors intend them to do so, for at least one year from the date the financial statements were signed. As
part of our audit we have concluded that the Directors’ use of the going concern basis is appropriate. However, because not all future
events or conditions can be predicted, these statements are not a guarantee as to the Group’s and Company’s ability to continue as
a going concern.

Other required reporting
Consistency of other information and compliance with applicable requirements
Companies Act 2006 reporting

In our opinion, based on the work undertaken in the course of the audit:

• The information given in the Strategic Report and the Directors' Report for the financial year for which the financial statements are

prepared is consistent with the financial statements; and

• The Strategic Report and the Directors' Report have been prepared in accordance with applicable legal requirements.

In addition, in light of the knowledge and understanding of the Group, the Company and their environment obtained in the course of
the audit, we are required to report if we have identified any material misstatements in the Strategic Report and the Directors' Report.
We have nothing to report in this respect.

ISAs (UK & Ireland) reporting
Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:

• Information in the Annual Report is:

• materially inconsistent with the information in the audited financial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our knowledge

of the Group and Company acquired in the course of performing our audit; or

• otherwise misleading.

• The statement given by the Directors on page 59, in accordance with provision C.1.1 of the UK

Corporate Governance Code (the “Code”), that they consider the Annual Report taken as a whole
to be fair, balanced and understandable and provides the information necessary for members to
assess the Group’s and Company’s position and performance, business model and strategy is
materially inconsistent with our knowledge of the Group and Company acquired in the course of
performing our audit.

We have no exceptions
to report.

• The section of the Annual Report on page 58, as required by provision C.3.8 of the Code, describing
the work of the Audit Committee does not appropriately address matters communicated by us to the
Audit Committee.

We have no exceptions
to report.

Hunting PLC
2016 Annual Report and Accounts
84

The Directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or liquidity
of the Group
Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to:

• The Directors’ confirmation on page 38 of the Annual Report, in accordance with provision C.2.1

of the Code, that they have carried out a robust assessment of the principal risks facing the Group,
including those that would threaten its business model, future performance, solvency or liquidity.

• The disclosures in the Annual Report that describe those risks and explain how they are being

managed or mitigated.

• The Directors’ explanation on page 38 of the Annual Report, in accordance with provision C.2.2 of the
Code, as to how they have assessed the prospects of the Group, over what period they have done
so and why they consider that period to be appropriate, and their statement as to whether they have
a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as
they fall due over the period of their assessment, including any related disclosures drawing attention
to any necessary qualifications or assumptions.

We have nothing
material to add or
to draw attention to.
We have nothing
material to add or
to draw attention to.
We have nothing
material to add or
to draw attention to.

Under the Listing Rules we are required to review the Directors’ statement that they have carried out a robust assessment of the
principal risks facing the Group and the Directors’ statement in relation to the longer-term viability of the Group. Our review was
substantially less in scope than an audit and only consisted of making inquiries and considering the Directors’ process supporting
their statements; checking that the statements are in alignment with the relevant provisions of the Code; and considering whether the
statements are consistent with the knowledge acquired by us in the course of performing our audit. We have nothing to report having
performed our review.

Adequacy of accounting records and information and explanations received
Under the Companies Act 2006 we are required to report to you if, in our opinion:

• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from

branches not visited by us; or

• the Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the

accounting records and returns.

We have no exceptions to report arising from this responsibility.

Directors’ remuneration
Directors’ Remuneration Report – Companies Act 2006 opinion
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006.

Other Companies Act 2006 reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’ remuneration
specified by law are not made. We have no exceptions to report arising from this responsibility.

Corporate governance statement
Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to ten further provisions
of the Code. We have nothing to report having performed our review.

Hunting PLC
2016 Annual Report and Accounts
85

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONINDEPENDENT AUDITOR S’ REPORT
TO THE MEMBER S OF HUNTING PLC
C ONTIN UED

Responsibilities for the financial statements and the audit
Our responsibilities and those of the directors
As explained more fully in the Statement of Directors’ Responsibilities set out on page 56, the Directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view.

Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs
(UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.

What an audit of financial statements involves
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an
assessment of:

• whether the accounting policies are appropriate to the Group’s and the Company’s circumstances and have been consistently

applied and adequately disclosed;

• the reasonableness of significant accounting estimates made by the Directors; and
• the overall presentation of the financial statements.

We primarily focus our work in these areas by assessing the Directors’ judgements against available evidence, forming our own
judgements, and evaluating the disclosures in the financial statements.

We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide
a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive
procedures or a combination of both.

In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the
audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent
with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for our report. With respect to the Strategic Report and Directors'
Report, we consider whether those reports include the disclosures required by applicable legal requirements.

N I C H O L A S C A M P B E L L - L A M B E R T
(S EN I O R S TAT U TO RY AUD I TO R )
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
2 March 2017

The maintenance and integrity of the Hunting PLC website is the responsibility of the Directors; the work carried out by the auditors
does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have
occurred to the financial statements since they were initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in
other jurisdictions.

Hunting PLC
2016 Annual Report and Accounts
86

CONSOLIDATED
INCOME STATEMENT
FOR THE YEA R END ED 31 DE C EM B ER 2016

Revenue
Cost of sales
Gross profit
Other operating income
Operating expenses
(Loss) profit from continuing operations
Finance income
Finance expense
Share of associates’ post-tax losses
(Loss) profit before tax from continuing
operations
Taxation
(Loss) profit for the year:
From continuing operations
From discontinued operations
(Loss) profit for the year

(Loss) profit attributable to:
Owners of the parent
Non-controlling interests

(Loss) earnings per share

Basic

– from continuing operations
– from discontinued operations

Group total

Diluted – from continuing operations

– from discontinued operations

Group total

Before
amortisationi
and
exceptional
items
$m
455.8
(403.7)
52.1
6.8
(151.1)
(92.2)
5.5
(6.2)
(0.3)

2016
Amortisationi
and
exceptional
items
(note 7)
$m
–
(4.0)
(4.0)
–
(44.5)
(48.5)
–
(2.5)
–

(51.0)
3.0

(48.0)
8.2
(39.8)

(39.3)
(0.5)
(39.8)

(93.2)
19.9

(73.3)
–
(73.3)

(68.2)
(5.1)
(73.3)

cents

(45.3)
–
(45.3)

Notes
4

5
6
8
10
10

13
13
13

Before
amortisationi
and
exceptional
items
$m
810.5
(615.3)
195.2
3.8
(182.6)
16.4
3.3
(10.1)
(0.2)

9.4
(5.4)

4.0
–
4.0

4.6
(0.6)
4.0

2015
Amortisationi
and
exceptional
items
(note 7)
$m
–
(37.9)
(37.9)
–
(260.7)
(298.6)
–
–
–

(298.6)
63.2

(235.4)
4.2
(231.2)

(231.2)
–
(231.2)

Total
$m
455.8
(407.7)
48.1
6.8
(195.6)
(140.7)
5.5
(8.7)
(0.3)

(144.2)
22.9

(121.3)
8.2
(113.1)

(107.5)
(5.6)
(113.1)

cents

(76.8)
5.5
(71.3)

3.1
–
3.1

Total
$m
810.5
(653.2)
157.3
3.8
(443.3)
(282.2)
3.3
(10.1)
(0.2)

(289.2)
57.8

(231.4)
4.2
(227.2)

(226.6)
(0.6)
(227.2)

cents

(156.1)
2.8
(153.3)

i. Relates to amortisation of intangible assets that arise on the acquisition of businesses (referred to hereafter as amortisation of acquired intangible assets).

Hunting PLC
2016 Annual Report and Accounts
87

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION

CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
FOR THE YEAR EN DE D 31 DE C E MB E R 2 016

Comprehensive expense
Loss for the year

Components of other comprehensive expense after tax
Items that have been reclassified to profit or loss:
Release of foreign exchange losses

Items that may be reclassified subsequently to profit or loss:
Exchange adjustments

Items that will not be reclassified to profit or loss:
Remeasurement of defined benefit pension schemes

Other comprehensive expense after tax

Total comprehensive expense for the year

Total comprehensive expense attributable to:
Owners of the parent
Non-controlling interests

Total comprehensive expense attributable to owners of the parent arises from:
Continuing operations
Discontinued operations

Notes

2016
$m

2015
$m

(113.1)

(227.2)

–

0.6

(21.6)

(17.1)

(4.0)

(25.6)

9.2

(7.3)

(138.7)

(234.5)

(129.8)
(8.9)
(138.7)

(138.0)
8.2
(129.8)

(231.9)
(2.6)
(234.5)

(236.5)
4.6
(231.9)

Hunting PLC
2016 Annual Report and Accounts
88

CONSOLIDATED
BAL ANCE SHEE T
AT 3 1 DEC EM BER 2016

ASSETS
Non-current assets
Property, plant and equipment
Goodwill
Other intangible assets
Investments in associates
Investments
Retirement benefit assets
Trade and other receivables
Deferred tax assets

Current assets
Inventories
Trade and other receivables
Current tax assets
Investments
Retirement benefit assets
Cash at bank and in hand

LIABILITIES
Current liabilities
Trade and other payables
Current tax liabilities
Borrowings
Provisions

Net current assets

Non-current liabilities
Borrowings
Deferred tax liabilities
Provisions
Trade and other payables

Net assets

Equity attributable to owners of the parent
Share capital
Share premium
Other components of equity
Retained earnings

Non-controlling interests
Total equity

Notes

2016
$m

2015
$m

14
15
16

17
29
18
19

20
18

17
29

22
24

22
19
24
21

30
30
31
32

419.0
229.8
150.7
3.2
10.2
18.5
2.9
7.0
841.3

259.7
111.7
9.3
0.8
14.8
63.5
459.8

70.0
7.1
54.3
4.8
136.2
323.6

11.9
12.6
10.9
12.1
47.5
1,117.4

66.3
153.0
78.8
800.0
1,098.1
19.3
1,117.4

460.8
230.6
180.4
3.7
9.1
41.4
4.0
2.0
932.0

331.2
140.2
33.5
4.6
–
54.4
563.9

104.2
14.6
52.3
5.4
176.5
387.4

117.2
10.2
12.6
11.3
151.3
1,168.1

61.7
153.0
15.7
911.5
1,141.9
26.2
1,168.1

The notes on pages 92 to 131 are an integral part of these consolidated financial statements. The financial statements on pages 87 to
131 were approved by the Board of Directors on 2 March 2017 and were signed on its behalf by:

D E N N I S P R O C T O R
D I R E C TO R

P E T E R R O S E
D I R E C TO R

Registered number: 974568

Hunting PLC
2016 Annual Report and Accounts
89

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION

CONSOLIDATED STATEMENT
OF CHANGES IN EQUIT Y

At 1 January

Loss for the year
Other comprehensive expense
Total comprehensive expense

Dividends to equity shareholders
Shares issued
– share option schemes and awards
– share placing
– share placing costs
Treasury shares
– purchase of Treasury shares
Share options and awards
– value of employee services
– discharge
– taxation
Investment by non-controlling interest
Total transactions with owners

Notes

Share
capital
$m
61.7

Share
premium
$m
153.0

Year ended 31 December 2016
Other
components
of equity
$m
15.7

Retained
earnings
$m
911.5

Total
$m
1,141.9

Non-
controlling
interests
$m
26.2

–
–
–

–

0.1
4.5
–

–

–
–
–
–
4.6

–
–
–

–

–
–
–

–

–
–
–
–
–

–
(18.3)
(18.3)

(107.5)
(4.0)
(111.5)

(107.5)
(22.3)
(129.8)

(5.6)
(3.3)
(8.9)

–

(5.9)

–
81.5
(2.1)

–
–
–

0.1
86.0
(2.1)

–

(1.8)

8.0
(6.0)
–
–
81.4

–
7.5
0.2
–
–

8.0
1.5
0.2
–
86.0

–

–
–
–

–

–
–
–
2.0
2.0

30
30 & 31
31

31
31 & 32
32

Total
equity
$m
1,168.1

(113.1)
(25.6)
(138.7)

(5.9)

0.1
86.0
(2.1)

(1.8)

8.0
1.5
0.2
2.0
88.0

At 31 December

66.3

153.0

78.8

800.0

1,098.1

19.3

1,117.4

Notes

Share
capital
$m
61.6

Share
premium
$m
151.9

Year ended 31 December 2015
Other
components
of equity
$m
30.7

Retained
earnings
$m
1,163.9

Total
$m
1,408.1

At 1 January

Loss for the year
Other comprehensive (expense) income
Total comprehensive expense

Dividends to equity shareholders
Dividends to non-controlling interests
Shares issued
– share option schemes and awards
Treasury shares
– purchase of Treasury shares
Share options and awards
– value of employee services
– discharge
– taxation
Investment by non-controlling interest
Total transactions with owners

31
31 & 32
32

–
–
–

–
–

0.1

–

–
–
–
–
0.1

–
–
–

–
–

1.1

–

–
–
–
–
1.1

–
(14.5)
(14.5)

–
–

–

6.2
(6.7)
–
–
(0.5)

(226.6)
9.2
(217.4)

(39.8)
–

–

(1.4)

–
6.5
(0.3)
–
(35.0)

(226.6)
(5.3)
(231.9)

(39.8)
–

1.2

(1.4)

6.2
(0.2)
(0.3)
–
(34.3)

Non-
controlling
interests
$m
30.2

(0.6)
(2.0)
(2.6)

–
(2.0)

–

–
–
–
0.6
(1.4)

Total
equity
$m
1,438.3

(227.2)
(7.3)
(234.5)

(39.8)
(2.0)

1.2

(1.4)

6.2
(0.2)
(0.3)
0.6
(35.7)

At 31 December

61.7

153.0

15.7

911.5

1,141.9

26.2

1,168.1

Hunting PLC
2016 Annual Report and Accounts
90

CONSOLIDATED STATEMENT
OF C A SH FLOWS
FOR THE YEA R END ED 31 DE C EM B ER 2016

Operating activities
Reported loss from continuing operations
Acquisition amortisation and exceptional items
Depreciation and non-acquisition amortisation
Underlying EBITDA (loss)
Share-based payments expense
Loss on disposal of property, plant and equipment
Decrease in inventories
Decrease in receivables
Decrease in payables
Decrease in provisions
Restructuring costs
Taxation received (paid)
Proceeds from disposal of property, plant and equipment held for rental
Purchase of property, plant and equipment held for rental
Other non-cash flow items
Discontinued operations
Net cash inflow from operating activities
Investing activities
Interest received
Dividends received from associates
Net movement on loans to and from associates
Proceeds from disposal of property, plant and equipment
Purchase of property, plant and equipment
Purchase of intangible assets
Decrease (increase) in bank deposit investments
Net proceeds from disposal of subsidiaries
Net cash in subsidiaries sold
Discontinued operations: indemnity receipts
Net cash outflow from investing activities
Financing activities
Interest and bank fees paid
Dividends paid to equity shareholders
Dividends paid to non-controlling interests
Investment by non-controlling interest
Share capital issued
Costs of share issue
Purchase of Treasury shares
Disposal of Treasury shares
Proceeds from new borrowings
Repayment of borrowings
Net cash outflow from financing activities

Net cash outflow in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of foreign exchange rates
Reclassified from held for sale
Cash and cash equivalents at the end of the year

Cash and cash equivalents at the end of the year comprise:
Cash at bank and in hand
Bank overdrafts included in borrowings

Notes

7
8

2016
$m

(140.7)
48.5
43.3
(48.9)
8.2
–
61.7
26.9
(30.2)
(1.7)
(5.9)
31.3
1.7
(2.3)
4.0
–
44.8

0.5
–
–
1.8
(14.9)
(6.4)
3.4
0.7
–
7.9
(7.0)

(5.1)
(5.9)
–
2.0
86.0
(2.1)
(1.8)
1.6
12.2
(125.7)
(38.8)

(1.0)
21.9
(0.6)
–
20.3

63.5
(43.2)
20.3

2015
$m

(282.2)
298.6
45.5
61.9
6.2
1.8
39.4
143.5
(86.9)
(6.7)
(5.9)
(10.5)
2.9
(9.0)
4.6
1.0
142.3

1.1
0.1
(0.2)
1.3
(72.1)
(8.0)
(1.1)
0.7
(3.9)
0.4
(81.7)

(8.5)
(39.8)
(2.0)
0.6
1.2
–
(1.4)
–
7.6
(36.3)
(78.6)

(18.0)
38.0
(1.9)
3.8
21.9

54.4
(32.5)
21.9

Hunting PLC
2016 Annual Report and Accounts
91

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION

NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS

1. Basis of Preparation

The financial statements consolidate those of Hunting PLC (the “Company”) and its subsidiaries (together referred to as the “Group”)
and include the Group’s interests in associates.

The financial statements have been prepared in accordance with the Companies Act 2006 and those International Financial
Reporting Standards (“IFRS”) and IFRS Interpretations Committee (“IFRS IC”) Interpretations as adopted by the European Union.
The financial statements have been prepared on a going concern basis under the historical cost convention as modified by the
revaluation of available-for-sale financial assets, the defined benefit pension asset and those financial assets and financial liabilities
held at fair value through profit or loss. The Board’s consideration of the applicability of the going concern basis is detailed further in
the Strategic Report on page 38.

The principal accounting policies applied in the preparation of these financial statements are set out in note 37. These policies have
been consistently applied to all the years presented.

Adoption of New Standards, Amendments and Interpretations
The following standards, amendments and interpretations have been adopted and are effective for the Group’s accounting period
beginning on or after 1 January 2016:

• Amendments to IAS 19: Defined Benefit Plans: Employee Contributions
• Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations
• Amendments to IAS 1: Disclosure Initiative
• Amendments to IAS 27: Equity Method in Separate Financial Statements
• Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation
• Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception
• Annual Improvements to IFRSs 2012–2014 Cycle
• Annual Improvements to IFRSs 2010–2012 Cycle

Although the adoption of these amendments represents a change in accounting policy, comparative figures for 2015 have not been
restated for these, as the changes do not impact the financial performance or position of the Group.

On 1 January 2016, the Group chose to adopt early the Amendments to IAS 7: Disclosure Initiative, which is effective for the financial
year beginning on 1 January 2017. This has resulted in the net debt reconciliation tables being presented in note 23 and being
removed from the "Non-GAAP Measures" section.

The following standards, amendments and interpretations are effective subsequent to the year end and are being assessed to
determine whether there is a significant impact on the Group’s results or financial position:

• IFRS 9 Financial Instruments
• IFRS 15 Revenue from Contracts with Customers including amendments to IFRS 15: Effective date of IFRS 15
• IFRS 16 Leasesi
• Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venturei
• Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Lossesi
• Clarifications to IFRS 15 Revenue from Contracts with Customersi
• Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactionsi
i. Not yet endorsed by the European Union.

IFRS 9 Financial Instruments replaces the guidance in IAS 39 that relates to the classification and measurement of financial
instruments. The standard will be effective for the Group from 1 January 2018. The impact of IFRS 9 is being assessed by
management. The main impact is likely to arise from the implementation of the expected loss model although full quantification of this
impact is still underway.

IFRS 15 Revenue from Contracts with Customers replaces IAS 18 Revenue and IAS 11 Construction Contracts and related
interpretations. The standard will be effective for the Group from 1 January 2018. To date, management has undertaken a high level
review of the Group’s revenue generating activities and this has identified certain manufacturing activities that may possibly require an
amendment to the Group’s revenue accounting policies. These manufacturing activities involve products that have been designed
with the customer to meet their individual specifications. The financial impact is not expected to be significant as (1) the total revenue
streams from the cash-generating units that are impacted by the amendment are not individually significant, and (2) the requirement
to apportion revenue to separate financial reporting periods will be impacted only when a product remains partly-manufactured at the
reporting date; as the time period for the manufacture of these products is relatively short, management expects only a small portion
of volumes to be in progress at the reporting date and therefore impacted by a change in accounting policy. A full assessment of the
financial impact will also require an extensive review of contractual terms with each relevant customer, in particular to identify matters
of reimbursement in respect of in-progress contracts, and this will be undertaken during the early part of 2017.

IFRS 16 Leases replaces IAS 17 Leases and its related interpretations. The standard will be effective for the Group from 1 January 2019.
The full impact of IFRS 16 has not yet been assessed, however management anticipates that a significant proportion of the future
minimum lease payments under non-cancellable operating leases, as disclosed in note 35, shall be recognised as liabilities as a
consequence of its implementation, together with a right of use asset. The majority of the Group's operating lease arrangements relate
to property leases, mainly in respect of our distribution centres. As such, the lease term is generally short term in nature, with the
majority of leases having an unexpired term of less than five years at 31 December 2016. There will also be a positive impact on EBITDA
as the lease costs will be presented as depreciation and interest expense in the income statement, rather than operating lease expense.

Hunting PLC
2016 Annual Report and Accounts
92

2. Critical Accounting Estimates and Judgements

The preparation of financial statements requires the Directors to make judgements and assumptions about the future, resulting in the
use of accounting estimates. These will, by definition, seldom equal the related actual results and adjustments will consequently be
necessary. Estimates are continually evaluated, based on experience, consultation with experts and reasonable expectations of future
events. Accounting estimates and judgements are applied in determining the carrying amounts of the following significant assets
and liabilities:

Asset/liability
Goodwill

Carrying value at
31 December 2016
$229.8m (2015 – $230.6m)

Property, plant and equipment
and other intangible assets

Nature of estimates or judgement
• The Group comprises a number of cash generating units (“CGUs”), which are managed

separately, typically being organised into country and/or product line groupings, and that
generate independent cash flows. When goodwill is initially recognised upon a business
combination, it is allocated to the CGUs that are expected to benefit from the combination.

• The goodwill of each CGU is subsequently reviewed for impairment at least annually by

comparing its carrying value with the recoverable amount. The recoverable amount is the
higher of fair value less costs of disposal ("FVLCD") and value in use ("VIU"). Management
initially prepare calculations using the FVLCD basis which represents the value of the CGU in
a sales transaction on an arms length basis. In 2016 no impairments resulted from the FVLCD
calculations and therefore no VIU estimates were prepared. As there is no active market for
the Group's CGUs, the FVLCD is determined using discounted cash flow techniques based
on the estimated future gross cash flows that are expected to be generated by the CGU and
are discounted at a rate that is determined for each CGU in isolation by consideration of their
business risk profiles.

• The estimated future gross cash flows utilise independent market forecasts adjusted to reflect

the Directors’ view of the CGU's future trading prospects and can include known growth
projects.

• Any shortfall in the recoverable amount is charged to the income statement immediately.
• The continuing poor trading conditions were considered to be indicators of potential impairment

and impairment reviews were carried out in preparation of the interim and full year results.
However, no impairment charges were recorded in 2016 as a result of the reviews.

• Further details of goodwill are disclosed in note 15.
• The Group’s property, plant and equipment and other intangible assets (except goodwill) are

depreciated/amortised at rates that are intended to spread the irrecoverable cost of the assets
over their remaining useful lives.

Combined carrying value at
31 December 2016
$569.7m (2015 – $641.2m)

• On an annual basis, management review the estimates of the useful lives, residual values and the
expected pattern of consumption of their carrying values with any change made prospectively.
In addition, management consider whether there are indicators of impairment.

Inventories

Cost at 31 December 2016
$286.4m (2015 – $351.1m);
inventory provisions at
31 December 2016 $26.7m
(2015 – $19.9m); carrying value
at 31 December 2016 $259.7m
(2015 – $331.2m)

• In addition, the carrying value of each asset must not be less than the minimum future benefits
that are expected to be generated by that asset. The impairment exercise referred to in relation
to goodwill above, also provides comfort regarding the aggregate carrying value of property,
plant and equipment and other intangible assets were reviewed. No impairment charges were
recorded in 2016 as a result of the review.

• The depreciation rates currently in use are disclosed in note 37. Further details of the Group’s
property, plant and equipment and the other intangible assets are disclosed in notes 14 and
16 respectively.

• The carrying value of the Group’s inventory must be stated at the lower of cost or net realisable
value ("NRV"). NRV is the selling price of a product as at the balance sheet date minus the costs
to be incurred in completing the product and minus the costs to sell the product.

• In determining an estimate of NRV, management has made judgements in respect of the

durability and general high quality of the Group’s products, which provide a certain degree of
protection against adverse market conditions, and competitor product development and pricing
activity.

• The significant downturn in the industry has reduced transaction volumes meaning that some
items of inventory may not have been sold near the balance sheet date, increasing the level of
judgement required. Some market transactions reflect the actions of distressed sellers and are
not applicable to the market as a whole.

• Overall, Hunting’s provision has increased from 5.7% of gross inventory balances at December

2015 to 9.3% at December 2016. Included in the carrying value of inventory is $57.3m
(2015 – $28.0m) held at NRV.

• In light of the improving market conditions, management do not expect a material adverse

increase in inventory provisions in 2017.

• Details of the Group’s inventories are disclosed in note 20.

Hunting PLC
2016 Annual Report and Accounts
93

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
C ONTIN UED

2. Critical Accounting Estimates and Judgements continued

Asset/liability
Taxation

Carrying value of the
net tax liability at
31 December 2016
$3.4m (2015 – $10.7m net asset)

Nature of estimates or judgement
• We operate in a number of countries around the world and tax computations and supporting

calculations are prepared in accordance with tax legislation enacted or substantively enacted at
the balance sheet date for each jurisdiction. Interpretation of tax legislation sometimes requires
estimates, judgement and an appropriate assessment of the tax risks to be used in determining
the tax charge or credit as uncertainties exist in relation to the interpretation of complex tax
legislation, changes in tax laws and the amount and timing of future taxable income.

• The principal areas of uncertainty for Hunting relate to transfer pricing arrangements for intra-
group trading. We regularly conduct market benchmark studies for material markets and
transaction flows in this area to determine reasonable price levels. These require an assessment
of appropriate comparable transactions and the determination of the appropriate base to use
under the OECD rules which is judgemental in nature. Our global trading activities can also
inadvertently create taxable permanent establishments in countries depending on the nature of
the sales and import processes. We have reviewed our level of risk and currently do not expect
any material change in provisions in 2017.

• Deferred tax assets are recognised only to the extent that it is probable that future taxable

profit will be available against which the temporary differences can be utilised. This assessment
is made on the basis of long-term business forecasts approved by the Board. We have
unrecognised tax losses as shown in note 19.

• The deferred tax balances at 31 December 2016 represent an estimate of the amounts that
are expected to be paid or recovered from the tax authorities in future periods if assets and
liabilities in the balance sheet were recovered at their carrying values based on tax laws and
rates that have been substantively enacted by the balance sheet date. Measurement of deferred
tax balances therefore require us to assess the applicable tax legislation and rates, the timing
of the reversal of existing taxable and deductible temporary differences and the nature, timing
and amount of taxable income which would potentially be available to support the recognition
of deferred tax assets (note 19). We base estimates of the recoverability of deferred tax assets
using these criteria for each separate significant category of deductible temporary difference and
losses carried forward.

3. Segmental Reporting

For the year ended 31 December 2016, the Group reports on five operating segments, one being a discontinued operation, in its
internal management reports which are used to make strategic decisions by the Hunting PLC Board, the Group’s Chief Operating
Decision Maker (“CODM”). The Group’s continuing operating segments are strategic business units that offer different products and
services to international oil and gas companies and undertake exploration and production activities.

The Group measures the performance of its operating segments based on revenue and profit or loss from operations, before
exceptional items and the amortisation of acquired intangible assets. Accounting policies used for segment reporting reflect those
used for the Group. Inter-segment sales are priced in line with the transfer pricing policy on an arm’s length basis.

(a) Continuing Operations
The Well Construction segment provides products and services used by customers during the drilling phase of oil and gas wells,
along with associated equipment used by the underground construction industry for telecommunication infrastructure build-out and
precision machining services for the energy, aviation and power generation sectors.

The Well Completion segment provides products and services used by customers during the completion phase of oil and gas wells.

The Well Intervention segment provides products and services used by customers during the production, maintenance and
restoration of existing oil and gas wells.

The Exploration and Production segment comprises the Group’s oil and gas exploration and production activities in the Southern US
and offshore Gulf of Mexico. The Board of Hunting will not be making any new capital investment, beyond where the division has
contractual commitments. No exploration and evaluation activities have occurred during the year. The division will in future focus on
producing out its remaining reserves, with a view to winding down the operation.

Costs and overheads incurred centrally are apportioned to the continuing operating segments on the basis of time attributed to those
operations by senior executives.

(b) Discontinued Operations
The discontinued operations comprise Gibson Shipbrokers, which was sold on 31 March 2015 and Gibson Energy, which was sold
in 2008. Gibson Energy continues to generate accounting entries due to sale-related transactions and is required to be reported for
reconciliation purposes.

The following tables present the results of the operating segments on the same basis as that used for internal reporting purposes
to the CODM.

Hunting PLC
2016 Annual Report and Accounts
94

3. Segmental Reporting continued

Continuing operations:
Hunting Energy Services
Well Construction
Well Completion
Well Intervention

Other Activities
Exploration and Production

Year ended 31 December 2016
Loss from
operations
before
amortisationi
and
exceptional
items
$m

Total
revenue
$m

Amortisationi
and
exceptional
items
$m

Total gross
revenue
$m

Inter-
segmental
revenue
$m

107.1
295.7
52.4
455.2

3.0
458.2

(1.6)
(0.6)
(0.2)
(2.4)

–
(2.4)

105.5
295.1
52.2
452.8

3.0
455.8

(24.2)
(45.9)
(19.5)
(89.6)

(2.6)
(92.2)

–
(92.2)

(0.7)
(0.3)
(93.2)

–
–

(8.9)
(34.6)
(1.9)
(45.4)

–
(45.4)

(3.1)
(48.5)

(2.5)
–
(51.0)

8.4
8.4

(0.2)
8.2

Exceptional defined benefit curtailment not apportioned to operating segments
Loss from continuing operations

Net finance expense
Share of associates’ post-tax losses
Loss before tax from continuing operations

Discontinued operations:
Gibson Energy
Total from discontinued operations

Taxation
Profit from discontinued operations

–
–

Year ended 31 December 2015
Profit from
operations
before
amortisationi
and
exceptional
items
$m

Total
revenue
$m

Amortisationi
and
exceptional
items
$m

Total gross
revenue
$m

Inter-
segmental
revenue
$m

216.6
495.0
107.6
819.2

4.2
823.4

(5.2)
(6.4)
(1.3)
(12.9)

–
(12.9)

211.4
488.6
106.3
806.3

4.2
810.5

11.6
–
11.6

–
–
–

11.6
–
11.6

1.9
14.2
4.6
20.7

(4.3)
16.4

(6.8)
(0.2)
9.4

–
–
–

0.1
(0.1)
–

(113.8)
(146.8)
(31.6)
(292.2)

(6.4)
(298.6)

–
–
(298.6)

4.9
0.4
5.3

–
(1.1)
4.2

Continuing operations:
Hunting Energy Services
Well Construction
Well Completion
Well Intervention

Other Activities
Exploration and Production
Total from continuing operations

Net finance expense
Share of associates’ post-tax losses
Profit (loss) before tax from continuing operations

Discontinued operations:
Gibson Shipbrokers
Gibson Energy
Total from discontinued operations

Net finance income
Taxation
Profit from discontinued operations

i. Relates to amortisation of acquired intangible assets.

Hunting PLC
2016 Annual Report and Accounts
95

Total
$m

(33.1)
(80.5)
(21.4)
(135.0)

(2.6)
(137.6)

(3.1)
(140.7)

(3.2)
(0.3)
(144.2)

8.4
8.4

(0.2)
8.2

Total
$m

(111.9)
(132.6)
(27.0)
(271.5)

(10.7)
(282.2)

(6.8)
(0.2)
(289.2)

4.9
0.4
5.3

0.1
(1.2)
4.2

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
C ONTIN UED

3. Segmental Reporting continued

(d) Other Segment Items

Continuing operations:
Hunting Energy Services
Well Construction
Well Completion
Well Intervention

Other Activities
Exploration and Production
Total – continuing operations

2016
Amortisation
of intangible
assets
$m

Depreciation
$m

Impairment
$m

Depreciation
$m

2015
Amortisation
of intangible
assets
$m

Impairment
$m

14.1
17.2
8.1
39.4

1.8
41.2

3.5
31.0
0.8
35.3

–
35.3

5.0
10.1
0.6
15.7

–
15.7

14.1
18.4
7.3
39.8

3.8
43.6

7.7
32.4
0.7
40.8

–
40.8

106.8
118.7
30.0
255.5

6.4
261.9

(e) Geographical Information
The Group operates across a number of geographical areas. The UK is the domicile of Hunting PLC. The table below shows revenues
from external customers, which are attributed to individual countries on the basis of the location in which the sale originated.
Information on the location of non-current assets is also presented below. Non-current assets exclude defined benefit assets and
deferred tax assets.

External revenue

2016
$m

2015
$m

(Loss) profit from operations
before amortisationi and
exceptional items

2016
$m

2015
$m

Non-current assets

2016
$m

2015
$m

Continuing operations:
Hunting Energy Services
US
Canada
North America

UK
Rest of Europe
Europe

Singapore
Rest of Asia
Asia Pacific

Middle East, Africa and Other

Other activities
US

Discontinued operations:
UK
Other

Unallocated assets:
Deferred tax assets
Retirement benefit assets
Total non-current assets

290.5
38.8
329.3

59.1
11.1
70.2

31.6
12.1
43.7

9.6
452.8

3.0
455.8

–
–
–

507.0
56.1

563.1

119.4
15.2

134.6

67.2
22.9
90.1

18.5

806.3

4.2
810.5

9.9
1.7
11.6

(36.4)
(4.5)
(40.9)

(22.1)
(3.6)
(25.7)

(8.6)
(4.7)
(13.3)

(9.7)
(89.6)

(2.6)
(92.2)

–
–
–

31.7
(3.6)
28.1

(2.7)
(1.5)
(4.2)

1.6
(1.9)
(0.3)

(2.9)
20.7

(4.3)
16.4

(0.2)
0.2

–

702.1
7.9
710.0

47.5
5.6
53.1

7.8
14.2
22.0

25.4
810.5

5.3
815.8

–
–
815.8

7.0
18.5
841.3

748.4
9.1
757.5

66.3
4.7
71.0

10.8
17.3
28.1

25.6
882.2

6.4
888.6

–
–
888.6

2.0
41.4
932.0

i. Relates to amortisation of acquired intangible assets.

(f) Major Customer Information
The Group received $39.2m (2015 – $86.3m) of revenue from the Halliburton Company Group, which is 9% (2015 – 11%) of the
Group’s revenue from external customers. The revenue is included within the Well Construction, Well Completion and Well
Intervention segments.

Hunting PLC
2016 Annual Report and Accounts
96

4. Revenue

Sale of goods
Revenue from services
Rental revenue
Continuing operations

5. Other Operating Income

Operating lease rental income
Gain on disposal of property, plant and equipment
Foreign exchange gains
Other income
Continuing operations

6. Operating Expenses

Administration expensesi before amortisationii and exceptional items
Distribution and selling costs
Loss on disposal of property, plant and equipment
Operating expenses before amortisationii and exceptional items
Amortisationii and exceptional items (note 7)
Continuing operations

Includes foreign exchange losses of $2.8m (2015 – $1.6m).

i.
ii. Relates to amortisation of acquired intangible assets.

7. Amortisation and Exceptional Items

Impairment of property, plant and equipment
Restructuring costs
Charged to cost of sales
Amortisation of acquired intangible assets
Restructuring costs
Defined benefit pension curtailment
Impairment of goodwill (note 15)
Impairment of other intangible assets (note 16)
Charged to operating expenses
Total charged to (loss) profit from operations
Capitalised loan facility fees written off – charged to finance expense
Amortisation and exceptional items
Taxation on amortisation and exceptional items (note 11)
Continuing operations

2016
$m
392.3
43.3
20.2
455.8

2016
$m
0.7
1.3
3.5
1.3
6.8

2016
$m
102.0
47.8
1.3
151.1
44.5
195.6

2016
$m
–
4.0
4.0
33.2
8.2
3.1
–
–
44.5
48.5
2.5
51.0
(3.0)
48.0

2015
$m
687.0
72.3
51.2
810.5

2015
$m
0.7
1.3
1.1
0.7
3.8

2015
$m
111.1
68.4
3.1
182.6
260.7
443.3

2015
$m
33.2
4.7
37.9
38.9
2.4
–
208.2
11.2
260.7
298.6
–
298.6
(63.2)
235.4

Management continues to implement cost base reduction measures at all levels across the Group, resulting in restructuring costs of
$12.2m (2015 – $7.1m), which gave rise to cash outflows of $5.9m during the year (2015 – $5.9m). As part of the Group's restructuring,
a decision to close the Group's European Drilling Tools business was made. Assets of $1.6m were classified as held for sale at
30 June 2016, with an impairment charge of $2.9m being posted to the income statement to recognise the assets at their net
realisable value. Following a review of the net realisable value at 31 December 2016, a fair value loss of $1.6m has been recognised,
reducing the carrying value of the held for sale assets to $nil. The impairment charge of $2.9m and the fair value loss of $1.6m have
been included in restructuring costs of $12.2m.

On 11 March 2016, it was agreed that the defined benefit pension section of the Group's UK pension scheme would be closed to
future accrual of further benefits from 30 June 2016. The active members have been offered membership of the defined contribution
section of the scheme from 1 July 2016. The effect of this change has been recognised in the 2016 financial statements, resulting in
a gain on the curtailment of future defined benefit scheme accruals of $6.5m and a past service cost of $9.6m on defined benefit
members' uplift on 11 March 2016, the net charge being $3.1m.

Hunting PLC
2016 Annual Report and Accounts
97

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
C ONTIN UED

7. Amortisation and Exceptional Items continued

A series of amendments to the Group's borrowing facilities became effective on 20 July 2016, see note 27 for further details. For
accounting purposes, as the revised Revolving Credit Facility ("RCF") size and covenant terms were significantly different, the existing
RCF was deemed to have been extinguished and replaced by a new facility. Consequently, the unamortised portion of the capitalised
loan facility fees of $2.5m relating to the RCF negotiations in 2015 have been written off to the income statement.

During 2015, plant and equipment impairment of $26.8m was recognised in the US Drilling Tools business following a review of the
carrying value given the trading conditions and future expectations at the time and an impairment charge of $6.4m for oil and gas
exploration and development expenditure was recorded, bringing the impairment charge for 2015 to $33.2m.

A detailed review on the carrying values of goodwill held by Hunting’s relevant businesses was undertaken at the half and full year,
which confirmed that no further impairments beyond those recorded in 2015 were required. Following a detailed review in 2015,
a goodwill impairment charge of $208.2m was recognised. See note 15 for further details.

An impairment charge of $11.2m for other intangible assets was recognised in 2015 following a review of customer relationships
arising on the acquisition of the Hunting Electronics and Hunting Doffing businesses.

8. Loss from Continuing Operations

The following items have been charged in arriving at loss from continuing operations:

Staff costs (note 9)
Depreciation of property, plant and equipment (note 14)
Amortisation of acquired intangible assets
Amortisation of other intangible assets
Amortisation of intangible assets (included in operating expenses) (note 16)
Impairment of other intangible assets (included in operating expenses) (note 16)
Impairment of goodwill (included in operating expenses) (note 15)
Impairment of property, plant and equipment (included in cost of sales)
Impairment of property, plant and equipment (included in other operating expenses)
Impairment of property, plant and equipment (note 14)
Impairment of trade and other receivables (included in operating expense) (note 18)
Cost of inventories recognised as expense (included in cost of sales)
Write down in inventories (included in cost of sales)
Net loss on disposal of property, plant and equipment
Operating lease payments (note 35)
Research and development expenditure

Fees payable to the Group’s auditors PricewaterhouseCoopers LLP and its associates for:

The audit of these accounts
The audit of the accounts of the Company’s subsidiaries
Total audit
Audit-related assurance services
Total audit and audit-related services

Taxation compliance services
Taxation advisory services
Total services relating to taxation

Total fees

2016
$m
157.3
41.2
33.2
2.1
35.3
–
–
0.6
2.9
3.5
1.9
368.0
10.3
–
12.2
1.3

2016
$m
1.9
0.4
2.3
–
2.3

–
–
–

2.3

2015
$m
207.7
43.6
38.9
1.9
40.8
11.2
208.2
33.2
–
33.2
0.2
559.5
9.3
1.8
14.2
0.6

2015
$m
1.9
0.4
2.3
0.1
2.4

0.2
0.1
0.3

2.7

Hunting PLC
2016 Annual Report and Accounts
98

9. Employees

Wages and salaries
Social security costs
Share-based payments (note 34)
Pension costs
– defined contribution schemes (note 29)
– defined benefit schemes (note 29)
Defined benefit charge (credit) included in exceptional items (note 29)
Pension costs – net interest included in net finance expense (note 29)
Staff costs for the year

Staff costs for the year are included in the accounts as follows:

Staff costs included in loss from operations (note 8)
Staff costs included in net finance expense
Staff costs capitalised as R&D

2016

Total
$m
127.2
10.7
8.2

6.7
2.4
3.1
(1.1)
157.2

2016

Total
$m
157.3
(1.1)
1.0
157.2

Continuing
operations
$m
177.7
12.8
6.2

2015
Discontinued
operations
$m
7.7
0.9
–

8.0
3.7
–
(0.8)
207.6

0.3
0.5
(5.5)
–
3.9

Continuing
operations
$m
207.7
(0.8)
0.7
207.6

2015
Discontinued
operations
$m
3.9
–
–
3.9

The average monthly number of employees by operating segment (including executive Directors) during the year was:

Well Construction
Well Completion
Well Intervention
Exploration and Production
Gibson Shipbrokers
Central

2016

Total
568
1,291
356
4
–
89
2,308

Continuing
operations
866
1,877
499
4
–
65
3,311

2015
Discontinued
operationsi
–
–
–
–
44
–
44

The average monthly number of employees by geographical area (including executive Directors) during the year was:

UK
Rest of Europe
Canada
USA
Singapore
Rest of Asia Pacific
Middle East, Africa & Other

2016

Total
267
58
115
1,379
179
222
88
2,308

Continuing
operations
386
82
180
2,032
221
344
66
3,311

2015
Discontinued
operationsi
39
–
–
–
4
1
–
44

Total
$m
185.4
13.7
6.2

8.3
4.2
(5.5)
(0.8)
211.5

Total
$m
211.6
(0.8)
0.7
211.5

Total
866
1,877
499
4
44
65
3,355

Total
425
82
180
2,032
225
345
66
3,355

i. The average monthly number of employees for discontinued operations was 178 for the three months during which the discontinued operations were part of the

Group. In presenting the Group’s average numbers for the year, the discontinued average has been calculated across 12 months.

The actual number of employees at the year end was:

Male
Female

2016
1,674
433
2,107

2015
2,227
557
2,784

Hunting PLC
2016 Annual Report and Accounts
99

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION

NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
C ONTIN UED

9. Employees continued

Key management comprises the executive and non-executive Directors only. Their compensation in the year was:

Salaries and short-term employee benefits
Social security costs
Post-employment benefits
Share-based payments

2016
$m
1.8
0.1
0.3
0.2
2.4

2015
$m
2.1
0.4
0.2
–
2.7

Salaries and short-term benefits are included within the Directors Remuneration table on page 73 of the Annual Report on
Remuneration. Post-employment benefits comprise employer pension contributions. Share-based payments comprise the charge to
the income statement. Details of share options and awards are disclosed on page 77 of the Annual Report on Remuneration.

10. Net Finance Expense

Finance income:
Bank balances and deposits
Pension interest income
Foreign exchange gains
Other finance income

Finance expense:
Bank overdrafts
Bank borrowings
Bank fees and commissions
Foreign exchange losses
Other finance expense
Finance expense before exceptional items
Capitalised loan facility fees written off – exceptional item (note 7)
Total finance expense

Net finance expense – continuing operations

11. Taxation

2016
$m

0.7
1.4
2.0
1.4
5.5

(0.6)
(2.0)
(2.0)
(0.7)
(0.9)
(6.2)
(2.5)
(8.7)

(3.2)

Current tax
– current year credit
– adjustments in respect of prior years

Deferred tax
– origination and reversal of temporary differences
– change in tax rate
– adjustments in respect of prior years

Taxation (credit) charge – continuing operations

i. Relates to amortisation of acquired intangible assets.

2016

Before
amortisationi
and
exceptional
items
$m

Amortisationi
and
exceptional
items
$m

(11.5)
(1.1)
(12.6)

(7.7)
(0.2)
0.6
(7.3)
(19.9)

(1.6)
–
(1.6)

(1.4)
–
–
(1.4)
(3.0)

Before
amortisationi
and
exceptional
items
$m

2015

Amortisationi
and
exceptional
items
$m

(0.7)
(0.4)
(1.1)

6.1
0.1
0.3
6.5
5.4

(26.8)
–
(26.8)

(36.4)
–
–
(36.4)
(63.2)

Total
$m

(13.1)
(1.1)
(14.2)

(9.1)
(0.2)
0.6
(8.7)
(22.9)

2015
$m

0.9
1.1
0.8
0.5
3.3

(0.8)
(2.6)
(5.1)
(0.4)
(1.2)
(10.1)
–
(10.1)

(6.8)

Total
$m

(27.5)
(0.4)
(27.9)

(30.3)
0.1
0.3
(29.9)
(57.8)

The weighted average applicable tax rate for continuing operations before amortisation and exceptional items is 21% (2015 – 57%).

The tax credit in the income statement of $3.0m (2015 – $63.2m) for amortisation and exceptional items comprises credits of
$1.9m (2015 – $1.3m) relating to restructuring costs, $1.1m (2015 – $nil) in relation to the defined benefit curtailment charge, $nil
(2015 – $15.1m) on the amortisation of acquired intangible assets, $nil (2015 – $9.2m) on the impairment of plant, machinery and
motor vehicles, $nil (2015 – $2.6m) on the impairment of oil and gas development expenditure, $nil (2015 – $3.1m) on the impairment
of other intangible assets and $nil (2015 – $31.9m) on the impairment of goodwill.

Hunting PLC
2016 Annual Report and Accounts
100

11. Taxation continued
The total tax credit for the year is lower (2015 – lower) than the standard rate of UK corporation tax of 20% (2015 – 20.25%) for the
following reasons:

Loss before tax from continuing operations
Tax at 20% (2015 – 20.25%)
Permanent differences including tax credits
Non-tax deductible (untaxed) exceptional items
Higher rate of tax on overseas profits
Current year losses not recognised
Change in tax rates
Adjustments in respect of prior years
Taxation – continuing operations

2016
$m
(144.2)
(28.8)
0.9
–
(17.7)
23.4
(0.2)
(0.5)
(22.9)

Tax effects relating to each component of other comprehensive income were as follows:

Exchange adjustments
Release of foreign exchange losses
Remeasurement of defined benefit pension schemes

2016
Tax (charged)
credited
$m
0.1
–
(7.5)
(7.4)

Before tax
$m
(21.7)
–
3.5
(18.2)

After tax
$m
(21.6)
–
(4.0)
(25.6)

2015
Tax (charged)
credited
$m
0.1
–
(1.7)
(1.6)

Before tax
$m
(17.2)
0.6
10.9
(5.7)

2015
$m
(289.2)
(58.6)
2.1
41.4
(45.8)
3.1
0.1
(0.1)
(57.8)

After tax
$m
(17.1)
0.6
9.2
(7.3)

In respect of the tax on the remeasurement of defined benefit pension schemes, a $1.4m charge (2015 – $2.0m) arises on the current
year’s movement and a charge of $6.1m (2015 – $0.3m credit) is due to a change in tax rates as the Group now expects refunds of
the pension surplus which attracts a 35% tax rate. The $7.5m charge comprises of deferred tax.

A number of changes to the UK corporation tax system were announced in the Chancellor's Budget on 16 March 2016. These
include reductions to the main rate of corporation tax to reduce the rate to 17% from 1 April 2020. The Finance Bill 2016, which
included these changes, received Royal Assent on 15 September 2016. The Finance Bill 2015 included a reduction to the main
corporation tax rate to 19% from 1 April 2017. The changes are not expected to have a material impact on the Group’s UK deferred
tax balances.

12. Discontinued Operations

The results from discontinued operations were as follows:

Trading results:
Revenue
Gross profit
Other operating income
Other operating expenses
Profit from operations
Finance income
Profit before tax
Taxation
Profit for the year

Exceptional gain on disposal:
Gain on sale before tax
Taxation
Gain on sale after tax

Total profit from discontinued operations

2016
Gibson
Energy
$m

Gibson
Shipbrokers
$m

2015

Gibson
Energy
$m

–
–
–
–
–
–
–
–
–

8.4
(0.2)
8.2

8.2

11.6
11.6
0.1
(11.7)
–
0.1
0.1
(0.1)
–

4.9
(1.1)
3.8

3.8

–
–
–
–
–
–
–
–
–

0.4
–
0.4

0.4

Total
$m

11.6
11.6
0.1
(11.7)
–
0.1
0.1
(0.1)
–

5.3
(1.1)
4.2

4.2

Gibson Energy: The sale of Gibson Energy Inc, Hunting’s Canadian midstream services operation, was completed on 12 December
2008. Subsequent gains reported relate to the settlement of tax items.

Gibson Shipbrokers: On 31 March 2015, the Group sold E.A. Gibson Shipbrokers Limited and its subsidiaries (together referred to
as “Gibson Shipbrokers”) to an employee-owned trust formed by Gibson Shipbrokers’ employees. The selling price was $3.7m, with
$3.0m deferred in the form of an interest-bearing loan note and the remainder paid in cash. A curtailment gain on the Group’s pension
obligations of $5.5m was also recognised upon the sale.

Hunting PLC
2016 Annual Report and Accounts
101

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
C ONTIN UED

13. Earnings per Share

Basic earnings per share (“EPS”) is calculated by dividing the earnings attributable to Ordinary shareholders by the weighted average
number of Ordinary shares outstanding during the year.

For diluted earnings per share, the weighted average number of outstanding Ordinary shares is adjusted to assume conversion of
all dilutive potential Ordinary shares. The dilution in respect of share options applies where the exercise price is less than the average
market price of the Company’s Ordinary shares during the year and the possible issue of shares under the Group’s long-term
incentive plans.

Reconciliations of the earnings and weighted average number of Ordinary shares used in the calculations are set out below:

Basic and diluted (loss) earnings attributable to Ordinary shareholders
From continuing operations
From discontinued operations
Total

Basic and diluted (loss) earnings attributable to Ordinary shareholders before amortisationi and
exceptional items
From continuing operations
Add: amortisationi and exceptional items after taxation
Total

From discontinued operations
Less: exceptional items after taxation
Total

Basic weighted average number of Ordinary shares
Dilutive outstanding share options
Long-term incentive plans
Adjusted weighted average number of Ordinary shares

(a) Reported (Loss) Earnings per Share

Basic EPS
From continuing operations
From discontinued operations

Diluted EPSii
From continuing operations
From discontinued operations

(b) Underlying (Loss) Earnings per Share

Basic EPS
From continuing operations
From discontinued operations

Diluted EPSii
From continuing operations
From discontinued operations

2016
$m

2015
$m

(115.7)
8.2
(107.5)

(230.8)
4.2
(226.6)

(115.7)
47.5
(68.2)

8.2
(8.2)
–

millions
150.7
–
6.4
157.1

(230.8)
235.4
4.6

4.2
(4.2)
–

millions
147.8
0.1
2.0
149.9

cents

(76.8)
5.5
(71.3)

(45.3)
–
(45.3)

(156.1)
2.8
(153.3)

3.1
–
3.1

i. Relates to amortisation of acquired intangible assets.
ii. For the years ended 31 December 2015 and 2016, the effect of dilutive share options and long-term incentive plans was anti-dilutive and, therefore, they have not

been used to calculate diluted earnings per share.

Hunting PLC
2016 Annual Report and Accounts
102

14. Property, Plant and Equipment

Cost:
At 1 January
Exchange adjustments
Additions
Disposals
Reclassification to held for sale assets
Reclassification to inventories
Reclassification
At 31 December

Accumulated depreciation and impairment:
At 1 January
Exchange adjustments
Charge for the year
Impairment of assets
Disposals
Reclassification to held for sale assets
Reclassification to inventories
Reclassification
At 31 December

Land and
buildings
$m

266.9
(7.0)
2.3
(1.4)
–
–
(4.9)
255.9

28.1
(1.1)
6.7
0.6
(0.3)
–
–
0.2
34.2

Year ended 31 December 2016
Plant,
machinery
and motor
vehicles
$m

Oil and gas
exploration
and
development
$m

Rental
tools
$m

326.1
(4.4)
10.1
(6.5)
(0.6)
(0.5)
4.9
329.1

170.1
(3.5)
28.6
0.1
(5.8)
(0.4)
(0.2)
(0.2)
188.7

103.2
(2.3)
2.3
(3.6)
(6.6)
(0.1)
–
92.9

42.0
(1.6)
4.1
2.8
(2.1)
(5.2)
(0.3)
–
39.7

180.9
–
0.7
–
–
–
–
181.6

176.1
–
1.8
–
–
–
–
–
177.9

Total
$m

877.1
(13.7)
15.4
(11.5)
(7.2)
(0.6)
–
859.5

416.3
(6.2)
41.2
3.5
(8.2)
(5.6)
(0.5)
–
440.5

Net book amount

221.7

140.4

53.2

3.7

419.0

Following the closure of the Group's European Drilling Tools business, rental tools were impaired by $2.8m and plant, machinery and
motor vehicles by $0.1m, totalling $2.9m. The assets of the Group’s European Drilling Tools rental business were classified as held for
sale during the year.

With the market slowdown impacting the Group's Asia Pacific operations, certain regional assets were impaired, with a $0.6m charge
recognised.

Included in the net book amount is expenditure relating to assets in the course of construction of $0.1m (2015 – $50.2m) for land and
buildings, $8.8m (2015 – $26.3m) for plant and machinery and $0.8m (2015 – $2.5m) for rental tools.

Group capital expenditure committed for the purchase of property, plant and equipment, but not provided for in these financial
statements, amounted to $1.2m (2015 – $4.8m).

The net book amount of land and buildings of $221.7m (2015 – $238.8m) comprises freehold land and buildings of $218.1m
(2015 – $234.1m) and capitalised leasehold improvements of $3.6m (2015 – $4.7m).

As a result of the amendments to the Group's financial covenants over the bank facility in 2016, security has been granted over
specific properties in the UK and US, which have a carrying value of $239.2m (2015 – $nil).

Oil and gas productive and development assets are tested for impairment at least annually. Following a valuation of oil and gas
reserves at 31 December 2016, performed for impairment purposes, no impairment charges were required (2015 – $6.4m) reflecting a
stabilisation in the market, principally of commodity prices. The recoverable amount of oil and gas development expenditure is based
on value in use. These calculations use discounted cash flow projections based on estimated oil and gas reserves, future production
and the income and costs in generating this production. Cash flows are based on productive lives between one and fifteen years and
are discounted using a nominal pre-tax rate of 12% (2015 – 12%).

The carrying value of PPE assets in certain CGUs remains sensitive to potential declines in future revenue growth rates. Based on the
impairment test process described in note 15, if the expected compound annual growth rate ("CAGR") for revenue between 2016 and
2021 for US Drilling Tools fell by 2%, for UK OCTG fell by 2% or for Canada fell by 3% impairments could be required. The net book
value of PPE for US Drilling Tools is $60.5m, for UK OCTG is $8.0m and for Canada is $4.2m. There is no reasonably foreseeable
change in revenue growth rates that would give rise to impairment charges in other CGUs.

Hunting PLC
2016 Annual Report and Accounts
103

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
C ONTIN UED

14. Property, Plant and Equipment continued

Cost:
At 1 January
Exchange adjustments
Additions
Disposals
Classified as held for sale
Reclassification to inventory
At 31 December

Accumulated depreciation and impairment:
At 1 January
Exchange adjustments
Charge for the year
Impairment of assets
Disposals
Classified as held for sale
Reclassification
At 31 December

Land and
buildings
$m

243.6
(3.3)
28.5
(1.9)
–
–
266.9

24.8
(0.9)
4.9
0.5
(1.2)
–
–
28.1

Year ended 31 December 2015
Plant,
machinery
and motor
vehicles
$m

Rental
tools
$m

Oil and gas
exploration
and
development
$m

304.2
(8.9)
36.5
(5.7)
–
–
326.1

152.2
(5.8)
28.1
0.1
(5.2)
–
0.7
170.1

139.4
(2.0)
9.6
(7.7)
(35.9)
(0.2)
103.2

49.7
(1.1)
6.8
26.2
(3.0)
(35.9)
(0.7)
42.0

178.4
–
2.5
–
–
–
180.9

165.9
–
3.8
6.4
–
–
–
176.1

Total
$m

865.6
(14.2)
77.1
(15.3)
(35.9)
(0.2)
877.1

392.6
(7.8)
43.6
33.2
(9.4)
(35.9)
–
416.3

Net book amount

238.8

156.0

61.2

4.8

460.8

The net book amount of property, plant and equipment at 1 January 2015 was $473.0m.

15. Goodwill

Cost:
At 1 January
Exchange adjustments
At 31 December

Accumulated impairment:
At 1 January
Exchange adjustments
Charge for the year
At 31 December

Net book amount

The net book amount of goodwill at 1 January 2015 was $440.6m.

(a) Impairment Tests for Goodwill
Goodwill is allocated to the Group’s cash-generating units (“CGUs”) as follows:

CGU
Hunting Perforating Systems (formally Hunting Titan)
Hunting Stafford “Subsea” (formally National Coupling Company)
Dearborn
US Manufacturing
Hunting Specialty
Welltonic
At 31 December

Hunting PLC
2016 Annual Report and Accounts
104

2016
$m

517.1
(2.0)
515.1

286.5
(1.2)
–
285.3

2015
$m

522.5
(5.4)
517.1

81.9
(3.6)
208.2
286.5

229.8

230.6

2016
$m
180.5
15.0
12.5
12.5
5.0
4.3
229.8

2015
$m
180.4
15.0
12.5
12.5
5.0
5.2
230.6

15. Goodwill continued

Impairment Tests for Goodwill
The continuing poor trading conditions and the subsequent renegotiation of bank facilities were considered indicators of potential
impairment and impairment tests were carried out in preparation for interim and year end reporting.

The recoverable amount for each CGU has been determined using a fair value less costs of disposal ("FVLCD") method, which
represents the value of the CGU in a sales transaction on an arms length basis. As there is no active market for the Group's CGUs,
the FVLCD is determined using discounted cash flow techniques based on the estimated future gross cash flows that are expected to
be generated by the CGU and are discounted at a rate that is determined for each CGU in isolation by consideration of their business
risk profiles. This method allows approved capital projects that are in progress to be included. The recoverable amount calculations
use discounted pre-tax nominal cash flow projections.

The key assumptions for the recoverable amount calculations are revenue growth rates, taking into account the impact these have on
margins, terminal growth rates and the discount rates applied.

For 2017, cash flows are based on the approved Board budget. For 2018 to 2021, management has made revenue projections using
Spears and Associates “Drilling and Production Outlook” reports as a default basis, selecting the most appropriate geographic
market and driver (rig count, footage drilled or E&P spend) for each CGU. Management has then applied judgemental changes to
revenue growth expectations, if appropriate, to reflect circumstances specific to the CGU. Having determined the projected revenues,
management has then modelled the expected impact on margins and cash flow from the resulting revenue projections.

Whilst market conditions have stabilised in 2016, and there are now some signs of recovery, the speed and extent of the recovery is
difficult to predict and it will impact CGUs differently. The compound annual growth rates (“CAGR”) for revenue for the CGUs between
2016 and 2021 vary between 9% and 26%. These growth rates should be seen in the context of the year-on-year declines in revenue
in 2015 and 2016 which were 42% and 44% respectively. After 2021, a terminal value has been calculated assuming growth above
inflation of 50 basis points, giving nominal growth rates between 1% and 6%. For material CGUs this is between 2% and 3%.

Cash flows have been discounted using nominal pre-tax rates between 10% and 18%. The discount rates reflect current market
assessments of the equity market risk premiums, the volatility of returns, the risks associated with the cash flows, the likely external
borrowing rate of the CGU and expected levels of leverage. Consideration has also been given to other factors such as currency risk,
operational risk and country risk.

Management remains confident that market fundamentals will drive a significant recovery in the sector and this assessment of the
mid to long-term outlook has not changed materially since 31 December 2015. No impairment charges have been recorded as a
result of the impairment reviews carried out in the year.

(b) Material CGU
Hunting Perforating Systems – Hunting Perforating Systems represents 79% of the goodwill balance at the year end (2015 – 78%)
and has a carrying value, including amounts recognised on consolidation such as goodwill, of $448.2m (2015 – $503.0m). Projected
annual growth rates vary between 13% and 31%. Cash flows have been discounted at a nominal pre-tax rate of 12%. There is no
reasonably foreseeable change in revenue growth rates, or terminal growth rates, or discount rates which will give rise to impairment
charges.

(c) Sensitivities
The carrying value of certain CGUs is dependent on the strength and speed of the expected recovery in the sector. The following
sensitivities have been considered.

(i) Revenue growth rates
The only reasonably foreseeable change in CAGR which could give rise to an impairment charge relates to the Welltonic CGU.
For this CGU a 5% reduction in the expected CAGR for revenue between 2016 and 2021 would result in the full impairment of the
remaining $4.6m of goodwill.

(ii) Terminal growth rates
A fall in terminal growth rate expectations of 25 basis points would not give rise to any impairment charges.

(iii) Discount rates
For Hunting Perforating Systems, Hunting Stafford, Hunting Dearborn, US Manufacturing and Hunting Specialty nominal pre-tax
discount rates of 12% have been applied. For Welltonic the discount rate is 11%. An increase in pre-tax discount rates of 50 basis
points would give rise to a $0.7m impairment to the Welltonic CGU. No other goodwill balances would be impacted.

Hunting PLC
2016 Annual Report and Accounts
105

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
C ONTIN UED

16. Other Intangible Assets

Cost:
At 1 January
Exchange adjustments
Additions
Disposals
At 31 December

Accumulated amortisation and impairment:
At 1 January
Exchange adjustments
Charge for the year
At 31 December

Customer
relationships
$m

Unpatented
technology
$m

Patents &
Trademarks
$m

2016

247.4
(0.6)
–
–
246.8

128.9
(0.6)
21.7
150.0

64.4
(0.2)
5.1
(0.1)
69.2

23.5
(0.1)
6.1
29.5

53.9
(0.1)
1.2
–
55.0

36.2
–
6.3
42.5

12.5

Net book amount

96.8

39.7

Cost:
At 1 January
Exchange adjustments
Additions
Disposals
At 31 December

Accumulated amortisation and impairment:
At 1 January
Exchange adjustments
Charge for the year
Impairment of assets
Disposals
At 31 December

Net book amount

Customer
relationships
$m

Unpatented
technology
$m

2015
Patents &
Trademarks
$m

247.6
(0.2)
–
–
247.4

92.1
(0.2)
25.8
11.2
–
128.9

118.5

60.2
(0.2)
4.4
–
64.4

17.5
0.1
5.9
–
–
23.5

40.9

50.7
–
3.2
–
53.9

28.6
–
7.6
–
–
36.2

17.7

Other
$m

22.4
(0.7)
0.1
(0.2)
21.6

19.1
(0.4)
1.2
19.9

Total
$m

388.1
(1.6)
6.4
(0.3)
392.6

207.7
(1.1)
35.3
241.9

1.7

150.7

Other
$m

22.6
(0.3)
0.4
(0.3)
22.4

18.1
(0.2)
1.5
–
(0.3)
19.1

Total
$m

381.1
(0.7)
8.0
(0.3)
388.1

156.3
(0.3)
40.8
11.2
(0.3)
207.7

3.3

180.4

The net book amount of other intangible assets at 1 January 2015 was $224.8m.

Other intangible assets of $1.7m (2015 – $ 3.3m) include software of $1.4m (2015 – $2.7m).

Internally generated intangible assets have been included within unpatented technology. The carrying value at the beginning of the
year was $10.4m (2015 – $6.7m). Additions during the year were $5.2m (2015 – $4.4m), disposals were $0.1m (2015 – $nil) and the
amortisation charge for the year was $0.8m (2015 – $0.5m). After foreign exchange losses of $0.2m (2015 – $0.2m), the carrying value
at the end of the year was $14.5m (2015 – $10.4m).

All intangible assets are regarded as having a finite life and are amortised accordingly. All amortisation charges relating to intangible
assets have been charged to operating expenses.

A review of the carrying value of other intangible assets was undertaken in 2015, which led to the impairment of customer
relationships arising on the acquisition of the Electronics and Doffing businesses of $11.2m.

Hunting PLC
2016 Annual Report and Accounts
106

16. Other Intangible Assets continued

Individual Material Intangible Assets
Included in the table above are the following individual material intangible assets:

Cost:
At 1 January and 31 December

Accumulated amortisation:
At 1 January
Charge for the year
At 31 December

Net book amount
Remaining amortisation period at 31 December – years

17. Investments

Non-current:
Listed equity investments and mutual funds

Current:
Bank deposits maturing after more than three months

18. Trade and Other Receivables

Non-current:
Loan note
Prepayments
Other receivables

Current:
Trade receivables
Less: provision for impairment of receivables
Net trade receivables
Prepayments
Accrued revenue
Loan note
Other receivables

2016

Customer
relationships
– Dearborn
$m

Customer
relationships
– Perforating
Systems
$m

14.7

190.2

8.1
1.8
9.9

4.8
2.5

2016
$m

10.2

81.6
19.1
100.7

89.5
4.8

2015
$m

9.1

0.8

4.6

2016
$m

1.2
1.6
0.1
2.9

97.6
(4.4)
93.2
8.0
4.1
0.6
5.8
111.7

2015
$m

2.2
1.6
0.2
4.0

119.1
(2.7)
116.4
13.1
3.8
0.7
6.2
140.2

Trade receivables that are not overdue and not impaired are expected to be fully recovered as there is no recent history of default
or any indications that the customers will not meet their payment obligations. At the year end there are no trade receivables
(2015 – none) whose terms have been renegotiated and would otherwise be past due or impaired.

Hunting PLC
2016 Annual Report and Accounts
107

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION

NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
C ONTIN UED

18. Trade and Other Receivables continued

At 31 December 2016, trade receivables of $48.9m (2015 – $56.5m) were overdue but not impaired. The ageing of these receivables
at the year end is as follows:

Number of days overdue:
1-30 days
31-60 days
61-90 days
91-120 days
more than 120 days
Receivables overdue not impaired
Receivables not overdue
Receivables not overdue and impaired
Receivables overdue and impaired
Impairment
Net trade receivables

2016
$m

26.0
10.0
7.4
2.4
3.1
48.9
44.3
–
4.4
(4.4)
93.2

2015
$m

26.6
11.5
6.9
5.5
6.0
56.5
59.8
0.1
2.7
(2.7)
116.4

Receivables that are overdue but not impaired relate to customers for whom there is no recent history of default. Receivables that
have been impaired mainly relate to debtors in financial difficulty where defaults in payments have occurred or concerns have been
raised about the customer’s liquidity. Trade receivables are impaired when there is evidence that the Group will not be able to collect
all amounts due according to the original terms of sale.

During the year, a provision of $2.2m (2015 – $0.7m) for the impairment of receivables was recognised, $0.2m (2015 – $nil) receivables
were written off and $0.3m (2015 – $0.5m) unused provisions were released. The provision for the impairment of trade receivables at
the year end was $4.4m (2015 – $2.7m).

The other classes of financial assets within trade and other receivables do not contain impaired assets.

Concentrations of credit risk with respect to trade receivables are limited due to the Group’s wide and unrelated customer base.
The maximum exposure to credit risk is the fair value of each class of receivable. The carrying value of each class of receivable
approximates their fair value as described in note 26.

The Group does not hold any collateral as security and no assets have been acquired through the exercise of any collateral
previously held.

As a result of the amendments to the Group's financial covenants over the bank facility in 2016, security has been granted over
certain trade receivables and other receivables in the UK, US and Canada, which have a gross value of $75.7m (2015 – $nil).

19. Deferred Tax
Deferred income tax assets and liabilities are only offset when there is a legally enforceable right to offset and when the deferred
income taxes relate to the same fiscal authority and there is an intention to settle the balance net. The offset amounts are as follows:

Deferred tax assets
Deferred tax liabilities

The movement in the net deferred tax liability is as follows:

At 1 January
Exchange adjustments
Credit to the income statementi
Change in tax rates
Taken direct to equity
At 31 December

2016
$m
7.0
(12.6)
(5.6)

2016
$m
(8.2)
1.4
8.3
0.2
(7.3)
(5.6)

2015
$m
2.0
(10.2)
(8.2)

2015
$m
(35.9)
0.7
28.9
(0.1)
(1.8)
(8.2)

i. The credit to the income statement comprises a credit of $9.1m (2015 – $30.3m) for the origination and reversal of temporary differences and a charge of $0.6m (2015

– $0.3m) for adjustments in respect of prior years relating to continuing operations (note 11) and a charge of $0.2m relating to discontinued operations (2015 – $1.1m).

Deferred tax assets of $50.0m (2015 – $32.6m) have not been recognised as realisation of the tax benefit is not probable.
This includes $30.9m in respect of tax losses (2015 – $3.8m). The tax losses do not have an expiry date.

Deferred tax assets of $7.0m (2015 – $2.0m) are expected to be recovered after more than 12 months. Deferred tax liabilities of $5.2m
(2015 – $nil) are expected to be released within 12 months and $7.4m (2015 – $10.2m) are expected to be released after more than
12 months.

Hunting PLC
2016 Annual Report and Accounts
108

19. Deferred Tax continued

The movements in deferred tax assets and liabilities, prior to taking into consideration the offsetting of balances within the same tax
jurisdictions, are shown below:

Tax losses
Inventory
Goodwill and intangibles
Post-retirement benefits
Asset decommissioning provision
Accumulated tax depreciation
Share-based payments
Other

Tax losses
Inventory
Goodwill and intangibles
Post-retirement benefits
Asset decommissioning provision
Accumulated tax depreciation
Share-based payments
Unremitted earnings
Other

At
1 January
2016
$m
0.4
7.8
15.7
(5.2)
2.2
(27.5)
0.3
(1.9)
(8.2)

Exchange
adjustments
$m
(0.3)
–
–
1.8
–
–
(0.1)
–
1.4

At
1 January
2015
$m
1.0
7.2
(20.2)
(3.7)
2.2
(28.4)
6.0
(0.2)
0.2
(35.9)

Exchange
adjustments
$m
–
–
–
0.3
–
0.4
–
–
–
0.7

(Charge)
credit to
income
statement
$m
6.0
(0.4)
(0.4)
1.1
–
1.6
0.1
0.3
8.3

(Charge)
credit to
income
statement
$m
(0.6)
1.2
35.5
(0.3)
0.4
0.5
(4.7)
0.2
(3.3)
28.9

Change in
tax rates
$m
(0.5)
–
–
0.8
–
(0.1)
–
–
0.2

Change in
tax rates
$m
–
–
(0.1)
–
–
–
–
–
–
(0.1)

Taken
direct to
equity
$m
–
–
–
(7.5)
–
–
0.2
–
(7.3)

Other
movements
$m
–
(0.1)
3.8
0.2
(0.1)
2.5
–
(6.3)
–

At
31 December
2016
$m
5.6
7.3
19.1
(8.8)
2.1
(23.5)
0.5
(7.9)
(5.6)

Net
deferred
tax assets
$m
5.6
0.3
0.5
–
–
0.7
–
(0.1)
7.0

Taken
direct to
equity
$m
–
–
–
(1.5)
–
–
(0.3)
–
–
(1.8)

Other
movements
$m
–
(0.6)
0.5
–
(0.4)
–
(0.7)
–
1.2
–

At
31 December
2015
$m
0.4
7.8
15.7
(5.2)
2.2
(27.5)
0.3
–
(1.9)
(8.2)

Net
deferred
tax assets
$m
0.4
0.6
0.9
–
–
0.3
–
–
(0.2)
2.0

Net
deferred
tax
liabilities
$m
–
7.0
18.6
(8.8)
2.1
(24.2)
0.5
(7.8)
(12.6)

Net
deferred
tax
liabilities
$m
–
7.2
14.8
(5.2)
2.2
(27.8)
0.3
–
(1.7)
(10.2)

A deferred tax asset of $5.6m (2015 – $nil) has been recognised in respect of tax losses in various locations on the basis of forecast
future taxable profits against which those tax losses could be utilised.

20. Inventories

Raw materials
Work in progress
Finished goods
Gross inventories
Less: provisions for losses
Net inventories

2016
$m
79.7
37.6
169.1
286.4
(26.7)
259.7

2015
$m
94.1
43.9
213.1
351.1
(19.9)
331.2

The net inventory balance comprises $202.4m of inventory carried at cost (2015 – $303.2m) and $57.3m of inventory carried at net
realisable value (2015 – $28.0m).

The Group expects that $177.5m (2015 – $259.8m) of the Group's inventories of $259.7m (2015 – $331.2m) will be realised within
12 months of the balance sheet date and $82.2m (2015 – $71.4m) will be realised after 12 months.

In 2016 a $12.1m impairment against the Group’s inventory carrying values was booked (2015 – $11.4m). During the year the Group
reversed $1.8m (2015 – $2.1m) of a previous inventory impairment as the goods were sold during the year for an amount greater than
their carrying value. The net amount of $10.3m (2015 – $9.3m) has been included in cost of sales in the income statement. $2.9m
(2015 – $0.9m) of the provision was utilised during the year and, after foreign exchange gains of $0.6m (2015 – $0.4m), the provision
for impairment of inventories at the year end was $26.7m (2015 – $19.9m).

As a result of the amendments to the Group's financial covenants over the bank facility in 2016, security has been granted over
inventories in certain subsidiaries in the UK, US and Canada, which have a gross value of $166.9m (2015 – $nil).

Hunting PLC
2016 Annual Report and Accounts
109

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION

NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
C ONTIN UED

21. Trade and Other Payables

Non-current:
Trade payables
Accruals
Social security and other taxes
Other payables – US deferred compensation plan obligation (note 29)

Current:
Trade payables
Social security and other taxes
Accruals
Other payables

22. Borrowings

Non-current:
Secured bank loansi
Unsecured bank loansii
Other unsecured loans

Current:
Bank overdrafts secured
Bank overdrafts unsecured
Secured bank loans
Unsecured bank loans

Total borrowings

2016
$m

0.2
1.4
0.3
10.2
12.1

2016
$m

35.1
7.0
22.7
5.2
70.0

2016
$m

8.0
–
3.9
11.9

43.2
–
11.1
–
54.3

66.2

i. Secured bank loans include $0.6m capitalised loan facility fees.
ii. Unsecured bank loans include $2.7m capitalised loan facility fees.

Analysis of Borrowings by Currency
The carrying amount of the Group’s borrowings is denominated in the following currencies:

Secured bank loans
Other unsecured loans
Bank overdrafts secured
At 31 December 2016

Unsecured bank loans
Other unsecured loans
Bank overdrafts
At 31 December 2015

Canadian
dollars
$m
–
–
–
–

Canadian
dollars
$m
29.8
–
–
29.8

Sterling
$m
19.7
–
17.6
37.3

US dollars
$m
–
3.9
25.5
29.4

Sterling
$m
24.9
–
13.1
38.0

US dollars
$m
78.3
3.9
19.4
101.6

Capitalised
loan facility
fees
$m
(0.6)
–
–
(0.6)

Capitalised
loan facility
fees
$m
(2.7)
–
–
(2.7)

Other
$m
–
–
–
–

Other
$m
0.5
–
–
0.5

Euro
$m
–
–
0.1
0.1

Euro
$m
2.3
–
–
2.3

Hunting PLC
2016 Annual Report and Accounts
110

2015
$m

0.4
1.7
0.1
9.1
11.3

2015
$m

57.1
7.3
36.0
3.8
104.2

2015
$m

–
113.3
3.9
117.2

–
32.5
–
19.8
52.3

169.5

Total
$m
19.1
3.9
43.2
66.2

Total
$m
133.1
3.9
32.5
169.5

23. Changes in Net Debt

Hunting operates a centralised treasury function that manages all cash and loan positions throughout the Group and ensures
funds are used efficiently through the use of interest offsetting arrangements and other such measures. As the Group manages
funding on a net debt basis, internal reporting focuses on changes in net debt and this is presented in the Strategic Report.
The net debt reconciliation provides an analysis of the movement in the year for each component of net debt split between cash
and non-cash items.

Net debt comprises bank overdrafts, current and non-current borrowings, less cash and cash equivalents and bank deposits
maturing after more than three months.

Cash at bank and in hand
Bank overdrafts (note 22)
Cash and cash equivalents
Current investments (note 17)
Non-current borrowings
Current bank loans (note 22)
Total net borrowings
Capitalised loan facility fees
Total net debt

At
1 January
2016
$m
54.4
(32.5)
21.9
4.6
(119.9)
(19.8)
(113.2)
2.7
(110.5)

Movement in
capitalised
loan facility
feesi
$m
–
–
–
–
–
–
–
(2.1)
(2.1)

Exchange
movements
$m
(3.3)
2.7
(0.6)
(0.4)
2.2
0.4
1.6
–
1.6

Other
movements
$m
–
–
–
–
–
–
–
–
–

At
31 December
2016
$m
63.5
(43.2)
20.3
0.8
(12.5)
(11.1)
(2.5)
0.6
(1.9)

Cash flow
$m
12.4
(13.4)
(1.0)
(3.4)
105.2
8.3
109.1
–
109.1

Due to losses reported in the relevant test period, the bank covenants relating to the Group’s RCF were breached at 30 June 2016.
Prior to this occurring, management had been in discussions with the bank lending group to seek amendments to the covenants.
For accounting purposes, as the revised facility size and covenant terms were significantly different, the RCF was deemed to have
been extinguished and replaced by a new RCF. Consequently, capitalised loan facility fees of $2.5m were written off to the income
statement. Further details on the revised terms are provided in note 27.

At
1 January
2015
$m
88.5
(50.5)
38.0
3.8
(160.9)
(14.9)
(134.0)
3.0
(131.0)

Cash flow
$m
(35.0)
17.0
(18.0)
1.1
36.3
(7.6)
11.8
–
11.8

Exchange
movements
$m
(2.9)
1.0
(1.9)
(0.3)
4.7
2.7
5.2
–
5.2

Movement in
capitalised
loan facility
feesi
$m
–
–
–
–
–
–
–
(0.3)
(0.3)

Reclassified
from held
for saleii
$m
3.8
–
3.8
–
–
–
3.8
–
3.8

At
31 December
2015
$m
54.4
(32.5)
21.9
4.6
(119.9)
(19.8)
(113.2)
2.7
(110.5)

i. During the year, $0.9m (2015 – $2.7m) loan facility fees were paid, $0.5m (2015 – $3.0m) fees were amortised and $2.5m (2015 – $nil) fees were written off and shown

in exceptional items (note 7).

ii. The net assets of Gibson Shipbrokers disposed of on 31 March 2015 included $3.8m of cash and cash equivalents that were classified as held for sale at

31 December 2014.

Hunting PLC
2016 Annual Report and Accounts
111

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
C ONTIN UED

24. Provisions

At 1 January 2016
Exchange adjustments
Charged to the income statement
Adjustments to property, plant and equipment
Provisions utilised
Unutilised amounts reversed
Change in discount rate
Unwinding of discount
At 31 December 2016

Provisions are due as follows:

Current
Non-current

Onerous
contracts
$m
7.7
(1.1)
0.3
–
(1.5)
–
0.1
0.1
5.6

Other
$m
10.3
(0.4)
1.3
0.2
(1.0)
(0.4)
–
0.1
10.1

2016
$m
4.8
10.9
15.7

Total
$m
18.0
(1.5)
1.6
0.2
(2.5)
(0.4)
0.1
0.2
15.7

2015
$m
5.4
12.6
18.0

The Group has commitments in respect of leasehold properties, some of which are not used for Group trading purposes and are
vacant or sub-let to third parties. The provision for onerous contracts reflects the uncertainty of future conditions in the sub-letting
market. It is expected that $1.9m of the provision will be utilised in 2017, $0.7m in 2018 and the remaining balance of $3.0m utilised
from 2019 to 2023. Provision is made on a discounted basis, at a risk-free rate of between 0.01% and 0.69% p.a., for the net rental
deficit on these properties to the end of the lease term.

Other provisions include asset decommissioning and remediation obligations of $7.0m (2015 – $6.1m) relating to the Group’s
obligation to dismantle, remove and restore items of property, plant and equipment and warranties and tax indemnities of $1.0m
(2015 – $1.3m). The asset decommissioning provision reflects uncertainty in the timing and amounts of the costs expected to arise
in meeting this obligation. Provision is made on a discounted basis, the majority of which is estimated to be utilised over a period of
fourteen years.

25. Derivatives and Hedging

(a) Currency Derivatives
The Group has used spot and forward foreign exchange contracts to hedge its exposure to exchange rate movements during
the year.

At 31 December 2016, the total notional amount of the Group’s outstanding forward foreign exchange contracts was $1.9m
(2015 – $3.1m).

Gains and losses on contracts that are not designated in a hedge relationship are taken directly to the income statement,
with $nil (2015 – $0.2m loss) being recognised in the income statement during the year for continuing operations.

Certain highly probable forecast transactions have been designated in a cash flow hedge relationship and hedged using forward
foreign exchange contracts during the year. These forecast transactions all occurred during 2016. Gains and losses recognised
during the year on these contracts were immaterial.

Fair values of derivative financial instruments:

Forward foreign exchange contracts – not in a hedge

2016

Total
assets
$m
0.1

Total
liabilities
$m
(0.1)

2015

Total
assets
$m
–

Total
liabilities
$m
(0.1)

(b) Hedge of Net Investments in Foreign Operations
The Group had both Canadian dollar and Sterling denominated borrowings during the year, which it designated as a hedge of the net
investment in its Canadian and UK subsidiaries respectively. Following the equity placing in October 2016, the Group repaid a large
portion of its borrowings. At 31 December 2016, the carrying amount of net Canadian dollar borrowings designated as a hedge was
$nil (2015 – $21.1m) and the carrying amount of net Sterling borrowings was $19.6m (2015 – $22.1m). During 2016, foreign exchange
gains of $2.5m (2015 – $5.1m) on translation of the borrowings into US dollars were recognised in the currency translation reserve.

Hunting PLC
2016 Annual Report and Accounts
112

26. Financial Instruments: Fair Values

The carrying value of investments, non-current trade and other receivables, net trade receivables, accrued revenue, other receivables,
deposits maturing after three months, cash and cash equivalents, assets classified as held for sale, trade payables, accruals,
other payables, provisions, liabilities classified as held for sale, bank overdrafts, unsecured bank loans and other unsecured loans
approximates their fair value. Drawdowns under the revolving credit facility are typically for periods of one month or less and,
as a result, the carrying value and the fair value are considered to be the same.

The following tables present the Group’s other financial assets and liabilities that are measured at fair value at the year end and show
the level in the fair value hierarchy in which the fair value measurements are categorised. There were no transfers between Level 1
and Level 2 during the year.

Non-current investments
Listed equity investments and mutual funds
Derivatives held for trading
Derivative financial assets
Derivative financial liabilities

Non-current investments
Listed equity investments and mutual funds
Derivatives held for trading
Derivative financial liabilities

Fair value at
31 December
2016
$m

Level 1
$m

Level 2
$m

10.2

0.1
(0.1)
10.2

10.2

–
–
10.2

–

0.1
(0.1)
–

Fair value at
31 December
2015
$m

Level 1
$m

Level 2
$m

9.1

(0.1)
9.0

9.1

–
9.1

–

(0.1)
(0.1)

The fair value hierarchy has the following levels:
Level 1 – inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability.

The fair value of forward foreign exchange contracts is determined by comparing the cash flows generated by the contract with the
coterminous cash flows potentially available in the forward exchange market on the balance sheet date. The fair value of listed
equities and mutual funds is based on their current bid prices in an active market, which is considered to be the most representative
of fair value, at the balance sheet date. The fair values of non-US dollar denominated financial instruments are translated into US
dollars using the year end exchange rate.

The inputs used to determine the fair value of derivative financial instruments are inputs other than quoted prices that are observable
and so the fair value measurement is categorised in Level 2 of the fair value hierarchy. The fair value of listed equity investments and
mutual funds is based on quoted market prices and so the fair value measurement is categorised in Level 1 of the fair value hierarchy.

27. Financial Risk Management

The Group’s activities expose it to certain financial risks, namely market risk (including currency risk, fair value interest rate risk and
cash flow interest rate risk), credit risk and liquidity risk. The Group’s risk management strategy seeks to mitigate potential adverse
effects on its financial performance. As part of its strategy, both primary and derivative financial instruments are used to hedge certain
risk exposures.

There are clearly defined objectives and principles for managing financial risk established by the Board of Directors, with policies,
parameters and procedures covering the specific areas of funding, banking relationships, foreign currency and interest rate exposures
and cash management.

The Group’s treasury function is responsible for implementing the policies and providing a centralised service to the Group for
funding, foreign exchange and interest rate management and counterparty risk management. It is also responsible for identifying,
evaluating and hedging financial risks in close co-operation with the Group’s operating companies.

(a) Foreign Exchange Risk
The Group’s international base is exposed to foreign exchange risk from its investing, financing and operating activities, particularly in
respect of Sterling and Canadian dollars. Foreign exchange risks arise from future transactions and cash flows, and from recognised
monetary assets and liabilities that are not denominated in the functional currency of the Group’s local operations.

Hunting PLC
2016 Annual Report and Accounts
113

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION

NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
C ONTIN UED

27. Financial Risk Management continued

The Group’s material foreign exchange rates are:

Average exchange rate to US dollars
Year end exchange rate to US dollars

Sterling

2016
0.74
0.81

2015
0.65
0.68

Canadian dollar
2016
1.33
1.34

2015
1.28
1.39

(i) Transactional Risk
The exposure to exchange rate movements in significant future transactions and cash flows is hedged by using forward foreign
exchange contracts or currency options. Certain forward foreign exchange contracts have been designated as hedging instruments
of highly probable forecast transactions. Operating companies prepare quarterly rolling 12-month cash flow forecasts to enable
working capital currency exposures to be identified. Currency exposures arise where the cash flows are not in the functional currency
of the entity. Exposures arising from committed long-term projects beyond a 12-month period are also identified. The currency flows
to be hedged are committed foreign currency transactions greater than $400,000 equivalent per month and/or currency flows that in
aggregate exceed $400,000 equivalent per annum.

No speculative positions are entered into by the Group.

The table below shows the carrying values of the Group’s financial instruments at 31 December, including derivative financial
instruments, on which exchange differences would potentially be recognised in the income statement in the following year. The table
excludes derivatives designated in a cash flow hedge and loans to subsidiaries that are considered to be part of the net investment in
a foreign operation, as exchange differences arising on these are recognised in other comprehensive income.

At 31 December 2016
Functional currency of Group’s entities:
Sterling
US dollars
Canadian dollars
Singapore dollars
Chinese CNY

Currency of denomination

Sterling
$m

US dollars
$m

Canadian
dollars
$m

–
(1.7)
–
–
–
(1.7)

3.4
–
0.6
1.6
(2.1)
3.5

–
4.7
–
–
–
4.7

Euro
$m

–
4.5
–
–
–
4.5

Chinese
CNY
$m

Other
currencies
$m

–
1.9
–
–
–
1.9

–
0.1
–
–
–
0.1

Total
$m

3.4
9.5
0.6
1.6
(2.1)
13.0

The Sterling and US dollar denominated financial instruments consist of cash balances, trade receivables, accrued revenue, trade
payables, accrued expenses, bank borrowings and intra-group loans.

At 31 December 2015
Functional currency of Group’s entities:
Sterling
US dollars
Canadian dollars
Singapore dollars
Euro
Chinese CNY

Currency of denomination

Sterling
$m

US dollars
$m

Canadian
dollars
$m

–
(2.7)
–
–
(0.4)
(0.1)
(3.2)

0.4
–
0.8
2.5
0.6
(2.6)
1.7

–
(0.6)
–
–
–
–
(0.6)

Euro
$m

(0.6)
–
–
–
–
–
(0.6)

Chinese
CNY
$m

Other
currencies
$m

–
0.9
–
–
–
–
0.9

(0.1)
0.2
–
–
–
–
0.1

Total
$m

(0.3)
(2.2)
0.8
2.5
0.2
(2.7)
(1.7)

The Sterling and US dollar denominated financial instruments consist of cash balances, trade receivables, accrued revenue, trade
payables, accrued expenses, bank borrowings and intra-group loans.

(ii) Translational Risk
Foreign exchange risk also arises from the Group’s investments in foreign operations.

The foreign exposure to net investments in foreign operations is managed using borrowings denominated in the same functional
currency as that of the net assets. The borrowings are designated as a hedge of the net investment in foreign operations. The foreign
exchange exposure primarily arises from Sterling and Canadian dollar denominated net investments.

(b) Interest Rate Risk
Variable interest rates on cash at bank, deposits, overdrafts and borrowings expose the Group to cash flow interest rate risk and fixed
interest rates on loans and deposits expose the Group to fair value interest rate risk. The treasury function manages the Group’s
exposure to interest rate risk and uses interest rate swaps and caps, when considered appropriate.

Hunting PLC
2016 Annual Report and Accounts
114

27. Financial Risk Management continued

(c) Credit Risk
The Group’s credit risk arises from its pension assets, cash and cash equivalents, investments, derivative financial instruments,
loan note and outstanding receivables.

At the year end, the Group had credit risk exposures to a wide range of counterparties. Credit risk exposure is continually monitored
and no individual exposure is considered to be significant in the context of the ordinary course of the Group’s activities.

Exposure limits are set for each approved counterparty, as well as the types of transactions that may be entered into. Approved
institutions that the treasury function can invest surplus cash with all must have a minimum A2, P2 or F2 short-term rating from
Standard and Poor’s, Moody’s or Fitch rating agencies respectively and AAA rating for Money Market Funds.

At the year end, cash at bank and in hand totalled $63.5m (2015 – $54.4m) and current investments $0.8m (2015 – $4.6m). 88%
(2015 – 90%) of cash at bank and in hand balances were deposited with banks with Fitch short-term ratings of F1 to F1+. Of the
remaining 12% (2015 – 10%), the vast majority (10%) was held on deposit with two financial institutions within mainland China which,
given the Group’s operations in this jurisdiction, were deemed necessary. Despite not having formal credit ratings, an internal
assessment determined that the banks' credit profiles were appropriate for the amounts held on deposit.

The credit risk of foreign exchange contracts is calculated before the contract is acquired and compared to the credit risk limit set for
each counterparty. Credit risk is calculated as a fixed percentage of the nominal value of the instrument.

Trade and other receivables are continuously monitored. Credit account limits are primarily based on the credit quality of the
customer and past experience through trading relationships. To reduce credit risk exposure from outstanding receivables, the Group
has taken out credit insurance with an external insurer, subject to certain conditions.

The Group operates a pension scheme in the UK, which includes a funded defined benefit section with pension plan net assets of
$33.3m (2015 – $41.4m). The majority of the Scheme’s defined benefits are now covered by insurance company annuity policies,
meaning the pensions-related risks have largely been eliminated. The pension buy-in has been effected by using a number of
insurers, so as to spread its credit risk. The credit rating of these insurers is monitored.

The Group also operates a defined benefit pension scheme in the US, which is unfunded. Contributions are paid into a separate
investment vehicle and invested in a wide portfolio of US mutual funds that are recognised as non-current investments. Investments
at the year end amounted to $10.2m (2015 – $9.1m) and are expected to be fully recovered.

(d) Liquidity Risk
The Group needs to ensure that it has sufficient liquid funds available to support its working capital and capital expenditure
requirements. All subsidiaries submit weekly and bi-monthly cash forecasts to the treasury function to enable them to monitor the
Group’s requirements.

The Group has sufficient credit facilities to meet both its long and short-term requirements. The Group’s credit facilities are provided
by a variety of funding sources and total $219.2m (2015 – $414.6m) at the year end. The facilities comprise $200.0m of secured
committed facilities (2015 – $350.0m unsecured), and $19.2m secured uncommitted facilities (2015 – $64.6m unsecured).

Due to losses reported in the relevant test period, the financial covenants relating to the Group’s $350m Revolving Credit Facility
(“RCF”) were breached at 30 June 2016. In anticipation of this event, management commenced discussions with the lending banks
to seek amendments to the terms and conditions relating to the RCF and the other funding arrangements available to the Group.
On 20 July 2016 the revised terms became effective. The main revised covenants and terms to apply throughout the suspension
period, which runs up to and including the 30 June 2018 covenant test date, are:

• Committed facilities reduced from $350m to $200m to reflect the Group’s reduced requirements.
• First priority security charge taken by the bank group over certain trade receivables and inventories held by Group subsidiaries
in the US, Canada and UK subsidiaries, together with security charges over the Group’s principal properties in the US and UK.

• Drawings under the committed facilities to be covered by the secured assets.
• The balance of discounted trade receivables and accrued revenue values shall not be less than 40% of the utilisation of the

committed facilities.

• Tangible net worth of the Group must exceed $450m.
• Rolling 12-month cash flow targets tested semi annually.
• Capital expenditure limited to a maximum of $30m per annum in 2017 and 2018.
• Cessation of dividend payments until the end of the suspension period.
• An amendment fee of $400,000 was payable and the interest margin over LIBOR on funds drawn increases to 2.75%.

As at 31 December 2016, all covenants were covered with adequate headroom and the Group remained compliant with the amended
terms and conditions of the committed facilities.

The ratio of net debt to EBITDA and the EBITDA interest cover covenants included in the facility agreement signed in October 2015
have been suspended until the 30 June 2018 covenant test date. If trading conditions improve before the end of the amendment
period then Hunting can elect to return to the original facility covenants. The Group’s treasury function ensures flexibility in funding by
maintaining availability under committed credit facilities. The Group had undrawn committed borrowing facilities available at the year
end totalling $179.5m (2015 – $233.9m), which expire between two and five years.

Hunting PLC
2016 Annual Report and Accounts
115

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
C ONTIN UED

27. Financial Risk Management continued

The following tables analyse the Group’s non-derivative financial liabilities into relevant maturity groupings based on the remaining
period at the balance sheet date to the contractual maturity date of the financial liabilities. The amounts are the contractual,
undiscounted cash flows. The carrying amounts in the balance sheet are the discounted amounts. Balances due within one year
have been included in the maturity analysis at their carrying amounts, as the impact of discounting is not significant.

Non-derivative financial liabilities:
Trade payables
Accruals
Other payables
Onerous lease contracts
Secured bank loans
Other unsecured loans
Bank overdrafts secured
Total

Non-derivative financial liabilities:
Trade payables
Accruals
Other payables
Onerous lease contracts
Unsecured bank loans
Other unsecured loans
Bank overdrafts unsecured
Total

2016

On demand
or within
one year
$m

Between
two and
five years
$m

After
five years
$m

35.1
22.7
2.9
1.9
13.0
–
43.2
118.8

0.2
0.6
–
2.8
14.0
–
–
17.6

–
0.8
10.2
1.0
–
3.9
–
15.9

On demand
or within
one year
$m

2015

Between
two and
five years
$m

After
five years
$m

57.1
36.0
2.3
1.6
22.0
–
32.5
151.5

0.4
0.6
–
4.3
124.4
–
–
129.7

–
1.1
9.1
2.0
–
3.9
–
16.1

Total
$m

35.3
24.1
13.1
5.7
27.0
3.9
43.2
152.3

Total
$m

57.5
37.7
11.4
7.9
146.4
3.9
32.5
297.3

The Group had no net settled financial liabilities at the year end (2015 – none).

The table below analyses the Group’s derivative financial instruments, which will be settled on a gross basis, into maturity groupings
based on the period remaining from the balance sheet date to the contractual maturity date. The amounts disclosed in the table are
the contractual, undiscounted cash flows.

Currency derivatives – held for trading
– inflows
– outflows

2016

On demand
or within
one year
$m

Between
two and five
years
$m

2015
On demand
or within one
year
$m

18.9
(19.0)

0.6
(0.6)

11.2
(11.3)

(e) Capital Risk Management
The Group’s objectives, policies and processes for managing capital are outlined in the Strategic Report within the Financial Capital
Management section on page 48. Within this section, the Group provides a definition of capital, provides details of the external
financial covenants imposed, key measures for managing capital and the objectives for managing capital. Quantitative disclosures
have been made together with the parameters for meeting external financial covenants.

28. Financial Instruments: Sensitivity Analysis

The following sensitivity analysis is intended to illustrate the sensitivity to changes in market variables on the Group’s financial
instruments and show the impact on profit or loss and shareholders’ equity. Financial instruments affected by market risk include
cash and cash equivalents, borrowings, deposits and derivative financial instruments. The sensitivity analysis relates to the position
as at 31 December 2016.

The analysis excludes the impact of movements in market variables on the carrying value of pension and other post-retirement
obligations, provisions and on the non-financial assets and liabilities of foreign operations.

Hunting PLC
2016 Annual Report and Accounts
116

28. Financial Instruments: Sensitivity Analysis continued

The following assumptions have been made in calculating the sensitivity analysis:

• Foreign exchange rate and interest rate sensitivities have an asymmetric impact on the Group’s results, that is, an increase in

rates does not result in the same amount of movement as a decrease in rates.

• For floating rate assets and liabilities, the amount of asset or liability outstanding at the balance sheet date is assumed to be

outstanding for the whole year.

• Fixed-rate financial instruments that are carried at amortised cost are not subject to interest rate risk for the purpose of this

analysis.

• The carrying values of financial assets and liabilities carried at amortised cost do not change as interest rates change.

Positive figures represent an increase in profit or equity.

(a) Interest Rate Sensitivity
The sensitivity rate of 0.5% (2015 – 0.5%) for US interest rates represents management’s assessment of a reasonably possible
change, based on historical volatility and a review of analysts’ research and banks’ expectations of future interest rates.

The post-tax impact on the income statement, with all other variables held constant, at 31 December, for an increase of 0.5% (2015
– 0.5%) in US interest rates, is to reduce profits by $nil (2015 – $0.3m). If US interest rates were to decrease by 0.5% (2015 – 0.5%),
then the post-tax impact on the income statement would be to increase profits by $nil (2015 – $0.3m). The movements in 2015 arose
on US dollar denominated borrowings. There is no impact on other comprehensive income (“OCI”) for a change in interest rates.

(b) Foreign Exchange Rate Sensitivity
The sensitivity rate of 15% (2015 – 10%) for Sterling and 5% (2015 – 10%) Canadian dollar and Singapore dollar exchange rates
represents management’s assessment of a reasonably possible change, based on historical volatility and a review of analysts’
research and banks’ expectations of future foreign exchange rates.

The table below shows the post-tax impact for the year of a reasonably possible change in foreign exchange rates, with all other
variables held constant, at 31 December.

Sterling exchange rate +15% (2015: +10%)
Sterling exchange rate -15% (2015: -10%)
Canadian dollar exchange rates +5% (2015: +10%)
Canadian dollar exchange rates -5% (2015: -10%)
Singapore dollar exchange rates +5% (2015: +10%)
Singapore dollar exchange rates -5% (2015: -10%)

2016

2015

Income
statement
$m
(0.9)
1.1
(0.5)
0.6
–
0.1

OCI
$m
(0.3)
0.3
(0.8)
0.9
–
–

Income
statement
$m
(0.8)
0.9
(0.1)
0.1
0.3
(0.4)

OCI
$m
–
–
–
–
–
–

The movements in the income statement mainly arise from cash, bank overdrafts, intra-group balances, trade receivables and
payables and accrued expenses, where the functional currency of the entity is different from the currency that the monetary items are
denominated in.

The movements in OCI arise from net Sterling borrowings designated in a hedge of the net investment in foreign subsidiaries
and from Sterling and Canadian dollar denominated loans that have been recognised as part of the Group’s net investment in
foreign subsidiaries.

29. Post-Employment Benefits

(a) UK Pensions
Within the UK, the Group operates a funded pension scheme, which includes a defined benefit section with benefits linked to price
inflation and a defined contribution section with benefits dependent on future investment returns. The defined benefit section closed
to future accrual on 30 June 2016 and existing contributing members of that section joined the defined contribution section with
effect from 1 July 2016. The majority of UK employees are members of the defined contribution section of the scheme.

The UK scheme is registered with HMRC for tax purposes, is operated separately from the Group and is managed by a board of
trustees. The trustees are responsible for the payment of benefits and the management of the scheme’s assets.

The UK scheme is subject to UK regulations, which require the Group and the trustees to agree a funding strategy and contributions
schedule for the defined benefit section of the UK scheme. Contributions due to the defined contribution section of the UK scheme
and other Group defined contribution arrangements are charged directly to profit and loss.

Hunting PLC
2016 Annual Report and Accounts
117

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
C ONTIN UED

29. Post-Employment Benefits continued

Risk exposures and investment strategy
The scheme is managed so that it is well funded and represents a low risk to the Group. In particular, the scheme’s assets are invested
in a range of deferred annuity and immediate annuity policies with a number of insurers, which largely match the benefits to be paid to
members of the scheme. This strategy significantly reduces the Group’s investment, inflation and demographic risks in relation to the
scheme’s liabilities. The position would change materially if one of the insurers was no longer able to meet its obligations as the pension
obligation ultimately rests with the Group.

The decrease in the Group's pension asset seen over 2016 principally reflects the agreement of the trustees and the Group to meet the
contributions of the defined contribution section from the surplus in the scheme and the loss as a result of the closure of the defined
benefit section, partially offset by the gain arising from the trustees' decision to surrender part of one of their insurance annuity policies.

Funding strategy
The trustees and the Group together agree a funding strategy for the UK scheme every three years. As the defined benefit section is
closed to future accrual and the benefits earned by the members are covered in full by annuity policies, the Group does not expect
to pay any further contributions into the defined benefit section of the scheme. The trustees and the Group have also agreed that
contributions to the defined contribution section can be met from the excess assets in the scheme for the time being and that a
repayment of £12.0m ($14.8m) net of tax of £4.2m ($5.2m) from the scheme to the Group has been made on 24 February 2017.

The net assets for the UK post-employment benefit scheme are:

Present value of obligations
Total fair value of plan assets
Net asset

The net asset is recognised in the balance sheet as follows:

Non-current
Current
Net asset

Changes in the net asset recognised in the balance sheet

Opening balance sheet net asset
Exchange adjustments
Expense charged to the income statement – continuing operations
Past service cost charged to the income statement – continuing operations
Past service cost credited to the income statement – discontinued operations
Amount recognised in other comprehensive income
Transfer to defined contribution section
Employers contributions paid
Closing balance sheet net asset

2016
$m
(418.3)
451.6
33.3

2015
$m
(387.1)
428.5
41.4

2016
$m
18.5
14.8
33.3

2016
$m
41.4
(6.7)
(0.9)
(3.1)
–
4.2
(1.6)
–
33.3

2015
$m
41.4
–
41.4

2015
$m
30.9
(2.1)
(2.9)
–
5.5
10.6
(1.8)
1.2
41.4

The Group has concluded that it can recognise the full amount of the surplus on the grounds that it could gain sufficient economic
benefit from a future reduction of its contributions to the defined contribution section of the scheme or through a future refund from
the scheme. This is happening in practice as contributions to the defined contribution section are already being met from the
scheme's excess assets and a repayment to the Group has been agreed for 2017. Amendments to the current accounting rules on
recognising a surplus (IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction) are
currently being considered. The Group has concluded that the above accounting treatment will not be affected by the current
proposed changes to these rules.

Hunting PLC
2016 Annual Report and Accounts
118

29. Post-Employment Benefits continued

Movements in the present value of the defined benefit obligation for the defined benefit section of the UK scheme

Opening defined benefit obligation
Exchange adjustments
Current service cost (employer)
Contributions by plan participants
Interest on benefit obligations
Remeasurements due to:
Changes in financial assumptions
Changes in demographic assumptions
Experience on benefit obligations
Past service cost
Benefits and expenses paid
Present value of the obligation at the end of the year

Movements in the fair value of the assets for the defined benefit section of the UK scheme

Opening fair value of plan assets
Exchange adjustments
Interest on plan assets
Actual returns over interest on plan assets
Transfer to defined contribution scheme
Contributions by employer
Contributions by plan participants
Benefits and expenses paid
Closing fair value of plan assets

2016
$m
387.1
(71.2)
2.3
0.1
13.2

101.9
–
(2.4)
3.1
(15.8)
418.3

2016
$m
428.5
(77.9)
14.6
103.7
(1.6)
–
0.1
(15.8)
451.6

2015
$m
438.3
(23.0)
4.0
0.3
15.1

(7.5)
(4.5)
(11.3)
(5.5)
(18.8)
387.1

2015
$m
469.2
(25.1)
16.2
(12.7)
(1.8)
1.2
0.3
(18.8)
428.5

The “Actual returns over interest on plan assets” shown in the table above principally includes the impact of both a gain arising
from the surrender of some of the annuity policies (about $3.1m) and from changes in the financial assumptions used to value
the insurance annuity policies (about $100.6m) after allowing for membership experience. The gain due to the changes in the
assumptions broadly offsets the corresponding loss on the remeasurement of the defined benefit obligation, demonstrating that
the pensions related risks have largely been mitigated by the scheme’s investment strategy.

Major asset categories for the defined benefit section of the UK scheme

Insurance annuity policies
Multi-asset fund
Bonds
Cash/other
Fair value of plan assets

2016
$m
418.9
–
–
32.7
451.6

2015
$m
395.3
18.0
10.6
4.6
428.5

The fair value of the insurance annuity policies has been calculated using the same financial and demographic assumptions as those
used to value the corresponding obligations. The scheme does not invest in property occupied by the Group or in financial securities
issued by the Group.

Amounts recognised in the income statement in respect of the UK scheme

Current service cost – operating expenses
Past service cost – defined benefit members uplift (note 7)
Past service cost – gain on curtailment (note 7)
Total expense included within loss from operations
Net interest on the defined benefit asset – finance income (note 10)
Total expense included within staff costs (note 9)

2016
Total
$m
2.3
9.6
(6.5)
5.4
(1.4)
4.0

Hunting PLC
2016 Annual Report and Accounts
119

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
C ONTIN UED

29. Post-Employment Benefits continued

Current service cost – operating expenses
Past service cost – gain on curtailment (note 12)
Total expense (credit) included within profit (loss) from operations
Net interest on the defined benefit asset – finance income (note 10)
Total expense (credit) included within staff costs (note 9)

The current service cost includes $1.5m (2015 – $1.2m) of administration costs.

Continuing
operations
$m
3.5
–
3.5
(1.1)
2.4

2015
Discontinued
operations
$m
0.5
(5.5)
(5.0)
–
(5.0)

Total
$m
4.0
(5.5)
(1.5)
(1.1)
(2.6)

In addition, employer contributions of $6.7m (2015 – $8.3m) for various Group defined contribution arrangements (including the
defined contribution section of the UK scheme) are recognised in the income statement.

Special events
As part of the closure of the defined benefit section, existing contributing members of that section were given a one-off uplift to their
pensions. The net effect of the closure and these uplifts has been recognised in the income statement.

A repayment from the scheme to the Group of excess assets of £7.8m net of tax (approximately $9.6m) has been agreed for 2017.
The impact of this repayment will be reflected in the 2017 financial statements. It has also been agreed that the defined benefit
section of the scheme will be wound up, with the insurance annuity policies transferred into the names of the individual members.

The principal assumptions used for accounting purposes reflect prevailing market conditions are:

Discount rate
Future pension increase
Future salary increase

Mortality assumption – life expectancy

Male aged 65 at the accounting date
Female aged 65 at the accounting date
Male aged 65 in 20 years
Female aged 65 in 20 years

2016
2.6% p.a.
3.5% p.a.
n/a

2015
3.8% p.a.
3.3% p.a.
5.3% p.a.

2016
Years
25.1
27.8
27.0
29.3

2015
Years
25.0
27.7
26.9
29.1

The assumptions used to determine the end-of-year benefit obligations are also used to calculate the following year’s cost.

Sensitivity analysis
The weighted average duration to payment of the projected future cash flows from the defined benefit section of the scheme is
about 17 years. As the defined benefit section is closed to future accrual and members' benefits are covered in full by annuity
policies, any change in the obligation arising as a result of changes in the above assumptions is broadly matched by a corresponding
change in the value of the insurance policies, so that the impact on the net balance sheet asset is significantly dampened.

The net balance sheet is therefore only largely sensitive to changes in the market value of the invested assets. The investment
strategy for the defined benefit section, with all funds in either annuity policies or cash, should mean the surplus figure is stable.

(b) Other Pensions
The Group also operates a cash balance arrangement in the US for certain executives. Members build up benefits in this
arrangement by way of notional contributions and notional investment returns. Actual contributions are paid into an entirely separate
investment vehicle held by the Company, which is used to pay benefits due from the cash balance arrangement when the member
retires.

Under IAS 19, the cash balance arrangement is accounted for as an unfunded defined benefit scheme, although in practice it
operates like a defined contribution arrangement with the obligations matched by the assets in the separate investment vehicle.

The amounts recognised in the income statement during the year were $0.1m (2015 – $0.2m) for the employer’s current service cost
(recognised in operating expenses) and $0.3m (2015 – $0.3m) interest cost (recognised in finance expense).

Hunting PLC
2016 Annual Report and Accounts
120

29. Post-Employment Benefits continued

Movements in the present value of the obligation for the defined benefit US deferred compensation plan

Present value of the obligation at the start of the year
Current service cost (equal to the notional contributions)
Interest on benefit obligations
Remeasurement – excess of notional investment returns over interest cost
Present value of the obligation at the end of the year

30. Share Capital and Share Premium

At 1 January
Shares issued – share placing (note 31)
Shares issued – share option schemes and awards
At 31 December

At 1 January
Shares issued – share option schemes and awards
At 31 December

2016
$m
9.1
0.1
0.3
0.7
10.2

2015
$m
8.9
0.2
0.3
(0.3)
9.1

Ordinary
shares of
25p each
Number
148,841,508
14,608,771
289,407
163,739,686

Ordinary
shares of
25p each
Number
148,468,677
372,831
148,841,508

2016

Ordinary
shares of
25p each
$m
61.7
4.5
0.1
66.3

2015

Ordinary
shares of
25p each
$m
61.6
0.1
61.7

Share
premium
$m
153.0
–
–
153.0

Share
premium
$m
151.9
1.1
153.0

There are no restrictions attached to any of the Ordinary shares in issue and all Ordinary shares carry equal voting rights. The rights
attached to the Company’s Ordinary shares are summarised on page 148. All of the Ordinary shares in issue are fully paid.

At 31 December 2016, 791,852 (2015 – 914,225) Ordinary shares were held by an Employee Benefit Trust. Details of the carrying
amount are set out in note 32.

31. Other Components of Equity

At 1 January
Exchange adjustments
Shares issued
– share premium on share placing
– share placing costs
Share options and awards
– value of employee services
– discharge
At 31 December

2016

Other
reserves
$m
14.6
–

Currency
translation
reserve
$m
1.1
(18.3)

–
–

8.0
(6.0)
16.6

–
–

–
–
(17.2)

Merger
reserve
$m
–
–

81.5
(2.1)

–
–
79.4

Total
$m
15.7
(18.3)

81.5
(2.1)

8.0
(6.0)
78.8

On 31 October 2016, the Company completed a share placing of 14,608,771 new Ordinary 25 pence shares at a price of 485.0 pence,
representing approximately 9.8% of Hunting PLC’s existing issued Ordinary share capital. The premium from the share placing of
$81.5m, together with costs of $2.1m, was credited to the merger reserve, in accordance with section 612 of the Companies Act
2006, instead of to the share premium account. The net proceeds of $83.9m were used to reduce the Group’s borrowings and
increase financial flexibility.

Hunting PLC
2016 Annual Report and Accounts
121

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
C ONTIN UED

31. Other Components of Equity continued

At 1 January
Exchange adjustments
Release of foreign exchange losses net of tax
Share options and awards
– value of employee services
– discharge
At 31 December

32. Retained Earnings

At 1 January
Loss for the year
Remeasurement of defined benefit pension schemes net of tax
Dividends paid to equity shareholders
Treasury shares
– purchase of Treasury shares
Share options and awards
– discharge
– taxation
At 31 December

2015
Currency
translation
reserve
$m
15.6
(15.1)
0.6

–
–
1.1

Other
reserves
$m
15.1
–
–

6.2
(6.7)
14.6

Total
$m
30.7
(15.1)
0.6

6.2
(6.7)
15.7

2016
$m
911.5
(107.5)
(4.0)
(5.9)

2015
$m
1,163.9
(226.6)
9.2
(39.8)

(1.8)

(1.4)

7.5
0.2
800.0

6.5
(0.3)
911.5

The share options and awards taxation credit taken directly to equity of $0.2m (2015 – $0.3m charge) comprises of deferred tax.

Retained earnings include the following amounts in respect of the carrying amount of Treasury shares:

Cost:
At 1 January
Purchase of Treasury shares
Disposal of Treasury shares
At 31 December

2016
$m

(11.8)
(1.8)
4.9
(8.7)

The loss on disposal of Treasury shares during the year, which is recognised in retained earnings, was $3.3m (2015 – $4.4m).

33. Dividends Paid to Equity Shareholders

Ordinary dividends:
2015 final paid
2015 interim paid
2014 final paid

2016

Cents per
share

4.0
–
–
4.0

5.9
–
–
5.9

2015

Cents per
share

–
4.0
22.9
26.9

2015
$m

(14.8)
(1.4)
4.4
(11.8)

–
5.9
33.9
39.8

Following the revision to the Group's banking facilities, dividend payments have ceased until the end of the suspension period, which
runs up to and including 30 June 2018.

Hunting PLC
2016 Annual Report and Accounts
122

34. Share-Based Payments

(a) 2001 Executive Share Option Plan
The Company operated an executive share option plan between 2001 and 2008 which granted options to eligible employees. Under
this scheme, the final granting of options occurred on 4 March 2008 and the final vesting of options occurred on 4 March 2011. There
is no longer a charge to the income statement attributable to this scheme. Following successful vesting of the options, the employee,
subject to continued employment, has seven years in which to exercise the option. Details of movements in outstanding share options
are set out below.

(i) Share Option Movements During the Year

Outstanding at the beginning of the year
Exercised during the year
Lapsed during the year
Outstanding and exercisable at the year end

2016

2015

Weighted
average
exercise
price
p
571
383
672
711

Number
of options
1,094,313
(372,831)
(20,782)
700,700

Weighted
average
exercise
price
p
454
221
707
571

Number
of options
700,700
(293,510)
(43,490)
363,700

Options were granted with an exercise price equal to the average closing mid-market price of the Company’s share price for the
three trading days prior to the date of grant.

The weighted average share price at the date of exercise during 2016 was 430.0 pence (2015 – 491.1 pence).

(ii) Share Options Outstanding at the Year End

Executive Share Options 2006 – vested
Executive Share Options 2007 – vested
Executive Share Options 2008 – vested

2016
Number
of options
–
185,283
178,417
363,700

2015
Number
of options
298,471
205,440
196,789
700,700

Exercise
price range
p
383.0
640.0
784.5

Exercise period
08.03.09 – 07.03.16
06.03.10 – 05.03.17
04.03.11 – 03.03.18

(b) 2009 Performance Share Plan (“PSP”)
(i) Performance-Based Awards and Options
The Company granted performance-based share awards and options under the PSP between 2009 and 2013. Under the PSP,
annual conditional awards of shares and options were made to executive Directors and senior employees. Awards and options are
subject to performance conditions during the vesting period. The PSP was replaced by the 2014 Hunting Performance Share Plan
(“HPSP”) following shareholder approval of the HPSP at the Annual General Meeting (“AGM”) of the Company on 16 April 2014.

The final grant under the PSP occurred in 2013 with the final measurements of the performance conditions being completed in 2016.
PSP awards for continued service were also measured and vested in the year. Awards and options were granted at nil cost under
the PSP.

Performance-based awards and options vest subject to a median or above total shareholder return (“TSR”) performance over a
three-year period from the date of grant, relative to comparator companies from the DJ US Oil Equipment and Services sector index
and the DJ STOXX TM Oil Equipment and Services sector index.

Details of the performance-based PSP awards and options movements during the year are set out below:

Outstanding at the beginning of the year
Lapsed during the year
Outstanding at the end of the year
Exercisable at the end of the year

2016
Number
of awards
152,598
(152,598)
–
–

2015
Number
of awards
383,683
(231,085)
152,598
–

Hunting PLC
2016 Annual Report and Accounts
123

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION

NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
C ONTIN UED

34. Share-Based Payments continued

Details of the performance-based PSP awards and options outstanding at 31 December 2016 are as follows:

Date of grant:
20 March 2013
Outstanding at the end of the year

2016
Number
of shares

2015
Number
of shares

–
–

152,598
152,598

Normal
vesting date

20.03.16

There were no exercises of the performance-based PSP awards and options during 2015 and 2016.

The fair value charge to the income statement attributable to the performance-based PSP is $0.1m (2015 – $0.6m), which is
recognised in operating expenses.

(ii) Time-Based Awards and Options
The Company granted time-based share awards and options under the PSP between 2009 and 2013. Annual awards of shares
and options were made to employees, subject to continued employment, during the vesting period. There were no performance
conditions attached. Time-based awards continue to be granted under the HPSP. The final grant under the PSP occurred in 2013
and vested in 2016. Awards and options were granted at nil cost under the PSP.

Details of the time-based PSP awards and options movements during the year are as follows:

Outstanding at the beginning of the year
Vested and exercised during the year
Lapsed during the year
Outstanding at the end of the year
Exercisable at the end of the year

The weighted average share price at the date of exercise during 2016 was 369.5 pence (2015 – 589.0 pence).

Details of the time-based PSP awards and options outstanding at 31 December 2016 are as follows:

2016
Number
of awards
315,460
(296,594)
(2,622)
16,244
16,244

2015
Number
of awards
553,497
(207,156)
(30,881)
315,460
15,896

Date of grant:
25 February 2011
17 April 2012
20 March 2013
Outstanding at the end of the year

2016
Number
of shares

875
6,628
8,741
16,244

2015
Number
of shares

875
15,021
299,564
315,460

Normal
vesting date

25.02.14
17.04.15
20.03.16

The fair value charge to the income statement attributable to the time-based PSP is $0.4m (2015 – $1.5m), which is recognised in
operating expenses.

(c) 2014 Hunting Performance Share Plan (“HPSP”)
(i) Performance-Based Awards
The Company now grants performance-based share awards annually to executive Directors and senior employees under the HPSP,
which has replaced both the LTIP, which expired in 2015, and the PSP, which is no longer used. Awards are granted at nil cost under
the HPSP.

The performance-based HPSP awards to the executive Directors are divided equally into three tranches. Each tranche is subject to a
three-year vesting period, and is also subject to performance conditions. The three conditions are Company performance over a
three-year period against (i) the TSR of a bespoke comparator group, (ii) underlying diluted earnings per share (“EPS”) growth, and
(iii) average underlying Return on Capital Employed (“ROCE”) achieved. The performance period for the 2016 awards granted under
the HPSP is 1 January 2016 to 31 December 2018. The vesting date of the 2016 awards is 11 March 2019.

Hunting PLC
2016 Annual Report and Accounts
124

34. Share-Based Payments continued

Details of the performance-based HPSP awards movements during the year are set out below:

Outstanding at the beginning of the year
Granted during the year to executive Directors
Granted during the year to senior managersi
Lapsed during the year
Outstanding at the end of the year

2016
Number
of shares
1,691,530
756,584
965,354
–
3,413,468

2015
Number
of shares
692,750
478,047
629,540
(108,807)
1,691,530

i. HPSP awards granted to senior managers incorporate a fourth performance condition based on Hunting's reported manufacturing reject rate.

Details of the performance-based HPSP awards outstanding at 31 December 2016 are as follows:

Date of grant:
1 May 2014
28 April 2015
11 March 2016
Outstanding at the end of the year

2016
Number
of shares

2015
Number
of shares

Normal
vesting date

644,772
1,046,758
1,721,938
3,413,468

644,772
1,046,758
–
1,691,530

01.05.17
28.04.18
11.03.19

There were no exercises of the performance-based HPSP awards and options during 2015 and 2016.

(ii) Time-Based Awards
The Company also grants time-based share awards annually under the HPSP. Annual awards of shares may be made to employees
subject to continued employment during the vesting period. There are no performance conditions attached. Awards are granted at nil
cost under the HPSP.

Details of the time-based HPSP awards movements during the year are set out below:

Outstanding at the beginning of the year
Granted during the year
Vested and exercised during the year
Lapsed during the year
Outstanding at the year end

The weighted average share price at the date of exercise during 2016 was 480.7 pence (2015 – 426.4 pence).

Details of the time-based HPSP awards outstanding at 31 December 2016 are as follows:

2016
Number
of shares
1,496,931
1,536,936
(63,319)
(154,688)
2,815,860

2015
Number
of shares
654,842
1,040,708
(16,250)
(182,369)
1,496,931

Date of grant:
1 May 2014
28 April 2015
11 March 2016
Outstanding at the end of the year

2016
Number
of shares

2015
Number
of shares

Normal
vesting date

498,429
856,895
1,460,536
2,815,860

557,959
938,972
–
1,496,931

01.05.17
28.04.18
11.03.19

Hunting PLC
2016 Annual Report and Accounts
125

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION

NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
C ONTIN UED

34. Share-Based Payments continued

(iii) Fair Value of HPSP Awards
The fair value of awards granted under the HPSP is calculated using two separate models:

(1) The fair value of awards subject to a market-related performance condition, specifically Company performance against the TSR
of a bespoke peer group, has been calculated using the Stochastic pricing model (also known as the “Monte Carlo” model).

The assumptions used in this model were as follows:

Date of grant/valuation date
Weighted average share price at grant
Exercise price
Expected dividend yield
Expected volatility
Risk-free rate
Expected life
Fair value

2016
11.03.16
379.0p
nil
nil
48.1%
0.57%
3 years
258.7p

2015
28.04.15
590.5p
nil
nil
36.5%
0.73%
3 years
300.5p

(2) The fair value of performance-based awards not subject to a market-related performance condition, specifically Company
performance against EPS and ROCE targets, and the time-based HPSP awards has been calculated using the Black-Scholes
pricing model.

The assumptions used in this model were as follows:

Date of grant/valuation date
Weighted average share price at grant
Exercise price
Expected dividend yield
Expected volatility
Risk-free rate
Expected life
Fair value

2016
11.03.16
379.0p
nil
nil
48.1%
0.57%
3 years
379.0p

2015
28.04.15
590.5p
nil
nil
36.5%
0.73%
3 years
590.5p

The methods to calculate the assumptions for both models are:

• The expected volatility was calculated using historic weekly volatility, equal in length to the remaining portion of the performance

period at the date of grant.

• The expected life of the award has been calculated commensurate with the vesting period. The risk-free rate is based on the

UK gilt rate commensurate with the vesting period prevailing at the date of grant.

• Participants are entitled to a dividend equivalent over the number of shares that make up their award. It is accumulated over
the vesting period and released subject to the achievement of the performance conditions. This is factored into the fair value
calculation and as a result the dividend yield assumption is set to zero.

• The initial accounting charge of the performance-based HPSP awards granted under the HPSP incorporates an estimate of the

number of shares that are expected to lapse for those participants who cease employment during the vesting period. The estimate
of the expected forfeiture rate is 5% per annum. The subsequent accounting charge for 2016 includes an adjustment to the initial
accounting charge to allow for actual lapses rather than estimated lapses.

The amount charged to the income statement attributable to the performance-based HPSP awards is $0.5m (2015 – $0.2m credit)
and the charge to the income statement in respect of time-based HPSP awards is $7.0m (2015 – $4.3m). These are recognised in
operating expenses.

(d) Other Share Awards
On 9 May 2016 31,585 shares and on 27 June 2016 20,000 shares were awarded to certain employees and were satisfied by
shares held in the Hunting Employee Benefit Trust. The closing mid-market price on 9 May 2016 was 331.25 pence per share and on
27 June 2016 was 411.75 pence per share. The charge to the income statement attributable to these awards is $0.2m (2015 – $nil),
bringing the total charge to the income statement for the year to $8.2m (2015 – $6.2m).

Hunting PLC
2016 Annual Report and Accounts
126

35. Operating Leases

(a) The Group as Lessee
Operating lease payments from continuing operations mainly represent rentals payable by the Group for properties:

Operating lease payments in the income statement:
Lease and rental payments

Property
$m

2016

Others
$m

11.3

0.9

Total
$m

12.2

Property
$m

2015

Others
$m

13.1

1.1

Total
$m

14.2

The Group has provisions of $5.6m (2015 – $7.7m) for onerous contracts in respect of some leasehold properties, some of which are
not used for Group trading purposes and are either vacant or sub-let to third parties (note 24).

Total future aggregate minimum lease payments under non-cancellable operating leases expiring:

Within one year
Between two and five years
After five years
Total lease payments

Property
$m
10.8
28.3
15.8
54.9

2016

Others
$m
0.7
1.5
0.1
2.3

Total
$m
11.5
29.8
15.9
57.2

Property
$m
14.6
38.1
37.8
90.5

2015

Others
$m
0.5
0.8
–
1.3

Total
$m
15.1
38.9
37.8
91.8

Operating lease commitments have reduced significantly in 2016. Given the adverse market conditions, Hunting negotiated an
opt-out clause for a significant long-term lease in Asia Pacific. This was the principal reason for the reduction.

(b) The Group as Lessor
Property rental earned during the year was $0.7m (2015 – $0.7m). A number of the Group’s leasehold properties are sub-let under
existing lease agreements.

Total future minimum sublease income receivable under non-cancellable operating leases expiring:

Within one year
Between two and five years
After five years
Total lease income receivable

36. Related-Party Transactions

2016
Property
$m
0.8
2.3
0.5
3.6

2015
Property
$m
0.7
2.8
1.3
4.8

The following related-party transactions took place between wholly owned subsidiaries of the Group and associates during the year:

Transactions:
Sales of goods and services
Purchase of goods and services
Royalties receivable
Dividends received from associates
Movement on loans to and from associates:
Loans to associates
Year end balances:
Receivables from associates
Payables from associates

2016
$m

0.2
(0.1)
–
–

–

0.5
(0.1)

2015
$m

–
(0.1)
0.3
0.1

(0.2)

0.4
(0.1)

The outstanding balances at the year end are unsecured and have no fixed date for repayment. No expense has been recognised
in the year for bad or doubtful debts in respect of amounts owed by associates.

All ownership interests in associates are in the equity shares of those companies. The ownership interests in subsidiaries and
associates are set out in notes C18 and C19 to the Company financial statements.

The key management of the Company comprises the executive and non-executive Directors only. The details of the Directors’
compensation are disclosed in note 9. The Directors of the Company had no material transactions other than as a result of their
service agreements.

Hunting PLC
2016 Annual Report and Accounts
127

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
C ONTIN UED

37. Principal Accounting Policies

The Group’s principal accounting policies are described below:

(a) Consolidation
• The Group accounts include the results of the Company and its subsidiaries, together with its share of associates.
• Subsidiaries are consolidated from the date on which control is transferred to the Group and are de-consolidated from the date

control ceases.

• The Group uses the acquisition method of accounting for business combinations. Consequently, the consideration is determined
as the fair value of the net assets transferred to the vendor and includes an estimate of any contingent consideration. The net
assets acquired are also measured at their respective fair values for initial recognition purposes on the acquisition date.

• Acquisition-related costs are expensed to the income statement as incurred.

(b) Discontinued Operations
• A discontinued operation is a component of the Group that has either been disposed of or that is classified as held for sale, which
represents a separate major line of business or geographical area of operations and is part of a single coordinated plan to dispose
of a separate major line of business or geographical area of operations.

• The results of discontinued operations are presented separately in the income statement and are shown net of tax.
• The assets and liabilities of discontinued operations, that have not been disposed of prior to the balance sheet date, are presented

separately in the balance sheet as assets and liabilities classified as held for sale.

(c) Revenue
• Revenue is measured as the fair value of the consideration received or receivable for the provision of goods, services and rental

supplies in the ordinary course of business, net of trade discounts, volume rebates, and sales taxes.

• Revenue from the sale of goods is recognised when the significant risks and rewards of ownership have been transferred to the
customer, which is normally on delivery of the products. Products include manufactured goods and OCTG supplies, including
tubulars acquired by Hunting as plain-end pipe on which lathing work has been applied and which is resold as threaded pipe.
• Revenue from the sale of services principally comprises lathing work to apply a thread on to customer-owned plain-end pipe.

Revenue is recognised when the threading work has been completed. Revenue from the sale of other services is recognised when
the services are rendered.

• Revenue from the rental of plant and equipment is recognised as the income is earned.

(d) Amortisation and Exceptional Items
Exceptional items are items of income or expense which the Directors believe should be separately disclosed by virtue of their
significant size or nature to enable a better understanding of the Group’s financial performance. The Group discloses such items
in the “middle column” of the income statement. In applying this policy, the following items have been treated as exceptional:

• Net losses incurred on the closure of the defined benefit section of the Group’s UK pension scheme.
• Costs of restructuring the Group’s operations, including the cost of business closures and redundancies, in response to the

decline in the oil and gas sector.

• Derecognition of the bank facility arrangement fees that were incurred and capitalised in October 2015 upon the inception of the
Group’s new multicurrency revolving credit facility. The unamortised balance of these fees was written off when the terms of the
facility were significantly revised in July 2016.

During 2015, the following items, which did not recur in 2016, were treated as exceptional:

• Impairment charges to goodwill, other intangible assets and of property, plant and equipment were recognised in 2015 to reflect

the protracted decline in the oil and gas sector, a prolonged period of customer de-stocking and increased competition.

• Impairments of property, plant and equipment specifically held by the Exploration and Production division were recognised in

2015. As the valuations are subject to the frequent changes in long-term oil and gas prices, such impairments can lead to volatility
in the income statement that is unrelated to the underlying performance of the business.

The tax effect of any transaction considered to be exceptional is also treated as exceptional.

Amortisation expenses for acquired intangible assets are also shown in the “middle column” due to the significance of these amounts
and to clearly identify the effect on profits, which will arise as current balances become fully written-off, or as new acquisitions give
rise to new expenses.

(e) Interest
Interest income and expense is recognised in the income statement using the effective interest method.

Hunting PLC
2016 Annual Report and Accounts
128

37. Principal Accounting Policies continued

(f) Foreign Currencies
(i) Individual Subsidiaries’ and Associates’ Accounts
• The financial statements for each of the Group’s subsidiaries and associates are denominated in their functional currency.
• The functional currency is the currency of the primary economic environment in which the entity operates.
• Transactions denominated in currencies other than the functional currency are translated into the functional currency at the

exchange rate ruling at the date of the transaction.

• Monetary assets and liabilities, except borrowings designated as a hedging instrument in a net investment hedge, denominated
in non-functional currencies are retranslated at the exchange rate ruling at the balance sheet date and exchange differences are
taken to the income statement.

• Borrowings designated as a hedging instrument in a net investment hedge are retranslated at the exchange rate ruling at the

balance sheet date and exchange differences are taken direct to equity.

(ii) Group Consolidated Accounts
• The presentation currency of the Group is US dollars.
• The net assets of non-US dollar denominated subsidiaries and associates are translated into US dollars at the exchange rates

ruling at the balance sheet date.

• The income statements of subsidiaries and associates are translated into US dollars at the average rates of exchange for the year.
• Exchange differences are recognised directly in equity in the currency translation reserve (“CTR”), together with exchange

differences arising on foreign currency loans used to finance foreign currency net investments.

• Upon adoption of IFRS on 1 January 2004, accumulated exchange differences arising on consolidation prior to 31 December

2003 were reset to zero and the CTR recommenced under IFRS on 1 January 2004.

• The balance on the CTR represents the exchange differences arising on the retranslation of non-US dollar amounts into US dollars

since 1 January 2004.

• On the disposal of a business, the cumulative exchange differences previously recognised in the CTR relating to that business are

transferred to the income statement as part of the gain or loss on disposal.

(g) Taxation
• The taxation recognised in the income statement comprises current tax and deferred tax arising on the current year’s result before

tax and adjustments to tax arising on prior years’ results.

• Current tax is the expected tax payable or receivable arising in the current year on the current year’s result before tax, using tax
rates enacted or substantively enacted at the balance sheet date, plus adjustments to tax in respect of prior years’ results.

• Deferred tax is the tax that is expected to arise when the assets and liabilities recognised in the Group’s balance sheet are realised,
using tax rates enacted or substantively enacted at the balance sheet date that are expected to apply when the asset is realised or
the liability is settled.

• Full provision is made for deferred taxation, using the liability method, on all taxable temporary differences. Deferred tax assets and

liabilities are recognised separately on the balance sheet and are reported as non-current assets and liabilities.

• Deferred tax assets are recognised only to the extent that they are expected to be recoverable. Deferred taxation on unremitted

overseas earnings is provided for to the extent a tax charge is foreseeable.

• When items of income and expense are recognised in other comprehensive income, the current and deferred tax relating to those

items is also recognised in other comprehensive income.

• Tax arising on the discharge of share options and awards is recognised directly in equity.

(h) Segmental Reporting
• Financial information on operating segments that corresponds with information regularly reviewed by the Chief Operating Decision

Maker is disclosed in the accounts.

• Operating segments are components of the Group that are engaged in providing related products.
• Geographical information is based on the location of where the sale originated and where the non-current assets are located.

(i) Property, Plant and Equipment
(i) General
• Property, plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Cost includes

expenditure that is directly attributable to the acquisition and installation of the asset.

• Land, pre-production oil and gas exploration costs and assets under construction are not depreciated.
• With the exception of drilling tools, which are depreciated using the units of production method, and oil and gas exploration and

production equipment (see (ii) below), assets are depreciated using the straight-line method at the following rates:

Freehold buildings
Leasehold buildings
Plant, machinery and motor vehicles

– 2% to 10%
– life of lease
– 6% to 331⁄3%

• The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

Hunting PLC
2016 Annual Report and Accounts
129

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION

NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
C ONTIN UED

37. Principal Accounting Policies continued

(ii) Exploration Expenditure
• Oil and gas exploration and appraisal costs are initially capitalised pending determination of the existence of commercial reserves

and are included in the asset category oil and gas exploration and development.

• Upon determination that commercially viable quantities of hydrocarbons are not found, the costs are charged immediately to the

income statement.

• Depreciation of oil and gas expenditure commences when production commences. The costs are depreciated using the unit of

production method.

(j) Goodwill
• Goodwill arises when the fair value of the consideration paid for a business exceeds the fair value of the Group’s share of the net

assets acquired.

• Goodwill is recognised as an asset and is carried at cost less accumulated impairment losses.
• Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to the cash-generating
units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose.

• On the disposal of a business, goodwill relating to that business that remains on the balance sheet at the date of disposal is

included in the determination of the profit or loss on disposal.

(k) Other Intangible Assets
• Other intangible assets are stated at cost less accumulated amortisation and impairment losses where applicable.
• These assets have a finite life and are amortised in accordance with the pattern of expected future economic benefits,

or when this cannot be reliably estimated, by using the straight-line method.

• Intangible assets are amortised over the following periods:

Customer relationships
Patents
Unpatented technology
Trademarks and domain names

– eight to ten years
– eight to ten years
– eight to ten years
– one to five years

(l) Impairments
• The Group performs goodwill impairment reviews at least annually.
• The Group also assesses at least annually whether there have been any events or changes in circumstances that indicate that
property, plant and equipment and intangible assets other than goodwill may be impaired. An impairment review is carried out
whenever the assessment indicates that the carrying amount may not be fully recoverable.

• For the purposes of impairment testing, assets are grouped at the lowest levels for which there are separately identifiable

cash flows.

• Where impairment exists, the asset is written down to the higher of (a) its fair value minus costs to sell; and (b) its value in use.

Impairments are recognised immediately in the income statement.

• An impairment to goodwill is never reversed. When applicable, an impairment of any other asset is reversed, but only to the extent
that the consequent carrying value does not exceed what would have been the carrying value had the impairment not originally
been made.

(m) Inventories
• Inventories are stated at the lower of cost and net realisable value.
• Cost is determined using the first-in-first-out method and net realisable value is the estimated selling price less costs of disposal

in the ordinary course of business. The cost of inventories includes direct costs plus production overheads.

(n) Cash and Cash Equivalents
• Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with a maturity of less than three months

from the date of deposit that are readily convertible to a known amount of cash.

• For cash flow statement purposes, cash and cash equivalents include bank overdrafts and short-term deposits with a maturity

of less than three months from the date of deposit. In the balance sheet, bank overdrafts are shown within borrowings in
current liabilities.

(o) Loans and Receivables
• Loans and receivables are initially recognised at fair value at the trade date which is normally the consideration paid plus

transaction costs.

• Loans and receivables are carried at amortised cost using the effective interest method. If collection is expected in one year or less

they are classified as current assets, otherwise they are presented as non-current assets.

• The Group assesses at each balance sheet date whether a loan or receivable is impaired and, if necessary, the carrying amount is

reduced to the appropriate value. The loss is recognised immediately in the income statement.

• Loans and receivables cease to be recognised when the right to receive cash flows has expired or the Group has transferred

substantially all the risks and rewards of ownership.

Hunting PLC
2016 Annual Report and Accounts
130

37. Principal Accounting Policies continued

(p) Financial Liabilities
• Financial liabilities are initially recognised at fair value at the trade date which is normally the consideration received less, in the
case of financial liabilities that are not measured at fair value through profit or loss, transaction costs. The Group subsequently
remeasures all of its non-derivative financial liabilities, including trade payables, at amortised cost.

• Payables are classified as current liabilities if payment is due within one year, otherwise they are presented as non-current liabilities.

(q) Provisions
• Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that an outflow of

resources will be required to settle the obligation.

• The measurement of a provision is based on the most likely amount and timing of the expenditures. Payments that are expected

to arise after more than one year are discounted to their present value using a risk-free interest rate that is relevant to the region in
which the past event occurred. The risk-free interest rate is based on the redemption yields of government securities.

(r) Post-Employment Benefits
(i) Defined Contribution Retirement Schemes
• Payments to defined contribution retirement schemes are charged to the income statement when they fall due.

(ii) Defined Benefit Retirement Schemes
• Payments to defined benefit retirement schemes are recognised as increments to the assets of the schemes.
• The amount charged to the income statement with respect to these schemes, within profit from operations, is the increase in

the retirement benefit obligation resulting from the additional service provided by the participating employees during the current
year, which for the funded scheme is measured using the Projected Unit method and for the unfunded scheme is equal to the
contributions paid.

• Net interest arising on the net assets of the schemes is also recognised in the income statement within net finance costs.
• Curtailment gains and losses are recognised fully and immediately in the income statement.
• Remeasurement gains and losses are recognised fully and immediately in the statement of comprehensive income.
• The assets of the funded scheme, which are invested in insurance policies, have been valued using the same methodology and

assumptions used to calculate the defined benefit obligation so that, where the assets match the liabilities, the value of the assets
is equal to the value of the corresponding obligation.

(s) Share-Based Payments
• The Group issues equity-settled, share-based payments (HPSP awards) to certain employees as consideration for services

received from the employees. The fair value of the employees’ services is recognised as an expense in the income statement on a
straight-line basis over the vesting period based on the Group’s estimate of awards that will ultimately vest. The obligation to settle
these awards is recognised within other components of equity.

(t) Share Capital
• The Company’s share capital comprises a single class of Ordinary shares, which are classified as equity.
• Incremental costs directly attributable to the issue of new shares are charged to equity as a deduction from the proceeds,

net of tax.

(u) Merger Reserve
• The merger reserve comprises the proceeds received, net of transaction costs, in excess of the nominal value of the Ordinary

shares issued by way of the share placing completed on 31 October 2016. In accordance with section 612 of the Companies Act
2006, the premium was credited to the merger reserve, instead of to the share premium account, because the share placing was
pursuant to the Company securing over 90% of another entity. The proceeds were used to pay down the Group’s borrowings at
that time. The reserve is currently non-distributable and will be transferred to distributable retained earnings when the proceeds
meet the definition of a qualifying consideration.

(v) Dividends
• Dividends to the Group’s shareholders are recognised as liabilities in the Group’s financial statements in the period in which the

dividends are approved by shareholders. Interim dividends are recognised when paid. All dividends are dealt with in the statement
of changes in equity.

Hunting PLC
2016 Annual Report and Accounts
131

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONCOMPANY
BAL ANCE SHEE T
AT 3 1 DEC EM BER 2016

ASSETS
Non-current assets
Investments in subsidiaries
Other receivables
Deferred tax asset

Current assets
Other receivables
Current tax asset
Cash at bank and in hand

LIABILITIES
Current liabilities
Other payables
Borrowings
Provisions

Net current assets (liabilities)

Non-current liabilities
Provisions

Net assets

Equity attributable to owners of the parent
Share capital
Share premium
Other components of equity
Retained earnings
Total equity

Notes

C4
C5

C12
C12
C13
C14

2016
$m

2015
$m

436.8
245.7
0.4
682.9

1.2
0.8
4.5
6.5

1.5
–
0.3
1.8
4.7

0.4
0.4
687.2

66.3
153.0
76.8
391.1
687.2

436.8
171.3
–
608.1

0.3
–
0.1
0.4

3.3
15.1
0.3
18.7
(18.3)

0.4
0.4
589.4

61.7
153.0
(4.6)
379.3
589.4

The Company has elected to take the exemption under Section 408 of the Companies Act 2006 from presenting its own income
statement and statement of comprehensive income. The profit for the year of $12.0m (2015 – $0.7m loss) has been accounted for in
the financial statements of the Company.

The notes on pages 135 to 140 are an integral part of these financial statements. The financial statements on pages 132 to 140 were
approved by the Board of Directors on 2 March 2017 and were signed on its behalf by:

D E N N I S P R O C T O R
D I R E C TO R

P E T E R R O S E
D I R E C TO R

Registered number: 974568

Hunting PLC
2016 Annual Report and Accounts
132

COMPANY STATEMENT
OF CHANGES IN EQUIT Y

At 1 January

Profit for the year
Total comprehensive income

Dividends paid to equity shareholders
Shares issued
– share option schemes and awards
– share placing
– share placing costs
Treasury shares
– purchase of Treasury shares
Share options and awards
– value of employee services
– discharge
Total transactions with owners

Year ended 31 December 2016

Share
capital
$m
61.7

Share
premium
$m
153.0

Other
components
of equity
$m
(4.6)

Retained
earnings
$m
379.3

Notes

C15

C12
C12 & C13
C13

C14

C13
C13 & C14

–
–

–

0.1
4.5
–

–

–
–
4.6

–
–

–

–
–
–

–

–
–
–

–
–

–

–
81.5
(2.1)

–

8.0
(6.0)
81.4

12.0
12.0

(5.9)

–
–
–

(1.8)

–
7.5
(0.2)

Total
$m
589.4

12.0
12.0

(5.9)

0.1
86.0
(2.1)

(1.8)

8.0
1.5
85.8

At 31 December

66.3

153.0

76.8

391.1

687.2

At 1 January

Loss for the year
Total comprehensive expense

Dividends paid to equity shareholders
Shares issued
– share option schemes and awards
Treasury shares
– purchase of Treasury shares
Share options and awards
– value of employee services
– discharge
Total transactions with owners

Notes

C15

C12

C14

C13
C13 & C14

Year ended 31 December 2015

Share
capital
$m
61.6

Share
premium
$m
151.9

Other
components
of equity
$m
(4.1)

–
–

–

0.1

–

–
–
0.1

–
–

–

1.1

–

–
–
1.1

–
–

–

6.2
(6.7)
(0.5)

Retained
earnings
$m
414.7

(0.7)
(0.7)

Total
$m
624.1

(0.7)
(0.7)

(39.8)

–

(1.4)

–
6.5
(34.7)

1.2

(1.4)

6.2
(0.2)
(34.0)

At 31 December

61.7

153.0

(4.6)

379.3

589.4

Hunting PLC
2016 Annual Report and Accounts
133

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONCOMPANY STATEMENT
OF C A SH FLOWS
FOR THE YEAR EN DE D 31 DE C E MB E R 2 016

Operating activities
Profit (loss) from operations
Share-based payments expense
(Increase) decrease in receivables
(Decrease) increase in payables
Decrease in provisions
Other non-cash flow items
Taxation (paid) received
Net cash inflow from operating activities
Investing activities
Interest received
Net cash inflow from investing activities
Financing activities
Interest and bank fees paid
Dividends paid to equity shareholders
Share capital issued
Costs of share issue
Purchase of Treasury shares
Disposal of Treasury shares
Loan issued
Loan issued repaid
Net cash inflow (outflow) from financing activities

Net cash inflow (outflow) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of foreign exchange rates
Cash and cash equivalents at the end of the year

Cash and cash equivalents at the end of the year comprise:
Cash at bank and in hand
Bank overdrafts unsecured included in borrowings

Notes

C15

2016
$m

7.3
8.2
(0.9)
(1.1)
–
(0.9)
(0.1)
12.5

3.2
3.2

(0.9)
(5.9)
86.0
(2.1)
(1.8)
1.6
(90.0)
15.6
2.5

18.2
(15.0)
1.3
4.5

4.5
–
4.5

2015
$m

(3.0)
6.2
6.3
1.9
(0.1)
(0.1)
1.7
12.9

2.8
2.8

(0.3)
(39.8)
1.2
–
(1.4)
–
–
–
(40.3)

(24.6)
9.5
0.1
(15.0)

0.1
(15.1)
(15.0)

Hunting PLC
2016 Annual Report and Accounts
134

NOTES TO THE COMPANY
FINANCIAL STATEMENTS

C1. Basis of Preparation
The financial statements have been prepared in accordance with the Companies Act 2006 and those International Financial
Reporting Standards (“IFRS”) and IFRS Interpretations Committee (“IFRS IC”) Interpretations as adopted by the European Union.
The financial statements have been prepared on a going concern basis under the historical cost convention as modified by the
revaluation of those financial assets and financial liabilities held at fair value through profit or loss. The Board’s consideration of going
concern is detailed further in the Strategic Report on page 38.

The Company’s principal accounting policies applied in the preparation of these financial statements are the same as those set
out in note 37 of the Group’s financial statements, except as noted below. These policies have been consistently applied to all the
years presented.

Investments in subsidiaries are stated at cost, which is the fair value of the consideration paid, less provision for impairment. The
Company has changed the presentation of dividends received from subsidiaries in the cash flow statement from investing activities
to operating activities as this better reflects the operations of the Company. There has been no impact on the income statement or
the balance sheet from this change in presentation.

From the perspective of the Company, the principal risks and uncertainties are integrated with the principal risks of the Hunting PLC
Group and are not managed separately. The principal risks and uncertainties of the Hunting PLC Group, which include those of the
Company, are discussed on pages 33 to 37 and further detail on financial risks is provided within note C9.

C2. Employees
The Company had no employees during the current or prior year.

C3. Auditor’s Remuneration
Services provided by the Company’s auditor, PricewaterhouseCoopers LLP, and its associates comprised:

Fees payable to the Company’s auditors and its associates for:

The audit of these accounts

Taxation compliance services

Total fees

C4. Investments in Subsidiaries

Cost:
At 1 January and 31 December

Impairment:
At 1 January and 31 December

Net book amount

2016
$m

0.5

–

0.5

2016
$m

2015
$m

0.5

0.1

0.6

2015
$m

436.8

–

436.8

The Company’s subsidiaries are detailed in note C18. Investments in subsidiaries are recorded at cost, which is the fair value of the
consideration paid, less impairment. The Directors believe that the carrying value of the investments is supported by their underlying
net assets.

Hunting PLC
2016 Annual Report and Accounts
135

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONNOTES TO THE COMPANY
FINANCIAL STATEMENTS
C ONTIN UED

C5. Other Receivables

Non-current:
Loans receivable from subsidiaries
Prepayments

Current:
Receivables from subsidiaries
Prepayments
Other receivables

2016
$m

245.6
0.1
245.7

0.6
0.4
0.2
1.2

2015
$m

171.2
0.1
171.3

0.1
0.1
0.1
0.3

None of the Company’s other receivables (2015 – none) were past due at the year end and the Company does not consider it
necessary to provide for any impairments. The Company’s maximum exposure to credit risk is the fair value of each class of
receivable.

The Company does not hold any collateral as security and no assets have been acquired through the exercise of any collateral
previously held. Non-current receivables due from subsidiaries are unsecured and interest is charged based on a margin over bank
lending rates. Current receivables due from subsidiaries are unsecured, interest free and repayable on demand.

C6. Other Payables

Current:
Payables to subsidiaries
Accruals
Other payables

2016
$m

0.1
0.6
0.8
1.5

2015
$m

2.2
0.8
0.3
3.3

C7. Derivatives and Hedging
The Company has used forward foreign exchange contracts to hedge its exposure to exchange rate movements during the
year. At 31 December 2016, the Company had no outstanding forward foreign exchange contracts (2015 – $nil).

Gains and losses on contracts that are not designated in a hedge relationship are taken directly to the income statement. Changes
in the fair value of currency derivatives not designated in a hedge relationship amounting to a $0.7m loss (2015 – $nil) have been
recognised in the income statement during the year.

C8. Financial Instruments: Fair Values
The carrying value of receivables, cash and cash equivalents, accruals, other payables, provisions, borrowings and bank overdrafts
approximates their fair value.

C9. Financial Risk Management
The Company’s activities expose it to certain financial risks, namely market risk (including currency risk, cash flow interest rate risk
and fair value interest rate risk), credit risk and liquidity risk. From the perspective of the Company, these financial risks are integrated
with the financial risks of the Hunting PLC Group and are not managed separately.

(a) Foreign Exchange Risk
The Company is mainly exposed to foreign exchange risk from its financing and operating activities in respect of Sterling. Foreign
exchange risks arise from future transactions and cash flows and from recognised monetary assets and liabilities that are not
denominated in US dollars. The Company has Sterling denominated financial assets and financial liabilities.

The Company's cash at bank and in hand of $4.5m (2015 – $0.1m) at 31 December comprises $4.2m denominated in US dollars and
$0.3m (2015 – $0.1m) denominated in Sterling, on which exchange differences would be recognised in the income statement in the
following year.

The carrying amount of the Company’s financial liabilities included in accruals, other payables and provisions at 31 December, on
which exchange differences would be recognised in the income statement in the following year, is $1.7m (2015 – $2.1m) for Sterling
denominated financial liabilities and $nil (2015 – $0.1m) for Canadian dollar denominated financial liabilities.

In 2015, the Company’s borrowings comprised $15.1m of unsecured bank overdrafts at the year end, of which $14.8m was
denominated in US dollars and $0.3m was denominated in Sterling.

Hunting PLC
2016 Annual Report and Accounts
136

C9. Financial Risk Management continued

(b) Interest Rate Risk
The Company is exposed to cash flow interest rate risk from its cash and cash equivalents, bank overdrafts and from amounts owed
by and to subsidiaries, which are at variable interest rates.

(c) Credit Risk
The Company’s credit risk arises from its outstanding receivables and cash and cash equivalents. The Company is exposed to
credit risk to the extent of non-receipt of its financial assets; however, it has no significant concentrations of credit risk other than from
related parties. Credit risk is continually monitored and no individual exposure is considered to be significant in the ordinary course
of the Company’s activities.

The Company’s outstanding receivables are due from subsidiaries, and no losses are expected from non-performance of these
counterparties. Funds are only invested with approved financial institutions and no losses are expected from non-performance
of the counterparty.

(d) Liquidity Risk
The Company has sufficient facilities available to satisfy its requirements.

The table below analyses the Company’s non-derivative financial liabilities into relevant maturity groupings based on the remaining
period at the balance sheet date to the contractual maturity date of the financial liabilities. The amounts presented in the table are
the contractual undiscounted cash flows, whereas the carrying amounts in the balance sheet are the discounted amounts.

Non-derivative financial liabilities:
Payables to subsidiaries
Accruals
Other payables
Bank overdrafts unsecured

2016
On demand
or within
one year
$m

2015

On demand
or within
one year
$m

0.1
0.6
0.8
–
1.5

2.2
0.8
0.3
15.1
18.4

The Company did not have any derivative financial liabilities.

(e) Capital Risk Management
The Company’s capital consists of equity and net cash. Net cash comprises cash at bank and cash in hand, loans receivable from
subsidiaries and borrowings. It is managed with the aim of maintaining an appropriate level of financing available for the Company’s
activities, having due regard to interest rate risks and the availability of borrowing facilities.

Changes in equity arise from the retention of earnings and from issues of share capital. Net cash is monitored on a periodic basis.
At the year end, capital comprised:

Total equity
Cash and cash equivalents
Loan receivable from subsidiaries (note C5)
Net cash
Capital employed

2016
$m
687.2
(4.5)
(245.6)
(250.1)
437.1

Restated
2015
$m
589.4
15.0
(171.2)
(156.2)
433.2

The increase in total equity during the year is mainly attributable to the equity placing which raised $83.9m after costs, together with
the retained profit for the year of $12.0m and an increase in the share-based payments reserve of $8.0m, offset by dividend payments
of $5.9m and other expenses of $0.2m. The Company was able to reduce its borrowings during the year as it received dividends
from its subsidiaries of $15.3m. Following the share placing in October 2016, which raised $83.9m after costs, the Company
increased its loan to the Hunting Group's treasury function. The net increase in the loan was $74.4m. The Company's net cash
amount has been restated in 2015 to include the loans receivable from subsidiaries, as this better reflects the Company's net cash
position. There have been no significant changes in the Company’s funding policy during the year.

C10. Financial Instruments: Sensitivity Analysis
The following sensitivity analysis is intended to illustrate the sensitivity to changes in market variables on the Company’s financial
instruments and show the impact on profit or loss and shareholders’ equity. Financial instruments affected by market risk include
non-current receivables from subsidiaries, cash and cash equivalents and borrowings. The sensitivity analysis relates to the position
as at 31 December 2016.

The analysis excludes the impact of movements in market variables on the carrying value of provisions and on non-financial assets
and liabilities.

Hunting PLC
2016 Annual Report and Accounts
137

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION

NOTES TO THE COMPANY
FINANCIAL STATEMENTS
C ONTIN UED

C10. Financial Instruments: Sensitivity Analysis continued

The following assumptions have been made in calculating the sensitivity analysis:

• Foreign exchange rate and interest rate sensitivities have an asymmetric impact on the Company’s results, that is, an increase

in rates does not result in the same amount of movement as a decrease in rates.

• For floating rate assets and liabilities, the amount of asset or liability outstanding at the balance sheet date is assumed to be

outstanding for the whole year.

• The carrying values of financial assets and liabilities carried at amortised cost do not change as interest rates change.

(a) Interest Rate Sensitivity
The post-tax impact on the income statement, with all other variables held constant, at 31 December, for an increase of 0.5%
(2015 – 0.5%) in US interest rates, is to increase profits by $1.0m (2015 – $0.6m). If the US interest rates were to decrease by 0.5%
(2015 – 0.5%), then the post-tax impact would be to reduce profits by $1.0m (2015 – $0.6m). The movements arise on US dollar
denominated intra-group loans.

There is no impact on OCI for a change in interest rates.

(b) Foreign Exchange Rate Sensitivity
The post-tax impact on the income statement, with all other variables held constant, at 31 December, for an increase of 15%
(2015 – 10%) in the Sterling foreign exchange rate, is to increase profits by $0.1m (2015 – $0.2m). If the Sterling foreign exchange
rate was to decrease by 15% (2015 – 10%), then the post-tax impact would be to reduce profits by $0.2m (2015 – $0.2m).

The movement in the income statement arises from Sterling denominated accruals and other payables, offset by Sterling cash and
cash equivalents.

There is no impact on OCI for a change in foreign exchange rates.

C11. Post-Employment Benefits
The Company has no employees and therefore does not participate in any of the post-employment benefit schemes shown in note 29
of the Group’s financial statements, although it does guarantee the contributions due by the participating employers.

C12. Share Capital and Share Premium
Please see note 30 of the Group’s financial statements.

C13. Other Components of Equity

Year ended 31 December 2016
At 1 January
Shares issued
– share premium on share placing
– share placing costs
Share options and awards
– value of employee services
– discharge
At 31 December

Capital
redemption
reserve
$m
0.2

Share-based
payments
reserve
$m
14.4

Currency
translation
reserve
$m
(19.2)

–
–

–
–
0.2

–
–

8.0
(6.0)
16.4

–
–

–
–
(19.2)

Merger
reserve
$m
–

81.5
(2.1)

–
–
79.4

Total
$m
(4.6)

81.5
(2.1)

8.0
(6.0)
76.8

On 31 October 2016, the Company completed a share placing of 14,608,771 new Ordinary 25 pence shares at a price of 485.0 pence,
representing approximately 9.8% of Hunting PLC’s existing issued Ordinary share capital. The premium from the share placing of
$81.5m, together with costs of $2.1m, were credited to the merger reserve, in accordance with section 612 of the Companies Act
2006, instead of to the share premium account. The net proceeds of $83.9m were used to reduce the Group’s borrowings and
increase financial flexibility.

Year ended 31 December 2015
At 1 January
Share options and awards
– value of employee services
– discharge
At 31 December

Capital
redemption
reserve
$m
0.2

Share-based
payments
reserve
$m
14.9

Currency
translation
reserve
$m
(19.2)

–
–
0.2

6.2
(6.7)
14.4

–
–
(19.2)

Merger
reserve
$m
–

–
–
–

Total
$m
(4.1)

6.2
(6.7)
(4.6)

Hunting PLC
2016 Annual Report and Accounts
138

C14. Retained Earnings

At 1 January
Profit (loss) for the year
Dividends paid to equity shareholders (note C15)
Treasury shares
– purchase of Treasury shares
Share options and awards
– discharge
At 31 December

Retained earnings include the following amounts in respect of the carrying amount of Treasury shares

Cost:
At 1 January
Purchase of Treasury shares
Disposal of Treasury shares
At 31 December

2016
$m
379.3
12.0
(5.9)

2015
$m
414.7
(0.7)
(39.8)

(1.8)

(1.4)

7.5
391.1

6.5
379.3

2016
$m

(11.8)
(1.8)
4.9
(8.7)

2015
$m

(14.8)
(1.4)
4.4
(11.8)

The loss on disposal of Treasury shares during the year, which is recognised in retained earnings, was $3.3m (2015 – $4.4m).

C15. Dividends Paid to Equity Shareholders
Please see note 33 of the Group’s financial statements.

C16. Share-Based Payments
Please see note 34 of the Group’s financial statements.

C17. Related Party Transactions
The following related party transactions took place between the Company and subsidiaries of the Group during the year:

Transactions:
Royalties receivable
Management fees payable
Recharges of share options and awards and administrative expenses
Loan to subsidiary
Loans to subsidiary repaid

Interest receivable on inter-company loans

Dividends received from subsidiaries
Year end balances:
Payables to subsidiaries
Receivables from subsidiaries
Loans owed by subsidiaries

All balances between the Company and its subsidiaries are unsecured.

2016
$m

6.5
(13.1)
6.7
90.0
(15.6)
3.1
15.3

(0.1)
0.6
245.6

2015
$m

11.5
(11.2)
9.8
–
–
2.6
–

(2.2)
0.1
171.2

The Company also serves as the Group’s intermediary for the provision of UK group tax relief, VAT and certain group insurances.
At the year end, the outstanding payable for group tax was $nil (2015 – $0.1m).

The key management of the Company comprises the executive and non-executive Directors only. The details of the Directors’
compensation are disclosed in note 9 of the Group’s financial statements. The Directors of the Company had no material transactions
other than as a result of their service agreements.

C18. Subsidiaries
All Companies listed below are wholly owned by the Group, except where otherwise indicated.

Subsidiariesi/iii
Operating activities
Hunting Energy Services (Australia) Pty Ltd
Hunting Titan (Australia) Pty Ltd
Hunting Energy Services (Canada) Ltd
Hunting Energy Services (Drilling Tools) Ltd
Hunting Energy Services (Canada) Holdings Ltd
Hunting Energy Services (Wuxi) Co. Ltd (70%)

Registered Address

Level 40, 1 Farrer Place, Sydney, NSW 2000, Australia
Level 40, 1 Farrer Place, Sydney, NSW 2000, Australia
5550/5551 Skyline Way NE, Calgary, Alberta, T2E 7Z7, Canada
5550/5551 Skyline Way NE, Calgary, Alberta, T2E 7Z7, Canada
5550/5551 Skyline Way NE, Calgary, Alberta, T2E 7Z7, Canada
No. 48, West of Dong’an Road, North of Yu’an Road, Shuofang Industry Zone,
New District Wuxi, China

Hunting PLC
2016 Annual Report and Accounts
139

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
NOTES TO THE COMPANY
FINANCIAL STATEMENTS
C ONTIN UED

C18. Subsidiaries continued

Subsidiariesi/iii
Hunting Energy Completion Equipment (Wuxi) Co., Ltd

Hunting Energy Services (International) Limited
Hunting Energy Services Overseas Holdings Limited
Hunting Energy Services Limited
Hunting Energy Services (UK) Limited (60%)
PT Hunting Energy Asia

Hunting Energy Services Italy S.r.l.
Hunting Alpha (EPZ) Limited (60%)
Hunting Energy Services Kenya Ltd

Hunting Energy de Mexico

Hunting Energy Services BV (60%)
Hunting Energy Services (Well Testing) BV
Hunting Energy Services (Norway) AS
Hunting Energy Saudi Arabia LLC (60%)
Hunting Energy Services (Well Intervention) Limited
Hunting Welltonic Limited
Hunting Energy Services (International) Pte. Ltd.
Hunting Energy Services Pte. Ltd.
Hunting Energy Services (China) Pte. Ltd. (70%)
Hunting Welltonic Asia Pte. Ltd
Hunting Energy Services (Well Intervention) Pte. Ltd
Hunting Energy Services (South Africa) Pty Ltd
Hunting Energy Services (Thailand) Limited (49%)

Hunting Energy Services (Uganda) Ltd
National Coupling Company, Inc.
Hunting Energy Services, Inc.
Premium Finishes, Inc.
Hunting Dearborn, Inc.
Hunting Energy Services (Drilling Tools), Inc.
Hunting Innova, Inc.
Hunting Specialty Supply, Inc.
Hunting Titan, Inc.
Hunting Titan ULC
Tenkay Resources, Inc.

Corporate activities
Hunting Energy Holdings Limitedii
Hunting Oil Holdings Limitedii
Hunting Knightsbridge Holdings Limited
Hunting Knightsbridge (US) Finance Limited
Huntaven Properties Limited
Hunting Pension Trust Limitedii
HG Management Services Ltd
Huntfield Trust Limited
Stag Line Limitediv
Field Insurance Limited
Hunting U.S. Holdings, Inc.
Hunting Energy Corporation

Registered Address
No. 48, West of Dong’an Road, North of Yu’an Road, Shuofang Industry Zone,
New District Wuxi, China
5 Hanover Square, London, W1S 1HQ, England
5 Hanover Square, London, W1S 1HQ, England
5 Hanover Square, London, W1S 1HQ, England
5 Hanover Square, London, W1S 1HQ, England
Complex Dragon Industrial Park, Block D, Jalan Pattimura, Kabil Batam,
29467, Indonesia
Via Dante n21/B, Spolotre (PE). CAP 65010, Italy
P.O. Box – 83344-80100 Mombasa, Kenya
5th Floor, West Wing, ICEA Lion Centre, Riverside Park, Chiromo Road,
Nairobi, Kenya
Avenida Los Olmos #105, Parque Industrial El Sabinal, Apodaca, Nuevo Leon,
Monterrey, Mexico
Olieweg 10, 1951 NH Velsen-Noord, Netherlands
Olieweg 10, 1951 NH Velsen-Noord, Netherlands
Koppholen 19, 4313 Sandnes, Norway
Dhahran, Building No: 7612, P.O. Box: 3104, Zip Code: 34521, Saudi Arabia
Badentoy Avenue, Badentoy Park, Portlethen, Aberdeen, AB12 4YB, Scotland
Badentoy Avenue, Badentoy Park, Portlethen, Aberdeen, AB12 4YB, Scotland
2 International Business Park, #04-13/14, The Strategy 609930, Singapore
2 International Business Park, #04-13/14, The Strategy 609930, Singapore
2 International Business Park, #04-13/14, The Strategy 609930, Singapore
22 Pioneer Crescent, #05-07, West Park BizCentral, 628556, Singapore
15 Scotts Road, #04-01/03, Thong Teck Building, 228218, Singapore
18 London Circle, Brackengate Business Park, Brackenfell 7560, Cape Town, South Africa
436/27, Moo 2, Thanadee-Klongwong Road, Tambol Phawong, Amphur Muong
Songkhla, 90100, Thailand
4th Floor, Rwenzori Towers, Plot 6, Nakasero Road, Kampala, 24665, Uganda
1316 Staffordshire Road, Staffordshire, Texas, 77477, USA
2 Northpoint Drive, Suite 400, Houston, Texas, 77060, USA
24 Waterway Avenue, Suite 700, The Woodlands, Texas, 77380, USA
6, Dearborn Drive, Fryeburg, Maine, USA
2 Northpoint Drive, Suite 400, Houston, Texas, 77060, USA
8383 North Sam Houston Parkway West, Houston, Texas, 77064, USA
2 Northpoint Drive, Suite 400, Houston, Texas, 77060, USA
2 Northpoint Drive, Suite 400, Houston, Texas, 77060, USA
2 Northpoint Drive, Suite 400, Houston, Texas, 77060, USA
24 Waterway Avenue, Suite 700, The Woodlands, Texas, 77380, USA

5 Hanover Square, London, W1S 1HQ, England
5 Hanover Square, London, W1S 1HQ, England
5 Hanover Square, London, W1S 1HQ, England
5 Hanover Square, London, W1S 1HQ, England
5 Hanover Square, London, W1S 1HQ, England
Corinthian House, 17 Lansdowne Road, Croydon, CR0 2BX, England
5 Hanover Square, London, W1S 1HQ, England
5 Hanover Square, London, W1S 1HQ, England
5 Hanover Square, London, W1S 1HQ, England
The Albany, South Esplanade, St Peter Port, Guernsey, GY1 4NF, Guernsey
24 Waterway Avenue, Suite 700, The Woodlands, Texas, 77380, USA
24 Waterway Avenue, Suite 700, The Woodlands, Texas, 77380, USA

Notes:
i. Except where otherwise stated, companies are wholly owned, being incorporated and operating in the countries indicated.
ii.
iii. All interests in subsidiaries are in the equity shares of those companies.
iv. Dormant company and exempt from being audited.

Interests in company is held directly by Hunting PLC.

C19. Associates

Associatesi
Tianjin Huaxin Premium Connection Pipe Co Ltd (28.5%)
Hunting Airtrust Tubulars Pte. Ltd (50%)
Tubular Resources Pte. Ltd (30%)

Registered Address
Jintang Road, Dongli District, Tianjin, 300301, China
19, Keppel Road, 08-05 JIT Poh Building, 089058, Singapore
79 Anson Road, 07-03, 079906, Singapore

Notes:
i All interests in associates are in the equity shares of those companies.

Hunting PLC
2016 Annual Report and Accounts
140

NON- GA AP ME A SURES
(UNAUDITE D)

The Directors believe it is appropriate to include in the Strategic Report and financial statements a number of non-GAAP measures
(“NGMs”) that are commonly used within the business. These measures supplement the information provided in the IFRS “reported”
financial statements and accompanying notes, providing additional insight to the users of the Annual Report.

This section provides a definition of the non-GAAP measures, the purpose for which the measure is used, and a reconciliation of the
non-GAAP measure to the reported IFRS numbers. The auditors are required under the Companies Act 2006 to consider whether
these non-GAAP measures are prepared consistently with the financial statements.

Income Statement Non-GAAP Measures
The Directors have applied the provisions of IAS 1 with regards to exceptional items and have chosen to present these, together with
amortisation of acquired intangible assets, in a separate column on the face of the income statement. All profit and loss measures
adjusted for amortisation of acquired intangible assets and exceptional items are referred to as “underlying”. This is the basis used
by the Directors in assessing performance.

A. EBITDA
Purpose: This profit measure is used as a simple proxy for pre-tax cash flows from operating activities.

Calculation Definition: Underlying results before share of associates’ post-tax results, interest, tax, depreciation, impairment and
amortisation for continuing operations.

Reported loss from continuing operations (consolidated income statement)
Add:
Depreciation charge for the year on property, plant and equipment (note 14)

Impairment of property, plant and equipment (note 14)
Impairment of goodwill (note 15)

Amortisation of other intangible assets (note 16)
Impairment of other intangible assets (note 16)

Reported EBITDA (loss)
Add: Exceptional items impacting EBITDA
Restructuring costs
Defined benefit pension curtailment (note 7)
Underlying EBITDA (loss)

2016
$m
(140.7)

41.2
3.5
–
35.3
–
(60.7)

8.7
3.1
(48.9)

2015
$m
(282.2)

43.6
33.2
208.2
40.8
11.2
54.8

7.1
–
61.9

B. Underlying Tax Rate
Purpose: This weighted average tax rate represents the level of tax, both current and deferred, being borne by continuing operations
on an underlying basis.

Calculation Definition: Taxation on underlying (loss) profit before tax from continuing operations divided by underlying (loss) profit
before tax from continuing operations, expressed as a percentage.

Underlying taxation credit (charge) (note 11)
Underlying (loss) profit for the year from continuing operations (consolidated income statement)

Underlying tax rate

2016
$m
19.9
(93.2)

2015
$m
(5.4)
9.4

21%

57%

Hunting PLC
2016 Annual Report and Accounts
141

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION

NON- GA AP ME A SURES
(UNAUDITE D)
C ONTIN UED

Balance Sheet Non-GAAP Measures
C. Working Capital
Purpose: Working Capital is a measure of the Group’s liquidity identifying whether the Group has sufficient assets to cover liabilities
as they fall due.

Calculation Definition: Trade and other receivables, excluding receivables from associates, derivative financial assets, environmental
escrow and promissory notes, plus inventories less trade and other payables, excluding payables due to associates, derivative
financial liabilities, dividend liabilities and retirement plan obligations.

Trade and other receivables – non-current (note 18)
Trade and other receivables – current (note 18)
Inventories (note 20)
Trade and other payables – current (note 21)
Trade and other payables – non-current (note 21)
Less: non-working capital loan note (note 18)
Add: non-working capital US deferred compensation plan obligation (note 21)
Less: non-working capital current other receivables and other payables

2016
$m
2.9
111.7
259.7
(70.0)
(12.1)
(1.8)
10.2
(0.4)
300.2

2015
$m
4.0
140.2
331.2
(104.2)
(11.3)
(2.9)
9.1
(0.3)
365.8

D. Inventory Days
Purpose: This is a working capital efficiency ratio that measures inventory balances relative to business activity levels.

Calculation Definition: Inventory at the year end divided by underlying cost of sales for the last three months of the year multiplied by
92 days, adjusted for the impact of acquisitions and disposals.

Inventory (note 20)
Underlying cost of sales for October to December

Inventory days

2016
$m
259.7
106.4

Restated
2015
$m
331.2
126.6

225 days

241 days

Management has revised the method for calculating inventory days as they believe that the new measure provides them with a
more relevant KPI. Previously, inventory at the year end was divided by cost of sales per day, adjusted for the impact of acquisitions
and disposals.

E. Trade Receivables Days
Purpose: This is a working capital efficiency ratio that measures trade receivable balances relative to business activity levels.

Calculation Definition: Net trade receivables at the year end divided by revenue for the last three months of the year multiplied by
92 days, adjusted for the impact of acquisitions and disposals.

Net trade receivables (note 18)
Revenue for October to December

Trade receivable days

2016
$m
93.2
121.1

Restated
2015
$m
116.4
155.9

71 days

69 days

Management has revised the method for calculating trade receivable days as they believe that the new measure provides them
with a more relevant KPI. Previously, trade receivables at the year end were divided by revenue per day, adjusted for the impact of
acquisitions and disposals.

F. Other Net Assets

Retirement benefit asset (note 29)
Investments in associates (consolidated balance sheet)
Non-current investments (note 17)
Non-working capital loan note (NGM C)
Non-working capital non-current other payables (NGM C)
Non-working capital current other receivables and other payables (NGM C)

Hunting PLC
2016 Annual Report and Accounts
142

2016
$m
33.3
3.2
10.2
1.8
(10.2)
0.4
38.7

2015
$m
41.4
3.7
9.1
2.9
(9.1)
0.3
48.3

G. Capital Employed
Purpose: Used in the calculation of the return on average capital employed (see NGM O).

Calculation Definition: Capital employed is the amount of capital that the Group has invested in its business and comprises the
historic value of total equity plus net debt at amortised cost.

The Group’s capital comprised:

Total equity (consolidated balance sheet)
Net debt (note 23)

2016
$m
1,117.4
1.9
1,119.3

2015
$m
1,168.1
110.5
1,278.6

H. Gearing
Purpose: This ratio indicates the relative level of debt funding, or financial leverage, that the Group is subject to with higher levels
indicating increasing levels of financial risk.

Calculation Definition: Gearing is calculated as net debt as a percentage of total equity (see NGM G).

Gearing

2016
0%

2015
9%

Cash Flow Non-GAAP Measures
I. Cash Flow Working Capital Movements
Purpose: Reconciles the working capital movements in the summary of changes in net debt in the Strategic Report.

Working capital – opening balance
Foreign exchange
Add:
Transfer from property, plant and equipment (note 14)
Capital investment debtors/creditors cash flows
Less:
Other cash flow movement
Working capital – closing balance (NGM C)
Cash flow

2016
$m
365.8
(9.1)

0.1
2.0

(0.2)
(300.2)
58.4

2015
$m
470.6
(12.3)

0.2
3.5

(0.2)
(365.8)
96.0

J. Capital Investment
Purpose: Capital investment identifies the cash resources being absorbed organically within the business to maintain or enhance
operating activity levels. The split of replacement and expansion capital investment is used in the calculation of free cash flow
(see NGM L) used in the summary changes in net debt presented in the Strategic Report.

Calculation Definition: Capital investment is the cash paid on tangible non-current assets. Replacement capital investment is the cash
spent on non-current tangible assets to maintain existing levels of operating activity. Expansion capital investment is the cash spent
on tangible non-current assets that will grow the business from current operating levels and enhance operating activity.

Property, plant and equipment additions (note 14)
Capital investment debtors/creditors cash flows (NGM I)
Adjustment to provisions (note 24)
Cash flow

Replacement capital investment
Expansion capital investment
Cash flow

Well Construction
Well Completion
Well Intervention
Exploration and Production
Central
Cash flow

Hunting PLC
2016 Annual Report and Accounts
143

2016
$m
15.4
2.0
(0.2)
17.2

4.2
13.0
17.2

11.0
4.1
1.6
0.5
–
17.2

2015
$m
77.1
3.5
0.5
81.1

22.0
59.1
81.1

49.4
20.0
8.6
3.0
0.1
81.1

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
NON- GA AP ME A SURES
(UNAUDITE D)
C ONTIN UED

K. Other Operating Cash and Non-Cash Movements
Purpose: Reconciles other operating cash and non-cash movements in the Summary Group Cash Flow in the Strategic Report.

Loss on disposal of property, plant and equipment (consolidated statement of cash flows)
Decrease in provisions (consolidated statement of cash flows)
Other non-cash flow items
Charge to the income statement for PSP and HPSP share options and awards (note 34)
Pensions
Other

2016
$m
–
(1.7)

8.2
3.9
0.1
10.5

2015
$m
1.8
(6.7)

6.2
4.6
–
5.9

L. Free Cash Flow
Purpose: Free cash flow is a measure of financial performance and represents the cash that the Group is able to generate after
replacement capital investment, which is required to maintain existing levels of operating activity. Free cash flow represents the amount
of cash the Group has available to either retain for investment, whether organic or by way of acquisition, or to return to shareholders.

Calculation Definition: Underlying profit from continuing operations adjusted for working capital, tax, replacement capital investment
and interest.

Underlying EBITDA (loss) (NGM A)
Working capital movements (NGM I)
Net interest paid and bank fees (consolidated statement of cash flows)
Tax received (paid) (consolidated statement of cash flows)
Restructuring costs (consolidated statement of cash flows)
Replacement capital investment (NGM J)
Other operating cash and non-cash movements (NGM K)

2016
$m
(48.9)
58.4
(4.6)
31.3
(5.9)
(4.2)
10.5
36.6

2015
$m
61.9
96.0
(7.4)
(10.5)
(5.9)
(22.0)
5.9
118.0

Other Non-GAAP Measures
M. Dividend Per Share Declared
Purpose: Identifies the total amount of dividend declared in respect of a period. This is also used in the calculation of dividend cover
(see NGM N).

Calculation Definition: The amount in cents returned to Ordinary shareholders. Figures shown are calculated on an accruals basis.

Interim dividend
Final dividend

2016
cents per
share
–
–
–

2015
cents per
share
4.0
4.0
8.0

N. Dividend Cover
Purpose: An indication of the Company’s ability to maintain the level of its dividend and indicates the proportion of earnings being
retained in the business for future investment versus that returned to shareholders.

Calculation Definition: Earnings or loss per share from continuing operations attributable to Ordinary shareholders divided by the cash
dividend per share to be returned to Ordinary shareholders, on an accruals basis.

Earnings (loss) per share
Basic – from continuing operations (note 13)
Diluted – from continuing operations (note 13)

Dividend (NGM M)

Dividend cover
Basic – from continuing operations
Diluted – from continuing operations

2016

2015

Underlying

Reported

Underlying

Reported

(45.3)c
(45.3)c

(76.8)c
(76.8)c

–

n/a
n/a

–

n/a
n/a

3.1c
3.1c

8.0c

0.4x
0.4x

(156.1)c
(156.1)c

8.0c

(19.5)x
(19.5)x

Hunting PLC
2016 Annual Report and Accounts
144

O. Return on Average Capital Employed
Purpose: Measures the levels of return the Group is generating from its capital employed.

Calculation Definition: Underlying (loss) profit before interest and tax from continuing operations, adjusted for the share of associates’
post-tax results, as a percentage of average gross capital employed. Average gross capital employed is a monthly average of capital
employed based on 13 balance sheets from the closing December balance in the prior year to the closing December balance in the
current year.

Average monthly gross capital employed (13 point average)

Underlying (loss) profit from continuing operations (consolidated income statement)
Share of associates’ post-tax losses (consolidated income statement)
Underlying (loss) profit from continuing operations including associates

Return on average capital employed

2016
$m
1,202.1

2015
$m
1,532.9

(92.2)
(0.3)
(92.5)

16.4
(0.2)
16.2

(8)%

Hunting PLC
2016 Annual Report and Accounts
145

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONFINANCIAL RECORD i
(UNAUDITE D)

Revenue
EBITDA
Depreciation and non-exceptional amortisation and impairment
(Loss) profit from continuing operations
Net finance expense
Share of associates’ post-tax (losses) profits
(Loss) profit before tax from continuing operations
Taxation
(Loss) profit for the year from continuing operations
Profit (loss) for the year from discontinued operations
(Loss) profit for the year

Basic earnings per share
Continuing operations
Continuing and discontinued operations

Diluted earnings per share
Continuing operations
Continuing and discontinued operations

Dividend per shareii

Total assets
Non-current assets
Net current assets

Financed by:
Shareholders’ funds (including non-controlling interests)
Non-current liabilities

Net assets per share

2016
$m
455.8
(48.9)
(43.3)
(92.2)
(0.7)
(0.3)
(93.2)
19.9
(73.3)
–
(73.3)

2015
$m
810.5
61.9
(45.5)
16.4
(6.8)
(0.2)
9.4
(5.4)
4.0
–
4.0

2014
$m
1,386.5
269.8
(52.0)
217.8
(4.9)
(0.5)
212.4
(57.2)
155.2
0.3
155.5

2013
$m
1,293.6
244.0
(44.0)
200.0
(2.9)
0.4
197.5
(52.1)
145.4
(1.4)
144.0

2012
$m
1,265.4
240.7
(40.1)
200.6
(8.7)
1.5
193.4
(53.9)
139.5
1.1
140.6

cents

(45.3)
(45.3)

–

841.3
323.6
1,164.9

1,117.4
47.5
1,164.9

3.1
3.1

8.0

102.6
102.8

100.0
100.2

31.0

96.8
95.8

94.5
93.5

29.5

92.2
93.0

90.0
90.8

28.4

932.0
387.4
1,319.4

1,168.1
151.3
1,319.4

1,187.1
471.5
1,658.6

1,438.3
220.3
1,658.6

1,249.1
483.0
1,732.1

1,414.8
317.3
1,732.1

1,254.9
464.4
1,719.3

1,332.7
386.6
1,719.3

cents
682.6

cents
785.0

cents
968.6

cents
957.9

cents
906.6

Information is stated before exceptional items and amortisation of acquired intangible assets.

i.
ii. Dividend per share is stated on a declared basis. Following the change in functional currency from Sterling to US dollar in 2013, dividends are declared in US dollars
and paid in Sterling. The Sterling value of dividends paid is fixed and announced approximately two weeks prior to the payment date. For 2012 and prior years,
dividends were declared in Sterling and have been presented in cents using the exchange rate on the date they were paid or approved for interim and final dividends
respectively.

Hunting PLC
2016 Annual Report and Accounts
146

SHAREHOLDER AND
STATUTORY INFOR M ATION
(UNAUDITE D)

Annual General Meeting 2017
The AGM of Hunting PLC will be held on Wednesday, 12 April 2017 at The Royal Automobile Club, 89 Pall Mall, London SW1Y 5HS
and shall commence at 10.30 a.m.

Business of Meeting
The AGM is an opportunity for shareholders to meet with the Board of Directors. The usual format of the meeting starts with the
Chairman’s introduction followed by an invitation to take any questions from shareholders and, finally, the formal business of
the meeting which involves putting to the meeting a number of ordinary and special resolutions. Details of the resolutions will be
communicated to shareholders ahead of the meeting in a formal “Notice of AGM”. The Notice also contains explanatory notes
which will detail to shareholders how to lodge their vote. Those shareholders who have elected to continue to receive hard copy
documentation or have signed up to receive a notification by e-mail will also receive a proxy form, which will contain details of
how to lodge a vote by proxy.

Documents on Display
Copies of the executive Directors’ service contracts and letters of appointment of non-executive Directors will be available for
inspection at the Company’s Registered Office from the date the Notice of AGM is issued (being 21 clear days’ notice ahead of the
meeting) until the time of the AGM and at the Royal Automobile Club, 89 Pall Mall, London SW1Y 5HS from 15 minutes before the
AGM starts until it ends.

Registered Office
5 Hanover Square
London
W1S 1HQ

Company Number: 974568 (Registered in England and Wales)

Telephone:
Facsimile:
Email:

+44 (0)20 7321 0123
+44 (0)20 7839 2072
pr@hunting.plc.uk

Financial Calendar
The Company's 2017 financial calendar is as follows:

Date
2 March 2017
13 March 2017
12 April 2017
12 April 2017
August 2017 (TBC)

Event
Final Results Announcement
Publication of Annual Report and Notice of AGM
AGM
Proxy Voting Results of AGM
Half-Year Results

Financial Reports
The Company’s Annual Report is available on the Company’s website from the date of publication. Shareholders may elect to receive
a copy by contacting the Registrar. Copies of previous financial reports are available at www.huntingplc.com.

In common with many public companies in the UK, the Company no longer publishes a printed version of its half-year report.
The half-year report is only available online from the Company’s website at www.huntingplc.com.

Registrar
The Company’s Registrar, Equiniti, offers a range of shareholder information and dealing services at www.shareview.co.uk.
The address and contact details of Equiniti are as follows:

Equiniti Limited
Aspect House
Spencer Road, Lancing
West Sussex BN99 6DA

Telephone:
UK +44 (0)371 384 2173
Overseas +44 (0)121 415 7047

Equiniti is also the Company’s single alternative inspection location where, with prior appointment, individuals can inspect the register
of members.

Hunting PLC
2016 Annual Report and Accounts
147

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
SHAREHOLDER AND
STATUTORY INFOR M ATION
(UNAUDITE D)
C ONTIN UED

Analysis of Ordinary Shareholders
At 31 December 2016, the Company had 1,749 Ordinary shareholders (2015 – 1,921) who held 163.7m (2015 – 148.8m) Ordinary
shares analysed as follows:

Size of holdings
1 – 4,000
4,001 – 20,000
20,001 – 40,000
40,001 – 200,000
200,001 – 500,000
500,001 and over

2016

2015

% of total
shareholders

% of total
shares

% of total
shareholders

% of total
shares

72.8
11.2
3.0
6.6
3.2
3.2

0.7
1.1
0.9
7.0
11.0
79.3

73.4
11.3
3.3
6.4
3.0
2.6

1.0
1.4
1.3
8.0
12.5
75.8

Share Capital
Hunting PLC is a premium-listed Company with its Ordinary shares quoted on the London Stock Exchange.

The Company’s issued share capital comprises a single class, which is divided into 163,739,686 Ordinary shares of 25 pence each.
All of the Company’s issued Ordinary shares are fully paid up and rank equally in all respects.

Details of the issued share capital of the Company and the number of shares held in Treasury as at 31 December 2016 can be found
in note 30 to the financial statements.

Subject to applicable statutes, shares may be issued with such rights and restrictions as the Company may, by ordinary resolution,
decide, or (if there is no such resolution or so far as it does not make specific provision) as the Board (as defined in the Articles of
Association) may decide.

Voting Rights and Restrictions on Transfer of Shares
Holders of Ordinary shares are entitled to receive dividends (when declared), receive the Company’s Annual Report and Accounts,
attend and speak at general meetings of the Company, and appoint proxies or exercise voting rights.

On a show of hands at a general meeting of the Company, every holder of Ordinary shares present in person or by proxy, and entitled
to vote, has one vote, and, on a poll, every member present in person or by proxy and entitled to vote has one vote for every Ordinary
share held. None of the Ordinary shares carry any special rights with regard to control of the Company. Proxy appointments and
voting instructions must be received by the Company’s Registrars not later than 48 hours before a general meeting.

A shareholder can lose his entitlement to vote at a general meeting where that shareholder has been served with a disclosure notice
and has failed to provide the Company with information concerning interests in those shares. Shareholders’ rights to transfer shares
are subject to the Company’s Articles of Association.

Transfers of uncertificated shares must be carried out using CREST and the Directors can refuse to register a transfer of an
uncertificated share in accordance with the regulations governing the operation of CREST.

The Directors may decide to suspend the registration of transfers, for up to 30 days a year, by closing the register of shareholders.
The Directors cannot suspend the registration of transfers of any uncertificated shares without obtaining consent from CREST.

There are no restrictions on the transfer of Ordinary shares in the Company other than:

• certain restrictions that may from time to time be imposed by laws and regulations, for example insider trading laws;
• pursuant to the Company’s share dealing code whereby the Directors and certain employees of the Company require approval to

deal in the Company’s shares; and

• where a shareholder with at least a 0.25% interest in the Company’s certificated shares has been served with a disclosure notice

and has failed to provide the Company with information concerning interests in those shares.

Interests in Voting Rights
Other than as stated in the table of Substantial Interests on page 55, the Company is not aware of any further agreements between
shareholders that may result in restrictions on the transfer of Ordinary shares or on voting rights.

Market Capitalisation
The market capitalisation of the Company at 31 December 2016 was £1.03bn.

Hunting PLC
2016 Annual Report and Accounts
148

Share Price

At 1 January
At 31 December
High during the year
Low during the year

2016
p
305.5
627.5
644.5
232.0

2015
p
524.0
305.5
664.0
275.5

Dividends
The Company normally pays dividends semi-annually. Details of the dividends paid are set out in note 33 of the financial statements.
During 2016, the Company suspended paying dividends, in accordance with the revised terms of its revolving credit facility.

Directors
Powers of the Directors
Subject to the Company’s Articles of Association, UK legislation and any directions prescribed by resolution at a general meeting,
the business of the Company is managed by the Board. The Articles of Association may only be amended by special resolution at a
general meeting of shareholders. Where class rights are varied, such amendments must be approved by the members of each class
of share separately.

Appointment and Replacement of Directors
The rules about the appointment and replacement of Directors are contained in the Articles of Association. On appointment in
accordance with the Articles, Directors may be appointed by a resolution of the Board but are then required to be reappointed by
ordinary resolution by shareholders at the Company’s next AGM.

Directors’ Interests
Details of Directors’ remuneration, service contracts and interests in the Company’s shares and share options are set out in the
Directors’ Remuneration Policy and Annual Report on Remuneration, located at www.huntingplc.com. Further information regarding
employee long-term incentive schemes is given in note 34 of the financial statements.

Directors’ Conflict of Interest
All Directors have a duty under the Companies Act 2006 to avoid a situation in which they have, or could have, a direct or indirect
conflict of interest with the Company. The duty applies, in particular, to the exploitation of any property, information or opportunity,
whether or not the Company could take advantage of it. The Company’s Articles of Association provide a general power for the Board
to authorise such conflicts.

Directors are not counted in the quorum for the authorisation of their own actual or potential conflicts. Authorisations granted are
recorded by the Company Secretary in a register and are noted by the Board. On an ongoing basis, the Directors are responsible for
informing the Company Secretary of any new, actual or potential conflicts that may arise, or if there are any changes in circumstances
that may affect an authorisation previously given. Even when provided with authorisation, a Director is not absolved from his or
her statutory duty to promote the success of the Company. If an actual conflict arises post-authorisation, the Board may choose to
exclude the Director from receipt of the relevant information and participation in the debate, or suspend the Director from the Board,
or, as a last resort, require the Director to resign. As at 31 December 2016, no Director of the Company had any beneficial interest in
the shares of Hunting’s subsidiary companies.

Statement of Disclosure of Information to Auditors
In accordance with the Companies Act 2006, all Directors in office as at the date of this report have confirmed, so far as they are aware,
there is no relevant audit information of which the Group’s auditors are unaware and each Director has taken all reasonable steps
necessary in order to make themselves aware of any relevant audit information and to establish that the Group’s auditors are aware of
that information. This confirmation should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006.

Research and Development
Group subsidiaries undertake, where appropriate, research and development to meet particular market and product needs.
The amount expensed by the Group during the year was $1.3m (2015 – $0.6m).

Political Contributions
It is the Group’s policy not to make political donations. Accordingly, there were no political donations made during the year (2015 – $nil).

Significant Agreements
The Company is party to a revolving credit facility in which the counterparties can determine whether or not to cancel the agreement
where there has been a change of control of the Company. The service agreements of the executive Directors include provisions for
compensation for loss of office or employment as a result of a change of control.

Payments to Governments
In accordance with the UK's Disclosure and Transparency Rules 4.3A, Hunting PLC is required to report annually on payments
made to governments in respect to its oil and gas activities. Hunting's report on 'Payments to Governments' for the year ended
31 December 2015 was announced on 28 April 2016 and totalled $700,645.

Statement of Listing Rule Compliance
In accordance with Listing Rule 9.8.4C, the Directors confirm that all waivers of dividends over the Company’s Ordinary shares are
noted on page 54.

Hunting PLC
2016 Annual Report and Accounts
149

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONGLOSSARY

DEFRA
UK Department for Environment, Food
& Rural Affairs.

Diluted EPS*
Diluted earnings per share – calculated
by dividing earnings from continuing
operations before amortisation and
exceptional items attributable to Ordinary
shareholders by the weighted average
number of Ordinary shares in issue during
the year, as adjusted for all potentially
dilutive Ordinary shares.

Dividend cover*
See NGM N.

Downhole
Downhole refers to something that is
located within the wellbore.

AGM
Annual General Meeting.

AMG
Advanced Manufacturing Group –
combines the precision engineering and
manufacturing capabilities in the Well
Construction segment for the Electronics
division (Hunting Innova) and Hunting
Dearborn product lines. Hunting is aiming
to become a leading single source of
MWD/LWD tools.

API
American Petroleum Institute.

Average gross capital employed*
See NGM O.

Basic EPS*
Basic earnings per share – calculated by
dividing the earnings from continuing
operations before amortisation and
exceptional items attributable to Ordinary
shareholders by the weighted average
number of Ordinary shares in issue during
the year.

DPS*
See NGM M.

EBITDA*
See NGM A.

bbl
Barrel of oil – one barrel of oil equals
159 litres or 42 US gallons.

ESOP
Executive Share Option Plan.

BOE
Barrel of oil equivalent.

FRC
Financial Reporting Council.

bn
Billion.

c
Cents.

Free cash flow*
See NGM L.

FVLCD
Fair value less costs of disposal.

CAGR
Compound annual revenue growth rate.

GAAP
Generally Accepted Accounting Principles.

Capital employed*
See NGM G.

Gearing*
See NGM H.

Capital investment – “Capex”
See NGM J.

GHG
Greenhouse gas.

CGU
Cash generating unit.

CO2
Carbon dioxide.

CO2e
Carbon dioxide equivalent.

CPI
Consumer Price Index.

CTR
Currency translation reserve.

Growth capital investment
See NGM J.

Hunting PLC
2016 Annual Report and Accounts
150

HEMS
Hunting Equipment Management Services
– provided downhole tool rental equipment
in the Well Construction segment.

HPSP
Hunting Performance Share Plan.

HSE
Health, Safety and Environment.

IAS
International Accounting Standards.

IFRIC
International Financial Reporting
Interpretations Committee.

IFRS
International Financial Reporting Standards
as adopted by the European Union.

Incident rate
The US Occupational Safety and Health
Administration (“OSHA”) Recordable
Incident Rate (or Incident Rate) is
calculated by multiplying the number of
recordable incidents by 200,000 and then
dividing that number by the number of
labour hours worked.

Intensity factor
The total controlled scope 1 and scope 2
emissions divided by the total facilities
footprint of the Group.

Inventory days*
See NGM D.

IOC
International Oil Companies.

IP
Intellectual Property.

ISO
International Standards Organisation.

k
Thousand.

kWh
Kilowatt hours.

Lean
A production practice that eliminates
wasteful processes, thereby reducing
production time and costs, and
improving efficiency.

p
Pence.

PCB
Printed circuit board.

Underlying
Results for the year, as reported under
IFRS, adjusted for amortisation of
acquired intangible assets and exceptional
items, which is the basis used by the
Directors in assessing performance.

LNG
Liquefied Natural Gas.

LPG
Liquefied Petroleum Gas.

LTIP
Long-Term Incentive Plan.

m
Million.

m3
Cubic metre.

mcf
1,000 cubic feet.

mmBtu
Million British Thermal Units.

MWD/LWD
Measurement-while-drilling/Logging-
while-drilling.

MWh
Megawatt hours.

Net debt
See note 23.

NOC
National Oil Companies.

NYMEX
New York Mercantile Exchange.

OCI
Other comprehensive income.

OCTG
Oil Country Tubular Goods – pipe and
tubular goods and products used in the
oil and gas industry, such as drill pipe,
pipe casings and production pipes.

OEM
Original equipment manufacturer.

PPE
Property, plant and equipment.

PSP
2009 Performance Share Plan.

Wellbore
The wellbore refers to the drilled hole.

Well completion
Well completion refers to the processes
of preparing a well for production.
This involves the assembly of downhole
tubulars and equipment required to enable
safe and efficient production from an oil
or gas well.

Well construction
Well construction refers to the initial drilling
and processes of constructing the
wellbore in an oil and gas well. These
processes typically include drilling and
logging the hole; running, cementing and
logging the casing; hydraulic fracturing
or stimulating the well and monitoring well
performance and integrity.

Well intervention
Well intervention refers to any operation
carried out on an oil or gas well that
maintains or enhances the production
of the well or provides well diagnostics.

Working capital*
See NGM C.

WTI
West Texas Intermediate – the price per
barrel of Texas light sweet crude oil.

* Non-GAAP measure.

RCF
Revolving Credit Facility.

Recordable incidents
An incident is recordable if it results in any
of the following: death, days away from
work, restricted work or transfer to
another job, medical treatment beyond
first aid, or loss of consciousness. Also
included are any significant injuries or
illnesses diagnosed by a physician or
other licensed health care professional,
even if it does not result in death, days
away from work, restricted work or job
transfer, medical treatment beyond first
aid, or loss of consciousness.

Replacement capital investment
See NGM J.

ROCE*
See NGM O.

Scope 1
Scope 1 emissions are direct GHG
emissions from sources that are owned
or controlled by the entity. Scope 1
emissions include fossil fuels burned on
site, emissions from vehicles and other
direct sources.

Scope 2
Scope 2 emissions are indirect GHG
emissions resulting from the generation of
electricity, heating and cooling or steam
generated off site but purchased by the
entity.

TCP
Tubular conveyed perforating.

Trade receivable days*
See NGM E.

TSR*
Total Shareholder Return – the net share
price change plus the dividends paid
during that period.

Hunting PLC
2016 Annual Report and Accounts
151

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONPROFESSIONAL
ADVISER S

Solicitors
CMS Cameron McKenna LLP

Independent Auditors
PricewaterhouseCoopers LLP

Joint Corporate Brokers
Deutsche Bank AG and Barclays Bank PLC

Financial Advisers
DC Advisory Limited

Insurance Brokers
Willis Towers Watson

Pension Advisers & Actuary
Lane Clark & Peacock LLP

Financial Public Relations
Buchanan Communications Limited

Registrars & Transfer Office
Equiniti Limited
Aspect House
Spencer Road, Lancing
West Sussex BN99 6DA

Telephone:
UK +44 (0)371 384 2173
Overseas +44 (0)121 415 7047

Hunting PLC
2016 Annual Report and Accounts
152

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HU NTING PLC
5 Hanover Square, London W1S 1HQ, United Kingdom
Tel: +44 (0)20 7321 0123
Fax: +44 (0)20 7839 2072