Hunting Annual Report 2019

FY2019 Annual Report · Hunting

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Hunting PLC
2019 Annual Report and Accounts

Precision engineering

Hunting PLC
2019 Annual Report and Accounts

Welcome to Hunting

Hunting is a key supplier to the upstream oil and gas industry.

Our strategy is to manufacture products and deliver services
to our customers, wherever in the world they are operating.

Hunting’s product offering extends across the life cycle of an
oil and gas well, and this focus allows us to create, distribute
and sustain value for our shareholders and stakeholders.

Hunting is a premium-listed Company, quoted on the London
Stock Exchange and is a constituent of the FTSE 250 Share Index.

Highlights

Market

Average WTI crude
oil price

Year-end WTI crude
oil spot price

2019

$57

per barrel

$61

per barrel

2018

$65

per barrel

$45

per barrel

Global average onshore
rig count

1,844

units

1,982

units

Global average offshore
rig count

242

units

201

units

Financial**

Revenue

Net cash before
lease liabilities*

Underlying profit
from operations*

Reported profit
from operations

Global onshore drilling and
production expenditure

$165.8

billion

$179.8

billion

Underlying diluted
earnings per share*

Global offshore drilling and
production expenditure

$63.6

billion

$54.4

billion

Reported diluted
earnings per share

2019

2018

$960.0

million

$911.4

million

$123.1

million

$61.3

million

$94.3

million

$46.8

million

43.9

cents

23.5

cents

$104.7

million

$75.4

million

49.6

cents

52.3

cents

Source: Bloomberg/Spears & Associates.

* Non-GAAP measure (“NGM”) see pages 179 to 183 and note 26.
** 2018 data does not reflect the adoption of IFRS 16 Leases.

01
Highlights of the Year

Operational and corporate

Financial

Good growth within US, EMEA and Asia Pacific operating
segments as offshore and international market activity
improved.
• Premium connections, accessories and advanced manufacturing
and subsea product groups all report strong year-on-year growth
within the US segment.

• European OCTG businesses report good growth as North Sea

Revenue increased by 5% to $960.0m (2018 – $911.4m).
• Supported by new products and higher levels of offshore activity.
• US and Asia Pacific operating segments increased revenue by

10% and 37% respectively.

• Hunting Titan revenue declined in the year by 10% as onshore
completion activity reduced and competition increased, as well
as customers moving to lower cost completion products.

activity improved in the year.

• Improved performance year-over-year in Asia Pacific due

to improved activity levels and new customer wins.

EBITDA*.
• Underlying and reported EBITDA of $139.7m (2018 – $142.3m

Hunting Titan reports lower results in the year as the US
onshore market slowed. New products launched in the year,
partially offsetting the decline in sales.
• Performance adversely impacted by lower US onshore

completion expenditure.

• Proactive actions to address excess inventory levels and convert

to cash have impacted margins.

• New perforating and energetics products and setting tools
commercialised in the year with good customer adoption.
• Higher efficiency, lower cost automated manufacturing cells

commissioned at Milford and Pampa facilities.

Acquisition of RTI Energy Systems Inc. (“RTI”) completed
in August 2019 to broaden and diversify overall subsea
product portfolio.
• RTI manufactures titanium and stainless steel stress joints

and $141.3m respectively).

• Underlying and reported EBITDA margin of 15% (2018 – 16%).

Profit from operations.
• Underlying profit from operations of $94.3m (2018 – $104.7m).
• Reported profit from operations of $46.8m (2018 – $75.4m).

Amortisation and exceptional items totalled $47.5m
(2018 – $29.3m).
• Charge for amortisation $28.5m (2018 – $29.3m).
• Impairment of drilling tools rental fleet of $19.0m (2018 – $nil).

ROCE*.
• Underlying ROCE in the year 8% (2018 – 9%).

Net cash at year-end of $77.9m (2018 – $61.3m)*.
• Cash of $123.1m (2018 – $61.3m), less lease liabilities of $45.2m

used in offshore developments.

(2018 – $nil).

• $12.5m consideration paid for the business and assets.
• Integration of business progressing well, with new orders

• Lease accounting standard adopted from 1 January 2019.
• Net cash generated in year of $70.0m (2018 – $32.0m).

Total dividends declared for 2019 increased by 22% to
11.0 cents per share (2018 – 9.0 cents per share).
• Subject to shareholder approval, final dividend declared of

6.0 cents per share, absorbing $9.9m, to be paid on 15 May 2020
to shareholders on the register on 17 April 2020.

won since year-end.

Acquisition of Enpro Subsea Limited (“Enpro”) completed
in February 2020.
• Enpro is a leader in subsea production technology, offering
low cost, flexible field development solutions including well
production and intervention modules to enhance recovery
from oil and gas wells.

• $33.0m cash consideration paid for the business,

with an additional maximum earn-out of $3.0m agreed,
subject to key financial milestones being met.

Board changes.
• As announced on 23 January 2020, Peter Rose will retire

as Finance Director at the Company’s Annual General Meeting
(“AGM”) on 15 April 2020.

• Bruce Ferguson proposed as successor, with appointment

submitted to shareholders for approval at the AGM.

* Non-GAAP measure (“NGM”) see pages 179 to 183 and note 26.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements
02

Contents

To help you navigate this report, we have structured it into six sections:

Strategic Report

Purpose and
Culture

Business Model
and Stakeholders

Business
Strategy

Hunting’s Purpose and Culture will help
you understand the Company’s licence to
operate and vision. We have also highlighted
the key drivers of our business that help us
create value for the long term.

Our business model explains how we
create value for our stakeholders and our
engagement mechanisms to understand
the needs of our key partners.

Our business strategy will tell you about
our short- and long-term growth plans,
our achievements in the year in delivering
on key strategic objectives and the principal
risks attached to our plans.

At a Glance
Chairman’s Statement
Our Purpose
Our Culture

28
Chief Executive’s Statement
30
Outlook
32
Market Analysis
34
Our Business Strategy
36
Case Study – Operational Excellence
Risk Management
38
Case Study – Connections Technology 48

04
06
08
09

Business Model
– Resources
Shareholders
Lenders
Facilities and Intellectual Property
– Operating Segments
– Products and Services
– Our Stakeholders
Customers
Employees
Suppliers
Environment
Governments
Communities

10
12
12
14
15
16
18
20
20
22
24
24
26
26

Hunting PLC / 2019 Annual Report and Accounts03

Performance

Governance

Financial
statements

Our Performance in the year reports
on how our business strategy translated
into financial results for the year ended
31 December 2019, with details on how
each of our operating segments performed
in the period.

Our Governance section details how Hunting
is managed and governed, through the
responsibilities and work of the Board, its
Committees and the senior leadership team.

Our Financial Statements report on the
Company’s performance in the year and
position at the end of the year and provides
detailed financial information, in line with
our statutory reporting responsibilities.

Group Review
Segmental Review
Case Study – Corporate Sustainability
Key Performance Indicators
Directors’ Report and Compliance
Statements

50
54
62
64

Chairman’s Introduction
Directors and Company Secretary
Executive Committee
Corporate Governance Report
Remuneration Committee Report
– Directors’ Remuneration Policy

Summary

– Annual Report on Remuneration
Nomination Committee Report
Audit Committee Report

71
72
74
75
84

88
93
104
106

118
119

110
117

Independent Auditor’s Report to the
Members of Hunting PLC
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes
in Equity
120
Consolidated Statement of Cash Flows 121
Notes to the Consolidated Financial
Statements
Company Balance Sheet
Company Statement of Changes
in Equity
Company Statement of Cash Flows
Notes to the Company Financial
171
Statements
179
Non-GAAP Measures
Financial Record
184
Shareholder and Statutory Information 185
189
Glossary
192
Professional Advisers

122
168

169
170

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements04
At a Glance

Global footprint

Our operations

Our operating facilities need to be close to our
customers and are therefore based in or near
the main oil and gas producing regions.

Conventional oil and gas basin
Unconventional oil and gas basin
Key operating locations

Segmental revenue

Split of external revenue by segment
Year to 31 December 2019

Hunting Titan 39%
US 33%
Asia Pacific 13%
EMEA 12%
Canada 3%

Group overview

Operating sites

Distribution centres

Countries of operation

Patents granted and
pending

Employees

Internal manufacturing
reject rate

2019

691

2019

2018

690

2018

2,956

2,772

2019 year-end

2018 year-end

0.30%

2019

0.22%

2018

Hunting PLC / 2019 Annual Report and Accounts05

Our products and services

Our business relationships

Oil Country Tubular Goods (“OCTG”)
The Group owns proprietary connection technology
including the SEAL-LOCKTM and WEDGE-LOCKTM
premium connections and the TEC-LOCKTM
semi-premium connection. The Group manufactures
couplings and accessories and applies premium
threads to pipe for its customers throughout its
global facilities.

Perforating Systems
Hunting manufactures perforating guns, energetics
charges and instrumentation used in well completion
activities. Products are manufactured across our global
network and sold through distribution points in Canada,
China, Indonesia, UAE, UK and US.

Advanced Manufacturing
Advanced Manufacturing includes precision machining
and electronics manufacturing, both utilised in MWD/
LWD tools. A range of non-oil and gas products are
also engineered for the medical, naval, aerospace
and space sectors.

Drilling Tools
Hunting’s Drilling Tools business provides mud motor
rental services for operators in the onshore oil and gas
basins of the US.

Intervention Tools
The Group manufactures a range of tools and pressure
control equipment used for intervention activities.

Subsea
Hunting’s Subsea business manufactures hydraulic
couplings, valves, stress joints and accessories for
application in deep water drilling activities.

Hunting generates value through the manufacture of products,
provision of related services and supply of rental equipment to
the upstream energy sector used in the extraction of oil and gas.

Our strategic focus is on the manufacture of products used
in the wellbore or those products forming part of the wellbore’s
infrastructure.

Oil and gas extraction requires a diverse range of products and
services. The nature of the sector results in relationships with
business partners who can be customers, suppliers and
competitors at different points in the value chain.

Customers

Hunting

Competitors

Suppliers

Oil and gas extrac t i o n c y c l e

Investment highlights

• Solid fundamentals for the oil and gas industry

• Strategic focus on the wellbore

• Proprietary technologies and diverse product range

• World-class, flexible manufacturing facilities located close to our customers

• Proven track record of manufacturing excellence and reliability

• Experienced management team

• Focused on efficiency, cost control and cash generation

• Strong reputation within our customer base for delivering quality

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements06
Chairman’s Statement

Sound strategy

Jay Glick
Chairman

Hunting performed well during a very
challenging year for the entire oil and
gas industry. A strong balance sheet,
a sound strategy for growth and an
unrelenting focus on quality, service
and innovation have positioned the
Company for success as market
conditions improve.

Hunting PLC / 2019 Annual Report and Accounts07

Introduction
I am pleased to introduce our 2019 Annual Report and Accounts to our
shareholders. This has been a very challenging year for the oil and gas
industry, one in which activity levels and valuations uncoupled from their
historic relationship with commodity prices, which led to the industry
focusing on capital discipline and concentrating on generating positive
returns on invested capital. Hunting was well positioned for this shift,
as demonstrated by our balance sheet and return on capital employed.
In a year in which the average US onshore rig count declined by 9%
to average 920 active units, the Group’s revenue increased 5%
demonstrating that the value delivered by Hunting’s products and
services was recognised and rewarded by our customers.

While competitive pressures were very strong during 2019,
the Company was able to maintain market share. Our customers
recognised the efficiency and safety advantages offered by Hunting’s
products, thus enabling the Company to minimise margin erosion.
Against this hyper-competitive backdrop, our product development
efforts continued during the year. Our ongoing strategy is to deliver
value to our customers through improved product technology.
It should also be noted that the Company benefited from its broad
portfolio of products, together with its access to global markets.
As the North American onshore markets softened some of that
weakness was offset with sales into the offshore and international
markets, which both showed signs of recovery. The resumption in
offshore developments, following several years in which the industry
focused on unconventional onshore developments, is due in part
to the steep production decline rates in shale plays. This has, in turn,
led to higher costs and greater service intensity in these plays in an
effort to maintain commercially viable production levels. In contrast,
offshore developments require larger capital outlays and much
longer time-frames before production is brought onstream, but have
the advantage of higher volumes of production, with very moderate
decline rates. We expect the pivot from onshore to offshore to
continue, but also expect unconventional onshore production
to be a significant and attractive market in coming years.

The Company’s acquisition of RTI Energy Systems Inc. in August
2019 and Enpro Subsea Limited in February 2020 brings core
competencies that enhance our subsea capabilities and products
that will be critical to developing offshore oil and gas reservoirs,
particularly in deeper, more challenging developments.

Board Changes
As announced on 23 January 2020, Peter Rose, the Company’s
Finance Director since 2008, will retire at the conclusion of this
year’s AGM. I would like to recognise Peter’s contribution since
joining the Company in 1997. His leadership, and that of the team
he has built, has been critical to the success of the Company and
the very healthy financial condition Hunting enjoys today. While we
wish Peter the very best in his retirement, the Board is delighted to
recommend Bruce Ferguson to succeed Peter as Finance Director.
Bruce has an extensive knowledge of Hunting’s global operations
and is very familiar with the Company’s finances and accounts.
In addition, Bruce gained valuable operational management
knowledge and experience during his time as Managing Director
of the Group’s Europe, Middle East and Africa (“EMEA”) segment.

Governance
The Board has made significant progress in complying with
the 2018 UK Corporate Governance Code. We began reporting
progress from 1 January 2019 and target full compliance over
time. As evidenced by this year’s Annual Report and Accounts,
significant attention has been paid by the Board to Hunting’s
Purpose, Culture and Environmental, Social and Governance
(“ESG”) responsibilities. Both the Company’s experiences, and
those of the Board, are focused on a Purpose that acknowledges
the breadth of the stakeholders involved in the ongoing and future
success of your Company. Specifically, the Company recognises
its Purpose is to support our customers, our employees and our
suppliers, as well as the communities in which we operate.
Meetings occurred during the year between Annell Bay, our
designated non-executive Director for employee engagement,
and Hunting’s workforce. Additionally, the Board made site visits to
several operations to improve their understanding of our processes
and meet the people who contribute their skills and knowledge to
the Company’s long-term success. A global employee engagement
survey was completed during the year. This, together with a more
in-depth talent assessment and development framework
undertaken by the Group’s Chief HR Officer, reflects the Board’s
continued focus on Hunting’s human capital. On ESG, the Board
take their responsibilities seriously and consider efforts across the
Company to reduce our carbon footprint. Enhanced reporting
within this report and on our corporate website evidence the Board’s
commitment to this area and will remain a focus going forward.

Financial Performance
Revenue for the Group increased 5% in the year to $960.0m,
compared to $911.4m in 2018, leading to an underlying profit before
tax of $93.1m (2018 – $104.0m). Reported profit before tax was
$45.6m (2018 – $74.7m). Net cash at the year-end, before lease
liabilities, increased to $123.1m (2018 – $61.3m), which was another
excellent result. This leaves Hunting with a strong and flexible balance
sheet to meet the demands of the current market environment.

Conclusion
Hunting performed well during a very challenging year for the entire
oil and gas industry. A strong balance sheet, a sound strategy for
growth and an unrelenting focus on quality, service and innovation
have positioned the Company for success as market conditions
improve. On behalf of the Board, I would like to thank all our
stakeholders, including employees, shareholders, customers
and suppliers, for their support during the past year.

Dividends
At the Group’s half-year results in August 2019, the Board declared
an interim dividend of 5.0 cents per share, which was paid in
October 2019. Given the sustained performance of the Company
throughout the year, the Board is recommending a final dividend
of 6.0 cents per share absorbing $9.9m of cash, for approval by
shareholders at the Company’s Annual General Meeting (“AGM”)
on 15 April 2020. If approved, the final dividend will be paid on
15 May 2020 to shareholders on the register on 17 April 2020.
This distribution will bring the total dividends paid in respect of 2019
to 11.0 cents per share, a year-on-year increase of 22% and a total
distribution of $18.2m. The Board remains committed to delivering
sustainable dividends, but will continue to assess each dividend
proposal on a case-by-case basis.

John (Jay) F. Glick
Chairman

27 February 2020

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements08
Our Purpose and Culture

Our purpose

To be a deeply trusted innovator
and manufacturer of technology and
products that creates sustainable
value for our stakeholders.

Since publication of the 2018 UK Corporate Governance Code
(the “Code”), the Board of Hunting has explored and discussed
the themes being promoted by the Code. At the heart of Hunting’s
long-term strategy and success is a reputation based on trust and
reliability. Hunting’s products have to operate in a safe and reliable
way, to ensure our customers meet their strategic objectives, while
protecting people and the environment. Our strategy aims to offer
technically differentiated products that meet these customer demands.

Leading this ideal is value creation and innovation. Our chosen
industry is the oil and gas market, which supports the energy
demands of today’s global community. Our customers are
constantly pursuing higher levels of safety and reliability and better
efficiencies, leading to a lower cost of operation, while aiming to be
good stewards of the environment, through a safe and responsible
approach to oil and gas field development. This drives our ambition
to deliver leading and innovative technologies and products to
enable us to lead the market and be the suppliers of choice.

Our products and services include precision-engineered
components that are strongly quality assured to meet the highest
levels of industry regulation. Our employees are highly trained to
ensure our operations are safe and deliver total customer satisfaction.

Economic sustainability

Requires

Energy

Demands

Nuclear

Coal

Oil and Gas

Hydro

Renewables

Requires

Technology

Know-how/IP

Investment

High-performance products

Precision engineering

Quality assurance

Safe operations

Hunting PLC / 2019 Annual Report and Accounts09

Our culture

At the heart of Hunting’s Culture is our people. To ensure we deliver
for our customers, we train and develop our people to make sure we
maintain a highly skilled workforce ready to deliver quality assured
products and services for our clients. To retain our staff, and to
address the key demands of the industry, our employees are fairly
remunerated, which, in addition to a base salary, can comprise a
range of healthcare and pension benefits and can include an annual
bonus which reflects performance levels.

The Group’s flat management structure has short chains of command,
which allows for rapid, considered decision making that empowers
and enables our employees to be part of the process to take the
Group forward.

Our employees are encouraged to engage in dialogue with
management to raise issues of concern. As part of the Group’s
new procedures, new engagement processes within all business
units have begun to enhance transparent two-way dialogue to
be maintained between the Board and the Group’s employees.

These enhanced engagement procedures are supported by
an independent reporting service operated by SafeCall, where
confidential matters can be raised with the Board.

Flat management
structure
Hunting operates short chains
of command to allow rapid
decision making aimed at meeting
a customer’s deadline.

Strong HSE and
product quality ethic
Group HSE and Quality
policies are aimed at ensuring
our staff, customers and the
environment are protected,
with strong management
oversight of day-to-day
operating procedures.

Our people

Highly skilled
The majority of our workforce
are highly skilled and are
encouraged to develop through
additional training programmes.

Speak up
Our culture encourages a
‘speak up’ environment to
enable our processes to be
improved, but also to address
possible concerns from
all levels of staff.

Fair
remuneration
A skilled workforce is
needed to deliver to our
customers. Our workforce is
paid competitively, with pension,
bonus and long-term incentive
arrangements in place
and healthcare provisions
available in most
geographical areas.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements10
Business Model

Creating value

Focusing on the oil and gas extraction cycle

1 2 3

Our operating segments

Our resources

Our products and services

Financial

Health, safety and environment
(“HSE”)

Oil Country Tubular
Goods (“OCTG”)

Shareholders
For more information see pages 12 to 14.

Lenders
For more information see page 14.

Operational

Facilities
For more information see page 15.

Quality assurance
For more information see page 15.

Intellectual property
For more information see page 15.

Hunting Titan

Perforating Systems

United States (“US”)

Advanced Manufacturing

Canada

Europe, Middle East and Africa
(“EMEA”)

Drilling Tools

Asia Pacific

Intervention Tools

Employees
For more information see pages 22 and 23.

Quality and operational excellence

Subsea

For more information see pages 16 to 17.

For more information see pages 18 to 19.

Hunting PLC / 2019 Annual Report and Accounts11

4Our stakeholders

Customers
For more information see pages 20 to 21.

Employees
For more information see pages 22 and 23.

Suppliers
For more information see page 24.

Environment
For more information see pages 24 and 25.

Governments
For more information see page 26.

Communities
For more information see pages 26 and 27.

Operators

Service
Companies

Steel Mills
and Other

2,956

At year-end

c.480

Received the
Code of Conduct

37.4

kg CO2/$k

$4.2m

Tax charge

c.20%

of revenue

c.70%

of revenue

c.10%

of revenue

In the year we launched our
first all-employee engagement
survey, with excellent
feedback received.

Our suppliers are encouraged
to adopt the principles
contained in the Group’s
Code of Conduct.

We are committed to sourcing
10% of our global energy
needs from renewable energy
by 2030.

In the year, we submitted our
first Country-by-Country tax
report to HMRC to enhance
transparency.

$74.5k

Charitable donations

Our charitable donations and
community work is managed
geographically to address
cultural issues.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements12
Business Model continued

Investor engagement

Our resources

Financial

Our Shareholders
Hunting’s shareholders are important stakeholders, providing
a key source of capital to allow growth for the longer term.

The Group has one class of Ordinary shares. At 31 December
2019 the total number of Ordinary shares in issue was 166.9m
(2018 – 165.1m), and the number of shareholders on the register
was 1,454 (2018 – 1,516).

Returns achieved by shareholders, by holding the Company’s
Ordinary shares, are measured through Total Shareholder Return
(“TSR”).

In 2019, Hunting PLC’s Ordinary shares achieved a TSR of -12% on
an annualised basis. TSR forms an important part of the longer-term
remuneration paid to the executives of the Group, with demanding
vesting targets measured against our industry peers.

Total Shareholder Return
Absolute %

2019

2018

2017

-11.7%

-20.4%

-3.5%

Shareholder distributions in the form of dividends paid twice
a year are a feature of Hunting’s investment case. Over the years,
the Group has targeted a dividend policy which aligns distributions
with the performance of the Group.

Between 2015 to 2017 dividend payments were suspended during
the downturn of the global energy market; however, distributions
were recommenced in 2018 given the improved financial
performance of the Group.

The chart below notes the total dividends declared since 2017,
which in respect of 2019 equates to a cash distribution of $18.2m
(2018 – $14.9m).

Dividends declared
Cents

2019

2018

2017

11.0

9.0

0.0

Hunting PLC / 2019 Annual Report and Accounts13

Shareholder Engagement
Regular shareholder engagement meetings are organised through an annual calendar of work coordinated by the Group’s Head of
Investor Relations and is summarised below. These meetings allow the Board to understand the views of our key investors. In the year,
226 meetings were held (2018 – 194), with 128 institutional investors (2018 – 115) and five investment conferences were attended
(2018 – six).

January

February
March

April

May
June
July
August

September
October

November

Event

Roadshows

Conferences

Other
Chairman and SID shareholder
governance meetings

Annual Results

AGM
Q1 Trading Statement

Pre-Close Trading Statement

Half Year Results

Q3 Trading Statement

London
Paris
Edinburgh

UBS

London
Paris
Edinburgh

New York
Boston
Chicago

Berenberg

Goldman Sachs
JP Morgan
Numis

“Sell-side” analyst site visit to US

December

Pre-Close Trading Statement

Major Shareholders
The Company’s major shareholders, as at 31 December 2019, are listed below:

Standard Life Aberdeen
Franklin Resources group of companies
Hunting Investments Limited
Man GLG
Dimensional Fund Advisors
J O Hambro Capital Management
Mensarius
Slaley Investments Limited
James Trafford – as Trustee
Vanguard Group
BlackRock group of companies
Lazard Asset Management
Legal & General Investment Management
Nordea Investment Management
David RL Hunting
– as trustee
– other beneficial

Notes

(6)
(1/4/5)

(5)
(2/5)

(5)
(2/5)
(3/5)

Number of
Ordinary shares
15,481,878
13,253,975
11,003,487
7,440,750
6,569,265
6,545,677
6,424,774
6,411,679
5,939,483
5,724,812
5,617,847
5,594,192
5,490,681
5,316,812
194,120
2,549,117
2,484,583

Percentage of
issued Ordinary
shares
9.3
7.9
6.6
4.5
3.9
3.9
3.8
3.8
3.6
3.4
3.4
3.4
3.3
3.2
0.1
1.5
1.5

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 5,939,483 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 (non-executive Director of Hunting PLC) and David RL Hunting are both directors of Hunting Investments Limited.
5.

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 27 February 2020, the Hunting Family Interests, party to the agreement, totalled 25,358,884 Ordinary shares in the Company, representing 15.2% of the
total voting rights.

6. On 6 February 2020, the Company announced that Franklin Resources had reduced its holding to 8,296,041 Ordinary shares, or 4.97% of the Company’s issued share capital.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statementsOur Lenders
The Group has access to a multi-currency revolving credit facility,
totalling $160.0m, provided by four banks comprising HSBC,
Barclays, DBS and Wells Fargo. In the year, the facility was
unutilised given the net cash held throughout the year.

Board Engagement and Decision Making – Lenders
Regular meetings between the Chief Executive, Finance Director
and Group Treasurer and members of the lending group were
held during the year to brief the banks on the performance and
position of the Group. The Directors are briefed at each Board
meeting by the Finance Director on the Group’s financial position
and the relationship with members of the bank lending group.
Given the Group’s net cash position, which prevailed throughout
the year, the revolving credit facility has not been utilised.

14
Business Model continued

Dividend Policy
Each dividend proposal considered by the Board is determined
on its own merits taking into account the considerations outlined
below. This flexible approach is influenced by the cyclical nature
of the oil and gas sector which, as recent history demonstrates,
can produce significant swings in activity levels and cash generation.
Dividends will, therefore, reflect business performance over time
and will not necessarily be progressive.

In assessing the level of dividend that is appropriate, the Board
considers not only the results and position of the business for the
financial year in question, but reviews mid-term projections and
downside sensitivities for a three-year period as used in the
Viability Assessment.

A company’s dividend capacity is typically constrained either by
distributable reserves or by liquidity. Hunting PLC has in excess of
$200m of distributable reserves and Hunting Energy Holdings Limited,
a direct UK subsidiary of Hunting PLC, which directly or indirectly
controls the operating businesses of the Group, has distributable
reserves in excess of $800m. The Board considers that these
distributable reserves are capable of servicing dividends for the
foreseeable future and that any dividend constraints will be driven
by liquidity.

Board Engagement and Decision Making – Shareholders
The Directors of Hunting receive a report on the Company’s
major shareholders at each Board Meeting, with a briefing by
the Chief Executive or Finance Director on meetings that have
recently occurred with details being regularly discussed following
this engagement.

The Chief Executive and Finance Director meet with major
shareholders after the Half-Year and Full-Year Results and during
the year following a plan of investor meetings, which include
financial centres across North America, Europe and the UK.

The Chairman and Senior Independent Director also meet with
institutional investors at least annually to discuss governance,
strategy and remuneration or at the request of a particular
shareholder. While no shareholder consultations were undertaken
in the year, it is the Board’s policy to meet with major institutional
investors and proxy voting groups on major governance and
remuneration issues to ensure alignment between the Company
and its members.

During the year, a key area of feedback received from shareholders
was in respect of the Group’s public disclosures on Environmental,
Social and Governance (“ESG”) matters. To address this request,
enhanced disclosures were prepared and have been published
on the Group’s corporate website at www.huntingplc.com.

The Board also sets the Company’s dividend policy, following
a review of the financial performance for the relevant reporting
period, and considers proposals by the executive Directors on
the level of distribution to be made. The Group’s Audit Committee
reviews these proposals as part of its regular programme of work
and makes a recommendation on whether to approve the
dividend proposal and recommend it to the Board. Dividends
are declared on the announcement of each set of Group results
and are usually paid in May, following shareholder approval at the
Company’s Annual General Meeting, and in October. Given the
proportion of UK shareholders on the share register, the Group’s
current practice is to pay all dividends in Sterling.

Hunting PLC / 2019 Annual Report and Accounts15

Operational

Quality Assurance (manufacturing reject rate)
%

Facilities
We have an established global network of operating sites and
distribution centres located close to our customers and within the
main global oil and gas producing regions. Over the years, we have
continued to refine our operating and manufacturing processes,
established a highly specialised workforce and built considerable
know-how to enable our business to evolve and meet changing
customer needs.

Our operating sites are used for the manufacture, rental, trading
and distribution of products. The manufacture of goods and the
provision of related manufacturing services is, by far, the main
source of income for the Group. A significant portion of our
manufacturing occurs in high-end, specialist facilities utilising
sophisticated machines. 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 inventory to support its customers’ specific requirements and
to take advantage of particular market opportunities. Our distribution
centres are primarily utilised by the Hunting Titan, intervention tools
and drilling tools business groups, where close proximity to drilling
operations is important.

2019

2018

2017

0.30

0.22

0.26

Intellectual Property
There continues to be a strong focus in the industry on technological
improvement and process innovation, which can help deliver cost
efficiencies for customers while maintaining or improving margins for
suppliers. The incorporation 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
objective for the Group. Through the development of our technologies
and proprietary know-how, we are well positioned to secure market
share by protecting our intellectual property (“IP”). Our substantial
IP portfolio provides us with a competitive advantage and allows
us to enjoy better margins and more operational flexibility. In 2019,
we filed 39 new patent applications, with 87 new patents granted in
the year, bringing the total number of fully-registered patents owned
by the Group to 507.

Quality Assurance
The Group’s Quality Assurance programme, for all its products,
is a key feature of our business strategy, as it supports our standing
within our customer base. Detailed policies are implemented within
all facilities and, in the year, the Group reported a manufacturing
reject rate of 0.30% (2018 – 0.22%).

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.

Operational sites

Distribution centres

Operating footprint (million square feet)

Machines

Net book value of PPE

% of ISO 9001:2015 (Quality)
accredited facilities

3.0

1,277

$354.7m

72%

No. of patents granted

No. of new patents granted in year

No. of patents pending

507

184

No. of new patent applications filed in the year 39

An Advanced Manufacturing CNC Mill

Precision Electronics Assembly

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements16
Business Model continued

Global presence

Our operating segments

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

Maintain a Strong
Governance Framework
The Group’s senior managers
and their teams operate within
a tight framework with short
chains of command to the
Chief Executive.

Management Principles
Our approach to managing the
Group’s operations is based
on four core principles:

Develop Our People
People are at the heart of our
business. Our broad product
portfolio demands
experienced machining and
production engineers across
our many manufacturing
disciplines and facilities.

Empower Our Business Units
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 and
opportunities when they arise.

Introduction
Hunting reports its performance based on its key geographic
operating regions. Hunting Titan is a large, separate business group,
which is reported as a stand-alone segment. A description of each
segment is noted below.

Hunting Titan
Hunting Titan manufactures and distributes perforating products and
accessories. The segment’s products include smart perforating gun
systems and shaped charge technologies. The business has four
manufacturing facilities in the US and a facility in Mexico, supported
by 17 distribution centres, primarily located in Canada and the US.

US
The US businesses supply OCTG, premium connections, drilling
tools, subsea equipment, intervention tools, electronics and complex
deep hole drilling and precision machining services for the US and
overseas markets. The US segment has 16 operating facilities,
mainly located in Texas and Louisiana.

Canada
Hunting’s Canadian business manufactures premium connections
and accessories for oil and gas operators in Canada, often focused
on heavy oil plays, which require specialist tubing technologies.
Canada also manufactures perforating guns for Hunting Titan.

Europe, Middle East and Africa
The segment derives its revenue primarily from the supply of OCTG
and intervention tools to operators in the North Sea. The Group
has operations in the UK, Netherlands, Norway, Saudi Arabia and
the UAE. Revenue from the Middle East and Africa is generated
from the sale and rental of intervention tools across the region,
with the operations also acting as a sales hub for other products
manufactured globally by the Group, including OCTG and
Perforating Systems.

Asia Pacific
Revenue from the Asia Pacific segment is primarily from
the manufacture of premium connections and OCTG supply.
Manufacturing facilities are located in China, Indonesia and
Singapore. The facility in China also manufactures perforating
guns for Hunting Titan.

Facility ISO Accreditations
The Group is committed to enhancing its production and
operational quality, with a number of facilities being certified
ISO 9001:2015 (Quality), ISO 14001 (Environment) and ISO 45001
(Occupational Health and Safety Management) compliant, indicating
that globally recognised standards and systems are in place.

More facilities across the Group are working towards these ISO
accreditations, continuing the Group’s commitment to monitoring
and reducing the environmental impact of its operations and
improving health, safety and environmental (“HSE”) standards.
Hunting’s global Quality Management System (“QMS”) is certified
and accredited for all of these ISO standards and all facilities are
operated in accordance therewith.

Operational and production excellence is a key driver of our
engagement and 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.

Hunting PLC / 2019 Annual Report and Accounts17

Hunting Titan

Operating sites

Distribution centres

Employees

Canada

Operating sites

Distribution centres

Employees

Asia Pacific

Operating sites

Distribution centres

Employees

2019

702

2019

120

2019

453

2019

2018

659

2018

123

2018

420

2018

Operating sites

Distribution centres

Employees

EMEA

Operating sites

Distribution centres

Employees

Total

Operating sites

Distribution centres

Employees

2019

2018

1,310

2019

1,202

2018

2019

299

2019

2018

307

2018

2,956

2019

2,772

2018

Total year-end employees of 2,956 (2018 – 2,772) include 72 (2018 – 61) head office and
corporate personnel.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements18
Business Model continued

Broad portfolio

Our products and services

Oil Country Tubular
Goods (“OCTG”)

Perforating
Systems

Advanced

Manufacturing

Drilling Tools

Intervention Tools

Subsea

Operating Basis
Manufacturing
Trading

Operating Basis
Manufacturing

Operating Basis

Manufacturing

Operating Basis

Equipment rental and trading

Operating Basis

Manufacturing

Operating Basis

Manufacturing

Equipment rental and trading

Overview
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 and
semi-premium connections
and accessories using our own
technologies such as SEAL-
LOCK™, WEDGE-LOCK™ and
TEC-LOCK™. We are licensed
to apply a variety of third-party
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, Canada, Europe and Asia
Pacific. Hunting also trades
pipe, which is a lower margin
activity, to help support
customer relationships.

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

Overview
Hunting Titan manufactures
perforating systems, 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.

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

Global Operating Presence
Hunting has extensive machining
capacity in the US, Canada,
Europe and Asia Pacific

Global Operating Presence
Manufacturing centres in the
US, Canada, Mexico and China.
Distribution centres in the US,
Canada and Asia Pacific

Related Strategic Focus Areas
The TEC-LOCKTM semi-premium
connection continued to see
good market acceptance in
the year, following its launch
in 2017.

Related Strategic Focus Areas
The H-2TM and ESUBTM
perforating systems were fully
commercialised in the year.
New charges and tools were
also introduced to customers.

Related Principal Risks
• Commodity prices
• Shale drilling
• Competition
• Product quality

These businesses work

collaboratively with customers

implementing their designs to

their specifications. Hunting

Specialty manufactures

products used for onshore

drilling and completion activities.

Differentiators

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.

Overview

Advanced Manufacturing

Rental of a large portfolio of

A range of downhole

Produces high quality products

includes the Hunting Dearborn

downhole tools, including mud

intervention tools including

business, which carries out

motors, non-magnetic drill

slickline tools, e-line tools,

deep hole drilling and precision

collars, vibration dampeners,

mechanical plant, coiled

machining of complex

reamers and hole openers.

measurement-while-drilling/

Tools are configured to

tubing and pressure control

equipment. This business is

and solutions for the global

subsea industry covering

hydraulic couplings, chemical

injection systems, valves and

weldment services.

logging-while-drilling (“MWD/

customers’ specifications.

capital intensive and results are

LWD”) and formation evaluation

This business is capital

dependent on asset utilisation

Following the acquisition of RTI

tool components, and the

intensive and results are

and rental rates.

Hunting Electronics business,

dependent on fleet utilisation

which manufactures printed

and rental rates. In limited

circuit boards capable of

instances, rental equipment

operating in extreme conditions.

is sold outright.

Energy Systems Inc., titanium

and stainless steel stress joints

and production risers have

been added to the Group’s

subsea portfolio.

The addition of Enpro

Subsea’s product offering

also brings additional high

technology and know-how

to our offshore capabilities.

Differentiators

Leaders in progressive cavity,

Hunting offers a comprehensive

For more than 30 years,

positive displacement mud

motors.

range of tools, including

innovative and proprietary

technologies.

a provider of high quality

metal-to-metal sealing hydraulic

coupling solutions that operate

in the harshest environments

with a strong, long-term

patent base.

Global Operating Presence

US, Europe, Asia and

Middle East

Related Strategic Focus Areas

Our expertise has been

Introduced mud-lube bearings

Commenced field trials

Acquired new products,

deployed into non-oil and gas

to the Group’s drilling tools mud

of enhanced oil recovery

including titanium and stainless

markets in the year, including

motor fleet. Offering adversely

technology within the EMEA

steel stress joints following the

medical, naval, aerospace and

impacted in the year by lower

operating segment.

acquisition of RTI Energy

space applications.

onshore activity.

Related Principal Risks

• Commodity prices

• Product quality

Related Principal Risks

• Commodity prices

• Shale drilling

• Competition

Related Principal Risks

• Commodity prices

• Competition

Systems Inc.

Related Principal Risks

• Commodity prices

• Product quality

For more information see pages 44 to 47.

Hunting PLC / 2019 Annual Report and Accounts19

Oil Country Tubular

Goods (“OCTG”)

Perforating

Systems

Advanced
Manufacturing

Drilling Tools

Intervention Tools

Subsea

Operating Basis

Manufacturing

Trading

Operating Basis

Manufacturing

Operating Basis
Manufacturing

Operating Basis
Equipment rental and trading

Operating Basis
Manufacturing
Equipment rental and trading

Operating Basis
Manufacturing

Overview

OCTG are steel alloy products

Hunting Titan manufactures

and comprise casing and

perforating systems, energetics,

tubing used in the construction

firing systems and logging tools.

and completion of the wellbore.

Products are mainly used in

Hunting machines threads

the completion phase of a well.

to connect OCTG using flush

The production, storage and

or semi-flush joints and can

manufacture premium and

semi-premium connections

distribution of energetics is

highly regulated and there are

significant barriers for new

and accessories using our own

entrants to the market. The

technologies such as SEAL-

business mainly “manufactures

LOCK™, WEDGE-LOCK™ and

to stock” and hence uses a

TEC-LOCK™. We are licensed

wide distribution network.

to apply a variety of third-party

Some manufacturing is done

thread forms and generic API

to order, sourced from

international telesales.

threads. We source OCTG

products from a significant

number of major global steel

producers and have strong,

long-term relationships in the

US, Canada, Europe and Asia

Pacific. Hunting also trades

pipe, which is a lower margin

activity, to help support

customer relationships.

Differentiators

Hunting is one of the largest

Market-leading position in the

independent providers of

US. Strong portfolio of patented

OCTG connection technology,

and unpatented technology.

including premium connections.

Global Operating Presence

Hunting has extensive machining

Manufacturing centres in the

capacity in the US, Canada,

US, Canada, Mexico and China.

Europe and Asia Pacific

Distribution centres in the US,

Canada and Asia Pacific

Related Strategic Focus Areas

The TEC-LOCKTM semi-premium

The H-2TM and ESUBTM

connection continued to see

perforating systems were fully

good market acceptance in

the year, following its launch

in 2017.

commercialised in the year.

New charges and tools were

also introduced to customers.

Related Principal Risks

• Commodity prices

• Shale drilling

• Competition

• Product quality

Related Principal Risks

• Commodity prices

• Shale drilling

• Competition

• Product quality

Overview
Advanced Manufacturing
includes the Hunting Dearborn
business, which carries out
deep hole drilling and precision
machining of complex
measurement-while-drilling/
logging-while-drilling (“MWD/
LWD”) and formation evaluation
tool components, and the
Hunting Electronics business,
which manufactures printed
circuit boards capable of
operating in extreme conditions.
These businesses work
collaboratively with customers
implementing their designs to
their specifications. Hunting
Specialty manufactures
products used for onshore
drilling and completion activities.

Differentiators
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.

Overview
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
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.

Overview
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.

Differentiators
Leaders in progressive cavity,
positive displacement mud
motors.

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

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

Following the acquisition of RTI
Energy Systems Inc., titanium
and stainless steel stress joints
and production risers have
been added to the Group’s
subsea portfolio.

The addition of Enpro
Subsea’s product offering
also brings additional high
technology and know-how
to our offshore capabilities.

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

Global Operating Presence
US

Global Operating Presence
US, Europe, Asia and
Middle East

Global Operating Presence
US

Related Strategic Focus Areas
Our expertise has been
deployed into non-oil and gas
markets in the year, including
medical, naval, aerospace and
space applications.

Related Strategic Focus Areas
Introduced mud-lube bearings
to the Group’s drilling tools mud
motor fleet. Offering adversely
impacted in the year by lower
onshore activity.

Related Strategic Focus Areas
Commenced field trials
of enhanced oil recovery
technology within the EMEA
operating segment.

Related Strategic Focus Areas
Acquired new products,
including titanium and stainless
steel stress joints following the
acquisition of RTI Energy
Systems Inc.

Related Principal Risks
• Commodity prices
• Product quality

Related Principal Risks
• Commodity prices
• Shale drilling
• Competition

Related Principal Risks
• Commodity prices
• Competition

Related Principal Risks
• Commodity prices
• Product quality

For more information see pages 44 to 47.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements20
Business Model continued

Valued partners

Our stakeholders

Our Customers
As a member of the oil and gas equipment supply chain, Hunting’s
broad portfolio of products and services enables the Group to cover
a large proportion of the needs of the global energy industry,
including onshore and offshore drilling projects and conventional and
unconventional resource development, supported by selected high
value services to help our customers achieve their strategic objectives.

A common theme across all our businesses is our ability to
add value for our customers, which is achieved by providing high
technology products that lower the cost of operation, resolve
technical problems, or simply enable a job to be completed
more quickly or safely, without comprising quality.

Customer Groupings and Channels to Market

Operators

Service
Companies

Steel Mills and
Other

Operators are the
end consumers of
our products and
related services.
These include
National Oil
Companies,
International Oil
Companies and
Independents.
Approximately
20% of our sales
are made directly
to operators.

Our primary route
to market is via
other service
providers, which
generate c.70%
of our revenue.
These include
“1st tier” service
companies who
can provide project
management
services to
operators.
Key customers
include Halliburton,
Baker Hughes,
Schlumberger
and Weatherford.

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.

Split of Group
revenue

c.20%

c.70%

c.10%

Hunting PLC / 2019 Annual Report and Accounts21

Customer Engagement
Client engagement is key to the Group’s understanding of the
short- to medium-term needs of our various clients. This daily
dialogue helps us shape our strategy and focus our product
research and development programmes.

In the year, the Group launched or acquired new products that directly
addressed customer needs, some of which resulted from close
customer collaboration in response to in-field technical challenges.

H-2 Perforating SystemTM

TEC-LOCKTM Wedge
Semi-Premium Connection

ESUB Perforating SystemTM

Titanium Stress Joints

As part of our active dialogue and engagement with our customer
base, key clients are invited to our facilities to review our production
capabilities and processes, review new technology and brainstorm
on future projects.

Customer contact reports are a regular feature of our sales
function, which often include issues or concerns, in-field
performance feedback and overall customer satisfaction.

Hunting’s customer-facing sales teams are directly supported by
the Group’s Engineering, Quality Assurance and Health, Safety and
Environmental teams, to assist in the provision of key operational
performance information that supports global tenders and the
overall sales function.

Further, to embed the Group into our customer base, Hunting
is a member of a number of industry and trade association
bodies including:

• American Petroleum Institute;
• Society of Petroleum Engineers; and
• International Association of Drilling Contractors.

The Group also attends various industry conferences annually
to profile the Group’s products and services.

Ethics and Governance
Hunting’s close relationship with its customers is also enhanced
by our ethical policies and transparent ways of doing business.

All of our major customers receive our Code of Conduct, which
includes a commitment to a transparent way of doing business.

Regular due diligence on new customers is also undertaken
to ensure the Group complies with international trading and
sanctions legislation.

In many cases, we ask our clients to complete “end user”
declarations to confirm that Hunting’s products do not conflict
or breach trading restrictions or sanctions legislation.

Further, the Group has strong entertainment and hospitality policies,
which support our commitment to anti-bribery and corruption.

Board Engagement and Decision Making – Customers
In parallel with the commercial dialogue and engagement
undertaken by our leadership teams with our customers, the
Board of Hunting, in support of its statutory stakeholder duty,
has approved the development of the Group’s strategy by
reviewing and approving capital investment projects that directly
support future customer needs.

In the year, the Group invested $36.0m in production capacity
and equipment and $12.5m was spent on the acquisition of
the business and assets of RTI Energy Systems Inc., which
completed in August 2019.

Capital investment

US 53%
Hunting Titan 40%
Canada 3%
EMEA 2%
Asia Pacific 2%

The Board approved these capital investments, either as part
of the approval of the Strategic Plan or Annual Budget process.
In each case, the Board was satisfied that there was good
alignment between client engagement, the final capital allocation
and the Board’s consideration of customer matters.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements22
Business Model continued

Our Employees
Hunting’s reputation, which has been built over many years, is
underpinned by its highly skilled workforce, who are key to fulfilling
the Group’s strategic objectives.

At 31 December 2019, the Group had 2,956 employees
(2018 – 2,772) across its global operations. With this backdrop
of uncertain markets, controls over recruitment remain in place
at all Group operating businesses.

Employees
At 31 December 2019

Hunting Titan 702
US 1,310
Canada 120
EMEA 299
Asia Pacific 453
Central 72

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).

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 annual bonus
arrangements.

The Group is committed to training and developing all employees,
which includes health and safety training, professional development
and general career development initiatives.

The Group has a strong reputation for being a responsible employer,
which is reflected in the average tenure and workforce turnover
rate noted below. In the US, where approximately two-thirds of the
Group’s workforce is located, the voluntary turnover rate is 10%,
compared to a 2018 US national average of 27% (2018 data issued
by the Bureau of Labor Statistics), demonstrating Hunting’s
commitment to its employees and its drive to nurture a mutually
beneficial relationship between the Company and its employees.

Average Employee Tenure

Years

Group Employee Voluntary
Turnover Rate

11%

Training
Throughout 2019, Hunting continued to roll out the Group’s
Code of Conduct training programme for all employees, to ensure
awareness of our published ethics-focused policies. The programme
incorporates anti-bribery and corruption, modern slavery, fraud
and tax modules to ensure our employees understand their
responsibilities on joining the Group.

Hunting targets full compliance 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 gender diversity profile
for 2019 is detailed on page 81.

Employee Engagement
In 2019, Hunting commissioned its first all-employee survey,
to enhance its global workforce engagement initiatives. The survey
was coordinated by the Group’s Chief HR Officer, utilising a platform
operated by Gallup. The results of the survey reported an 80%
participation response rate and highlighted the following:

1. Work expectations between Hunting and its workforce are clear;
2. The Group provides good support, in terms of materials and

equipment, to excel at a job; and

3. Hunting provides a high quality work environment.

The Board also noted the weaknesses identified by the survey,
including the need to improve staff appraisals and feedback.
Initiatives to address these areas have been commissioned.

Whistleblowing
The Board of Hunting has established procedures in place whereby
employees can raise concerns in confidence, by contacting the
Chairman or Senior Independent Director. The Group also uses an
independent whistleblowing service operated by SafeCall. Contact
information for both these lines of reporting is published on staff
noticeboards across the Group’s facilities and within the Group’s
magazine published twice yearly, the “Hunting Review” and is
available to all employees.

Hunting PLC / 2019 Annual Report and Accounts23

Health and Safety
Across all of its global operations, the Group is committed to achieving
and maintaining the highest standards of safety for its employees
and other stakeholders.

Hunting has a culture of aiming for best practice and employs rigorous
health and safety practices. 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’s policy on health, safety and
environmental matters on the Company’s website
at www.huntingplc.com.

The Group’s target is to achieve zero recordable incidents.
Each local business is required to develop tailored health and
safety 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.

During the year, there were no fatalities across the Group’s
operations, with 39 recordable incidents (2018 – 46). The incident
rate, as calculated from guidance issued by the Occupational Safety
and Health Administration (“OSHA”) in the US, was 1.17 compared to
1.49 in 2018. This incident rate reflects a 21% year-on-year decrease,
largely due to a lower proportion of new employees joining the Group
compared to the prior year. In the year, the number of hours worked
increased by 5% to 6.6m hours (2018 – 6.3m hours). The industry
average incident rate in 2019 was 4.0 (2018 – 4.0).

Incident Rate
OSHA method

2019

2018

2017

1.17

1.49

0.89

Human Rights
We are committed to upholding the Human Rights of all our
employees, which include:

• Providing a safe and comfortable working environment

for all employees and contractors;

• Respecting the rights of each individual with a zero tolerance

approach to any form of discrimination, harassment or bullying;
• Providing training and development programmes to our global

workforce;

• Not employing child labour; and
• Acting with honesty, transparency and integrity in all of our dealings

with our workforce.

Board Engagement and Decision Making – Employees
As part of its statutory duty, and in line with the provisions of the
2018 UK Corporate Governance Code, during the year Hunting
initiated a global employee engagement survey and appointed
Annell Bay as the designated non-executive Director for
employee engagement issues.

In December 2019, the Board approved the 2020 Annual
Budget, which included base salary increases across the
Group’s workforce. Further, the Board reviewed the work
of the Remuneration Committee, which gave consideration
to the fixed and variable incentives to the executive Directors,
Executive Committee and other relevant plans for Group-wide
employee remuneration.

As part of the work of Annell Bay, meetings with the senior
leadership team were organised in the second half of the year to
allow for direct feedback to be given to the Company. Ms Bay in
turn reported these activities to the Board at the December 2019
and February 2020 Board Meetings. It is anticipated that these
meetings will increase in frequency during 2020 as these new
employee engagement initiatives are further embedded across
the organisation.

As noted above, the Board also received reports from Keith
Lough, the Company’s Senior Independent Director, on the
whistleblowing reports received. In the year, the Group received
nine reports from SafeCall (2018 – five reports). The Board noted
the actions recommended in respect to each report and were
satisfied that each report was resolved appropriately.

Hunting’s Director of Health, Safety and Environment (“HSE”)
reports directly to the Chief Executive and the Directors review
a HSE report at each Board meeting. In the year, the Directors
requested more information on “near-miss” incidents and
remedial actions following these occurrences. The Directors
noted the lower number of incidents in the year, which for the
most part relates to lower numbers of new employees hired
in the year.

Quality Assurance at Hunting Subsea

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements
24
Business Model continued

Our Suppliers
Hunting’s supplier base assists the Group in achieving its purpose
of providing high quality products, which our customers can rely
on and trust.

Our Environment
Hunting is committed to addressing environmental issues and
embedding a low carbon culture within our operating facilities
and our employees.

The Group has a strategy of ensuring that critical material inputs
are not sourced from a single supplier, which provides assurance
to our customers that we will always be in a position to deliver.
Long lead-time material supplies are regularly reviewed to ensure
market pricing remains competitive.

Hunting’s strategic sourcing includes working with a wider range
of suppliers with regular two-way dialogue on quality expectations.
Often, supply chain managers visit the facilities of our suppliers to
review procedures, including quality assurance and health and
safety performance.

In the case of new suppliers, including those who provide key
components, first article inspection procedures are in place prior
to issuing the order, to ensure quality and delivery expectations
are met.

LED Lighting Installation in Canada

Ethics and Governance
Like the Group’s customer base, Hunting completes due diligence
on its supplier base and communicates its ethics policies to its
major suppliers. The Group’s Code of Conduct is copied to its
suppliers and specifically our Modern Slavery policy, which
highlights the Group’s ethical trading and fair labour policies.

Board Engagement and Decision Making – Suppliers
The Board, through the work of the Audit Committee, reviews
the Group’s supply chain risk profile and reviews regular reports
on commercial dialogue with customers and suppliers. This leads
to discussion by the Directors.

New facilities take into account environmental considerations,
including extreme weather event protection, such as storms
and flooding.

The Group’s Quality Management System (“QMS”) is compliant
with the globally recognised ISO 14001 (Environment) standard and
most of our facilities are operated in compliance with this standard
as well as ISO 50001 (Energy Management), as we demonstrate
our commitment to operating in an environmentally responsible
manner with the aim of reducing the environmental impact of
our global footprint.

Environmentally responsible initiatives that have been implemented
across the Group include:

• Utilising “smart lighting” in new facilities that activate upon

detecting movement, thereby saving power;

• Implementing a number of waste recycling programmes across
the Group, specifically relating to metal, wood, plastics, rubber
and water;

• Low energy LED bulb replacement at facilities; and
• Installing water capture systems, reducing machining coolant

water loss.

These initiatives are continuously enhanced to incrementally reduce
the Group’s overall carbon footprint and environmental impact.

Carbon-Based Emissions
To monitor the impact of Hunting’s operations on the environment,
and in compliance with UK Company Law, the Group collates
greenhouse gas (“GHG”) data in accordance with the principles
of the Kyoto Protocol. Hunting’s 2019 Scope 1 and 2 emissions,
as defined by reporting guidelines published by DEFRA in the UK
and the International Energy Agency, have been collected and are
reported below and on the following page.

The Group’s carbon footprint is derived primarily from our operating
facilities, where 80% of our total Scope 1 and 2 emissions
comprise electricity usage, as noted in the accompanying chart.

In 2019, the Group’s total Scope 1 and 2 emissions were 35,874
tonnes of carbon dioxide equivalent compared to 35,171 tonnes
in 2018. The increase is predominantly related to the increased
activity levels within our facilities in the US and Asia Pacific, which
resulted in extra operating shifts being added during the year.

In the year, the Group submitted data to the Carbon Disclosure
Project, to increase its transparency of its carbon reporting practices.

Given our presence in 11 countries, electricity consumption is still
primarily derived from coal and gas-fired generation; however, all
businesses within the Group are encouraged to appoint suppliers
who can provide renewable energy sourced power generation.

The Group also participates in a number of other initiatives,
including the Energy Saving Opportunity Scheme, which requires
Hunting’s UK facilities to be audited for energy efficiency, with
recommendations provided to reduce energy usage.

Hunting PLC / 2019 Annual Report and Accounts
25

CO2(e) Emissions
Tonnes

Scope 1

Scope 2

2019

2018

2017

7,100

7,087

9,379

28,774

28,084

22,224

The Group’s intensity factor is based on total carbon dioxide
equivalent emissions divided by the Group’s revenue in 2019, and
was 37.4 kg/$k of revenue, compared to 38.6 kg/$k of revenue
in 2018.

Further, facilities are designed with windstorm risk in mind and
storm water flooding designs are a key feature of new facility
construction programmes. The Directors therefore believe that
climate-change weather-related risk is mitigated to a satisfactory
degree. Further information on climate change can be found on
page 41 within Risk Management.

Sustainability
At Hunting we are committed to making the broader development
goals of the United Nations, particularly the Sustainable Development
Goals, part of our culture, strategy and day-to-day operations of
the Company. We also align ourselves with the ten principles of the
UN Global Compact and are taking the necessary steps to formally
subscribe to this framework.

Intensity Factor

2019

2018

2017

Waste Management and Recycling
All of Hunting’s facilities are encouraged to introduce recycling and
waste reduction programmes. At 31 December 2019, 94% of the
Group’s facilities had at least one recycling programme in place.
In 2019, the Group initiated a new process to quantitatively collect
recycling information on metal, paper/wood and plastics. The
following table shows the data collected in the year.

37.4

38.6

43.6

Hunting’s global and UK electricity consumption is also detailed
in the charts below.

Metal recycling

Wood / paper recycling

Plastics recycling

4,489

Tonnes

122

Tonnes

Other Initiatives
The Group has also started donations to “Trees for Houston”
a non-profit organisation dedicated to tree planting in urban areas
of Houston, Texas.

Board Engagement and Decision Making – Environment
The Directors have reviewed the Group’s environmental matters
in the year, and have increased ESG-related disclosures. These
can be found on the Group’s website at www.huntingplc.com.
Further, the Board has introduced carbon reduction targets
based on the data collected over the last seven years. Hunting
has committed to sourcing 10% of its global energy needs from
renewable sources by 2030 (currently 4%) and aiming for an
Intensity Factor of less than 30.0 (currently 37.4). The primary
strategy will be through securing energy contracts which supply
higher proportions of green energy, which will reduce the
Group’s total scope 2 tonnage. Further, other efficiency
programmes are planned to be implemented to reduce over time
the Group’s total scope 1 tonnage. The Directors anticipate that
this target is realistic in the context of a more stable operating
environment compared to 2015 to 2017.

Global Electricity Consumption
GWh

2019

2018

2017

UK Electricity Consumption
GWh

2019

2018

2017

55.7

54.7

45.2

1.6

1.9

1.4

The Group now collects information on the sources of its electricity
and in 2019 2.1 GWh of the total electricity consumed was sourced
from renewable energy equating to 4% of the Group’s global
electricity consumption. In the UK, 0.5 GWh or 27% of the Group’s
UK electricity was sourced from hydro or renewable sources, with
the electricity at Hunting’s London Headquarters being 100%
sourced from renewable energy.

Water usage in the year was 319k cubic metres compared to 221k
cubic metres in 2018.

Climate Change Risk
The Directors of Hunting have considered climate change and
its potential impact on the Group’s operations. As described on
page 16, the Group has a concentration of its facilities close to
the Gulf of Mexico coast in Texas and Louisiana, which periodically
suffer from windstorms. The Group has a risk assessment
framework in place, which, among other operational risks,
assesses its ability to operate should a strong windstorm impact
a location. Given the geographic spread of its operations across
the US and globally, the Board is satisfied that Hunting can operate
normally even if a weather event were to hit a particular facility.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements26
Business Model continued

Governments
Hunting’s global operating footprint extends across 11 countries
and includes 36 operating facilities and 19 distribution centres and
at 31 December 2019 employed 2,956 people (2018 – 2,772). As a
consequence of this, the Group interacts with a number of global
regulators, governments and tax authorities to ensure that Hunting
retains a high reputation and business standing within each region
of operation and seeks to comply with all applicable and relevant
local laws and regulations.

As a UK premium-listed public company, the Financial Conduct
Authority (“FCA”) is the Group’s primary regulator; however, each
operating segment retains a close relationship with the relevant
local tax and legal authority. With the assistance of the Group’s
brokers and legal advisers, the relationship with the FCA is closely
managed as and when relevant matters arise.

Given the sensitivity of interacting with government officials,
with respect to the risk of bribery, the Group’s internal procedures
include analysis of which customers and suppliers are government
owned, with all externally-facing employees trained in the Group’s
anti-bribery and corruption policies.

Tax Strategy
Hunting is committed to acting with integrity and transparency
in all tax matters relating to the countries in which we operate.
Simply put, our tax strategy is to comply with local tax regulation,
and pay taxes when due.

The tax contributions from Hunting’s global activities includes
the following sources:

• Corporate income taxes;
• Employment taxes;
• Social security taxes;
• Property taxes;
• State taxes;
• Consumption taxes (Value Added Taxes, Goods and Services

Taxes and Insurance Premium Taxes);

• Carbon taxes; and
• Fuel duties.

When evaluating how we should organise our business affairs,
a wide variety of factors are considered, including operational
efficiency, risk management and taxation. If the intention of tax
regulation allows us to organise our commercial business affairs
in a manner which reduces tax costs, while meeting our overall
objectives, we will do so but we will not carry out tax avoidance or
create artificial structures. If necessary, we engage professional tax
or legal advisers to ensure that we have interpreted tax law correctly.
We will not enter into transactions that have a main purpose of
interpreting tax law that is opposed to its original intention or spirit.

Board Engagement and Decision Making – Governments
The Group’s tax governance is managed as follows:
• The Board reviews the Group’s tax strategy and policies

on an ongoing basis with regular updates on the tax position
provided at each Board Meeting;

• Day-to-day matters are delegated to the Group Tax Manager
and a small team of in-house tax professionals who hold
a combination of accounting and tax qualifications;

• Annual review of tax policies as part of our internal Group

Manual updates;

• Monitor and discuss changes to tax legislation that will have
an impact on us and discuss with advisers as required; and

• Engage specialist advisers when appropriate.

Our Communities
The Board delegates community initiatives to the Executive
Committee, which allows for local cultural practices to be integrated
into community focused activities and projects. Local community
sponsorships or charitable donations are encouraged, following
approval by a member of the Board or Executive Committee.

Most businesses within the Group host “Open House” days at
facilities to allow customers, suppliers, employees’ families and
other members of the local community to see our operations.

Community initiatives are regularly reported in the Group’s
magazine, the “Hunting Review”, which profiles the Group’s
operations, employees and community work.

The following graphics illustrate community initiatives
within each operating segment.

Hunting Titan is a major employer in Pampa and Milford, Texas,
US and, given its operational focus, engages regularly with local
emergency services who are there to provide operational support
in case of an incident. Each year Titan hosts an annual luncheon
and facility tour for the emergency response teams.

Hunting Subsea hosted its twice yearly blood donation drive which
has been held over 11 consecutive years for the Gulf Coast
Regional Blood Centre.

Hunting PLC / 2019 Annual Report and Accounts27

In Indonesia, staff regularly raise money and offer practical support
to local charities and orphanages.

In the UK, fundraising events are regularly held, such as this family
day in support of a national charity.

In Singapore and China, International Women’s Day is celebrated.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements28
Chief Executive’s Statement and Outlook

Well positioned

Jim Johnson
Chief Executive

The Group’s mix of products and
markets shows the strength of
Hunting’s business strategy, as the
Group’s diverse product portfolio and
innovation enables us to adapt to take
advantage of opportunities that exist
in an uncertain market.

Hunting PLC / 2019 Annual Report and Accounts29

Introduction
Hunting’s trading performance during 2019 has been influenced
by a number of factors, including reduced US onshore drilling and
completion activity, a sector-wide focus on capital discipline leading
to budgeting constraints, compensated by improved international
and offshore activity. These factors have resulted in revenue
increasing year-on-year, particularly driven by our international and
offshore businesses; however, the impact on our higher margin US
onshore focused operations has resulted in a consequential decline
in Group operating profits.

Coupled with this has been a shift by onshore clients to lower cost
completion products in the year. This adversely impacted margins
and overall profits recorded in the year.

As part of the preparations for the year-end accounts, we reviewed
the carrying values of all current and non-current assets. This has
led to an impairment charge of $19.0m being recorded against the
Group’s drilling tools mud motor fleet, given the medium-term outlook
for a number of tool product lines. This charge has been reported
as an exceptional item. A summary of the Group performance in
the year is shown in the following table:

Given this market environment, the Group has performed well
in the year, as Hunting’s broad product offering has meant that
certain businesses have benefited from the growing offshore
market, while those businesses focused on onshore markets
have been adversely impacted.

The Group’s mix of products and markets shows the strength
of Hunting’s business strategy, as the Group’s diverse product
portfolio and innovation enables us to adapt to take advantage
of opportunities that exist in an uncertain market.

A key part of our strategy has been to retain a strong balance
sheet and drive financial discipline throughout all our businesses
as the industry changes around us. Our year-end net cash position
of $77.9m (cash of $123.1m, less lease liabilities of $45.2m)
(2018 – cash of $61.3m), provides the Group with financial
and operational flexibility, which includes reviewing acquisition
opportunities to broaden further our product offering, while
providing a sustained dividend to shareholders.

Another key aspect, which supports the Group’s strong
reputational standing in the global oil and gas industry, is the focus
on safety and quality assurance of our products. In the year, our
incident rate decreased by 21% reflecting our unrelenting focus
on the safety of our employees. These rates remain well below the
industry average. Also, our manufacturing reject rate was 0.30%
(2018 – 0.22%) demonstrating the skill and commitment of the
Group’s workforce to deliver world-class, quality-assured products
and the quality of our processes.

Group Summary
Hunting reports a 5% increase in revenue to $960.0m for 2019
compared to $911.4m in the prior year. This increase has been due
to a number of factors including strong growth within the Group’s
global OCTG and Subsea businesses, the successful launch of
new products, particularly within the Hunting Titan business, and
renewed investment by clients in downhole measurement tools,
which has enabled strong growth to be recorded within the Group’s
Advanced Manufacturing business.

A general trend throughout the whole Group has been increased
levels of sales bound for offshore projects, which supported growth
within our premium connections, accessories and subsea businesses,
which has enabled good growth to be recorded within our US,
EMEA and Asia Pacific operating segments.

Operating profits have, however, been adversely impacted by
margin pressure within a number of product groups. Within Hunting
Titan, strong competition within the more commoditised product
lines sold by the business led to targeted price reductions being
implemented to reduce excess inventory in early 2019.

Revenue
EBITDAii/iii
Profit from operationsiii
Profit before taxiii
Profit for the yeariii
Diluted EPS – cents

Underlyingi/ii
2019
$m

2018
$m
960.0 911.4
139.7 142.3
94.3 104.7
93.1 104.0
82.0
76.1
49.6
43.9

Reported

2019
$m

2018
$m
960.0 911.4
139.7 141.3
75.4
74.7
85.7
52.3

46.8
45.6
41.4
23.5

i. Results for the year, as reported under IFRS, adjusted for amortisation of intangible

assets recognised as part of a business combination and exceptional items.

ii. Non-GAAP measure (see pages 179 to 183).
iii. 2019 financial data incorporates the adoption of IFRS 16 Leases. 2018 financial data

has not been restated.

Strategic Initiatives
As part of an approved strategic plan, which the Board has refined
during the year, Hunting has delivered a number of key operational
milestones during 2019. These objectives can be summarised
as follows:

1. Expand global presence;
2. Broaden the Group’s product offering, through the launch

of new technology and via acquisition;

3. Operate on a leaner operating structure, delivered by higher

efficiency manufacturing and new production techniques; and

4. Refine the Group’s product portfolio to enhance returns.

Expand Global Presence
At the end of the year, the Group reported 36 operating sites
compared to 34 in 2018, following the expansion of our Saudi
Arabia operations and the acquisition of the business and assets
of RTI Energy Systems Inc., in August 2019. The Saudi expansion
allows the operations to address increased demand as local
sourcing becomes a key requirement of operating in the Kingdom.
In the year, the Group moved its operations in Norway to a larger
facility to allow for the local storage of products.

Hunting’s distribution centres numbered 19 at the end of 2019
(2018 – 18 centres), reflecting better alignment to the US onshore
market, in addition to new instrumentation products being stocked,
following the partnership agreement with Well-sun noted below.

Broaden the Group’s Product Offering
Hunting has delivered an enhanced product offering through
the launch of many initiatives to bring new technology to our
customers. Our strategy includes a regular review of product
and technology gaps in our chosen areas of excellence.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements30
Chief Executive’s Statement and Outlook continued

Hunting Titan has developed and commercialised new products
for its client base, as the onshore market continued to drive for
more efficient drilling, completion and production techniques,
without compromising on health and safety. In the year, the business
commercialised the ESUB Perforating System™ (the “ESUB”)
that allows customers to modify conventional perforating systems
to enable “smart” operation of a hydraulic fracturing procedure.
The ESUB™ system sits alongside and complements our smart
perforating gun systems offering.

In addition to new perforating systems, new energetics charges
have been introduced to clients including a new EQUAfrac™
charge and a new Rock charge, which provide more efficient
fracturing within a variety of geological formations.

During the year, Hunting Titan also commercialised the T-Set One™
setting tool. This innovative product combines four separate
completion and setting tools into a single device, allowing for
significant cost savings to be captured by clients.

Hunting Titan has also partnered with Xi’an Well-sun Technology
PLC, a Chinese-based well logging technology company, to offer
a wider range of logging tools and instruments to our US and
international client base. Further, to address product gaps within
the Hunting Titan portfolio, the business has started to manufacture
power charges used in the hydraulic fracturing process and also
sold its first pre-loaded perforating system to clients during
Q4 2019.

A further initiative, commenced in 2019, has been the construction
of a production line for detonation cord production. Machinery was
delivered early in 2020, with manufacturing expected to commence
by the middle of the year.

Through the acquisition of the business and assets of RTI Energy
Systems Inc. (“RTI”), which completed in August 2019, Hunting has
added another strong portfolio of products to its subsea offering.
RTI manufactures stress joints and risers used in offshore
production, which are made from either titanium or stainless steel.
This business was purchased as the offshore drilling market showed
clear signs of a return to growth after the market downturn
between 2014 and 2017.

In February 2020, Hunting completed the acquisition of Enpro
Subsea Limited (“Enpro”) to broaden further the Group’s presence
in the subsea market segment of the industry. Enpro’s high
technology, flexible field development solutions have been adopted
in the Gulf of Mexico, the North Sea and West Africa and enables
the quicker delivery of hydrocarbons.

The Group’s premium connections business has continued to
introduce new size variants to its proprietary connection portfolio.
The TEC-LOCK™ semi-premium connection has seen a strong
increase in market acceptance during 2019, with new size variants
introduced to the offering. The TEC-LOCK™ Wedge has been
a particularly successful variant of the Group’s semi-premium
connections portfolio, with efforts being undertaken to introduce
this to the Group’s international customers.

Leaner Operating Platform
In the first half of the year, the Group commissioned automated
production lines for its conventional perforating systems and
charge manufacturing processes. These new production lines are
located at Hunting Titan’s Pampa and Milford production facilities in
Texas, US, which has enabled the business to reduce manufacturing
costs across a number of key product groups. This has contributed
to the strategic objective of maintaining market share in the US
market, as cheaper product variants have been introduced by
a variety of competitors.

The Group has also implemented cost management initiatives in
the year, including the consolidation of the Group’s Europe, Middle
East and Africa operations. This has led to a reduction in overheads
in the Middle East. Further, in June 2019 the Group completed a
restructuring of the Canada segment, which also reduces overheads
and aligns the cost base with the current market outlook.

Refining Product Offering
In the year, the business completed the sale of its Thru-Tubing
business in the Middle East, which was predominantly a service
driven offering for customers across the region. The Group also
concluded the sale of the Clear-Run™ technology.

Outlook
Our results reflect the Group’s commitment to strong capital
discipline, while delivering a solid performance in difficult market
conditions. Our focus on customer service and delivery, while
driving further operational efficiencies along with an excellent safety
record, is testament to the performance delivered in the year.

The tough trading environment experienced during 2019 continues
to confront the oil and gas industry as we enter 2020. North
American onshore rig count statistics continue to deteriorate, oil
and gas commodity prices remain challenging, corporate budgets
and access to project funding continues to be constrained and
numerous geopolitical events around the globe continue to
encourage caution among investors and our clients. The impact
of the coronavirus continues to be assessed by our Asia Pacific
businesses, given the continuing restrictions in place in China.

However, Hunting remains well positioned to address our markets with
a solid geographic footprint, an extensive portfolio of products and
services and a highly experienced and committed management team
and workforce. Our balance sheet remains solid, with a significant
net cash position, with an ambition to expand our product offering
with complementary bolt-on acquisitions, without pushing the Group
into a net debt position remaining one of our core strategic goals.

Despite these challenges, we were able to deliver a creditable
set of financial results in 2019 and we enter the new decade with
a determination to continue delivering shareholder value.

Jim Johnson
Chief Executive

27 February 2020

Hunting PLC / 2019 Annual Report and Accounts31 Hunting PLC / 2019 Annual Report and Accounts

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32
Market Analysis

Clear insight

Global market indicators

Global Rig Count

Onshore

Offshore

f Forecast

2020f

1,729

2019

1,844

2018

1,982

253

242

1,982

2,086

201

2,183

Global Onshore Rig Counts
Due to the strong capital discipline seen across the industry
during 2019, particularly in respect of North American independent
operators, the global onshore rig count has declined in the year
by 7%. Industry technology has continued to evolve and now
multiple wells are drilled from a single rig location, thus increasing
productivity. However, the overall trend in 2019 has been a
reducing rig count, which has impacted Hunting Titan and other
US businesses focused on the onshore market. In 2020, it is
currently forecast that a further 6% decline will occur.

Global Offshore Rig Counts
The global offshore rig count has been steadily increasing from
the low point in 2017, and in the year, increased by 20% to average
242 units. In the US, the offshore rig count has increased steadily,
while the international market has also improved, as the oil price
stabilised in 2018, coupled with a shift from higher intensity
onshore drilling. 2020 is forecast to increase by c.5% to average
253 active units.

Global Industry Spend
($bn)

Onshore

Offshore

f Forecast

2020f

149.8

2019

165.8

2018

179.8

67.5

217.3

63.6

229.4

54.5

234.3

Global Onshore Capital Investment
In 2019, there was a shift from onshore to offshore drilling,
driven by strong capital discipline within many onshore operators.
Global onshore capital expenditure has declined 8% in the year to
$165.8bn, leading to lower results within Hunting Titan, US Drilling
Tools and Hunting Specialty. 2020 is forecasting a further decline
in expenditure of c.10% to $149.8bn.

Global Offshore Capital Investment
During 2019, global investment in offshore drilling projects has
increased 17%, which has supported Hunting’s US, EMEA and
Asia Pacific business units, who all report stronger results in the
year. In 2020, offshore expenditures are anticipated to increase
further by c.6% to $67.5bn.

Hunting manufactures products and provides services to the global
oil and gas industry, a highly dynamic sector with many factors that
influence overall demand. At the macroeconomic level, commodity
prices remain a key driver for our products and services, as the
strength or weakness in pricing influences key investment and project
decisions within our customer base and the quantity of equipment
required to complete drilling plans.

In addition, commodity prices influence global and regional rig
counts and industry capital expenditures. Each of the Group’s
operating segments closely monitor these market key performance
indicators. Within capital expenditure budgets are onshore and
offshore drilling allocations. While a typical onshore well drilling
budget is much lower than an offshore well, the number of onshore
wells completed, particularly in North America, means that onshore
drilling remains a significant component of global activity.

Product demand is also a function of the technological evolution
of global drilling practices. For example, US onshore drilling has
evolved over the past decade, leading to increases in footage
drilled per well, frac-intensity and the number of frac stages
in any given onshore unconventional well.

Commodity Prices

WTI Oil Price
$/barrel

Jan

Feb Mar

Apr May

Jun

Jul

Aug

Sep Oct

Nov

Dec

During the year, the WTI oil price averaged $57 per barrel
(2018 – $65 per barrel) and traded in the range $47 to $66. The
weakening in the price in the second half of the year, due to a range
of factors including geopolitical instability and the global economic
outlook, served to dampen capital expenditure expectations.
The oil price has also influenced general budget plans, as many
independent operators, particularly in North America, contained
drilling plans to within cash flows, adversely impacting sentiment
and general drilling momentum.

Gas Price
$/mmBtu

3.5

3.0

2.5

2.0

1.5

Jan

Feb Mar

Apr May

Jun

Jul

Aug

Sep Oct

Nov

Dec

The average US Henry Hub natural gas price declined in the year to
$2.53 per mmBtu (2018 – $3.05 per mmBtu), due to the oversupply
of natural gas from oil-related drilling within shale developments in
North America.

Hunting PLC / 2019 Annual Report and Accounts33

Regional market indicators

US Onshore Market Indicators
Spend ($bn)/Average rig count

Europe Market Indicators
Spend ($bn)/Average rig count

Spend $bn

Average rig count

f Forecast

Spend $bn

Average rig count

f Forecast

150

120

1,250

1,000

750

500

250

2018

2019

2020f

100

2018

2019

2020f

The US onshore market environment contracted in 2019, due to the
lower average WTI oil price, production capacity constraints within
the Permian basin and the shift back to offshore drilling. In the year,
rig counts declined 9% and industry spend declined 7% from
$135.1bn to $125.3bn. This market environment has impacted
our onshore focused businesses in the year. In 2020, the outlook
is indicating a further contraction in the market.

The European drilling market has seen a good improvement in
2019, with industry spend increasing 38% to $17.9bn compared
to 2018. The Group’s European businesses have improved, in both
the UK and the Netherlands, as the North Sea rig count on the
UKCS doubled to 15 rigs, compared to seven in the prior year.
Looking forward, European drilling expenditure is projected
to increase marginally to $19.0bn in 2020.

US Offshore Market Indicators
Spend ($bn)/Average rig count

Spend $bn

Average rig count

f Forecast

Middle East and Africa Market Indicators
Spend ($bn)/Average rig count

Spend $bn

Average rig count

f Forecast

6.0

4.8

3.6

2.4

1.2

2018

2019

2020f

750

600

450

300

150

2018

2019

2020f

The US offshore market increased investment by 22% in 2019 to
$5.0bn compared to $4.1bn in 2018, with the rig count increasing
by 21%. This has favourably impacted our premium connections,
accessories manufacturing and other offshore orientated business
units. It is anticipated that this growth will extend into 2020 where
a further increase in spend of 14% is projected.

In the Middle East and sub-Sahara Africa, activity levels continue
to stabilise and increase with investment totalling $35.7bn in the
year. The largest increase in activity has been reported by Libya,
Iraq and Qatar, where the rig counts have doubled with modest
improvements in Angola and Gabon. Further, increases to drilling
spend across these regions are also being projected in 2020.

Canada Market Indicators
Spend ($bn)/Average rig count

Asia Pacific Market Indicators
Spend ($bn)/Average rig count

Spend $bn

Average rig count

f Forecast

Spend $bn

Average rig count

f Forecast

250

200

150

100

1,250

1,000

750

500

250

2018

2019

2020f

2018

2019

2020f

Drilling activity in Canada declined in the year due to severe weather
in the early part of 2019, coupled with the government mandated
slowdown in production, which reduced activity. Industry investment
was $13.0bn in the year, a decline of 28% compared to $17.9bn in
2018. 2020 is currently projecting activity to be similar to 2019, with rig
counts forecast to average 136 units and investment being $13.1bn.

In Asia Pacific, which includes the Far East and China, a 15%
increase in spend has been reported in 2019 to $58.8bn. This
has assisted in the good performance of the Group’s Asia Pacific
operating segment. In 2020, investment is forecast to increase
further by 6% to $62.2bn.

Source: Spears & Associates.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements34
Our Business Strategy

Hunting’s strategic priorities are based on a business
model designed to deliver sustainable long-term shareholder
value while recognising our corporate responsibilities.

Strategic Priority

Growth

Operational
excellence

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.

We operate in a highly competitive and cyclical sector,
which is high profile and strongly regulated. To be successful
we must deliver reliable products, which are strongly quality
assured and which offer better cost efficiencies.

Strategic Focus Areas
• Extend global presence
• Acquire complementary businesses
• Enhance existing capacity
• Develop new products

Strategic Focus Areas
• Leverage strong brand
• Enhance quality control
• Maintain operational flexibility
• Leverage lean manufacturing
• Strengthen relationships with customers and suppliers

2019 Progress
• In the year, we opened an additional manufacturing facility
in Saudi Arabia and moved to a larger distribution facility in
Norway to address anticipated regional demand.

2019 Progress
• Hunting Titan has partnered with Well-sun, a China-based

logging tools company, to distribute products within Hunting’s
US and international client base.

• In August, the Group completed the acquisition of RTI Energy
Systems Inc., which broadened our subsea product portfolio.

• In the year, the Group launched new perforating systems

• Hunting Titan commissioned automated manufacturing cells
at its Pampa and Milford facilities to increase efficiencies.
• In August, the Group entered into a partnership with Jindal

to clients to address the evolving hydraulic fracturing market.

SAW in India to strengthen Hunting’s presence in this market.

Related KPIs

Revenue

Related KPIs

$960.0m

$911.4m

2019

2018

ISO 9001:2015 (Quality)
accredited operating sites

72%

2019

71%

2018

Underlying profit before tax

$93.1m

$104.0m

2019

2018

Quality assurance –
manufacturing reject rate

Operational footprint
(sq ft)

3.0m

2019

2.9m

2018

Countries in which
we operate

0.30%

0.22%

2019

2018

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

Related Risks
• Product quality
• Key executives
• Competition

Hunting PLC / 2019 Annual Report and Accounts35

Strategic Priority

Strong
returns

Corporate
responsibility

In normal phases of the oil and gas cycle, our business has
the capability to produce high levels of profitability, strong cash
generation and good returns on capital leading to growing
dividends to shareholders.

We are committed to acting with high standards of integrity and
creating positive, long-lasting relationships with our customers,
suppliers, employees and the wider communities in which
we operate.

Strategic Focus Areas
• Extend global presence
• Acquire complementary businesses
• Enhance existing capacity
• Develop new products

Strategic Focus Areas
• Retain experienced senior management team
• Skilled workforce
• Safe operations
• Protect the environment
• Compliance

2019 Progress
• Hunting Titan launched a new setting tool and energetics

charges to clients to address product gaps and the evolving
well completion market.

• Lean manufacturing initiatives continued across the Group
in the year, capturing significant cost savings within many
business units.

2019 Progress
• The Group launched an all-employee engagement survey in
July 2019, in line with new UK Corporate Governance Code.

• The Group has set its first carbon emissions targets, to be
achieved over the next decade, through the purchase of
cleaner electricity and enhanced operating efficiencies.
• New governance procedures introduced in the year to

address Purpose and Culture requirements.

Related KPIs

Underlying gross margin

28%

2019

30%

2018

Free cash flow

$149.4m

$80.7m

2019

2018

Return on average
capital employed

Related Risks
• Commodity prices
• Competition

Related KPIs

Incident rate
(OSHA method)

CO2 emissions intensity
factor (kg/$k of revenue)

1.17

2019

37.4

2019

1.49

2018

38.6

2018

CO2 tonnes equivalent
emitted

35,874

2019

35,171

2018

Related Risks
• Key executives
• Health, safety and environment

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements36
Case Study

Operational excellence

Perforating technology has evolved
rapidly over the past decade.
Hunting Titan has been a pioneer
in introducing innovative technology
to the market, particularly the
ControlFire® switching technology
and plug-and-play “smart”
perforating systems.

The H-1® Perforating Gun System,
launched in 2017, was the first of
Hunting Titan’s smart guns. The H-1
continues to reflect a greater share
of Titan’s overall gun sales as the
efficiency, safety and productivity
benefits gain traction with operators.

Timeline
1980

Product evolution

2010

EBFire® Switches (Mechanical)
EBFire® switches are disposable and cost effective mechanical
switches designed to allow multiple, sequentially fired,
perforating guns in a single string. As a gun fires, the pressure
of the detonation triggers the next gun in the sequence to fire.
The EBFire® has no addressable technology to confirm integrity
of the gun string. If a gun does not fire or its status is unknown,
the gun string must be retrieved.

ControlFire® Switches (Addressable)
The ControlFire® switch is the most widely used addressable
select-fire switch available. It is safe from stray voltage,
electrostatic discharge and radio frequencies and allows for
firing of perforating guns individually and in a selected sequence,
providing skip-over capabilities in the event of a misfire. The
ControlFire® Switch has been run in excess of five million times,
with a success rate nearing 100%.

Changes over time
Switches
Perforating Guns
Shaped Charges
Bridge Plugs
Stages Per Well
Lateral Lengths

Beginning (1980-2010)
Mechanical 97% / Addressable 3%
Lengths (feet) – 3’, 4’ and 5’ (Fewer gun selections per stage)
Deep penetrating, big hole diameter, good hole
Cast iron (Longest time to drill out)
5 to 10+
3,000 ft – 4,000 ft

H-1® Perforating Gun System

EQUAfrac® Consistent Hole

Efficiency Sub™ “ESUB”

H-2™ Perforating Gun System

The H-1 Perforating Gun System

Shaped Charges

The ESUB is a semi premium,

The H-2 Perforating Gun

was the first modular plug-and-

With longer laterals, the

cost efficient plug-and-play

System is the shortest,

play system that eliminated field

size and uniformity of the

solution for the conventional

multi-shot perforating gun

wiring. The H-1 can be armed

perforation entry hole within

perforating gun system user.

system available. At just 7.5

without the need to wire a switch

the casing is critical to

The ESUB is installed in a

inches in length, the H-2 can

and detonator. Instead, the

optimise well productivity.

conventional gun to provide

fire up to three shots on a

ControlFire® Cartridge containing

Conventional charges have a

a degree of “smart gun”

the switch and detonator is

variance of up to 50% in entry

capability. ESUB utilises

simply screwed into the bottom

hole diameters. Hunting’s

ControlFire® Cartridge

single plane, delivering a high

intensity fracturing operation,

and requires no wiring or

end of the gun.

EQUAfrac® consistent hole

technology, allowing for simple,

detonating cord.

shaped charges reduce entry

wire-free arming and assembly.

hole variance to as low as 5%.

Intermediate (2015)

Mechanical 80% / Addressable 20%

Current (2019)

Mechanical 30% / Addressable 70%

Lengths (feet) – 3’ and 2’ (More gun selections per stage)

Lengths (feet) – 2’, 1’, and Less (Most gun selections per stage)

Deep penetrating, consistent hole diameter

Cast iron and composite (Faster to drill out)

Consistent hole diameter, super deep penetrating

Composite and dissolvable (Requires no drilling out)

15 to 30+

4,000 ft – 8,000 ft

25 to 100+

5,000 ft – 10,000+ ft

Hunting PLC / 2019 Annual Report and Accounts37

T-Set OneTM is Hunting’s new plug
setting tool. Plugs create the zones
that make up staged perforating
operations (plug and perf).
T-Set OneTM is the first setting tool that
only requires one tool and one size
of power charge for the four most
common plug setting applications.
T-Set OneTM can be run with Hunting’s
firing head and Plug Shoot.

The Efficiency Sub™ “ESUB”,
introduced in 2019, provides
customers with a cost effective
semi-premium “smart” perforating
gun system option, alongside the
other product offerings.

Timeline

2015

2019

Product evolution

EBFire® Switches (Mechanical)

EBFire® switches are disposable and cost effective mechanical

The ControlFire® switch is the most widely used addressable

switches designed to allow multiple, sequentially fired,

select-fire switch available. It is safe from stray voltage,

perforating guns in a single string. As a gun fires, the pressure

electrostatic discharge and radio frequencies and allows for

of the detonation triggers the next gun in the sequence to fire.

firing of perforating guns individually and in a selected sequence,

The EBFire® has no addressable technology to confirm integrity

providing skip-over capabilities in the event of a misfire. The

of the gun string. If a gun does not fire or its status is unknown,

ControlFire® Switch has been run in excess of five million times,

the gun string must be retrieved.

with a success rate nearing 100%.

ControlFire® Switches (Addressable)

Changes over time

Switches

Perforating Guns

Shaped Charges

Bridge Plugs

Stages Per Well

Lateral Lengths

Beginning (1980-2010)

Mechanical 97% / Addressable 3%

Lengths (feet) – 3’, 4’ and 5’ (Fewer gun selections per stage)

Deep penetrating, big hole diameter, good hole

Cast iron (Longest time to drill out)

5 to 10+

3,000 ft – 4,000 ft

H-1® Perforating Gun System
The H-1 Perforating Gun System
was the first modular plug-and-
play system that eliminated field
wiring. The H-1 can be armed
without the need to wire a switch
and detonator. Instead, the
ControlFire® Cartridge containing
the switch and detonator is
simply screwed into the bottom
end of the gun.

EQUAfrac® Consistent Hole
Shaped Charges
With longer laterals, the
size and uniformity of the
perforation entry hole within
the casing is critical to
optimise well productivity.
Conventional charges have a
variance of up to 50% in entry
hole diameters. Hunting’s
EQUAfrac® consistent hole
shaped charges reduce entry
hole variance to as low as 5%.

Efficiency Sub™ “ESUB”
The ESUB is a semi premium,
cost efficient plug-and-play
solution for the conventional
perforating gun system user.
The ESUB is installed in a
conventional gun to provide
a degree of “smart gun”
capability. ESUB utilises
ControlFire® Cartridge
technology, allowing for simple,
wire-free arming and assembly.

H-2™ Perforating Gun System
The H-2 Perforating Gun
System is the shortest,
multi-shot perforating gun
system available. At just 7.5
inches in length, the H-2 can
fire up to three shots on a
single plane, delivering a high
intensity fracturing operation,
and requires no wiring or
detonating cord.

Intermediate (2015)
Mechanical 80% / Addressable 20%
Lengths (feet) – 3’ and 2’ (More gun selections per stage)
Deep penetrating, consistent hole diameter
Cast iron and composite (Faster to drill out)
15 to 30+
4,000 ft – 8,000 ft

Current (2019)
Mechanical 30% / Addressable 70%
Lengths (feet) – 2’, 1’, and Less (Most gun selections per stage)
Consistent hole diameter, super deep penetrating
Composite and dissolvable (Requires no drilling out)
25 to 100+
5,000 ft – 10,000+ ft

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements38
Risk Management

Roles and responsibilities

The Board has set risk management roles and responsibilities as illustrated below.

Board
• Determines the Group’s risk appetite and culture;
• Sets the risk management framework; and
• Ensures the management processes and internal controls
are effective in identifying the Group’s principal risks and
emerging risks.

Audit Committee
• Controls the Group’s risk management processes;
• Reviews business risks and considers emerging risks; and
• Gains assurance that the risk management processes and

controls are effective.

Group Management
• Establishes detailed Group policies and procedures;
• Manages centrally-controlled risks; and
• Reviews segment and business unit risks.

Segment and Local Management
• Ensures Group policies and procedures are applied; and
• Manages business unit controlled risks.

Assurance – Internal Audit
Hunting’s internal audit department
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.

Hunting PLC / 2019 Annual Report and Accounts39

Introduction
The oil and gas industry is highly regulated and demands high
specification products that 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 operating risks
inherent in this sector, while allowing the Group to achieve its
strategic objectives and deliver value to shareholders.

Audit Committee
Segment and business unit management establish and undertake
risk management processes that are relevant to the risk profile of
each business unit.

The key risks and emerging risks are identified and reported
to Group 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.

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.

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 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.

The Board’s review and debate of risk follows detailed discussions
by the Chief Executive and Finance Director with members of the
Executive Committee. By reviewing and debating the relevant
evidence, the Board then develops an appreciation for 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; and

• consideration and discussion over emerging risks.

The Group’s Principal Risks are disclosed on pages 44 to 47. 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, as part of its routine programme of work.
The Internal Audit department reports directly to the Audit
Committee. The relationship with the external auditor is monitored
by the Audit Committee, which is responsible for completing the
review of the effectiveness of the external auditors.

Group Management
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 general
finance requirements, taxation responsibilities, information on
Hunting’s internal control and risk management framework, legal
compliance and governance. Compliance is also monitored and
subject to checks by the Internal Audit department. The Group
Manual also incorporates and mandates the Group’s accounting
policies. This is periodically supported by documents that are
prepared centrally and circulated throughout the Group in order
to advise local management of, and establish, major accounting
and policy changes on a timely basis. Group management are
responsible for ensuring the risk management processes approved
by the Audit Committee are implemented across the Group. Group
management is also responsible for identifying treasury-related risks,
such as currency exposures, that are subsequently managed by
Group Treasury, in accordance with the treasury risk management
policies contained in the Group Manual. Group management is also
responsible for managing the global insurance programme.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statementsHunting’s legal advisers assist the Board in ensuring that Hunting
is compliant with the Financial Conduct Authority’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.

40
Risk Management continued

Segment and Business Unit Management
Management of each business unit has the responsibility of
establishing an effective system of controls and processes for its
business, which, at a minimum, meet the requirements set out in the
Group Manual and complies with any additional local requirements.
Local management is empowered under Hunting’s decentralised
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 for the Group as a whole.

Hunting’s Internal Audit department reviews the Group’s businesses
covering operational areas including:

• 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 the HSE
and Quality Assurance Director, who reports directly to the Chief
Executive. This department also undertakes periodic audits that
monitor quality control and safety within the Group’s product lines.

Hunting also receives guidance from a number of external advisers.
In particular, guidance from the Group’s insurance broker, who
arranges the annual renewal of a worldwide credit insurance policy
for the Group. Compliance with the policy requires each business
unit to undertake certain procedures, including vetting new
customers and maintaining appropriate creditworthiness data that
further strengthens the Group’s credit management processes.

Hunting’s external auditor provides 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 PLC / 2019 Annual Report and Accounts41

Risk management procedures

Emerging Risks
Alongside the process of identifying the Group’s principal risks,
management are challenged three times a year to identify and
consider emerging risks that may face the Group at some point in
the future. Resulting from this process, management and the Board
have identified climate change as an emerging risk facing the Group.

Climate change is a wide-ranging and complex topic that
potentially brings with it a number of interlinked risks that could
impact the Group’s activities. The Board will continue to monitor
climate change as an emerging risk.

Financial Controls Self-assessment
Business unit management completes an annual self-assessment of
the financial controls in place at their business unit. 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 timeframe when these
are identified as a necessary requirement. Results of the assessments
are summarised and presented to the Audit Committee annually.

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 short-term and mid-term forecasts, together
with half-year and annual statutory reporting. The Group’s financial
accounting consolidation process is maintained and regularly
updated, including distribution of the Group Manual to all reporting
units. All data is subject to review and assessment by management
through the monitoring of key performance indicators and comparison
with 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.

The Board has reviewed its risk management and internal
control procedures and confirms that the procedures
in place are robust and proportionate to Hunting’s global
operations and position in its chosen market.

Hunting’s internal control system, which has been in place
throughout 2019 and up to the date of approval of these accounts,
is designed to identify, evaluate and manage the principal risks
to which the Group is exposed, as well as identify and consider
emerging risks to which the Group may be exposed in the future.
Internal controls are regularly assessed to ensure they remain
appropriate and effective.

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 Group 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, and is scrutinised and challenged by the Board.
An appropriate Director, together with local management, is
allocated responsibility for managing each separate risk identified
in the Group Risk Register.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements42
Risk Management continued

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.

Quality Assurance
Most of the business sectors in 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 Assurance. 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 Organization for Standardization
(for example ISO 9001:2015 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 and qualified 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. 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 divestment require approval by the Chief
Executive up to certain thresholds. Major capital investment or
divestment 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
compare actual returns achieved with those projected within capital
investment proposals.

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 / 2019 Annual Report and Accounts43

Current status of the
Group’s principal risks

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 profile 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.

A detailed description of each principal risk, the controls and
actions in place and the movement in the year are given in the
following section.

UK Leaving the European Union (“Brexit”)
The Board continues to consider the potential consequences to
the Group of the United Kingdom’s decision to withdraw from the
European Union and remains of the opinion 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

h
g
H

t
c
a
p
m

a
c
n
a
n
F

w
o
L

Low

Probability

High

Current status

Prior year status

Competition

Commodity prices

Shale drilling

Geopolitics

HSE

Key executives

Product quality

Effectiveness of internal controls

h
g
H

t
c
a
p
m

a
c
n
a
n
F

w
o
L

Low

Probability

High

Post-control status

Pre-control status

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements

44
Risk Management continued

Principal risks

The Group’s principal risks are identified below. While we
have presented these as separately identified risks, discrete
events will often affect multiple risks and this is considered
by the Board when assessing the impact on the Group.

No movement in risk

Increase in risk

Decrease in risk

1. Competition

2. 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, pricing pressures
remain a feature of the trading environment. Competitors may also
be customers and/or suppliers, which can increase the 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.

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).

Movement in the year
During the year, the competitive environment within the markets
that Hunting serves remained strong and, therefore, Hunting’s
exposure to this risk is unchanged since last year.

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 dialogue 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.

The Group’s operating activities are described in detail
on pages 10 to 27.

Movement in the year
Hunting’s exposure to this risk has remained high during the
year due to the continuing instability and volatility in spot oil prices.
WTI has ranged between $47 and $66 per barrel over the last
12 months and prices are expected to remain within this range
over the next 12 months.

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’s products are used throughout the life cycle of the
wellbore and each phase within the life cycle generates demand
for a different range of products and services. The Board and
management closely monitor market reports on current and
forecast activity levels associated with the various phases of the life
cycle of the wellbore in order to plan for and predict improvements
or declines in activity levels.

In addition, management continues to reduce production costs
and develop new technologies, including automation and robotics,
that help mitigate the impact of any further downturn in commodity
prices in the future.

Further information on the movement in commodity prices during
the year is detailed on page 32.

Hunting PLC / 2019 Annual Report and Accounts
45

3. Shale drilling

4. Geopolitics

Nature of the risk
The Group provides products to the oil and gas shale drilling
industry. Oil and gas produced from shale remains a relatively
expensive source of hydrocarbons, despite advances in technology
that have reduced these costs.

Nature of the risk
The location 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.

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).

Movement in the year
Shale drilling activity slowed during 2019 as operators sought to
remain within their budgets and targeted to remain cash generative.
The risk of further adverse movement in shale drilling activity has
increased as US shale operators announced capital spend budget
cuts and face more restricted access to capital in the year ahead.

Controls and actions
The Board monitors rig count and general completion activities
within the US shale industry. In addition, local management
maintain an ongoing dialogue with key customers operating within
the US markets.

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 reconfigure their
manufacturing processes to meet a change in the pattern of demand.

The Group’s operating activities are described in detail
on pages 10 to 27.

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

Operations have been established in key geographic regions
around the world, recognising the high growth potential these
territories offer. The Group carefully selects which countries
to operate from, taking into account the differing economic
and geopolitical risks associated with each geographic territory.

Movement in the year
Geopolitical issues remain a feature of the modern world in
which the Hunting Group operates. The frequency and number
of geopolitical issues in the world have escalated over the past year.
The Board monitors geopolitical events around the world through
media channels and assesses these relative to Hunting’s
operations. These events have heightened over the past year.

The Group has relatively little exposure to the European market and
consequently the Board believes that the economic uncertainties
associated with Brexit will not have a materially 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. Global sanctions are also closely monitored
with compliance procedures in place to ensure Hunting avoids high
risk countries. The Board and Management closely monitor projected
economic trends in order to match capacity to regional demand.

The Group’s exposure to different geographic regions is described
on page 16.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements46
Risk Management continued

Principal risks

No movement in risk

Increase in risk

Decrease in risk

5. Health, safety and the environment (“HSE”)

6. Key executives

7. Product quality

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.

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.

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.

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.

Movement in the year
The Group’s manufacturing and other operating processes have
not materially changed during the year. Consequently, the Group’s
potential exposure to HSE incidents remains materially unchanged.
The Group experienced a 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.

Movement in the year
This risk is unchanged from last year. The Group has fair and
balanced remuneration schemes in place, which attract and retain
executive management.

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
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.

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

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

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

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

Details of executive Director remuneration are provided in the
Remuneration Committee Report on pages 84 to 103.

The Group’s HSE performance is detailed on page 23.

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.

The Group’s commitment to product quality is detailed

on page 15.

Hunting PLC / 2019 Annual Report and Accounts
47

5. Health, safety and the environment (“HSE”)

6. Key executives

7. Product quality

Nature of the risk

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

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

a relatively high number of HSE risks and the laws and regulations

executives and senior management, who possess commercial,

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

engineering, technical and financial skills that are critical to the

success of the Group.

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.

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.

Movement in the year

The Group’s manufacturing and other operating processes have

This risk is unchanged from last year. The Group has fair and

not materially changed during the year. Consequently, the Group’s

balanced remuneration schemes in place, which attract and retain

potential exposure to HSE incidents remains materially unchanged.

executive management.

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.

The Group experienced a 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

Remuneration packages are regularly reviewed to ensure that

compliance with the laws and regulations in each jurisdiction

key executives are remunerated in line with market rates. External

in which the Group operates.

consultants are engaged to provide guidance on best practice.

Every Group facility is overseen by a health and safety officer with

Senior management regularly reviews the availability of the

the responsibility for ensuring compliance with current and newly

necessary skills within the Group and seeks to engage suitable

issued HSE standards.

staff where they feel there is vulnerability.

The Board receives a Group HSE compliance report at every

Details of executive Director remuneration are provided in the

Board meeting.

Remuneration Committee Report on pages 84 to 103.

The Group’s HSE performance is detailed on page 23.

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.

The Group’s commitment to product quality is detailed
on page 15.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements48
Case Study

Connections technology

Designed for the world’s most
challenging wellbore applications.

A product range built upon decades of
experience. As downhole requirements
have evolved, Hunting remains a market
leader in connection technology.

Connection Technology That Runs Deep
Connection Technology That Runs Deep
Connection Technology That Runs Deep
Designed for the world’s most challenging wellbore applications
Designed for the world’s most challenging wellbore applications
Designed for the world’s most challenging wellbore applications
A product range built upon decades of
A product range built upon decades of
experience and leading the industry in
experience and leading the industry in
connection technology.
connection technology.

Connection Technology That Runs Deep
Designed for the world’s most challenging wellbore applications
2011

A product range built upon decades of
experience and leading the industry in
connection technology.

2015

Product growth

1991

1995
A product range built upon decades of
experience and leading the industry in
connection technology.

As downhole requirements evolve,
Hunting remains a market leader.

As downhole requirements evolve,
Hunting remains a market leader.
As downhole requirements evolve,
Hunting remains a market leader.

As downhole requirements evolve,
Hunting remains a market leader.

2017

2019

SEAL-LOCK APEX

1991

SEAL-LOCK HC
HC – High Compression

1991

SEAL-LOCK HC
HC – High Compression

SEAL-LOCK SF
SEAL-LOCK SF
SF- Semi Flush
SEAL-LOCK SF
SF- Semi Flush
SF- Semi Flush
SEAL-LOCK SF
SEAL-LOCK HC
1995
1991
1991
1995
SEAL-LOCK SF
1995
SF – Semi Flush
HC – High Compression
SF- Semi Flush
Hunting acquired Interlock
Hunting acquired
Hunting expanded the
Hunting acquired Interlock
Hunting acquired
Hunting acquired Interlock
Hunting acquired Interlock
Hunting acquired
ThreadMasters Inc and
Technologies Inc, inheriting
1991
1995
Technologies Inc, inheriting
ThreadMasters Inc and
SEAL-LOCK® product line
Technologies Inc, inheriting
Technologies Inc, inheriting
ThreadMasters Inc and
introduced a first semi
the SEAL-LOCK® product
the SEAL-LOCK® product
introduced a first semi
the SEAL-LOCK® product
with SEAL-LOCK SF® and
premium product line
line and focused on the
the SEAL-LOCK® product
introduced a first semi
line and focused on the
premium product line
SEAL-LOCK APEX® in
line and focused on the
Hunting acquired Interlock
Hunting acquired
“TKC”.
development of technology
line and focused on the
premium product line
“TKC”.
development of technology
for more challenging
development of technology
addition to acquiring
Technologies Inc, inheriting
ThreadMasters Inc and
development of technology
“TKC”.
applications.
for more challenging
for more challenging
ThreadMasters Inc and
the SEAL-LOCK® product
introduced a first semi
for more challenging
applications.
applications.
introducing the first semi-
line and focused on the
premium product line
applications.
premium product line “TKC”.
development of technology
“TKC”.
for more challenging
applications.

1991
WEDGE-LOCK SF
SF – Semi Flush

2019

2015

2011
2011

SEAL-LOCK XD
SEAL-LOCK XD
XD – Extreme Duty
TEC-LOCK WEDGE
XD – Extreme Duty
2017
2017

WEDGE-LOCK SF
SF – Semi Flush
WEDGE-LOCK SF
2011
2015
SF – Semi Flush
Following increased
Following increased regulatory
Following increased
Hunting continues to
Following increased
2011
complete extensive testing
regulatory constraints and
regulatory constraints and
constraints and more
regulatory constraints and
more demanding
on WEDGE-LOCK SF® and
more demanding
demanding requirements
SEAL-LOCK XD® to satisfy the
requirements for deep water
more demanding
requirements for deep water
for deep water well designs,
Following increased
well designs, Hunting
latest and most stringent
requirements for deep water
well designs, Hunting
industry requirements.
continued the evolution of
Hunting continued the
regulatory constraints and
well designs, Hunting
In 2015, Hunting
industry leading technology
continued the evolution of
evolution of industry leading
more demanding
commissioned a test facility
with the launch of WEDGE-
continued the evolution of
industry leading technology
technology with the launch
LOCK®, designed for the most
at Ameriport in order to
requirements for deep water
industry leading technology
with the launch of WEDGE-
accelerate our ability to
critical, High Pressure High
of WEDGE-LOCK®, designed
well designs, Hunting
develop, test and bring to
Temperature (HPHT) deep-
with the launch of WEDGE-
LOCK®, designed for the most
for the most critical, High
continued the evolution of
market new thread forms.
water well environments.
critical, High Pressure High
LOCK®, designed for the most
Pressure High Temperature
industry leading technology
Temperature (HPHT) deep-
critical, High Pressure High
(“HPHT”) deep water well
with the launch of WEDGE-
water well environments.
Temperature (HPHT) deep-
environments.
LOCK®, designed for the most
water well environments.
critical, High Pressure High
Temperature (HPHT) deep-
water well environments.

SEAL-LOCK XD
XD – Extreme Duty
WEDGE-LOCK SF
SEAL-LOCK XD
2015
SEAL-LOCK XD
2017
SF – Semi Flush
XD – Extreme Duty
XD – Extreme Duty
Hunting continues to
With more challenging
Hunting continues to
With more challenging
TEC-LOCK Wedge™
Hunting continues to
With more challenging
2015
markets affecting deep
continues to gain market
2017
complete extensive testing
markets affecting deep
complete extensive testing
complete extensive testing
markets affecting deep
water activity, Hunting
share. Multiple records
on WEDGE-LOCK SF® and
water activity, Hunting
on WEDGE-LOCK SF® and
adapted its focus on
have been set for
on WEDGE-LOCK SF® and
water activity, Hunting
SEAL-LOCK XD® to satisfy the
adapted its focus on
SEAL-LOCK XD® to satisfy
Hunting continues to
With more challenging
connection technology
technical applications and
SEAL-LOCK XD® to satisfy the
adapted its focus on
latest and most stringent
connection technology
to develop the TEC-
operational cost savings.
the latest and most stringent
complete extensive testing
markets affecting deep
latest and most stringent
connection technology
LOCK™ family of
industry requirements.
to develop the TEC-
industry requirements. In
on WEDGE-LOCK SF® and
water activity, Hunting
connections, a leading
industry requirements.
to develop the TEC-
In 2015, Hunting
LOCK™ family of
2015, Hunting commissioned
semi-premium product
SEAL-LOCK XD® to satisfy the
adapted its focus on
In 2015, Hunting
LOCK™ family of
commissioned a test facility
connections, a leading
offering for the onshore
a test facility at Ameriport in
latest and most stringent
connection technology
market.
commissioned a test facility
connections, a leading
at Ameriport in order to
semi-premium product
order to accelerate our ability
industry requirements.
to develop the TEC-
accelerate our ability to
offering for the onshore
at Ameriport in order to
semi-premium product
to develop, test and bring to
In 2015, Hunting
LOCK™ family of
develop, test and bring to
market.
accelerate our ability to
offering for the onshore
market new thread forms.
commissioned a test facility
connections, a leading
market new thread forms.
develop, test and bring to
market.
at Ameriport in order to
semi-premium product
market new thread forms.
accelerate our ability to
offering for the onshore
develop, test and bring to
market.
market new thread forms.

TEC-LOCK WEDGE

TEC-LOCK WEDGE
2019

TEC-LOCK FJ
FJ – Flush Joint
2019

TEC-LOCK Wedge™
Hunting expanded the
TEC-LOCK™ family with
continues to gain market
the launch of TEC-LOCK
share. Multiple records
FJ™ to address
have been set for
customer requirements
technical applications and
and expand Hunting's
coverage into more
operational cost savings.
intermediate casing
applications.

TEC-LOCK WEDGE

TEC-LOCK FJ

FJ – Flush Joint

TEC-LOCK FJ

FJ – Flush Joint

2019

TEC-LOCK BTC

2019

TEC-LOCK FJ

BTC – Buttress Connection

FJ – Flush Joint

2019

Hunting expanded the

With more challenging

TEC-LOCK Wedge™

2019

continues to gain market

TEC-LOCK™ family with

markets affecting deep

2019

the launch of TEC-LOCK

water activity, Hunting

Hunting expanded the

TEC-LOCK™ family with

share. Multiple records

TEC-LOCK Wedge™

have been set for

continues to gain market

the launch of TEC-LOCK

FJ™ to address

adapted its focus on

Hunting expanded the

customer requirements

connection technology to

TEC-LOCK™ family with

and expand Hunting's

develop the TEC-LOCK™

the launch of TEC-LOCK

customer requirements

FJ™ to address

technical applications and

share. Multiple records

operational cost savings.

have been set for

coverage into more

family of connections, a

FJ™ to address

and expand Hunting's

technical applications and

operational cost savings.

intermediate casing

leading semi-premium

coverage into more

customer requirements

product offering for the

and expand Hunting's

intermediate casing

applications.

onshore market.

applications.

coverage into more

intermediate casing

applications.

TEC-LOCK WEDGE

TEC-LOCK FJ

FJ – Flush Joint

TEC-LOCK Wedge™

continues to gain market

share. Multiple records

Hunting expanded the

TEC-LOCK™ family with the

launch of TEC-LOCK FJ™

have been set for technical

to address customer

applications and operational

requirements and expand

cost savings.

Hunting’s coverage into

more intermediate

casing applications.

Hunting PLC / 2019 Annual Report and Accounts
49

Connection Technology That Runs Deep

Designed for the world’s most challenging wellbore applications

Product growth

1991

1995

2011

connection technology.

2015

A product range built upon decades of

experience and leading the industry in

Connection Technology That Runs Deep
Designed for the world’s most challenging wellbore applications

As downhole requirements evolve,
Hunting remains a market leader.

A product range built upon decades of

experience and leading the industry in

connection technology.

2017

2019

2019
As downhole requirements evolve,
Hunting remains a market leader.

SEAL-LOCK APEX

1991

SEAL-LOCK HC

HC – High Compression

Hunting acquired Interlock

Technologies Inc, inheriting

the SEAL-LOCK® product

line and focused on the

development of technology

for more challenging

applications.

SEAL-LOCK SF

SF – Semi Flush

Hunting expanded the

SEAL-LOCK® product line

with SEAL-LOCK SF® and

SEAL-LOCK APEX® in

addition to acquiring

ThreadMasters Inc and

introducing the first semi-

premium product line “TKC”.

SEAL-LOCK HC

HC – High Compression

SEAL-LOCK HC

HC – High Compression

SEAL-LOCK SF

SEAL-LOCK XD

SF- Semi Flush

1991

XD – Extreme Duty

1995

Hunting acquired Interlock

Hunting continues to

Technologies Inc, inheriting

complete extensive testing

the SEAL-LOCK® product

Hunting acquired

SEAL-LOCK SF

SF- Semi Flush

1995

2011

Hunting acquired

ThreadMasters Inc and

introduced a first semi

premium product line

“TKC”.

WEDGE-LOCK SF

SF – Semi Flush

1991

Following increased regulatory

constraints and more

Hunting acquired Interlock

demanding requirements

Technologies Inc, inheriting

for deep water well designs,

the SEAL-LOCK® product

Hunting continued the

line and focused on the

on WEDGE-LOCK SF® and

ThreadMasters Inc and

line and focused on the

SEAL-LOCK XD® to satisfy

development of technology

introduced a first semi

for more challenging

the latest and most stringent

premium product line

applications.

evolution of industry leading

development of technology

industry requirements. In

“TKC”.

technology with the launch

of WEDGE-LOCK®, designed

applications.

for more challenging

for the most critical, High

2015, Hunting commissioned

a test facility at Ameriport in

order to accelerate our ability

Pressure High Temperature

to develop, test and bring to

(“HPHT”) deep water well

market new thread forms.

environments.

WEDGE-LOCK SF
SF – Semi Flush

Following increased
regulatory constraints and
more demanding
requirements for deep water
well designs, Hunting
continued the evolution of
industry leading technology
with the launch of WEDGE-
LOCK®, designed for the most
critical, High Pressure High
Temperature (HPHT) deep-
water well environments.

TEC-LOCK BTC
2015
2015
BTC – Buttress Connection
Hunting continues to
With more challenging
complete extensive testing
Hunting continues to
markets affecting deep
on WEDGE-LOCK SF® and
complete extensive testing
SEAL-LOCK XD® to satisfy the
water activity, Hunting
latest and most stringent
on WEDGE-LOCK SF® and
adapted its focus on
industry requirements.
SEAL-LOCK XD® to satisfy the
connection technology to
In 2015, Hunting
latest and most stringent
commissioned a test facility
develop the TEC-LOCK™
industry requirements.
at Ameriport in order to
family of connections, a
accelerate our ability to
In 2015, Hunting
leading semi-premium
develop, test and bring to
commissioned a test facility
market new thread forms.
product offering for the
at Ameriport in order to
onshore market.
accelerate our ability to
develop, test and bring to
market new thread forms.

SEAL-LOCK XD
SEAL-LOCK XD
XD – Extreme Duty
XD – Extreme Duty
2017
2017
With more challenging
markets affecting deep
With more challenging
water activity, Hunting
markets affecting deep
adapted its focus on
connection technology
water activity, Hunting
to develop the TEC-
adapted its focus on
LOCK™ family of
connection technology
connections, a leading
to develop the TEC-
semi-premium product
offering for the onshore
LOCK™ family of
market.
connections, a leading
semi-premium product
offering for the onshore
market.

2011

TEC-LOCK WEDGE

2019

2019
TEC-LOCK Wedge™
TEC-LOCK Wedge™
continues to gain market
TEC-LOCK Wedge™
continues to gain market
share. Multiple records
continues to gain market
have been set for
share. Multiple records
technical applications and
share. Multiple records
have been set for technical
operational cost savings.
have been set for
applications and operational
technical applications and
cost savings.
operational cost savings.

TEC-LOCK FJ
FJ – Flush Joint

2019

Hunting expanded the
TEC-LOCK™ family with
the launch of TEC-LOCK
FJ™ to address
customer requirements
and expand Hunting's
coverage into more
intermediate casing
applications.

TEC-LOCK FJ
FJ – Flush Joint
Hunting expanded the
Hunting expanded the
TEC-LOCK™ family with the
TEC-LOCK™ family with
launch of TEC-LOCK FJ™
the launch of TEC-LOCK
to address customer
FJ™ to address
requirements and expand
customer requirements
Hunting’s coverage into
and expand Hunting's
more intermediate
coverage into more
casing applications.
intermediate casing
applications.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements
50
Group Review

Solid financial footing

Peter Rose
Finance Director

Jim Johnson
Chief Executive

The Group remains on a solid
financial footing with a strong balance
sheet supported by an excellent net
cash position at the year-end, which
has enabled an increase in the final
dividend to be declared, subject to
approval by shareholders.

Hunting PLC / 2019 Annual Report and Accounts51

Introduction
The Group’s performance in the year has been underpinned by
an improving offshore and international market, against a slowing
onshore market in North America. This market environment has
allowed the Group to deliver a creditable set of financial results
based on its geographical footprint and extensive range of
products and services, driven by a strong and experienced
management team. The Group remains on a solid financial footing,
with a strong balance sheet supported by an excellent net cash
position at the year-end, which, with the Board’s confidence in
the prospects for the Group, has enabled an increase in the final
dividend to be declared, subject to approval by shareholders.

Market Summary
The average WTI crude oil price was c.12% lower in the year at
$57 per barrel, compared to an average price of $65 per barrel
in 2018, leading to clients containing drilling expenditures to within
their operating cash flows, with the aim of retaining strong capital
discipline and improving investor returns. This market feature has
led to a declining onshore market environment in the US and
Canada, which has led to an overall lower financial performance
for the Group during 2019, compared to the prior year.

Results from Operations
The Group has adopted IFRS 16 Leases with effect from 1 January
2019, which has led to the recognition of $36.7m of right-of-use
assets and $45.2m of lease liabilities on the consolidated balance
sheet at 31 December 2019. The 2018 financial statements have
not been restated, as the Company elected to adopt the standard
on a modified retrospective basis, as permitted by the standard.
For further information on the adoption of IFRS 16, please see
note 41.

The Group reports an increase in revenue of 5% to $960.0m
(2018 – $911.4m). Segment revenue within Hunting Titan declined
10% from $418.2m to $375.5m as activity levels within the North
American onshore drilling market reduced and competitive
pressures adversely impacted trading and margins. Within the
US segment, a 10% increase in revenue has been recorded,
which in part reflects an increase in offshore and international
focused projects. The improving international market also led
to revenue increases within the EMEA and Asia Pacific operating
segments of 15% and 37% respectively. In Canada, in line with
declining drilling investment in the year, segment revenue reduced
to $35.7m. Inter-segment revenue reduced to $83.7m in 2019
compared to $95.6m in the prior period, reflecting the slowing
of the global manufacture of conventional perforating guns
on behalf of Hunting Titan.

Group Segment Summary

With the overall decline in the US onshore market environment,
a shift to lower cost products by certain customers and increased
competition within Hunting Titan’s customer base has been recorded,
leading to some targeted price reductions being implemented
in the year to eliminate slow moving stock. This led to a decline in
the Group’s underlying gross margin from 30% to 28%. Underlying
gross profit declined 3% from $275.1m in 2018 to $266.4m in 2019.

Given the decline within Hunting Titan, the Group reports an
underlying profit from operations of $94.3m (2018 – $104.7m),
with the underlying operating margin decreasing from 11%
in 2018 to 10% in 2019.

The charge in the year for the amortisation of intangible assets
recognised as part of a business combination totalled $28.5m,
compared to $29.3m in 2018.

Given the decline in the medium-term outlook for the Group’s
onshore drilling tools business, a $19.0m impairment against the
unit’s drilling tools fleet has been charged as an exceptional item.
The net impact of exceptional items in 2018 was $nil. The reported
profit from operations was therefore $46.8m (2018 – $75.4m).

The net finance expense during the year was $1.2m
(2018 – $0.7m), leading to an underlying profit before tax of
$93.1m (2018 – $104.0m). After charges for exceptional items
and intangible asset amortisation acquired as part of a business
combination, the reported profit before tax was $45.6m
(2018 – $74.7m).

The 2019 underlying tax rate was 18% (2018 – 21%), which largely
reflects the influence of US corporate tax rates and the recognition
of $3.0m of US State deferred tax assets following a corporate
reorganisation in the US allowing relief for historical tax losses.
The Group’s underlying effective tax rate (“ETR”) for 2020 is
expected to be in the range of 21% to 23%, depending on the
regional mix of results.

Underlying profit after tax was $76.1m (2018 – $82.0m) and reported
profit after tax was $41.4m (2018 – $85.7m).

Underlying diluted earnings per share was 43.9 cents in the year
(2018 – 49.6 cents). Reported diluted earnings per share was
23.5 cents (2018 – 52.3 cents).

Business Unit
Hunting Titan
US
Canada
Europe, Middle East and Africa
Asia Pacific
Inter-segment elimination
Group segment total

Segment
revenue
$m
375.5
363.2
35.7
123.0
146.3
(83.7)
960.0

2019

Underlyingi
result from
operations
$m
68.6
26.9
(4.3)
(1.3)
4.4
–
94.3

Reportedi
result from
operations
$m
42.1
5.9
(4.3)
(1.3)
4.4
–
46.8

Segment
revenue
$m
418.2
329.7
44.8
107.3
107.0
(95.6)
911.4

2018

Underlyingi
result from
operations
$m
106.9
14.2
(1.8)
(13.8)
(0.8)
–
104.7

Reportedi
result from
operations
$m
80.8
11.0
(1.8)
(13.8)
(0.8)
–
75.4

i. Results for the year, as reported under IFRS, adjusted for amortisation of intangible assets recognised as part of a business combination and exceptional items.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements52
Group Review continued

Cash Flow

Summary Group Cash Flow
Underlying EBITDA (NGM A)
Share-based payments

Working capital movements (NGM H)
Net interest, bank fees and tax paid
Proceeds from disposal of assets
Gains on business and asset disposals
Pension scheme refund
Other operating cash and
non-cash movements (NGM J)
Free cash flow (NGM K)
Capital investment (NGM I)
Intangible assets investment
Dividends paid to equity shareholders
Acquisition of business
Purchase of treasury shares
Other
Net cash flow
Initial recognition of lease liabilities
New lease financing and interest
Foreign exchange
Movement in net cash (note 26)

2019
$m
139.7
9.1
148.8
7.6
(7.6)
8.9
(5.8)
–

(2.5)
149.4
(36.0)
(10.2)
(16.6)
(12.5)
(5.0)
0.9
70.0
(49.0)
(5.9)
1.5
16.6

2018
$m
142.3
13.2
155.5
(96.6)
(4.6)
16.4
(1.0)
10.6

0.4
80.7
(30.1)
(6.6)
(6.6)
–
(5.7)
0.3
32.0
–
–
(1.1)
30.9

The Group’s underlying EBITDA declined by $2.6m in the year to
$139.7m (2018 – $142.3m); however, the adoption of IFRS 16 gave
rise to a $9.3m benefit, giving a like-for-like decline of $11.9m and
a margin reduction of 2% points. As noted above, Hunting Titan’s
performance reduced in the year, but this was partially offset by the
improved performance of the US, EMEA and Asia Pacific segments.

When adjusted for non-cash share-based payment charges of
$9.1m (2018 – $13.2m), operating inflow of $148.8m was recorded
in the year compared to $155.5m in 2018.

Working capital inflows were $7.6m during the year
(2018 – $96.6m outflow) reflecting strong capital discipline and
efforts by management to contain working capital and inventory.
At 31 December 2019, inventory days were 214 compared to
185 in 2018, reflecting the weaker trading in Q4. Receivable days
were 79 in 2019 compared to 78 in the prior year.

Net interest was a receipt of $0.1m compared to a payment
of $2.0m in 2018 due to the lower level of borrowing in the year.

Net tax paid in the year was $7.7m compared to $2.6m in 2018
– this continues to be modest, sheltered by the use of historical
tax losses.

Proceeds from the disposal of assets were $8.9m (2018 – $16.4m).
Property, plant and equipment (“PPE”) disposals were $3.6m, the
sale of the Clear-RunTM intangible technology raised $2.3m and
consideration from the sale of businesses, principally Thru-Tubing
rentals in Dubai, was $3.0m. In 2018, the majority of the proceeds
received from the disposal of assets related to the Group’s former
facility in Cape Town.

In addition, there was a benefit of $10.6m following the adoption
of IFRS 16. Other items totalled a net cash outflow of $2.5m
(2018 – $0.4m net inflow).

Capital investment increased to $36.0m in 2019 (2018 – $30.1m)
as the expansion programmes at the Group’s Milford and Pampa
facilities completed early in the year, in addition to the commissioning
of the power charge and pre-loaded gun production lines within
the Hunting Titan business.

Investment in intangible assets increased to $10.2m from $6.6m
in 2018, mainly in relation to the capitalisation of technology and
software development costs.

Dividends paid in the year totalled 10.0 cents per share
(2018 – 4.0 cents) equating to a cash outflow of $16.6m
(2018 – $6.6m).

The Group acquired the business and assets of RTI Energy
Systems Inc. on 16 August 2019 for a consideration of $12.5m.

Further, the Group purchased 752,466 Ordinary Hunting PLC
shares in the year (2018 – 750,000 Ordinary shares), for a
consideration of $5.0m (2018 – $5.7m) to partially satisfy future
share awards. Other items in the year totalled $0.9m
(2018 – $0.3m).

The Group generated a net cash inflow of $70.0m (2018 – $32.0m)
in the year. The recognition of lease liabilities following the adoption
of IFRS 16 on 1 January 2019, together with the commencement
of new leases during the year, plus lease interest and foreign
exchange differences, resulted in a net cash inflow of $16.6m
for 2019 (2018 – $30.9m).

Balance Sheet

Summary Group Balance Sheet
Property, plant and equipment
Right-of-use assets
Goodwill
Other intangible assets
Working capital (NGM C)
Taxation (current and deferred)
Provisions
Other net assets (NGM F)
Capital employed (NGM G)
Net cash before lease liabilities
Lease liabilities
Net cash
Net assets
Non-controlling interests
Equity attributable to owners of the parent

2019
$m
354.7
36.7
230.2
78.5
433.3
19.8
(8.4)
1.1
1,145.9
123.1
(45.2)
77.9
1,223.8
(15.9)
1,207.9

2018
$m
360.2
–
229.9
99.8
436.5
13.7
(14.2)
3.9
1,129.8
61.3
–
61.3
1,191.1
(14.0)
1,177.1

PPE has decreased by $5.5m during the year to $354.7m at
December 2019. Additions in the year of $35.9m, together with
$12.3m of PPE recognised on the acquisition of the assets of
RTI Energy Systems Inc., were offset by depreciation of $33.7m,
an impairment of $19.0m to the Group’s mud motor fleet and other
net movements of $1.0m.

Free cash flow in the year was $149.4m compared to $80.7m
in the prior period. This improvement is predominantly related to
the net working capital inflow, compared to the prior year’s outflow.

With the adoption of IFRS 16, right-of-use assets have been
recognised on the balance sheet at 1 January 2019 at $39.7m.

Hunting PLC / 2019 Annual Report and Accounts53

During the year, lease additions and modifications of $4.3m and
foreign exchange of $0.6m were more than offset by depreciation
charged on these assets in the period of $7.9m and the resulting
balance at 31 December 2019 was $36.7m.

Goodwill was materially unchanged at $230.2m. Other intangible
assets have decreased by $21.3m, with the main movement being
the amortisation charge for the year of $32.3m, which was partly
offset by the capitalisation of technology and software development
costs of $10.3m.

Working capital has decreased by $3.2m during 2019. IFRS 16
resulted in a $2.1m increase on 1 January 2019. During the year, a
decrease in trade and other receivables of $27.5m more than offset
a decrease in trade and other payables of $19.6m and an increase
in inventories of $2.6m.

Tax balances show net assets of $19.8m (2018 – $13.7m). This is made
up of net current tax liabilities of $9.3m and net deferred tax assets
of $29.1m. The deferred tax assets mainly relate to US tax losses.

Other net assets have reduced by $2.8m during the year, mainly
due to an increase in derivative liabilities by $1.7m.

As a result of the above changes, capital employed in the
Group has increased by $16.1m to $1,145.9m. Net assets at
31 December 2019 were $1,223.8m, which, after non-controlling
interests of $15.9m, result in equity shareholders’ funds of
$1,207.9m (2018 – $1,177.1m). This is an increase of $30.8m over
31 December 2018 and reflects the reported profit for the year
attributable to equity shareholders of $39.7m, a net $9.1m credit
in relation to share awards and foreign exchange gains of $4.8m
being offset by dividends paid of $16.6m, the purchase of treasury
shares of $5.0m, the net reduction of $1.1m on the adoption of
IFRS 16 and other net charges of $0.1m.

The underlying return on average capital employed was 8% in 2019
compared to 9% in 2018.

Financial Capital Management
Hunting ended 2019 with a robust balance sheet and net cash,
before lease liabilities, of $123.1m (31 December 2018 – $61.3m).
After deducting lease liabilities of $45.2m, net cash at 31 December
2019 was $77.9m. While the Group maintained a net cash position
throughout the year, the Group retained its $160m multi-currency
revolving credit facility, with the bank covenants and terms
remaining unchanged. These terms, which exclude the impact
of IFRS 16 adoption for covenant testing purposes, include:

• The ratio of net debt to consolidated EBITDA permitted under the
revolving credit facility must not exceed a multiple of three times.
• Consolidated EBITDA must also cover relevant finance charges

by a minimum of four times.

For covenant testing purposes, the Group’s definition of EBITDA
is adjusted to exclude exceptional items, include the share of
associates’ post-tax results and exclude the fair value charge for
share awards. Similarly, net cash/debt and finance expenses are
adjusted to accord with the definition within the facility agreement
and accordingly exclude the lease liabilities recognised following
the adoption of IFRS 16. EBITDA, for covenant test purposes, is
based on the previous 12-month period, measured twice yearly
at 30 June and 31 December. At 31 December 2019, both these
covenants were met.

The Group’s $160m committed revolving credit facility has a
maturity date of 2022. The facility includes an accordion feature
that allows for the facility to be increased to $235m, subject to the
approval of its lending group. The facility also includes an extension
option, which allows the Company to extend the maturity to 2023.
The Group’s funding position remains robust, with total borrowing
facilities of $164.2m in place (2018 – $164.9m), of which $160.0m
(2018 – $159.5m) is committed.

Further details of the facility, including the terms and conditions,
are in note 30.

Total equity
Net cash before lease liabilities
Lease liabilities
Net cash
Capital employed

2019
$m
1,223.8
(123.1)
45.2
(77.9)
1,145.9

2018i
$m
1,191.1
(61.3)
–
(61.3)
1,129.8

2018 financial information does not incorporate the adoption of IFRS 16 Leases.

Capital employed is managed in order to ensure an appropriate
level of financing is available for the Group’s day-to-day operations.
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, 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. Individual
entities are generally required to borrow from the central treasury
function in their functional currency. The treasury function’s strategy
is to manage its own currency exposure by using currency swaps
to convert US dollars into the different currencies required by the
entities. Spot and forward foreign exchange contracts are also
used to cover the exposure of purchases and sales in non-domestic
currencies. The Group’s liquidity 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.
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 30.

On behalf of the Board

Jim Johnson
Chief Executive

27 February 2020

Peter Rose
Finance Director

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements54
Segmental Review

Hunting Titan

Market indicators*
US onshore – average rig count
Canada – average rig count

Revenue
Perforating guns and hardware
Energetics
Instruments
Perforating Systems
Other product lines
External revenue
Inter-segment revenue
Segment revenue

Profitability
Reported operating profit
Acquisition amortisation and
exceptional items
Underlying operating profit
Underlying operating margin

Cash flow
Capital investment

Balance sheet
Property, plant and equipment
Inventory

Operational
Headcount (year-end)
Headcount (average)
Operating sites
Service and distribution centres
Operational footage

* Source: Spears & Associates.

2019

2018

#
#

920 1,013
191
134

$m 116.6 123.2
$m 102.2 140.6
$m 140.4 134.6
$m 359.2 398.4
$m 12.0
12.9
$m 371.2 411.3
6.9
$m
4.3
$m 375.5 418.2

$m 42.1

80.8

$m 26.5
26.1
$m 68.6 106.9
26
%
18

$m 14.3

12.6

$m 60.4
52.4
$m 123.2 140.0

#
#
#
#
Kft2

702
684
5
17
696

659
646
5
16
660

Introduction
Hunting Titan’s business focuses predominantly on the US and
Canadian onshore drilling and completion markets. The segment
has five main operating sites, with four in the US and one in Mexico.
The business has a network of distribution centres throughout the
US and Canada, from which the majority of the business’ sales are
derived. Hunting Titan utilises the global manufacturing footprint of
the Hunting Group to assist in meeting customer demand. In the
year, perforating guns continued to be manufactured in Canada,
China, Mexico and in the US, while other components were
manufactured by the Group’s Hunting Electronics, Hunting
Specialty and US Manufacturing businesses.

Market Overview
As anticipated at the start of 2019, the North American drilling
market softened due to the lower average oil price recorded in late
2018. During the year, the average US onshore rig count declined
9% to average 920 active units compared to 1,013 units in 2018.
The year-end US onshore rig count was 782 units compared
to 1,059 units in 2018, or 26% lower.

In Canada, the average rig count declined by 30% to 134 units.
This materially lower rig count was driven in part by the lower
oil price, but also the government mandated slowdown in oil
production at the start of the year.

Drilling and completion expenditure also declined during the year,
with US onshore capital expenditures reducing 7% to $125.3bn
and Canadian drilling expenditure reducing 27% to $13.0bn.

Given this declining market environment, competition between
vendors, from both domestic and international suppliers intensified
in the year, as customers, in part, purchased lower cost components,
leading to margin pressures across product lines, in particular more
commoditised products manufactured by the segment.

Segment Performance and Development
Segment revenue decreased 10% to $375.5m (2018 – $418.2m)
with underlying operating profit declining 36% from $106.9m
in 2018 to $68.6m in 2019.

While sales in Hunting Titan’s domestic markets of the US and
Canada declined, international sales have increased in the year
from $13.2m in 2018 to $23.6m in 2019, reflecting increased
demand across all regions, except Europe.

Hunting Titan’s revenue streams are divided into four sub-groups:
(i) perforating guns and hardware; (ii) energetics; (iii) instruments;
and (iv) other.

Hunting PLC / 2019 Annual Report and Accounts55

Perforating Guns and Hardware
Sales of perforating guns and hardware reduced in the year from
$123.2m in 2018 to $116.6m, as market conditions deteriorated,
coupled with increased competition in certain product lines. The
year commenced with a concerted effort by the business to unwind
excess inventory, which was slow moving due to the lower WTI oil
price at the end of 2018. This initiative impacted margins for the
year as a whole; however, margins firmed in the second half of the
year, despite the continuing decline in sales in line with the onshore
rig count.

Instruments
Sales of Hunting Titan’s Instruments product lines have increased
in the year by 4%, which includes sales of the business’ ControlFire™
panels and switches, from $134.6m in 2018 to $140.4m in 2019.

In 2019, the Group entered into a strategic agreement with China
based Xi’an Well-sun Electronic Technology PLC (“Well-sun”) to
market Well-sun’s product offering of downhole logging tools in the
international market. The agreement has seen the combination of
Hunting and Well-sun logging products and has led to a broader
offering to the Group’s client base.

In the year, the ESUB Perforating System™ has seen excellent
sales growth with 180k units sold in the year. This product was
successfully introduced to clients in 2019, as a hybrid “smart”
system. This product received good customer acceptance and
complements other proprietary perforating systems sold by
the business.

The business commissioned its automated perforating gun
manufacturing cells in the first half of 2019 at the Pampa facility.
The cells have initially been configured to manufacture smaller
diameter perforating guns, allowing manufacturing costs to be
reduced. The business has also moved forward with its strategy
to offer pre-loaded perforating systems to clients, with first delivery
of this offering occurring in Q3 2019.

The T-Set One Setting Tool – launched in 2019.

Energetics
Sales of Energetics charges and associated products have
declined from $140.6m in 2018 to $102.2m. With a lower average
rig count, fewer consumable products have been purchased
by clients, again in line with the general onshore US market
environment leading to a lower result for the year.

This product group has also seen increased competition, with
volumes of ControlFire™ assemblies reducing as customers opted
to purchase and assemble individual components to save costs.
Further, there has also been a trend in completion techniques to
use fewer charges per gun, leading to the lower revenue reported.

As noted below, Hunting Titan has continued to introduce new
charges to customers, including new EQUAFrac™ and Rock
charges, which are seeing good acceptance by customers.

New automated manufacturing cells have also been commissioned,
which have lowered manufacturing costs for certain products.

New Technology
Hunting Titan has continued to introduce new products and
technology to clients as the onshore drilling market continued
to evolve throughout the year.

The business introduced the T-Set One™ setting tool to customers
in the year, which has seen good acceptance. This product combines
four separate setting tools into a single product.

Hunting Titan introduced the PowerSet™ charge product to clients,
which had previously been identified as a product gap in the
Group’s overall offering.

Other products commercialised in the year include other new charges
as noted above.

Looking ahead, Hunting Titan will seek to continue developing
new products. In Q3 2019 the business commenced an investment
programme to construct a detonation cord production line. This again
addresses a product gap in Hunting Titan’s portfolio, with
commercialisation targeted for mid-2020.

Manufacturing and Distribution
The segment’s manufacturing footprint has remained materially
unchanged during the year, with five main operating sites in the US
and Mexico, supported by perforating gun manufacturing across
the wider Group. The manufacture of electronic components
continued at the segment’s Wichita Falls facility, with further
production outsourced to the Group’s Electronics business.

The segment had 17 distribution centres at the year-end (2018 – 16),
adding a distribution centre at Greeley, Colorado, during 2019 to
address regional demand.

Other Financial Information
During the year, Hunting Titan recorded capital investment of
$14.3m (2018 – $12.6m) mainly relating to the new product lines
introduced in the year, coupled with the completion of the automation
projects at the segment’s Pampa and Milford facilities.

Inventory decreased by $16.8m to $123.2m in the year, reflecting
Group-wide efforts to contain inventories held.

At the year-end headcount was 702 compared with 659 in 2018, as
a proportion of contracted labour was moved to permanent positions.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements56
Segmental Review continued

Market indicators*
US onshore – average rig count
US offshore – average rig count
US E&P spend

Revenue
OCTG & Premium Connections
Advanced Manufacturing
Subsea
Drilling Tools
Intervention Tools
Other product lines
External revenue
Inter-segment revenue
Segment revenue

Profitability
Reported operating profit
Acquisition amortisation and
exceptional items
Underlying operating profit
Underlying operating margin

Cash flow
Capital investment

Balance sheet
Property, plant and equipment
Inventory

Operational
Headcount (year-end)
Headcount (average)
Operating sites
Service and distribution centres
Operating footage

$m 125.9 104.2
91.9
$m 99.2
30.0
$m 43.6
27.6
$m 21.8
$m 11.5
14.2
18.8
$m 16.7
$m 318.7 286.7
$m 44.5
43.0
$m 363.2 329.7

5.9

11.0

$m 21.0
$m 26.9
%
7

3.2
14.2
4

$m 19.3

15.7

$m 241.5 249.8
$m 127.4 110.4

# 1,310 1,202
# 1,262 1,145
15
#
16
1
#
1
Kft2 1,434 1,334

* Source: Spears & Associates.
i

Please note Exploration and Production, previously reported separately, has been
included in the US segment for 2019 (see note 2). 2018 data has therefore been restated.

2019

2018i

#
#

920 1,013
19
23
$bn 130.3 139.2

Introduction
Hunting’s US operations are the most diverse in the Group,
generating revenues from all the Group’s product lines. In addition,
the segment includes the Trenchless business, which mainly
services the telecommunications sector.

The main area of focus for most businesses in the segment is the
domestic US market, which accounts for c.85% of external revenues,
with Subsea and Advanced Manufacturing more internationally
focused. In addition, the US segment manufactures perforating
guns and switches for sale to Hunting Titan.

Market Overview
The US drilling market has seen an overall contraction in activity
levels and drilling expenditure during the year, led by the decline
in onshore drilling in the year. As noted previously, the average US
onshore rig count declined 9% from 1,013 active units to 920 units
in the year. Onshore drilling spend also declined 7% from $135.1bn
in 2018 to $125.3bn in 2019. This market environment has adversely
impacted the performance of the segment’s Drilling Tools and
Specialty businesses.

Partially offsetting this decline has been the return to growth of the
US offshore and international markets. In the year, the average US
offshore rig count increased 21% from 19 to 23 active units, with
offshore spend increasing 22% to $5.0bn. Outside of the US, drilling
expenditure also increased compared to 2018. This improvement
has led to growth in those businesses focused on the offshore
market, including the Subsea and Premium Connections businesses.

Segment Performance and Development
Segment revenue increased 10% from $329.7m in 2018 to $363.2m
in 2019. The primary drivers for the increase in revenue have been
within the Group’s Premium Connections and Manufacturing
businesses, which sell into both the offshore and onshore market
segments. Further, the performance of the Electronics business has
been buoyant in the year, driven by measurement tool replacement
programmes by key customers, in addition to good growth in
non-oil and gas sales. The Subsea business also reports revenue
growth driven by the improvement in the US offshore and
international drilling market environment.

Underlying operating profit for the segment was $26.9m compared
to $14.2m in 2018. As noted in the Group Review, management
completed a detailed analysis of the carrying values of current and
non-current assets as part of the Group’s year-end procedures.
Given the medium-term outlook of the segment’s Drilling Tools
business and a move by the industry to newer mud motor
technologies, a $19.0m impairment to the value of the Group’s mud
motor fleet has been recorded. The amortisation charge recorded
in the year was $2.0m (2018 – $3.2m). Reported operating profit
for the segment was therefore $5.9m (2018 – $11.0m).

OCTG and Premium Connections
During the year, the Group’s OCTG and Premium Connections
businesses have seen a good increase in sales as the offshore
and international drilling markets returned to growth. This has been
coupled with continued market penetration of Hunting’s TEC-LOCK™
semi-premium connection, which has seen further customer
acceptance within the major US onshore basins. In 2019, the Group
produced 97k connections compared to 50k connections in 2018.
To meet growing demand for the TEC-LOCK™ connection, two
new threading lines have been commissioned at the Group’s
Ramsey Road and Ameriport facilities in Houston, Texas.

Hunting PLC / 2019 Annual Report and Accounts57

With the return to growth of offshore drilling, new clients have
been won in the year, who utilise the Group’s SEAL-LOCK™ and
WEDGE-LOCK™ premium connections for use in the shallow and
deep water regions of the Gulf of Mexico. The business has seen
a strong increase in orders for 14, 15 and 16 inch variants within
these proprietary connection families.

The Group’s US Manufacturing business has also seen strong
increases in sales to the major international oil and gas service
groups for both US and international offshore projects.

Advanced Manufacturing
The Group’s Advanced Manufacturing group comprises the
Hunting Dearborn, Hunting Electronics and Specialty business
units. During the year, the Group reported an increase in demand
for downhole measuring tools, as the capital investment cycle saw
old tools being retired and new electronics and steel housings
being replaced. This has led to the Hunting Dearborn and Hunting
Electronics businesses reporting results ahead of management
expectations for the year and contributing strongly to the
profitability of the segment in the year.

Electronics Assembly in Houston, Texas.

A further success of the business has been the notable increase
in orders for integrated tools, with Hunting Dearborn manufacturing the
tool housing and Hunting Electronics providing the electronic circuitry.

Of note has been the increase in non-oil and gas sales within the
group, with Hunting Dearborn successfully winning new aerospace
and naval orders, while Hunting Electronics has secured new
medical clients in the year, in addition to completing work for
the Hunting Titan segment.

The Specialty business usually tracks US onshore activity and,
despite delivering profits in the year, saw a significant reduction
in activity as the rig count and drilling spend declined in the year.

Subsea
Hunting’s Subsea business has benefited from the increased
activity in the Gulf of Mexico as well as in the international drilling
arena, which has led to new orders being completed for clients
in Europe, the Middle East, South America and South East Asia.
Major product lines sold in the year include subsea relief valves
and couplings.

In August 2019, the Group completed the acquisition of RTI Energy
Systems Inc., which has added steel and titanium stress joints to
Hunting’s product portfolio. While these product lines have been
in recession since 2014, with the improved average oil price in 2018
and 2019 and the return to offshore drilling by the major exploration
and production companies, the short- to medium-term outlook for
the business looks promising, given the new enquiries received
since completion of the acquisition.

Drilling Tools
The Group’s Drilling Tools business has tracked the US onshore
market environment during the year and reported reduced activity
as the US rig count declined and customer budgets were reined
in. This has led to the business reporting a small underlying loss
for 2019.

As noted above, an impairment to the value of the business’ mud
motor fleet has been recorded, following a review of the carrying
values and the medium range forecasts for the business. The
business has continued to convert its mud motor fleet to utilise
mud-lube bearings, which reduces refurbishment times and costs,
allowing for improved fleet utilisation.

Intervention Tools
Well intervention tools sales declined in the year by 19% to $11.5m
mainly due to the decline in onshore rig counts.

Trenchless
The Trenchless business has seen good growth in the year as the
business’ mud motors and drill pipe product lines benefited from
good sales demand through its key distributors.

The business has expanded its presence internationally during
2019, with a range of products now being stocked at the Group’s
Netherlands facility, which has led to new customers being secured
in Europe.

Other Financial Information
During the year, the US had capital investment of $19.3m
(2018 – $15.7m), primarily due to the purchase of new machinery
within US Manufacturing and Hunting Dearborn and new mud
lube motors for the Drilling Tools business.

Inventory increased to $127.4m mainly due to raw materials
for firm orders.

The year-end headcount increased to 1,310 (2018 – 1,202),
as offshore drilling activity increased demand for products and
services. The data also incorporates the employees of the Group’s
exploration and production business.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements58
Segmental Review continued

Canada

Market indicators*
Canada – average rig count
Canada E&P spend

Revenue
OCTG & Premium Connections
External revenue
Inter-segment revenue
Segment revenue

Profitability
Reported operating loss
Acquisition amortisation and
exceptional items
Underlying operating loss
Underlying operating margin

Cash flow
Capital investment

Balance sheet
Property, plant and equipment
Inventory

Operational
Headcount (year-end)
Headcount (average)
Operating sites
Service and distribution centres
Operating footage

* Source: Spears & Associates.

2019

2018

#
$bn

134
13.0

191
17.9

$m 27.1
$m 27.1
$m
8.6
$m 35.7

35.2
35.2
9.6
44.8

(4.3)

(1.8)

$m
$m
%

–
(4.3)
(12)

–
(1.8)
(4)

1.0

0.9

$m
2.8
$m 14.3

2.7
22.8

#
#
#
#
Kft2

120
127
1
1
113

123
133
1
1
113

Introduction
The Group’s Canadian business comprises an OCTG threading
and accessories manufacturing facility in Calgary, Alberta and
a service facility in Nisku, Alberta. Canada’s external sales are
almost exclusively to the domestic market; however, as noted
in the Hunting Titan segment review, the Calgary facility has
been modified to support the manufacture of perforating guns
for distribution across Canada and into the US.

Market Overview
The Canadian oil and gas market saw a contraction during 2019,
primarily driven by the lower average oil price at the end of 2018,
adverse weather, but also due to the government mandated oil
production slowdown implemented in the early months of the year.
These factors led to a 30% decline in the average rig count and
a 27% decline in capital expenditure from $17.9bn to $13.0bn.

Segment Performance and Development
As a consequence of the Canadian market environment, external
segment revenue from OCTG, premium connection product lines
declined 23% from $35.2m in 2018 to $27.1m. Inter-segment
revenue also decreased in the year from $9.6m in 2018 to $8.6m
in 2019, as perforating gun production was slowed due to US
onshore market conditions. Segment revenue, therefore, declined
to $35.7m in the year compared to $44.8m in 2018. The loss from
operations therefore widened from $1.8m in 2018 to $4.3m in 2019.

As a consequence of the lower activity levels in Canada, at the
end of H1 2019, a reduction-in-workforce exercise was completed
within the segment, to re-align the cost base with the short-
to medium-term market outlook.

Further, the business has also exited from the casing supply
market, which traditionally has been a low margin offering.

Following this restructuring, the business has focused on building
new distributor relationships within Canada and, in particular,
to market the Group’s TEC-LOCK™ Wedge semi-premium
connection to operators.

Other Financial Information
Equipment purchases of $1.0m were made in the year, predominantly
to renew threading machinery.

The level of inventory also reduced in the year, as the segment
shifted away from the casing and pipe supply business.

The restructuring in June 2019 resulted in a workforce reduction
of 19%. However, there has been a shift from the use of contractors
to employed staff and the year end headcount has only reduced
from 123 at December 2018 to 120 at December 2019.

Hunting PLC / 2019 Annual Report and Accounts59

EMEA

(Europe, Middle East and Africa)

Market indicators*
North Sea – average rig count
North Sea – spend
Total Europe – well count
Middle East – spend
Sub-Sahara Africa – spend

Revenue
OCTG & Premium Connections
Intervention Tools
Perforating Systems
Other product lines
External revenue
Inter-segment revenue
Segment revenue

Profitability
Reported operating loss
Acquisition amortisation and
exceptional items
Underlying operating loss
Underlying operating margin

Cash flow
Capital investment

Balance sheet
Property, plant and equipment
Inventory

Operational
Headcount (year-end)
Headcount (average)
Operating sites
Operating footage

Source: Spears & Associates.

2019

2018

33
15.6
784
26.2
6.3

24
10.6
631
22.6
4.6

#
$bn
#
$bn
$bn

53.7
$m 72.6
38.1
$m 38.2
5.0
$m
3.4
0.6
$m
1.6
97.4
$m 115.8
$m
9.9
7.2
$m 123.0 107.3

(1.3)

(13.8)

$m
$m
%

–
(1.3)
(1)

–
(13.8)
(13)

0.6

0.5

The North Sea rig count averaged 33 units in the year, compared
to 24 units in 2018 and drilling spend increased 47% to $15.6bn
in 2019 compared to $10.6bn in 2018.

In the Middle East, drilling spend increased 16% to $26.2bn,
compared to $22.6bn in 2018, supporting the Group’s activities
in the region, in addition to the Asia Pacific operating segment,
which supplies OCTG products.

Segment Performance and Development
The combined Europe, Middle East and Africa (“EMEA”) segment
reported revenue of $123.0m in the year compared to $107.3m in
the prior period. Activity levels in both Europe and the Middle East
improved in the period, benefiting the segment and leading to a
loss from operations of $1.3m reported in the year compared
to a loss from operations in 2018 of $13.8m.

Activity in the North Sea has improved during the period as
private-equity backed independent oil and gas companies
increased their drilling commitments. The segment reports strong
demand for chrome-based OCTG and has completed a number of
high value ad-hoc orders for clients in the year, which has led to the
increase in revenue and a return to profitability for Hunting OCTG
businesses in the UK and the Netherlands.

The Group’s Well Testing business in the Netherlands has reported
a performance similar to 2018 and has seen an increase in customers
from the Middle East during the year, while Hunting’s Well Intervention
businesses in the UK reported a small loss in the year.

$m 21.8
$m 57.9

13.7
44.4

In Norway, the Group opened a larger distribution and service
facility in the first half of the year, giving the Group a greater degree
of flexibility in the country.

#
#
#
Kft2

299
292
10
264

307
326
9
237

In the Middle East, the Group has reported a break-even result
in the year. In H1 2019, the Group sold its Thru-Tubing Service and
Rental business as part of a restructuring of the operations in the
region, which included reducing the headcount to better align the
cost base with the regional revenue profile.

Introduction
In January 2019, the Group’s Europe and Middle East and Africa
segments were combined into a single reporting segment,
reflecting a restructuring of the senior leadership team.

Hunting’s European operations comprise businesses in the UK,
Netherlands and Norway. These businesses provide OCTG (including
threading, pipe storage and accessories manufacturing) and well
intervention products in the UK; OCTG and well testing equipment
manufacture in the Netherlands; and well intervention services and
distribution in Norway. The region also has a perforating systems
storage facility in Aberdeen, UK.

Hunting’s Middle East and Africa manufacturing operations are
located in Dubai, UAE and Dammam, Saudi Arabia. The Group also
retains a sales presence in South Africa. The Group’s operations
in Saudi Arabia are through a 60% joint venture arrangement with
Saja Energy.

Market Overview
During 2019, the North Sea has reported an increase in activity
levels and committed drilling expenditure, which has led to a
positive performance for the Group’s OCTG businesses in the
UK and the Netherlands.

The Group’s joint venture in Saudi Arabia continues to grow
its profile in the Kingdom, with orders being received for OCTG
and well intervention product lines. In the year, a second adjacent
facility was opened to provide additional capacity.

Further, in the year the segment sold the Group’s Clear-Run™
technology for a total consideration of $2.3m.

New Technology
The Group’s TEK-HUB™, which operates from Aberdeen, also
successfully developed a number of its technology projects in the
year. An organic oil recovery product, which enhances production
profiles of end-of-life fields, has been field trialled in a number of
projects in Europe and the Middle East. To support this product
line, a sales presence in Dubai has been established to increase
the profile of the product across the region.

Other Financial Information
During the year, investment in property, plant and equipment was
$0.6m. Inventory at the year-end increased by $13.5m to $57.9m
driven by changes in consignment stock arrangements and
year-end orders.

To reduce costs, the segment’s headcount has reduced from 307
in 2018 to 299 at the year-end.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements60
Segmental Review continued

Asia Pacific

Market indicators*
Far East – average rig count
Far East – spend
Central Asia – spend
Middle East – spend

Revenue
OCTG & Premium Connections
Other product lines
External revenue
Inter-segment revenue
Segment revenue

Profitability
Reported operating profit (loss)
Acquisition amortisation and
exceptional items
Underlying operating profit (loss)
Underlying operating margin

Cash flow
Capital investment

Balance sheet
Property, plant and equipment
Inventory

Operational
Headcount (year-end)
Headcount (average)
Operating sites
Operating footage

* Source: Spears & Associates.

2019

2018

#
$bn
$bn
$bn

212
17.1
2.0
26.2

214
18.2
2.0
22.6

Introduction
Hunting’s Asia Pacific business covers four operating facilities
across China, Indonesia and Singapore. In China, the Group
operates from a facility in Wuxi, which has OCTG threading and
perforating gun manufacturing capabilities. In Indonesia and
Singapore, Hunting manufactures OCTG, premium connections
and accessories. Our Asia Pacific segment also supplies OCTG
products to markets across the Middle East.

80.6
$m 126.8
0.2
$m
0.4
80.8
$m 127.2
$m 19.1
26.2
$m 146.3 107.0

Market Overview
While average rig counts and drilling spend during 2019 remained
broadly similar to 2018 within the Far East region, drilling spend
in the Middle East, which is a growth region for the Group’s Asia
Pacific segment, grew by 16% from $22.6bn to $26.2bn.

$m
$m
%

4.4

(0.8)

–
4.4
3

–
(0.8)
(1)

0.7

0.2

$m
9.6
$m 33.0

12.3
34.7

#
#
#
Kft2

453
443
4
533

420
415
4
533

Segment Performance and Development
Segment revenue in the year increased 37% to $146.3m, compared
to $107.0m in the prior period. OCTG and Premium Connections
sales led the segment’s revenue growth, as new clients were secured
in Kuwait, Oman, Iraq, India, Pakistan and China. Underlying profit
from operations was $4.4m compared to a loss from operations
of $0.8m in 2018.

In August 2019, the Group entered into a strategic partnership
with Jindal SAW (“Jindal”), the India focused tubular and pipe
supply group. The partnership will see Hunting provide to Jindal
a premium threading licence for certain of the Group’s premium
connections, to give access to the growing Indian OCTG market.
India has mandated in-country sourcing of tubular products from
2021, and this agreement provides Hunting with the necessary
local content requirement to actively pursue future OCTG tenders
issued by the major exploration companies operating in the
country. As an indication of the potential for the Group, Hunting
received its first order from Reliance Industries, to supply Hunting’s
proprietary Annular Pressure Release System valves, in the second
half of the year.

The market in Australia and New Zealand has also improved in the
year, with a number of offshore and onshore developments being
advanced, leading to new sales being secured, primarily for OCTG
product lines. Evaluation of onshore shale deposits in the Northern
Territory of Australia has continued in the year, with progress being
made with a number of regional developers.

Due to the slowing US onshore market, inter-segment sales
of perforating guns reduced 27% from $26.2m in 2018 to $19.1m
in 2019, as demand for conventional perforating guns slowed.

Research and Development
A new initiative outside of the Group’s traditional oil and gas market
has also been progressed during the year. Hunting Asia Pacific has
collaborated in the prototype manufacturing of micro generators and
has now supplied a number of early products to our development
partner in California for further evaluation.

Other Financial Information
Inventory decreased marginally during the year to $33.0m
(2018 – $34.7m).

Additions to PPE in the year were minimal.

The headcount was increased in the year in line with activity,
with 453 employees at the year-end (2018 – 420).

Hunting PLC / 2019 Annual Report and Accounts61 Hunting PLC / 2019 Annual Report and Accounts

P
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training at Wuxi, China.

F
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62
Case Study

Corporate sustainability

Hunting’s Environmental, Social
and Governance (“ESG”) policies
are embedded across the Group.
Our Chief Executive leads the Group’s
stance on ESG, which addresses
stakeholder engagement including
supporting and developing our
people, commitment to safety,
how we work with our customers,
suppliers and communities and
managing our environmental impact.
Our website now includes extensive
details on our ESG credentials.

Customers and Suppliers
• We engage with our customers and suppliers to provide

products and services.

• Client relationships are key to our success. We work closely

with our customers to understand and satisfy their requirements.

• Research and development projects are undertaken in

collaboration with our customers to develop new technologies
and improve efficiencies and reduce costs.

• For new customers and suppliers, due diligence is

undertaken to ensure compliance with international trading
laws and regulations.

• Customers and suppliers are provided with key ethics

documents, which outline Hunting’s strong stance on ethical
business dealings.

Employees
• All our employees complete a Code of Conduct training course.
• All business units are required to comply with the Group’s

Code of Conduct, Ethical Employment, Modern Slavery and
Health and Safety policies.

• Our ethics policies support equal employment opportunities

across the Group.

• An employee survey was completed in 2019 to evaluate levels

of employee satisfaction across the Group.

• Regular roundtable style meetings between management
and employees are now held to provide a forum for open
discussion and feedback.

• Training and development programmes exist, including

advanced leadership and skills, in order to improve productivity
and retention.

• Recognition is given to key career milestones.

Hunting PLC / 2019 Annual Report and Accounts63

Community
• We are committed to our social responsibilities in the

communities where we operate.

• Community projects include:

– Partnership with the Gulf Coast Regional Blood Center;
– Fundraising for the Royatul Qur’an and Istana Al-Yupri

orphanages in Batam;

– Fundraising for the St John’s Home for the Elderly

in Singapore; and

– Sponsored events in London and Aberdeen for Macmillan
Cancer Support, Make a Wish, Save the Children and
Crisis and Combat Stress initiatives.

• Employee-driven events across the Group include:

– Donations to various charitable organisations; and
– Food drives.

Environmental Management and Climate Change
• New facilities are commissioned taking their environmental

impact into account.

• Our Quality Management System is compliant with the

globally recognised ISO 14001 (Environment) and ISO 50001
(Energy Management) standards.

• Environmentally responsible initiatives that have been

implemented include:
– Motion sensitive “smart lighting” in our new facilities;
– Waste recycling programmes for metal, wood, plastics,

rubber and water;

– LED bulb replacement at facilities;
– Installing water capture systems, reducing machining

coolant water loss; and

– Replacing windows at our Canadian facility with heat and

light reflective glass, reducing energy consumption.
• We record and measure our carbon emissions and submit

an annual return to the UK’s Carbon Disclosure Project (“CDP”).

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements64
Key Performance Indicators

Our progress

A number of key performance
indicators are used to compare
the business performance and
position of the Group.

These are regularly reviewed to ensure they remain appropriate.
For details on the movements of these metrics, please refer to the
Group Review on pages 50 to 53.

Financial performance is measured on an underlying basis from
operations and, other than revenue, are non-GAAP measures
(further information on financial Non-GAAP Measures (“NGM”)
can be found on pages 179 to 183).

Countries with
active operations

2019

2018

No. of recordable
incidents

2019

2018

Countries in which Hunting has an active operating site
or distribution centre.

An incident is recordable if it results in death or serious injury
resulting in absence from work.

Operating footprint
(sq ft)

3.0m

2019

2.9m

2018

Incident rate
(OSHA method)

1.17

2019

1.49

2018

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

Year-end employees

2,956

2019

2,772

2018

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.
37.4

CO2 intensity factor
(kg/$k of revenue)

38.6

2019

2018

The year-end headcount for employees includes part-time staff
(see note 8).

Scope 1 and 2 carbon dioxide equivalent metric, reported
as kilogrammes per $k of revenue.

ISO 9001:2015 (Quality)
accredited operating sites

72%

2019

71%

2018

Internal manufacturing
reject rate

0.30%

2019

0.22%

2018

Percentage of operating sites with ISO 9001:2015 accreditation.

Percentage of parts rejected during manufacturing processes.

Hunting PLC / 2019 Annual Report and Accounts65

Revenue
$m

2019

2018

2017

Capital Investment*
$m

960.0

2019

911.4

2018

724.9

2017

Revenue is earned from products and services sold to customers
from the Group’s principal activities (see notes 2 and 3).

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

Underlying EBITDA*
$m

2019

2018

2017

Inventory Days*

139.7

2019

142.3

2018

56.0

2017

36.0

30.1

11.4

214

185

167

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

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).

Underlying Profit from Operations*
$m

Return on Average Capital Employed*
%

2019

2018

2017

94.3

2019

104.7

2018

14.3

2017

Underlying profit from operations before net finance costs and tax
(see consolidated income statement and note 2).

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

Underlying Operating Margin*
%

Free Cash Flow
$m

2019

2018

2017

2019

2018

2017

149.4

80.7

49.3

Underlying profit from operations as a percentage of revenue.

All cash flows before transactions with shareholders and tangible
and intangible capital investment (see NGM K).

Underlying Diluted Earnings Per Share*
Cents

Net Cash (Debt)*
$m

2019

2018

2017

43.9

2019

49.6

2018

8.0

2017

77.9

61.3

30.4

Underlying 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 11).

Net cash (debt) comprises cash at bank and in hand, short-term
deposits and Money Market Funds less bank overdrafts, current
and non-current lease liabilities, current and non-current
borrowings (see note 26).

* Non-GAAP measure (“NGM”) (see pages 179 to 183).

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements66
Directors’ Report and Compliance Statements

Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulation. Company Law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have prepared the Group financial statements in accordance with
International Financial Reporting Standards (“IFRSs”) as adopted
by the European Union and parent Company financial statements
in accordance with IFRSs as adopted by the European Union.
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 parent Company and
of the profit or loss of the Group and parent Company for that period.
In preparing the financial statements, the Directors are required to:

• select suitable accounting policies and then apply them

consistently;

• state whether applicable IFRSs as adopted by the European
Union have been followed for the Group financial statements
and IFRSs as adopted by the European Union have been followed
for the Company financial statements, subject to any material
departures disclosed and explained in the financial statements;
• make judgements and accounting estimates that are reasonable

and prudent; and

Directors’ Confirmations
The Directors consider that the Annual Report and Accounts, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s and
parent Company’s position and performance, business model and
strategy. Each of the Directors, whose names and functions are
listed on pages 72 and 73 confirm that, to the best of their knowledge:

• the parent Company financial statements, which have been

prepared in accordance with IFRSs as adopted by the European
Union, give a true and fair view of the assets, liabilities, financial
position and profit of the Company;

• the Group financial statements, which have been prepared

in accordance with IFRSs as adopted by the European Union,
give a true and fair view of the assets, liabilities, financial position
and profit of the Group; and

• the Strategic Report includes a fair review of the development

and performance of the business and the position of the Group
and parent Company, together with a description of the principal
risks and uncertainties that it faces.

In the case of each Director in office at the date the Directors’
Report is approved:

• prepare the financial statements on the going concern basis

• so far as the Director is aware, there is no relevant audit

unless it is inappropriate to presume that the Group and parent
Company will continue in business.

information of which the Group’s and parent Company’s auditor
are unaware; and

• they have taken all the steps that they ought to have taken as a

The Directors are also responsible for safeguarding the assets of
the Group and parent Company and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.

Director in order to make themselves aware of any relevant audit
information and to establish that the Group’s and parent
Company’s auditor are aware of that information.

The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group’s and
parent Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Group and parent
Company and enable them to ensure that the financial statements
and the Directors’ Remuneration Report comply with the
Companies Act 2006 and, as regards the Group financial
statements, Article 4 of the IAS Regulation. The Directors are
responsible for the maintenance and integrity of the parent
Company’s website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.

Companies Act 2006
Section 415
In compliance with 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 2019.

The Strategic Report incorporates the Chairman’s Statement,
Chief Executive’s Statement and Outlook, Market Analysis,
Key Performance Indicators, Group Review, Segmental Review,
Stakeholder Engagement disclosures, Business Model and
Strategy and Risk Management and is located on pages 6 to 69.
As permitted by legislation, the Board has chosen to set out, within
the Strategic Report and Corporate Governance 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 29 and 30);
• future developments (page 30);
• risk management, objectives and policies (pages 38 to 42);
• bribery and corruption (pages 21, 22 and 109);
• ethnicity and diversity (pages 80 and 81); and
• greenhouse gas emissions and environmental matters

(pages 24 and 25).

Hunting PLC / 2019 Annual Report and Accounts67

• As a company operating in the oil and gas industry, we regularly

monitor the impact of our activities on the environment and on the
communities in which we operate and, particularly, where we
maintain active manufacturing facilities.

• As a Board, we endeavour to operate responsibly and to make

carefully considered decisions. We encourage high standards of
business conduct from our employees and try to lead by example.

The following sections and cross references provides a summary
of where details of key stakeholder and associated engagement
and decision making is located within the 2019 Annual Report and
Accounts and also some of the considerations taken by the Board
in fulfilling their duty under section 172(1) of the Act:

• Shareholders (pages 12 to 14);
• Lenders (page 14);
• Customers (pages 20 and 21);
• Employees (pages 22 and 23);
• Suppliers (page 24);
• Environment (pages 24 and 25);
• Governments (page 26); and
• Communities (pages 26 and 27).

Non-Financial Information Statement
In accordance with section 414CA of the Companies Act 2006,
the Company is required to provide a non-financial information
statement. The Company has chosen to present this information
throughout the Strategic Report as follows:

• business model (pages 10 to 27);
• environmental matters, including impact of the Company’s

business on the environment (pages 24 to 25);

• employees (pages 22 to 23);
• respect for human rights (page 23); and
• anti-corruption and anti-bribery matters (pages 21, 22 and 109).

Included within these disclosures are details of policies, including
outcomes, risks factors and related key performance indicators.

On 21 February 2020, the Group announced the completion of the
acquisition of Enpro Subsea Limited for a consideration of $33.0m.
Further details on this transaction can found in note 42.

In addition, information relating to the Directors’ indemnity
provisions and dividend waivers, 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 185 to 188.

The Companies (Miscellaneous Reporting) Regulations 2018
As required by The Companies (Miscellaneous Reporting)
Regulations 2018 (the “Regulations”), the Board of Hunting PLC
has prepared a section 172(1) statement, which can also be found
on the Group’s website www.huntingplc.com.

The Directors’ Stakeholder Engagement and decision making
disclosures, are summarised within the Strategic Report on
pages 12 to 27, which includes cross references to the various
engagement activities across the Group’s operations. Additional
disclosures in respect of customers, suppliers and other key
business relationships can also be found within the Strategic Report.

Section 172(1) Statement
This statement has been prepared in compliance with the
Companies (Miscellaneous Reporting) Regulations 2018.

The Board of Hunting PLC considers that, in complying with their
statutory duty during 2019 and under section 172 of the Companies
Act 2006 (the “Act”), they have acted in good faith and in a manner
which they believe is likely to promote the continued success of the
Company, for the benefit of its members and stakeholders as a
whole. The Board also engages with its stakeholders when
considering major strategic decisions, in the following ways:

• Each year the Board reviews its short- and long-term strategy.

In recent years these have remained consistent, with a focus on
maintaining a firm financial foundation, improving facilities, investing
in the development of new technology and in our workforce.
• The Board aims to ensure that our employees work in a safe
environment, that they receive appropriate training and are
sufficiently rewarded for their efforts.

• Over the years we have fostered long-standing relationships with
our customers, suppliers and our external advisers. We base our
philosophy on sharing our core values with our key stakeholders
throughout the supply chain and by keeping in regular contact
with suppliers and customers advising them of our market
strategy and product innovation.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements68
Directors’ Report and Compliance Statements continued

Viability Statement
Introduction
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
pages 41 and 42 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 44 to 47. The Board
regularly reviews the principal risks and assesses the appropriate
controls and further actions as described on pages 41 and 42 given
the Board’s appetite for risk as described on pages 39 and 40.
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:

• Demand for energy service products improves 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;

• The Group’s reduced cost base enables the business to remain

competitive within the weaker sectors of the global energy
markets, particularly within the offshore and international markets;
• Global E&P spend in 2020 will be down 3% compared with 2019
due to a 10% reduction in US onshore spend. After 2020, global
spend is expected to rise by 8-9% pa; and

• 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
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 Statement
Introduction
The Group’s principal cash outflows include capital investment,
labour costs, inventory purchases and dividends. The timing and
extent of these cash flows is 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 overall market conditions, the variety of its
products and its 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 2019, 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.

The Group has access to sufficient financial resources, including
$160m of secured committed credit facilities, which were undrawn
throughout the whole of 2019. The Group’s internal financial
projections indicate that the Group will retain sufficient liquidity
to meet its funding requirements over the next 12 months.

Hunting PLC / 2019 Annual Report and Accounts69

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 no 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.

By order of the Board

Ben Willey
Company Secretary

27 February 2020

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements70

Strong governance

The Company’s governance
framework has been reviewed in
the year, as compliance with the new
UK Corporate Governance Code was
evaluated. Over time, it is the intention
of the Board to comply with all
aspects of the new Code.

Hunting PLC / 2019 Annual Report and Accounts71

Chairman’s Introduction
On behalf of the Board, I am pleased to provide an overview
of the Company’s governance framework during 2019.
New initiatives were implemented in the year to align with
the principles of the 2018 UK Corporate Governance Code
(the “new Code”).

The Board appointed Annell Bay in early 2019 as the
Company’s non-executive Director with responsibility
for employee engagement. Annell, along with the rest
of the Board, has overseen the roll out of the all-employee
engagement survey, the results of which are reported within
this Annual Report. Annell has also held meetings with the
senior leadership team to discuss engagement practices
across the Group and has met with employees as part of
the new engagement initiatives. Excellent feedback has
been received by the Board and we are encouraged that
the foundations of a solid process have been established.

On behalf of the Board, I want to thank our shareholders,
customers, employees, suppliers and other important
stakeholders for their support.

Introduction
The Company’s governance framework has been reviewed in the
year, as compliance with the new UK Corporate Governance Code
was evaluated. Over time, it is the intention of the Board to comply
with all aspects of the new Code. Stakeholder engagement has
been a key theme developed in the year within the Group’s
governance framework, which is described in more detail below.
It is the intention to further evolve and enhance our engagement
practices over time.

UK Corporate Governance Code
The new Code requires the Board and the senior leadership team
to report on the Company’s Purpose and Culture, as well as how
we engage with our key stakeholders. As noted above, the Company
introduced an all-employee engagement survey that provided
feedback to the Board and saw an 80% response rate. I am pleased
to report that stakeholder engagement reporting has improved
with our customers, employees and suppliers. The Company
is compliant with all aspects of the new Code, with the exception
of two remuneration-related provisions. A review of the Directors’
Remuneration Policy will be undertaken in 2020, as we seek to fully
comply with the new Code.

Board Evaluation
The Directors completed an internally facilitated Board and
Committee effectiveness review in December 2019. The Directors
considered the Company’s performance and the new governance
initiatives introduced in the year, in compliance with the new Code,
and were satisfied that the Group’s governance framework was
sound and was operating effectively.

Appointment of new Auditor
In accordance with auditor rotation regulations, Deloitte LLP was
appointed as the Company’s auditor at Hunting’s 2019 Annual
General Meeting, replacing PricewaterhouseCoopers LLP (“PwC”).
I would like to take this opportunity to thank PwC again for their
support and professionalism during their term as auditor to the
Group. The audit relationship with Deloitte has started well, mainly
due to the advanced planning and preparation undertaken by the
Group’s finance function and the Deloitte team.

Appointment of Finance Director
On 23 January 2020, we announced the retirement of Peter Rose
as Group Finance Director and proposed the appointment of
Bruce Ferguson as Peter’s successor, subject to election by
shareholders at the Company’s Annual General Meeting in April
2020. We would like to thank Peter for his many years of service
to the Group and strong leadership of the finance function since
2008. We wish him well in his retirement. Further, disclosures on
this process are located in the Nomination Committee Report
on pages 104 and 105.

Remuneration
The performance of the Company, of the executive Directors and
senior leadership team has been commendable, given the market
challenges and geopolitical risks faced by the global energy
industry. Management report a creditable set of financial results
and annual bonuses being paid are commensurate with the Group’s
performance, together with the strong personal performance by the
executive Directors. The 2017 awards under the Hunting Performance
Share Plan also show a modest vesting, reflecting earnings growth
and improving returns over the three-year performance period.
On behalf of the Board, I would like to thank Jim Johnson and
his team for delivering another good result for shareholders.

Succession Planning
The Board has also overseen a process to improve the Group’s
talent management procedures. In the year, an enhanced
succession planning framework was introduced, which will enable
the Board to monitor key employees who may be the future leaders
of your Company.

In summary, the Group has made a number of positive improvements
to governance in the year, as encouraged by the new Code and we
look forward to building on these foundations in future years.

John (Jay) F. Glick
Chairman

27 February 2020

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements72
Board of Directors and Company Secretary

John (Jay) F. Glick
Non-executive Chairman

Nationality
American.

Arthur James (Jim) Johnson
Chief Executive

Nationality
American.

Length of Service
5 years; appointed to the Board as a non-executive Director in
2015. In 2017, Jay was appointed non-executive Chairman. Age 67.

Length of Service
28 years; appointed to the Board as a Director and Chief Executive
in 2017. Age 59.

Skills and Experience
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
and Weatherford International plc.

Committee Membership
Nomination Committee (Chair) and by invitation.

Skills and Experience
Jim held senior management positions within Hunting from 1992
up to his appointment as Chief Operating Officer of the Group in
2011. In this role, he was responsible for all day-to-day operational
activities of the Company. Jim is a member of, and chairs, the
Executive Committee.

External Appointments
None.

Committee Membership
By invitation.

Peter Rose
Finance Director

Nationality
British.

Annell Bay
Non-executive Director

Nationality
American.

Length of Service
23 years; appointed to the Board as Finance Director in 2008.
Age 61. Peter will retire from the Board on 15 April 2020.

Skills and Experience
Peter is a member of the Institute of Chartered Accountants of
Scotland. Before joining Hunting he held senior financial positions
with Babcock International and, prior to that, spent several years
with PwC working in the UK and Hong Kong. Peter is a member
of the Executive Committee.

External Appointments
None.

Committee Membership
By invitation.

Length of Service
5 years; appointed to the Board as a non-executive Director
in 2015. In August 2018, Annell was appointed Chair of the
Remuneration Committee and is also the Company’s designated
non-executive Director for employee engagement. Age 64.

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.

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

Committee Membership
Nomination Committee.
Remuneration Committee (Chair).
Audit Committee.

Hunting PLC / 2019 Annual Report and Accounts73

Carol Chesney
Non-executive Director

Nationality
Joint American and British citizenship.

Richard Hunting, CBE
Non-executive Director

Nationality
British.

Length of Service
2 years; appointed to the Board as a non-executive Director
and Chair of the Audit Committee in April 2018. Age 57.

Skills and Experience
Carol is a Fellow of the Institute of Chartered Accountants in
England and Wales. Carol was formerly the Group Financial
Controller and, latterly, the Company Secretary of Halma PLC.

External Appointments
Carol is currently a non-executive director of Renishaw plc,
IQE plc and Biffa plc.

Committee Membership
Nomination Committee.
Remuneration Committee.
Audit Committee (Chair).

Length of Service
47 years; elected an executive Director in 1989 and was Chairman
from 1991 to 2017. In 2017, Richard retired as Chairman, and
remains on the Board as a non-independent, non-executive
Director. Age 73.

Skills and Experience
Richard has previously held a variety of management positions
around the Hunting Group.

External Appointments
None.

Committee Membership
By invitation.

Keith Lough
Senior Independent Non-executive Director

Nationality
British.

Ben Willey
Company Secretary

Nationality
British.

Length of Service
2 years; appointed to the Board as a non-executive Director in April
2018 and appointed Senior Independent Director in August 2018.
Age 61.

Length of Service
10 years; joined Hunting in 2010 and was appointed
Company Secretary in 2013. Age 46.

Skills and Experience
Keith was formerly the non-executive Chairman of Gulf Keystone
Petroleum plc and previously held a number of executive positions
within other energy-related companies, including British Energy plc
and LASMO plc.

External Appointments
Keith is currently the non-executive Chairman of Rockhopper
Exploration plc and Southern Water and a non-executive director
of Cairn Energy plc.

Committee Membership
Nomination Committee.
Remuneration Committee.
Audit Committee.

Skills and Experience
Ben is a Fellow of the Institute of Chartered Secretaries and
Administrators. He was formerly a partner at Buchanan, a WPP
company, and, prior to that, worked in investment banking with
Evolution Securities plc.

External Appointments
None.

Committee Membership
Audit Committee (Secretary).
Nomination Committee (Secretary).
Remuneration Committee (Secretary).

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements74
Executive Committee

Rick Bradley
Chief Operating Officer

Nationality
American.
Length of Service
9 years; joined Hunting in 2011 and was appointed Chief Operating
Officer in 2017. Age 60.

Jason Mai
Managing Director – Hunting Titan

Nationality
American.
Length of Service
5 years; joined Hunting in 2015 and was appointed Managing
Director in 2017. Age 51.

Scott George
Managing Director – US Operations

Nationality
American.
Length of Service
10 years; joined Hunting in 2010 and was appointed Managing
Director in 2011. Age 46.

Randy Walliser
Managing Director – Canada Operations

Nationality
Canadian.
Length of Service
1 year: joined Hunting and appointed Managing Director in 2019.
Age 59.

Bruce Ferguson
Managing Director – EMEA Operations

Nationality
British.
Length of Service
26 years; joined Hunting in 1994 and was appointed Managing
Director in 2011. Age 48.

Daniel Tan
Managing Director – Asia Pacific Operations

Nationality
Singaporean.
Length of Service
12 years; joined Hunting in 2008 and was appointed Managing
Director in 2011. Age 57.

Hunting PLC / 2019 Annual Report and Accounts75
Corporate Governance Report

Compliance
The Board of Hunting PLC has adopted governance principles
aligned with the 2018 UK Corporate Governance Code (the “new
Code”), which can be found at www.frc.org.uk. The Company is
reporting its corporate governance compliance against this Code.
The new Code replaces the 2016 Code, to which Hunting was
fully compliant. The Board has assessed its compliance with
the new Code and notes the following provisions to which
it is not compliant:

• The Remuneration Committee has reviewed the requirement
of provision 36 of the Code to develop an executive Director
post-employment shareholding policy and, at this stage, has
decided to defer implementation until the next Remuneration
Policy vote in 2021; and

• The pension contribution rates of the executive Directors
currently do not align with the workforce as required by
provision 38 of the Code. As noted in the Remuneration
Committee Report, the Board has committed to the principle
of aligning pension contribution rates of new executive Directors
with the general workforce, for the relevant geographic location.

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”).

The Board is responsible for the management and strategic
direction of the Company and to ensure its long-term success
by generating value for its shareholders, while giving due
consideration to other stakeholders, as prescribed by UK law.

Hunting’s governance framework is driven by its Purpose, Culture
and Values, which are noted on pages 8 and 9, and are derived
from engagement with its shareholders and principal stakeholders.

Hunting Governance Framework

Our purpose

Market
environment and
other external
factors

Stakeholder
engagement

Executive
Directors

1
Strategic intent

2
Challenge and
decision making

3
Short/long-term plan

Nomination
Committee

Risk
management

Business
strategy

Execution and
value creation
(Business Model)

Strategic and
ﬁnancial
performance

KPIs

Non-executive
Directors

Audit
Committee

Remuneration
Committee

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements76
Corporate Governance Report continued

Introduction
The Board discusses strategic planning and long-term growth
objectives. Supporting these discussions, the executive Directors
prepare strategic plans annually, which are tabled for discussion at
Board meetings. Strategic plans consider the future direction of the
Group, taking into account Environmental, Social and Governance
(“ESG”) matters. Once the Board has agreed the strategic plans,
these are embedded within Group operations and relayed to key
stakeholders more generally. Embedded within strategic planning
is the Group’s appetite for risk. The Group’s Risk Management
framework and procedures help the Board refine its decision
making, as the opportunities and risks for long-term success and
growth are evaluated against their risk appetite and the risk culture
of the Group. Following this, the Group’s Business Strategy and
Model are put into action.

The Directors monitor Hunting’s trading performance, including
progress against the Annual Budget, reviewing monthly
management accounts and forecasts, comparing forecasts to
market expectations and reviewing other financial matters. They
review and approve all public announcements, including financial
results, trading statements and set the dividend policy of the Group.

The internal control and risk management framework and
associated procedures are reviewed by the Board; however,
key monitoring procedures are delegated to the Audit Committee.
Remuneration of the executive Directors is set by the Remuneration
Committee, who also review and monitor the remuneration of the
Executive Committee, as well as monitoring remuneration of the
wider workforce.

The Board has three subcommittees to which it delegates
governance and compliance procedures: the Remuneration
Committee, whose report can be found on pages 84 to 103;
the Nomination Committee, whose report can be found on
pages 104 and 105; and the Audit Committee, whose report
can be found on pages 106 to 109.

The Board Committees support the Directors in their decision
making. The Audit Committee’s responsibilities include reviewing
the Group’s financial results and challenging the work and
performance of the external and internal auditors. The Remuneration
Committee ensures the executive Directors remain motivated and
incentivised, as the senior leadership team execute the approved
strategy on a day-to-day basis. The Remuneration Committee
ensures that executive pay remains aligned with Company
performance and the broader shareholder experience. The work
of the Nomination Committee supports the Board’s responsibility
for ensuring that a framework of recruitment and retention of talent
is in place to run the Company and that succession is well planned
and executed in a timely manner.

The Board and its Committees are further supported by an
Executive Committee, comprising the executive Directors and
managing directors of each operating segment of the Group.
Operational management is agreed by the Executive Committee,
who oversees implementation of the Group’s growth objectives and
ensures the risks and opportunities presented are actively managed.

Responsibilities of the Board
The Board of Hunting PLC has clearly defined areas of responsibility,
which are separate to those of the Chairman, executive Directors
and the Committees of the Board. The non-executive Directors
approve the strategic goals and objectives of the Company, as
proposed by the executive Directors. The Board approve all major
acquisitions, divestments, dividends, capital investments, annual
budgets and strategic plans.

The Board has overall leadership of the Company, setting the
values of the Hunting Group and providing a strong tone from the
top, to which all businesses within the Group and its employees are
encouraged to adopt. Governance principles of the Company are
set by the Board and key Group-level policies are reviewed and
approved by the Directors.

The Board approves all key recommendations from the
Remuneration, Nomination and Audit Committees and approves
all appointments to these Committees.

Board Activities
At each 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, position, outlook, banking arrangements, legal
issues, analyst discussions and statutory reporting developments
relevant to Hunting. These topics lead to discussion, debate and
challenge among the Directors.

The Group’s governance framework includes the Board and
the Executive Committee. Medium-term planning initiatives are
formalised within the Executive Committee, which are reviewed
regularly by the Board and supported by periodic presentations
by members of the Executive Committee.

During 2019, topics for discussion at the Board meetings included
the following business:

Feb

Apr

Jun Aug Oct Dec

Standing items
Chief Executive Report
Finance Director Report
Operational Reports
Quality Assurance, Health, Safety
and Environmental Reports
Shareholder Report
Other items
Annual/Interim Report and Accounts
Board Evaluation
Risk Review
AGM Preparation
Trading Statement
Strategy
Organisation and Personnel Review,
Development and Succession
Annual Budget
Chairman/Senior Independent Director
Investor Feedback

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Hunting PLC / 2019 Annual Report and Accounts77

During 2019, the Directors received the following presentations
from senior management and external advisers:

• Asia Pacific – segment overview and detailed management

briefing (April);

• Investor Relations – global strategy briefing (June);
• Corporate Broker Strategy – adviser briefing (June);
• Human Resources and Succession – new initiatives briefing

(December);

• IT Strategy – update briefing (December); and
• Cyber Security – external briefing (December).

In the year, the Directors reviewed the organisational structure of
the Group, noting its simplicity, with short chains of command to
allow for rapid business decision making. It was noted that this also
allowed all levels of the workforce to communicate with the senior
management team directly. As part of its regular Board meeting
schedule, the Directors review HSE and Quality Assurance reports
from the Group’s global operations. The Board also noted reports
submitted to the Remuneration Committee in respect of base salary
increases implemented across the major business units of the
Group, the senior management team and the executive Directors,
to ensure the workforce remained fairly remunerated.

The Board met six times in 2019, with a 100% attendance record
as noted in the table below:

Number of meetings held
Number of meetings attended (actual/possible):
Annell Bay
Carol Chesney
Jay Glick
Richard Hunting
Jim Johnson
Keith Lough
Peter Rose

6/6
6/6
6/6
6/6
6/6
6/6
6/6

Board Leadership and Company Purpose (Section 1
of the Code)
Culture and Purpose
The Group has been operating since 1874 and, as such, has a
long history, with a strong culture, including support for employees
across all of its global operations. The underlying Culture of the
Group extends to maintaining high business standards, creating
value for investors, by building strong and lasting relationships
with its core stakeholders. More information on engagement with,
and support to, the Group’s key stakeholders can be found on
pages 20 to 27.

Our Purpose is to be a deeply trusted innovator and manufacturer
of technology and products that creates sustainable value for
our stakeholders.

The Board, during the year, gave consideration to the Group’s
Purpose. Hunting’s core businesses are focused on the manufacture
of products which deliver oil and gas. The Directors have approved
Hunting’s continued focus on energy-related markets, given that
energy demand is projected to increase steadily between now
and 2040.

The Group’s disclosures on Purpose and Culture can be found
on pages 8 and 9 within the Strategic Report. As noted in the
disclosures, the Culture of the Group is based on:

• a flat organisational structure;
• strong HSE and quality assurance policies;
• a highly skilled workforce;
• providing fair remuneration; and
• engagement and dialogue with all key stakeholders.

In line with the recommendations of the new Code, the Board
has established procedures to monitor Culture and to ensure the
views of the Group’s workforce are understood by the Directors.
In July 2019, the Group launched a global, all-employee engagement
survey. The results of the survey were reviewed by the Directors,
with appropriate actions being undertaken, following a number
of areas of feedback that were received. Supporting this initiative
has been a process of formalising other employee engagement
initiatives including management briefings and introducing
roundtable employee discussion forums.

Shareholder Views
The Chairman and Senior Independent Director met with
shareholders in January 2019 and January 2020 to discuss
governance, strategy and other matters. As a result of these
meetings, Hunting has enhanced its public disclosures on ESG
matters. These disclosures can be reviewed on the Group’s
website www.huntingplc.com. Regular shareholder reports were
submitted to the Board throughout the year, which included an
Investor Relations and Corporate Broker briefing at its June Board
meeting. During the year, the Chief Executive and Finance Director
also met shareholders to discuss performance and strategy.
Investor meeting feedback reports are also prepared by the
Group’s advisers and are circulated to the Directors.

Annual General Meeting
The Annual General Meeting (“AGM”) of the Company is the
primary mechanism for all shareholders to meet the Directors and
to ask questions about the strategy and performance of the Group.
The formal business of the AGM includes receiving the Annual
Report and Accounts, approving Remuneration Policies and
Outcomes, re-electing Directors and providing the Directors with
powers to transact company business on behalf of its members.
The Chief Executive also provides a presentation of the Group’s
performance and answers questions from shareholders.

At the Company’s Annual General Meeting in April 2019, all
resolutions were passed with strong majorities, with no resolutions
receiving greater than 20% of votes against. Details of the resolutions
put to shareholders at the meeting can be found within the Notice
of Meeting located within the “General Meetings” section of the
Company’s website www.huntingplc.com.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements78
Corporate Governance Report continued

Stakeholder Engagement
Details of engagement activities with all our key stakeholders and the
Board can be found, within the Strategic Report, on pages 21 to 27.

Speak Up/Whistleblowing Service
An independent and anonymous whistleblowing reporting service
has been in place for a number of years, allowing any employee
access to the Board to raise matters of concern. During the year,
there were nine reports received through the SafeCall service (2018
– five reports), all of which are seen by Keith Lough, the Group’s
Senior Independent Director, who also receives and approves all
investigation reports and corrective actions. Mr Lough verbally
reports these activities to the Board during the year.

Conflicts of Interest
Each Director is required to declare any potential conflict of interest
that exists, or which may arise. These are formally recorded by the
Company Secretary.

Appropriate decision making, in light of this declaration, is undertaken,
which could include a Director not participating in a Board decision
or vote. Each Director is required to complete a declaration of
known conflicts of interest annually.

Division of Responsibilities (Section 2 of the Code)
The Hunting Board comprises the non-executive Chairman,
Chief Executive, Finance Director, three independent non-executive
Directors, one of whom is the Senior Independent Director and one
non-independent, non-executive Director.

The profiles and experience of each Director are found on
pages 72 and 73. In line with the new Code’s recommendation,
the Notice of Annual General Meeting, to be published in March 2020,
will incorporate details of the contribution in the year and the Board’s
reasons for proposing the re-election of each Director.

There is a clear division of responsibilities between the Chairman
and Chief Executive, with the Chairman required to lead the Board,
while the Chief Executive runs the Group’s businesses as
shown below:

Responsibilities of the Chairman
• lead and build an effective and balanced Board;
• chair meetings of the Board, ensuring the agenda and

materials are fit for purpose;

• ensure the Directors are provided with accurate, timely and

relevant information;

• encourage good dialogue between all Directors, with strong

contributions encouraged from all Board members;
• meet the non-executive Directors without the executive

Directors present;

• discuss training and development with the non-executive

Directors;

• arrange Director induction programmes;
• arrange an annual Board evaluation and act on its findings; and
• ensure shareholders and other stakeholders are

communicated with effectively.

Responsibilities of the Chief Executive
• manage the day-to-day activities of the Group;
• make strategic plan recommendations to the Board and

implement the agreed Board strategy;

• identify and execute new business opportunities, acquisitions

and disposals;

• ensure appropriate internal controls are in place;
• report to the Board regularly on the Group’s performance and

position; and

• present to the Board an annual budget and operating plan.

To ensure an effective relationship between the Chairman and the
Chief Executive and other members of the Board, the
responsibilities of the Senior Independent Director, as shown
below, have been revised and approved by the Board during 2019:

Responsibilities of the Senior Independent Director
• provide a sounding board for the Chairman and serve
as an intermediary to other Directors when required;

• be available to shareholders, should the normal channels

through the Chairman and Chief Executive not be appropriate;

• chair meetings of the Board, in the absence of the Chairman;
• lead an annual performance evaluation of the Chairman,
supported by the other non-executive Directors; and

• attend meetings with shareholders, to develop a balanced

understanding of any issues or concerns.

Responsibilities of the non-executive Directors
• provide independent challenge to executive management

on the proposed strategy;

• monitor the execution of the approved Strategy and of the

financial performance of the Company on an ongoing basis;

• ensure executive management remain motivated and

incentivised through a responsible remuneration policy; and
• ensure the integrity of financial information and internal control

and risk management are effective and defensible.

Responsibilities of the Company Secretary
The Company Secretary is appointed by the Board and supports
the Chairman in providing all materials and information flows
between the executive and non-executive Directors, specifically on
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.

Board Independence
As at 31 December 2019, excluding the Chairman, the Board
comprised 50% independent non-executive Directors. Including
the Chairman, 57% of the Board comprises independent Directors.

The Board, including the Chairman, have access to professional
advisers, at the Company’s expense, to fulfil their various Board
and Committee duties.

Hunting PLC / 2019 Annual Report and Accounts79

Board Independence (including Chairman)

Independent 57%
Non-Independent 43%

Board Independence (excluding Chairman)

Independent 50%
Non-Independent 50%

External Appointments
The Group has procedures in place that permits the executive
Directors to join other company boards. In the year, neither
the Chief Executive nor the Finance Director held any external
board appointments.

Executive Committee
The Group has an Executive Committee (“ExCo”) comprising
the regional managing directors of the Group and the executive
Directors. During 2019, the ExCo met four times, to discuss the
performance of each operating segment, strategic initiatives,
including the progress of capital investment programmes, quality
assurance and HSE performance, in addition to Human Resources
and Risk Management reports. The Company Secretary and Head
of Investor Relations are also invited to meetings of the ExCo.

In the year, the ExCo was briefed on the 2018 UK Corporate
Governance Code requirements in addition to the new stakeholder
reporting initiatives to be implemented. Each managing director
submitted reports to the Board in the year, to enable an in-depth
understanding of the Group’s engagement initiatives to be made.

Composition, Succession and Evaluation
(Section 3 of the Code)
Board Appointments
All appointments to the Board are in accordance with the
Company’s Articles of Association and the Code and are made
on recommendation by the Nomination Committee. Recruitment
of new Directors follows Group policy, including the formulation
of a detailed description of the role that gives consideration to the
required skills, experience and diversity requirements for the process.
The Directors usually review a list of candidates, prior to a shortlist
being recommended by the Nomination Committee, ahead of
face-to-face interviews with each Director.

Board Skills and Experience
The expertise and competencies of the non-executive Directors
are noted in the table below, and underpin the balance of skills
and knowledge of the Board:

Director
Annell Bay

Carol Chesney

Jay Glick

Expertise
Upstream oil and gas, US energy market
development and US quoted companies.
Accounting, UK Corporate Governance,
Ethics Compliance and UK quoted companies.
Oilfield services and manufacturing, US energy
market development and US quoted companies.

Richard Hunting UK Corporate Governance, Investor Relations.
Accounting, upstream oil and gas, UK energy
Keith Lough
regulation and market development and UK
quoted companies.

The activities of the Nomination Committee are reported on pages
104 and 105. No new Board appointments were made in 2019,
given the process of refreshing completed in 2018. The tenure
of the Board of Directors, as at 27 February 2020, is noted in
the chart below.

Board Tenure

< 3 years 43%
3 to 9 years 28%
> 9 years 29%

None of the independent non-executive Directors have been in the
role for greater than nine years. Jay Glick was appointed to the
Board in 2015 and appointed Chairman in 2017.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements80
Corporate Governance Report continued

For the appointment of executive Directors, the Company enters
into a Service Contract with the Director, which reflects the terms
of employment, remuneration and termination, taking into account
country of residence and local employment laws applicable at
the time of appointment. For more information on the Service
Contracts of the current executive Directors, please see the 2017
Remuneration Committee Report located at www.huntingplc.com.

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, appointed for a three-year term.
All appointment letters are available for inspection at the Company’s
AGM or at Hunting’s registered office. Due to the small size of the
Hunting Board, non-executive Directors are paid fees that are
above the UK market median, reflecting a high level of time
commitment required for Company matters.

Senior management appointments are reported to the Board
by the executive Directors.

Further, when the succession of the Company Chairman is being
considered, the Senior Independent Director chairs the Nomination
Committee.

Annual Re-Election
At the 2019 AGM, all Directors were re-elected by shareholders.
All Directors will retire and submit themselves for annual re-election
at the 2020 AGM, with the exception of Peter Rose who is retiring
from the Board.

In addition to the internal evaluation, the non-executive Directors,
led by the Senior Independent Director Keith Lough, completed
a Chairman’s performance evaluation in December 2019 and
concluded that Mr Glick had been an effective and capable
Chairman of the Company.

The Board organises an externally facilitated Board effectiveness
evaluation every three years, the last being completed in 2018
by Clare Chalmers Limited. Areas of improvement were identified,
with the process scheduled to be repeated externally in 2021.

Board Induction and Training
Following new Board appointments, internal briefings are usually
organised to introduce key finance and operational personnel
and to present the structure and operation of each major business
within the Group. Facility visits to the Group’s operations are also
organised and key members of the Group’s leadership team give
presentations on each operating segment.

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

Diversity
The Group’s diversity policy can be found at www.huntingplc.com.
Hunting’s policies promote prejudice-free decision making,
ensuring all stakeholder interests are taken into consideration
and commits Hunting to building a working environment in which
all individuals are able to make best use of their skills, free from
unfair discrimination, victimisation, harassment and/or bullying,
and in which all appointments are based on merit.

Furthermore, the policy focuses on recruitment, training and
development, conditions of work and disciplinary procedures.

Gender
Gender diversity data of Hunting’s Board, senior management
and workforce is noted on the opposite page.

Gender and ethnicity suggestions made in the Hampton-Alexander
and Parker reviews have been noted by the Board and will be taken
into consideration as the Board is refreshed over the coming years.

Board Succession
Succession planning has become an area of increased focus,
following the formation of the Executive Committee in 2018 and
in line with best practice.

In November 2018, the Group appointed a global Chief HR Officer
who has reviewed the Group’s succession planning arrangements.
As part of this review process, procedures to formalise the
development and continuity of executive talent were enhanced
and presented to the Board at its December 2019 meeting.

Board Evaluation
The Directors undertake an internal effectiveness evaluation of
the Board and its Committees annually, 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.

The 2019 Board evaluation process was enhanced, following
the publication of the 2018 UK Corporate Governance Code and
Guidance on Board Effectiveness. Following completion of the
process and further Board discussion, the Chairman and the Board
concluded that all Directors, all Committees and the Board itself
remained effective.

Hunting PLC / 2019 Annual Report and Accounts81

Board

Male 71% (2018 – 71%)
Female 29% (2018 – 29%)

Senior Management
(defined as members of the Executive Committee and their Direct
Reports)

Male 89% (2018 – 91%)
Female 11% (2018 – 9%)

Workforce

Male 79% (2018 – 79%)
Female 21% (2018 – 21%)

629

2,327

Ethnicity
Hunting is committed to an ethnically diverse workforce and
extends its global operating footprint to 11 countries. The Group
remains North American focused, with over 72% of employees
from that region at 31 December 2019.

Group ethnicity
%

North America

Europe

Asia

Rest of World

100

2017

2018

2019

Audit, Risk and Internal Control (Section 4 of the Code)
The Group’s policies, procedures and approach to audit, risk and
internal control is described within the Risk Management (pages 39
to 42) and Audit Committee Report (pages 106 to 109) sections of
the Annual Report and Accounts. The Risk Management section
includes information on the Group’s principal risks and emerging
risks, as required by the Code.

Fair, Balanced and Understandable Assessment
The Board has delegated the responsibility of reviewing the Fair,
Balanced and Understandable Assessment to the Audit Committee,
which reviewed assessments of the half- and full-year results and
made recommendations to the Directors in February and August.

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
with supporting reports from the executive Directors and the
Group’s central finance function. On 25 February 2020, the Board
approved the Going Concern Basis and Viability Statement for the
2019 year-end, which is detailed on pages 68 and 69.

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

At the Board’s February 2020 meeting, the Directors completed
a robust assessment and review of the Group’s risk management
framework and the principal risks facing the Company.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements82
Corporate Governance Report continued

Remuneration (Section 5 of the Code)
The Group’s remuneration principles align with the Code and are clearly linked to the long-term success of the Company.

Clarity and
Simplicity

Risk, Predictability
and Proportionality

Alignment

The Directors Remuneration Policy is based on fixed and variable emoluments. Fixed emoluments are
benchmarked against other global energy services companies and the UK listed environment, to ensure the
Company can attract and retain talent. Variable emoluments are based on two structures, an annual bonus and
long-term incentive plan. Both variable structures are based on the Group’s disclosed key performance indicators,
including both financial and non-financial measures, and only pay out when performance has been achieved.
The Chief Executive’s remuneration is benchmarked against global peers, who are mostly headquartered in
the US, while the Finance Director is benchmarked against UK listed companies of similar size.

Non-executive Director fees are set at levels that take into account the time commitment and responsibilities of
each role. The non-executive Directors do not receive cash bonuses or other variable emoluments. The fees are
benchmarked against 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.

The pay structures of the senior management team and wider workforce are generally based on the Company’s
shareholder approved Remuneration Policy, and can include pension and healthcare benefits as well as annual
bonus and long-term incentives.

Shareholder engagement is a key theme of Directors’ Remuneration Policy, with proactive engagement occurring
whenever major changes to Policy or Committee decision making are contemplated. The Committee is satisfied
that, over time, shareholder feedback has been incorporated into the Directors’ Remuneration Policy.
The Committee believes that the Directors’ Remuneration Policy aligns with the risk profile of the Company,
encouraging growth in the long term and discouraging excessive risk taking. The Policy is weighted towards
variable pay on the delivery of long-term growth.

As noted on page 83 of the Corporate Governance Report, the remuneration paid over time has aligned well with
the Group’s performance, with annual bonus and long-term incentives only vesting on the delivery of performance.
The Board and the Remuneration Committee have reviewed the Company’s Purpose, Values and Culture and
believes that the remuneration framework operated by the Company encourages strong performance, based
on a culture of honesty and integrity and putting stakeholder needs at the forefront of our strategic priorities.

The current Directors’ Remuneration Policy was approved by
shareholders on 18 April 2018, with a revised policy due to be
tabled at the Company’s Annual General Meeting in April 2021.

The chart below summarises the components of executive
remuneration and the key performance indicators that are inputs
to the remuneration outcomes.

More information on compliance with the provisions of the Code
and the emoluments paid to the Directors can be found in the
Remuneration Committee Report on pages 84 to 103.

Summary of Remuneration Structure and KPI

Fixed

Variable

In respect of the current Directors’ Remuneration Policy and the
new Code, the Committee notes the following:

• The Company’s long-term incentive arrangements extend

to a five-year timeframe, with a three-year vesting period and
two-year post-vesting holding period;

• Implementation of a post-employment shareholding policy has
been deferred until the next Policy vote in 2021, as noted in the
introduction of this report;

• Malus and clawback provisions are in place for all variable

remuneration, with the triggers amended in the year in line with
the recommendations of the Code;

• The Committee has flexibility within the Directors’ Remuneration

Policy to exercise appropriate discretion; and

• Pension provisions for new executive Directors will align with the
workforce in the future; however, at present the pension provisions
for the current executive Directors do not comply with the Code.

Base
Salary

Benefits

Pension
Provision

Annual
Bonus

Long-Term
Incentive

KPIs

Profit before tax
ROCE
Personal
Objectives

ROCE
TSR
EPS
Safety
Quality assurance

Hunting PLC / 2019 Annual Report and Accounts83

The Board believes that the remuneration framework aligns with
the Purpose, Values and Culture of the Group, which is based on
fair remuneration and reflects performance in the long term. This
framework is also in place for the senior management of the Group,
with participation in annual bonuses and inclusion in the long-term
incentive scheme operated by the Company also featuring in
emolument structures in many levels of the workforce. The long-term
incentive scheme operated by the Group operates on a five-year
timeframe, with a three-year performance period, followed by
a two-year holding period for vested shares. The Remuneration
Committee sets executive Director remuneration and reviews
policies for the senior management and the wider workforce.

Profit before Tax ($m) vs Chief Executive Remuneration ($k)

CEO Pay

PBT

300

200

100

-100

2015

2016

2017

2018

2019

6,000

4,000

2,000

-2,000

John (Jay) F. Glick
Chairman

27 February 2020

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements

84
Remuneration Committee Report
For the year ended 31 December 2019

The Company’s financial outturn for 2019 reflects a
creditable performance, despite heightened levels of
market volatility and increased geopolitical risk during
the year, which impacted commodity prices, industry
capital expenditures and the general outlook for growth.
The profits delivered by management, coupled with
a strong cash position at year-end, has underpinned
the remuneration paid, and reflects a strong personal
performance by the executive Directors, despite the
challenging market environment.

The Annual Bonus awards reflect the Group’s financial
results achieved, together with delivery of personal
objectives. The personal targets were set by the Committee
in early 2019 and were measured and the outcomes agreed
as part of the year-end deliberations of the Committee.

The award under the Hunting Performance Share Plan
(“HPSP”) also records a modest level of vesting, based
on the delivery of targets set in 2017. The EPS and ROCE
performance conditions record an above threshold vesting,
while the TSR performance condition reflects an upper
quartile performance and therefore a full vesting of this
portion of the HPSP award.

The Committee has reviewed the new UK Corporate
Governance Code and has put in place measures to enable
the Company to become fully compliant over time.

2019 has been a positive year for Hunting. The Committee
believes that the outcomes reported are a fair reflection
of both Company and individual performance.

Annell Bay
Chair of the Remuneration Committee

Introduction
On behalf of the Board, I am pleased to present the Remuneration
Committee Report to shareholders for the year ended
31 December 2019. This report provides a summary of the work
completed by the Remuneration Committee (the “Committee”)
in the year, including the major decisions taken and details of how
the approved Directors’ Remuneration Policy was implemented
during the year.

Major Decisions Made by the Committee
Base salary and fee review: In April 2019 the Committee
reviewed globally benchmarked emolument data, prepared by
Mercer/Kepler (“Kepler”) in respect to the executive Directors.
Following discussion, the base salary of the Chief Executive was
increased by 5.0% (equating to an annualised increase of c.3.8%).
In coming to this conclusion, the Committee noted that no changes
to Mr Johnson’s salary had been made since his appointment in
2017, a period over which he has demonstrated strong leadership,
and that his salary was below many other executives within the
Group’s international peer group. Further, the Committee reviewed
base salary increases for the Executive Committee and following
discussion with the Chief Executive and Chairman, the base salary
of the Finance Director was increased by 4.0%. The Committee
noted this was within the range which had been awarded to
members of the Executive Committee in 2019 and reflected a
strong performance by Mr Rose as the Group reported a solid
balance sheet, supported by strong capital discipline. The base
salary increases were implemented with effect from 1 April 2019.
As noted in last year’s report, in December 2018, the Board
reviewed the fees paid to the non-executive Directors with no
changes implemented. The Committee reviewed the Chairman’s
fee and following discussion, agreed a 5% increase to the annual
fee to £183,750, effective from 1 January 2019.

Annual bonus: The Group reported a creditable performance
in 2019, despite challenging market conditions. For the year ended
31 December 2019, underlying profit before tax (“PBT”) was
$93.1m and underlying return on capital employed (“ROCE”) was
7.9%. The annual targets agreed by the Board contained within the
Group’s Annual Budget were PBT of $104.7m and ROCE of 9.3%
and therefore an “Above Threshold” vesting has been recorded.
In February 2020, the Committee met to discuss the delivery of
the personal performance targets set for the executive Directors
and as noted on page 96 of this report, the Committee agreed that
each executive Director had delivered on their respective personal
objectives and so agreed to pay this portion in full.

In determining the final outcome for the Annual Bonus paid to
the executive Directors, the Committee has applied discretion by
ring-fencing the impact of the acquisition of RTI Energy Systems Inc.,
totalling $1.6m, leading to an adjusted profit before tax of $94.7m
and ROCE of 8.0%. The Committee agreed that the acquisition
was a key strategic milestone delivered by management but was
not incorporated within the approved 2019 Annual Budget, with the
short-term trading losses and acquisition costs adversely impacting
the overall underlying profit result delivered by management in
the year.

Mr Johnson was therefore awarded an annual bonus of $567k
and Mr Rose was awarded $250k. In line with the 2018 Directors’
Remuneration Policy, 25% of the post-tax value of the bonus will
be delivered in Ordinary shares in the Company to be held for
two years from 27 February 2020.

Vesting of HPSP Awards: On 24 February 2020, the Committee
reviewed the final vesting report for the 2017 share awards granted
under the Hunting Performance Share Plan (“HPSP”). The EPS and
ROCE performance measures were both based on absolute targets
to be delivered in the year ended 31 December 2019, and given the
performance in the year, delivered an “Above Threshold” vesting.

Hunting PLC / 2019 Annual Report and AccountsThe Committee remains satisfied with the internal processes
around recovery provisions and confident that these provisions
would be enforceable if required. For further information on the
Company’s compliance with the 2018 UK Corporate Governance
Code please see pages 75 to 83.

Activities Undertaken by the Remuneration Committee
During 2019

Feb

Apr

Aug

Dec

Overall remuneration
Annual base salary review
Review senior management annual
emoluments paid
Review total remuneration against
benchmarked data
Items specific to annual bonus
Approve annual bonus including delivery
of personal performance targets
Review Annual Bonus Plan Rules
Agree personal performance targets
for year ahead
Items specific to long-term incentives
Approve HPSP vesting and new
annual grant
Review HPSP performance conditions
Review HPSP grant performance targets
Governance and other matters
Approve Annual Report on Remuneration
Review and approve Remuneration Policy
(if required)
Review governance voting reports
Review AGM proxy votes received
for Annual Statement of Remuneration
and Policy
Review Committee Effectiveness
and Terms of Reference

•

•
•

•

•
•

•

Annell Bay
Chair of the Remuneration Committee

27 February 2020

The TSR performance condition was independently measured by
Kepler resulting in an upper quartile ranking against Hunting’s peer
group comprising of 14 companies leading to a full vesting of this
portion of the 2017 grant.

Peter Rose, as an executive Director on the date of grant, is entitled
to receive 63,890 Ordinary shares on 3 March 2020, being the
vesting date of the 2017 award, which reflects a 55.1% vesting
of the performance conditions noted above.

Jim Johnson, serving as Chief Operating Officer a non-Board level
position on the date of grant, was subject to a fourth performance
condition, based on the Group’s internal manufacturing reject rate
performance over the three-year period which recorded a full
vesting. Based on this outcome, Mr Johnson’s 2017 award will
record a 66.4% vesting, and he will be entitled to receive 148,314
Ordinary shares on the vesting date. Dividends paid by the Company
during the performance period, totalling 14.0 cents per share, will
be added to the final award, in line with the rules of the HPSP.

2019 AGM Result
At the Company’s AGM held on 17 April 2019, the Company
received 95.6% votes in favour of the resolution to approve
the 2018 Annual Report on Remuneration.

Context of Remuneration Awarded in 2019
The Group’s financial performance in the year, as noted above,
has led to an “Above Threshold” vesting of the annual bonus
and an “Above Target” vesting of the HPSP award. The single
figure remuneration paid to Jim Johnson was $2.2m in 2019
(2018 – $3.7m) and the remuneration paid to Peter Rose was
$1.2m (2018 – $2.1m).

In 2018, the remuneration paid to the executive Directors reflected
a Maximum annual bonus award and an Above Target vesting
of the HPSP. The Committee is satisfied that total pay outcomes
are appropriate in the context of Group performance across the
periods covered by these short- and long-term incentives.

2018 UK Corporate Governance Code Compliance and
Other Best Practice Changes
The Committee has reviewed the contents of the 2018 UK
Corporate Governance Code and notes that it is fully compliant
to most remuneration-related provisions and principles.

The Committee deliberated on the provision which requires
a Post-Employment Shareholding Policy to be implemented for
executive Directors and will develop a policy as part of the next
Remuneration Policy vote in 2021. The Committee also noted
the provision which requires executive Director pension contribution
rates to align to the average of the workforce and has decided to
address this recommendation for new executive appointments
to the Board. The Committee will formalise its compliance to this
provision at its next Policy review. Any new executive Director
appointments made to the Board in the interim period will be
provided with a pension provision which aligns to the majority of
the workforce in the country of domicile. With regards to incumbent
executive Directors, the Committee agreed with Peter Rose in
August 2019 to freeze the annual Sterling contribution he receives
with effect from 1 January 2020.

Finally, and noting recommendations from the Investment
Association, the Committee reviewed the recovery provisions
applying to the Group’s short- and long-term incentives and resolved
to expand the list of possible triggers by including one relating to
“Actions which cause reputational damage to the Company”.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements86
Remuneration at a Glance

Remuneration Policy
A summary of the Directors’ Remuneration Policy is found
on pages 88 to 92.

The Policy was approved by shareholders on 18 April 2018, following
a comprehensive review of Hunting PLC’s remuneration framework.

At the Annual General Meeting of the Company on 17 April 2019,
the resolution to approve the Annual Report on Remuneration
was supported by a 95.6% vote in favour.

Link to Strategy and KPIs
The Group’s Key Performance Indicators are noted on
pages 64 and 65 and include financial measures including profit
before tax, return on capital employed and net earnings growth.
Non-financial measures are incorporated into HPSP awards and
include the Group’s Quality Assurance and Safety performance.
Both these metrics underpin Hunting’s standing and reputation
in the global energy industry which, in turn, support the Group’s
long-term strategy.

The Company’s chosen financial and non-financial KPIs are
therefore central to measuring Hunting’s long-term success and
are fully integrated into the remuneration framework approved by
shareholders. The Committee also believes that these KPIs help
align executive remuneration to the broader shareholder experience.

Company Performance Summary
The performance of the Group in the year, as noted in the
Letter from the Chair of the Remuneration Committee, reported
a sustained performance compared to 2018, despite increased
market volatility and global geopolitical tensions.

The 2019 outturn recorded an “Above Threshold” performance
in respect to the Annual Budget agreed in December 2018 and
an “Above Target” vesting of the HPSP. 2019 remuneration has
been lower than the prior year due to a lower vesting of variable
pay. In 2018 the Group exceeded both short- and long-term
objectives, which resulted in higher levels of vesting of the annual
bonus and the long-term incentive.

Annual Bonus Policy
The annual bonus combines profit before tax, return on capital
employed and personal performance targets as the basis of the
short-term awards to the executive Directors. As noted in the
report from the Chair of the Remuneration Committee, adjusted
results have been applied, reversing the $1.6m impact of the
acquisition of RTI Energy Systems Inc.

Adjusted
Profit before tax

Adjusted
ROCE

$94.7m

90.4% of target

8.0%

86.0% of target

Base Salaries
Jim Johnson was appointed Chief Executive on 1 September
2017 and from 1 April 2019, the Remuneration Committee
agreed to increase his base salary by 5.0% to $735,000.
The Committee also reviewed changes to the base salaries
of the Executive Committee and workforce and following
discussion with the Chief Executive and Chairman increased the
base salary of Peter Rose by 4.0% to £338,553. Both increases
were implemented from 1 April 2019; therefore Mr Johnson’s
salary received in the year was $726,250 and Mr Rose’s was
$427,907 (or a year-on-year increase in salaries paid of 3.8%
and 3.0% respectively).

Annual Bonus
The underlying PBT and ROCE targets, as agreed by the
Board in December 2018, were $104.7m and 9.3% respectively.
Achieved underlying PBT was $93.1m and ROCE was 7.9%.
Adjusted PBT and ROCE was $94.7m and 8.0%, with a vesting
of 90.4% and 86.0% of budget for PBT and ROCE respectively.
The Committee set personal performance objectives for the
Chief Executive and Finance Director and, as noted on pages 96
and 97 of the Annual Report on Remuneration, both executives
achieved a full vesting. Based on these outcomes, a 39% vesting
of the maximum bonus opportunity was recorded with $567k
and $250k paid to the Chief Executive and Finance Director.

Chief Executive

Finance Director

$735,000
+5%

£338,553
+4%

Chief Executive

Finance Director

$567k
-60%

$250k
-62%

Hunting PLC / 2019 Annual Report and Accounts87

Hunting Performance Share Plan (“HPSP”)
The Group’s 2017 HPSP grant incorporated EPS, ROCE and
relative TSR performance targets, divided equally into a one-third
portion for each performance metric. Absolute EPS and ROCE
targets, to be delivered by 31 December 2019, were set along
with a three-year TSR target.

Shareholder Returns
Total shareholder return is measured against a peer group
of 14 companies, all focused on upstream oil and gas services.
For the three years ended 31 December 2019, Hunting had an
upper quartile ranking with a TSR of -22.6%, compared to the
peer group median performance of -46.1%.

Relative TSR
(3-year)

Diluted EPS
(Absolute target)

Diluted ROCE
(Absolute target)

33%

2017 Hunting Performance Share Plan Outcome
The outcomes are presented below:

TSR
(3-year)

Upper quartile

100% vesting

EPS
(Absolute target to be
delivered by 31.12.19)

ROCE
(Absolute target to be
delivered by 31.12.19)

Internal manufacturing
reject rate
(3-year)

44.1

cents per share

40.4% vesting

8.0%

25.0% vesting

0.26%

100% vesting

The vesting outcome reflects the Group’s results under IAS 17
Leases, in line with the terms of the 2017 grant. On this basis,
55.1% of the share awards to Peter Rose will vest and he will
receive 63,890 Ordinary shares.

Jim Johnson’s 2017 award (which was granted before his
appointment to the Board) incorporated a fourth performance
condition, based on the internal manufacturing reject rate, which
has vested in full. Mr Johnson’s award will therefore vest at
66.4% and he will receive 148,314 Ordinary shares.

Dividends paid by the Company during the vesting period,
totalling 14.0 cents per share, will be added to the award.

Chief Executive

Finance Director

148,314

Shares will vest

63,890

Shares will vest

Pay Scenarios

Chief Executive

Fixed

Annual Bonus

HPSP

Maximum

Target

Fixed

Finance Director

Fixed

Annual Bonus

HPSP

Maximum

Target

Fixed

$5,700k

$3,267k

$834k

$2,121k

$1,343k

$565k

Assuming a 50% appreciation of the share price, the Target
and Maximum pay to Mr Johnson would increase to $4,094k
and $7,354k respectively and the Target and Maximum pay
to Mr Rose would increase to $1,570k and $2,575k respectively.
Actual pay is noted in the charts below.

Pay In the Year Summary
The actual remuneration paid to the executive Directors
are as follows:

Chief Executive

Fixed $859k
Annual Bonus $567k
HPSP $803k
Total $2,229k

Finance Director

Fixed $562k
Annual Bonus $250k
HPSP $346k
Total $1,158k

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements88
Directors’ Remuneration Policy Summary

Policy Overview
The Hunting PLC Directors’ Remuneration Policy (the “Policy”), was approved by shareholders on 18 April 2018. The full Policy can be found
at www.huntingplc.com/investors/corporate-governance.

The Policy is designed to comply with the principles of the 2016 UK Corporate Governance Code and the Companies Act 2006 regarding
remuneration and to ensure that the Company can attract, retain and motivate talented executive Directors to promote and deliver
long-term success for the Group. The package comprises fixed and variable incentives and is structured to link total reward to both
corporate and individual performance.

The Remuneration Committee is planning to submit its next Directors’ Remuneration Policy to shareholders in April 2021, where the Committee
expects to be able to report full compliance with all provisions of the 2018 UK Corporate Governance Code related to remuneration.

The Policy tables which follow below provide an overview of each element of the Directors’ Remuneration Policy.

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 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 Bonus
• Discretion to adjust the amount of any bonus to reflect any fact or circumstance that the Committee considers to be relevant, and to ensure

that the outcome is a fair reflection of performance.

• 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 proportion of the performance period completed.

• The Committee may apply discretion to vary the percentage of an award settled in cash or shares.
• The annual bonus plan contains malus and clawback provisions for reasons including material misstatement and gross misconduct.

In 2019, the Committee reviewed these triggers and added “actions which cause reputational damage to the Company”.

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 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.

• The HPSP contains malus and clawback provisions for reasons including material misstatement and gross misconduct. In 2019,

the Committee reviewed these triggers and added “actions which cause reputational damage to the Company”.

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 of the individual becoming a Director of the Company.

Relevance to Employee Pay
The Policy tables summarise the remuneration structure that operates within Hunting and which also applies to senior executives of the
Group. While bonus and pension 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.

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.

Other Information
Details of the terms of employment of the Directors, including Service Contracts, Letters of Appointment, New Director Recruitment and
Leaver Policies are located in the 2017 Annual Report and Accounts and on the Company’s website at www.huntingplc.com. Jim Johnson
and Peter Rose have a one-year notice period contained within their respective Service Contracts. Further, while Mr Johnson and Mr Rose
do not hold any external directorships, the shareholder-approved Directors’ Remuneration Policy makes provision for them to retain any
fees for such directorships.

Hunting PLC / 2019 Annual Report and Accounts89

Executive Director Remuneration Policy Table

Fixed Emoluments

Purpose and link to strategy
Base Salary
• To attract, retain and

reward executives with
the necessary skills to
effectively deliver the
Company strategy.

Pension
• To provide normal
pension schemes
appropriate to the
country of residence.

Benefits
• To provide normal

benefits appropriate
to the country
of residence.

Operation

Maximum opportunity

Performance metrics

Change to policy for 2020

• There is no prescribed

• Individual and

• None.

Group performance
are taken into account
when determining
appropriate salaries.

maximum annual
increase. Increases will
normally be 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.

• Pension contributions

• None.

• While no formal

vary based on individual
circumstances.

changes are being
proposed to the
policy this year,
the Committee
commits that
any future
appointments
to the Board will
receive a pension
contribution in line
with the majority
of the workforce
in the country
of domicile. This
commitment will be
formalised as part
of the next Policy
review in 2021.

• None.

• There is no maximum
value set on benefits.
They are set at a level
that is comparable
to market practice.

• Base salaries are set
at competitive rates,
which take into
account the individual’s
country of residence
and primary operating
location as well as pay
for comparable roles in
comparable companies.

• Aimed at the market

mid-point.

• Annual increases take
into account Company
performance, inflation
in the UK, US and
increases across the
wider workforce.
• Relocation and tax

equalisation agreements
are also in place for
employees working
across multiple
geographic jurisdictions.

• 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.

• The Finance Director
(currently resident in
the UK) receives an
annual cash sum in lieu
of contributions to a
company pension
scheme.

• Additional benefits may
be provided to ensure
the Group remains
competitive within the
relevant local market.

• Each executive Director

is provided with
healthcare insurance
and the option of a
company car with
fuel benefits.

• Additional benefits may
be provided to ensure
the Group remains
competitive within the
relevant local market.

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90
Directors’ Remuneration Policy Summary continued

Variable Emoluments

Purpose and link to strategy
Annual Bonus
• To incentivise annual

delivery of financial and
operational targets.

• To provide a high reward
potential for exceeding
demanding targets.

Operation

Maximum opportunity

Performance metrics

Change to policy for 2020

• The Chief Executive
and Finance Director
have a maximum
annual bonus
opportunity of 200%
and 150% of salary,
respectively.

• While not currently
in the approved
Policy, the
Committee
reviewed the malus
and clawback
triggers in the
year and added
reputational
damage.

• The annual bonus
is based 60% on
underlying PBT, 20%
on underlying ROCE
and 20% on the
delivery of Personal
Performance
objectives.

• The vesting of the

Personal Performance
component is subject
to a financial underpin.
Should the financial
targets not be met, a
50% vesting cap of the
Personal Performance
component will be
implemented.

• Awards are subject to
the Annual Bonus Plan
rules adopted by the
Board in 2010 and
amended in 2018.
• Bonus begins to

accrue when 80%
of the Annual Budget
targets are achieved
and increases on a
straight-line basis 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.

• 25% of the post-tax
value of the annual
bonus is payable in
Hunting shares. These
shares are required to
be held for two years
from the vesting date.
• Malus and clawback

provisions are
incorporated and
allow the Committee
to reduce the bonus,
potentially down to
zero, in cases of
material financial
misstatement,
calculation error or
gross misconduct.

Hunting PLC / 2019 Annual Report and Accounts91

Operation

Purpose and link to strategy
Hunting Performance Share Plan (“HPSP”)
• To align the interests
of executives with
shareholders in
growing the value
of the business over
the long term.

• The HPSP provides
for annual awards of
performance shares
or nil cost options to
eligible participants.

• Vesting is based
on a three-year
performance period.
• On vesting, awards are
subject to an additional
two-year holding
period (subject to
settlement of any tax
charges on vesting).
• Awards are subject

to clawback and malus
provisions.

• 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.

• Directors have five

Minimum Stock Ownership Requirement
• To encourage the
retention of shares
under award to the
executive Directors.
• To align the long-term

years to achieve the
required holding level
from the date of their
appointment to
the Board.

interests of the
executive with
shareholders.

• The Board has

discretion to extend
this time period if
warranted by individual
circumstances.

Maximum opportunity

Performance metrics

Change to policy for 2020

• While not currently
in the approved
Policy, the
Committee
reviewed the malus
and clawback
triggers in the
year and added
reputational
damage.

• Chief Executive:

550% of base salary.

• Finance Director:

450% of base salary.
• The policy limit provides
the Committee with
flexibility in cases such
as recruitment.

• The Committee has

set the current award
levels for the Chief
Executive and Finance
Director of 450% and
210% of salary,
respectively, and does
not currently intend
to increase these.
• Achievement of a

threshold performance
target results in a 25%
vesting for any portion
of the award.

• Awards vest on
achievement of
financial and strategic
performance
measures, measured
over a three-year
performance period.
• Financial measures
include EPS, ROCE
and TSR and amounts
for an aggregate
weighting of 85% of
each award. A fourth
measure, in the form of
a Strategic Scorecard,
comprises a number of
sub-measures having
an aggregate weighting
of 15% of each award.

• HPSP awards are

based 35% on ROCE,
25% on EPS, 25% on
relative TSR and 15%
on a Strategic
Scorecard. The
Scorecard measures
for 2020 will include
the Group’s Quality
Assurance and Safety
outcome across the
performance period.

• The target holding

• None.

of the Chief Executive
is equal to the market
value of 500% of base
salary and for the
Finance Director 200%
of base salary.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements

92
Directors’ Remuneration Policy Summary continued

Chairman and Non-executive Director Fees
The remuneration of the non-executive Directors is designed to reflect the time and commitment of each to their respective roles.

Maximum opportunity

Performance metrics

Change to policy for 2020

• Fees paid to the

• None.

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 which is set
at £750,000 (c.$1.0m).

• The target holding

• None.

for the Chairman and
non-executive Directors
is equal to 100% of the
annual fee.

Purpose and link to strategy
Non-executive Director Remuneration Policy Table
• To attract and

Operation

retain high-calibre
non-executive
Directors by
offering a market
competitive fee.

• Fees for the Chairman
and non-executive
Directors are
determined by the
Board as a whole,
following receipt of
external fee information
and an assessment of
the time commitment
and responsibilities
involved.

• The Chairman is paid a
single consolidated fee
of £183,750 ($234,502)
for his responsibilities
including chairing the
Nomination
Committee.

• The non-executive

Directors are paid a
basic fee of £60,000
($76,572).

• The Directors who

chair the Board’s Audit
and Remuneration
Committees and the
Senior Independent
Director are paid an
additional fee of
£10,000 ($12,762) to
reflect their extra
responsibilities.
• The non-executive

Directors and
Chairman do not
participate in the
Group’s share plans
and do not receive a
cash bonus or any
other benefits.
Minimum Stock Ownership Requirement
• To align the

non-executive
Directors’ interests
with the long-term
interests of
shareholders.

• Non-executive Directors
are required to build up
a holding of shares in
the Company and have
five years to achieve
the required holding
level from the date
of their appointment
to the Board.

Annell Bay
Chair of the Remuneration Committee

27 February 2020

Hunting PLC / 2019 Annual Report and Accounts93
Annual Report on Remuneration

Introduction
The principles set out in the Directors’ Remuneration Policy (the “Policy”), approved by shareholders in April 2018, have been applied
throughout the year.

Role
The Committee is responsible for developing and implementing the remuneration policy for the Company and has direct oversight of the
remuneration of the executive Directors and the Company Chairman.

The Chairman and Chief Executive are consulted on proposals relating to the remuneration of the Finance Director and designated senior
management. Where appropriate, the Chairman and other Directors are invited by the Committee to attend meetings, but are not present
when their own remuneration is considered.

During the year and, in compliance with the new UK Corporate Governance Code, the Committee reviewed and monitored the
remuneration framework of the Company’s Executive Committee and also monitored base salary increases across the Company’s
workforce.

The remuneration of the non-executive Directors is agreed by the Board as a whole and follows the Articles of Association of the Company
which were last approved by shareholders on 18 April 2018.

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.

Membership and Attendance
The Committee consists entirely of independent non-executive Directors. Ms Bay and Mr Lough have relevant sector expertise, while
Mrs Chesney has relevant financial expertise. Ms Bay was appointed to the Committee on her appointment to the Board on 2 February 2015
and was appointed Chair on 30 August 2018.

The Committee met four times during the year and attendance details are shown in the table below:

Number of meetings held
Number of meetings attended (actual/possible):
Annell Bay (Committee Chair)
Carol Chesney
Jay Glick
Richard Hunting
Jim Johnson
Keith Lough
Peter Rose

Member
4

By invitation

4/4
4/4
–
–
–
4/4
–

–
–
4/4
4/4
4/4
–
4/4

At 31 December 2019 and up to the date of signature of the accounts, the members of the Committee and their unexpired term of office were:

Director
Annell Bay
Carol Chesney
Keith Lough

Latest appointment date
2 February 2018
23 April 2018
23 April 2018

Unexpired term as at 27 February 2020
11 months
14 months
14 months

External Advisers
During the year, Mercer/Kepler (“Kepler”) was engaged by the Committee to provide remuneration consultancy services. Kepler’s
appointment was subject to a formal tender and is regarded as independent, having been appointed by and acting under direction of the
Committee. The total cost of advice to the Committee during the year to 31 December 2019 was $58,877 (2018 – $104,727) and includes
fees paid in respect of review work in relation to the adoption of the 2018 UK Corporate Governance Code, benchmarked salary and fee
data share plans and remuneration reporting disclosure requirements.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements94
Annual Report on Remuneration continued

Director Remuneration (audited)

2019
Executives
Jim Johnson
Peter Rose
Non-executives
Annell Bayviii
Carol Chesneyix
Jay Glickx
Richard Hunting
Keith Loughxi
Total

2018
Executives
Jim Johnson
Peter Rose
Non-executives
Annell Bayviii
Carol Chesney (from 23 April)ix
Jay Glickx
John Hofmeister (to 30 August)xii
Richard Hunting
Keith Lough (from 23 April)xi
John Nicholas (to 18 April)xii
Total

Fixed remuneration

Variable remuneration

Base
salary/feesi
$000

Benefitsii

$000

Pensioniii
$000

Sub total
$000

Annual
bonusiv
$000

HPSP
awardsvi
$000

Sub total
$000

2019
Total
remuneration
$000

726
428

89
89
235
77
89
1,733

55
27

–
–
–
–
–
82

78
107

–
–
–
–
–
185

859
562

89
89
235
77
89
2,000

567
250

–
–
–
–
–
817

803
346

–
–
–
–
–
1,149

1,370
596

–
–
–
–
–
1,966

2,229
1,158

89
89
235
77
89
3,966

Fixed remuneration

Variable remuneration

Base
salary/feesi
$000

Benefitsii
$000

Pensioniii
$000

Sub total
$000

Annual
bonusv
$000

HPSP
awardsvii
$000

Sub total
$000

2018
Total
remuneration
$000

700
431

84
64
233
71
80
60
28
1,751

51
31

–
–
–
–
–
–
–
82

126
108

–
–
–
–
–
–
–
234

877
570

84
64
233
71
80
60
28
2,067

1,400
651

–
–
–
–
–
–
–
2,051

1,438
891

–
–
–
–
–
–
–
2,329

2,838
1,542

–
–
–
–
–
–
–
4,380

3,715
2,112

84
64
233
71
80
60
28
6,447

Notes:
i.

Jim Johnson was appointed Chief Executive on 1 September 2017, with an annual base salary of $700,000. The Committee met on 16 April 2019 to discuss base salary adjustments
for the executive Directors and following these deliberations increased Mr Johnson’s base salary by 5.0% to $735,000. The Committee took into account that Mr Johnson had shown
strong progress in the role over his first 19 months, and had received no adjustments to his salary over this period. The Committee also reviewed the base salary increases awarded
to the Executive Committee, which were between 3.0% and 4.2% for 2019 and following consultation with the Chief Executive agreed to increase Mr Rose’s base salary by 4.0% to
£338,553 / $432,061 (2018 – £325,532 / $434,032). The average base salary increase for the workforce in the year was 2.7%. The average £:$ exchange rate in the year was 1.2762
(2018 – 1.3333). These increases were implemented from 1 April 2019.

ii. Benefits include the provision of healthcare insurance, a company car and fuel benefits.
iii. Jim Johnson’s single figure pension remuneration represents Company contributions payable to his US pension arrangements. Peter Rose’s pension figure represents a cash sum

in lieu of Company pension contribution, which was 25% of his annual base salary in both 2018 and 2019.

iv. As noted in the Letter from the Chair of the Remuneration Committee, the financial performance of the Company was marginally below the Annual Budget agreed in December 2018,

leading to an “Above Threshold” pay out. In February 2020, the Committee reviewed the delivery of the personal performance objectives of the executive Directors and concluded that
both Mr Johnson and Mr Rose had completed their objectives in full. On this basis, Mr Johnson’s and Mr Rose’s annual bonuses vested at 39% of maximum with Mr Johnson being
awarded a bonus of $567k, and Peter Rose being awarded $250k. Under the rules of the Annual Bonus Plan, 25% of the post-tax value of the bonus is to be delivered to the executive
Directors in Hunting shares.
In 2018, both executive Directors received a maximum bonus, given their personal performance and the performance of the Company in the year. Jim Johnson received a bonus
totalling $1.4m and Peter Rose received a bonus totalling $651k.

vi. The share awards granted in 2017 under the HPSP had a three-year performance period to 31 December 2019. The awards were measured on this date against the performance
conditions, with a 40.4% vesting recorded for the EPS performance condition and a 25.0% vesting for the ROCE performance condition. The TSR performance condition was
measured by Kepler in line with the HPSP rules, which resulted in a 100% vesting of this portion of the award. As an executive Director on the date of grant, Peter Rose will receive
63,890 Ordinary shares based on a 55.1% vesting. Jim Johnson’s award was made when he was Chief Operating Officer and incorporated a fourth performance condition based
on the Group’s internal manufacturing reject rate. This performance condition has also vested in full, therefore Mr Johnson’s 2017 award will vest at 66.4% and he will receive 148,314
Ordinary shares. For the purposes of the single figure calculation, the average mid-market closing price of £4.09 during Q4 2019 has been applied to the number of vested shares and
converted to dollars using the average £:$ exchange during Q4 2019, being $1.2880. The share price on the date of grant, being 3 March 2017, was £5.40. Further, a cash payment
equalling the dividends paid during the vesting period has been added to the single figure calculation, totalling 14.0 cents per vested share. The vesting date of the 2017 award is
3 March 2020, when the final values of the awards will be determined.

vii. The share awards granted on 11 March 2016 vested on 11 March 2019. Following performance measurement, Mr Johnson received 179,745 shares at a market value of £5.199 per

share, plus a cash dividend equivalent of 8.0 cents per share giving a total payment to Mr Johnson of $1,249,502. Mr. Rose exercised his 111,327 vested awards in full on 17 June
2019, at a market value of £4.936 per share. Mr Rose received £556,073 including a cash dividend equivalent converted at a spot dollar rate of 1.2534 which totalled $696,982.

viii. Annell Bay was appointed Chair of the Remuneration Committee from 30 August 2018, with her fees increasing to reflect this additional responsibility.
ix. Carol Chesney was appointed as a Director and Chair of the Audit Committee on 23 April 2018 with an annual fee of £70,000.
x. Jay Glick was appointed Company Chairman on 1 September 2017 with his annual fee set at £175,000. From 1 January 2019, Mr Glick’s annual fee was increased to £183,750.

Mr Glick does not receive additional fees for chairing the Nomination Committee.

xi. Keith Lough was appointed as a Director on 23 April 2018 and subsequently Senior Independent Director on 30 August 2018, with an annual fee of £70,000.
xii. John Nicholas and John Hofmeister retired as Directors during 2018.

Hunting PLC / 2019 Annual Report and Accounts95

The remuneration of Peter Rose and the non-executive Directors is originally denominated in Sterling and is as follows:

2019
Executives
Peter Rosei
Non-executives
Annell Bayii
Carol Chesneyiii
Jay Glickiv
Richard Hunting
Keith Loughv

2018
Executives
Peter Rosei
Non-executives
Annell Bayii
Carol Chesney (from 23 April)iii
Jay Glickiv
John Hofmeister (to 30 August)vi
Richard Hunting
Keith Lough (from 23 April)v
John Nicholas (to 18 April)vi

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

2019
Total
remuneration
£000

335

70
70
184
60
70

–
–
–
–
–

440

70
70
184
60
70

196

268

464

–
–
–
–
–

904

70
70
184
60
70

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

2018
Total
remuneration
£000

323

63
48
175
53
60
45
21

–
–
–
–
–
–
–

427

63
48
175
53
60
45
21

488

692

1,180

1,607

–
–
–
–
–
–
–

63
48
175
53
60
45
21

Notes:
i. Peter Rose’s base salary was increased to £338,553 with effect from 1 April 2019.
ii. Annell Bay was appointed Chair of the Remuneration Committee on 30 August 2018, with her annual fee increasing to £70,000.
iii. Carol Chesney was appointed a Director and Chair of the Audit Committee on 23 April 2018, with her annual fee set at £70,000.
iv. Jay Glick was appointed Company Chairman on 1 September 2017, with his annual fee set at £175,000 for this role. From 1 January 2019, Mr Glick’s annual fee was increased

to £183,750.

v. Keith Lough was appointed as a Director on 23 April 2018 and subsequently Senior Independent Director on 30 August 2018, with his annual fee set at £70,000.
vi. John Hofmeister and John Nicholas retired as Directors during 2018.

Salary and Fees
On 16 April 2019 the Committee met to discuss base salary adjustments for the executive Directors. As part of its deliberations,
the Committee reviewed benchmarked base salary data prepared by Kepler and received data from the Group’s Chief HR Officer
on the remuneration changes to the Executive Committee and wider workforce that had been implemented during 2019.

Following discussion, the Committee increased the base salary of Jim Johnson by 5.0% to $735,000 p.a. In coming to this conclusion,
the Committee noted that Mr Johnson’s base salary was lower than many of his executive peers in the global energy services industry
and that no changes to his base salary had been made for the 19 months since his appointment to the Board on 1 September 2017,
a period over which he had demonstrated strong progress in the role of Chief Executive. Further, the Committee increased the base salary
of Peter Rose by 4.0% to £338,553 ($432,061). As part of its decision making, the Committee consulted the Chief Executive and Chairman
and noted that the base salary increases for the members of the Executive Committee were between 3.0% and 4.2% in 2019 and the
average workforce increase was 2.7%.

In December 2018, the Board reviewed the fee levels for non-executive Directors, which resulted in no changes being made for 2019.

The Committee also reviewed benchmarked fee data for the Company Chairman and agreed to increase his annual fee to £183,750,
effective 1 January 2019.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements96
Annual Report on Remuneration continued

Pensions (audited)
Jim Johnson is a member of a deferred compensation scheme in the US, which is anticipated to provide a lump sum on retirement and
contributes to a US 401K match deferred savings plan. Company contributions to the former arrangement were $60,820 (2018 – $109,500)
in the year. There are no additional benefits provided on early retirement from this arrangement. In the year, the Group contributed to
Mr Johnson’s 401K saving plan, totalling $16,800 (2018 – $16,500). In 2019, the Company paid a cash sum in lieu of a pension contribution
to Peter Rose totalling $106,976 / £83,824 (2018 – $107,717 / £80,790) representing 25% of his annual base salary. In August 2019,
the Committee agreed to freeze Mr Rose’s cash sum in lieu of a pension contribution from 1 January 2020.

Annual Performance-Linked Bonus Plan (audited)
Following the Company’s Annual General Meeting in April 2018, the executive Director annual performance-linked bonus plan was amended.
The revised operation of the bonus plan is therefore:

Proportion of award
60%
20%
20%

Performance metric
Underlying Profit before Tax
Underlying Return on Capital Employed
Personal Performance Objectives

Delivery of Financial Objectives
The financial performance targets for the 2019 annual bonus were as follows:

Underlying Profit before Tax
Underlying Return on Capital Employed

Threshold vesting
$83.4m
7.4%

Target vesting Maximum vesting
$125.6m
11.1%

$104.7m
9.3%

Adjusted result
$94.7m
8.0%

The financial objectives within the annual bonus start to accrue when 80% of the Annual Budget targets are met, increasing on a
straight-line basis up to 120% of the budget target. The Target Vesting values are the basis of the 2019 Annual Budget agreed by the
Board in December 2018. In 2019, the Group delivered an underlying profit before tax of $93.1m and an underlying return on capital
employed of 7.9%. As noted in the report from the Chair of the Remuneration Committee, in determining the final outcome of the PBT
and ROCE measures, the Committee has reversed the impact of the trading losses and acquisition costs of RTI Energy Systems Inc.,
totalling $1.6m, leading to PBT of $94.7m and ROCE of 8.0%. In coming to this decision, the Committee agreed that while the transaction
was a key strategic milestone delivered by management, and which introduced new products to the Group’s customers, the acquisition
was not incorporated within the 2019 Annual Budget and that the short-term trading losses and acquisition costs of the business in 2019
adversely impacted the overall underlying profit result delivered in the year. The final vesting amounts for the Annual Bonus have therefore
utilised an adjusted PBT and ROCE result, as noted in the table above with a total vesting of the financial targets being 19% of the
maximum opportunity of 80%.

Delivery of Personal Performance Objectives
The Personal Performance objectives agreed by the Committee with the executive Directors with effect from January 2019 were as follows:

Jim Johnson (Chief Executive)
Strategic Planning (50%)
• Development of three-year plan for each business including
capex requirements, research and development budgets
and organisational enhancements.

Peter Rose (Finance Director)
Strategic Planning (50%)
• Development of three-year plan for each business including
capex requirements, research and development budgets
and organisational enhancements.

• Detailed merger and acquisition plans, including business

unit divestment priorities.

Leadership and Organisational Effectiveness (25%)
• Development and implementation of detailed successions plans,

including high-grading of key executive talent.

• Implementation of an effective global employee engagement plan.
• Continuing cultural leadership to enable outstanding

performance in quality products and HSE of our employees,
contractors and facilities.

Leadership and Organisational Effectiveness (35%)
• Development and implementation of detailed successions plans,
including high-grading of key executive talent in finance and IT.
• Implementation of an effective global employee engagement plan.
• Enhancement of Investor Relations strategy.
• Enhancement of ESG-related disclosures.
• Implementation of IT, Cyber and Data Management Strategy.

Efficiency and Utilisation Initiatives (25%)
• Enhance understanding of lean manufacturing strategies

Operational and Financial Initiatives (15%)
• Identify and implement opportunities to enhance financial

and cost effectiveness of global programme.

controls, corporate governance framework and financial reporting.

• Enhance reporting of research and development projects.

During the year, the Committee was updated on the progress of the objectives noted above – and for the year ended 31 December 2019
noted the following outcomes:

Strategic Planning
In June 2019 the Board reviewed a comprehensive Group Strategic Plan covering the period 2019 to 2023. The Plan encompassed,
for each operating segment, detailed financial projections, SWOT analyses as well as potential acquisition candidates and technology
investment opportunities allowing the Board to consider growth opportunities and Hunting’s position within the global market.
The Strategic Plan was adopted and approved at the June 2019 meeting.

Hunting PLC / 2019 Annual Report and Accounts97

Succession Planning
The Board noted the progress in the area of executive talent development and recruitment, since the appointment of a Group Chief
HR Officer in November 2018. In July 2019 an all-employee engagement survey was launched with the results being noted by the Board.
Further, in December 2019 the Chief HR Officer presented to the Board initiatives and plans to develop the HR platform within the Group.
The Committee noted that a clear framework for executive Director and Executive Committee succession had been put in place enabling
the Board to understand the future potential of the existing team.

Efficiency and Utilisation
The Board reviewed reports on lean manufacturing initiatives underway across the Company and the cost benefits being derived from
the various programmes underway. Further, the research and development pipeline was reviewed, as part of the Strategic Plan.

Investor Relations
The Board noted the Investor Relations Plan which had been executed in the year, including the strength and depth of the Company’s share
register and the development of new investors in the year. The Committee noted the presentation delivered by the Head of Investor Relations
to broaden the geographic spread of the Company’s share register and also the improvements to ESG-related disclosures of the Group.

IT
The Board noted the IT and Cyber briefings presented in the year which addressed aspects of the Group’s overall risk management
framework. It was noted that key IT projects, including security and monitoring, had been progressed in the year.

Other Initiatives
The Committee noted that a review of the Group’s corporate governance and stakeholder policies and procedures had been completed
in the year, in line with the new Code and noted the new reporting mechanisms on stakeholder engagement, which had been implemented.

Accordingly, the Committee concluded that all Personal Performance objectives had been met in full during the year.

Based on this outcome the following bonus awards were made to the executive Directors:

Proportion of annual bonus allocated
60%
20%
20%

Performance metric
Underlying Profit before Tax
Underlying Return on Capital Employed
Personal Performance Objectives

Percentage of annual bonus awarded
16%
3%
20%

Mr Johnson was therefore awarded a bonus of $567k (77% of base salary) and Mr Rose was awarded a bonus of $250k (58% of base
salary). In line with the revised operation of the Annual Bonus Plan rules 25% of the post-tax value of the bonus will be delivered in Hunting
shares, to be held for two years.

In 2018 the annual bonus awards to the executive Directors were as follows: Mr Johnson – $1.4m and Mr Rose – $651k. On 1 March 2019,
Mr Johnson received 29,232 Ordinary shares and Mr Rose 11,817 Ordinary shares, representing 25% of the post-tax value of the bonus,
to be held for two years from 28 February 2019.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements98
Annual Report on Remuneration continued

2017 HPSP Vesting (audited)
The 2017 awards under the HPSP have been measured against the performance conditions following completion of the three-year
performance period.

The executive Director performance metrics were based on absolute diluted EPS and ROCE targets, to be delivered in the financial year
ended 31 December 2019, in addition to a three-year relative TSR performance condition, ranked against a comparator group of 14 companies.

In determining the vesting outcome the measurement of the EPS and ROCE performance conditions has incorporated IAS 17 Leases,
which was the basis of the targets and grant agreed in 2017.

A summary of the EPS and ROCE performance is detailed below:

Underlying diluted EPS
Underlying ROCE

Threshold vesting
target
40 cents
8%

Maximum vesting
target
60 cents
15%

Recorded
performance under

IAS 17 Leases % Vesting outcome
40.4%
44.1 cents
25.0%
8.0%

The Total Shareholder Return performance condition was measured by Kepler in January 2020, following completion of the three-year
performance period. Hunting’s TSR performance against the 14 comparator companies was then ranked, resulting in an upper quartile
position corresponding to 100% vesting of the TSR portion of the 2017 HPSP award.

Given the partial vesting of the EPS and ROCE portions and a full vesting of the TSR portion of the 2017 grant, the total vesting of the 2017
award is 55.1% based on these three performance conditions. Peter Rose, as an executive Director across the whole performance period,
will receive 63,890 shares.

As noted previously, Mr Johnson’s 2017 award was made when he was Chief Operating Officer and not an executive Director, with his
award including a fourth performance condition based on the Group’s recorded average internal manufacturing reject rate across the
performance period. The three-year outcome for this performance condition was 0.26%, with a threshold vesting target of 1.2% and a
maximum vesting target of 0.60%. Based on this recorded performance, a 100% vesting has been recorded, equating to a 66.4% vesting
for Mr Johnson’s 2017 award. On the vesting date, Mr Johnson will therefore receive 148,314 shares.

A cash equivalent of dividends paid by the Company during the vesting period, totalling 14.0 cents per vested share, will be added to the
award on the vesting date. The 2017 HPSP vesting has been calculated as follows:

Jim Johnson**
Peter Rose

No. of shares
granted in 2017
223,533
115,889

Vesting
%
66.4
55.1

No. of
shares vested
148,314
63,890

Value of vested
shares at
31 December
2019*

$
782,128
336,921

Value of dividends
at 14.0 cents
per share
$
20,764
8,945

Total award value
$
802,892
345,866

As per the methodology for reporting the values of unvested awards, the average price of a Hunting PLC share during Q4 2019 of £4.09 has been applied and converted to dollars
at an exchange rate of 1.288 for the period. The share price on the date of grant was £5.40.

** Jim Johnson’s 2017 award, as Chief Operating Officer on the date of grant, was subject to a fourth performance condition which has vested in full, equating to a 100% vesting of this

element of his award.

2016 HPSP Vesting (audited)
On 31 December 2018, the 2016 awards under the HPSP were measured against the performance conditions following completion of the
three-year performance period, resulting in the following outcome:

Jim Johnson**
Peter Rose

No. of shares
granted in 2016
239,660
166,991

Vesting
%
75.0
66.7

No. of
shares vested
179,745
111,327

Value of vested
shares at
11 March
2019*
$
1,423,595
881,727

Value of dividends
at 8.0 cents
per share
$
14,380
8,906

Total award value
$
1,437,975
890,633

As per the methodology for reporting the values of unvested awards, the average price of a Hunting PLC share during Q4 2018 has been applied and converted to dollars at the
average $:£ exchange rate for the period.

** Jim Johnson’s 2016 award, as Chief Operating Officer on the date of grant, was subject to a fourth performance condition which has vested in full, equating to a 75% vesting of his award.

Final award values were determined on exercise and are disclosed on page 94.

Hunting PLC / 2019 Annual Report and Accounts99

2019 HPSP Grant (audited)
On 21 March 2019, the Committee approved the grant of nil-cost share awards to Jim Johnson and nil-cost options to Peter Rose under
the rules of the HPSP. Awards will vest on 21 March 2022, subject to the achievement of the performance metrics detailed on page 91
of the Policy, with a two-year holding period then applying to the post-tax vested shares. Details of the grant are as follows:

Director
Jim Johnson
Peter Rose

Award as % of
base salary
450%
210%

Number of shares
under grant
422,507
119,201

Face value of
award at threshold
vesting of 25%
$
787,500
222,176

Face value of
maximum award
vesting at 100%
$
3,150,000
888,703

The Remuneration Committee adopted absolute EPS and ROCE targets to be delivered by 31 December 2021, three-year TSR targets
and a Strategic Scorecard for the grants to the executive Directors in 2019. The Strategic Scorecard is subdivided equally between two
non-financial KPIs, namely Quality Assurance and Safety performance metrics published by the Group during the performance period.

The targets for each performance condition are as follows:

Performance conditioni
TSR
EPS
ROCE
Strategic Scorecard
– Quality Assurance
– Safety

Proportion of award
25%
25%
35%

7.5%
7.5%

Threshold vesting target
Median
50 cents
10%

0.8
2.00

Maximum vesting target
Upper quartile
70 cents
15%

0.5
<1.00

To be achieved in the three years ending 31 December 2021.

The following quoted businesses comprise the TSR comparator group for the 2019 award:

Akastor
Dril-Quip
Flotek Industries
Forum Energy Technologies
Frank’s International

National Oilwell Varco
Oil States International
Schoeller-Bleckmann
Superior Energy Services
TechnipFMC

Tenaris
Vallourec
Weatherford International
Weir Group

The face value of the 2019 award is based on the five-day average mid-market share price up to 20 March 2019, which was 573.5 pence.

Payments to Past Directors (audited)
Dennis Proctor, the Group’s former Chief Executive, retired from the Company on 1 September 2017 and was treated as a good leaver.
With the exception of outstanding HPSP awards, no emoluments were paid to Mr Proctor in 2019. Mr Proctor’s 2016 HPSP grant vested
on 11 March 2019, when he received 193,480 Ordinary shares at a value of $1,330,104 and a cash equivalent dividend of $14,878.

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
Executives
Jim Johnson
Peter Rose
Non-executives
Annell Bay
Carol Chesney
Jay Glick
Richard Hunting
– as trustee
– as Director of Hunting Investments Limited
Keith Lough

At
31 December
2019ii

At
31 December
2018ii

205,042
167,712

66,966
97,028

11,840
5,000
41,373
468,133
905,783
11,003,487
9,000

11,840
2,000
23,000
466,583
924,049
11,003,487
2,000

i. Beneficial share interests are those Ordinary shares owned by the Director or spouse, which the Director is free to dispose of.
ii. Or cessation date.

There have been no further changes to the Directors’ share interests in the period 31 December 2019 to 27 February 2020.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements100
Annual Report on Remuneration continued

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 2019 is presented below:

Director
Jim Johnson
Peter Rose
Annell Bay
Carol Chesney
Jay Glick
Richard Hunting
Keith Lough

Required holding expressed as a
multiple of base salary or fee
5
2
1
1
1
1
1

Requirement met*
N
Y
N
N
Y
Y
N

The value of the holding of the Directors has been determined using the value on purchase of Ordinary shares or the share price at 31 December 2019 of £4.17.

The interests of the executive Directors over Ordinary shares of the Group under the HPSP are set out below. The vesting of options
and awards are subject to performance conditions set out within the Policy.

Director
Jim Johnson

Total

Peter Rose

Total

Interests at
1 January
2019
239,660
223,533
286,624
–
749,817

166,991
115,889
87,085
–
369,965

Options/
awards
granted in
year
–
–
–
422,507
422,507

–
–
–
119,201
119,201

Options/
awards
exercised in
year
(179,745)
–
–
–
(179,745)

(111,327)
–
–
–
(111,327)

Options/
awards
lapsed in year
(59,915)
–
–
–
(59,915)

Interests at
31 December
2019
–
223,533^
286,624^
422,507^
932,664

(55,664)
–
–
–
(55,664)

–
115,889~
87,085~
119,201~
322,175

Exercise
price
p
nil
nil
nil
nil

Grant date
11.03.16
03.03.17
19.04.18
21.03.19

Date
exercisable
11.03.19
03.03.20
19.04.21
21.03.22

Expiry date
–
–
–
–

nil
nil
nil
nil

11.03.16
03.03.17
19.04.18
21.03.19

11.03.19
03.03.20
19.04.21
21.03.22

11.03.26
03.03.27
19.04.28
21.03.29

Scheme
HPSP
HPSP
HPSP
HPSP

HPSP
HPSP
HPSP
HPSP

^ Nil-cost share awards that 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 that are not yet vested or exercisable and still subject to the performance conditions being measured in accordance with the HPSP rules.

Shareholder Voting at the 2019 AGM
At the Company’s AGM held in April 2019, 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 cast
125,531,545
5,732,104
5,362,254
136,625,903

% of votes cast
95.63
4.37
–
100.00

i. A vote withheld is not a vote in law and is not included in the calculation of the percentage of votes cast.

The Directors’ Remuneration Policy was last approved by shareholders at the Company’s Annual General Meeting on 18 April 2018,
with 98.92% voting in favour of the resolution. The Policy will next be tabled for shareholder approval at the Company’s Annual General
Meeting in April 2021.

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
Net tax paidii
Dividends paidii
Capital investmentii

2019
$m
260.0
(7.7)
16.6
36.0

2018
$m
254.5
(2.6)
6.6
30.1

Change
+2%
+196%
+152%
+20%

Includes staff costs for the year (note 8) plus benefits in kind of $37.1m (2018 – $32.7m), which primarily comprises US medical insurance costs.

i.
ii. Please refer to page 121 and note 36.

Hunting PLC / 2019 Annual Report and Accounts101

Executive Director Remuneration and the Wider Workforce
The changes to the remuneration of the Chief Executive in 2019 compared to 2018 and those of the total workforce are as follows:

Base salary
Bonus
Benefits

Chief Executive Average employee
nil
-15.1%
+1.3%

+3.7%
-59.5%
-24.9%

The average salary increase for employees in 2019 was 2.7%, however, the figure in the table is lower, due to a higher headcount in the year.

Changes to Director and Employee Pay
The table below is presented in compliance to the Shareholder Rights Directive II, which was enacted in the UK on 10 June 2019.
The changes to the emoluments paid to Jim Johnson and Peter Rose reflect the changes to base salaries agreed by the Remuneration
Committee and the levels of vesting of the annual bonus and long-term incentive arrangements.

Jim Johnson
Peter Rose
Annell Bay
Carol Chesney
Jay Glick
Richard Hunting
Keith Lough
Global employees

2018 to 2019
-37%
-34%
+11%
+46%
+5%
nil
+56%
+5%

Chief Executive and Workforce Pay Ratio

Year
2019

Method
Option A
Workforce Pay Quartiles

25th percentile
pay ratio
49:1
$45,663

50th percentile
pay ratio
38:1
$58,603

75th percentile
pay ratio
22:1
$99,521

The Company has elected to voluntarily disclose the pay ratio of the Group’s Chief Executive and Workforce, in line with The Companies
(Miscellaneous Reporting) Regulations 2018 and has adopted Option A from the regulations as the basis of presenting the pay ratio.

Hunting’s UK employees averaged 207 in the year, which represents 7% of the Group’s total average workforce in 2019. The basis of
the workforce calculation is aligned with the basis of preparation of the single figure table on page 94, comprising of fixed and variable
emoluments and is calculated on a full-time equivalent basis, in line with the requirements of the regulations.

Further, the above disclosure assumes a maximum company pension contribution of 12% of base salary; however, it is noted that not
all UK employees elect to receive this level of contribution. This data has been collated for the 12 months ended 31 December 2019.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements102
Annual Report on Remuneration continued

Executive Director Remuneration and Shareholder Returns
The following chart compares the TSR of Hunting PLC between 2009 and 2019 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.

Total Shareholder Return
(Rebased to 100 at 31 December 2009)

180

160

140

120

100

31/12/09

31/12/10

31/12/11

31/12/12

31/12/13

31/12/14

31/12/15

31/12/16

31/12/17

31/12/18

31/12/19

Hunting PLC

DJ US Oil Equipment & Services

DJ Stoxx TM Oil Equipment, Services & Distribution

Summary Table of Chief Executive’s Remuneration
The accompanying table details remuneration of the Chief Executive:

2019 – Jim Johnson
2018 – Jim Johnson
2017 – Jim Johnson (from 1 September)
2017 – Dennis Proctor (to 1 September)
2016 – Dennis Proctor
2015 – Dennis Proctor
2014 – Dennis Proctor
2013 – Dennis Proctor
2012 – Dennis Proctor
2011 – Dennis Proctor
2010 – Dennis Proctor

Single figure
remunerationi
$000
2,229
3,715
819
3,974
941
1,031
4,808
4,442
5,497
3,261
1,876

Annual
cash bonusii
%
39
100
33
67
Nil
Nil
57
42
75
100
100

ESOP/PSP/
HPSPiii
% vesting
66
75
4
13
Nil
Nil
Nil
Nil
66
Nil
100

LTIPiv
% award
n/a
n/a
n/a
n/a
n/a
Nil
100
100
100
31
5

i. Single figure remuneration reflects the aggregate remuneration paid to the Chief Executive as defined within the Directors’ Remuneration Policy.
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 percentage of the ESOP that vested in the financial year and the percentage of the PSP and HPSP where a substantial portion of the performance

period was completed at the financial year-end. Messrs Johnson’s and Proctor’s awards have been pro-rated for their period of service as Chief Executive.

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 2020
The remuneration policies for 2020 will be applied in line with those detailed on pages 73 to 82 of the 2017 Annual Report and Accounts.

Salary and Fees
In December 2019, the Board concluded that there would be no changes made to fees payable to the non-executive Directors for 2020.

As noted above, the Remuneration Committee will meet in April 2020 to consider base salary changes for the executive Directors.
Any changes are likely to align with Group-wide base salary increases.

Pension and Benefits
Jim Johnson will continue to receive contributions towards a US deferred compensation scheme and a US 401K match deferred savings
plan, in line with previous years. Peter Rose will continue to receive a cash sum in lieu of a pension contribution which will be fixed at
£84,638 for 2020. No changes are anticipated to the provision of benefits which will continue to include healthcare insurance, a company
car and fuel benefits.

Hunting PLC / 2019 Annual Report and Accounts
103

Annual Bonus
The annual performance-linked bonus for 2020 will operate in line with the Directors’ Remuneration Policy. The Committee will disclose
details of the retrospective performance against the pre-set financial targets and personal performance objectives, as the Board believes
that forward disclosure of the financial targets is commercially sensitive. The annual bonus weightings will remain unchanged from 2019,
being 60% PBT, 20% ROCE and 20% personal performance.

HPSP
The grants to the executive Directors for 2020 will be made in March 2020. The performance conditions, weightings and targets for the
HPSP award will generally align with the 2019 HPSP grant. The performance targets will be included in the Stock Exchange announcement
to be issued on award of the 2020 HPSP grant.

Remuneration of Bruce Ferguson
On 23 January 2020, the Company announced that Peter Rose is to retire as Finance Director and as a Director of the Company on
15 April 2020. The Board has proposed Bruce Ferguson as Mr Rose’s successor, with his appointment subject to approval by shareholders
at the Company’s 2020 Annual General Meeting. Mr Ferguson’s biography has been included in the Notice of Meeting, along with the
Board’s reasons for his appointment.

The Nomination Committee has agreed a base salary of £275,000 and a cash payment in lieu of a company pension contribution of
12% of base salary which aligns with the UK workforce. All other aspects of Mr Ferguson’s remuneration aligns with the current Directors’
Remuneration Policy as summarised on pages 88 to 92.

Compliance Statement
The Directors’ Remuneration Policy and 2019 Annual Report on Remuneration reflect the Remuneration Committee’s reporting
requirements under the amended Companies Act 2006 and the Large and Medium-sized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013, the Shareholder Rights Directive II, as enacted on 10 June 2019 and also the 2018 UK Corporate
Governance Code which became effective for the Company from 1 January 2019.

The 2019 Annual Report on Remuneration, which includes the Letter from the Chairman of the Remuneration Committee, details how the
approved Directors’ Remuneration Policy was applied during 2019. This report was approved by the Remuneration Committee at its meeting
on Monday 24 February 2020.

Annell Bay
Chair of the Remuneration Committee

27 February 2020

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements104
Nomination Committee Report
For the year ended 31 December 2019

The work of the Committee in the year included reviewing
the results of the new all-employee survey and the approval
of an enhanced succession planning and talent
management framework.

Composition and Frequency of Meetings
The Committee currently comprises the Company Chairman and
the independent non-executive Directors of the Company and is
chaired by John (Jay) Glick.

The Committee also reviewed its effectiveness in the year
and agreed a timetable of work for 2020.

The Committee meets as required to discuss succession matters
and, in 2019, met once in December.

Since the year-end the Committee has met to agree
the succession plan for the Group’s Finance Director. As
announced on 23 January 2020, Bruce Ferguson has been
proposed by the Board for appointment by shareholders
at the Company’s Annual General Meeting.

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

Attendance at the Nomination Committee meetings during the year
is detailed in the table below:

John (Jay) F. Glick
Chair of the Nomination Committee

Number of meetings held:
Number of meetings attended
(actual/possible):
Annell Bay
Carol Chesney
Jay Glick (Committee Chair)
Richard Hunting
Jim Johnson
Keith Lough
Peter Rose

Member
1

Invitation

1/1
1/1
1/1
–
–
1/1
–

–
–
–
1/1
1/1
–
1/1

Employee Engagement
The Group appointed a global Chief HR Officer during 2018,
who reports directly to the Chief Executive.

In December 2019, the Committee and Board received a presentation
on the activities of the Group’s HR function, which included a
review of the all-employee survey results, which had been initiated
in July 2019.

Senior Management Development and Succession
As part of the new procedures introduced, evaluation of the senior
leadership team and their direct reports has been undertaken. This
has led to the Board identifying high-potential candidates, who will
receive formal development and training to enhance the pipeline
of talent for the most senior roles within the Company, including
at Executive Committee and Board levels.

Change of Finance Director
The Company announced on 23 January 2020 the retirement
of Peter Rose as Hunting’s Finance Director. Peter has been an
integral member of the Group’s leadership team since 1997, helping
to transform Hunting from a diversified conglomerate with interests
in aviation, defence and energy, into a focused international energy
services group.

Peter was appointed to the Board in April 2008 and has overseen
major divestments and acquisitions, and leaves the Company in
a very strong financial position. As previously announced, Peter
will step down from the Board at the conclusion of the Company’s
Annual General Meeting on 15 April 2020. The Board is grateful for
the leadership and direction Peter has provided over the Group’s
finance matters during this time and wish him a happy retirement.

The Committee has met since the start of 2020 to deliberate on the
succession of the Group’s Finance Director. Since 2018, a formal
succession plan for all members of Hunting’s leadership team has
been in place and, following discussion and unanimous agreement,
was delighted to recommend the appointment of Bruce Ferguson,
currently managing director of the Group’s EMEA operating segment.

Hunting PLC / 2019 Annual Report and Accounts105

Bruce is a qualified Chartered Management Accountant. He joined
Hunting in 1994 and has held a number of senior finance and
operational roles within the Group’s European businesses and, since
2011, has been the managing director of the Group’s EMEA segment.

Bruce has been proposed for appointment as Finance Director
of the Company at Hunting PLC’s 2020 Annual General Meeting
and, subject to his election by shareholders, will join the Board on
15 April 2020. His proposed remuneration package is also detailed
on page 103 of the Annual Report on Remuneration.

As part of the succession and appointment process, Heidrick &
Struggles assisted the Committee in the interview and benchmarking
process. Apart from this brief, Heidrick & Struggles do not have
any other connection to the Company. Further, Kepler Associates
provided benchmarked remuneration data which was reviewed
by the Remuneration Committee.

Board Evaluation
As noted in the Corporate Governance Report on page 80, the
Board undertook an internally facilitated Board evaluation in 2019.
The process concluded that the skills and experience of the Directors
were strong and appropriate for the size and profile of the Group.

Committee Effectiveness
At its December meeting, the Committee reviewed its terms
of reference and considered its effectiveness, concluding that
its performance had been satisfactory during the year.

Gender Diversity
Hunting’s gender 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; 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 and Carol Chesney
in 2018, Hunting’s Board comprises 29% of female Directors, which
is close to the recommended UK gender target of 33%.

John (Jay) F. Glick
Chair of the Nomination Committee

27 February 2020

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements
106
Audit Committee Report
For the year ended 31 December 2019

During 2019, Hunting delivered a performance marginally
below 2018, as the global oil and gas market continued to
experience levels of volatility due to the general commodity
price environment, and also due to geopolitical risks
increasing in the year. This performance was consistent
with the Board’s expectations. Despite these headwinds,
management delivered increased revenues in the year
as a number of operating segments reported improving
customer activity. This led to a strong year-end cash position,
which is commendable given this trading environment.

Composition and Frequency of Meetings
The Committee currently comprises three independent
non-executive Directors and is chaired by Carol Chesney.
Mrs Chesney is a qualified Chartered Accountant and is considered
to have recent and relevant financial experience. Mr Lough and
Ms Bay (Chair of the Remuneration Committee) have experience
of the global energy industry, with particular expertise in the UK
and US oil and gas markets. Further details of the Committee’s
experience can be found in the biographical summaries set
out on pages 72 and 73.

The Company adopted IFRS 16 Leases from 1 January 2019,
which has led to right of use assets of $36.7m and lease
liabilities of $45.2m being recognised on the balance sheet
as at 31 December 2019, with a net reduction of $0.8m to
profit before tax in the income statement. The Committee
has reviewed the work completed by management to
implement the standard, having received regular reports
throughout the year, and discussed with the Company’s
auditor the impact on the Company’s consolidated balance
sheet and income statement.

2019 is the first year with Deloitte as the Company’s
auditor, having taken over from PricewaterhouseCoopers.
The Committee reviewed its audit plans in the year for the
interim and full-year accounts, and are pleased to report
that good dialogue has developed between management,
the Committee and the global audit team.

In summary, the Committee believes the Company
continues to operate on a firm footing, with all controls
assessed and reporting procedures remaining appropriate.

Carol Chesney
Chair of the Audit Committee

During the year, there were no changes to the composition
of the Committee.

The Committee usually 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.

In 2019, the Committee met four times, in February, April, August
and December, and the attendance record of Committee members
and Board-invitees during the year is noted below.

Number of meetings held
Number of meetings attended
(actual/possible):
Annell Bay
Carol Chesney (Committee Chair)
Jay Glick
Richard Hunting
Jim Johnson
Keith Lough
Peter Rose

Member
4

Invitation

4/4
4/4
–
–
–
4/4
–

–
–
4/4
4/4
4/4
–
4/4

The other Directors, internal and external auditors are normally
invited to attend meetings.

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 the Board with a recommendation regarding the

Half-Year and Annual Report and Accounts, including whether
they are fair, balanced and understandable;

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

and Viability Statements;

• monitor, review and assess the Group’s systems of risk

management and internal control;

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

including details of the audit programmes and scope;
• consider and recommend to the Board the appointment
or reappointment of the external auditor as applicable;

• agree the scope and fees of the external audit;
• monitor and approve engagement of the external auditor

for the provision of non-audit services to the Group;

• review the external auditor’s independence and effectiveness

of the audit process;

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

and

• monitor whistleblowing procedures.

Hunting PLC / 2019 Annual Report and Accounts107

Work Undertaken by the Committee During 2019
The Committee discussed, reviewed and made a number of
decisions on key areas throughout 2019, which are set out below:

Feb

Apr

Aug

Dec

•
•
•

•
•

•

Financial reporting
Annual Report and Full-Year Results
announcement
Going Concern Basis
Viability Statement
Interim Report and Interim Results
announcement
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
Sanctions compliance
Whistleblowing summary reports
Internal audit programme and resourcing
External auditor
Auditor’s objectivity, independence and
appointment
Full-Year and Half-Year report to the Audit
Committee
Final Management Letter on internal
controls
Auditor’s performance and effectiveness
Proposed year-end audit plan including
scope, fees and engagement letter
Risk of auditor leaving the market
Other business
Whistleblowing and Bribery policy review
Committee effectiveness and Terms of
Reference

•

•
•
•

•
•

•

•
•
•
•

•

Appointment of New Auditor
At the Company’s Annual General Meeting on 17 April 2019,
shareholders approved the appointment of Deloitte LLP (“Deloitte”)
as external auditor. As part of the agreed auditor transition
arrangements with PricewaterhouseCoopers (“PwC”), Deloitte
attended meetings in 2018 and up to their appointment in 2019.

At the Committee’s meeting in April, Deloitte tabled a draft plan
for the year-end audit and also a plan for the interim review process,
which forms part of the Company’s half-year results procedures.
The Committee approved these work streams and, since
appointment, Deloitte has undertaken a programme of visits to many
of the Group’s businesses and operating locations to understand
local procedures and the internal control environment. Detailed
reports from Deloitte were presented at the April, August and
December 2019 meetings of the Audit Committee and a final report
was presented at the February 2020 meeting of the Committee,
ahead of approval of the 2019 Annual Report and Accounts.

The Committee is satisfied with the performance of Deloitte since
appointment and confirm that the transition from PwC has been
completed appropriately.

Review of the 2019 Financial Statements
The Committee reviews final drafts of the Group’s Report and
Accounts for both the half and full year. As part of this process,
the performance of the Group’s major segments 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 Deloitte, the Group’s external auditor.

Significant matters reviewed by the Committee in connection
with the 2019 Annual Report and Accounts were as follows:

Adoption of New Accounting Standard
During the year, the Company adopted IFRS 16 Leases effective
from 1 January 2019. The new standard replaces IAS 17 Leases.
The Company has adopted the standard on a modified retrospective
basis, whereby the opening retained earnings have been amended,
with no prior period adjustments being made to the financial
statements. The Group has purchased specialist software to track
all leases held.

Following adoption of the new standard, $39.7m of right-of-use
assets and $49.0m of lease liabilities were recognised on the
Group’s consolidated balance sheet at 1 January 2019. In line with
the new standard, operating lease charges were de-recognised,
which positively impacted the Group’s EBITDA and profit from
operations, while reducing the Group’s profit before tax, due to
the changes to the charges for depreciation and interest, in line
with the new standard. At 31 December 2019, right-of-use assets
totalled $36.7m and lease liabilities totalled $45.2m. The Group’s
reported net cash position now includes these lease liabilities.
The Committee reviewed the implementation work as part of the
deliberations for the half-year and full-year results, with Deloitte
confirming the new items recorded.

Following discussion, the Committee was satisfied with the work
completed and the financial statements as presented.

New Statutory and Governance Reporting
The Audit Committee has monitored the Group’s procedures
to comply with new UK regulation and governance reporting.
Following a review of draft disclosures throughout the year, the
Committee was satisfied that the Group had adopted the new
requirements in an appropriate manner.

Impairment Reviews
In the year, the Group reported a broadly similar result compared
to 2018. The Committee noted the decline in performance within
the Group’s onshore focused businesses, including the Hunting
Titan and Canada operating segments and the US Drilling Tools
and Specialty businesses. Given this trading environment,
management conducted a review for indicators of impairment
of the carrying values of the assets held on the Group’s balance
sheet for the half-year and year-end, which has led to an impairment
charge to PPE totalling $19.0m being recorded against the US
Drilling Tools business.

Property, Plant and Equipment (“PPE”)
The year-end balance sheet includes PPE of $354.7m
(2018 – $360.2m). This represents approximately 29% of the
Group’s net assets (2018 – 30%). As noted above, an impairment
charge against the Group’s US Drilling Tools business has been
recorded as part of the year-end audit procedures. The Committee
reviewed the PPE impairment tests and subsequent charge and,
following discussion, was satisfied that the assumptions and the
disclosures in the year-end accounts were appropriate.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements108
Audit Committee Report continued

Goodwill
The year-end balance sheet includes goodwill of $230.2m
(2018 – $229.9m). This represents approximately 19% of the
Group’s net assets (2018 – 19%). Reviews for indicators of
impairment of 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 need
for impairment. 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.

On 24 February 2020, the Audit Committee approved the Viability
Statement, detailed on page 68 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 51 to 60, and believes that the 2019 Annual Report and
Accounts, taken as a whole, is fair, balanced and understandable.

In arriving at this conclusion the Committee undertook the following:

Other Intangible Assets
The carrying value of the Group’s other intangible assets was also
reviewed resulting in no impairments (2018 – $nil) being recorded
in the year. The amortisation charge recorded in the income
statement was $32.3m (2018 – $31.9m). As with the goodwill
impairment review, the Committee considered and confirmed the
appropriateness of the assumptions, discount rates and factors
used in the review process.

• review and dialogue in respect of the monthly management
accounts and supporting narrative circulated to the Board;
• 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 internal auditors.

Inventory
At the year-end, the Group held $350.8m of inventory (2018 –
$348.2m). The year-on-year increase is attributable to the general
improvement in trading within Hunting’s US, EMEA and Asia Pacific
segments. Due to the general medium-term outlook for the
industry, the carrying values have been assessed to be adequate.
Further, the Committee reviewed year-end inventory carrying values
and the work undertaken by management in assessing and
supporting the carrying values. Given this, and together with the
improved offshore market conditions, the Committee concluded
that inventory carrying values were fairly stated.

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
throughout the year.

Exceptional Items Charged to the Consolidated Income Statement
The Committee considered the accounting policy definition
of exceptional items and the items included within the financial
statements to ensure consistency of treatment and adherence
to policy.

Exceptional items recorded in respect of the Group’s operations
for the full year totalled $19.0m (2018 – $nil), wholly related to the
impairment to PPE within the Group’s US Drilling Tools business.

Going Concern Basis and Viability Statement
The Committee 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. Driven by the outturn of the Group in
the year, the Committee concluded that good support for Hunting’s
longer-term viability exists. Further, the assessment is supported
by the year-end net cash position of $77.9m (2018 – $61.3m),
which includes lease liabilities following the adoption of IFRS 16.

These factors supported the Committee’s assessment of the
Going Concern Statement and the Viability Statement, as detailed
on pages 68 and 69. The statements considered by the Committee
were supported by reviews of the regular forecast updates provided
by management and the bank covenant compliance reports.

In the year, Hunting remained fully compliant with its bank
covenants. The Group’s $160m revolving credit facility expires
in 2022, and the Company retains the option to increase the facility
by a further $75m to $235m and extend the facility’s maturity date
to 2023, subject to approval of the lending group.

The Committee advised the Board of its conclusion that the
2019 Annual Report and Accounts, taken as a whole, was fair,
balanced and understandable at a Meeting of the Directors
on 25 February 2020.

Internal Audit
The Committee receives reports from the Internal Audit function,
which now comprises two full-time staff. The Chair of the
Committee also has regular dialogue with the function throughout
the year. The Committee 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 and approved 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 February meeting,
which concluded that the function remained effective.

External Audit
The external auditor presents reports at the February, April, August
and December meetings of the Audit Committee. Further, the Chair
of the Committee also has regular dialogue with the audit partner
throughout the year.

In February 2020, a full-year report by Deloitte was considered ahead
of publication of the Group’s 2019 Annual Report and Accounts.

In April 2019, PwC presented its final internal control report prior
to their retirement, which was reviewed by Deloitte as part of the
agreed transition arrangements. As part of the procedures to
appoint Deloitte, a draft full-year audit plan and engagement letter
was reviewed by the Committee at its April 2019 meeting, which
was approved and recommended to the Board. At the August 2019
meeting, an interim report was presented, which included the
proposed full-year audit scope and fees. An update to the full-year
plan was presented at the December 2019 meeting.

The Committee meets with the external auditor, without executive
Directors present, at the end of each formal meeting.

During the year, the Company complied with the provisions of the
Statutory Audit Services for Large Companies Market Investigation
(Mandatory Use of Competitive Tender Process and Audit
Committee Responsibilities) Order 2014.

Hunting PLC / 2019 Annual Report and Accounts109

Audit Scope
The Audit Committee considered the audit scope and materiality
threshold. The audit scope addressed Group-wide risks and local
statutory reporting, enhanced by desk-top reviews for smaller, low
risk entities. Approximately 91% of the Group’s reported revenue
and over 93% of net assets have been audited, covering 22 reporting
units across five countries.

Materiality
The Committee discussed materiality with the auditor regarding
both accounting errors that will be brought to the Audit Committee’s
attention and amounts that would need to be adjusted so that the
financial statements give a true and fair view. Overall, audit
materiality was set at $3.8m (2018 – $4.4m). This equates to
approximately 4% of the Group’s projected underlying profit before
tax result for 2019. Furthermore, the auditor agreed to draw to the
Audit Committee’s attention all identified, uncorrected
misstatements greater than $0.2m.

Audit Effectiveness and Independence
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 various matters including:

• 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 auditors;
• 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 Deloitte LLP.
After considering these matters, the Committee was satisfied with
the effectiveness of the year-end audit process.

Non-Audit Services
The Committee closely monitors fees paid to the auditor in
respect of non-audit services. With the exception of audit-related
assurance services, which totalled $0.1m (2018 – $0.1m), there
were no non-audit services fees paid during the year (2018 – $nil).
The scope and extent of non-audit work undertaken by the
external auditor is monitored by, and requires prior approval from,
the Committee to ensure that the provision of such services does
not impair their independence or objectivity.

Internal Controls
The Group has an established risk management framework and
internal control environment, which was in operation throughout
the year. The Committee monitors these arrangements on behalf
of the Board and these are detailed in the Risk Management
section of the Strategic Report on pages 39 to 42.

Bribery Act
In compliance with the UK Bribery Act, Hunting has procedures
in place, including the publication of Anti-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 incorporates
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.

Modern Slavery Act
The Modern Slavery Act 2015 was enacted in 2016 and requires
companies to evaluate internal and external risks related to human
trafficking and modern slavery. Procedures were introduced during
2016 and continued in 2019, whereby each business unit across
the 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. Hunting published its third Modern
Slavery Act report in March 2019, located at www.huntingplc.com.
Since 2018 the Group’s “Code of Conduct” training course has
been rolled out to all employees of the Group, which incorporates
information on modern slavery and trafficking.

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 and is sent to most customers
and suppliers.

Whistleblowing
The Company’s Senior Independent Director, Keith Lough, is the
primary point of contact for staff or other key partners 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.

Review of Committee Effectiveness
During the year, the Committee reviewed its effectiveness and
the Committee Chairman reported these findings to the Board.
No issues were identified in this review process.

Carol Chesney
Chair of the Audit Committee

27 February 2020

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements110
Independent Auditor’s Report to the Members of Hunting PLC
For the year ended 31 December 2019

1. Opinion
In our opinion:

• the financial statements of Hunting PLC (the “parent Company”) and its subsidiaries (the “Group”) give a true and fair view of the

state of the Group’s and of the parent Company’s affairs as at 31 December 2019 and of the Group’s profit 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 parent 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.

We have audited the financial statements which comprise:

• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated and parent company balance sheets;
• the consolidated and parent company statements of changes in equity;
• the consolidated and parent company statement of cash flows; and
• the related notes 1 to 42 for the consolidated financial statements, and notes C1 – C19 for the parent company financial statements.

The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European
Union and, as regards the parent Company financial statements, as applied in accordance with the provisions of the Companies Act
2006.

2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report.

We are independent of the Group and the parent Company in accordance with the ethical requirements that are relevant to our audit
of the financial statements in the UK, including the Financial Reporting Council’s (the “FRC’s”) Ethical Standard as applied to listed public
interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the
non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the parent Company.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

3. Summary of our audit approach

Key audit matters

Materiality

Scoping

The key audit matters that we identified in the current year were:
• inventory valuation;
• goodwill and non-current asset impairment; and
• revenue recognition.
The materiality that we used for the Group financial statements was $3.8 million which was determined on the
basis of profit before tax before exceptional items.
The scope of our Group audit includes a number of reporting units across the Group, whose results taken together
account for 91% of the Group’s revenue and 93% of net assets.
We conducted our audit work in five countries, covering 22 reporting units, including a number of head office
entities. We visited four of these five countries, including the financially significant component Hunting Titan Inc
in the United States.

4. Conclusions relating to going concern, principal risks and viability statement

4.1. Going concern
We have reviewed the Directors’ statement in note 1 to the financial statements about
whether they considered it appropriate to adopt the going concern basis of accounting
in preparing them and their identification of any material uncertainties to the Group’s and
Company’s ability to continue to do so over a period of at least 12 months from the date
of approval of the financial statements.

Going concern is the basis of preparation of
the financial statements that assumes an entity
will remain in operation for a period of at least
12 months from the date of approval of the
financial statements.

We considered as part of our risk assessment the nature of the Group, its business
model and related risks, including where relevant the impact of Brexit, the requirements
of the applicable financial reporting framework and the system of internal control.
We evaluated the Directors’ assessment of the Group’s ability to continue as a going
concern, including challenging the underlying data and key assumptions used to make
the assessment, and evaluated the Directors’ plans for future actions in relation to their
going concern assessment.

We are required to state whether we have anything material to add or draw attention to
in relation to that statement required by Listing Rule 9.8.6R(3) and report if the statement
is materially inconsistent with our knowledge obtained in the audit.

We confirm that we have nothing material
to report, add or draw attention to in respect
of these matters.

Hunting PLC / 2019 Annual Report and Accounts111

4.2. Principal risks and viability statement
Based solely on reading the Directors’ statements and considering whether they were
consistent with the knowledge we obtained in the course of the audit, including the
knowledge obtained in the evaluation of the Directors’ assessment of the Group’s and
the Company’s ability to continue as a going concern, we are required to state whether
we have anything material to add or draw attention to in relation to:

Viability means the ability of the Group to
continue over the time horizon considered
appropriate by the Directors.

We confirm that we have nothing material
to report, add or draw attention to in respect
of these matters.

• the disclosures on pages 41 to 47 that describe the principal risks, procedures
to identify emerging risks, and an explanation of how these are being managed
or mitigated;

• the Directors’ confirmation on page 41 that they have carried out a robust assessment

of the principal and emerging risks facing the Group, including those that would
threaten its business model, future performance, solvency or liquidity; or

• the Directors’ explanation on page 68 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 are also required to report whether the Directors’ statement relating to the prospects
of the Group required by Listing Rule 9.8.6R(3) is materially inconsistent with our
knowledge obtained in the audit.

5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we
identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit;
and directing the efforts of the engagement team.

These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.

Inventory valuation

Key audit matter
description

How the scope of
our audit responded
to the key audit matter

Key observations

The Group holds inventory of $350.8 million (2018: $348.2 million), net of provisions of $26.5 million
(2018: $24.5 million). The cyclical and often challenging trading environment and market conditions continue
to pose the risk of inventory being carried at an amount greater than its net realisable value. In addition,
future market demand for both existing and new products will impact future sales, especially in respect of
the longevity of some of the Group’s products. These factors, with the level of inventory carried, could lead
to a risk of over-valuation of inventories.

Management’s judgements in assessing the valuation of inventory is primarily based on expectations of
future sales and inventory utilisation plans. Given the level of judgement, we consider there to be a potential
risk of fraud.

Refer to page 108 of the Audit Committee Report and note 20 to the financial statements.
We understood the process for recording inventory and assessed the nature of the Group’s inventory
through enquiries with management, physical inspection of inventory (where applicable) and review of the
utilisation of aged inventory products. Across all components in the Group, as part of our risk assessment
procedures, we have reviewed the basis for the provision recorded across all categories of inventory,
analysing the consistency of this provision in line with the Group’s accounting policy. For those which pose
a greater risk, we have focused our audit effort and tailored our procedures accordingly. Specifically we have:

• obtained an understanding of the relevant controls over the inventory valuation process;
• obtained and reviewed the inventory provisioning models used and determined if they remain appropriate
methodologies with reference to the level of write-offs and evidence of sale of slow-moving stock in the
period to 31 December 2019;

• for components that calculate inventory reserves based on the date the inventory was last used,

performed an analysis of movements between ageing categories during the year and tested a sample
of items;

• considered the available support, including current sales transactions, used to determine an appropriate

net realisable value to confirm that inventory is being held at an appropriate amount;

• where inventory consists of recently produced and newer products, we independently researched the

addressable market to ensure there was no contradictory evidence indicating that this inventory will not
be sold; and

• where appropriate, compared forecast sales against relevant third party market forecasts.
Based on the procedures performed, we obtained evidence that the inventory valuation is appropriate.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements112
Independent Auditor’s Report to the Members of Hunting PLC continued

Goodwill and non-current asset impairment

Key audit matter
description

The Group holds $230.2 million (2018: $229.9 million) of goodwill on the balance sheet, which is tested
annually for impairment. The intangible assets held of $78.5 million (2018: $99.8 million) include customer
relationships, unpatented technology and patents and trademarks. The property, plant and equipment
balance is $354.7 million (2018: $360.2 million). The right of use asset amounted to $36.7 million
(2018: $39.7 million).

How the scope
of our audit responded
to the key audit matter

Testing a cash-generating unit (“CGU”) for impairment requires determination of its recoverable amount,
which is a judgemental assessment that depends on the future financial performance of the CGU and future
market performance. The Group continues to operate in challenging markets, with excess production
capacity at certain locations. Given the decline in the medium-term outlook for the Group’s onshore drilling
tools business, a $19.0 million impairment has been recognised as an exceptional item.

Following our detailed risk assessment procedures we pinpointed the risk of impairment to the following
CGUs: Canada; UK Well Intervention; Drilling Tools; and Specialty.

Refer to page 108 of the Audit Committee Report and note 16 to the financial statements.
We tested management’s identification of CGUs to assess the appropriateness of their determination,
considering business changes that could prompt a change in CGU. Across each CGU 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; and

• calculated the degree to which the key assumptions would need to change before an impairment

was triggered.

In respect of the CGUs that we specifically identified, we challenged the following:

• whether the future cash flow forecasts and the timing of the forecast recovery in performance of these

forecasts for the identified CGUs are appropriate;

• the forecast revenue and margin growth rate assumptions and how management have incorporated the
impact of any changes in the relevant markets subsequent to year-end, 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;
• the terminal growth rates by comparing them to economic and industry forecast; and
• the discount rates by comparing the cost of capital assumption for each CGU against comparable

organisations and independently calculated discount rates with involvement from our valuations specialists.

Where an impairment was identified, we challenged management’s analysis of the impairment booked
by assessing the methodology applied, and testing the underlying source data.

Key observations

We also reviewed the sensitivity disclosures included in the Annual Report.
Based on the procedures performed we are satisfied that management’s calculated recoverable amounts
on the remaining CGUs exceed the carrying amounts and therefore no additional impairment should
be recognised.

We consider that the sensitivity disclosures in the Annual Report fairly present the CGUs that are most
sensitive to potential future changes in key assumptions.

Revenue recognition

Key audit matter
description

The revenue in the Group for 2019 was $960.0 million (2018: $911.4 million).

The Group’s revenue recognition policy does not generally require a high level of judgement however the
quantum of the revenue, contractual terms used with customers and the volume of sales that occur close to
period end have guided the focus of our audit effort. We have also placed due consideration of components
who recognise revenue over time. We consider this to be a potential fraud risk. The key risks in respect of
revenue recognition are:

• the cut-off of sales made close to the period end, with specific consideration to ensuring control

has passed to the customer; and

• the appropriateness of revenue recognition criteria for revenue that is recognised over time.

Refer to note 3 to the financial statements.

Hunting PLC / 2019 Annual Report and Accounts113

How the scope of
our audit responded
to the key audit matter

We obtained an understanding of the relevant controls over the revenue process. We evaluated the key
contractual terms in place with customers and determined an appropriate period for testing sales close
to the period end based on the date of invoicing versus the latest date control may pass, and evaluated
whether the sales had been appropriately recognised based on the contractual terms and underlying proof
of when control has passed.

Key observations

For over time revenue recognition, we identified any significant contracts and assessed the appropriateness
of the revenue recognition model in place, with due consideration of the underlying contractual agreement,
challenging how these terms have been interpreted under IFRS 15 Revenue from Contracts with Customers.
Based on the procedures performed, we obtained evidence that the revenue was recognised appropriately
and in accordance with IFRS 15 Revenue from Contracts with Customers.

6. Our application of materiality

PBT*
Group materiality

Group materiality
$3.8m

Component materiality range
$2.2m to $1.4m

Audit Committee reporting threshold
$0.2m

* Profit before tax before exceptional items.

6.1. Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions
of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work
and in evaluating the results of our work.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Materiality
Basis for determining
materiality

Group financial statements
$3.8 million
We determined materiality as 6% of profit before tax before
exceptional items.

Rationale for the
benchmark applied

We consider that a profit benchmark is appropriate in
determining materiality given investor focus on the
performance of the business. We have used profit before tax
before exceptional items as the benchmark that reflects the
underlying performance of the business.

Parent Company financial statements
$2.2 million.
Parent Company materiality equates to 1%
of net assets. For the purposes of the Group
audit, we have capped this materiality to be
59% of Group materiality.
The Company is a holding company,
not a trading entity, and therefore we have
not used a profit-based benchmark for
determining materiality. We concluded that
net assets is the most appropriate measure
given that the Company’s balance sheet
is mostly made up of investments and
intercompany receivables.

6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole. Group performance materiality was set at 65% of Group
materiality for the 2019 audit. In determining performance materiality, we considered the following factors:

the fact that this is our first period of appointment as auditor;

•
• our overall assessment of the control environment and likely misstatements; and
• our planned testing approach for reliance on controls.

6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of $0.2 million, as well as
differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee
on disclosure matters that we identified when assessing the overall presentation of the financial statements.

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Independent Auditor’s Report to the Members of Hunting PLC continued

7. An overview of the scope of our audit
7.1. Identification and scoping of components
The Group has 55 reporting units, and the financial statements reflect a consolidation of entities covering centralised functions, operating
units and non-trading legal entities. The systems, processes and controls in place vary across the group and therefore our audit scoping
procedures considered each operating unit individually.

Our scoping consisted of three levels with audit effort split across each scoping level. We identified 12 operating units across the Group
that were subject to full scope reporting on their complete financial information, which included four holding company reporting units.
Specific audit procedures over certain balances were performed at a further 10 operating units, including two holding company entities,
to give appropriate coverage on all material balances at the Group level. The remaining operating units and balances not included above
were subject to analytical review procedures. Together, the reporting units subject to audit procedures accounted for 91% of the Group’s
revenue and 93% of the Group’s net assets. The range of component materiality levels is $1.4 million to $2.2 million.

Full audit scope
Specified audit procedures
Review at Group level

18%

28%

Revenue

Net assets

73%

65%

7.2. Working with other auditors
In doing our scoping procedures as described above, we conducted work in five countries, and the Group team visited reporting locations
in Aberdeen, Singapore, Canada and the United States.

We directed and supervised our component audit teams through regular discussions and interactions during the planning phase of
our audit, and throughout the year-end procedures. We performed a detailed review of their work over areas such as key judgements
and significant risks. We also requested a number of reporting documents to be completed by each team for our review.

Further, specific audit procedures over the central functions and areas of significant judgement, including taxation, treasury and impairment,
were performed by the Group audit team centrally.

8. Other information
The Directors are responsible for the other information. The other information comprises the information included in the Annual Report,
other than the financial statements and our auditor’s report thereon.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report,
we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise
appears to be materially misstated.

If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed,
we conclude that there is a material misstatement of this other information, we are required to report that fact.

In this context, matters that we are specifically required to report to you as uncorrected material misstatements of the other information
include where we conclude that:

• Fair, balanced and understandable – the statement given by the Directors that they consider the Annual Report and financial statements
taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s
position and performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
• Audit Committee reporting – the section describing the work of the Audit Committee does not appropriately address matters

communicated by us to the Audit Committee; or

• Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the Directors’ statement required under
the Listing Rules relating to the Company’s compliance with the UK Corporate Governance Code containing provisions specified for
review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the
UK Corporate Governance Code.

We have nothing to report in respect of these matters.

9. Responsibilities of Directors
As explained more fully in the Statement of Directors’ Responsibilities, the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Hunting PLC / 2019 Annual Report and Accounts115

In preparing the financial statements, the Directors are responsible for assessing the Group’s and the parent Company’s ability to continue
as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless
the Directors either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so.

10. Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.

Details of the extent to which the audit was considered capable of detecting irregularities, including fraud and non-compliance with laws
and regulations are set out below.

A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our Auditor’s Report.

11. Extent to which the audit was considered capable of detecting irregularities, including fraud
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then design and
perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide a basis
for our opinion.

11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and
regulations, we considered the following:

• the nature of the industry and sector, control environment and business performance including the design of the Group’s remuneration

policies, key drivers for Directors’ remuneration, bonus levels and performance targets;

• results of our enquiries of management and the Audit Committee about their own identification and assessment of the risks of irregularities;
• any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures relating to:

– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations; and

• the matters discussed among the audit engagement team including significant component audit teams and involving relevant

internal specialists, including tax, IT, and financial instruments specialists regarding how and where fraud might occur in the financial
statements and any potential indicators of fraud.

As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in the following areas: inventory valuation and revenue recognition. In common with all audits
under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override.

We also obtained an understanding of the legal and regulatory frameworks in which the Group operates, focusing on provisions of those
laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key
laws and regulations we considered in this context included the UK Companies Act, Listing Rules, tax legislation and pensions legislation.

In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but
compliance with which may be fundamental to the Group’s ability to operate or to avoid a material penalty. These included employment
and minimum wage legislation, health, safety and the environment (“HSE”), international trading laws, the Group’s operating licence,
their regulatory solvency requirements and environmental regulations.

11.2. Audit response to risks identified
As a result of performing the above, we identified inventory valuation and revenue recognition as key audit matters related to the potential
risk of fraud. The key audit matters section of our report explains the matters in more detail and also describes the specific procedures
we performed in response to those key audit matters.

In addition to the above, our procedures to respond to risks identified included the following:

• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant

laws and regulations described as having a direct effect on the financial statements;

• enquiring of management, the Audit Committee and external legal counsel concerning actual and potential litigation and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement

due to fraud;

• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with

HMRC; and

• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other

adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating
the business rationale of any significant transactions that are unusual or outside the normal course of business.

We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including
internal specialists and significant component audit teams, and remained alert to any indications of fraud or non-compliance with laws
and regulations throughout the audit.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements116
Independent Auditor’s Report to the Members of Hunting PLC continued

Report on other legal and regulatory requirements

12. Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006.

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 the light of the knowledge and understanding of the Group and the parent Company and their environment obtained in the course
of the audit, we have not identified any material misstatements in the Strategic Report or the Directors’ Report.

13. Matters on which we are required to report by exception
13.1. Adequacy of explanations received and accounting records
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 parent Company, or returns adequate for our audit have not been received

from branches not visited by us; or

• the parent Company financial statements are not in agreement with the accounting records and returns.

We have nothing to report in respect of these matters.

13.2. Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of Directors’ remuneration have not
been made or the part of the Directors’ Remuneration Report to be audited is not in agreement with the accounting records and returns.

We have nothing to report in respect of these matters.

14. Other matters
14.1. Auditor tenure
Following the recommendation of the Audit Committee, we were appointed by the Directors on 17 April 2019 to audit the financial
statements for the year ending 31 December 2019 and subsequent financial periods. Our total uninterrupted period of engagement
is one year, covering periods from our appointment through to the period ending 31 December 2019.

14.2. Consistency of the audit report with the additional report to the Audit Committee
Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in accordance with ISAs (UK).

15. Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in
an Auditor’s Report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

William Smith
(Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London
27 February 2020

Hunting PLC / 2019 Annual Report and Accounts117
Consolidated Income Statement
For the year ended 31 December 2019

Revenue
Cost of sales
Gross profit
Other operating income
Operating expenses
Profit (loss) from operations
Finance income
Finance expense
Profit (loss) before tax from
operations
Taxation
Profit (loss) for the year

Profit (loss) attributable to:
Owners of the parent
Non-controlling interests

Earnings per share
Basic
Diluted

Notes
3

4
5
7
9
9

11
11

Before
amortisationii
and exceptional
items
$m
960.0
(693.6)
266.4
10.8
(182.9)
94.3
4.2
(5.4)

2019

Amortisationii
and exceptional
items
(note 6)
$m
–
(19.0)
(19.0)
–
(28.5)
(47.5)
–
–

(47.5)
12.8
(34.7)

(34.7)
–
(34.7)

93.1
(17.0)
76.1

74.4
1.7
76.1

cents
45.0
43.9

Before
amortisationii
and exceptional
items
$m
911.4
(636.3)
275.1
7.8
(178.2)
104.7
2.6
(3.3)

2018i

Amortisationii
and exceptional
items
(note 6)
$m
–
–
–
–
(29.3)
(29.3)
–
–

(29.3)
33.0
3.7

4.5
(0.8)
3.7

104.0
(22.0)
82.0

84.8
(2.8)
82.0

cents
51.6
49.6

Total
$m
960.0
(712.6)
247.4
10.8
(211.4)
46.8
4.2
(5.4)

45.6
(4.2)
41.4

39.7
1.7
41.4

cents
24.0
23.5

Total
$m
911.4
(636.3)
275.1
7.8
(207.5)
75.4
2.6
(3.3)

74.7
11.0
85.7

89.3
(3.6)
85.7

cents
54.4
52.3

i. From 1 January 2019, the Group has adopted IFRS 16 Leases (“IFRS 16”) by applying the modified retrospective approach; consequently the comparatives
for the 2018 reporting period have not been restated, as permitted under the specific transitional provisions in IFRS 16. The impact of implementing IFRS 16
can be seen in note 41.

ii. Relates to amortisation of intangible assets arising on the acquisition of businesses (referred to hereafter as amortisation of acquired intangible assets).

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements118
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2019

Comprehensive income:
Profit for the year

Components of other comprehensive income (expense) after tax:
Items that may be reclassified subsequently to profit or loss:
Exchange adjustments
Fair value gains and losses:
– (losses) gains originating on net investment hedges arising during the year
– gains originating on cash flow hedges arising during the year

Items that have been reclassified to profit or loss:
Release of foreign exchange on liquidation of subsidiaries

Items that will not be reclassified to profit or loss:
Remeasurement of defined benefit pension schemes
Other comprehensive income (expense) after tax
Total comprehensive income for the year

Total comprehensive income (expense) attributable to:
Owners of the parent
Non-controlling interests

Notes

34
34

2019
$m

41.4

5.4

(0.7)
–
4.7

(0.2)

(0.3)
4.2
45.6

43.5
2.1
45.6

2018
$m

85.7

(9.6)

1.2
0.2
(8.2)

–

1.5
(6.7)
79.0

83.8
(4.8)
79.0

Total comprehensive income attributable to owners of the parent arises from the Group’s continuing operations.

Hunting PLC / 2019 Annual Report and Accounts119
Consolidated Balance Sheet
At 31 December 2019

ASSETS
Non-current assets
Property, plant and equipment
Right-of-use assets
Goodwill
Other intangible assets
Investments
Trade and other receivables
Deferred tax assets

Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Current tax assets
Investments

LIABILITIES
Current liabilities
Trade and other payables
Lease liabilities
Borrowings
Provisions
Current tax liabilities

Net current assets

Non-current liabilities
Trade and other payables
Lease liabilities
Borrowings
Provisions
Deferred tax liabilities

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

2019
$m

2018i
$m

12
13
14
15
17
18
19

20
18
21

22
24
25
27

22
24
25
27
19

33
33
34
35

354.7
36.7
230.2
78.5
2.3
2.7
29.9
735.0

350.8
202.0
128.6
0.2
0.5
682.1

121.2
9.8
1.6
3.2
9.5
145.3
536.8

2.7
35.4
3.9
5.2
0.8
48.0
1,223.8

67.3
153.0
56.5
931.1
1,207.9
15.9
1,223.8

360.2
–
229.9
99.8
2.4
3.5
26.0
721.8

348.2
231.0
67.9
0.1
–
647.2

140.9
–
2.7
4.7
11.2
159.5
487.7

3.8
–
3.9
9.5
1.2
18.4
1,191.1

66.7
153.0
75.8
881.6
1,177.1
14.0
1,191.1

The notes on pages 122 to 167 are an integral part of these consolidated financial statements. The financial statements on pages 117 to 167
were approved by the Board of Directors on 27 February 2020 and were signed on its behalf by:

Jim Johnson
Director

Peter Rose
Director

Registered number: 0974568

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements
120
Consolidated Statement of Changes in Equity

At 31 December 2018 as previously
reported
Adjustment on adoption of IFRS 16
At 1 January 2019 amended

Profit for the year
Other comprehensive income (expense)
Total comprehensive income

Dividends to equity shareholders
Shares issued
– share option schemes and awards
Treasury shares
– purchase of treasury shares
– disposal of treasury shares
Share options and awards
– value of employee services
– discharge
– taxation
Transfer between reserves
Total transactions with owners

Notes

35
35

34
34,35

Year ended 31 December 2019

Share
capital
$m

Share
premium
$m

Other
components
of equity
$m

Retained
earnings
$m

Non-
controlling
interests
$m

Total
$m

Total
equity
$m

66.7
–
66.7

153.0
–
153.0

–
–
–

–

0.6

–
–

–
–
–
–
0.6

–
–
–

–

–
–

–
–
–
–
–

75.8
–
75.8

–
4.1
4.1

–

–
–

9.0
(11.6)
–
(20.8)
(23.4)

881.6
(1.1)
880.5

1,177.1
(1.1)
1,176.0

14.0
(0.2)
13.8

1,191.1
(1.3)
1,189.8

39.7
(0.3)
39.4

39.7
3.8
43.5

1.7
0.4
2.1

(16.6)

–

0.6

(5.0)
0.3

–
10.8
0.9
20.8
11.2

(5.0)
0.3

9.0
(0.8)
0.9
–
(11.6)

–

–
–

–
–
–
–
–

41.4
4.2
45.6

(16.6)

0.6

(5.0)
0.3

9.0
(0.8)
0.9
–
(11.6)

At 31 December 2019

67.3

153.0

56.5

931.1

1,207.9

15.9

1,223.8

Year ended 31 December 2018

At 31 December 2017
Adjustment on adoption of IFRS 9
At 1 January 2018

Profit (loss) for the year
Other comprehensive (expense) income
Total comprehensive income

Hedging losses transferred to the carrying
value of inventory purchased in the year

Dividends 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
– taxation
Transfer between reserves
Total transactions with owners

Notes

34
34,35

Share
capital
$m
66.4
–
66.4

Share
premium
$m
153.0
–
153.0

Other
components
of equity
$m
91.7
–
91.7

–
–
–

–

0.3

–

–
–
–
–
0.3

–
–
–

–

–
–
–
–
–

–
(7.0)
(7.0)

–

13.1
(9.7)
–
(12.2)
(8.8)

Retained
earnings
$m
782.2
(0.2)
782.0

89.3
1.5
90.8

(6.6)

–

Total
$m
1,093.3
(0.2)
1,093.1

89.3
(5.5)
83.8

(0.1)

(6.6)

0.3

(5.7)

–
9.2
(0.3)
12.2
8.8

13.1
(0.5)
(0.3)
–
0.3

Non-
controlling
interests
$m
18.8
–
18.8

(3.6)
(1.2)
(4.8)

–

–
–
–
–
–

Total
equity
$m
1,112.1
(0.2)
1,111.9

85.7
(6.7)
79.0

(0.1)

(6.6)

0.3

(5.7)

13.1
(0.5)
(0.3)
–
0.3

(0.1)

–

At 31 December 2018

66.7

153.0

75.8

881.6

1,177.1

14.0

1,191.1

Hunting PLC / 2019 Annual Report and Accounts121
Consolidated Statement of Cash Flows
For the year ended 31 December 2019

Operating activities
Reported profit from operations
Acquisition amortisation and exceptional items
Depreciation and non-acquisition amortisation
Underlying EBITDA (NGM A)
Share-based payments expense
Increase in inventories
Decrease (increase) in receivables
(Decrease) increase in payables
Decrease in provisions
Net taxation paid
Receipt of surplus pension assets
Payment of US pension scheme liabilities
Net gain on disposal of property, plant and equipment
Proceeds from disposal of property, plant and equipment held for rental
Purchase of property, plant and equipment held for rental
Gain on disposal of intangible assets
Gain on disposal of business
Other non-cash flow items
Net cash inflow from operating activities
Investing activities
Interest received
Net movement on loans to and from associates
Proceeds from disposal of associates
Proceeds from disposal of investments
Proceeds from disposal of property, plant and equipment
Proceeds from disposal of intangible technology
Proceeds from disposal of business
Purchase of subsidiaries
Purchase of property, plant and equipment
Purchase of intangible assets
Net cash outflow from investing activities
Financing activities
Interest and bank fees paid
Payment of capitalised lease liabilities
Repayment of borrowings
Proceeds from new borrowings
Dividends paid to equity shareholders
Share capital issued
Purchase of Treasury shares
Disposal of Treasury shares
Net cash outflow from financing activities

Net cash inflow 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 and cash equivalents included in current assets
Bank overdrafts included in borrowings

Notes

6
7

4
4
39

21
25

2019
$m

46.8
47.5
45.4
139.7
9.1
(0.2)
29.0
(21.2)
(2.4)
(7.7)
–
–
(1.5)
2.7
(5.6)
(2.3)
(2.0)
(0.4)
137.2

1.3
0.3
–
–
0.9
2.3
3.0
(12.5)
(30.4)
(10.2)
(45.3)

(1.2)
(10.6)
(0.9)
–
(16.6)
0.6
(5.0)
0.3
(33.4)

58.5
66.1
2.4
127.0

128.6
(1.6)
127.0

2018i
$m

75.4
29.3
37.6
142.3
13.2
(72.7)
(47.3)
23.4
(3.8)
(2.6)
10.6
(10.4)
(1.0)
3.9
(5.8)
–
–
2.9
52.7

0.4
–
1.3
10.4
12.5
–
–
–
(24.3)
(6.6)
(6.3)

(2.4)
–
–
0.9
(6.6)
0.3
(5.7)
–
(13.5)

32.9
34.3
(1.1)
66.1

67.9
(1.8)
66.1

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements122
Notes to the Consolidated Financial Statements

1. Basis of Preparation

Hunting PLC is a premium-listed public company limited by shares, with its Ordinary shares quoted on the London Stock Exchange.
Hunting PLC was incorporated in the United Kingdom under the Companies Act and is registered in England and Wales. The address of the
Company’s registered office is shown on page 185. The principal activities of the Group and the nature of the Group’s operations are set out
in note 2 and in the Strategic Report on pages 6 to 69. The financial statements consolidate those of Hunting PLC (the “Company”) and its
subsidiaries (together referred to as the “Group”), include the Group’s interests in associates and are presented in US dollars, the currency
of the primary economic environment in which the Group operates.

The consolidated financial statements have been prepared in accordance with the Companies Act 2006 as applicable to companies using
IFRS and those International Financial Reporting Standards (“IFRS”) and interpretations issued by the IFRS Interpretations Committee
(“IFRS IC”) 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 the US deferred compensation plan and those financial assets and financial liabilities
held at fair value. The Board’s consideration of the applicability of the going concern basis is detailed further in the Strategic Report on
pages 68 and 69.

The principal accounting policies applied in the preparation of these financial statements are set out in note 40. These policies have been
consistently applied to all the years presented, except for IFRS 16 Leases as described below.

Critical Judgements and Key Estimates
Critical judgements are those that the Directors have made in the process of applying the Group’s accounting policies and that have the
most significant effect on the amounts recognised in the Group’s financial statements. Key assumptions are those assumptions concerning
the future and other key sources of estimation uncertainty at the reporting period are those that may have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within the next financial year. Other than judgements made regarding
the recognition of certain inventory provisions (see note 20) and estimates regarding future cash flows for the purposes of impairment
testing (see note 16), management believe that there are no other critical judgements or estimates applied in the preparation of the
financial statements.

Adoption of New Standards, Amendments and Interpretations
IFRS 16 Leases (“IFRS 16”) has been adopted and is effective for the financial year beginning as of 1 January 2019. The Group has
changed its accounting policies as a result of adopting IFRS 16. The new accounting policy and the impact of adopting this accounting
standard have been shown in note 41.

A number of amendments to IFRS became effective for the financial year beginning on 1 January 2019, however the Group did not have
to change its accounting policies or make retrospective adjustments as a result of adopting these amendments:

• IFRIC 23 Uncertainty over Income Tax Treatments
• Annual Improvements to IFRS Standards 2015-2017 Cycle
• Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures

The following standards, amendments and interpretations are effective subsequent to the year-end, which have not been early adopted,
and are being assessed to determine whether there is a significant impact on the Group’s results or financial position:

• IFRS 17 Insurance Contractsi
• Amendment to IAS 1 and IAS 8: Definition of Material
• Amendment to IFRS 3 Business Combinationsi
• Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)
• Amendment to IAS 1: Classification of Current and Non-current Liabilitiesi

i. Not yet endorsed by the European Union.

An assessment of the impact of adopting the amendments to IFRS 9, IAS 39 and IFRS 7 regarding Interest Rate Benchmark Reform is
ongoing. A preliminary assessment indicates that none of the Group’s hedge accounting will be impacted by the reform regarding LIBOR.
However, the Group’s RCF and other bilateral funding arrangements will be impacted by the move away from LIBOR, as LIBOR is currently
used as the base for the interest rate applied.

Hunting PLC / 2019 Annual Report and Accounts123

2. Segmental Reporting

Following a restructuring in reporting lines and the reduced operations in Africa and the Middle East, the Middle East, Africa and Other
operating segment has been combined with the Europe operating segment to form the Europe, Middle East and Africa segment (“EMEA”).
In addition, due to diminished materiality, the Exploration and Production segment has been combined with the US segment. Therefore,
for the year ended 31 December 2019, the Group has been reporting on five operating segments 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
segment information for 2018 has been restated to reflect these changes.

The Group’s operating segments are strategic business units that offer different products and services primarily to international oil and gas
companies and who undertake exploration and production activities. The Board assesses the performance of the operating segments
based on revenue and underlying operating results. Underlying operating result is a profit-based measure and excludes the effects of
amortisation of acquired intangible assets and any exceptional items (see note 6). The Directors believe that using the underlying operating
result provides a more consistent and comparable measure of the operating segment’s performance.

Interest income and expenditure are not allocated to segments, as this type of activity is overseen by the central treasury function,
which manages the funding position of the Group.

Inter-segment sales are priced in line with the Group’s transfer pricing policy on an arm’s-length basis. Costs and overheads are
apportioned to the operating segments on the basis of time attributed to those operations by senior executives.

Further, the Board is also provided revenue information by product group, in order to help with an understanding of the drivers of Group
performance trends.

Hunting Titan: Hunting Titan manufactures and distributes a broad range of well completion products and accessories. The segment’s
products include both integrated and conventional gun systems and hardware, a complete portfolio of shaped charges and other
energetics products, addressable and analogue switch technology and electronic instrumentation for certain measurements required
in the oil and gas industry. Key products include H-1™ gun systems, ControlFire™ switches, EQUAfrac™ shaped charges, the T-Set™
line of setting tools and the PowerSet family of power charges. The business has manufacturing facilities in the US, Canada, China and
Mexico, and is supported by strategically-located distribution centres across North America.

US: The US businesses supply premium connections, oil country tubular goods (“OCTG”), drilling tools, subsea equipment, intervention
tools, electronics and complex deep hole drilling and precision machining services for the US and overseas markets. The segment also
manufactures perforating system products for Hunting Titan. The segment also includes the Group’s legacy exploration and production
activities in the Southern US and offshore Gulf of Mexico.

Canada: Hunting’s Canadian business manufactures premium connections and accessories for oil and gas operators in Canada, often
focused on heavy oil plays, which require specialist tubing technologies. Canada also manufactures perforating guns for Hunting Titan.

Europe, Middle East and Africa (“EMEA”): Revenue from this segment is generated from the supply of OCTG and well intervention
equipment to operators in the North Sea as well as the sale and rental of in-field well intervention products across the Middle East region.
In the Middle East, the operations also act as a sales hub for other products manufactured globally by the Group, including OCTG and
Perforating Systems.

Asia Pacific: Revenue from the Asia Pacific segment is primarily from the manufacture of premium connections and OCTG supply.
Asia Pacific also manufactures perforating guns for sale to Hunting Titan and for sale in its domestic markets.

Due to its size and nature of operations, Hunting Titan’s activities are reported separately. Although the Canada segment does not meet
the quantitative thresholds required by IFRS 8 for reportable segments, this segment is separately reported as it is separately monitored
by the Board.

Accounting policies used for segmental reporting reflect those used for the Group.

The UK is the domicile of Hunting PLC.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements124
Notes to the Consolidated Financial Statements continued

2. Segmental Reporting continued

The following tables present the results of the operating segments on the same basis as that used for internal reporting purposes
to the CODM.

(a) Segment Revenue and Profit

Hunting Titan
US
Canada
EMEA
Asia Pacific
Total from operations

Net finance expense
Profit (loss) before tax from operations

Hunting Titan
US
Canada
EMEA
Asia Pacific
Total from operations

Net finance expense
Profit (loss) before tax from operations

Total
segment
revenue
$m
375.5
363.2
35.7
123.0
146.3
1,043.7

Total
segment
revenue
$m
418.2
329.7
44.8
107.3
107.0
1,007.0

Inter-
segment
revenue
$m
(4.3)
(44.5)
(8.6)
(7.2)
(19.1)
(83.7)

Inter-
segment
revenue
$m
(6.9)
(43.0)
(9.6)
(9.9)
(26.2)
(95.6)

2019

Total
external
revenue
$m
371.2
318.7
27.1
115.8
127.2
960.0

Restatedii
2018

Total
external
revenue
$m
411.3
286.7
35.2
97.4
80.8
911.4

Underlying
result
$m
68.6
26.9
(4.3)
(1.3)
4.4
94.3

Amortisationi
and exceptional
items
$m
(26.5)
(21.0)
–
–
–
(47.5)

(1.2)
93.1

–
(47.5)

Underlying
result
$m
106.9
14.2
(1.8)
(13.8)
(0.8)
104.7

(0.7)
104.0

Amortisationi
and exceptional
items
$m
(26.1)
(3.2)
–
–
–
(29.3)

–
(29.3)

Reported
result
$m
42.1
5.9
(4.3)
(1.3)
4.4
46.8

(1.2)
45.6

Reported
result
$m
80.8
11.0
(1.8)
(13.8)
(0.8)
75.4

(0.7)
74.7

i. Relates to amortisation of intangible assets arising on the acquisition of businesses (referred to hereafter as amortisation of acquired intangible assets).
ii. The segment information for 2018 has been restated for the change in the Group’s operating segments reported to the CODM, as discussed above.

Revenue from external customers attributable to the UK, the Group’s country of domicile, is $64.7m (2018 – $55.9m).

A breakdown of external revenue by products and services is presented below:

Perforating Systems
OCTG
Advanced Manufacturing
Intervention Tools
Subsea
Drilling Tools
Other
Total

2019
$m
363.0
357.0
104.5
51.7
44.5
22.3
17.0
960.0

Restatedi
2018
$m
404.1
277.4
98.5
55.1
30.5
27.6
18.2
911.4

i. The amounts for 2018 have been restated to show the Well Testing product line as part of Intervention Tools and the Organic Oil Recovery product line has

been included in Other as this presentation better represents those products produced by the Group’s companies.

Hunting PLC / 2019 Annual Report and Accounts125

2. Segmental Reporting continued

(b) Other Segment Items

Hunting Titan
US
Canada
EMEA
Asia Pacific
Total

Depreciationi
$m
7.7
22.8
1.7
5.0
4.4
41.6

2019 charge

Amortisation
$m
27.3
4.1
0.1
0.7
0.1
32.3

Impairmentii
$m
1.4
21.5
1.0
1.0
1.1
26.0

Restatediii
2018 charge (credit)

Amortisation
$m
26.7
4.1
–
0.9
0.2
31.9

Depreciation
$m
5.3
20.9
1.3
3.8
3.7
35.0

Impairmentii
$m
1.3
2.6
–
(0.1)
0.5
4.3

i. Depreciation in 2019 comprises depreciation of property, plant and equipment $33.7m and depreciation of right-of-use assets $7.9m.
ii

Impairment comprises impairment of property, plant and equipment $19.0m (2018 – $1.0m), reversal of impairment of property, plant and equipment $nil
(2018 – $2.0m), impairment of trade and other receivables $1.1m (2018 – $1.1m) and impairment of inventories $5.9m (2018 – $4.2m).

ii. From 1 January 2019, the Group has adopted IFRS 16 Leases (“IFRS 16”) by applying the modified retrospective approach; consequently the comparatives
for the 2018 reporting period have not been restated, as permitted under the specific transitional provisions in IFRS 16. However, the segment information
for 2018 has been restated for the change in the Group’s operating segments reported to the CODM, as discussed above.

(c) Geographical Non-current Assets
Information on the physical location of non-current assets is presented below. The allocated non-current assets below exclude deferred
tax assets.

Hunting Titan – US
Hunting Titan – Canada
Hunting Titan – Other
Hunting Titan
US
Canada
Europei
Middle East
Asia Pacific

Unallocated assets
Deferred tax assets
Total non-current assets

2019
$m
298.9
2.5
0.8
302.2
314.9
12.2
61.1
2.3
12.4
705.1

29.9
735.0

Restated
2018
$m
311.6
1.5
0.7
313.8
311.9
4.6
49.6
3.2
12.7
695.8

26.0
721.8

i. The value of non-current assets located in the UK, the Group’s country of domicile, is $45.7m (2018 – $42.5m).

(d) Major Customer
The Group received revenue of $112.6m (2018 – $117.1m) from the Halliburton Company Group, which is 12% (2018 – 13%) of the Group’s
revenue from external customers. All of Hunting’s core operating segments have benefited from trading with Halliburton.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements126
Notes to the Consolidated Financial Statements continued

3. Revenue

In the following tables, a breakdown of the Group’s different revenue streams by segment has been given, including the disaggregation
of revenue from contracts with customers.

Hunting Titan
US
Canada
EMEA
Asia Pacific
Total

Revenue
from
contracts
with
customers
$m
371.2
292.0
27.0
109.1
127.2
926.5

Revenue
from
contracts
with
customers
$m
411.3
254.5
35.1
87.8
80.8
869.5

2019

Rental
revenue
$m
–
24.6
0.1
6.7
–
31.4

Restatedi
2018

Rental
revenue
$m
–
29.6
0.1
9.6
–
39.3

Other
revenue
$m
–
2.1
–
–
–
2.1

Other
revenue
$m
–
2.6
–
–
–
2.6

Total
external
revenue
$m
371.2
318.7
27.1
115.8
127.2
960.0

Total
external
revenue
$m
411.3
286.7
35.2
97.4
80.8
911.4

i. The segment information for 2018 has been restated for the change in the Group’s operating segments reported to the CODM, as discussed above.

There is no material difference in the timing of revenue recognition between contracts with customers at a point in time and contracts with
customers over time, as the majority of Hunting’s performance obligations are relatively short. Invoices for products are issued when the product
is shipped or made available to customers for collection and invoices for services are issued either on completion of the service or, at a minimum,
monthly for services covering more than one month.

4. Other Operating Income

Operating lease rental income
Gain on disposal of property, plant and equipment
Gain on disposal of intangible technology
Gain on disposal of business
Foreign exchange gains
Other incomei

2019
$m
1.4
2.0
2.3
2.0
0.5
2.6
10.8

2018
$m
1.5
3.0
–
–
2.1
1.2
7.8

Includes fair value gains on derivatives not designated in a hedge of $0.6m (2018 – $nil).

During the year, the Clear-RunTM intangible technology was sold for $2.3m, with a gain on disposal of $2.3m and consideration from the sale
of the Thru-Tubing business in Dubai was $2.4m, with a gain on disposal of $1.7m.

5. 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 6)

2019
$m
121.3
61.1
0.5
182.9
28.5
211.4

2018
$m
117.4
58.8
2.0
178.2
29.3
207.5

Includes foreign exchange losses of $2.7m (2018 – $1.1m) and a fair value loss on derivatives not designated in a hedge of $0.2m (2018 – $0.5m).

i.
ii. Relates to amortisation of intangible assets acquired as part of a business combination.

Hunting PLC / 2019 Annual Report and Accounts127

6. Amortisation and Exceptional Items

Impairment of Drilling Tools rental tools (notes 12 and 16(d)(i))
Closure of South African facility
Closure of Kenya joint venture
Charged to cost of sales
Amortisation of intangible assets charged to operating expenses
Total amortisation and exceptional items charged to profit (loss) from operations
Taxation on amortisation and exceptional items (note 10)

2019
$m
19.0
–
–
19.0
28.5
47.5
(12.8)
34.7

2018
$m
–
(2.0)
2.0
–
29.3
29.3
(33.0)
(3.7)

Due to their size and nature, the following items have been disclosed as exceptional items in the financial statements.

During the year, impairment of our drilling tools motor fleet and associated parts of $19.0m has been recognised, with the majority of assets
expected to be scrapped. For further detail on the impairment, please see note 16(d)(i).

In 2018, the Group reversed $2.0m of the impairment provision for property, plant and equipment in relation to the closure of the South
African facility in Cape Town. The Group received $8.0m in 2018 in relation to the disposal of property, plant and equipment from the South
African facility.

Also, given the modest drilling activity forecast for East Africa in the medium term, the Board made the decision to close its Kenyan joint
venture in Mombasa in H1 2018. An impairment of property, plant and equipment totalling $1.0m, a loss on disposal of Kenya’s rental fleet
of $0.5m and a provision for costs of $0.5m relating to the closure of the facility were recognised in 2018, totalling $2.0m.

7. Profit (Loss) from Operations

The following items have been charged (credited) in arriving at profit (loss) from operations:

Staff costs (note 8)
Depreciation of property, plant and equipment (note 12)
Amortisation of intangible assets from business combinations
Amortisation of other intangible assets
Amortisation of intangible assets – reported (included in operating expenses) (note 15)
Impairment of property, plant and equipment – exceptional (included in cost of sales) (note 6)
Gain on disposal of intangible technology (note 4)
Gain on disposal of business (note 4)
Net gain on disposal of property, plant and equipment – underlying
Loss on disposal of property, plant and equipment – exceptional items (note 6)
Net gain on disposal of property, plant and equipment – reported
Depreciation charge of Right-of-Use Assets (note 13)
Expense relating to short-term leases and leases of low-value assets
Expenses charged to the income statement under IFRS 16 Leases (note 24)
Expenses charged to the income statement under IAS 17 Leases (note 24)
Research and development expenditure

Fees payable to the Group’s independent auditor and its associates are for:

The audit of these financial statements
The audit of the financial statements of the Company’s subsidiaries
Total audit
Audit-related assurance services
Total audit and audit-related services

i. Fees payable in 2019 are to the Group’s independent auditor, Deloitte LLP, and its associates.
ii. Fees payable in 2018 are to the Group’s previous independent auditor, PricewaterhouseCoopers LLP, and its associates.

2019
$m
222.5
33.7
28.5
3.8
32.3
19.0
2.3
2.0
(1.5)
–
(1.5)
7.9
3.0
10.9
–
4.2

2019i
$m
1.7
0.5
2.2
0.1
2.3

2018
$m
221.3
35.0
29.3
2.6
31.9
1.0
–
–
(1.0)
0.5
(0.5)
–
–
–
13.8
3.4

2018ii
$m
1.7
0.4
2.1
0.1
2.2

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements128
Notes to the Consolidated Financial Statements continued

8. Employees

Wages and salaries (including annual cash bonuses)
Social security costs
Share-based payments (note 37)
Other pension costs
– defined contribution schemes (note 32)
– defined benefit schemes (note 32)
Pension income – net interest included in net finance expense (note 32)
Staff costs for the year

Staff costs for the year are included in the financial statements as follows:

Staff costs included in profit (loss) from operations (note 7)
Staff costs – pension income included in net finance expense
Staff costs capitalised as R&D

2019
$m
190.7
14.5
9.1

8.7
0.1
(0.2)
222.9

2019
$m
222.5
(0.2)
0.6
222.9

The average monthly number of employees by geographical area (including executive Directors) during the year was:

US
Canada
Europe
Asia Pacific
Middle East, Africa and Mexico

2019
Number
1,962
142
265
459
48
2,876

The average monthly number of employees by operating segment (including executive Directors) during the year was:

Hunting Titan
US
Canada
EMEA
Asia Pacific
Central

The actual number of employees at the year-end was:

Male
Female

2019
Number
684
1,262
127
292
443
68
2,876

2019
Number
2,327
629
2,956

2018
$m
183.7
15.1
13.2

7.6
2.5
(0.3)
221.8

2018
$m
221.3
(0.3)
0.8
221.8

2018
Number
1,798
149
274
430
76
2,727

2018
Number
646
1,149
133
326
415
58
2,727

2018
Number
2,182
590
2,772

Hunting PLC / 2019 Annual Report and Accounts

129

8. Employees continued

Key management comprises the Board and the Executive Committee, which was formed on 30 August 2018. Their aggregate remuneration
in the year was:

Salaries, annual cash bonuses and short-term employee benefits
Social security costs
Post-employment benefits
Share-based payments

2019
$m
5.7
0.4
0.3
2.1
8.5

2018i
$m
5.4
0.3
0.3
2.7
8.7

i. The 2018 numbers for the Executive Committee are pro-rata from formation on 30 August 2018 to 31 December 2018.

Remuneration of the Board, included as part of Key Management compensation, can be found in the Annual Report on Remuneration
on pages 94 and 95. The Annual Report on Remuneration disclosures do not include Executive Committee members who are not part
of the Board and discloses share scheme remuneration on a vested rather than accruals basis.

Short-term employee benefits comprise healthcare insurance, company cars and fuel benefits. Post-employment benefits comprise
employer pension contributions. Share-based payments comprise the charge to the income statement.

9. Net Finance Expense

Finance income:
Bank balances and deposits
Pension interest income
Foreign exchange gains
Fair value gains on derivative financial instruments
Fair value gains on Money Market Funds
Other finance income

Finance expense:
Interest on lease liabilities
Bank fees and commissions
Foreign exchange losses
Fair value losses on derivative financial instruments
Bank borrowings
Other finance expense

Net finance expense

10. Taxation

2019
$m

0.4
0.3
2.4
0.5
0.6
–
4.2

(2.2)
(1.3)
(0.8)
(0.7)
–
(0.4)
(5.4)
(1.2)

Current tax
– current year charge
– adjustments in respect of prior years

Deferred tax
– origination and reversal of temporary

differences

– recognition of US deferred tax asset
– change in tax rate
– adjustments in respect of prior years

Taxation charge (credit)

2019

Before
amortisationi
and exceptional
items
$m

Amortisationi
and exceptional
items
$m

10.2
(3.5)
6.7

14.1
–
–
(3.8)
10.3
17.0

–
–
–

(12.8)
–
–
–
(12.8)
(12.8)

Before
amortisationi
and exceptional
items
$m

2018

Amortisationi
and exceptional
items
$m

13.4
(3.7)
9.7

17.1
(3.6)
(0.4)
(0.8)
12.3
22.0

–
–
–

(7.7)
(25.3)
–
–
(33.0)
(33.0)

Total
$m

10.2
(3.5)
6.7

1.3
–
–
(3.8)
(2.5)
4.2

i. Relates to amortisation of intangible assets arising on the acquisition of businesses.

2018
$m

0.2
0.4
0.9
0.9
0.1
0.1
2.6

–
(1.2)
(1.4)
(0.1)
(0.1)
(0.5)
(3.3)
(0.7)

Total
$m

13.4
(3.7)
9.7

9.4
(28.9)
(0.4)
(0.8)
(20.7)
(11.0)

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements
130
Notes to the Consolidated Financial Statements continued

10. Taxation continued

The effective tax rate applicable to operations before amortisation and exceptional items is 18% (2018 – 21%).

A tax credit of $8.4m (2018 – $7.7m) in respect of current year amortisation of intangible assets recognised as part of amortisation and
exceptional items and a tax credit of $4.4m in respect of the impairment of drilling tools have been included in the income statement. In 2018,
a further credit of $25.3m relating to the recognition of US deferred tax assets was shown as a credit against amortisation and exceptional
items, consistent with our tax treatment on amortisation in prior years. The deferred tax asset was recognised for the US due to strong
performance in 2018. It is still appropriate to continue recognising the deferred tax assets following the strong performance from the
US in 2019 and current projections for the next two years.

The adjustment in respect of prior years of $3.5m (2018 – $3.7m) for current tax includes the release of provisions for uncertain tax positions
that are no longer required and normal true-ups.

The reconciliation below reconciles the tax on the Group’s reported profit before tax to a weighted average tax rate for the Group based
on the tax rates applicable to each entity in the Group. A weighted average applicable rate for the year has been used, as this reflects
the applicable rates for the countries in which the Group has earned profits. The total tax charge (2018 – credit) for the year is lower
(2018 – lower) than the weighted average rate of tax of 19% (2018 – 27%) for the following reasons:

Reported profit before tax
Tax at 19% (2018 – 27%)
Permanent differences including tax credits
Current year losses not recognised
Previously unrecognised tax losses
Change in tax rates
Adjustments in respect of prior years
Taxation

2019
$m
45.6
8.5
3.6
2.7
(3.3)
–
(7.3)
4.2

Restatedi
2018
$m
74.7
19.9
2.6
0.5
(29.1)
(0.4)
(4.5)
(11.0)

i. Previously, the tax reconciliation reconciled the tax on the Group’s reported profit before tax to the UK’s rate of corporation tax. The reconciliation has been
restated as the revised presentation is considered to provide the most meaningful information to users of the financial statements as the Group’s profits are
earned across a number of jurisdictions.

A number of changes to the UK corporation tax system were announced in the Chancellor’s Autumn Budget on 29 October 2018.
The Finance Act 2019 was enacted on 12 February 2019. The Finance Bill 2016, which received Royal Assent on 15 September 2016,
included reductions to the main rate of corporation tax to reduce the rate to 17% from 1 April 2020.

The Chancellor of the Exchequer has announced a budget on Wednesday 11 March 2020 and it is highly anticipated that the UK corporation
tax rate will remain at 19%, with the Finance Bill 2016 rate of 17% from 1 April 2020 being revoked. Our accounts reflect the tax legislation
enacted at the date of preparation but the future change of corporation tax rate is not expected to have a material impact on the Group’s
tax balances.

Tax effects relating to each component of other comprehensive income were as follows:

Exchange adjustments
Release of foreign exchange on liquidation
of subsidiaries
Fair value (losses) gains originating on net
investment hedge arising during the year

Fair value gains originating on cash flow
hedges arising during the year
Remeasurement of defined benefit
pension schemes

2019

Tax (charged)
credited
$m
(0.1)

Before tax
$m
5.5

After tax
$m
5.4

Before tax
$m
(9.8)

2018

Tax (charged)
credited
$m
0.2

(0.3)

(0.8)

–

(0.2)
4.2

0.1

–

(0.1)
–

(0.2)

(0.7)

–

(0.3)
4.2

–

1.4

0.3

1.1
(7.0)

–

(0.2)

(0.1)

0.4
0.3

After tax
$m
(9.6)

–

1.2

0.2

1.5
(6.7)

Hunting PLC / 2019 Annual Report and Accounts
131

11. 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:

Reported earnings attributable to Ordinary shareholders
Add: amortisationi and exceptional items after taxation (note 6)
Underlying earnings attributable to Ordinary shareholders

Basic weighted average number of Ordinary shares
Long-term incentive plans
Adjusted weighted average number of Ordinary shares

Reported earnings per share
Basic EPS
Diluted EPS

Underlying earnings per share
Basic EPS
Diluted EPS

i. Relates to amortisation of intangible assets arising on the acquisition of businesses.

12. Property, Plant and Equipment

2019
$m
39.7
34.7

74.4

millions
165.2
3.9
169.1

cents

24.0
23.5

45.0
43.9

Year ended 31 December 2019

Land and
buildings
$m

Plant, machinery
and motor
vehicles
$m

Rental tools
$m

Oil and gas
exploration and
developmenti
$m

Cost:
At 1 January
Exchange adjustments
Additions
Acquisition of subsidiary
Disposals
Disposal of business
Reclassification to other intangible assets
Reclassification to inventories
At 31 December 2019

Accumulated depreciation and impairment:
At 1 January
Exchange adjustments
Charge for the year
Impairment of assets (note 6)
Disposals
Disposal of business
Reclassification to other intangible assets
Reclassification to inventories
At 31 December 2019

250.0
1.5
7.2
8.3
–
–
–
–
267.0

45.5
0.4
6.2
–
–
–
–
–
52.1

341.3
1.6
23.2
4.0
(8.2)
(0.3)
(1.4)
–
360.2

231.6
1.5
23.7
–
(7.7)
(0.3)
(0.9)
–
247.9

Net book amount

214.9

112.3

80.9
0.5
5.5
–
(3.3)
(3.4)
–
(0.1)
80.1

37.6
0.4
3.1
19.0
(2.1)
(3.2)
–
(0.2)
54.6

25.5

182.3
–
–
–
(54.1)
–
–
–
128.2

179.6
–
0.7
–
(54.1)
–
–
–
126.2

2018
$m
89.3
(4.5)

84.8

millions
164.1
6.6
170.7

cents

54.4
52.3

51.6
49.6

Total
$m

854.5
3.6
35.9
12.3
(65.6)
(3.7)
(1.4)
(0.1)
835.5

494.3
2.3
33.7
19.0
(63.9)
(3.5)
(0.9)
(0.2)
480.8

The accumulated cost, depreciation and impairment of those oil and gas exploration and development assets whose licences have expired have been
disposed of during the year.

During the year, impairment of our drilling tools motor fleet and associated parts of $19.0m has been recognised, with the majority
of assets expected to be scrapped. The impairment is shown in the US segment (note 2). For further detail on the impairment,
please see note 16(d)(i).

2.0

354.7

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements132
Notes to the Consolidated Financial Statements continued

12. Property, Plant and Equipment continued

Included in the net book amount is expenditure relating to assets in the course of construction of $2.6m (2018 – $2.5m) for buildings
and $5.5m (2018 – $7.1m) for plant and machinery.

Group capital expenditure committed for the purchase of property, plant and equipment, but not provided for in these financial
statements, amounted to $2.2m (2018 – $15.0m).

The net book amount of land and buildings of $214.9m (2018 – $204.5m) comprises freehold land and buildings of $213.2m (2018 – $202.4m)
and capitalised leasehold improvements of $1.7m (2018 – $2.1m).

The Group sub-lets certain items of property, plant and equipment under operating leases. The net book value of items that are sub-let
included in the table above is $3.9m for land and buildings.

In accordance with the amendments made to the Group’s core committed bank facility in July 2016, security has been granted over specific
properties, plant and equipment in the UK and US, which have a carrying value of $217.2m (2018 – $229.6m).

Year ended 31 December 2018

Land and
buildings
$m

Plant, machinery
and motor
vehicles
$m

Rental tools
$m

Oil and gas
exploration and
development
$m

Cost:
At 1 January
Exchange adjustments
Additions
Disposals
Reclassification to inventories
Reclassification
At 31 December 2018

Accumulated depreciation and impairment:
At 1 January
Exchange adjustments
Charge for the year
Impairment of assets (note 6)
Reversal of impairment of assets
Disposals
Reclassification to inventories
Reclassification
At 31 December 2018

262.3
(2.7)
3.6
(13.2)
–
–
250.0

46.2
(0.8)
6.4
–
(1.9)
(4.4)
–
–
45.5

336.2
(4.7)
20.1
(10.3)
(0.1)
0.1
341.3

218.0
(3.8)
23.6
1.0
(0.1)
(6.8)
(0.4)
0.1
231.6

Net book amount

204.5

109.7

87.3
(1.2)
5.8
(9.7)
(1.2)
(0.1)
80.9

41.4
(1.1)
4.1
–
–
(5.8)
(0.9)
(0.1)
37.6

43.3

181.8
–
0.5
–
–
–
182.3

178.7
–
0.9
–
–
–
–
–
179.6

Total
$m

867.6
(8.6)
30.0
(33.2)
(1.3)
–
854.5

484.3
(5.7)
35.0
1.0
(2.0)
(17.0)
(1.3)
–
494.3

2.7

360.2

In 2018, the Group reversed $1.9m of the impairment provision for the Cape Town property and $0.1m for plant and machinery, which
were sold in 2018 following the Board’s decision to close the South African facility. The reversal of the impairment was recorded in the
2018 financial statements as an exceptional item (see note 6) and is shown in the EMEA operating segment (note 2).

Given the modest drilling activity forecast for East Africa in the medium term, the Board made the decision to close its Kenyan joint venture
in Mombasa in H1 2018. Plant, machinery and motor vehicles were impaired by $1.0m. The impairment was recorded in the 2018 financial
statements as an exceptional item (see note 6) and is shown in the EMEA segment (note 2).

The net book amount of property, plant and equipment at 1 January 2018 was $383.3m.

Hunting PLC / 2019 Annual Report and Accounts133

13. Right-of-use Assets

Cost:
Adoption of IFRS 16 on 1 January (note 41)
Exchange adjustments
New leases
Lease cessations
Modifications
At 31 December 2019

Accumulated depreciation and impairment:
Adoption of IFRS 16 on 1 January (note 41)
Exchange adjustments
Charge for the year
Lease cessations
At 31 December 2019

Net book amount

Year ended 31 December 2019

Land and
buildings
$m

Plant, machinery
and motor
vehicles
$m

84.3
1.9
3.3
(1.9)
0.8
88.4

45.1
1.3
7.7
(1.9)
52.2

36.2

1.0
–
0.1
(0.1)
0.1
1.1

0.5
–
0.2
(0.1)
0.6

0.5

Total
$m

85.3
1.9
3.4
(2.0)
0.9
89.5

45.6
1.3
7.9
(2.0)
52.8

36.7

The Group sub-lets certain right-of-use assets under operating leases. The net book value of items that are sub-let included in the table
above is $2.7m for land and buildings.

14. Goodwill

Cost:
At 1 January
Exchange adjustments
At 31 December

Accumulated impairment:
At 1 January
Exchange adjustments
At 31 December

Net book amount

2019
$m

515.1
1.8
516.9

285.2
1.5
286.7

230.2

2018
$m

518.1
(3.0)
515.1

287.8
(2.6)
285.2

229.9

The net book amount of goodwill at 1 January 2018 was $230.3m.

Details of the allocation of goodwill by CGU, identification of the material CGU and impairment sensitivity disclosures are given in note 16.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements134
Notes to the Consolidated Financial Statements continued

15. Other Intangible Assets

Cost:
At 1 January
Exchange adjustments
Additions
Disposals
Reclassification from property, plant and equipment
Reclassification
At 31 December

Accumulated amortisation and impairment:
At 1 January
Exchange adjustments
Charge for the year (included in operating expenses)
Disposals
Reclassification from property, plant and equipment
Reclassification
At 31 December

Net book amount

Cost:
At 1 January
Exchange adjustments
Additions
At 31 December

Accumulated amortisation and impairment:
At 1 January
Exchange adjustments
Charge for the year
At 31 December

Net book amount

Customer
relationships
$m

Unpatented
technology
$m

2019

Patents and
trademarks
$m

246.9
–
–
(35.0)
–
–
211.9

193.6
–
20.8
(35.0)
–
–
179.4

32.5

77.9
0.2
4.0
–
–
(0.3)
81.8

42.3
0.1
8.3
–
–
(0.1)
50.6

31.2

58.1
0.1
1.1
–
–
0.1
59.4

47.7
0.1
2.4
–
–
–
50.2

9.2

Customer
relationships
$m

Unpatented
technology
$m

2018

Patents and
trademarks
$m

247.1
(0.2)
–
246.9

172.1
(0.2)
21.7
193.6

53.3

72.8
(0.3)
5.4
77.9

35.6
(0.1)
6.8
42.3

35.6

57.3
(0.1)
0.9
58.1

45.1
–
2.6
47.7

10.4

Other
$m

22.0
0.2
5.2
(16.3)
1.4
0.2
12.7

21.5
0.1
0.8
(16.3)
0.9
0.1
7.1

Total
$m

404.9
0.5
10.3
(51.3)
1.4
–
365.8

305.1
0.3
32.3
(51.3)
0.9
–
287.3

5.6

78.5

Other
$m

22.0
(0.3)
0.3
22.0

21.0
(0.3)
0.8
21.5

0.5

Total
$m

399.2
(0.9)
6.6
404.9

273.8
(0.6)
31.9
305.1

99.8

The net book amount of other intangible assets at 1 January 2018 was $125.4m.

Other intangible assets of $5.6m (2018 – $0.5m) include software of $5.4m (2018 – $0.4m).

Internally generated intangible assets have been included within unpatented technology. The carrying value at the beginning of the year
was $20.8m (2018 – $17.1m). Additions during the year were $4.0m (2018 – $5.4m) and the amortisation charge for the year was $2.9m
(2018 – $1.4m). After positive foreign exchange movements of $0.2m (2018 – $0.3m adverse), the carrying value at the end of the year
was $22.1m (2018 – $20.8m).

Internally generated intangible assets have also been included within patents. The carrying value at the beginning of the year was $4.4m
(2018 – $4.5m). Additions during the year were $1.0m (2018 – $0.9m) and the amortisation charge for the year was $0.6m (2018 – $0.9m).
After foreign exchange movements of $nil (2018 – $0.1m adverse movement), the carrying value at the end of the year was $4.8m
(2018 – $4.4m).

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.

Individual Material Intangible Assets
Included in the table above are customer relationships, purchased as part of the Titan acquisition with a net book value of $32.5m
(2018 – $51.5m). The cost brought forward and at the year-end was $190.2m (2018 – $190.2m). Following the amortisation charge of $19.0m
for the year (2018 – $19.0m), accumulated amortisation at the year-end was $157.7m (2018 – $138.7m). The intangible asset has a remaining
amortisation period at the year-end of 1.8 years (2018 – 2.8 years).

Hunting PLC / 2019 Annual Report and Accounts135

16. Impairment of Non-financial Assets

(a) Impairment Testing Process
(i) Cash-generating Units (“CGUs”)
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 arm’s-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 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 FVLCD is a Level 3 measurement as per the fair value hierarchy as defined within IFRS 13 due to unobservable
inputs used in the valuation.

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 2020, cash flows are based on the approved Board budget. For 2021 to 2024, management has made revenue projections using
Spears & Associates “Drilling and Production Outlook” independent reports as a default basis, selecting the most appropriate geographic
markets and drivers (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. This process can
give a diverse range of outcomes depending on market or business specific conditions. Compound annual growth rates (“CAGR”) for
revenue for the CGUs from 2019 to 2024 vary between 3% and 12% (2018 – CAGR from 2018 to 2023 between 3% and 13%). After 2024,
a terminal value has been calculated assuming growth of 25 basis points above assumed inflation (2018 – 50 basis points), giving nominal
growth rates between 1% and 2% (2018 – between 2% and 3%).

Cash flows have been discounted using nominal pre-tax rates between 9% and 10% (2018 – 10% and 11%). 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.

(ii) Individual assets
For individual assets, an impairment test is conducted if there are indicators of impairment. Impairment arises when the carrying value of
the asset is greater than the higher of its fair value less costs of disposal or its value in use. If the cash flows of an asset cannot be assessed
individually the asset or a group of assets are aggregated into a CGU and tested as described above.

(b) Impairment Tests for Goodwill
Goodwill is allocated to the Group’s cash-generating units (“CGUs”) as follows:

CGU
Hunting Titan
Hunting Stafford “Subsea” (formally National Coupling Company)
Dearborn
US Manufacturing
Hunting Specialty
European Well Intervention (Welltonic acquisition)
At 31 December

2019
$m
180.5
15.0
12.5
12.5
5.0
4.7
230.2

2018
$m
180.4
15.0
12.5
12.5
5.0
4.5
229.9

Goodwill is tested annually for impairment. No impairment charges have been recorded as a result of the goodwill impairment review
carried out in the year (2018 – $nil).

(i) Material CGU
Hunting Titan – Hunting Titan represents 78% of the goodwill balance at the year-end (2018 – 78%) and has a carrying value, including
amounts recognised on consolidation such as goodwill, of $444.1m (2018 – $500.8m). Projected annual growth rates from 2019 to 2024
vary between minus 6% and 6% with a CAGR of 3% (2018 – growth rates from 2018 to 2023 between 2% and 5% with a CAGR of 3%).
Growth rates are more volatile given expected declines in US onshore activity in 2020. Cash flows have been discounted at a nominal
pre-tax rate of 10% (2018 – 11%). There is no reasonably foreseeable change in revenue growth rates, or terminal growth rates, or discount
rates, which will give rise to impairment charges.

(ii) Sensitivities
Management has reviewed various downside sensitivities versus the base case assumptions used in our projections. These covered
revenue growth rates, terminal revenue growth rates and discount rates. Management has identified the following reasonably possible
changes which could result in an impairment:

• For our European Well Intervention CGU, if the CAGR from 2019 to 2024 is below 7% (2018 – CAGR from 2018 to 2023 below 6%),

this will result in an impairment to the $4.7m goodwill carrying value (2018 – $4.5m).

For other CGUs that carry goodwill, management has concluded that there are no reasonably foreseeable changes in key assumptions
that will give rise to goodwill impairment charges.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements136
Notes to the Consolidated Financial Statements continued

16. Impairment of Non-financial Assets continued

(c) Impairment Tests for Other Intangible Assets
Included in other intangible assets are balances for CGUs that may be subject to impairment sensitivities as follows: European Well
Intervention $2.9m (2018 – $2.8m) and Canada $2.0m (2018 – $1.9m). Details of the sensitivity for the European Well Intervention CGU
can be found in (b) above and for Canada details can be found in (d) below.

(d) Impairment Tests for PPE
(i) US Drilling Tools
In 2019, our US Drilling Tools business was impacted by a 10% reduction in the US onshore rig count over the course of the year, which
was a significantly worse outcome than expected at the end of 2018. A further decline in US onshore rig activity is now expected in 2020.

In 2019, the market situation has been further impacted by an excess level of tools available for rental, partly through new entrants to the
market in recent years. The market has also been evolving towards the usage of higher torque/higher speed mud motors influenced by
increasing lateral lengths in horizontal drilling. Hunting’s drilling tools fleet includes a number of older motors which have a lower torque
and drilling speed than modern tools and these have had very low rates of utilisation. Rental rates on these motors fell by approximately
50% during the year. The business has, therefore, significantly underperformed versus its 2019 budget and 2018 results.

As a result of these impairment indicators, a detailed review of our motor fleet and associated parts has been carried out considering each
category/configuration of motor to determine the economic viability of these assets. Our view is that for a number of categories/configurations
of motors utilisation is unlikely to return to meaningful levels and an impairment of $19.0m has been recognised, with the majority of assets
expected to be scrapped. Given the materiality of this write-off, this has been treated as exceptional as disclosed in note 6. The carrying
value of PPE at 2019, which could be subject to further impairment if market conditions are worse than expected, is $23.6m. If growth
rates in our projection period from 2020 to 2024 are less than 4% per annum, which is a reasonably possible change, further impairments
may arise.

(ii) Canada
For the Canada CGU, if the CAGR from 2019 to 2024 is below 3%, which is a reasonably possible change, this will result in an impairment
(2018 – below 4% CAGR for 2018 to 2023). The net book value of PPE in Canada is $2.8m (2018 – $2.7m).

For other CGUs, management has concluded that there are no reasonably foreseeable changes in key assumptions that will give rise
to PPE impairment charges.

(iii) Exploration and Production (“E&P”)
The productive and development oil and gas assets of our E&P business are tested for impairment at least annually. Following a valuation
of oil and gas reserves at 31 December 2019, performed for impairment purposes, no impairment charges were required (2018 – $nil).
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 15 years and are discounted using a nominal pre-tax rate of 10% (2018 – 10%).

17. Investments

Non-current:
Listed equity investments and mutual funds
Investments in associates

Current:
Listed equity investments and mutual funds

2019
$m

1.6
0.7
2.3

0.5
2.8

2018
$m

1.7
0.7
2.4

–
2.4

The listed equity investments and mutual funds are equity instruments measured at fair value though profit or loss. Returns on the listed
equity investments and mutual funds of $0.3m (2018 – $nil) have been included in finance income in note 9.

18. Trade and Other Receivables

Non-current:
Loan note
Prepayments
Other receivables

2019
$m

–
2.0
0.7
2.7

2018
$m

0.6
2.5
0.4
3.5

Hunting PLC / 2019 Annual Report and Accounts

137

18. Trade and Other Receivables continued

Current:
Contract assets
Trade receivables
Accrued revenue
Gross receivables
Less: provision for impairment
Net receivables
Prepayments
Loan note
Other receivables
Net book amount

Current:
Contract assets
Trade receivables
Accrued revenue
Gross receivables
Less: provision for impairment
Net receivables
Prepayments
Loan note
Other receivablesi
Net book amount

2019

Contracts
with
customers
$m

Rental
receivables
$m

Other
receivables
$m

8.3
149.0
12.0
169.3
(3.6)
165.7
–
–
–
165.7

Contracts
with
customers
$m

11.8
172.1
5.3
189.2
(2.7)
186.5
–
–
–
186.5

–
10.4
0.3
10.7
(0.3)
10.4
–
–
–
10.4

–
–
–
–
–
–
21.9
0.7
3.3
25.9

2018

Rental
receivables
$m

Other
receivables
$m

–
12.6
2.6
15.2
(0.3)
14.9
–
–
–
14.9

–
0.3
–
0.3
–
0.3
22.5
0.6
6.2
29.6

Total
$m

8.3
159.4
12.3
180.0
(3.9)
176.1
21.9
0.7
3.3
202.0

Total
$m

11.8
185.0
7.9
204.7
(3.0)
201.7
22.5
0.6
6.2
231.0

i. Other receivables include a provision for impairment of $0.1m.

Trade receivables of $159.4m (2018 – $185.0m), accrued revenue of $12.3m (2018 – $7.9m) and the loan note of $0.7m (2018 – $1.2m)
are financial assets measured at amortised cost. Interest income on the loan note is included within other finance income in note 9.
The amount is immaterial in 2019 and 2018. Interest charged on the loan is based on three-month LIBOR plus 2.75%.

Other receivables generally arise from transactions outside the usual operating activities of the Group and comprise receivables from tax
receivables (VAT, GST, franchise taxes, and sales and use taxes) of $2.0m (2018 – $4.1m), derivative financial assets $0.3m (2018 – $0.7m)
associates of $nil (2018 – $0.4m) and other receivables of $1.0m (2018 – $1.4m). Receivables from associates and other receivables are
financial assets measured at amortised cost. Derivative financial assets of $0.2m (2018 – $0.5m) are held for trading measured at fair value
through profit or loss and derivative financial assets of $0.1m (2018 – $0.2m) are designated in a hedge measured at fair value.

The Group does not hold any collateral as security and no assets have been acquired through the exercise of any collateral previously
held. In accordance with the amendments made to the Group’s core committed bank facility in July 2016, security has been granted
over certain trade receivables and other receivables in the UK, US and Canada, which have a gross value of $127.3m (2018 – $153.6m).
For the receivables pledged as security, their carrying value approximates their fair value.

Impairment of Trade and Other Receivables
The Group has chosen to apply lifetime expected credit losses (“ECLs”) to trade receivables, accrued revenue and contract assets upon
their initial recognition. Each entity within the Group uses provision matrices for recognising ECLs on its receivables, which are based
on actual credit loss experience over the past two years, at a minimum. Receivables are appropriately grouped by geographical region,
product type or type of customer, and separate calculations produced, if historical or forecast credit loss experience shows significantly
different loss patterns for different customer segments. Actual credit loss experience is then adjusted to reflect differences in economic
conditions over the period the historical data was collected, current economic conditions, forward-looking information and the Group’s
view of economic conditions over the expected lives of the receivables.

The Group assesses, on a forward-looking basis, the ECLs at each balance sheet date associated with its loan note that is carried at
amortised cost. The impairment methodology applied, following the adoption of the general model under IFRS 9, will depend on whether
there has been a significant increase in credit risk. To assess whether there has been a significant increase in credit risk, the risk of default
occurring on the loan as at 31 December 2019 is compared with the risk of default occurring as at the date of initial recognition, being
31 March 2015. Indications of a significant increase in credit risk include events that have a negative impact on the estimated future cash
flows and if any payments under the terms of the debt are more than 30 days overdue. Macroeconomic information is also considered,
including the current state of the tanker shipping market. The terms of the loan note were revised during 2017. There have been no breaches
of the revised terms during 2019. Therefore, the Group does not consider there to have been a significant increase in credit risk.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements138
Notes to the Consolidated Financial Statements continued

18. Trade and Other Receivables continued

Impairment of Trade and Other Receivables continued
At 31 December 2019, the ageing of the Group’s gross financial assets, based on days overdue, is as follows:

Contract assets
Trade receivables – contracts with customers
Trade receivables – rental receivables
Accrued revenue – contracts with customers
Accrued revenue – rental receivables
Loan note
Other receivables

Contract assets
Trade receivables – contracts with customers
Trade receivables – rental receivables
Trade receivables – other
Accrued revenue – contracts with customers
Accrued revenue – rental receivables
Loan note
Other receivables

Not
overdue
$m
8.3
79.4
2.7
12.0
0.3
0.7
1.2
104.6

Not
overdue
$m
11.8
102.0
4.4
0.3
5.3
2.6
1.2
2.0
129.6

1 – 30
days
$m
–
28.5
4.5
–
–
–
–
33.0

1 – 30
days
$m
–
36.5
4.0
–
–
–
–
0.2
40.7

31 – 60
days
$m
–
16.3
1.2
–
–
–
–
17.5

31 – 60
days
$m
–
8.5
1.3
–
–
–
–
–
9.8

61 – 90
days
$m
–
8.6
0.9
–
–
–
0.1
9.6

61 – 90
days
$m
–
8.7
2.4
–
–
–
–
–
11.1

91 – 120
days
$m
–
8.2
0.4
–
–
–
–
8.6

91 – 120
days
$m
–
8.2
–
–
–
–
–
–
8.2

More than
120 days
$m
–
8.0
0.7
–
–
–
–
8.7

More than
120 days
$m
–
8.2
0.5
–
–
–
–
0.4
9.1

Total gross
financial
assets
$m
8.3
149.0
10.4
12.0
0.3
0.7
1.3
182.0

Total gross
financial
assets
$m
11.8
172.1
12.6
0.3
5.3
2.6
1.2
2.6
208.5

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 carrying amount of each class of financial assets mentioned above. The carrying value of each class of
receivables approximates their fair value as described in note 29.

Whilst a proportion, 11%, (2018 – 9%) of the Group’s trade receivables are more than 90 days overdue these have not been impaired.
Some of these debts have become overdue due to billing issues and others because the customer has just been slow to pay. As there
is no history of bad debts and there are no indicators that the debts will not be settled, these have not been impaired. These customers
are monitored very closely for any indicators of impairment.

During the year, the movements on the provision for impairment were as follows:

At 1 January
Charge to the income statement – lifetime expected credit losses
Unused provisions released to the income statement
Utilised against receivables written off

At 1 January (calculated under IAS 39)
Amounts restated through opening retained earnings
At 1 January restated (calculated under IFRS 9)
Exchange adjustments
Charge to the income statement – lifetime expected credit losses
Unused provisions released to the income statement
Utilised against receivables written off

Contracts
with
customers
$m
2.7
1.6
(0.4)
(0.3)
3.6

Contracts
with
customers
$m
4.4
0.2
4.6
(0.1)
0.9
(0.3)
(2.4)
2.7

2019

Rental
receivables
$m
0.3
–
–
–
0.3

2018

Rental
receivables
$m
0.4
–
0.4
–
0.6
(0.2)
(0.5)
0.3

Other
receivables
$m
0.1
–
(0.1)
–
–

Other
receivables
$m
–
–
–
–
0.1
–
–
0.1

Total
$m
3.1
1.6
(0.5)
(0.3)
3.9

Total
$m
4.8
0.2
5.0
(0.1)
1.6
(0.5)
(2.9)
3.1

Hunting PLC / 2019 Annual Report and Accounts

139

18. Trade and Other Receivables continued

Impairment of Trade and Other Receivables continued
Default on a financial asset is usually considered to have occurred when any contractual payments under the terms of the debt are more
than 90 days overdue. Usually, no further deliveries are made or services provided to customers that are more than 90 days overdue
unless there is a valid reason to do so, such as billing issues have prevented the customer from settling the invoice. However, permission
from the local financial controller can be obtained to continue trading with customers with debts that are more than 90 days overdue,
and the outstanding debts may also be rescheduled with the permission of the financial controller.

Receivables are written off when there is no reasonable expectation of recovery. Indicators that receivables are generally not recoverable
include the failure of the debtor to engage in a repayment plan, failure to make contractual payments for a period greater than 180 days
past due and the debtor being placed in administration. Where receivables have been written off, the entity will continue to try and recover
the outstanding receivable. Impairment losses on receivables are presented net of unused provisions released to the income statement
within operating expenses.

19. Deferred Tax

Deferred income tax assets and liabilities are only offset when there is a legally enforceable right to offset, 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 asset (liability) is as follows:

At 1 January
Adoption of IFRS 16 (note 41)
At 1 January amended
Exchange adjustments
Credit to the income statementi
Change in tax rates
Taken direct to equity
Other movements
At 31 December

2019
$m
29.9
(0.8)
29.1

2019
$m
24.8
1.7
26.5
0.1
2.5
–
–
–
29.1

2018
$m
26.0
(1.2)
24.8

2018
$m
(2.0)
–
(2.0)
0.4
20.3
0.4
0.2
5.5
24.8

i. The credit (2018 – credit) to the income statement comprises a charge of $1.3m (2018 – $9.4m charge) for the origination and reversal of temporary

differences, a credit for the recognition of US deferred tax assets of $nil (2018 – $28.9m) and a credit of $3.8m (2018 – $0.8m credit) for adjustments
in respect of prior years (note 10).

The change in tax rates relates to the rate at which UK deferred tax balances are recorded. Other movements of $5.5m in 2018 include
$5.8m for the release of the deferred tax liability to offset tax withheld at source by the UK pension scheme following the repayment
of a net $10.6m surplus to the Company.

Deferred tax assets of $95.4m gross and $15.8m tax (2018 – $35.4m gross and $8.1m tax) have not been recognised as realisation
of the tax benefit is currently not probable. This includes $89.4m gross and $14.8m tax (2018 – $34.4m gross and $7.9m tax) in respect
of trading losses, which have no expiry date. A deferred tax asset of $24.0m (2018 – $19.1m) 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.

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

At
1 January
2019
$m
19.1
6.3
10.0
0.3
1.1
(17.2)
3.9
1.3
24.8

Adoption of
IFRS 16
$m
–
–
–
–
–
–
–
1.7
1.7

Credit
(charge) to
income
statement
$m
0.2
0.8
(2.7)
0.2
(0.2)
(3.8)
(0.3)
8.3
2.5

Exchange
adjustments
$m
–
–
–
–
–
0.1
–
–
0.1

Taken
direct to
equity
$m
0.2
–
(0.2)
(0.1)
–
–
0.1
–
–

Other
movements
$m
4.5
–
0.1
–
–
–
–
(4.6)
–

At
31 December
2019
$m
24.0
7.1
7.2
0.4
0.9
(20.9)
3.7
6.7
29.1

Net
deferred
tax assets
$m
24.0
7.1
7.4
0.4
0.9
(20.0)
3.7
6.4
29.9

Net
deferred
tax
liabilities
$m
–
–
(0.2)
–
–
(0.9)
–
0.3
(0.8)

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements

140
Notes to the Consolidated Financial Statements continued

19. Deferred Tax continued

Tax losses
Inventory
Goodwill and intangibles
Post-retirement benefits
Asset decommissioning provision
Accumulated tax depreciation
Share-based payments
Other

At
1 January
2018
$m
2.8
5.2
11.7
(4.8)
1.2
(14.5)
0.8
(4.4)
(2.0)

Exchange
adjustments
$m
0.1
–
–
0.3
–
0.1
–
(0.1)
0.4

Credit
(charge) to
income
statement
$m
11.9
6.0
10.2
–
1.1
(16.9)
3.3
4.7
20.3

Change in
tax rates
$m
(0.1)
–
–
0.4
–
–
–
0.1
0.4

Taken
direct to
equity
$m
–
–
–
0.4
–
–
(0.2)
–
0.2

Other
movements
$m
4.4
(4.9)
(11.9)
4.0
(1.2)
14.1
–
1.0
5.5

At
31 December
2018
$m
19.1
6.3
10.0
0.3
1.1
(17.2)
3.9
1.3
24.8

Net
deferred
tax assets
$m
19.1
6.3
10.2
0.3
1.1
(16.0)
3.9
1.1
26.0

Net
deferred
tax
liabilities
$m
–
–
(0.2)
–
–
(1.2)
–
0.2
(1.2)

Following the recognition of deferred tax assets in full for the US, the net adjusted tax assets for goodwill and intangibles is shown as a net
deferred tax asset.

20. Inventories

Raw materials
Work in progress
Finished goods
Gross inventories
Less: provisions for losses
Net inventories

2019
$m
105.4
65.4
206.5
377.3
(26.5)
350.8

2018
$m
113.8
67.7
191.2
372.7
(24.5)
348.2

The Group’s inventory is highly durable and is well maintained. It can, therefore, hold its value well with the passing of time. When volume
demand falls, or prices are reduced, management has to assess whether the carrying value of inventory can still be achieved. For some
markets and product lines there may a limited number, or even no sales, to form a benchmark in the current year. In these cases,
management look at historic activity levels and have to form a judgement as to likely future demand in the light of market forecasts and
likely competitor activities. As a result of such judgements, the net inventory balance comprises $301.4m of inventory carried at cost
(2018 – $295.2m) and $49.4m carried at net realisable value which represents 14% of net inventories (2018 – $53.0m at NRV representing
15% of net inventories). Provisions for inventories held at NRV are subject to change if expectations change.

Gross inventories have increased $4.6m from $372.7m at 31 December 2018 to $377.3m at 31 December 2019. Additions to inventories
were $673.1m (2018 – $670.4m), inventories from acquisitions of $0.4m (2018 – $nil) and foreign exchange movements of $3.0m
(2018 – $6.8m reduction) were offset by inventories expensed to cost of sales of $667.5m (2018 – $592.8m) and inventories written
off of $4.3m (2018 – $7.3m) against the inventory provision and inventories transferred to PPE of $0.1m (2018 – $nil).

The inventory provision has increased by $2.0m from $24.5m at 31 December 2018 to $26.5m at 31 December 2019, as a result of an
impairment charge included in cost of sales of $7.5m (2018 – $6.2m) and foreign exchange movements of $0.4m (2018 – $0.6m increase)
offset by $4.3m (2018 – $7.3m) of the provision being utilised in the year against inventories written off and the reversal of previous
write-downs of $1.6m (2018 – $2.0m) also included in cost of sales. The reversal of previous write-downs occurred when inventory was
sold for an amount higher than its net realisable value and also where older inventories, which had previously been written off, were sold
as market conditions improved in the oil and gas sector. Overall, Hunting’s provision for inventory losses has remained static at 7% of
gross inventory balances at 31 December 2019.

The Group expects that $293.0m (2018 – $290.0m) of the Group’s inventories of $350.8m (2018 – $348.2m) will be realised within 12 months
of the balance sheet date and $57.8m (2018 – $58.2m) will be realised after 12 months.

In accordance with the amendments made to the Group’s core committed bank facility in July 2016, security has been granted over
inventories in certain subsidiaries in the UK, US and Canada, which have a gross value of $229.9m (2018 – $234.1m).

21. Cash and Cash Equivalents

Cash at bank and in hand
Money Market Funds
Short-term deposits of less than three month’s maturity

2019
$m
66.6
26.2
35.8
128.6

2018
$m
32.4
26.1
9.4
67.9

Cash at bank and in hand and short-term deposits are carried at amortised cost. Money Market Funds are financial assets carried at fair
value through profit or loss.

As shown in note 26, cash and cash equivalents for cash flow statement purposes also includes bank overdrafts shown in borrowings
in note 25.

Hunting PLC / 2019 Annual Report and Accounts

141

22. Trade and Other Payables

Non-current:
Accruals
Social security and other taxes
US deferred compensation plan obligation (note 32)

Current:
Trade payables
Accruals
Social security and other taxes
Contract liabilities
US deferred compensation plan obligation (note 32)
Other payables

2019
$m

0.5
0.6
1.6
2.7

2019
$m

56.3
45.3
7.7
6.8
0.5
4.6
121.2

2018
$m

1.4
0.7
1.7
3.8

2018
$m

62.3
59.9
8.8
5.5
–
4.4
140.9

Trade payables of $56.3m (2018 – $62.3m), accruals of $45.8m (2018 – $61.3m) and other payables of $3.4m (2018 – $4.3m) are financial
liabilities measured at amortised cost. Other payables also include derivative financial liabilities of $1.0m (2018 – $0.1m) held for trading
measured at fair value through profit or loss and derivative financial liabilities designated in a net investment hedge measured at fair value
of $0.2m (2018 – $nil).

23. Contract Assets and Liabilities

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers.

Contract assets (note 18)
Contract liabilities (note 22)

Trade receivables – contracts with customers (note 18)
Loss allowance
Net trade receivables – contracts with customers

2019
$m
8.3
(6.8)

149.0
(3.6)
145.4

2018
$m
11.8
(5.5)

172.1
(2.7)
169.4

2017
$m
6.8
(9.1)

139.9
(4.4)
135.5

There was an impairment write-down of $1.6m (2018 – $0.9m) recognised in relation to receivables arising on the Group’s contracts with
customers, foreign exchange movements of $nil (2018 – $0.1m), $0.3m (2018 – $2.4m) of the provision was utilised in the year against
receivables written off and $0.4m (2018 – $0.3m) reversal of an impairment write-down in relation to receivables arising on contracts with
customers.

(a) Significant Changes in Contract Assets and Contract Liabilities
Contract assets have decreased from $11.8m in 2018 to $8.3m due to decreased levels of bespoke customer work-in-progress in Hunting
Dearborn and a reduction in work on customer-owned products at the year-end in US Manufacturing.

Contract liabilities represent deposits received on contracts relating to the purchase of pipe in the Asia Pacific businesses, prior to Hunting
placing an order with the steel mills, and have increased from $5.5m in 2018 to $6.8m due to a change in the mix of orders at the
year-end, whereby more customers were required to pay a deposit when placing an order.

(b) Revenue Recognised in Relation to Contract Liabilities
The following table shows how much of the revenue recognised in the current reporting period relates to carried-forward contract liabilities
and how much relates to performance obligations that were satisfied in a prior year.

Revenue recognised that was included in the contract liability balance at the beginning of the year
Revenue recognised from performance obligations satisfied (or partially satisfied) in previous years
Total

2019
$m
5.5
–
5.5

2018
$m
8.8
–
8.8

(c) Unsatisfied Performance Obligations
The aggregate amount of the transaction price allocated to partially or fully unsatisfied performance obligations as at the year-end
on confirmed purchase orders received prior to the year-end is $239.0m (2018 – $250.2m). It is expected that 95% or $227.4m
(2018 – 97% or $243.0m) will be recognised as revenue in the 2020 financial year and the remaining 5% or $11.6m (2018 – 3% or $7.2m)
in future years.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements

142
Notes to the Consolidated Financial Statements continued

24. Leases

From 1 January 2019, the Group has adopted IFRS 16 Leases (“IFRS 16”) by applying the modified retrospective approach; consequently
the comparatives for the 2018 reporting period have not been restated, as permitted under the specific transitional provisions in IFRS 16.

The Group leases various offices, warehouses, equipment and vehicles. Rental contracts for offices and warehouses are typically made
for fixed periods of between 3 and 10 years, but may have extension options as described below. Rental contracts for equipment and
vehicles are typically made for fixed periods of between 3 and 7 years. Lease terms are negotiated on an individual basis and contain
a wide range of different terms and conditions.

The lease agreements do not impose any covenants.

Extension and break options are included in a number of property and equipment leases across the Group. These terms are used to
maximise operational flexibility in terms of managing contracts. For extension and break options that are exercisable only by the Group
and not by the respective lessor, management considers all facts and circumstances that create an economic incentive for the Group to
exercise an extension option, or not exercise a break option in determining the lease term. The lease term has been determined according
to management’s expectation of exercising any available extension and break options. Extension or termination options are only adjusted
in the lease term if the lease option is reasonably certain to be exercised.

(a) Amounts Recognised in the Balance Sheet
Analysis of right-of-use assets is presented in note 13.

Lease Liabilities
Current
Non-current

The analysis of the contractual, undiscounted cash flows relating to lease liabilities is shown in note 30.

As at 31 December 2019, the Group did not have any commitments for leases that were due to commence in 2020 or later.

(b) Amounts Recognised in the Income Statement in 2019 under IFRS 16
The income statement includes the following amounts relating to leases:

Depreciation charge of Right-of-Use Assets (note 13):

Land and buildings

Plant, machinery and motor vehicles
Expense relating to short-term leases and leases of low-value assets (included in cost of sales and operating expenses)
Lease charges included in profit (loss) from operations
Interest on lease liabilities (included in finance costs (note 9))
Lease charges included in profit (loss) before tax

At
31 December
2019
$m

9.8
35.4
45.2

2019
$m

7.7
0.2
3.0
10.9
2.2
13.1

The Group sub-lets a number of properties, which have been capitalised as right-of-use assets. Income from subleasing these assets
during the year was $0.8m (2018 – $0.8m) and is included in operating lease rental income in note 4. The Group also earns revenue from
the rental of rental tools, which are items of property, plant and equipment, as disclosed in note 12. Rental revenue earned during the year
was $31.4m (2018 – $39.3m) as shown in note 3.

Payments for short-term and low-value leases
Payments for capitalised leases

2019
$m
3.0
10.6
13.6

Hunting PLC / 2019 Annual Report and Accounts

143

24. Leases continued

(d) Operating Leases: The Group as Lessee – IAS 17 Disclosures
Operating lease charges mainly represent rentals payable by the Group for properties:

Operating lease charges in the income statementi:
Lease and rental payments

Property
$m

12.1

2018

Others
$m

1.7

Total
$m

13.8

Operating lease charges to the income statement in 2018 include an interest element, which is separated out and charged to finance expense under IFRS 16
in 2019.

In 2018, the Group had provisions of $4.1m 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 27).

Total future aggregate minimum lease payments under non-cancellable operating leases:

Within one year
Between one and five years
After five years
Total lease payments

Property
$m
9.5
30.0
19.1
58.6

2018

Others
$m
0.6
0.7
–
1.3

Total
$m
10.1
30.7
19.1
59.9

(e) The Group as Lessor
A number of the Group’s properties included within property, plant and equipment and capitalised as right-of-use assets are let under
operating lease agreements.

Future minimum lease payments expected to be received in relation to non-cancellable operating leases are:

Within one year
Between one and five years
Total lease income receivable

25. Borrowings

Non-current:
Other unsecured loans

Current:
Bank overdrafts secured
Unsecured bank loans

Total borrowings

2019
Property
$m
1.1
1.6
2.7

2018
Property
$m
1.8
3.3
5.1

2019
$m

3.9

1.6
–
1.6

5.5

2018
$m

3.9

1.8
0.9
2.7

6.6

In accordance with the amendments made to the Group’s committed facility in July 2016, security has been granted over certain property,
plant and equipment, receivables and inventory. The carrying amounts of the assets pledged as security are disclosed in notes 12, 18 and 20.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements144
Notes to the Consolidated Financial Statements continued

25. Borrowings continued

Analysis of Borrowings by Currency
The carrying amount of the Group’s borrowings is denominated in the following currencies:

Other unsecured loans
Bank overdrafts secured
At 31 December 2019

Other unsecured loans
Bank overdrafts secured
Unsecured bank loans
At 31 December 2018

26. Changes in Net Cash (Debt)

US dollars
$m
3.9
1.6
5.5

US dollars
$m
3.9
1.8
–
5.7

Chinese
CNY
$m
–
–
–

Chinese
CNY
$m
–
–
0.9
0.9

Total
$m
3.9
1.6
5.5

Total
$m
3.9
1.8
0.9
6.6

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 cash concentration account structures and other such measures. As the Group manages funding on
a net cash/debt basis, internal reporting focuses on changes in net cash/debt and this is presented in the Strategic Report. The net cash/
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 cash/debt comprises cash at bank and in hand, short-term deposits and Money Market Funds less bank overdrafts, current
and non-current lease liabilities, and current and non-current borrowings.

Cash and cash equivalents (note 21)
Bank overdrafts (note 25)
Cash and cash equivalents – per cash
flow statement

Total lease liabilities (note 24)
Unsecured bank loans (note 25)
Non-current borrowings (note 25)
Liabilities arising from financing activities

At
1 January
2019
$m
67.9
(1.8)

Adoption of
IFRS 16
$m
–
–

At
1 January
2019
amended
$m
67.9
(1.8)

66.1

–

66.1

–
(0.9)
(3.9)
(4.8)

(49.0)
–
–
(49.0)

(49.0)
(0.9)
(3.9)
(53.8)

Total net cash (debt)

61.3

(49.0)

12.3

Non-cash
movements
on lease
liabilitiesi
$m
–
–

Exchange
movements
$m
2.4
–

At
31 December
2019
$m
128.6
(1.6)

–

2.4

127.0

(5.9)
–
–
(5.9)

(5.9)

(0.9)
–
–
(0.9)

(45.2)
–
(3.9)
(49.1)

1.5

77.9

Cash
flow
$m
58.3
0.2

58.5

10.6
0.9
–
11.5

70.0

i. Non-cash movements on lease liabilities comprise new leases of $3.4m, interest expense of $2.2m and lease modifications of $0.3m.

Cash and cash equivalents (note 21)
Bank overdrafts (note 25)
Cash and cash equivalents – per cash flow statement

Other current borrowings (note 25)
Non-current borrowings (note 25)
Liabilities arising from financing activities

At
1 January
2018
$m
36.4
(2.1)
34.3

–
(3.9)
(3.9)

Cash
flow
$m
32.6
0.3
32.9

(0.9)
–
(0.9)

Exchange
movements
$m
(1.1)
–
(1.1)

At
31 December
2018
$m
67.9
(1.8)
66.1

–
–
–

(0.9)
(3.9)
(4.8)

Total net cash (debt)

30.4

32.0

(1.1)

61.3

During the year, $0.4m (2018 – $0.5m) loan facility fees were paid, $nil (2018 – $0.6m) was accrued and $0.4m (2018 – $0.4m) fees were amortised.

Hunting PLC / 2019 Annual Report and Accounts145

27. Provisions

At 1 January 2019
Adjustment on adoption of IFRS 16 (note 41)
At 1 January 2019 restated
Exchange adjustments
Charged to the income statement
Provisions utilised
Unutilised amounts reversed
Unwinding of discount
Remeasurement
At 31 December 2019

Provisions are due as follows:

Current
Non-current

Onerous
contracts
$m
4.1
(4.1)
–
–
–
–
–
–
–
–

Asset
decommissioning
$m
5.6
(0.1)
5.5
0.1
0.2
(1.3)
–
0.1
0.5
5.1

Other
$m
4.5
–
4.5
–
0.6
(0.2)
(1.6)
–
–
3.3

2019
$m
3.2
5.2
8.4

Total
$m
14.2
(4.2)
10.0
0.1
0.8
(1.5)
(1.6)
0.1
0.5
8.4

2018
$m
4.7
9.5
14.2

Asset decommissioning and remediation obligations of $5.1m (2018 – $5.6m) relate to the Group’s obligation to dismantle, remove and
restore items of property, plant and equipment. 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 14 years. Other provisions include provisions for restructuring in South Africa and Indonesia of $0.9m (2018 – $1.6m),
provision for a pension fund for officers in the mercantile marine industry from a legacy subsidiary of $1.0m (2018 – $1.3m) and warranties
and tax indemnities of $0.9m (2018 – $0.9m).

28. Derivatives and Hedging

(a) Currency Derivatives
The Group uses derivatives for economic hedging purposes and no speculative positions are entered into by the Group. The Group has
used spot and forward foreign exchange contracts to hedge its exposure to exchange rate movements during the year. Currency exposure
in the Group’s treasury function is managed by using funding swaps to convert US dollars into different currencies required by the Group’s
entities, when required.

Fair values of outstanding derivative financial instruments:

Forward foreign exchange contracts – in a cash flow hedge
Forward foreign exchange contracts – not in a hedge
Foreign currency swaps – in a net investment hedge
Foreign currency swaps – not in a hedge
Total

2019

Total

assets
$m
0.1
0.2
–
–
0.3

Total
liabilities
$m
–
(0.1)
(0.2)
(0.9)
(1.2)

2018

Total

assets
$m
–
0.2
0.2
0.3
0.7

Total

liabilities
$m
–
(0.1)
–
–
(0.1)

Gains on contracts that are not designated in a hedge relationship of $0.2m (2018 – $0.3m) have been recognised in the income statement
during the year. During 2018, gains of $0.6m on contracts not designated in a hedge relationship were recognised in exceptional items,
and included in the $2.0m credit on the closure of the South African facility in note 6.

(b) Fair Value Hedge
Forward foreign exchange contracts have also been designated in a fair value hedge to hedge the foreign exchange movement in foreign
currency trade payables during the year. The value of the forward foreign exchange contract matches the value of the trade payables and
they move in opposite directions as a result of movements in the CAD/USD exchange rate, being the hedged risk. Immaterial fair value losses
have been recognised in the income statement during the year. At the year-end, there are no derivatives designated in a fair value hedge.

(c) Cash Flow Hedge
The Group has entered into contracts to purchase materials from suppliers in a currency other than the Group’s subsidiary’s functional
currency. Certain of these highly probable forecast transactions have been designated in a cash flow hedge relationship and hedged using
forward foreign exchange contracts during the year. The value of the forward foreign exchange contract matches the value of the forecast
inventory purchase and they move in opposite directions as a result of movements in the CAD/USD and the CNY/USD exchange rates,
being the hedged risk. It is anticipated that the materials will be sold within 12 months after purchase, at which time the amount deferred
in equity will be reclassified to profit or loss as part of the cost of inventories sold.

The Group also entered into contracts to purchase items of property, plant and equipment from suppliers in a currency other than the
Group’s subsidiary’s functional currency. These highly probable forecast transactions were hedged using a forward foreign exchange
contracts. The value of the forward foreign exchange contracts matched the value of the forecast property, plant and equipment purchases
and they moved in opposite directions as a result of movements in the CAD/USD and EUR/USD exchange rates, being the hedged risk.
The amount deferred in equity will be reclassified to profit or loss as part of the depreciation charge over the item’s useful life.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements
146
Notes to the Consolidated Financial Statements continued

28. Derivatives and Hedging continued

(c) Cash Flow Hedge continued
The Group’s cash flow hedge reserve, which is disclosed as part of other components of equity in note 34, relates to the spot component
of forward foreign exchange contracts, as follows:

Balance as at 1 January 2018
Fair value gains of forward foreign exchange contracts recognised in OCI
Reclassified to the carrying value of inventory
Balance as at 31 December 2018 and 2019

$m
(0.1)
0.3
(0.2)
–

The movements in the cash flow hedge reserve during 2019 were immaterial. The effects of outstanding forward foreign exchange
contracts on the Group’s financial position and performance are as follows:

Carrying amount of the forward foreign exchange contracts – other receivables (note 18)
Notional amount of the forward foreign exchange contracts

Maturity date
Hedge ratioi
Change in value of hedged item used to determine hedge effectiveness

$m
$m

2019
0.1
8.5
03.01.20 to
08.05.20
1:1
(0.1)

2018
<0.1
2.2
25.01.19 to
24.10.19
1:1
<(0.1)

i. The forward foreign exchange contracts are denominated in the same currency as the highly probable forecast transactions to match the exposed currency

risk, therefore the hedge ratio is 1:1.

Immaterial changes in the forward points, the differential between the forward rate and the market spot rate, have been recognised
in the income statement during the year and previous year.

(d) Net Investment Hedge
In order to hedge the translation foreign currency risk arising on Canadian dollar denominated net assets, the Group entered into foreign
currency swaps that have maturities of up to three months. The fair value of the foreign currency swaps and the value of the Canadian
dollar denominated net assets move in the opposite direction as a result of movements in the USD/CAD exchange rate, being the hedged
risk. There was no ineffectiveness in the net investment hedge.

The effects of the outstanding foreign currency swap on the Group’s financial position and performance are as follows:

Carrying amount of the foreign currency swap – other payables (note 22)/other receivables (note 18)
Notional amount of the foreign currency swap
Maturity date
Hedge ratioi
Change in carrying amount of net assets as a result of foreign currency movements since inception,
recognised in OCI
Change in value of hedged item used to determine hedge effectiveness

$m
$m

2019
(0.2)
14.9
31.01.20
1:1

2018
0.2
14.2
07.01.19
1:1

0.2
0.2

(0.2)
(0.2)

i. The foreign currency swap is denominated in the same currency as the Canadian dollar denominated net assets to match the exposed currency risk,

therefore the hedge ratio is 1:1.

The balance relating to the net investment hedge in the currency translation reserve at the beginning of the year was a $0.9m gain
(2018 – $0.5m loss), the cumulative spot to spot movement of a $0.8m loss (2018 – $1.4m gain) has been recognised during the year,
resulting in a balance relating to the net investment hedge at the end of the year of a $0.1m gain (2018 – $0.9m).

(e) Hedge Effectiveness
Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments
to ensure that an economic hedge relationship exists between the hedged item and the hedging instrument.

For hedges of foreign currency purchases, the Group enters into hedge relationships where the critical terms of the hedging instrument
match exactly with the terms of the hedged item. The Group, therefore, performs a qualitative assessment of effectiveness. If changes
in circumstances affect the terms of the hedged item such that the critical terms no longer match exactly with the critical terms of the
forward foreign exchange contract, then the Group uses the hypothetical derivative method to assess effectiveness. Ineffectiveness may
arise if there is a change in the timing of the forecast transaction from what was originally estimated or from a change in the US dollar
amount charged and invoiced. A possible source of ineffectiveness is also a change in credit risk of either party to the derivative; however,
any change in credit risk is not expected to be material.

For net investment hedges, the Group enters into hedge relationships where the value of the foreign currency swap matches exactly with
the value of the loan. The Group, therefore, performs a qualitative assessment of effectiveness. Ineffectiveness will arise if the value of the
foreign currency net assets falls below the value of the foreign currency swap prior to the maturity of the foreign currency swap.

There was no ineffectiveness during 2019 or 2018.

Hunting PLC / 2019 Annual Report and Accounts147

29. Financial Instruments: Fair Values

The carrying value of investments, the loan note, contract assets, trade receivables, accrued revenue, other receivables, short-term
deposits, cash and cash equivalents, trade payables, accruals and other payables considered to be financial liabilities, bank overdrafts
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 Group has lease liabilities of $45.2m at the year-end, which are not measured at fair value, in the balance sheet. The fair value of these
financial liabilities has not been disclosed as their fair value cannot be measured reliably as there is no active market for these financial
instruments. There is no expectation that the lease liabilities will be disposed of in the future.

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.

Equity instruments at fair value through profit or loss
Listed equity investments and mutual funds
Debt instruments at fair value through profit or loss
Money Market Funds
Current derivatives held for trading
Derivative financial assets
Derivative financial liabilities
Current derivatives in a hedge
Derivative financial assets
Derivative financial liabilities

Equity instruments at fair value through profit or loss
Non-current Listed equity investments and mutual funds
Debt instruments at fair value through profit or loss
Money Market Funds
Current derivatives held for trading
Derivative financial assets
Derivative financial liabilities
Current derivatives in a hedge
Derivative financial assets

Fair value at
31 December
2019
$m

2.1

26.2

0.2
(1.0)

0.1
(0.2)
27.4

Fair value at
31 December
2018
$m

1.7

26.1

0.5
(0.1)

0.2
28.4

Level 1
$m

2.1

26.2

–
–

–
–
28.3

Level 1
$m

1.7

26.1

–
–

–
27.8

Level 2
$m

–

0.2
(1.0)

0.1
(0.2)
(0.9)

Level 2
$m

–

0.5
(0.1)

0.2
0.6

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 Money Market
Funds and 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 Money Market Funds and 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.

30. 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.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements148
Notes to the Consolidated Financial Statements continued

30. Financial Risk Management continued

(a) Market Risk: 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, Canadian dollars and Chinese Yuan Renminbi. 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.

The Group’s material foreign exchange rates are:

Average exchange rate to US dollars
Year–end exchange rate to US dollars

Sterling

Canadian dollar

2019
0.78
0.75

2018
0.75
0.79

2019
1.33
1.30

2018
1.30
1.37

(i) Transactional Risk
The exposure to exchange rate movements in significant future transactions and cash flows is hedged by using forward foreign exchange
contracts. 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. Exposures are also identified and hedged, if necessary, on an ad-hoc basis, such as when a purchase order in a foreign
currency is placed. 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 $50,000 equivalent. Exposures of less than $50,000 equivalent will also be hedged but only where
the underlying foreign currency cash flow is expected to occur 60 days or more from the point of entering into the transaction.

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 as fair value gains and losses arising on these are recognised in other comprehensive income.

At 31 December 2019
Functional currency of Group’s entities:
Sterling
US dollars
Canadian dollars
Singapore dollars
Euro
Chinese CNY

Sterling
$m

US dollars
$m

–
(2.6)
–
–
(0.1)
–
(2.7)

(5.0)
–
(1.2)
2.7
0.8
(0.6)
(3.3)

Currency of denomination

AED
$m

–
(1.6)
–
–
–
–
(1.6)

Chinese
CNY
$m

–
(1.0)
–
–
–
–
(1.0)

Euro
$m

(0.4)
(0.6)
–
–
–
–
(1.0)

AUD
$m

–
1.3
–
–
–
–
1.3

Other
currencies
$m

0.2
(1.5)
–
–
–
–
(1.3)

Total
$m

(5.2)
(6.0)
(1.2)
2.7
0.7
(0.6)
(9.6)

The Sterling, US dollar, United Arab Emirates (“UAE”) Dirham (“AED”), Australian dollar (“AUD”) and Chinese Yuan Renminbi (“CNY”)
denominated financial instruments consist of cash balances, trade and other receivables, accrued revenue, trade and other payables,
accrued expenses, finance lease liabilities, provisions and intra-Group loans.

At 31 December 2018
Functional currency of Group’s entities:
Sterling
US dollars
Canadian dollars
Singapore dollars
Euro
Chinese CNY

Sterling
$m

US dollars
$m

–
(2.4)
–
–
(0.8)
–
(3.2)

(3.5)
–
(0.3)
2.3
–
–
(1.5)

Currency of denomination

AED
$m

–
(1.4)
–
–
–
–
(1.4)

Chinese
CNY
$m

–
1.0
–
–
–
–
1.0

Euro
$m

(0.1)
(0.1)
–
–
–
–
(0.2)

AUD
$m

Other
currencies
$m

–
–
–
–
–
–
–

–
(0.1)
–
–
–
(0.2)
(0.3)

Total
$m

(3.6)
(3.0)
(0.3)
2.3
(0.8)
(0.2)
(5.6)

The Sterling, US dollar, United Arab Emirates (“UAE”) Dirham (“AED”) and Chinese Yuan Renminbi (“CNY”) denominated financial
instruments consist of cash balances, trade and other receivables, accrued revenue, trade and other payables, accrued expenses,
provisions and intra-Group loans.

Hunting PLC / 2019 Annual Report and Accounts
149

30. Financial Risk Management continued

(a) Market Risk: Foreign Exchange Risk continued
(ii) Translational Risk
Foreign exchange risk also arises from financial assets and liabilities not denominated in the functional currency of an entity’s operations
and forward foreign exchange contracts are used to manage the exposure to changes in foreign exchange rates. Where appropriate,
hedge accounting is applied to the forward foreign exchange contracts and the hedged item to remove any accounting mismatch.

Foreign exchange risk also arises from the Group’s investments in foreign operations. During the year, foreign currency swaps have been
designated in a net investment hedge to hedge the translation foreign currency risk arising on a Canadian dollar denominated investment.

The foreign exchange exposure arising from the translation of its net investments in foreign operations into the Group’s presentation
currency of US dollars has also previously been managed by designating any borrowings that are not US dollar denominated 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) Market Risk: Interest Rate Risk
Variable interest rates on cash at bank, short-term deposits, overdrafts and borrowings expose the Group to cash flow interest rate risk
and fixed interest rates on loans and short-term 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.

(c) Credit Risk
The Group’s credit risk arises from its cash at bank and in hand, Money Market Funds, short-term deposits, investments, derivative
financial instruments, the loan note, accrued revenue, outstanding trade receivables and contract assets.

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 must all have a minimum A2, P2 or F2 short-term rating from Standard & Poor’s, Moody’s or Fitch
rating agencies respectively and AAAm S&P rating for Money Market Funds. The Money Market Funds aim to have a stable Net Asset
Value per share of 1 (this means that for every $1 or £1 that is in the fund there will be an asset to cover it) and the funds have overnight
liquidity. At the year-end, deposits in Money Market Funds totalled $26.2m (2018 – $26.1m).

At the year-end, cash at bank and in hand totalled $66.6m (2018 – $32.4m), with $48.4m (2018 – $18.0m) deposited with banks with Fitch
short-term ratings of F1 to F1+. Of the remaining $18.2m (2018 – $14.4m), $16.6m (2018 – $13.5m) was held 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. There are no
formal restrictions on this cash as such, however, prior approval would be required from various state authorities in China before any cash
could be paid offshore.

Surplus cash held in short-term deposits totalled $35.8m (2018 – $9.4m) and are held with banks with Fitch short-term ratings of F1 and F1+.

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 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 current and non-current investments. Investments
at the year-end amounted to $2.1m (2018 – $1.7m) 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 $164.2m (2018 – $164.9m) at the year-end. The facilities comprise $160.0m of secured committed
facilities (2018 – $159.5m) and $4.2m secured uncommitted facilities (2018 – $5.4m).

The Group’s $160m Revolving Credit Facility (“RCF”) is due to mature in December 2022, with an option to extend for a further one year
to December 2023. The main features of the RCF are as follows:

• The base margin on amounts drawn under the facility is 1.00%.
• Market standard financial covenants of the facility, as discussed below.
• A $75.0m accordion feature, providing Hunting with additional flexibility to increase the size of the bank facility to $235.0m, subject

to approval of its bank lending group.

Security is granted over certain properties, plant and equipment, receivables and inventory. The carrying amounts of the assets pledged
as security are disclosed in notes 12, 18 and 20.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements150
Notes to the Consolidated Financial Statements continued

30. Financial Risk Management continued

(d) Liquidity Risk continued
The covenants to 31 December 2019 include:

• The ratio of net debt to consolidated EBITDA permitted under the revolving credit facility must not exceed a multiple of three times.
• Consolidated EBITDA must also cover relevant finance charges by a minimum of four times.

For covenant testing purposes, the Group’s definition of consolidated EBITDA is adjusted to exclude exceptional items, include the share
of associates’ post-tax results and exclude the fair value charge for share awards. Consolidated EBITDA is also adjusted to reflect it on
a pre-IFRS 16 basis. Similarly, net cash (debt) and finance expenses are adjusted to accord with the definition within the facility agreement.
Consolidated EBITDA, for covenant test purposes, is based on the previous 12-month period, measured twice yearly at 30 June and
31 December. Throughout the year and at 31 December 2019 both these covenants were met.

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 $160.0m (2018 – $159.5m), which expire between one and
five years from 31 December 2019.

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
Lease liabilities
Secured bank loans
Other unsecured loans
Bank overdrafts secured
Total

Non-derivative financial liabilities:
Trade payables
Accruals
Other payables
Onerous lease contracts
Secured bank loans
Unsecured bank loans
Other unsecured loans
Bank overdrafts secured
Total

On demand
or within
one year
$m

2019

Between
one and

five years
$m

After

five years
$m

56.3
45.3
3.4
10.3
0.6
–
1.6
117.5

–
0.4
–
28.1
1.1
–
–
29.6

–
0.1
–
14.6
–
3.9
–
18.6

On demand
or within
one year
$m

2018

Between
one and

five years
$m

After

five years
$m

62.3
59.9
4.3
1.1
0.6
0.9
–
1.8
130.9

–
0.9
–
3.0
1.1
–
–
–
5.0

–
0.5
–
–
–
–
3.9
–
4.4

Total
$m

56.3
45.8
3.4
53.0
1.7
3.9
1.6
165.7

Total
$m

62.3
61.3
4.3
4.1
1.7
0.9
3.9
1.8
140.3

The Group had no net settled financial liabilities at the year-end (2018 – 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
– inflows
– outflows

On demand
or within
one year
2019
$m

On demand
or within
one year
2018
$m

111.8
(112.7)

86.9
(86.3)

(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 53. 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.

Hunting PLC / 2019 Annual Report and Accounts151

31. 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 at bank and in
hand, Money Market Funds, short-term deposits, trade and other receivables, trade and other payables, lease liabilities, borrowings and
derivative financial instruments. The sensitivity analysis relates to the position as at 31 December 2019. The analysis excludes the impact
of movements in market variables on the carrying value of pension and other post-retirement obligations, provisions and non-financial
assets and liabilities of foreign operations.

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;

and

• 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 0.25% (2018 – 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 or decrease of
0.25% (2018 – 0.5%) in US interest rates, is not material (2018 – not material). There is no impact on other comprehensive income (“OCI”)
for a change in interest rates.

(b) Foreign Exchange Rate Sensitivity
The sensitivity rates disclosed in the table below, represent 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 +5% (2018: +10%)
Sterling exchange rate -5% (2018: -10%)
Singapore dollar exchange rate +5% (2018: +5%)
Singapore dollar exchange rate -5% (2018: -5%)
Chinese Yuan Renminbi exchange rate +2% (2018: +5%)
Chinese Yuan Renminbi exchange rate -2% (2018: -5%)
Canadian dollar exchange rate +5% (2018: +10%)
Canadian dollar exchange rate -5% (2018: -10%)

2019

2018

Income
statement
$m
(0.3)
0.3
(0.2)
0.2
(0.1)
0.1
0.1
(0.1)

OCI
$m
–
–
–
–
(0.1)
0.1
–
–

Income
statement
$m
(0.4)
0.4
(0.2)
0.2
(0.2)
0.2
0.1
–

OCI
$m
–
–
–
–
–
–
0.1
–

The movements in the income statement mainly arise from cash, intra-Group balances, trade and other receivables, payables, accrued
expenses and provisions, where the functional currency of the entity is different to the currency that the monetary items are denominated
in. The movements in OCI arise from foreign exchange contracts designated in a cash flow hedge.

The post-tax impact on the income statement of reasonably possible changes in the Euro, Australian dollar and UAE Dirham exchange
rates were considered and were immaterial.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements152
Notes to the Consolidated Financial Statements continued

32. Post-Employment Benefits

(a) Defined Contribution Arrangements
A number of defined contribution (“DC”) arrangements, which are open to current employees, are operated across the Group. Employer
contributions to these arrangements are charged directly to profit and loss and in 2019 these totalled $8.7m (2018 – $7.6m).

(b) Unfunded Defined Benefit Scheme
The Group 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 Group, which is used to pay benefits due from the arrangement when a member retires. Under IAS 19, the cash balance arrangement
is accounted for as an unfunded defined benefit scheme.

The amounts recognised in the income statement during the year were $0.1m (2018 – $nil) for the employer’s current service cost
(recognised in operating expenses) and $0.2m (2018 – $0.1m interest cost) net interest income (recognised in net finance expense).

Movements in the present value of the obligation for the unfunded 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
Benefits paid
Present value of the obligation at the end of the year

2019
$m
1.7
0.1
0.1
0.2
–
2.1

2018
$m
12.2
–
0.1
(0.2)
(10.4)
1.7

The obligation is presented in the balance sheet with $0.5m in current payables and $1.6m in non-current payables (note 22).

(c) UK Defined Benefit Scheme
Historically, the Group operated a funded pension scheme which provided benefits on a defined benefit (“DB”) basis. Full details of the
scheme and its accounting effects in 2018 can be seen in note 29 of the 2018 Annual Report and Accounts. A summary of the main
features is given below.

The DB scheme was wound up in December 2018 and, as part of that process, the bulk annuity policies held with insurers to cover
members’ DB benefits were transferred into individual policies for the members. This removed the Group’s risks relating to an insurer
no longer being able to meet its obligations. The Group has no further legal responsibility to fund these benefits.

The residual assets in the Scheme of $16.4m at the point of termination were transferred to the Group and HMRC. Payments were made
from the Scheme on 6 December 2018 as part of the wind-up process, of which $10.6m was paid to the Group and $5.8m was paid
to HMRC in relation to tax due. No further payments from the Scheme have been received since, nor are any due.

The present value of the obligation and the closing fair value of the plan assets were both $nil at the end of 2018 and, therefore, the net asset
at the end of 2018 was also $nil.

During 2018, a current service cost of $2.1m and a past service cost of $0.4m were recognised in the income statement in operating
expenses and net interest income on the net defined benefit asset of $0.4m was recognised in finance income (note 9). The net expense
included within staff costs in note 8 was $2.1m. The current service cost included $2.1m of administration costs. Due to the Group’s
liability being extinguished in the prior year, no income or expenditure in relation to this plan was generated or incurred during 2019.

33. Share Capital and Share Premium

At 1 January
Shares issued – share option schemes and awards
At 31 December

Ordinary
shares of
25p each
Number
165,073,603
1,866,479
166,940,082

2019

Ordinary
shares of
25p each
$m
66.7
0.6
67.3

premium
$m
153.0
–
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 187. All of the Ordinary shares in issue are fully paid.

At 31 December 2019, 1,609,150 (2018 – 1,247,672) Ordinary shares were held by an Employee Benefit Trust. Details of the carrying
amount are set out in note 35.

Hunting PLC / 2019 Annual Report and Accounts
153

33. Share Capital and Share Premium continued

At 1 January
Shares issued – share option schemes and awards
At 31 December

34. Other Components of Equity

At 1 January
Exchange adjustments
Release of foreign exchange on liquidation of subsidiaries
net of tax
Fair value gains and losses
– losses originating on net investment hedges arising

during the year net of tax
Share options and awards
– value of employee services
– discharge
Transfer between reserves
At 31 December

Ordinary
shares of
25p each
Number
164,173,603
900,000
165,073,603

2018

Ordinary
shares of
25p each
$m
66.4
0.3
66.7

Merger
reserve
$m
67.2
–

Share-based
payments
reserve
$m
22.3
–

2019

Capital
redemption

reserve
$m
0.2
–

Currency
translation
reserve
$m
(13.9)
5.0

–

–
–
(20.8)
46.4

–

9.0
(11.6)
–
19.7

–

–
–
–
0.2

(0.2)

(0.7)

–
–
–
(9.8)

premium
$m
153.0
–
153.0

Total
$m
75.8
5.0

(0.2)

(0.7)

9.0
(11.6)
(20.8)
56.5

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 is transferred to distributable retained earnings when the proceeds meet the definition of a
qualifying consideration. During the year, $20.8m (2018 – $12.2m) was transferred from the merger reserve to retained earnings. This portion
of the reserve was considered to be realised, as the equivalent amount of the proceeds from the share placing in 2016 have now met the
definition of qualifying consideration.

At 1 January
Exchange adjustments
Fair value gains and losses
– gains originating on cash flow hedges

arising during the year net of tax

– gains originating on net investment hedges

arising during the year net of taxes

– losses transferred to the carrying value of
inventory purchased in the year net of tax

Share options and awards
– value of employee services
– discharge
Transfer between reserves
At 31 December

Merger
reserve
$m
79.4
–

–

–
–
(12.2)
67.2

Cash flow

hedge
reserve
$m
(0.1)
–

2018

Share-based
payment
reserve
$m
18.9
–

Capital

redemption

reserve
$m
0.2
–

0.2

–

(0.1)

–
–
–
–

–

13.1
(9.7)
–
22.3

–

–
–
–
0.2

Currency
translation
reserve
$m
(6.7)
(8.4)

–

1.2

–

–
–
–
(13.9)

Total
$m
91.7
(8.4)

0.2

1.2

(0.1)

13.1
(9.7)
(12.2)
75.8

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements154
Notes to the Consolidated Financial Statements continued

35. Retained Earnings

At 31 December as previously reported
Adjustment on adoption of IFRS 16 – note 41 (2018 – IFRS 9)
At 1 January amended
Profit for the year
Remeasurement of defined benefit pension schemes net of tax
Dividends paid to equity shareholders
Purchase of treasury shares
Disposal of treasury shares
Share options and awards
– discharge
– taxation
Transfer between reserves
At 31 December

2019
$m
881.6
(1.1)
880.5
39.7
(0.3)
(16.6)
(5.0)
0.3

10.8
0.9
20.8
931.1

2018
$m
782.2
(0.2)
782.0
89.3
1.5
(6.6)
(5.7)
–

9.2
(0.3)
12.2
881.6

The share options and awards taxation credit taken directly to equity of $0.9m (2018 – $0.3m charge) comprises $0.1m (2018 – $0.2m charge)
deferred tax credit and $0.8m (2018 – $0.1m charge) current tax credit.

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

2019
$m

(11.2)
(5.0)
3.4
(12.8)

The loss on disposal of Treasury shares during the year, which is recognised in retained earnings, was $3.1m (2018 – $1.7m).

36. Dividends Paid to Equity Shareholders

Ordinary dividends:
2019 interim paid
2018 final paid
2018 interim paid

2019

Cents

per share

5.0
5.0
–
10.0

8.3
8.3
–
16.6

2018

Cents

per share

–
–
4.0
4.0

2018
$m

(7.2)
(5.7)
1.7
(11.2)

–
–
6.6
6.6

A final dividend of 6.0 cents per share has been proposed by the Board, amounting to an estimated distribution of $9.9m. The proposed
final dividend is subject to approval by the shareholders at the Annual General Meeting to be held on 15 April 2020 and has not been
provided for in these financial statements. If approved, the dividend will be paid in Sterling on 15 May 2020, to shareholders on the register
on 17 April 2020, and the Sterling value of the dividend payable per share will be fixed, and announced approximately two weeks prior to
the payment date, based on the average spot exchange rate over the three business days preceding the announcement date. Guidance
on the Company’s position on declaring and paying future dividends is provided within the Strategic Report on page 14.

37. Share-Based Payments

(a) 2009 Performance Share Plan (“PSP”)
(i) Performance-Based Awards and Options
The Company granted nil-cost 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. The fair value charge
to the income statement attributable to the performance-based PSP was $nil (2018 – $nil).

Hunting PLC / 2019 Annual Report and Accounts155

37. Share-Based Payments continued

(a) 2009 Performance Share Plan (“PSP”) continued
(ii) Time-Based Awards and Options
The Company granted nil-cost, 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. 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 and exercisable at the end of the year

The weighted average share price at the date of exercise during 2019 was 569.1 pence (2018 – 786.4 pence).

Details of the time-based PSP awards and options outstanding at 31 December 2019 are as follows:

2019
Number of
shares
7,004
(1,947)
(1,456)
3,601

2018

Number of

shares
15,606
(8,602)
–
7,004

Date of grant:
25 February 2011
17 April 2012
20 March 2013
Outstanding and exercisable at the end of the year

2019
Number of
shares

2018

Number of

875
1,725
1,001
3,601

875
2,446
3,683
7,004

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 $nil (2018 – $nil).

(b) 2014 Hunting Performance Share Plan (“HPSP”)
(i) Performance-Based Awards
The Company grants performance-based share awards annually to executive Directors and senior employees under the HPSP. Awards
are granted at nil cost under the HPSP. Up to 2017, the performance-based HPSP awards to the executive Directors were divided equally
into three tranches. From 2018, the performance-based HPSP awards were divided into four tranches of differing proportions. Each
tranche is subject to a three-year vesting period, and is also subject to performance conditions. Up to 2017, the three conditions were
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 fourth performance condition
added in 2018 is based on a Balanced Scorecard, comprising of non-financial KPIs including Quality and Safety performance. The 2018
award weightings are EPS 25%; TSR 25%; ROCE 35% and the Balanced Scorecard 15%. The performance period for the 2018 awards
granted under the HPSP is 1 January 2018 to 31 December 2020. The vesting date of the 2018 award is 19 April 2021. 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 Directorsii
Granted during the year to senior managersi/ii
Vested and exercised during the year
Lapsed during the year
Outstanding at the end of the year

2019
Number of
shares
3,372,764
541,708
835,464
(977,588)
(407,126)
3,365,222

2018

Number of

shares
3,446,240
373,709
579,573
(157,292)
(869,466)
3,372,764

i. The 2017 HPSP awards granted to senior managers incorporates a fourth performance condition based on Hunting’s reported internal manufacturing

reject rate.

ii. The 2018 HPSP awards granted to the executive Directors and senior managers incorporates a Balanced Scorecard condition, in addition to the TSR,

EPS and ROCE performance conditions.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements
156
Notes to the Consolidated Financial Statements continued

37. Share-Based Payments continued

(b) 2014 Hunting Performance Share Plan (“HPSP”) continued
(i) Performance-Based Awards continued
Details of the performance-based HPSP awards outstanding at 31 December 2019 are as follows:

Date of grant:
11 March 2016
3 March 2017
19 April 2018
21 March 2019
Outstanding at the end of the year

2019
Number of
shares

2018

Number of

36,474
1,027,356
924,220
1,377,172
3,365,222

1,402,897
1,027,356
942,511
–
3,372,764

Normal
vesting date

11.03.19
03.03.20
19.04.21
21.03.22

In 2019, 977,588 awards vested and were exercised in respect of the 2016 HPSP grant. The weighted average share price at the date
of exercise during 2019 was 516.9 pence.

In 2018, 157,292 awards vested and were exercised in respect of the 2015 HPSP grant. The weighted average share price at the date
of exercise during 2018 was 801.2 pence.

(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 end of the year

The weighted average share price at the date of exercise during 2019 was 521.5 pence (2018 – 797.3 pence).

Details of the time-based HPSP awards outstanding at 31 December 2019 are as follows:

2019
Number of
shares
3,249,426
1,053,039
(1,246,670)
(119,398)
2,936,397

2018

Number of

shares
3,462,942
787,667
(868,167)
(133,016)
3,249,426

Date of grant:
1 May 2014
28 April 2015
11 March 2016
3 March 2017
19 April 2018
21 March 2019
Outstanding at the end of the year

2019
Number of
shares

2018

Number of

4,112
14,630
80,119
1,102,403
714,048
1,021,085
2,936,397

6,121
27,250
1,290,754
1,157,072
768,229
–
3,249,426

Normal
vesting date

01.05.17
28.04.18
11.03.19
03.03.20
19.04.21
21.03.22

(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

2019
21.03.19
573.5p
nil
nil
39.0%
0.67%
3 years
380.4p

2018
19.04.18
785.0p
nil
nil
48.9%
0.85%
3 years
616.0p

Hunting PLC / 2019 Annual Report and Accounts

157

37. Share-Based Payments continued

(b) 2014 Hunting Performance Share Plan (“HPSP”) continued
(iii) Fair Value of HPSP Awards continued
(2) The fair value of performance-based awards not subject to a market-related performance condition, include the EPS and ROCE
performance targets and the time-based HPSP awards, with the fair value being 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

2019
21.03.19
573.5p
nil
nil
39.0%
0.67%
3 years
573.5p

2018
19.04.18
785.0p
nil
nil
48.9%
0.85%
3 years
785.0p

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 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 $1.6m (2018 – $5.4m) and the charge
to the income statement in respect of time-based HPSP awards is $7.4m (2018 – $7.7m). These are recognised in operating expenses.

(c) Cash Conditional Share Awards
The Company also grants Cash Conditional Awards annually to employees in certain overseas tax jurisdictions. These awards are aligned
with the rules of HPSP and are subject to employees continued employment during the vesting period. There are no performance conditions
attached. Awards are granted at nil cost and are settled at the closing mid market price of a Hunting PLC ordinary share on the third
anniversary of the date of grant.

Details of the cash conditional award 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 end of the year

The weighted average share price at the date of exercise during 2019 was 447.9 pence (2018 – nil).

Details of the cash conditional awards outstanding at 31 December 2019 are as follows:

2019
Number of
shares
10,697
75,981
(745)
(7,553)
78,380

2018

Number of

shares
4,575
6,122
–
–
10,697

Date of grant:
3 March 2017
19 April 2018
21 March 2019
Outstanding at the end of the year

2019
Number of
shares

2018

Number of

4,575
6,122
67,683
78,380

4,575
6,122
–
10,697

Normal
vesting date

03.03.20
19.04.21
21.03.22

The charge to the income statement attributable to the cash conditional awards is $0.1m (2018 – $<0.1m).

The fair value of the cash conditional awards is calculated using the same assumptions and model as the fair value of performance-based
awards not subject to a market-related performance condition (see (b)(iii) above). The fair value of the award at 31 December 2019 was
417.4 pence.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements
158
Notes to the Consolidated Financial Statements continued

37. Share-Based Payments continued

(d) Other Share Awards
On 15 May 2018 12,005 shares were awarded to certain employees and were satisfied by shares held in the Hunting Employee Benefit
Trust. The closing mid-market price on 15 May 2018 was 558.6 pence per share. The charge to the income statement attributable to these
awards was $0.1m. There were no special awards in 2019.

(e) Amounts Included in the Accounts
The charge to the income statement attributable to the cash conditional share awards is $0.1m (2018 – $nil) and the total charge
attributable to the equity-settled awards is $9.0m (2018 – $13.2m). The total charge to the income statement for the year for share-based
payments is $9.1m (2018 – $13.2m). The total liability in relation to the cash-settled awards included in accruals at the year end is $0.1m
(2018 – $nil).

38. Related-Party Transactions

The following related-party transactions took place between wholly-owned subsidiaries of the Group and associates during the year:

Net loans to associates repaid
Year-end balances:
Receivables from associates
Payables to associates

2019
$m
0.3

–
–

2018
$m
–

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 associates and subsidiaries
are set out in notes C18 and C19 to the Company financial statements.

The key management of the Group comprises the Hunting PLC Board and members the Executive Committee. Details of their
compensation are disclosed in note 8. The Hunting PLC Directors and the members of the Executive Committee had no material
transactions other than as a result of their service agreements.

The Company is listed on the London Stock Exchange, with none of the shareholders owning more than 20% of the issued share capital
of the Company (see page 13). Accordingly, there is no parent entity and the Directors do not consider there to be an ultimate controlling
party.

39. Acquisitions

The Acquisition of the Business and Assets of RTI Energy Systems Inc. (“RTI”)
RTI is a leading manufacturer of production riser technologies for deep water applications within the offshore oil and gas industry. RTI
is the only supplier of titanium stress joints to the oil and gas industry, providing a more reliable, compact and lower total cost alternative
to flexible joints and steel tapered stress joints. RTI also generates revenue from the fabrication and precision machining of components
used in the oil and gas industry, as well as providing inspection and maintenance services for customers. This business will sit alongside
and complement the Subsea business and is included within the US operating segment.

The Group acquired the business and assets of RTI on 16 August 2019 for a consideration of $12.5m. The consideration was for the net
assets of the business, no goodwill was recognised on the acquisition of RTI. Acquisition costs of $0.7m have been included in operating
expenses.

The fair value of the acquired net assets are:

Property, plant and equipment
Inventories
Creditors
Net assets

$m
12.3
0.4
(0.2)
12.5

Hunting PLC / 2019 Annual Report and Accounts159

40. Principal Accounting Policies

The Group’s principal accounting policies are described below:

(a) Consolidation
• The Group financial statements 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) Revenue
(i) Revenue from Contracts with Customers
• Revenue from contracts with customers is measured as the fair value of the consideration received or receivable for the provision

of goods and services in the ordinary course of business, net of trade discounts, volume rebates, and sales taxes.

• Revenue is recognised when control of the promised goods or services is transferred to the customer. Consequently revenue for the

sale of a product is recognised either:

1. Wholly at a single point in time when the entity has completed its performance obligation, which is most commonly indicated

by shipment of the products or the products are made available to the customer for collection; or

2. Piecemeal over time during the period that control incrementally transfers to the customer while the good is being manufactured

or the service is being performed.

• Hunting’s activities that require revenue recognition over time comprise:
1. Work undertaken to enhance customer-owned products – most commonly the lathing of a thread onto the ends of customer-owned

plain-end pipe;

2. The manufacture of goods that are specifically designed for and restricted to the use of a particular customer, such as the

manufacture of bespoke specialised circuitry and housing, and for which Hunting is entitled to a measure of recompense that
reflects the fair value of the stage of production prior to their completion; and

3. The provision of services in which the customer obtains the benefit while the service is being performed – most commonly

the storage and management services of customer-owned pipe.

• Hunting’s activities that require revenue recognition at a point in time comprise:
1. The sale of goods that are not specifically designed for use by one particular customer. Products include tubulars acquired

by Hunting as plain-end pipe on which lathing work has been applied and which is resold as threaded pipe; and

2. The manufacture of goods that are specifically designed for one particular customer but for which Hunting is not entitled

to a measure of recompense that reflects the fair value of the stage of production prior to completion.

(ii) Rental Revenue
Rental revenue is measured as the fair value of the consideration received or receivable for the provision of rental equipment in the ordinary
course of business, net of trade discounts and sales taxes.

Revenue from the rental of plant and equipment is recognised as the income is earned.

(c) Amortisation and Exceptional Items
Exceptional items are items of income or expense that 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:

• Costs of restructuring the Group’s operations, including the cost of business closures and redundancies, in response to the decline

in regional opportunities for growth.
• Defined benefit pension curtailment.
• Impairment of property, plant and equipment.

The tax effect of any transaction considered to be exceptional is also treated as exceptional.

Amortisation expenses for intangible assets recognised as part of a business combination 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. The post-acquisition profits of acquired businesses shown in the underlying column
do not, therefore, reflect these costs.

(d) Interest
Interest income and expense is recognised in the income statement using the effective interest method.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements160
Notes to the Consolidated Financial Statements continued

40. Principal Accounting Policies continued

(e) Foreign Currencies
(i) Individual Subsidiaries’ and Associates’ Financial Statements
• 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 Financial Statements
• 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.

(f) 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.

(g) Segmental Reporting
• Financial information on operating segments that corresponds with information regularly reviewed by the Chief Operating Decision
Maker (“CODM”) is disclosed in the financial statements. Consequently, the Group’s principal segmental reporting is established
on a geographical basis.

• The geographical information is based on the location of where the sale originated and where the non-current assets are located.
• Revenue is also disclosed by product group, which is provided to assist in investor understanding of the underlying performance

trends. Each product group consists of goods and services that are similar in nature or serve similar markets.

(h) 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 and rental 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 33 1∕3%

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

Hunting PLC / 2019 Annual Report and Accounts

161

40. Principal Accounting Policies continued

(h) Property, Plant and Equipment 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.

(i) Leases – lessees
• Lessees are required to recognise lease obligations as a liability and a right-of-use asset. The cost of the lease is subsequently
recognised in the income statement as interest charged on the liability and as depreciation charged on the right-of-use asset.
Hunting has adopted the two exemptions that permit lessees to charge the cost of certain leases directly to the income statement
on a straight-line basis. The two exemptions apply to:
(i) leases that have a duration of one year or less; and
(ii) leases of assets that would have cost $5,000 or less, when new, to acquire if the asset had been purchased rather than leased.
• With regard to capitalised leases of motor vehicles and forklifts, Hunting has applied the option that permits lessees to combine the

non-lease component with the lease component and recognise the two payment streams as a single arrangement.

(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, whether obtained through acquisition or internal development, are capitalised when it is probable that the

future economic benefits that are attributable to the asset will be generated, provided the cost of the asset can be measured reliably.
• Capitalisation only occurs from the point technical and commercial feasibility of the asset has been established. Prior to this costs are

expensed.

• For internally generated assets, only costs directly attributable to the development of the asset are capitalised. This typically includes

employee remuneration and the cost of materials and services, such as testing, consumed in generating the intangible asset.

• 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, short-term deposits with a maturity of less than three months from

the date of deposit and Money Market Funds.

• Short-term deposits and Money Market Funds have been classified as cash and cash equivalents as they are short-term, highly liquid,

are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value.

• For cash flow statement purposes, cash and cash equivalents include bank overdrafts. In the balance sheet, bank overdrafts are shown

within borrowings in current liabilities.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements

162
Notes to the Consolidated Financial Statements continued

40. Principal Accounting Policies continued

(o) Financial Assets
• At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through
profit or loss (“FVTPL”), transaction costs. Transaction costs of financial assets at FVTPL are expensed immediately to the income
statement.

• Subsequent measurement of debt instruments depends on each Group entity’s business model for managing the asset in order
to generate cash flows and the cash flow characteristics of the financial asset. The Group’s debt instruments are classified either
into amortised cost or fair value through profit or loss.

• Debt instruments that are held for the collection of contractual cash flows, where those cash flows represent solely payments of

principal and interest, are subsequently measured at amortised cost. Interest income from these financial assets is included in finance
income 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. Debt instruments held for collection of contractual cash flows include the loan note, contract
assets, trade receivables, accrued revenue and other receivables.

• Any other debt instruments, including Money Market Funds, that are subsequently not measured at amortised cost have been

measured at fair value through profit or loss.

• The Group’s financial assets that are equity instruments are subsequently measured at fair value through profit or loss. Changes in the
fair value of the equity instruments are recognised in other operating income, operating expenses, finance income or finance expense,
as appropriate. Financial assets that are equity instruments comprise listed equity investments and mutual funds.

• The Group assesses on a forward-looking basis the expected credit losses (“ECLs”) at each balance sheet date associated with its
loan note that is carried at amortised cost. The impairment methodology applied, following the adoption of the general model under
IFRS 9, will depend on whether there has been a significant increase in credit risk. Indications of a significant increase in credit risk
include events that have a negative impact on the estimated future cash flows and if any payments under the terms of the debt are
more than 30 days overdue.

• The Group has chosen to apply lifetime ECLs to trade receivables, accrued revenue, contract assets and lease receivables,

both short-term and long-term, upon their initial recognition.

(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) Derivatives and Hedging
• Derivatives are initially recognised at fair value on the date the derivative contract is entered into and are subsequently remeasured

to their fair value at the end of each reporting period.

• The full fair value of a derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more

than 12 months from the balance sheet date.

• The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument,

and if so, the nature of the item being hedged.

• Where the derivatives are not designated in a hedge and accounted for using hedge accounting, they are classified as “held for

trading” and are accounted for at fair value through profit or loss, with changes in the fair value recognised immediately within the
income statement.

• The Group designates certain derivatives as:

(i) hedges of the fair value of recognised assets and liabilities; or
(ii) hedges of a particular risk associated with the cash flows of highly probable forecast transactions; or
(iii) a hedge of the net investment in a foreign operation.

(i) Fair Value Hedges
•

Fair value gains or losses on derivatives designated in a fair value hedge are recognised immediately in the income statement if the
changes in the fair value of the hedged item are taken to the income statement.

(ii) Cash Flow Hedges
•

•

When forward foreign exchange contracts are designated in a cash flow hedge of forecast transactions, the Group generally
designates only the change in fair value of the forward contract relating to the spot component as the hedging instrument. Gains or
losses relating to the effective portion of the change in the spot component of the forward contracts are recognised in the cash flow
hedge reserve within equity. The Group has chosen to recognise the change in the forward element of the contract that relates to the
hedged item, defined as the forward points, within the income statement immediately rather than in equity. The forward points are
discounted, where material.
Where the hedged item subsequently results in the recognition of a non-financial asset, such as inventory or PPE, the deferred hedging
gains and losses in equity are included within the initial cost of the asset. The deferred amounts are subsequently recognised in profit
or loss when the hedged item affects profit or loss (for example through cost of sales or depreciation).
When a hedging instrument expires, or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting,
any cumulative deferred gain or loss in equity at that time remains in equity until the forecast transaction occurs. When the forecast
transaction is no longer expected to occur, the cumulative gain or loss of hedging that was reported in equity is immediately reclassified
to the income statement.
(iii) Net Investment Hedges
•

Fair value gains or losses relating to the effective portion on derivatives designated in a net investment hedge are recognised in the
other comprehensive income and accumulated in equity in the cumulative translation reserve (“CTR”). The gain or loss relating to the
ineffective portion is recognised immediately in profit or loss. The cumulative gain or loss in the CTR is reclassified to the income
statement as part of the gain or loss on disposal when the foreign subsidiary is disposed of or liquidated.

•

Hunting PLC / 2019 Annual Report and Accounts

163

40. Principal Accounting Policies continued

(r) 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.

(s) Post-Employment Benefits
• Payments to defined contribution retirement schemes are charged to the income statement when they fall due.

(t) 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.

(u) 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.

(v) 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.

(w) 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.

41. Change in Accounting Policies

IFRS 16 Leases (“IFRS 16”) has replaced IAS 17 Leases (“IAS 17”) and its related interpretations. IFRS 16 establishes new principles
for the recognition, measurement, presentation and disclosure of leases and became effective for the Group on 1 January 2019.

This note explains the impact of the adoption of IFRS 16 on the Group’s financial statements and discloses the new accounting policies
that have been applied from 1 January 2019.

IFRS 16 has been adopted by applying the modified retrospective approach from 1 January 2019; consequently the comparatives for
the 2018 reporting period have not been restated, as permitted under the specific transitional provisions in IFRS 16. The reclassifications
and the adjustments arising from the new leasing rules are recognised in the opening balance sheet on 1 January 2019.

Under IFRS 16, lessor accounting requirements remain largely unchanged from IAS 17, and continue to require a lessor to classify a lease
either as an operating lease or a finance lease. There has been no impact on the Group’s lessor accounting following the adoption of
IFRS 16.

(a) Practical expedients applied on Adoption of IFRS 16
In applying IFRS 16 for the first time, the Group has applied the following practical expedients as permitted by the standard:

• for contracts entered into before the transition date, the Group has relied on its assessment made when applying IAS 17 and IFRIC 4

Determining Whether an Arrangement Contains a Lease. Contracts have not been reassessed to determine if a contract is, or contains,
a lease at the date of initial application;

• the accounting for operating leases with a remaining lease term of 12 months or less as at 1 January 2019 as short-term leases,

with costs charged directly to the income statement;

• the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application; and
•

the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

(b) Adjustments Recognised on Adoption of IFRS 16
On adoption of IFRS 16, the Group has recognised lease liabilities in relation to leases previously identified as operating leases in
accordance with IAS 17 Leases and IFRIC 4 Determining Whether an Arrangement Contains a Lease. These lease liabilities were measured
at 1 January 2019 at the present value of the remaining lease payments payable after that date. The associated right-of-use assets have
been recognised as at 1 January 2019 on a retrospective basis as if IFRS 16 had always been applied.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements164
Notes to the Consolidated Financial Statements continued

41. Change in Accounting Policies continued

(b) Adjustments Recognised on Adoption of IFRS 16 continued
The lease term has been determined according to management’s expectation of exercising any available extension/break/purchase
options.

Total future aggregate minimum lease payments under non-cancellable operating leases (IAS 17)
Less: commitments in respect of leases that are not capitalised under IFRS 16
Less: lease that was incepted before 31.12.18 but which commenced after 31.12.18
Total future aggregate minimum lease payments of leases that are capitalised under IFRS 16
Less: Impact of discounting the future payments to their present value as at 31.12.18
Lease liability recognised as at 1 January 2019

Lease liabilities recognised on the balance sheet as at 1 January 2019:
Current lease liabilities
Non-current lease liabilities

Note
i
ii
iii

2019
$m
59.9
(0.5)
(0.6)
58.8
(9.8)
49.0

9.3
39.7
49.0

Notes
i. As disclosed in note 24. Under IAS 17, these future payments are not discounted for the time value of money.
ii. Hunting PLC has elected to not capitalise leases that have a term of one year or less and leases that are for assets for which the Group would have had to have

paid $5,000 or less if they were purchased, as new, instead of being leased.

iii. The Group signed, and therefore “incepted”, a lease in November 2018 and which, therefore, was a lease commitment as at 31 December 2018 under IAS 17.

The property was first made available to the Group in February 2019, which is the commencement date for recognising the lease liability under IFRS 16.
iv. Under IFRS 16, the Group’s capitalised future lease commitments have been discounted using their relevant incremental borrowing rate, which has been

determined by reference to the financial position of the operating unit that is leasing the asset, the amount of the gross lease obligation, the weighted average
length of the lease term, the economic environment in which the lease takes place and the type of asset that is leased. The weighted average lessee’s
incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 4.7%.

The Group has elected not to apply the practical expedient of relying on its previous assessment of whether a lease is onerous as at
1 January 2019. Therefore, the measurement of certain right-of-use assets as at 1 January 2019 has been adjusted by an impairment
charge. As a result of this, onerous lease provisions, required by IAS 17, of $4.1m have been derecognised and dilapidation provisions
of $0.1m have also been derecognised. Lease incentive liabilities and rent expense accruals previously recognised in relation to operating
leases of $2.3m have also been derecognised, together with rent prepayments of $0.4m, as these have been taken into account in the
measurement of the lease liabilities and right-of-use assets.

The recognised right-of-use assets relate to the following types of assets:

Land and buildings
Plant, machinery and motor vehicles

At
31 December
2019
$m
36.2
0.5
36.7

At
1 January
2019
$m
39.2
0.5
39.7

Hunting PLC / 2019 Annual Report and Accounts165

41. Change in Accounting Policies continued

(b) Adjustments Recognised on Adoption of IFRS 16 continued
The change in accounting policy affected the following items in the balance sheet on 1 January 2019:

ASSETS
Non-current assets
Right-of-use assets
Deferred tax assets
Other non-current assets

Current assets
Trade and other receivables
Other current assets

LIABILITIES
Current liabilities
Trade and other payables
Lease liabilities
Borrowings
Provisions
Current tax liabilities

Net current assets

Non-current liabilities
Lease liabilities
Provisions
Other non-current liabilities

Net assets

Equity attributable to owners of the parent
Retained earnings
Other equity reserves

Non-controlling interests
Total equity

As previously
reported at
31 December
2018
$m

–
26.0
695.8
721.8

231.0
416.2
647.2

140.9
–
2.7
4.7
11.2
159.5
487.7

–
9.5
8.9
18.4
1,191.1

881.6
295.5
1,177.1
14.0
1,191.1

IFRS 16
$m

39.7
1.7
–
41.4

(0.4)
–
(0.4)

(2.5)
9.3
–
(1.1)
–
5.7
(6.1)

39.7
(3.1)
–
36.6
(1.3)

(1.1)
–
(1.1)
(0.2)
(1.3)

At
1 January
2019
$m

39.7
27.7
695.8
763.2

230.6
416.2
646.8

138.4
9.3
2.7
3.6
11.2
165.2
481.6

39.7
6.4
8.9
55.0
1,189.8

880.5
295.5
1,176.0
13.8
1,189.8

The opening balance adjustments on the adoption of IFRS 16 Leases have been updated since the issue of the Half Year Report 2019.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements166
Notes to the Consolidated Financial Statements continued

41. Change in Accounting Policies continued

(c) Impact on the 31 December 2019 Income Statement of the Adoption of IFRS 16
Underlying profit from operations has increased by $1.4m from $92.9m to $94.3m and underlying profit before tax has decreased by
$0.8m from $93.9m to $93.1m following the adoption of IFRS 16. Reported profit from operations has increased by $1.4m from $45.4m
to $46.8m for the period and reported profit before tax has decreased by $0.8m from $46.4m to $45.6m following the adoption of IFRS 16.

Underlying and reported profit before taxation is stated after charging:
Depreciation on right-of-use assets

Interest on lease liabilities

2019
$m

7.9
2.2

The underlying result and the reported result for the year ended 31 December 2019 for the operating segments increased by $1.4m.
The impact on the operating segments of adopting of IFRS 16 is shown below:

Hunting Titan
US
Canada
EMEA
Asia Pacific

Underlying result

Reported result

Pre IFRS 16
$m
68.3
26.3
(4.6)
(1.3)
4.2
92.9

IFRS 16
$m
0.3
0.6
0.3
–
0.2
1.4

Revised
total
$m
68.6
26.9
(4.3)
(1.3)
4.4
94.3

Pre IFRS 16
$m
41.8
5.3
(4.6)
(1.3)
4.2
45.4

IFRS 16
$m
0.3
0.6
0.3
–
0.2
1.4

Revised
total
$m
42.1
5.9
(4.3)
(1.3)
4.4
46.8

Underlying basic earnings per share decreased by 0.6 cents per share to 45.0 cents per share and underlying diluted earnings per share
decreased by 0.6 cents per share to 43.9 cents per share for the year ended 31 December 2019 as a result of the adoption of IFRS 16.
Reported basic earnings per share decreased by 0.6 cents per share to 24.0 cents per share and reported diluted earnings per share
decreased by 0.6 cents per share to 23.5 cents per share for the year ended 31 December 2019 as a result of the adoption of IFRS 16.

Under IAS 17, all operating lease payments were included in cash flows from operating activities. Under IFRS 16, for capitalised leases,
the lease payments are presented within financing activities and therefore cash inflows from operating activities have increased by $10.6m
to $137.2m and cash outflows from financing activities have increased by $10.6m to $33.4m. For non-capitalised short-term leases and
low-value asset leases cash outflows will be included in operating activities as was the case under IAS 17.

(d) Accounting Treatment of Leases and Right-of-use Assets
(i) Leases
The Group assesses whether a contract is, or contains, a lease at the inception of the contract.

Until the 2018 financial year, leases of property, plant and equipment were classified as either finance or operating leases, however the
Group did not have any leases classified as finance leases. Payments made under operating leases (net of any incentives received from
the lessor) were charged to profit or loss on a straight-line basis over the period of the lease.

From 1 January 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset
is available for use by the Group. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic
rate of interest on the remaining balance of the liability for each period.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value
of the following lease payments:

• fixed payments (including in-substance fixed payments), less any lease incentives receivable;
• variable lease payments are included once known;
• amounts expected to be payable by the lessee under residual value guarantees;
• the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and
• payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

In applying IFRS 16, the Group has elected to apply both of the available exemptions that permit lessees, under pre-defined conditions,
not to recognise a lease liability and right-of-use asset in respect of certain leases. Payments associated with short-term leases and leases
of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term
of 12 months or less. Low-value assets have a low value purchase price when new, typically $5,000 or less, and comprise items such
as office equipment and small items of office furniture.

Hunting PLC / 2019 Annual Report and Accounts
167

41. Change in Accounting Policies continued

(d) Accounting Treatment of Leases and Right-of-use Assets continued
(ii) Right-of-use Assets
Right-of-use assets are initially measured at cost comprising the following:

• the amount of the initial measurement of lease liability;
• any lease payments made at or before the commencement date less any lease incentives received;
• any initial direct costs; and
• restoration costs, where the initial amount is equal to the restoration liability.

The right-of-use asset is normally depreciated over the lease term on a straight-line basis, except where an option to purchase the asset
is available, and it is reasonably certain that the option will be exercised, and then the asset will be depreciated over its useful life.

Right-of-use assets are presented as non-current assets in the balance sheet.

42. Events After the Balance Sheet Date
Enpro Subsea Limited
On 21 February 2020, the Group announced the acquisition of 100% of the share capital of Enpro Subsea Limited (“Enpro”) for a
consideration of $33.0m, with an additional maximum earn-out of $3.0m agreed, subject to key financial milestones being met.

Enpro was founded in 2011 and, since this time, has developed leading subsea production technology that has been adopted by offshore
operators within the global oil and gas industry. Enpro’s products focus on delivering production-enhancing technologies and include Flow
Access Modules, Flow Intervention Services and Decommissioning. These products offer low-cost, flexible, field development solutions to
clients including production and intervention modules to enhance recovery from oil and gas wells. The business will be classified as part of
the US segment. The provisional fair values of the acquired net assets are yet to be determined, as work is continuing in respect of the fair
value exercise.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements168
Company Balance Sheet
at 31 December 2019

ASSETS
Non-current assets
Investments in subsidiaries
Other receivables

Current assets
Other receivables

LIABILITIES
Current liabilities
Other payables
Provisions
Current tax liability

Net current liabilities

Non-current liabilities
Borrowings
Provisions

Net assets

Equity attributable to owners of the parent
Share capital
Share premium
Other components of equity
Retained earnings
Total equity

Notes

2019
$m

2018
$m

C4
C5

C12
C12
C13
C14

436.8
284.3
721.1

436.8
286.0
722.8

1.1

6.1
0.4
0.2
6.7
5.6

–
0.6
0.6
714.9

67.3
153.0
47.1
447.5
714.9

1.3
0.6
0.4
2.3
1.2

0.6
0.8
1.4
720.2

66.7
153.0
70.5
430.0
720.2

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. Profit and total comprehensive income for the year of $7.2m (2018 – $7.3m) has been accounted
for in the financial statements of the Company.

The notes on pages 171 to 178 are an integral part of these financial statements. The financial statements on pages 168 to 178 were
approved by the Board of Directors on 27 February 2020 and were signed on its behalf by:

Jim Johnson
Director

Peter Rose
Director

Registered number: 0974568

Hunting PLC / 2019 Annual Report and Accounts

169
Company Statement of Changes in Equity

At 1 January 2019

Profit for the year and total
comprehensive income

Dividends paid to equity shareholders
Shares issued
– share option schemes and awards
Treasury shares
– purchase of Treasury shares
– disposal of Treasury shares
Share options and awards
– value of employee services
– discharge
Transfer between reserves
Total transactions with owners

Notes

C15

C12

C13
C13, C14

Share
capital
$m
66.7

Year ended 31 December 2019

premium
$m
153.0

Other
components

of equity
$m
70.5

Retained
earnings
$m
430.0

Total

equity
$m
720.2

–

0.6

–
–

–
–
–
0.6

–

–
–

–
–
–
–

–

–
–

9.0
(11.6)
(20.8)
(23.4)

7.2

(16.6)

–

(5.0)
0.3

–
10.8
20.8
10.3

0.6

(5.0)
0.3

9.0
(0.8)
–
(12.5)

At 31 December 2019

67.3

153.0

47.1

447.5

714.9

At 1 January 2018

Profit for the year and total
comprehensive income

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
Transfer between reserves
Total transactions with owners

Notes

C15

C12

C13
C13, C14

Year ended 31 December 2018

Share
capital
$m
66.4

premium
$m
153.0

Other
components

of equity
$m
79.3

Retained
earnings
$m
413.6

Total

equity
$m
712.3

–

0.3

–

–
–
–
0.3

–

–
–
–
–

–

13.1
(9.7)
(12.2)
(8.8)

7.3

(6.6)

–

(5.7)

–
9.2
12.2
9.1

7.3

(6.6)

0.3

(5.7)

13.1
(0.5)
–
0.6

At 31 December 2018

66.7

153.0

70.5

430.0

720.2

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements170
Company Statement of Cash Flows
For the year ended 31 December 2019

Operating activities
(Loss) profit from operations
Share-based payments expense
Decrease in receivables
Increase (decrease) in payables
(Decrease) increase in provisions
Net exchange differences
Taxation (paid) received
Net cash inflow from operating activities
Investing activities
Interest received
Loan issued
Loan issued repaid
Net cash inflow (outflow) from investing activities
Financing activities
Interest and bank fees paid
Dividends paid to equity shareholders
Share capital issued
Purchase of treasury shares
Disposal of treasury shares
Loan received repaid
Loan received
Net cash outflow from financing activities

Net cash inflow (outflow) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year

Notes

C1
C1

C15

2019
$m

(0.3)
9.1
–
3.7
(0.4)
0.2
(2.0)
10.3

9.5
(19.2)
20.7
11.0

–
(16.6)
0.6
(5.0)
0.3
(0.6)
–
(21.3)

–
–
–

Restated
2018
$m

0.6
13.2
0.2
(1.6)
0.1
0.7
0.6
13.8

8.7
(22.9)
12.2
(2.0)

(0.1)
(6.6)
0.3
(5.7)
–
–
0.3
(11.8)

–
–
–

Hunting PLC / 2019 Annual Report and Accounts171
Notes to the Company Financial Statements

C1. Basis of Preparation

Hunting PLC is a premium-listed public company limited by shares, with its Ordinary shares listed on the London Stock Exchange.
Hunting PLC was incorporated in the United Kingdom under the Companies Act and is registered in England and Wales. The address
of the Company’s registered office is shown on page 185. The Company acts as a holding company for the Hunting PLC Group. Details
of the Company’s subsidiaries are given in note C19. The financial statements of Hunting PLC have been prepared in accordance with
the Companies Act 2006 as applicable to companies using IFRS 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. The Board’s consideration of going concern is detailed further in the
Strategic Report on pages 68 and 69.

The Company’s principal accounting policies applied in the preparation of these financial statements are the same as those set out in
note 40 of the Group’s financial statements, except for investments in subsidiaries that are stated at cost, which is the fair value of the
consideration paid, less provision for impairment. These policies have been consistently applied to all the years presented. Cash flows
related to the depositing of funds and repayment of deposited funds with the Group’s Treasury company have been reclassified as
investing activities. Comparatives have been restated accordingly.

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 in note 40 of the Group’s financial statements and further detail on financial risks is provided within note C9.

IFRS 16 Leases
IFRS 16 Leases replaces IAS 17 Leases and its related interpretations. IFRS 16 establishes principles for the recognition, measurement,
presentation and disclosure of leases for both lessees and lessors. The standard was effective for the Company from 1 January 2019,
however, there was no impact on the Company’s financial position or results following the adoption of IFRS 16 on 1 January 2019.

C2. Employees

The Company had no employees during the current or prior year.

C3. Auditor’s Remuneration

Fees payable to the Company’s independent auditor and its associates are for:

The audit of these financial statements

i. Fees payable in 2019 are to the Company’s independent auditor, Deloitte LLP, and its associates.
ii. Fees payable in 2018 are to the Company’s previous independent auditor, PricewaterhouseCoopers LLP, and its associates.

C4. Investments in Subsidiaries

Cost:
At 1 January and 31 December

Impairment:
At 1 January and 31 December

Net book amount

2019i
$m

0.5

2018ii
$m

0.5

2019
$m

2018
$m

436.8

–

436.8

The Company’s subsidiaries are detailed in note C19. 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 / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements172
Notes to the Company Financial Statements continued

C5. Other Receivables

Non-current:
Loan receivable from a subsidiary – interest-bearing
Prepayments

Current:
Receivables from subsidiaries
Prepayments
Other receivables

2019
$m

284.2
0.1
284.3

0.8
0.2
0.1
1.1

2018
$m

285.9
0.1
286.0

0.8
0.2
0.1
1.1

The loan receivable from a subsidiary and current receivables from subsidiaries are financial assets measured at amortised cost.
Other receivables relate to VAT balances, which are not financial assets.

None of the Company’s receivables (2018 – none) were overdue at the year-end and the Company does not consider it necessary
to provide for any impairments as there is no recent history of default or any indications that the contractual payments will not be made.
The Company’s maximum exposure to credit risk is the fair value of each class of receivable, as described in note C8. The Company
does not hold any collateral as security and no assets have been acquired through the exercise of any collateral previously held.
The interest-bearing loan receivable from a subsidiary is unsecured and interest is charged based on a margin over bank lending rates.
Current receivables due from subsidiaries are current accounts and are unsecured, interest free and repayable on demand.

C6. Other Payables

Current:
Payables to subsidiaries
Accruals
Other payables

2019
$m

5.3
0.5
0.3
6.1

2018
$m

0.2
0.6
0.5
1.3

Payables to subsidiaries, accruals and other payables are financial liabilities carried at amortised cost. Current payables due to subsidiaries
are unsecured, interest free and repayable on demand.

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 2019, the Company had no outstanding forward foreign exchange contracts (2018 – $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 gain (2018 – $0.4m loss) were recognised
in the income statement during the year.

C8. Financial Instruments: Fair Values

Due to their short-term nature, the carrying value of current receivables from subsidiaries, other receivables, payables to subsidiaries,
accruals, other payables, provisions, borrowings and bank overdrafts approximates their fair value. The carrying value of the loan
receivable from subsidiaries approximates its fair value as interest is charged based on a margin over current bank lending rates.

Hunting PLC / 2019 Annual Report and Accounts

173

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 and, where appropriate, forward foreign exchange contracts are used to manage the exposure to changes in foreign
exchange rates. The Company has Sterling denominated financial assets and financial liabilities.

The carrying amount of the Company’s financial assets included in current receivables from subsidiaries at 31 December on which exchange
differences would be recognised in the income statement in the following year, is $0.2m (2018 – $0.7m) for Sterling denominated financial assets.

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 $0.8m (2018 – $3.2m) for Sterling
denominated financial liabilities.

(b) Interest Rate Risk
The Company is exposed to cash flow interest rate risk from its loan receivable from a subsidiary and borrowings payable to a subsidiary,
which are at variable interest rates.

(c) Credit Risk
The Company’s credit risk arises from its outstanding current receivables and loan receivable from a subsidiary. 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 interest-bearing loan receivable due from a subsidiary has not been impaired as no losses are expected from non-performance of this
counterparty. The credit risk at the time the loan was taken out was deemed to be low and there has not been an increase in the credit
risk since the time the loan was initially recognised. Therefore, management does not believe that there is a significant increase in credit
risk such that the loan moves from stage 1 to stage 2 of the IFRS 9 general impairment model. There is no history of default and previously
all payments under the original terms of the loan have been made. The loan is with the Group’s central treasury company, which has
sufficient cash, short-term deposits and credit facilities, in the form of the RCF, to repay the loan. Management does not have any reason
to believe that any future payments will not be made in accordance with the terms of the loan. Therefore no provision for 12-month
expected credit losses has been made under IFRS 9.

The Company’s outstanding receivables due from subsidiaries are current accounts and no losses are expected from non-performance
of these counterparties.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements174
Notes to the Company Financial Statements continued

C9. Financial Risk Management continued

(d) Liquidity Risk
The Company has sufficient facilities available to satisfy its requirements.

The Group’s treasury function has put in place a cash concentration structure across the Hunting Group’s bank accounts in the UK, such
that at the end of each day balances in any of their bank accounts are swept to the Group’s central treasury function, with a corresponding
increase or decrease in the loan receivable balance with fellow group companies. As a result, at the end of the year, cash at bank is $nil.

The Company is party to a cross-guarantee and set-off arrangement with Barclays Bank Plc. There is no set-off in the presentation of
cash balances held by the Company in the financial statements. Under this arrangement the Company is jointly and severally liable for any
gross liability position held by any of the companies’ party to the aforementioned arrangements in the event of default. Any gross liability
limit cannot exceed a combined facility limit of $2.2m.

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
Borrowings – payable due to subsidiary
Accruals
Other payables

2019

On demand
or within
one year
$m

2018

On demand
or within
one year
$m

5.3
–
0.5
0.3
6.1

0.2
0.6
0.6
0.5
1.9

The Company did not have any derivative financial liabilities at the end of 2018 or 2019.

(e) Capital Risk Management
The Company’s capital consists of equity and net cash. Net cash comprises the loan receivable from a subsidiary 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
Net cash:
Borrowings – payable due to subsidiary

Loan receivable from subsidiary (note C5)

Capital employed

2019
$m
714.9

–
(284.2)
430.7

2018
$m
720.2

0.6
(285.9)
434.9

The decrease in total equity during the year is mainly attributable to the retained profit for the year of $7.2m and the increase in the
share-based payments reserve of $9.0m being offset by the payment of dividends of $16.6m and the net purchase of treasury shares
of $4.7m. The loan receivable from a subsidiary decreased by $1.7m largely due to royalty income received during the year being offset
by dividend payments. There have been no significant changes in the Company’s funding policy during the year.

Hunting PLC / 2019 Annual Report and Accounts

175

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 and borrowings. The sensitivity analysis relates to the position as at 31 December 2019.

The analysis excludes the impact of movements in market variables on the carrying value of provisions and on non-financial assets
and liabilities.

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; and

• 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 2019, for an increase of 0.25%
(2018 – 0.5%) in US interest rates, is to increase profits by $0.6m (2018 – $1.2m). If the US interest rates were to decrease by 0.25%
(2018 – 0.5%), then the post-tax impact would be to reduce profits by $0.6m (2018 – $1.2m). 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 2019, for an increase or decrease
of 5% (2018 – 10%) in the Sterling foreign exchange rate, is not material. The movement in the income statement arises from Sterling
denominated accruals, other payables and borrowings, offset by Sterling loans receivable from subsidiaries. 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 32
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 33 of the Group’s financial statements.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements176
Notes to the Company Financial Statements continued

C13. Other Components of Equity

At 1 January
Share options and awards
– value of employee services
– discharge
Transfer between reserves
At 31 December

Year ended 31 December 2019

Capital
redemption
reserve
$m
0.2

Share-based
payments
reserve
$m
22.3

Currency
translation
reserve
$m
(19.2)

–
–
–
0.2

9.0
(11.6)
–
19.7

–
–
–
(19.2)

Merger
reserve
$m
67.2

–
–
(20.8)
46.4

Total
$m
70.5

9.0
(11.6)
(20.8)
47.1

During the year, $20.8m (2018 – $12.2m) was transferred from the merger reserve to retained earnings. This portion of the reserve
is now considered to be realised as the equivalent amount of the proceeds from the share placing in 2016 have now met the definition
of qualifying consideration.

Year ended 31 December 2018

Capital
redemption
reserve
$m
0.2

Share-based
payments
reserve
$m
18.9

–
–
–
0.2

13.1
(9.7)
–
22.3

Currency
translation
reserve
$m
(19.2)

–
–
–
(19.2)

At 1 January
Share options and awards
– value of employee services
– discharge
Transfer between reserves
At 31 December

C14. Retained Earnings

At 1 January
Profit for the year
Dividends paid to equity shareholders (note C15)
Purchase of treasury shares
Disposal of treasury shares
Share options and awards
– discharge
Transfer between reserves
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

Merger
reserve
$m
79.4

–
–
(12.2)
67.2

2019
$m
430.0
7.2
(16.6)
(5.0)
0.3

10.8
20.8
447.5

2019
$m

(11.2)
(5.0)
3.4
(12.8)

Total
$m
79.3

13.1
(9.7)
(12.2)
70.5

2018
$m
413.6
7.3
(6.6)
(5.7)
–

9.2
12.2
430.0

2018
$m

(7.2)
(5.7)
1.7
(11.2)

The loss on disposal of Treasury shares during the year, which is recognised in retained earnings, was $3.1m (2018 – $1.7m).

Hunting PLC / 2019 Annual Report and Accounts177

C15. Dividends Paid to Equity Shareholders

Please see note 36 of the Group’s financial statements.

C16. Share-Based Payments

Please see note 37 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
Loan from 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 to subsidiaries
Loans owed by subsidiaries

2019
$m

11.0
(9.8)
15.0
(19.8)
–
20.7
9.5
–

(5.3)
0.8
–
284.2

2018
$m

14.7
(11.7)
13.3
(22.9)
0.3
12.2
8.7
–

(0.2)
0.8
(0.6)
285.9

All balances between the Company and its subsidiaries are unsecured.

The Company previously served as the Group’s intermediary for the provision of UK Group tax relief, VAT and certain Group insurances.
At the year-end, the outstanding receivable for UK Group tax relief was $nil (2018 – $1.2m).

The key management of the Company comprises the Hunting PLC Board and members of the Executive Committee. A summary of their
remuneration is disclosed in note 8 of the Group’s financial statements. The Hunting PLC Board and members of the Executive Committee
had no material transactions other than as a result of their service agreements.

The Company is listed on the London Stock Exchange, with none of the shareholders owning more than 20% of the issued share capital of
the Company (see page 13). Accordingly, there is no parent entity and the Directors do not consider there to be an ultimate controlling party.

C18. Associates

Associatesi
Tianjin Huaxin Premium Connection Pipe Co Ltd (28.5%)
Hunting Airtrust Tubulars Pte. Ltd (50%)

Registered address
Jintang Road, Dongli District, Tianjin, 300301, China
19, Keppel Road, 08-05 JIT Poh Building, 089058, Singapore

Notes:
i All interests in associates are in the equity shares of those companies.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements

178
Notes to the Company Financial Statements continued

C19. 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 Energy Services (Canada) Ltd
Hunting Energy Services (Wuxi) Co. Ltd (70%)

Hunting Energy Completion Equipment (Wuxi) Co., Ltd

Hunting Energy Services (International) Limited
Hunting Energy Services Overseas Holdings Limited
Hunting Energy Services (UK) Limited (60%)
PT Hunting Energy Asia

Hunting Alpha (EPZ) Limited (60%)v
Hunting Energy Services Kenya Ltd

Hunting Energy de Mexico

Hunting Energy Services B.V. (60%)
Hunting Energy Services (Well Testing) B.V.
Hunting Energy Services (Norway) AS
Hunting Energy Saudi Arabia LLC (60%)
Hunting Energy Services (Well Intervention) Limited
Hunting Welltonic Limitedv
Hunting Energy Services (International) Pte. Ltd.
Hunting Energy Services Pte. Ltd.
Hunting Energy Services (China) Pte. Ltd. (70%)
Hunting Energy Services (Well Intervention) Pte. Ltd
Hunting Energy Services South Africa (Pty) Ltd
Hunting Energy Services (Thailand) Limited (49%)

National Coupling Company, Inc.
Hunting Energy Services, LLC
Premium Finishes, Inc.
Hunting Dearborn, Inc.
Hunting Energy Services (Drilling Tools), Inc.
Hunting Innova, Inc.
Hunting Specialty, 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 Limitediv
Huntaven Properties Limited
Hunting Pension Trust Limitedii/iv
HG Management Services Ltd
Huntfield Trust Limitediv
Stag Line Limitediv
Hunting Aviation Limitediv
Field Insurance Limitedv
Hunting U.S. Holdings, Inc.

Registered address

Level 40, Governor Macquarie Tower, 1 Farrer Place, Sydney, NSW 2000, Australia
5550 Skyline Way NE, Calgary, Alberta, T2E 7Z7, Canada
No. 17, Xin DongAn Road, Shuo Fang Industrial, New District Wuxi City, Jiangsu
Province, China
No. 17, Xin DongAn Road, Shuo Fang Industrial, New District Wuxi City, Jiangsu
Province, China
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
Block XLVIII/150, Off Mbaraki Road, 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
Arabergveieb 6, 4050 Sola, 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
15 Scotts Road, #04-01/03, Thong Teck Building, 228218, Singapore
Trident Park 1, 1 Niblick Way, Somerset West, 7130, South Africa
436/27, Moo 2, Thanadee-Klongwong Road, Tambol Phawong, Amphur Muong
Songkhla, 90100, Thailand
1316 Staffordshire Road, Staffordshire, Texas, 77477, USA
16825 Northchase Drive, Suite 600, Houston, Texas, 77060 USA
16825 Northchase Drive, Suite 600, Houston, Texas, 77060 USA
6 Dearborn Drive, Fryeburg, Maine, USA
16825 Northchase Drive, Suite 600, Houston, Texas, 77060 USA
8383 North Sam Houston Parkway West, Houston, Texas, 77064, USA
16825 Northchase Drive, Suite 600, Houston, Texas, 77060 USA
16825 Northchase Drive, Suite 600, Houston, Texas, 77060 USA
5550 Skyline Way NE, Calgary, Alberta, T2E 7Z7, Canada
16825 Northchase Drive, Suite 600, Houston, Texas, 77060 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
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
The Albany, South Esplanade, St Peter Port, GY1 4NF, Guernsey
16825 Northchase Drive, Suite 600, Houston, Texas, 77060 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. The proportion of voting rights is represented by the interest in the equity shares

Interest in company is held directly by Hunting PLC.

of those companies.

iv. Hunting Pension Trust Limited (registered number 01346797), Huntfield Trust Limited (registered number 00372215), Stag Line Limited (registered number
00151320), Hunting Aviation Limited (registered number 00297743) and Hunting Knightsbridge (US) Finance Limited (registered number 08319706) are
dormant companies that are exempt from being audited, are exempt from the requirements to prepare individual accounts under section 394A of the
Companies Act 2006 and are exempt from filing individual accounts under section 448A of the Companies Act 2006.

v. Company has been placed into voluntary liquidation.

Hunting PLC / 2019 Annual Report and Accounts179
Non-GAAP Measures (unaudited)

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 intangible assets recognised as part of a business combination, in a separate column on the face of the income statement.
All profit and loss measures adjusted for amortisation of intangible assets recognised as part of a business combination and exceptional
items are referred to as “underlying”. This is the basis used by the Directors in assessing performance and in determining certain
components of senior management and executive remuneration.

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.

Reported profit from operations (consolidated income statement)
Add:
Depreciation charge for the year on property, plant and equipment (note 12)
Depreciation charge for right-of-use assets (note 13)
Amortisation of other intangible assets (note 15)

Impairment of property, plant and equipment (note 12)

Less:
Reversal of impairment of property, plant and equipment and other assets (note 12)
Reported EBITDA
Add: Exceptional items impacting EBITDA
Restructuring costs (note 6)

Loss on disposal of Kenya rental fleet (note 6)

Underlying EBITDA

2019ii
$m
46.8

33.7
7.9
32.3
19.0

–
139.7

–
–
139.7

2018i
$m
75.4

35.0
–
31.9
1.0

(2.0)
141.3

0.5
0.5
142.3

i. From 1 January 2019, the Group has adopted IFRS 16 Leases (“IFRS 16”) by applying the modified retrospective approach; consequently the comparatives

for the 2018 reporting period have not been restated, as permitted under the specific transitional provisions in IFRS 16.

ii. EBITDA for 2019 has benefited by $9.3m, which represents operating lease charges that would have been recognised in the income statement under IAS 17

Leases and have now been replaced by a depreciation charge of $7.9m for right-of-use assets under IFRS 16.

B. Underlying Tax Rate
Purpose: The effective tax rate represents the level of tax, both current and deferred, being borne by operations on an underlying basis.

Calculation definition: Taxation on underlying profit before tax divided by underlying profit before tax, expressed as a percentage.

Underlying taxation charge (note 10)
Underlying profit before tax for the year (consolidated income statement)

Underlying tax rate

2019
$m
(17.0)
93.1

18%

2018
$m
(22.0)
104.0

21%

Purpose and business modelBusiness strategyGovernancePerformanceFinancial statementsHunting PLC / 2019 Annual Report and Accounts

180
Non-GAAP Measures (unaudited) continued

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 and loan 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 22)
Trade and other payables – non-current (note 22)
Less: non-working capital loan note (note 18)
Add: non-working capital US deferred compensation plan obligation (note 22)
Less: non-working capital current other receivables and other payables

2019
$m
2.7
202.0
350.8
(121.2)
(2.7)
(0.7)
2.1
0.3
433.3

2018
$m
3.5
231.0
348.2
(140.9)
(3.8)
(1.2)
1.7
(2.0)
436.5

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

2019
$m
350.8
150.6

2018
$m
348.2
173.0

214 days

185 days

E. Trade Receivables Days
Purpose: This is a working capital efficiency ratio that measures receivable balances relative to business activity levels.

Calculation definition: Net trade receivables, contract assets and accrued revenue 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)
Contract assets
Accrued revenue
Net receivables

Revenue for October to December

Trade receivable days

2019
$m
155.5
8.3
12.3
176.1

205.7

2018
$m
182.0
11.8
7.9
201.7

236.6

79 days

78 days

Hunting PLC / 2019 Annual Report and Accounts
181

Balance Sheet Non-GAAP Measures continued

F. Other Net Assets
Purpose: Provides an analysis of other net assets in the Summary Group Balance Sheet in the Strategic Report.

Investments (note 17)
Non-working capital loan note (NGM C)
Non-working capital US deferred compensation plan obligation (NGM C)
Non-working capital current other receivables and other payables (NGM C)

2019
$m
2.8
0.7
(2.1)
(0.3)
1.1

2018
$m
2.4
1.2
(1.7)
2.0
3.9

G. Capital Employed
Purpose: Used in the calculation of the return on average capital employed (see NGM N).

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 (cash) debt at amortised cost.

The Group’s capital comprised:

Total equity (consolidated balance sheet)
Net cash (note 26)

Cash Flow Non-GAAP Measures

H. Cash Flow Working Capital Movements
Purpose: Reconciles the working capital movements in the Summary Group Cash Flow in the Strategic Report.

Working capital – opening balance
Adjustment on adoption of IFRS 16 (note 41)
Working capital – opening balance amended
Foreign exchange
Acquisition (note 39)
Business disposal
Adjustments:
Transfer to property, plant and equipment (note 12)
Transfer from provisions
Capital investment debtors/creditors cash flows
Asset disposals debtors/creditors cash flows
Other non-cash flow movements
Other cash flow movement
Working capital – closing balance (NGM C)
Cash flow

2019
$m
1,223.8
(77.9)
1,145.9

2018
$m
1,191.1
(61.3)
1,129.8

2019
$m
436.5
2.1
438.6
3.1
0.2
(0.6)

(0.1)
–
0.1
0.3
(0.1)
(0.6)
(433.3)
7.6

2018
$m
344.0
–
344.0
(4.6)
–
–

–
(0.1)
0.1
–
0.7
(0.2)
(436.5)
(96.6)

Purpose and business modelBusiness strategyGovernancePerformanceFinancial statementsHunting PLC / 2019 Annual Report and Accounts

182
Non-GAAP Measures (unaudited) continued

Cash Flow Non-GAAP Measures continued

I. Capital Investment
Purpose: Capital investment identifies the cash resources being absorbed organically within the business to maintain or enhance
operating activity levels.

Calculation definition: Capital investment is the cash paid on tangible non-current assets to maintain existing levels of operating activity
and to grow the business from current operating levels and enhance operating activity.

Property, plant and equipment additions (note 12)
Capital investment debtors/creditors cash flows (NGM H)
Cash flow

Hunting Titan
US
Canada
EMEA
Asia Pacific
Central
Cash flow

2019
$m
35.9
0.1
36.0

14.3
19.3
1.0
0.6
0.7
0.1
36.0

J. 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.

Loans from associates repaid (consolidated statement of cash flows)
Decrease in provisions (consolidated statement of cash flows)
Proceeds on disposal of associate (consolidated statement of cash flows)
Other non-cash flow items
Pensions
Other

2019
$m
0.3
(2.4)
–

–
(0.4)
(2.5)

2018
$m
30.0
0.1
30.1

12.6
15.7
0.9
0.5
0.2
0.2
30.1

2018
$m
–
(3.8)
1.3

2.5
0.4
0.4

K. Free Cash Flow
Purpose: Free cash flow is a measure of financial performance and represents the cash that the Group is able to generate. 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: All cash flows before transactions with shareholders, investment in non-current assets and lease financing costs.
The definition has been updated to take into account the adoption of IFRS 16 Leases from 1 January 2019. Comparatives for 2018 have
not been restated.

Underlying EBITDA (NGM A)
Add: share-based payment charge

Working capital movements (NGM H)
Net interest, bank fees and tax paid (consolidated statement of cash flows)
Proceeds from disposal of assets
Disposal of business
Gains on business and asset disposals
UK pension scheme refund
Other operating cash and non-cash movements (NGM J)

i. Free cash flow for 2019 has benefited by $10.6m due to the conversion of lease accounting from IAS 17 Leases to IFRS 16 Leases.

2019i
$m
139.7
9.1
148.8
7.6
(7.6)
5.9
3.0
(5.8)
–
(2.5)
149.4

2018
$m
142.3
13.2
155.5
(96.6)
(4.6)
16.4
–
(1.0)
10.6
0.4
80.7

Hunting PLC / 2019 Annual Report and Accounts183

Other Non-GAAP Measures

L. 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 M).

Calculation definition: The amount in cents returned to Ordinary shareholders.

Interim dividend
Final dividend

2019
Cents per share
5.0
6.0
11.0

2018
Cents per share
4.0
5.0
9.0

M. 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 per share attributable to Ordinary shareholders divided by the cash dividend per share to be returned
to Ordinary shareholders, on an accruals basis.

Earnings per share
Basic (note 11)
Diluted (note 11)

Dividend (NGM L)

Dividend cover
Basic
Diluted

2019

2018

Underlying

Reported

Underlying

Reported

45.0c
43.9c

11.0c

4.1x
4.0x

24.0c
23.5c

11.0c

2.2x
2.1x

51.6c
49.6c

9.0c

5.7x
5.5x

54.4c
52.3c

9.0c

6.0x
5.8x

N. Return on Average Capital Employed
Purpose: Measures the levels of return the Group is generating from its capital employed.

Calculation definition: Underlying profit before interest and tax, 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 profit from operations (consolidated income statement)

Return on average capital employed

2019
$m
1,192.0

94.3

2018
$m
1,120.8

104.7

Purpose and business modelBusiness strategyGovernancePerformanceFinancial statementsHunting PLC / 2019 Annual Report and Accounts184
Financial Recordi (unaudited)

Revenue
EBITDA
Depreciation and non-exceptional amortisation
and impairment
Profit (loss) from continuing operations
Net finance expense
Share of associates’ post-tax losses
Profit (loss) before tax from continuing operations
Taxation
Profit (loss) for the year

Basic earnings (loss) per share
Diluted earnings (loss) per share

Dividend per shareiii

Balance sheet
Property, plant and equipment
Right-of-use assets
Goodwill and other intangible assets
Working capital
Taxation (current and deferred)
Provisions
Other net assets
Capital employed
Net cash (debt) before lease liabilities
Lease liabilities
Net assets
Non-controlling interests
Equity attributable to owners of the parent

Net assets per share

2019ii
$m
960.0
139.7

(45.4)
94.3
(1.2)
–
93.1
(17.0)
76.1

cents
45.0
43.9

11.0

354.7
36.7
308.7
433.3
19.8
(8.4)
1.1
1,145.9
123.1
(45.2)
1,223.8
(15.9)
1,207.9

cents
733.3

2018
$m
911.4
142.3

(37.6)
104.7
(0.7)
–
104.0
(22.0)
82.0

cents
51.6
49.6

9.0

360.2
–
329.7
436.5
13.7
(14.2)
3.9
1,129.8
61.3
–
1,191.1
(14.0)
1,177.1

cents
721.4

2017
$m
724.9
56.0

(41.7)
14.3
(1.5)
(1.3)
11.5
(1.0)
10.5

cents
8.0
8.0

–

383.3
–
355.7
344.0
(6.0)
(18.0)
22.7
1,081.7
30.4
–
1,112.1
(18.8)
1,093.3

cents
677.3

2016
$m
455.8
(48.9)

(43.3)
(92.2)
(0.7)
(0.3)
(93.2)
19.9
(73.3)

cents
(45.3)
(45.3)

–

419.0
–
380.5
300.2
(3.4)
(15.7)
38.7
1,119.3
(1.9)
–
1,117.4
(19.3)
1,098.1

cents
682.6

2015
$m
810.5
61.9

(45.5)
16.4
(6.8)
(0.2)
9.4
(5.4)
4.0

cents
3.1
3.1

8.0

460.8
–
411.0
365.8
10.7
(18.0)
48.3
1,278.6
(110.5)
–
1,168.1
(26.2)
1,141.9

cents
785.0

i.
ii.

Information is stated before exceptional items and amortisation of intangible assets recognised as part of a business combination.
Information for 2019 includes the adoption of IFRS 16 Leases with effect from 1 January 2019 (see note 41). The modified retrospective approach was applied
and consequently information for the years 2015 to 2018 has not been restated, as permitted under the specific transitional provisions in IFRS 16 Leases.

iii. 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.

Hunting PLC / 2019 Annual Report and Accounts185
Shareholder and Statutory Information (unaudited)

Registered Office
5 Hanover Square
London
W1S 1HQ

Company Number: 0974568 (Registered in England and Wales)

Telephone:
Email:

+44 (0)20 7321 0123
pr@hunting.plc.uk

Financial Calendar
The Company’s 2020 financial calendar is as follows:

Date
27 February 2020
27 February 2020
13 March 2020
15 April 2020
15 April 2020
16 April 2020
17 April 2020
15 May 2020
27 August 2020

Event
2019 Full-Year Results Announcement
Final Dividend – Announcement Date
Publication of Annual Report and Notice of AGM
Trading Statement
AGM and Proxy Voting Results of AGM
Final Dividend – Ex-dividend Date
Final Dividend – Record Date
Final Dividend – Payment Date
2020 Half-Year Results Announcement

Financial Reports
The Company’s 2019 Annual Report and Accounts 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.

Analysis of Ordinary Shareholders
At 31 December 2019, the Company had 1,454 Ordinary shareholders (2018 – 1,516) who held 166.9m (2018 – 165.1m) 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

Further information on share capital can be found in note 33.

2019

% of total

2018

% of total

shareholders % of total shares

73.3
10.5
2.9
6.6
3.0
3.7

0.6
0.8
0.8
5.4
8.3
84.1

72.5
10.5
3.2
7.0
3.2
3.6

0.6
0.9
0.8
6.0
8.9
82.8

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements
186
Shareholder and Statutory Information (unaudited) continued

Annual General Meeting 2020
The AGM of the Company will take place on Wednesday, 15 April 2020 at The Royal Automobile Club, 89 Pall Mall, London SW1Y 5HS,
commencing at 2.30p.m. to which all shareholders are invited.

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 and a presentation by the Chief Executive, 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 that will provide details to shareholders on 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.

Shareholder voting procedures follow the provisions of the Articles of Association and the UK Corporate Governance 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 2020
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 AGM, or by submitting votes electronically via the
Registrars’ website www.sharevote.co.uk or via their online portfolio service, Shareview, if they are 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 2019,
1,866,479 Ordinary shares were issued pursuant to the Company’s various share plans.

The Company has authority, renewed annually, to purchase up to 14.99% of the issued share capital, equating to 24,744,533 shares.
Any shares purchased will either be cancelled, and the number of Ordinary shares in issue reduced accordingly, or held in Treasury.
As noted below, through the Group’s Employee Share Trust, 752,466 Ordinary shares were purchased in the year, 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 a renewal for these powers at the 2020 AGM.

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.

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 2019, the Trust held 1,609,150 Ordinary shares in the
Company (2018 – 1,247,672). 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.

In March 2019, the Trust subscribed for 1,866,479 Ordinary shares at the nominal value of 25 pence per share, to partially satisfy vested
awards under the HPSP.

In June 2019, the Trust purchased 750,000 Ordinary shares in the Company and a further 2,466 Ordinary shares in December 2019
to satisfy future HPSP share vestings.

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 2019 were $132,514 (2018 – $21,259),
based on 2,650,276 Ordinary shares being subject to this waiver.

Hunting PLC / 2019 Annual Report and Accounts187

Share Capital
Hunting PLC is a premium-listed public company limited by shares, with its Ordinary shares quoted on the London Stock Exchange.

The Company’s issued share capital comprises a single class, which is divided in to 166,940,082 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 2019 can be found
in note 33 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 their 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 on page 13, 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 2019 was £0.7bn (2018 – £0.8bn).

Share Price

At 1 January
At 31 December
High during the year
Low during the year

2019
p
480.0
417.4
657.0
363.8

2018
p
605.0
480.0
914.0
453.6

Dividends
The Company normally pays dividends semi-annually. Details of the Company’s dividend policy is set out on page 14.

The Company paid the 2018 final dividend of 5.0 cents per share on 10 May 2019, which absorbed $8.3m of cash. At the Group’s 2019
Half Year Results the Board declared an interim dividend of 5.0 cents per share, which was paid to shareholders on 23 October 2019,
which absorbed $8.3m of cash. The Board are recommending a final dividend for 2019 of 6.0 cents per share, to be paid to shareholders
on 15 May 2020, subject to approval by shareholders at the Company’s 2020 AGM.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements188
Shareholder and Statutory Information (unaudited) continued

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 (the “Articles”). 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 37 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 2019, 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 $4.2m (2018 – $3.4m).

Political Contributions
It is the Group’s policy not to make political donations. Accordingly, there were no political donations made during the year (2018 – $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 with respect to its oil and gas activities. Hunting’s report on “Payments to Governments” for the year ended 31 December
2018 was published on 13 March 2019 and totalled $363,139.

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 186.

Hunting PLC / 2019 Annual Report and Accounts189
Glossary

AED
United Arab Emirates Dirham.

c
Cents.

EBITDA*
See NGM A.

AGM
Annual General Meeting.

CAD
Canadian dollar.

ESOP
Executive Share Option Plan.

AMG
Advanced Manufacturing Group –
combines the precision engineering and
manufacturing capabilities in Hunting’s
US segment for the Electronics division
(Hunting Innova), Hunting Specialty and
Hunting Dearborn product lines. Hunting
is aiming to become a leading single
source of MWD/LWD tools.

API
American Petroleum Institute.

AUD
Australian dollar.

Average gross capital employed*
See NGM N.

Basic EPS*
Basic earnings per share – calculated
by dividing the earnings from operations
before amortisation and exceptional items
attributable to Ordinary shareholders by
the weighted average number of Ordinary
shares in issue during the year.

bbl
Barrel of oil – one barrel of oil equals
159 litres or 42 US gallons.

BOE
Barrel of oil equivalent.

bn
Billion.

CAGR
Compound annual growth rate.

ExCo
The Hunting Executive Committee.

FRC
Financial Reporting Council.

Free cash flow*
See NGM K.

FVLCD
Fair value less costs of disposal.

GAAP
Generally Accepted Accounting Principles.

GHG
Greenhouse gas.

GWh
Giga-watt hours.

HMRC
Her Majesty’s Revenue and Customs.

HPSP
Hunting Performance Share Plan.

HSE
Health, Safety and Environment.

Capital employed*
See NGM G.

Capital investment – “Capex”
See NGM I.

CGU
Cash-generating unit.

CNY
Chinese Yuan Renminbi.

CO2
Carbon dioxide.

CO2e
Carbon dioxide equivalent.

CO2 intensity factor
Scope 1 and 2 carbon dioxide equivalent
metric, reported as kilogrammes per $’000
of revenue.

CPI
Consumer Price Index.

CTR
Currency translation reserve.

DEFRA
UK Department for Environment,
Food & Rural Affairs.

Diluted EPS*
Diluted earnings per share – calculated
by dividing earnings from 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 M.

Downhole
Downhole refers to something that
is located within the wellbore.

DPS*
See NGM L.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements190
Glossary continued

IAS
International Accounting Standards.

k
Thousand.

IFRIC
International Financial Reporting
Interpretations Committee.

IKTVA
The in-Kingdom total value add programme
created by Saudi Aramco to baseline,
measure and support increased levels
of localisation in the Kingdom.

kWh
Kilowatt hours.

Lean
A production practice that eliminates
wasteful processes, thereby reducing
production time and costs, and improving
efficiency.

IFRS
International Financial Reporting Standards
as adopted by the European Union.

LNG
Liquefied Natural Gas.

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 revenue of
the Group.

Internal manufacturing reject rate
Percentage of parts rejected during
the manufacturing process.

Inventory days*
See NGM D.

IOC
International Oil Company.

IP
Intellectual Property.

ISO
International Organization
for Standardizaion.

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.

Net cash/debt
See note 26.

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 casing and production pipes.

OCED
The Organisation for Economic
Co-operation and Development.

OEM
Original equipment manufacturer.

OPEC
Organization of the Petroleum
Exporting Countries.

p
Pence.

PCB
Printed circuit board.

PCE
Pressure control equipment.

PDMR
Person discharging managerial
responsibilities.

PPE
Property, plant and equipment.

PSI
Pounds per square inch.

PSP
2009 Performance Share Plan.

NGM
Non-GAAP measure – see pages 179 to 183.

QMS
Quality Management System.

NOC
National Oil Company.

NYMEX
New York Mercantile Exchange.

Hunting PLC / 2019 Annual Report and Accounts191

RCF
Revolving Credit Facility.

UAE
United Arab Emirates.

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.

Underlying
Results for the year, as reported under
IFRS, adjusted for amortisation of intangible
assets recognised as part of a business
combination and exceptional items,
which is the basis used by the Directors
in assessing performance.

UKCS
United Kingdom Continental Shelf, the
portion of the North Sea within the UK’s
territorial waters.

ROCE*
See NGM N.

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.

SHARP
Safety and Health Achievement
Recognition Programme.

Trade Receivable days*
See NGM E.

UKLA
UK Listing Authority.

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.

TSR*
Total Shareholder Return – the net share
price change plus the dividends paid
during that period.

Working capital*
See NGM C.

WTI
West Texas Intermediate – the price per
barrel of Texas light sweet crude oil.

* Non-GAAP measure.

Hunting PLC / 2019 Annual Report and AccountsPurpose and CultureBusiness Model and StakeholdersGovernancePerformanceBusiness Strategy Financial statements192
Professional Advisers

Solicitors
CMS Cameron McKenna Nabarro Olswang LLP

Independent Auditors
Deloitte LLP

Joint Corporate Brokers
Barclays Bank PLC and RBC Capital Markets

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

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www.huntingplc.com

Hunting PLC
5 Hanover Square
London W1S 1HQ
United Kingdom
Tel: +44 (0)20 7321 0123
Fax: +44 (0)20 7839 2072