Proven capabilities
for energy and beyond
Hunting PLC Annual Report and Accounts 2022
Highly trusted
innovator and
manufacturer of
technology and
products
In this Report
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’s manufacturing capabilities
enable us to participate in a diverse
range of sectors other than oil and gas.
The Board expects to develop the
Group’s non-oil and gas offering and
grow these areas of the business in
the coming years.
Hunting is a premium-listed
Company, quoted on the London
Stock Exchange and is a constituent
of the FTSE 250 Index.
Our Products and Services
Hunting’s portfolio of products
can be applied to a variety of
applications from onshore shale
resources to deep water field
developments.
Our products and expertise can
also be applied to the energy
transition as well as non-oil
and gas sectors.
Oil Country
Tubular Goods
Perforating
Systems
Other
Revenue
At the core of our
offering is a focus on
strong quality assured
technology that our
customers can rely on.
Advanced
Manufacturing
Read more
12
14
16
18
20
22
Oil Country Tubular Goods
Perforating Systems
Advanced Manufacturing
Subsea
Intervention Tools
Other Revenue
Intervention
Tools
Subsea
1
Contents
Overview
IFC
1
2
In this Report
Contents
Highlights
Strategic Report
29
Operating
Sites
(2021 – 31)
Chairman’s Statement
Investment Proposition
Our Operating Segments
4
6
8
10 Our Products and Services
24 Our Strategy and Related KPIs
26 Chief Executive’s Report
30 Market Summary
34 Key Performance Indicators
36 Group Review
42 Segmental Review
50 Our Business Model
68
102 Risk Management
110 Viability and Going Concern
112 Directors’ Report
Environmental, Social and Governance
0.13%
Manufacturing
Reject Rate
(2021 – 0.13%)
14
Distribution
Centres
(2021 – 14)
Corporate
Governance
114 Chairman’s Overview
116 Board of Directors
118 Executive Committee
119 Corporate Governance Report
127 Nomination Committee Report
Ethics and Sustainability
129
Committee Report
132 Remuneration Committee Report
136 – Remuneration at a Glance
138 – Directors’ Remuneration Policy
145 – Annual Report on Remuneration
155 Audit Committee Report
Financial Statements
Other Information
160
Independent Auditor’s Report
to the Members of Hunting PLC
170 Consolidated Income Statement
Consolidated Statement
171
of Comprehensive Income
172 Consolidated Balance Sheet
173
Consolidated Statement of Changes
in Equity
174 Consolidated Statement of Cash Flows
175
Notes to the Consolidated
Financial Statements
228 Company Balance Sheet
229 Company Statement of Changes
in Equity
230 Company Statement of Cash Flows
231
Notes to the Company Financial
Statements
www.huntingplc.com
240 Non-GAAP Measures
247 Financial Record
248 Shareholder and Statutory Information
252 Glossary
256 Professional Advisers
0.97
Total
Recordable
Incident Rate
(2021 – 0.99)
16.6m
Parts cut in the year
(2021 – 13.3m)
Hunting PLC Annual Report and Accounts 2022Overview 2
Highlights
Highlights
The short- to medium-term
market remains strongly
positive given the economic
fundamentals driving the
global outlook for oil and gas.”
Jim Johnson, Chief Executive
Construction of a new threading
facility in India commenced
with Jindal SAW to support
domestic activity.
• Facility to be operational during Q2 2023,
with three premium connection threading
lines.
• 162,000 sq ft facility is located in Nashik
Province, adjacent to Jindal’s steel mill.
• Hiring of employees and quality assurance
training underway.
Formation of global Energy
Transition group to build sales in
geothermal and carbon capture
market sub-sectors.
• Hunting is pursuing a broad range of sales
opportunities in these growing low carbon
sub-sectors, leveraging its position in OCTG
and accessories, valves and couplings
and subsea products to drive growth.
• The Board has set a revenue target of
$100m of sales within this area by the
end of the decade.
Market Highlights
Operational Highlights
$94bbl
Average WTI crude oil price
(2021 – $68bbl)
$80bbl
Year-end WTI crude oil spot price
(2021 – $75bbl)
$140.9bn
Global onshore drilling and production
expenditure (2021 – $97.3bn)*
$54.2bn
Global offshore drilling and production
expenditure (2021 – $41.8bn)*
1,521
Global average onshore rig count
(2021 – 1,158)*
190
Global average offshore rig count
(2021 – 165)*
Strong increases in activity
across all operating segments as
higher commodity prices support
new global drilling projects.
• External sales order book** increased
124% during the year to $473.0m
(2021 – $211.5m).**
• Revenue visibility increased due to level of
order book, which now extends into 2025.
139% increase in sales order
book** within the Subsea
Technologies division to $105.1m.
• The Subsea Spring business unit has grown
materially during the year, following new
orders for steel and titanium stress joints
for the Gulf of Mexico and South America.
• Record $48m order received in October
2022 to apply stress joints to FPSO units.
Record OCTG contract awarded
by CNOOC for premium
connections and accessories.
• In August 2022, the Group’s Asia Pacific
operating segment was awarded a
contract for OCTG that management
estimates to be worth up to $86m for
Hunting’s proprietary SEAL-LOCK XD™
premium connection.
• Initial deliveries made in 2022 but majority
of order to be delivered in 2023.
Strong development of non-oil and
gas sales order book within the
Advanced Manufacturing group.
• The Dearborn business now has a sales
order book** of $71.3m, which comprises
c.68% of non-oil and gas sales.
• The Electronics business now has a sales
order book** of $49.8m, which comprises
c.14% of non-oil and gas sales.
*Spears & Associates – Drilling and Production Report,
December 2022.
**Defined as Hunting’s unsatisfied external performance
obligations at year end – see note 23(c).
OverviewHunting PLC Annual Report and Accounts 2022
3
Highlights
Financial Highlights
$725.8m
Revenue
(2021 – $521.6m)
$2.0m
Profit (loss) from operations
(2021 – $(79.7)m loss)
$24.5m
Total cash and bank*** at year-end
(2021 – $114.2m)
(2.8)c
Diluted loss per share
(2021 – (53.2)c loss per share)
$14.6m
Adjusted profit (loss) from operations***
(2021 – $(35.1)m loss)
4.7c
Adjusted diluted earnings (loss) per share***
(2021 – (27.1)c loss per share)
Revenue increased 39%
to $725.8m (2021 – $521.6m)
as core energy markets
returned to strong growth.
• H1 2022 revenue $336.1m
(H1 2021 – $244.4m).
• H2 2022 revenue $389.7m
(H2 2021 – $277.2m).
Gross margin improved to 24%
(2021 – 12%) as pricing and
volumes increased, coupled with
better leveraging of fixed costs.
• H1 2022 Margin – 23%.
• H2 2022 Margin – 25%.
EBITDA*** result of $52.0m
(2021 – $3.1m).
• EBITDA margin recorded of 7% (2021 – 1%)
• H1 2022 EBITDA of $23.6m
(H1 2021 – $(3.6)m loss).
• H2 2022 EBITDA of $28.4m (H2 2021 – $6.7m).
Results from operations.
• Profit from operations of $2.0m
(2021 – $(79.7)m loss).
• Adjusted profit from operations*** of $14.6m
(2021 – $(35.1)m loss).
• Adjusting items totalling $12.6m recorded
in the year (2021 – $44.6m).
Year-end total cash and bank***
of $24.5m (2021 – $114.2m),
reflecting investment in working
capital as core markets return
to growth.
• Capital employed*** at 31 December 2022
$856.2m (2021 – $792.8m).
• Inventory at 31 December 2022 $272.1m
(2021 – $204.4m).
***Non-GAAP measure (“NGM”) see pages 240 to 246.
$150m Asset Based Lending
facility agreed in February 2022.
• Borrowing base secured against certain
North American freehold property,
inventories and trade receivables.
• Facility agreed with four-year tenor.
• The facility provides an appropriate funding
base to pursue growth opportunities.
• Facility remained undrawn at year-end.
Total dividends declared in
the year of 9.0 cents per share.
• Subject to shareholder approval a
Final Dividend of 4.5 cents per share,
absorbing $7.2m.
• Distribution to be paid on 12 May 2023
to shareholders on the register on
21 April 2023.
Hunting PLC Annual Report and Accounts 2022Overview 4
Chairman’s Statement
Chairman’s
Statement
John (Jay) F. Glick
Chairman
The Company continues to
place emphasis on revenue
diversification into adjacent,
non-oil and gas segments
that draw upon Hunting’s
core competencies.”
Introduction
This past year witnessed the impact of the war
in Ukraine and the rise in demand for energy
as economic activity returned to pre-pandemic
levels.
This rise was slightly offset in the second half
of the year by the efforts of central banks to
bring inflation under control by reversing the
monetary policy of quantitative easing and
raising interest rates.
The interplay of these factors created volatility
in energy prices and uncertainty in the outlook
for economic growth.
Against this backdrop, Hunting remained
committed to its strategy of growing its core
business, while also increasing revenue in
non-oil and gas, improving efficiencies and
streamlining the structural cost of the business.
Those strategies gained financial traction
throughout the course of the year, resulting
in Hunting having its best year since 2019.
We are still in the early stages of a multi-year
up cycle in the oil and gas industry. The Energy
Information Administration’s January 2023
forecast indicates that global demand for oil will
grow by c.1.9m barrels per day to reach roughly
c.102m barrels per day in 2023.
This growth is in part due to China reopening
after the COVID-19 lockdowns, which should
more than offset reductions in demand from
tighter monetary policies.
Continued concerns over global energy
security are also expected to act as a catalyst
for energy developments. Hunting remains in
an exceptionally strong position to capitalise
on this emphasis on supply security.
The Board also expects the focus on reducing
carbon dioxide emissions to continue, but
expects policy decisions to recognise the role
natural gas will play in the energy transition.
Financial Performance
Overall, Group revenue increased 39% from
$521.6m in 2021 to $725.8m in 2022.
Revenue from our core oil and gas businesses
increased 40% to $678.2m while our non-oil
and gas revenue increased 27% to $47.6m.
The higher revenue reported in the year drove
EBITDA from $3.1m in 2021 to $52.0m in 2022.
The Company continues to place emphasis on
revenue diversification into adjacent, non-oil
and gas segments that draw upon Hunting’s
core competencies in manufacturing, materials,
and electronics and that offer similar
opportunities for returns.
Strategic ReportHunting PLC Annual Report and Accounts 2022 5
Chairman’s Statement
Dividends
In August 2022, the Board declared an Interim
Dividend of 4.5 cents per share, which was
paid in October 2022. The Board continued
to consider distributions in the year, and the
dividends declared and paid reflect the Group’s
strong cash position throughout the year and
the long-term prospects of the Group.
The Board is, therefore, recommending a 2022
Final Dividend of 4.5 cents per share, which will
absorb $7.2m of cash.
The distribution is to be approved by
shareholders at the Company’s Annual General
Meeting (“AGM”) on 19 April 2023. If approved,
the Final Dividend will be paid on 12 May 2023
to shareholders on the register on 21 April 2023.
This distribution will bring the total dividends
paid in respect of 2022 to 9.0 cents per share
and a total distribution of $14.4m, which in cash
terms is a year-on-year increase of 13%.
The Board remains committed to delivering
sustainable dividends, but will continue
to assess each dividend proposal on
a case-by-case basis.
Hunting 2030 Strategy
An important development which the Board
is pleased to announce is our ‘Hunting 2030’
strategic ambition, which includes the Group’s
ongoing commitment to the oil and gas sector,
but also energy transition and non-oil gas
revenue targets.
Hunting is well placed to diversify into new
sectors, which value our precision engineering
and quality assurance principles.
Further details of these plans are to be
presented at a Capital Markets Day to be held
later in the year.
Governance
The Board was actively engaged in succession
planning throughout the year.
Significant discussion centred on the
composition and the skills matrix needed to both
represent shareholders as well as to support
management in the ongoing realisation of the
longer-term strategic vision for Hunting.
Hunting’s well
testing facility in
the Netherlands.
This is an ongoing project, that will unfold over
the next few years. However, we were pleased
to add Paula Harris and Stuart Brightman since
our last AGM.
Hunting’s success all starts with our workforce
who have worked tirelessly during another
challenging year.
Paula brings strong stewardship and
engagement experience to the Board, which
are areas that Hunting is looking to build on
in the coming years. Stuart brings a wealth of
knowledge and experience in manufacturing,
finance and the broad energy markets that
we serve. In addition, he has an understanding
of complex organisations and the importance
of developing the human capital required to
create and sustain a competitive advantage
in the oil services sector. This will be critically
important to Hunting’s future.
Conclusion
We are encouraged by the forecast for offshore
investment and the positive implications those
hold for our OCTG and subsea product lines.
Over that same planning horizon, we see
demand for Titan’s products to grow steadily,
with investment in onshore work continuing
at a financially prudent pace as basins in the
US are increasingly regarded as strategically
important in providing secure oil and gas
production for both the US, as well as LNG
production for Europe.
On behalf of the Board, I would like to
recognise and thank all those who have
contributed to the Company’s success during
this past year.
Our customers and suppliers have been
fundamental to what we were able to achieve
this past year.
I also want to thank our shareholders for their
support and commitment to the Company.
We are well positioned to perform strongly
in an improving market.
John (Jay) F. Glick
Chairman
2 March 2023
Revenue
$725.8m
13%
Dividend increase year-on-year
Hunting PLC Annual Report and Accounts 2022Strategic Report 6
Investment Proposition
Investment
Proposition
Hunting PLC’s investment case
is based on technology and
engineering core competencies
and a deep knowledge of the
global energy industry.
This expertise will drive
long-term growth and leverage
opportunities into new sectors
that value these principles.
Strategic ReportHunting PLC Annual Report and Accounts 2022 7
Investment Proposition
Our core
competencies
Leadership in:
• Precision engineering.
• Systems design.
• Print-part manufacturing.
Global operating presence
with strong controls over:
• Quality assurance.
• Health and safety.
Investing in our people to give:
• Engineering and technical
leadership.
• Training and development
to drive growth.
Strong, experienced
management team to:
• Pursue growth across complex
and competitive sectors.
• Navigate through market cycles.
Our strategic
differentiators
position us
strongly
Diversified portfolio
Hunting has a diversified portfolio of market
leading technologies, products and services
which address many areas of the oil and
gas equipment supply chain.
Our sectors
of focus are
resilient
Our financial
returns are
improving
Oil and gas
The global energy industry, particularly oil
and gas, is a long-term driver of economic
growth. This is likely to be the case for many
years to come.
Strong growth profile
Hunting has increased its revenue, profits
and cash flows as market conditions have
improved across the year.
Efficiency
Our products assist in higher safety
protocols and more efficient well
construction, completion or intervention
procedures, while being cost focused.
Energy transition
Energy transition opportunities are
complementary to our core oil and gas
markets, which is a further area of long-term
growth for the Group.
Improved margins
Stronger pricing and higher facility utilisation
levels have improved operating margins
which have increased cash flows.
Commercial agility
Our commercial agility within the markets
we serve helps us to remain a technology
leader, often with a strong market share.
Non-oil and gas
Aviation, medical, power generation and
space sectors have long-term growth
prospects and are resilient markets which
support economic prosperity.
Improved earnings
As earnings improve this will lead to higher
shareholder and capital returns in the form
of dividend distributions and capital growth.
Our ESG principles
Our ESG principles help us drive growth,
increase safety and lower carbon emissions.
Hunting PLC Annual Report and Accounts 2022Strategic Report 8
Our Operating Segments
Our Operating
Segments
Hunting Titan
The Hunting Titan operating segment
manufactures perforating systems, energetics
and instruments, focused mainly on onshore
well completions.
The segment operates from five operating
sites and 12 distribution centres across
North America, but also sells its products
internationally.
Key products include H-2™, H-3™ and H-4™
Perforating Systems, the EQUAFrac™ range
of shaped charges, the ControlFire™ platform,
detonating cord and E-Line™ instrumentation
to support conventional and unconventional
completions.
Hunting Titan’s customer base includes the
major service groups and wireline companies.
External revenue was $257.8m. For further
information please see note 2.
North America
The North America operating segment
manufactures the broadest range of products
within the Group, including premium
connections, well construction and completion
accessories, subsea valves, couplings and
stress joints, pressure control equipment,
electronic circuit boards, MWD/LWD housings,
aerospace engine shafts and power
generation components.
The segment operates from 13 operating
sites mainly in Texas and Louisiana, where the
majority of the Group’s employees are located.
External revenue was $325.1m. For further
information please see note 2.
$3.5m $246.5m
$7.8m
$154.3m
$24.0m
$67.3m
$10.5m
$69.0m
Strategic ReportHunting PLC Annual Report and Accounts 2022 9
Our Operating Segments
EMEA
The EMEA operating segment has
eight facilities in the Netherlands, Norway,
Saudi Arabia, United Arab Emirates and
the United Kingdom.
The operating segment has premium
connections, well construction and completion
accessories, well testing and well intervention
manufacturing capabilities. The segment is also
a regional sales hub for other product lines
manufactured by the Group.
In Aberdeen, UK, the Group also maintains
its energy technology and transition incubator
business, known as TEK-HUB™.
External revenue was $69.3m. For further
information please see note 2.
Asia Pacific
The Asia Pacific operating segment
manufactures premium connections, well
completion and construction accessories and
well intervention components, supplying into
the Middle East and Asia Pacific.
The Group retains operating sites in China,
Indonesia and Singapore.
A new threading facility in India is also opening
in early 2023, through our joint venture
company, to take advantage of the growing
market on the sub-continent.
External revenue was $73.6m. For further
information please see note 2.
External Revenue in 2022
by Product Line
Oil Country Tubular Goods
Perforating Systems
Advanced Manufacturing
Subsea
Intervention Tools
Other Revenue
$32.4m $5.4m
$10.6m
$20.9m
$68.6m
$5.0m
Hunting PLC Annual Report and Accounts 2022Strategic Report
10
Our Products and Services
Our Products
and Services
With a diverse product and service
offering, which extends to all major
oil and gas producing regions of the
world, Hunting has the ability to deliver
multiple solutions to its clients.
Our quality assurance and safety
procedures help us compete for
a wide range of equipment tenders
issued by the energy industry.”
Other
Revenue
Other Revenue includes
our Trenchless, E&P,
Well Testing and Organic
Oil Recovery businesses,
which form part of Hunting’s
North America and EMEA
operating segments.
Intervention
Tools
Hunting’s well intervention
tools and systems include
pressure control equipment
and slickline tools systems.
Read more
12
14
16
18
20
22
Oil Country Tubular Goods
Perforating Systems
Advanced Manufacturing
Subsea
Intervention Tools
Other Revenue
Strategic ReportHunting PLC Annual Report and Accounts 2022
11
Our Products and Services
Oil Country
Tubular Goods
The Group owns proprietary
premium connection
technology, including the
SEAL-LOCK™, WEDGE-
LOCK™ and TEC-LOCK™
product lines. Hunting also
has a number of third party
threading licences, which
allows us to complete a
wider spectrum of threading
work for clients.
Hunting operates from
a number of global sites,
which provide accessories
manufacturing capabilities
for energy service clients.
The Group’s stringent
quality assurance
procedures are a
leading differentiator for
print-part component
manufacturing.
2
1
6
Our Purpose
To be a highly trusted
innovator and manufacturer
of technology and products
that create sustainable value
for our stakeholders.
Perforating
Systems
Hunting’s Perforating
Systems offering includes
integrated gun systems,
energetics, detonating cord,
pre-loaded guns and
E-Line™ instrumentation.
3
4
Hunting Titan has a strong
track record in delivering
market-leading technology
to clients, in what is a
rapid-paced sub-sector
of the oil and gas industry.
Hunting’s Perforating
Systems include the H-2™,
H-3™ and H-4™
Perforating Systems,
EQUAFrac™ shaped
charges and well
intervention products.
Advanced
Manufacturing
Hunting’s Advanced
Manufacturing businesses
are positioned to lead the
Group’s efforts to diversify
its long-term revenue
streams due to its expertise
in precision machining
and electronic printed
circuit boards.
Products manufactured
include MWD/LWD tool
housings, high temperature
circuit boards and other
measurement tooling.
5
Subsea
Hunting’s Subsea
Technologies offering
includes hydraulic valves
and couplings, titanium
and steel stress joints
and modular production
systems, which enable the
more rapid delivery of first
oil for customers.
Subsea Technologies
is buildings its business
through direct relationships
with exploration and
production companies
as well as through the tier
one offshore equipment
providers.
Hunting PLC Annual Report and Accounts 2022Strategic Report 12
Oil Country Tubular Goods
Read more
10 Our Products and Services
26 Chief Executive’s Report
42 Segmental Review
50 Our Business Model
Oil Country
Tubular Goods
Hunting’s major order from CNOOC for the Group’s SEAL-LOCK XD™ premium connection
commenced in the year, but will be mainly completed during 2023.
Strategic ReportHunting PLC Annual Report and Accounts 2022 13
Oil Country Tubular Goods
Our global OCTG businesses,
which comprise Hunting’s premium
connections and accessories
manufacturing units, have reported
strong growth and increasing
order books.
Revenue
$m
2022
2021
2020
172.5
258.8
264.7
Overview
Hunting’s OCTG and accessories
manufacturing businesses extend across North
America, EMEA and Asia Pacific, accessing
many of the world’s oil and gas basins. OCTG
manufacturing is completed in the majority
of the Group’s facilities, producing premium
and semi-premium connections deploying
Hunting’s three main product lines.
Case Study
Hunting’s TEC-LOCK Wedge™ connection
is specifically designed for onshore shale
drilling. With lateral well sections increasing,
the high-torque and compressive capabilities
of the connection meet demanding drilling
requirements. TEC-LOCK Wedge™ continues
to increase its market position in the Permian,
Haynesville and Eagle Ford basins in the US.
2022 Progress
Global drilling spend
$bn
In North America, demand for our TEC-LOCK™
semi-premium connection improved as
customer acceptance and higher activity levels
have driven growth in this product line. Sales
of the Group’s WEDGE-LOCK™ have also
increased as offshore activity improved.
2023f
2022
2021
251.8
195.1
139.1
29%
Projected increase in global drilling
spend in 2023.
Source: Spears & Associates.
Of note has been the $86m order received
for Hunting’s SEAL-LOCK XD™ premium
connection from CNOOC for a major offshore
drilling programme. This order is being
completed by our Asia Pacific operating
segment during the first half of 2023.
Hunting’s OCTG and Accessories sales order
books have nearly tripled during 2022 as
international orders were also received in the
US and as drilling in South America accelerated.
The outlook for this global product line
is positive as global drilling spend is likely
to increase 29% to $251.8bn in 2023.
Hunting PLC Annual Report and Accounts 2022Strategic Report 14
Perforating Systems
Read more
10 Our Products and Services
26 Chief Executive’s Report
42 Segmental Review
50 Our Business Model
Perforating
Systems
The Group’s H-3 Perforating System™ was launched to clients in 2022, and has led
to improved safety for clients, as well as increased manufacturing efficiencies.
Strategic ReportHunting PLC Annual Report and Accounts 2022 15
Perforating Systems
Technology development and
product leadership within the North
American onshore region enabled
Hunting Titan to maintain a strong
position in this competitive market.
Overview
Revenue
$m
Hunting Titan continues to retain a leading
position in the North American completions
market. The provision of components and
integrated systems for customers enables the
Group to address the differing purchasing trends
of our clients as the market rapidly evolves.
2022
2021
2020
181.7
154.5
Case Study
Key to the success of Hunting’s perforating
systems is the ControlFire™ platform.
The system comprises addressable switches
and surface instrumentation to enable tool
string communication, which automates and
simplifies operations. ControlFire™ allows for
safe and reliable deployment of casing, plug
setting tools and top-fire systems.
Sales order book at year-end*
$m
2022
2021
2020
8.6
13.7
*Hunting Titan operates on relatively short lead times and
therefore does not carry a significant order book. Figures
above, for the most part, reflect Titan’s well intervention
and other product lines.
251.9
29.8
2022 Progress
North American onshore drilling spend
$bn
Revenue has increased steadily since 2020
as the industry recovered from the COVID-19
pandemic. Sales of expendable components
and integrated perforating systems have
reached monthly highs as North America
onshore completions accelerated in 2022.
2023f
2022
2021
147.5
115.9
76.6
27%
Projected increase in North American
onshore drilling spend in 2023.
Source: Spears & Associates.
During the year, Hunting Titan increased
the manufacturing of pre-loaded gun systems
as clients continued to pivot to this offering.
With the introduction of the H-3 Perforating
System™ early in the year, clients also migrated
to this new product line, which delivers strong
in-field efficiencies as well as enabling
production improvements to be captured.
Hunting Titan will shortly release the
H-4 Perforating System™, a self-orienting
perforating system, which will improve
orientation accuracy. Along with the release
of the H-4 system, a new line of consistent
hole shaped charges, EQUAFrac OP™ will
be released, which will improve frac efficiency
through improved casing hole size variations.
The outlook for 2023 remains positive as
market commentators project that US onshore
drilling spend will increase 29% in the year
ahead to $130.4bn and in Canada by
13% to $17.1bn.
Hunting PLC Annual Report and Accounts 2022Strategic Report 16
Advanced Manufacturing
Read more
10 Our Products and Services
26 Chief Executive’s Report
42 Segmental Review
50 Our Business Model
68 ESG and Sustainability
Advanced
Manufacturing
Hunting Dearborn has made strong progress in diversifying its sales order book to non-oil
and gas markets.
Strategic ReportHunting PLC Annual Report and Accounts 2022 17
Advanced Manufacturing
Precision engineering and integrated
electronics form the basis of the
Group’s 2030 strategy to develop
more non-oil and gas sales.
The total external sales order book
for Dearborn and Electronics now
totals $121.1m.
Overview
The Advanced Manufacturing group has
developed expertise in complex, precision
engineering over many years.
Hunting Dearborn has successfully diversified
its sales order book to include aviation, naval,
power generation and space sales.
Hunting Electronics is also building its presence
in the medical and defence sectors given its
expertise in high temperature circuit boards.
Case Study
The Electronics business has successfully
secured orders from within the defence sector
for a range of printed circuit boards and other
electronics from contractors based in the US.
Revenue
$m
2022
2021
2020
59.6
75.1
74.3
Sales order book at year-end*
$m
2022
2021
2020
77.9
54.2
121.1
*Advanced Manufacturing represents the sales order books
of the Electronics and Dearborn businesses, which include
non-oil and gas sales.
2022 Progress
Global onshore drilling spend
$bn
As market conditions improved across the
energy industry, enquiries and orders placed
have increased steadily throughout 2022.
At year-end the sales order book of the
Electronics business was $49.8m, which
comprises c.14% of non-oil and gas sales.
Progress has been made in diversifying the
revenue profile of the business with new
medical and defence-related sales secured.
Within the Dearborn business, the external
sales order book ended the year at $71.3m,
which comprises c.68% non-oil and gas orders.
The outlook for 2023 is positive as both
businesses complete these orders.
2023f
2022
2021
179.4
140.9
97.3
27%
Projected increase in global onshore
drilling spend in 2023.
Source: Spears & Associates.
Hunting PLC Annual Report and Accounts 2022Strategic Report 18
Subsea
Read more
10 Our Products and Services
26 Chief Executive’s Report
42 Segmental Review
50 Our Business Model
Subsea
The Group’s Subsea Technologies business group has increased its year-end sales order
book by $61m as new orders for titanium and steel stress joints were secured.
Strategic ReportHunting PLC Annual Report and Accounts 2022 19
Subsea
Hunting is building its Subsea
Technologies group following the
acquisitions of RTI Energy Systems
and Enpro Subsea. From 1 January
2023, Subsea Technologies will be
reported as a new operating
segment of the Group.
Overview
The Subsea Technologies businesses
manufacture products which are used in
subsea production and distribution systems,
subsea umbilical risers and flowlines (“SURF”),
in addition to subsea hydraulic intervention
and decommissioning services.
With manufacturing facilities located in the UK
and US and the utilisation of strategic stocking
plans, the business group can rapidly address
customer needs where shorter lead times
are becoming project drivers.
Case Study
Titanium has excellent physical and mechanical
properties including being light weight and
having excellent fatigue life making it an ideal
material to apply to FPSOs as noted below.
Revenue
$m
2022
2021
2020
Sales order book at year-end*
$m
2022
2021
2020
44.0
35.0
58.8
69.0
69.8
105.1
*The sales order book presented above consists
of the Stafford, Spring and Enpro entities.
2022 Progress
Global offshore drilling spend
$bn
Newly developed solutions utilising titanium
stress joints with steel catenary risers have
led to the application of these technologies
to floating production, storage and offloading
(“FPSO”) vessels. Traditionally, stress joints
hang from porches located below the water
line. The Group’s Subsea Spring business
developed a new hang-off system called the
‘Direct Pull Tube’ (“DPT”) allowing the hang-off
to move closer to the upper deck of the FPSO
which increases product (oil and condensate)
offloading which previously was being used
as ballast on the FPSO.
Strong growth of this application is anticipated
over the next five years as DPTs are applied
to FPSO units in the Gulf of Mexico, South
America, Africa and Asia Pacific.
2023f
2022
2021
72.4
54.2
41.8
34%
Projected increase in global offshore
drilling spend targeted for 2023.
Source: Spears & Associates.
Hunting PLC Annual Report and Accounts 2022Strategic Report 20
Intervention Tools
Read more
10 Our Products and Services
26 Chief Executive’s Report
42 Segmental Review
50 Our Business Model
Intervention
Tools
The Group’s global well intervention businesses have seen good demand for proprietary
equipment during the year.
Strategic ReportHunting PLC Annual Report and Accounts 2022 21
Intervention Tools
With the rising oil price, capital
equipment purchasing is showing
strong signs of recovery. This will lead
to increased demand for Hunting’s
well intervention equipment.
Overview
The Group manufactures a range of downhole
intervention tools including slickline tools, e-line
tools, mechanical plant, coiled tubing and
pressure control equipment.
Well intervention equipment manufacturing
occurs in Singapore, UK and US.
Revenue
$m
2022
2021
2020
36.4
25.8
30.7
2022 Progress
Global drilling spend
$bn
During the year, well intervention equipment
purchasing returned to growth, following three
years of decline due to the COVID-19 pandemic.
Hunting’s US and UK well intervention and well
testing businesses reported strong increases
in enquiries as capital equipment purchasing
restarted, leading to a robust increase in
year-on-year revenue.
The outlook for the product group is positive
as activity levels continue to increase and
equipment purchasing accelerates.
2023f
2022
2021
251.8
195.1
139.1
29%
Projected increase in global drilling
spend projected for 2023.
Source: Spears & Associates.
Hunting PLC Annual Report and Accounts 2022Strategic Report 22
Other Revenue
Read more
10 Our Products and Services
26 Chief Executive’s Report
42 Segmental Review
50 Our Business Model
68 ESG and Sustainability
Other Revenue
Hunting is focused on growing its Other/Non-Oil and Gas revenue in the coming years
as part of the Hunting 2030 strategic ambition.
Strategic ReportHunting PLC Annual Report and Accounts 2022 23
Other Revenue
Other revenue, including our
Trenchless, E&P and Organic Oil
Recovery businesses have made
good progress in the year.
Overview
Across the Group, efforts have been stepped up
to increase other revenue streams and leverage
our core competencies into new markets.
Hunting continues to develop new sales in
the telecommunications, defence and medical
sectors. The Group has also delivered its first
batch of micro-hydro generation systems to
a project in the Philippines.
Revenue
$m
2022
2021
2020
34.6
23.2
22.1
2022 Progress
Geothermal OCTG demand
‘000s tonnes of steel pipe consumption
With the formation of the Group’s Energy
Transition sales group in December, Hunting
is now pursuing tenders for carbon capture
and storage and geothermal projects. Key
opportunities within Asia Pacific and the US
have been identified as key regions given the
governmental support for these sectors
announced over the past two years.
Hunting has the ability to supply OCTG,
connections, valves and couplings to a wide
range of onshore and offshore energy transition
projects, utilising the expertise of its precision
engineering core competencies.
2030f
2025f
2020
160
110
252
129%
Geothermal OCTG tonnage growth
between 2020 and 2030.
Source: Rystad Energy.
Ngatamariki Power Station
Source – Ngatamariki Geothermal
System (nzgeothermal.org.nz).
Hunting PLC Annual Report and Accounts 2022Strategic Report 24
Our Strategy and Related KPIs
Our Strategy
and Related KPIs
Hunting’s strategic priorities are
based on a business model designed
to deliver sustainable long-term
shareholder value while recognising
our corporate responsibilities.
Overview
Growth
Our aim is to continue to develop
our global presence and supply a
comprehensive range of products used
in the wellbore and by expanding into
complementary non-oil and gas sectors.
We will grow through capital investment
in existing businesses and through
acquisition.
Operational
Excellence
We operate in a competitive and cyclical
sector, which is high profile and strongly
regulated. To be successful we must
deliver reliable products, which are
quality assured to the highest industry
standards and which offer improved
cost efficiencies.
Strong Returns
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.
ESG and
Sustainability
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 and enter
new markets
• Acquire complementary businesses
• Enhance existing capacity
• Develop new products
• Leverage strong brand
• Maintain and enhance quality control
• Maintain operational flexibility
• Leverage lean manufacturing
• Strengthen relationships with customers
and suppliers
• Extend global presence
• Acquire complementary businesses
• Enhance existing capacity
• Develop new products
2022 Progress
• Construction commenced on a premium
threading facility in India to service domestic
and regional energy markets. Production
is due to commence in Q2 2023.
• The Subsea Spring business won a number
of orders from ExxonMobil to supply titanium
stress joints to FPSOs. This is a new application
for this product and opens up new global
markets for the technology.
• The Group formed an Energy Transition global
sales group to pursue opportunities in
geothermal and carbon capture markets.
• The Group completed field trials of the H-4
Perforating System™, which is a self orientating
system. This product complements Hunting’s
other systems for well completions.
• Progress was made to commercialise the
Organic Oil Recovery technology, with new trials
being completed.
• The rollout of the D365 ERP system continued
in the year, improving efficiencies and
standardising our IT systems across all our
global businesses.
• In Singapore, Hunting consolidated its facilities
from three locations to a single manufacturing
site. This will decrease operating costs and
lower carbon emissions.
• The Group returned to profitability and
increased dividend distributions in the year
to reflect the Group’s improving financial
performance.
• Retain experienced senior
• HSE performance continues to be a
• Key executives
Total Recordable Incident
Scope 1 and 2 GHG Emissions
Intensity Factor
management team
• Skilled workforce
• Safe operations
• Protect the environment
• Compliance
key strategic priority for the Group, with
management focused on the training
of new employees in Hunting’s stringent
safety procedures.
• Hunting published data relevant to the SASB
reporting framework in March 2022 to support
the Group’s ESG reporting. Hunting engaged
Standard & Poor’s Trucost to provide assurance
services on Hunting’s published carbon data.
This is the first step in the process of setting
science-based carbon reduction targets.
Related Risks
• Geopolitics
• Competition
• Climate change
• Product quality
• Commodity prices
• Shale drilling
• Product quality
• Key executives
• Competition
Related KPIs
Revenue
($m)
Non-Oil and Gas Revenue
Adjusted Profit (Loss)
from Operations*
($m)
2022
2021
2020
725.8
521.6
626.0
47.6
14.6
37.6
39.8
-35.1
-16.4
2022
2021
2020
($m)
2022
2021
2020
ISO 9001:2015 (Quality)
Quality Assurance –
Operating Footprint
Accredited Operating Sites
Manufacturing Reject Rate
(m sq ft)
(%)
2022
2021
2020
74
80
71
0.13
0.13
2022
2021
2020
0.24
2.7
2.8
2.8
• Commodity prices
• Competition
Dividends Declared
Adjusted Operating Margin*
Return on Average Capital
(%)
Employed*
8
-7
9
9
2022
2021
-3
2020
1
2022
2021
2020
-2
(%)
-4
2
(%)
2022
2021
2020
(cents)
2022
2021
2020
• Health, safety and environment
Rate
(tonnes CO2e)
2022
2021
2020
0.97
0.99
2022
2021
2020
0.67
22,422
18,859
25,416
30.2
36.2
40.6
(kg/$k)
2022
2021
2020
Strategic ReportHunting PLC Annual Report and Accounts 2022 25
Our Strategy and Related KPIs
Installation of equipment at Hunting’s
new threading facility in India.
Overview
Growth
Our aim is to continue to develop
our global presence and supply a
comprehensive range of products used
in the wellbore and by expanding into
complementary non-oil and gas sectors.
We will grow through capital investment
in existing businesses and through
acquisition.
Strategic Focus Areas
2022 Progress
• Extend global presence and enter
• Construction commenced on a premium
new markets
• Acquire complementary businesses
• Enhance existing capacity
• Develop new products
threading facility in India to service domestic
and regional energy markets. Production
is due to commence in Q2 2023.
• The Subsea Spring business won a number
of orders from ExxonMobil to supply titanium
stress joints to FPSOs. This is a new application
for this product and opens up new global
markets for the technology.
• The Group formed an Energy Transition global
sales group to pursue opportunities in
geothermal and carbon capture markets.
Operational
Excellence
• Leverage strong brand
• Maintain and enhance quality control
• Maintain operational flexibility
• Leverage lean manufacturing
• The Group completed field trials of the H-4
Perforating System™, which is a self orientating
system. This product complements Hunting’s
other systems for well completions.
We operate in a competitive and cyclical
• Strengthen relationships with customers
• Progress was made to commercialise the
sector, which is high profile and strongly
and suppliers
Organic Oil Recovery technology, with new trials
regulated. To be successful we must
deliver reliable products, which are
quality assured to the highest industry
standards and which offer improved
cost efficiencies.
Strong Returns
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.
• Extend global presence
• Acquire complementary businesses
• Enhance existing capacity
• Develop new products
ESG and
Sustainability
• Retain experienced senior
management team
• Skilled workforce
• Safe operations
We are committed to acting with high
• Protect the environment
standards of integrity and creating
• Compliance
positive, long-lasting relationships with
our customers, suppliers, employees
and the wider communities in which
we operate.
being completed.
• The rollout of the D365 ERP system continued
in the year, improving efficiencies and
standardising our IT systems across all our
global businesses.
• In Singapore, Hunting consolidated its facilities
from three locations to a single manufacturing
site. This will decrease operating costs and
lower carbon emissions.
• The Group returned to profitability and
increased dividend distributions in the year
to reflect the Group’s improving financial
performance.
• HSE performance continues to be a
key strategic priority for the Group, with
management focused on the training
of new employees in Hunting’s stringent
safety procedures.
• Hunting published data relevant to the SASB
reporting framework in March 2022 to support
the Group’s ESG reporting. Hunting engaged
Standard & Poor’s Trucost to provide assurance
services on Hunting’s published carbon data.
This is the first step in the process of setting
science-based carbon reduction targets.
Related Risks
• Geopolitics
• Competition
• Climate change
• Product quality
• Commodity prices
• Shale drilling
Related KPIs
Revenue
($m)
Non-Oil and Gas Revenue
($m)
Adjusted Profit (Loss)
from Operations*
($m)
2022
2021
2020
725.8
521.6
626.0
2022
2021
2020
47.6
37.6
39.8
-35.1
-16.4
14.6
2022
2021
2020
• Product quality
• Key executives
• Competition
ISO 9001:2015 (Quality)
Accredited Operating Sites
(%)
Quality Assurance –
Manufacturing Reject Rate
(%)
Operating Footprint
(m sq ft)
2022
2021
2020
74
80
71
2022
2021
2020
0.13
0.13
2022
2021
2020
0.24
2.7
2.8
2.8
• Commodity prices
• Competition
Dividends Declared
(cents)
Adjusted Operating Margin*
(%)
Return on Average Capital
Employed*
(%)
2022
2021
2020
8
9
9
-7
2022
2021
2
-4
-3
2020
-2
1
2022
2021
2020
• Key executives
• Health, safety and environment
Total Recordable Incident
Rate
Scope 1 and 2 GHG Emissions
(tonnes CO2e)
Intensity Factor
(kg/$k)
2022
2021
2020
0.97
0.99
2022
2021
2020
0.67
22,422
18,859
25,416
2022
2021
2020
30.2
36.2
40.6
*Non-GAAP measures, see pages 240 to 246.
Hunting PLC Annual Report and Accounts 2022Strategic Report 26
Chief Executive’s Report
Chief Executive’s
Report
Jim Johnson
Chief Executive
The outlook for 2023
remains extremely positive
for the industry with capital
expenditures projected
to increase.”
Introduction
2022 has been a year of rebuilding for the
oil and gas industry. As the impact of the
COVID-19 pandemic diminished, global
economies continued to re-open in the early
months of the year, leading to the acceleration
of enquiries from clients as drilling projects
recommenced or were sanctioned. This
increase in market activity has continued
throughout the year and is reflected in the
Group’s improved financial results for 2022
and its steadily building sales order book.
With Russia’s invasion of Ukraine in February
2022, the global economic recovery was
disrupted with new market supply/demand
dynamics being seen as the conflict escalated.
International sanctions were implemented
along with the move by European governments
to reduce their reliance on Russia-sourced oil
and gas. Hunting has no material exposure
to Russia or Ukraine; however, it is likely that
global economies will continue to pursue
‘western friendly’ oil and gas resources and
that North America will be a key and growing
source of supply in the coming years. Hunting’s
presence in this critical market will, therefore,
be a driver of mid-term growth. As global
commodity prices strengthened in the first
half of the year, Hunting’s businesses reported
higher levels of enquiries and growing order
books, which led to new operating shifts being
added to meet demand at the majority of the
Group’s facilities. This increase in activity is
reflected in our facility utilisation, leading to
the improved financial performance of each
operating segment. In respect of our Hunting
Titan and North America businesses, this led to
strong returns and healthy levels of profitability,
which should further improve in 2023.
Our EMEA and Asia Pacific operating
segments report narrowing losses, with both
forecasting a return to profitability in the year
ahead. With the robust outlook of our traditional
oil and gas markets, coupled with our efforts
to capture sales in energy transition markets,
the short-term performance and focus for
management will be on pursuing the available
opportunities across the energy industry.
This will lead to improved margins and returns
for our stakeholders.
The Board has approved a broad-based
strategy to explore revenue opportunities from
other sources to mitigate the volatility seen in
the oil and gas industry. Details of our ‘Hunting
2030’ strategy are noted below.
Notwithstanding these exciting initiatives, we
remain firmly committed to the oilfield services
sector with our growth ambitions in the industry
being unchanged.
On a personal note, with the impact of the
pandemic receding, I was pleased to be able
to recommence visiting our international
operations during the year. In October I attended
the official opening of our new Singapore facility
and met staff in both Singapore and Indonesia.
Our employees are our most important asset
and it was good to hear their personal
experiences in what have been challenging
times for all levels of the organisation. As part
of the Board’s deliberations in the year, which
included reviewing the impact of inflation on our
staff and increases to the cost of living, base
salary increases were implemented across the
Group in Q4 2022 to assist our workforce.
Strategic ReportHunting PLC Annual Report and Accounts 2022 27
Chief Executive’s Report
Market Summary
The WTI crude oil price started the year at $75
per barrel, after averaging at $68 per barrel in
2021. As the impact of the pandemic continued
to ease in January and February, the oil price
increased a further 22% and averaged at $86
per barrel up to 24 February 2022, when the
invasion of Ukraine occurred. The oil price then
averaged $96 per barrel for the remainder of
the year as the global oil and gas supply/
demand balance remained volatile and
sanctions against Russia increased, which
limited its ability to export and globally distribute
oil efficiently. In the second half of 2022,
inflationary pressures caused by the invasion
started to impact economic growth forecasts,
with most commentators projecting a global
recession. This had the impact of softening
global commodity prices in Q3/Q4. Overall,
during 2022, the WTI crude oil price averaged
$94 per barrel, which was 38% higher than
2021, and which supported the positive
backdrop to the Group’s core trading markets
and the revenue growth and return to
profitability reported.
Natural gas prices also increased year-on-year
as activity and geopolitical changes favourably
impacted the global supply/demand balance.
Henry Hub natural gas prices averaged $6.54
per mmBtu in 2022 compared to $3.72 per
mmBtu in 2021.
Drilling and production spend increased 40%
in the year from $139.1bn in 2021 to $195.1bn in
2022. Global onshore drilling activity increased
45% from $97.3bn in 2021 to $140.9bn in 2022,
while global offshore activity increased 30%
from $41.8bn to $54.2bn.
The outlook for 2023 remains extremely positive
for the industry, with capital expenditures
projected to increase further as global projects
continue to be sanctioned.
Group Financial Summary
Hunting reports a 39% increase in revenue in
the year as market activity accelerated due to
higher commodity prices during 2022. Revenue
increased to $725.8m, compared to $521.6m
in 2021. Revenue in H1 2022 was $336.1m
(H1 2021 – $244.4m) and in H2 2022 was
$389.7m (H2 2021 – $277.2m) as higher oil
and gas prices led to improved North American
onshore activity and a broad-based increase in
international offshore activity reported across
many regions.
Attending the opening of Hunting’s
new facility in Singapore.
Hunting Titan’s revenue increased by 41%
from $189.3m in 2021 to $266.0m in 2022.
The segment saw improving demand for its
perforating systems including new technologies
introduced in the year such as the H-3
Perforating System™, but also strong demand
for its pre-loaded guns, instruments and
detonating cord, which led to the growth
in revenue.
The North America segment has also reported
excellent results in the year as demand for
premium connections, accessories, steel
and titanium stress joints all contributed to
the segment’s performance. Revenue within
the segment increased by 37% in the year
to $349.7m, compared to $254.6m in 2021.
A particular area of impressive growth has
been within the Group’s Subsea Spring
business unit, which won a number of large
orders for its steel and titanium stress joints
(“TSJs”). In October 2022, the business
secured a $48m order from a client operating
in South America to deploy stress joints onto
a number of Floating Production, Storage
and Offloading (“FPSO”) units. The Group’s
premium connection business also reported
a strong increase in sales within Canada as
the rig count remained robust throughout
the year, with strong demand for Hunting’s
TKC-4040™ connection.
The EMEA segment reported a year-on-year
increase in revenue as international activity
levels improved. Overall revenue was $71.5m in
the year, compared to $58.1m in 2021, a 23%
increase. The segment has benefited from the
Tubacex contract, which commenced in March
2022, and led the Netherlands facility to return
to three operating shifts in the year. Further, the
segment also benefited from the restructuring
of the European OCTG business, which
concluded in December 2021, and which led
to higher capital efficiencies and a more agile
service offering for our North Sea clients. The
Group’s Norway and Saudi Arabia businesses
also reported an improvement in sales
compared to the prior year due to increased
interest in our well completion and well
intervention product lines.
In the early months of the year, the Asia Pacific
segment was impacted by the closure of the
Shanghai port, which disrupted the Group’s
raw material supply chain. However, with the
lifting of these restrictions in the middle of the
year, the business’ performance has improved
considerably. A notable success within the
segment has been the securing of a contract
with CNOOC for up to $86m to supply OCTG
with Hunting’s SEAL-LOCK XD™ premium
connection applied. The order will mainly be
completed during 2023. Overall, the segment’s
revenue in the year was $80.4m in 2022
compared to $48.1m in 2021.
Revenue
$725.8m
24%
Gross margin
Hunting PLC Annual Report and Accounts 2022Strategic Report 28
Chief Executive’s Report
Our employees remain Hunting’s
most important asset.
ii. Non-Oil and Gas Diversification
In the past two years, the Advanced
Manufacturing group, comprising Hunting’s
Dearborn and Electronics business units,
pursued new non-oil and gas opportunities
and at the end of 2022 had a combined sales
order book of $121.1m. Of this figure, c.46%
comprises orders from non-oil and gas sectors
including medical, aviation, space, power
generation and other military-related
opportunities. As part of the Hunting 2030
strategic ambition, the Advanced Manufacturing
group is now targeting a revenue profile of
70% non-oil and gas by the end of the decade,
with the balance of sales being generated by
the Group’s core oil and gas activities.
iii. Formation of Global Energy Transition
Sales Group
In December 2022, Hunting announced the
formation of a global Energy Transition sales
group to pursue opportunities within the
geothermal and carbon capture markets, both
of which are seeing strong growth profiles in
the coming decades.
Hunting has many technologies and
manufacturing capabilities that complement
these markets, including its premium
connections, couplings and valves and
accessories manufacturing expertise.
The Board has set a medium-range sales
target of c.$100m by the end of the decade
as part of its long-term strategic ambition.
iv. Launch of New Technology
The Group continues to develop and introduce
new technology to clients. Research and
development initiatives focus on increasing
in-field safety, while also delivering completion
efficiencies and lowering drilling and
development costs for clients.
In 2022, Hunting Titan launched the H-3
Perforating System™ to customers. The new
system increases in-field efficiencies but also
lowers manufacturing costs to the Group due
to increased automation of a number of
production processes. A proportion of the
Group’s clients have migrated to the H-3
system during H2 2022, with these efforts
continuing during 2023.
Hunting Titan has also launched a new
proprietary Perf+ shooting panel for well
completion procedures. The new panel
enables more precise firing accuracy during
a hydraulic fracturing procedure and has the
ability to generate long-term, in-field cost
reductions to clients.
After successful field trials in 2022, Hunting
Titan will also launch an H-4 Perforating
System™ in Q1 2023. This is a self-orienting
system to improve firing and positioning
accuracy during a well completion procedure.
v. Operational Footprint
The Group’s operating footprint has been
streamlined in the year with 29 operating
sites (2021 – 31) and 14 distribution centres
(2021 – 14) at the year-end.
In May 2022, the Group completed the
consolidation of its facilities in Singapore, which
led to efficiency gains and lower operating
costs across the region, in addition to lowering
the carbon footprint of the segment.
Launch of Hunting 2030
As the Group navigated COVID-19 and the
slowly receding impact of the pandemic over
the past three years, the Board spent a great
deal of time discussing how to position Hunting
for the next decade.
Group EBITDA was $52.0m in 2022
(2021 – $3.1m), which reflects the improving
market conditions and strengthening Group
sales order books. With increased volumes and
better leveraging of fixed costs, the Group’s
EBITDA margin increased from 1% in 2021
to 7% in 2022.
Profit from operations for the year was $2.0m
(2021 – $79.7m loss).
Adjusting items totalled $12.6m for the year,
with $3.0m* impacting H1 and $9.6m in H2.
Adjusting items comprised an impairment
to goodwill in respect of the Enpro Subsea
business unit of $7.0m and exceptional legal
fees totalling $5.6m. For further information
please see note 5.
These items led to an adjusted profit
from operations for the year of $14.6m
(2021 – $35.1m loss).
Strategic Initiatives
i. Expansion of Subsea Technologies
Business Group
Hunting’s presence within the subsea segment
of the oil and gas industry has been steadily
growing since 2019, starting with the
acquisition of RTI Energy Systems in August
2019, now called Subsea Spring, followed
by the acquisition of Enpro Subsea in
February 2020.
Following the exit from the pandemic and the
increase in commodity prices seen from late
2021 and throughout 2022, the global subsea/
offshore oil and gas market has shown clear
signs of increased activity, with new projects
being announced or sanctioned.
The Subsea Spring business has successfully
entered a new market for its TSJs with a
number of large order wins in the Gulf of
Mexico and South America, whereby TSJs are
applied to FPSOs. Management are confident
that this new application will be adopted by
other operators globally and see strong growth
in this application in the short to medium term.
The Subsea Stafford and Enpro businesses
also saw strong increases in enquiry levels
throughout 2022 as operators developed
more direct links with component and
system suppliers.
It is these three businesses that will form
the basis of Hunting’s Subsea Technologies
operating segment, which was formed on
1 January 2023.
During the year, a number of acquisition
opportunities were reviewed, with the Board
confident that with the strengthening of
valuations, acquisitions in this space will increase
in 2023, which will lead to opportunities for
growth for this new operating segment.
*H1 2022 profit from operations previously reported in the
2022 Half Year Report of $1.7m has been adjusted for $3.0m
of legal fees incurred in defending the legal case for the
patent infringement claim.
Strategic ReportHunting PLC Annual Report and Accounts 2022 29
Chief Executive’s Report
2022 has shown that energy security and
robust energy policies are needed by many
global governments, given that energy and
power are key foundations for economic
stability and growth. The cost of living crisis,
particularly seen in Europe and other global
economies, has underpinned the need for
reasonably priced energy to be developed for
the consumer. Oil and gas is a key part of the
primary energy input, along with other sources
including geothermal, nuclear, wind, hydro and
solar power.
The Board continued to review its product
and service offering and approved Hunting’s
strategy of retaining the Group’s focus on being
a key supplier of technology and high precision
components to the oil and gas sector of the
energy industry.
As part of this strategy, the Group will drive
organic and acquisitive growth through its
Subsea Technologies offering.
In parallel to the Group’s ongoing commitment
to focus on oil and gas, new initiatives to
diversify Hunting’s long-term revenue mix
are now underway.
A key element of our long-term growth
strategy is to become a significant supplier
of key components and technologies to the
geothermal and carbon capture sub-sectors
of the energy industry. Hunting has a number
of readily available technologies and products
to supply this emerging sector including OCTG,
connections, accessories, valves, couplings
and subsea components to support both
onshore and offshore projects.
Further, the Group accelerated its efforts to
develop a higher proportion of its sales from
non-oil and gas sources. Hunting’s Advanced
Manufacturing group has built significant order
backlogs in sectors such as the medical,
aviation, power generation and defence
industries.
The resultant strategy is being launched
as ‘Hunting 2030’, a broad-based ambition
to retain the Group’s focus on growing its
energy-related businesses, but also to grow
non-oil and gas sales to a meaningful
proportion of revenue by 2030.
Outlook
The outlook for energy continues to be highly
robust, given the demand projections for the
year ahead, which continue to indicate a daily
requirement of c.102m barrels of crude oil per
day – or an increase of c.1.5m to 2.0m barrels
per day over what was seen in 2022. The
outlook for natural gas remains strong, as
customers of Russia-origin natural gas move
to other global LNG suppliers.
Despite some macro-economic concerns,
the re-opening of China and material under
investment in new oil and gas production since
2019 will likely lead to continued growth for all
industry participants.
The commercialisation of new
technology assists the Group in
maintaining market leadership.
The EMEA and Asia Pacific operating
segments continue to see strong increases in
enquiries. There is likely to be good progress in
the Middle East, as drilling investment increases,
which will drive a return to profitability in the
year ahead for these segments.
In summary, Hunting remains in a good
position to invest in the market upturn to grow
revenue and profitability in the year ahead.
Management is targeting further EBITDA
margin expansion as price increases, improved
facility utilisation and production efficiencies
continue to be pursued.
Overall, Hunting has demonstrated its resilience
during the industry challenges associated with
the effect of COVID-19, which is due to Hunting’s
committed and skilled workforce, underpinned
by a world class HSE performance.
I would like to thank all of our employees for
helping to guide Hunting through a particularly
challenging period, but now look forward to a
new growth phase in our chosen industry and
our Company.
On behalf of the Board
Jim Johnson
Chief Executive
2 March 2023
Commentators continue to project an average
oil price for the year ahead of between $75
to $100 per barrel, which is a range that will
support new activity in all basins globally.
Overall, the short to medium term market
outlook remains strongly positive given the
economic fundamentals driving the global
demand for oil and gas.
For Hunting, all the Group’s businesses are
seeing improving demand as onshore and
offshore projects increase.
Across North America, investment in drilling
is projected to grow further, following a strong
performance in 2022. This will lead to a steady
growth in the demand for our perforating
systems, OCTG and accessories businesses.
Our newly formed Subsea Technologies
operating segment has delivered strong growth
in its revenue profile and sales order book over
the past two years. This has been predominantly
driven by the Subsea Spring business unit, but
with strong market projections for subsea trees
and SURF products, Hunting is well placed to
capture strong growth in all of our deep water
orientated technologies. These opportunities
also extend to Hunting’s OCTG and
accessories businesses, which supply many
offshore clients with critical components.
The Advanced Manufacturing group has
built a robust sales order book during 2022,
which reflects our pursuit of non-oil and gas
sales as well as our existing energy-focused
product lines.
With the newly formed Energy Transition
sales group, Hunting is also well placed to
drive a further diversification in our revenue
profile, with a primary focus on geothermal
and carbon capture projects, as announced
separately today.
Hunting PLC Annual Report and Accounts 2022Strategic Report 30
Market Summary
Market
Summary
“These market and broader
economic conditions place
Hunting in a strong position
given its broad portfolio of
products and services.
Hunting’s core competencies
can be applied to oil and gas
production, onshore or
offshore developments,
conventional and
unconventional projects
as well as energy transition
technologies.”
Introduction
2022 has seen a range of market movements
within the global energy industry, some
anticipated and others unforeseen.
During the year, the impact of the COVID-19
pandemic continued to lessen, which led
commentators to correctly anticipate broad-
based increases in industry activity as global
economies continued to reopen and social
distancing measures and travel restrictions
were lifted.
Commodity Prices
The impact of Russia’s invasion has increased
commodity prices and the supply pressures
noted above were already being seen in the
early months of the year, with the WTI crude
oil price increasing from $75 per barrel to
$92 per barrel in February 2022, when the
conflict began.
From February 2022, the price of WTI crude
increased to peak at $124 per barrel in March
as capital markets priced in higher supply risk.
A key theme, which was highlighted in the early
months of 2022, was the under investment in
oil and gas production during and preceding
the pandemic. This was anticipated to bring
supply pressures to the global oil and gas
industry as economic growth accelerated
and global hydrocarbon reserves continued
to deplete.
Russia’s invasion of Ukraine has destabilised
the economic balance of many western
economies navigating the pandemic, with the
price of energy and power increasing materially
from February 2022 onwards.
The increase to the cost of living, whether
that be in respect of the price of energy,
transportation costs, interest rates and other
impacts which have not been seen for many
decades, has led to the increase in inflation.
This has placed further pressures on global
commerce as pay rises and increases to
interest rates escalated economic pressures.
The overall effect of these various inputs was
to put energy security and pricing at the top
of most political agendas. The need for
reasonably priced energy is now a key priority
for many companies and governments to
ensure inflation is brought under control.
In the second half of 2022, inflationary
pressures caused by the invasion started to
impact economic activity and medium-term
growth forecasts, with most commentators
projecting a global recession. This had the
impact of softening global commodity prices
in Q3 2022.
The average price for WTI crude in 2022 was
$94 per barrel, compared to $68 per barrel
in 2021.
Many commentators believe that WTI crude
oil will trade between $75 to $100 per barrel
during 2023, which will support industry activity
in the year ahead.
The Henry Hub natural gas price averaged
$6.54 per mmBtu in the year, compared to
$3.72 per mmBtu in 2021. Similar to the WTI
crude oil price, the supply/demand balance for
gas was impacted by the invasion of Ukraine,
with international gas markets shifting to
support the changing supply dynamics in
Europe as reliance on Russian-imported gas
was reduced.
These market and broader economic conditions
including higher drilling spend and rig counts
place Hunting in a strong position given its
broad portfolio of products and services.
Strategic ReportHunting PLC Annual Report and Accounts 2022 31
Market Summary
Global Drilling Spend
With strengthening commodity prices, coupled
with the further diminishing impact of the
COVID-19 pandemic, activity levels and drilling
spend across the oil and gas sector have
accelerated during the year.
In total, global drilling and production spend
has increased 40% from $139.1bn in 2021
to $195.1bn in 2022 as a broad-based increase
in investment occurred as economic activity
increased, coupled with the supply/demand
impact of Russia’s invasion of Ukraine in
March 2022.
Global onshore drilling spend increased 45%
from $97.3bn in 2021 to $140.9bn in 2022,
while global offshore spend increased 30%
from $41.8bn to $54.2bn.
The outlook for 2023 remains extremely
positive for the industry, with drilling spend
projected to increase by 29% to $251.8bn
as global projects continue to be sanctioned.
WTI Oil Price
$ per barrel
140.0
120.0
100.0
80.0
60.0
40.0
20.0
0.0
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Source: FT.com.
Henry Hub Gas Price
$ per mmBtu
10.0
8.0
6.0
4.0
2.0
Of note is the 34% increase in offshore spend,
which are forecast to outpace the growth of
onshore projects.
Source: FT.com.
0.0
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Global offshore drilling spend
is poised to grow 34% in 2023.
Global Rig Counts
Global rig counts reported similar growth
trends as exploration and production
companies re-commenced activity.
In total, global rig counts have increased 29%
from 1,323 units in 2021 to 1,711 units in 2022.
Global onshore rig counts increased 31% from
1,158 units in 2021 to 1,521 in 2022, while
global offshore rig counts increased 15% from
165 units to 190 units.
Going forward, 2023 is projected to see steady
growth in the rig count, with a 14% increase
anticipated, this being led by offshore activity,
where a 18% increase in active units is forecast.
Global Drilling Spend
($bn)
Onshore
Offshore
2025f
2024f
2023f
2022a
2021a
203.8
194.2
87.8
81.3
179.4
72.4
140.9
41.8
97.3
54.2
Source: Spears & Associates – December 2022 Drilling and Production Report.
Global Rig Counts
(#)
Onshore
Offshore
2025f
2024f
2023f
2022a
2021a
1,888
254
1,828
241
1,721
224
1,521
190
1,158
165
Source: Spears & Associates – December 2022 Drilling and Production Report.
Hunting PLC Annual Report and Accounts 2022Strategic Report 32
Market Summary
North America Drilling Spend
The North American region represents
Hunting’s largest trading market, with the
majority of the Group’s facilities located in the
US and Canada. Drilling spend and rig count
projections for this region, therefore, form a key
input into the Group’s short- to medium-term
strategic planning. Across the US and Canada,
drilling and production spend increased by 51%
from $79.1bn in 2021 to $119.3bn. US onshore
drilling makes up the majority of this increase
in investment, with $100.8bn spent in the year
compared to $67.3bn in 2021. Drilling spend
in Canada increased 62% to $15.1bn reflecting
the continued investment in oil and gas
resources in the country. Going into 2023, the
outlook for the North America region remains
robust, with a $32.9bn increase in investment
projected to $152.2bn in the year ahead.
The US onshore is projected to increase drilling
spend by 29%, the US offshore is projected to
increase by 38% and in Canada spend is likely
to see 13% growth from 2022.
North America Rig Counts
During 2022, the North America rig count
increased by 49% to an average of 898 active
units. The US onshore rig count increased by
53% in the year to an average of 705 active
units compared to 460 units in the prior year.
In Canada, the average rig count increased 37%
to an average of 178 units, up from 130 units
in the prior year. Across the North American
region, rig counts are projected to increase
steadily in 2023, with an overall increase of
10% projected to average 986 units compared
to 898 in 2022.
International Drilling Spend
During 2022, international drilling and
production activity (defined as drilling spend
outside of North and South America) was
impacted by volatile market conditions as
different approaches to the pandemic were
applied. With the receding impact of COVID-19,
coupled with the gradually increasing
international sanctions on Russia and the
ongoing impact of the COVID-19 response
measures in China, 2022 has been a
challenging year for many international
operators. Supported by the increasing price
of crude oil since February 2022, international
drilling and production spend increased 26%
from $60.0bn in 2021 to $75.8bn in 2022.
These increases were more weighted to
offshore drilling activity as new deep water
projects continued to be sanctioned, however,
onshore drilling projects also reported strong
growth as the Middle East and South America
drilling activity increased in the year. Looking
forward to 2023, drilling spend is expected to
increase by 32% to $99.7bn, which represents
stronger growth than 2022, providing a positive
investment backdrop for Hunting’s EMEA and
Asia Pacific operating segments.
International Rig Counts
During 2022, international rig counts increased
by 13% from an average of 719 active units
to 813 units. In 2023, the pace of growth is
also projected to be higher at 18% to average
960 units.
North America Drilling Spend
($bn)
US onshore
Canada
US offshore
2025f
2024f
2023f
2022a
2021a
143.1
21.0
6.3
138.5
19.1
5.4
130.4
17.1
4.7
100.8
15.1
3.4
67.3
9.3
2.5
Source: Spears & Associates – December 2022 Drilling and Production Report.
North America Rig Counts
(#)
US onshore
Canada
US offshore
2025f
2024f
2023f
2022a
2021a
824
818
190
19
181
18
792
176
18
705
178
15
460
130
14
Source: Spears & Associates – December 2022 Drilling and Production Report.
International drilling spend is
poised to increase 32% in 2023.
International Drilling Spend
($bn)
Onshore
Offshore
2025f
2024f
2023f
2022a
2021a
40.1
37.1
32.4
81.0
75.5
67.3
25.3
21.0
50.5
39.0
Source: Spears & Associates – December 2022 Drilling and Production Report.
International Rig Counts
(#)
Onshore
Offshore
2025f
2024f
2023f
2022a
2021a
875
829
234
222
755
205
639
174
569
150
Source: Spears & Associates – December 2022 Drilling and Production Report.
Strategic ReportHunting PLC Annual Report and Accounts 2022 33
Market Summary
Non-Oil and Gas Markets
– Geothermal
The Group has formed a global Energy
Transition sales group to pursue opportunities
in the geothermal and carbon capture and
storage sub-sectors of the energy industry.
As noted in the chart on the right, the
geothermal segment of the market is forecast
to go through a period of significant growth
with annual projected OCTG volumes
increasing from c.150,000 to c.250,000 tonnes
between 2022 and 2030, with growth being
particularly strong in Asia Pacific where many
new projects are planned.
As noted on pages 22 to 23, the Group has
a variety of products and technologies aligned
with the needs of these projects and also the
market channels to enable Hunting to build a
meaningful position in this market sub-sector.
Non-Oil and Gas Markets
– Carbon Capture
The global carbon capture and storage (“CCS”)
market has also accelerated over the past few
years, as companies look for ways to minimise
carbon emissions, as well as utilise end of life
oil and gas fields.
Commentators are projecting strong growth
in the number of CCS projects up to the end
of the decade, which will support Hunting’s
ambition to develop a meaningful revenue
stream from this sector over the next ten years.
The Energy Transition sales group believes
that Hunting’s premium and semi-premium
connections, OCTG supply channels, couplings
and valves and other systems design expertise
provide an immediate revenue opportunity for
the Group. Key regions of growth include the
US and Asia Pacific where investment and
government support is accelerating.
Geothermal Market Projections
(‘000s tonnage of OCTG)
300
250
200
150
100
50
0
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Source: Rystad Energy OCTG dashboard.
Geothermal OCTG tonnage is
forecast to grow 129% between
2020 and 2030.
Carbon Capture and Storage Projects
(Millions of tonnes per annum)
250
200
150
100
50
0
Operational
2022–2025
2026–2030
2030+
Timing unknown
Source: Wood MacKenzie.
Hunting PLC Annual Report and Accounts 2022Strategic Report
34
Key Performance Indicators
Key Performance
Indicators
Our Progress
A number of key performance indicators
are used to compare Hunting’s business
performance and position as well as the
delivery of the strategic objectives of the
Group. These are regularly reviewed to
ensure they remain appropriate.
Overview
Countries with active operations
Countries in which Hunting has an active
operating site or distribution centre.
2022
11
2021
11
2020
11
Operating footprint (sq ft)
Operation and distribution site square footage at year-end.
This closely corresponds to “roofline” and includes
administrative space within operating units.
2.7m
2.8m
2.8m
ISO 9001: 2015 (Quality) accredited operating sites
Percentage of operating sites with
ISO 9001: 2015 accreditation.
74%
80%
71%
Internal manufacturing reject rate
Percentage of parts rejected during
manufacturing processes.
0.13%
0.13%
0.24%
CO2 intensity factor
Scope 1 and 2 carbon dioxide equivalent metric,
reported as kilogrammes per $k of revenue.
30.2
36.2
40.6
Year-end employees
The year-end headcount for employees
includes part-time staff.
2,258
1,949
1,923
Number of recordable incidents
An incident is recordable if it results in death
or serious injury resulting in absence from work.
23
19
16
Total Recordable Incident rate (OSHA method)
The US Occupational Safety and Health Administration
(“OSHA”) incident rate is calculated by multiplying the
number of recordable incidents by 200,000 and then
dividing that number by the number of labour hours worked.
0.97
0.99
0.67
Strategic ReportHunting PLC Annual Report and Accounts 2022 35
Key Performance Indicators
Financial performance is measured on an adjusted basis from operations
and, other than revenue, these measures are non-GAAP measures.
For details on the movements of these metrics, please refer to the Group
Review on pages 36 to 41.
Revenue ($m)
Revenue is earned from products and services sold to customers
from the Group’s principal activities (see notes 2 and 3).
Capital Investment ($m)*
Cash spend on tangible non-current assets (see NGM M).
2022
2021
2020
521.6
626.0
725.8
2022
2021
2020
6.6
16.4
14.7
EBITDA ($m)*
Results before share of associates’ and joint ventures’ post-tax results,
interest, tax, depreciation, impairment and amortisation (see NGM C).
Inventory Days*
Inventory at the year-end divided by adjusted cost of sales for the
last three months of the year multiplied by 92 days (see NGM F).
2022
2021
3.1
2020
26.1
52.0
2022
2021
2020
159
163
270
Adjusted Profit (Loss) from Operations ($m)*
Adjusted profit (loss) from operations before net finance costs and tax
(see NGM B).
Return on Average Capital Employed (%)*
Adjusted profit (loss) before interest and tax, amended to include the
share of associates’ and joint ventures’ post-tax results, as a percentage
of average gross capital employed (see NGM R).
-35.1
2022
2021
2020
-16.4
14.6
-4
1
2022
2021
2020
-2
Adjusted Operating Margin (%)*
Adjusted profit (loss) from operations as a percentage of revenue.
Free Cash Flow ($m)*
All cash flows before transactions with shareholders and investment
in non-current assets (see NGM O).
-7
2022
2021
2020
-3
2
-38.4
2022
2021
2020
54.4
47.8
Adjusted Diluted Earnings (Loss) Per Share (cents)*
Adjusted earnings (loss) 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 NGM B).
Total Cash and Bank ($m)*
Total cash and bank comprises cash at bank and in hand, fixed term
funds, short-term deposits with less than three months to maturity and
money market funds less bank overdrafts (see NGM J).
-27.1
2022
2021
2020
4.7
2022
2021
2020
24.5
-10.0
114.2
101.7
*Non-GAAP measure (“NGM”) see pages 240 to 246.
Hunting PLC Annual Report and Accounts 2022Strategic Report 36
Group Review
Group Review
Bruce Ferguson
Finance Director
Hunting is well positioned
for 2023 and beyond, with a
sales order book of $473.0m
at the year-end, compared
to $211.5m in 2021.”
Introduction
2022 has seen activity levels across all
the Group’s operating segments, as global
economies continued to re-open following the
COVID-19 pandemic. Despite some regional
volatility, which impacted our Asia Pacific
operating segment in the first half of the year,
the prevailing commodity price environment
has supported the increases in activity seen
across the Group. This has led to a return to
operating profit following two years of losses.
The positive commodity price environment has
led to an increase in activity within Hunting’s US
businesses resulting in a strong performance
from our Hunting Titan and North America
operating segments. International energy
markets have also improved materially in the
year, in the first instance, due to the receding
impact of COVID-19, but also due to the need
for new investment in oil and gas production,
following years of under investment in upstream
operations. This has benefited the Group’s
North America, EMEA and Asia Pacific
operating segments, which all reported
year-on-year increases to revenue.
Energy security also returned to the top of most
political agendas in the year. With the invasion
of Ukraine by Russia, Western economies have
re-evaluated their energy supply chains,
resulting in new growth opportunities in regions
such as the North Sea, as governments reduce
their reliance on Russia-sourced oil and gas.
This geopolitical shift is likely to be positive for
the Group in the long term given its operational
exposure to low-risk oil producing countries,
including Canada, South East Asia, UK and US.
Group revenue, therefore, increased in 2022
by 39% to $725.8m compared to $521.6m in
2021 as market conditions improved. Revenue
in H1 2022 was $336.1m, with EBITDA of
$23.6m* and in H2 2022 revenue strengthened
further to $389.7m, with EBITDA of $28.4m.
With increased volumes and better leveraging
of fixed costs, the Group’s EBITDA margin
increased from 1% in 2021 to 7% in 2022
(H1 2022 – 7%; H2 2022 – 7%).
As activity levels improved, the growing
investment in inventory has led to a reduced
total cash and bank position at the year-end.
At 31 December 2022, total cash and bank
was $24.5m compared to $114.2m in the prior
year. Working capital increased from $278.0m
in 2021 to $362.8m to fund this growth in
revenue and EBITDA.
Hunting is well positioned for 2023 and beyond,
with a sales order book of $473.0m at the
year-end, compared to $211.5m in 2021.
Management estimates that $402.3m of the
current open orders will generate revenue in
2023, with the vast majority of the remaining
$70.7m due to be recognised in 2024. The
increased duration of our order book reflects
the development of our subsea and advanced
manufacturing businesses.
*EBITDA for H1 of $20.6m previously reported in the 2022
Half Year Report has been adjusted for $3.0m of legal fees
incurred in defending the legal case for the patent
infringement claim.
Strategic ReportHunting PLC Annual Report and Accounts 2022 37
Group Review
Basis of Preparation
In line with current practice and guidance, the
Group has presented its consolidated income
statement on a statutory basis only, without
an “underlying” or “middle” column. The Board
believes that this enhances the transparency
of the Group’s financial statements. However,
the Board continues to monitor the Group’s
progress using adjusted profitability measures,
and reviews and approves the adjusting items
proposed by management, as the Group
believes these adjusted measures aid the
comparison of the Group’s operating
performance from one period to the next.
The Group’s adjusted trading results have been
highlighted in the narrative below, with
reconciliations between the statutory and
adjusted results detailed in NGM B. The
definition and calculation of a range of other
NGMs including EBITDA, total cash and bank,
working capital, free cash flow and ROCE can
be found on pages 240 to 246.
Market Summary
Global drilling and production spend increased
40% in 2022 to $195.1bn compared to $139.1bn
in 2021. During the year, global onshore drilling
spend was $140.9bn compared to $97.3bn in
2021, while global offshore drilling spend was
$54.2bn in 2022, compared to $41.8bn in 2021.
Across North America (being Canada and the
US), drilling spend increased 51% from $79.1bn
in 2021 to $119.3bn in 2022, while international
spend increased 26% from $60.0bn in 2021
to $75.8bn in 2022.
As detailed in the Market Summary, the
average North American rig count increased
from 604 active units in 2021 to 898 units in
2022, while the international average rig count
increased from 719 active units in 2021 to
813 units in 2022. This market data supports
Hunting’s financial performance in the year,
as noted below.
Results from Operations
In 2022, the Group reported a 39% increase
in revenue to $725.8m (2021 – $521.6m) driven
by the higher activity levels and industry capital
expenditure noted above. In H1 2022, the
Group reported revenue of $336.1m, which
increased by 16% in H2 2022 to $389.7m as
activity and industry investment accelerated.
Gross profit in the year was $171.4m compared
to $64.9m in 2021. This was driven by higher
sales volumes and facility utilisation, leading
to a better absorption of overheads. As noted
in the Chief Executive’s statement, the gross
margin increased from 12% in 2021 to 24%
in 2022.
Following the charges for selling and
distribution costs, administration and other
net operating expenses totalling $169.4m
(2021 – $144.6m charges), profit from
operations in 2022 was $2.0m compared
to a loss from operations of $79.7m in 2021.
Revenue within the Hunting Titan operating
segment increased 41% from $189.3m in
2021 to $266.0m as market conditions
strengthened leading to higher levels of sales
of pre-loaded perforating systems, detonation
cord and associated instrumentation, coupled
with the introduction of new technology,
including the H-3 Perforating System™.
The adjusted profit from operations was
$15.9m (2021 – $0.9m loss) and following
the adjusting item noted below, which totalled
$5.6m (2021 – $8.1m), the reported profit from
operations $10.3m (2021 – $9.0m loss).
The North America segment, which contains
the Group’s widest product offering and which
services both offshore and onshore US,
Canadian and international drilling markets,
recorded a 37% increase in revenue from
$254.6m in 2021 to $349.7m as domestic and
international energy markets returned to growth.
Of note has been the strong performance in the
premium connections, OCTG and accessories
manufacturing business units, where strong
increases in revenue and sales order books
have been recorded. In Canada, the business
reported strong results in the year as activity
improved, leading to robust sales and EBITDA
being recorded within the business unit. The
segment’s Subsea Technologies business
group has reported strong order wins in the
year, particularly for its titanium stress joints,
which are being deployed on to FPSO units
in Guyana and in other regions such as the
Gulf of Mexico.
While the sales order books within the
Advanced Manufacturing group increased
strongly in the year, some supply chain and
labour constraints persisted throughout
the year, leading to a financial outturn
below management’s expectations. The
North America segment’s adjusted profit from
operations was $8.1m (2021 – $16.1m loss)
and following the adjusting item noted below,
which totalled $7.0m (2021 – $22.6m), the
reported profit from operations was $1.1m
(2021 – $38.7m loss).
The Group’s EMEA operating segment has
reported significantly reduced losses, following
the restructuring of the European OCTG
business group in December 2021. With the
adoption of a less capital intensive business
model in the UK, the segment has focused
on threading services and OCTG logistics in
the UK, leading to a positive sales performance
as general market conditions improved. The
segment’s OCTG facility in the Netherlands
approached full capacity towards second half
of the year, following the commencement of an
OCTG threading order for Tubacex, which is
being deployed to Brazil. Sales across the
Middle East also improved as the region
returned to growth. The adjusted and reported
loss from operations was $6.0m as no
adjusting items were recorded in the year.
In 2021, the adjusted loss from operations was
$11.2m and the reported loss from operations
was $26.2m.
Despite ongoing COVID-19 lockdown
measures in China leading to the closure of the
Shanghai port in early 2022, the Group’s Asia
Pacific operating segment reported improved
revenue, as activity across Asia Pacific and the
Middle East increased. The business has seen
a material increase in enquiries in the second
half of 2022 and, in August 2022, won an $86m
order for OCTG and threading services with
CNOOC. This order will be predominantly
completed in 2023. The adjusted and reported
loss from operations was $3.4m as no
adjusting items were recorded in the year.
In 2021, the adjusted loss from operations was
$6.9m and the reported loss from operations
was $6.8m.
Group Segment Summary
Business unit
Hunting Titan
North America
Europe, Middle East and Africa
Asia Pacific
Central
Inter-segment elimination
Group total
2022
Adjusted**
profit (loss)
from operations
$m
15.9
8.1
(6.0)
(3.4)
–
–
14.6
Segment
revenue
$m
266.0
349.7
71.5
80.4
–
(41.8)
725.8
Reported**
profit (loss)
from operations
$m
10.3
1.1
(6.0)
(3.4)
–
–
2.0
Segment
revenue
$m
189.3
254.6
58.1
48.1
–
(28.5)
521.6
2021
Adjusted**
loss from
operations
$m
(0.9)
(16.1)
(11.2)
(6.9)
–
–
(35.1)
Reported**
loss from
operations
$m
(9.0)
(38.7)
(26.2)
(6.8)
1.0
–
(79.7)
**Adjusted results reflect adjusting items determined by management, which are described in NGM A. Reported results are based on the statutory results for operations as reported under UK
adopted International Financial Reporting Standards.
Hunting PLC Annual Report and Accounts 2022Strategic Report 38
Group Review
Net finance expense during the year was $1.7m
(2021 – $2.0m). Hunting’s share of associates’
and joint ventures’ losses reduced from $3.8m
in 2021 to $2.7m. The loss incurred in 2022
largely reflects the Group’s share of losses in
Rival Downhole Tools in which Hunting retains
a 23.5% interest.
Non-GAAP Profit Measures
Group EBITDA of $52.0m increased
significantly from $3.1m in 2021 due to the
improved commercial backdrop observed
during a large part of 2022, as shown in
NGM C.
However, inventory days (NGM F) have
decreased from 163 days at the 2021
year-end to 159 days at 31 December 2022.
Trade receivables increased by $75.8m from
$157.2m in 2021 to $233.0m in 2022, broadly
in line with the increase in revenue recorded,
resulting in a cash outflow of $76.2m
(2021 – $19.0m outflow). Trade receivable
days (NGM G) decreased to 84 days at
31 December 2022 compared to 87 days at
the 2021 year-end despite an increase in the
trade receivables balance. Trade payables
increased with a $61.9m inflow in the year.
During the year, the Group’s leasing
arrangements gave rise to cash payments
of $8.0m (2021 – $10.6m). In 2021, lease
payments included $1.3m to exit a lease at
Biggin Hill. The lower amount in 2022 also
reflects the leases exited in relation to the
Singapore facility consolidation and the
change in the UK headquarters.
As discussed earlier, adjustments of $12.6m
were made to profit from operations resulting
in adjusted profit from operations of $14.6m,
leading to an adjusted operating margin of 2%
In 2021, the adjusted loss from operations
was $35.1m after taking into account adjusting
items of $44.6m, resulting in an adjusted
operating margin of (7)%.
Following the net interest charge and Hunting’s
share of losses from associates and joint
ventures, adjusted profit before tax was $10.2m
in 2022. In 2021, after adjustments of $44.9m,
as shown in the table below, the adjusted loss
before tax was $40.6m.
There was no tax on either adjusting item
in 2022, so the adjusted ETR for the year, as
detailed in NGM D, was 13%. In 2021, there
was a tax credit of $0.7m on the adjusting
items, leading to an adjusted ETR of (12%).
Net interest and bank fees paid in the year
were $2.9m, which reflected the increased
costs of putting in place the ABL facility,
offset by interest received on cash balances
held across the Group during the year.
The adjusted profit after tax attributable to
Ordinary shareholders was, therefore, $8.0m
(2021 – $43.7m loss), leading to adjusted
diluted earnings per share of 4.7 cents
(2021 – 27.1 cents loss per share).
Cash Flow
Hunting reported an EBITDA of $52.0m in 2022
(2021 – $3.1m) that, when adjusted for non-cash
share-based payment charges, resulted in a
cash inflow of $61.9m (2021 – $12.3m).
As noted above, activity levels have increased
across the Group in the year leading to an
investment in working capital. During 2022,
there was an outflow of working capital
totalling $86.6m (2021 – $22.8m inflow) as
sales increased and inventory and raw material
purchasing increased to keep pace with
customer demand. Inventories, therefore,
increased during the year, with a $72.3m cash
outflow recorded compared to a $26.6m inflow
in 2021.
As a consequence of the Group’s trading
results across its varying jurisdictions, tax
payments of $3.9m were made in the year
(2021 – $0.6m tax received).
Proceeds from the disposal of assets and
businesses totalled $9.0m and included a net
$5.0m received following the sale of a property
in Casper, Wyoming and a net receipt of $2.4m
to exit the leased property at Benoi Road in
Singapore. In 2021, proceeds from the disposal
of assets and businesses totalled $35.9m,
which predominantly related to the disposal
of the UK OCTG business to Marubeni-Itochu
as part of the European OCTG restructuring.
Gains on business and asset disposals of
$2.8m (2021 – $0.6m gain) relate to gains on
the disposal of PPE and held-for-sale assets.
Legal fees of $5.6m were paid in the year to
defend the Group against a patent infringement
claim made by a competitor.
2022
$m
(7.0)
(5.6)
(12.6)
2021
$m
(6.7)
(8.6)
(25.9)
(2.0)
(1.7)
(0.9)
0.2
1.0
(44.6)
(0.3)
(44.9)
Following these charges, the Group’s loss
before tax was $2.4m (2021 – $85.5m loss).
The net charge for tax was $1.3m in 2022
(2021 – $4.2m). The effective tax rate (“ETR”)
was, therefore, (54)% (2021 – (5)%). The
Group’s ETR is significantly different to that
which might be expected when applying the
weighted average tax rate of 4% to the losses
made by the Group. The main drivers of this
difference continue to be the impact of the mix
of profits and losses in different businesses,
which is distorted when deferred tax is not fully
recognised in loss-making jurisdictions,
primarily the US.
Following the charge for tax, the loss for the year
was $3.7m (2021 – $89.7m loss), with a loss
of $4.6m attributable to Hunting’s shareholders,
leading to a diluted loss per share of 2.8 cents
(2021 – 53.2 cents loss per share).
Adjusting Items
During the year, the Group recorded two
adjusting items. Following the annual review
of goodwill, an impairment charge of $7.0m
was recognised in relation to Enpro Subsea.
Hunting also incurred legal fees of $5.6m in
defending a claim made by a competitor
against the Group relating to a patent
infringement. These adjustments, which
impacted profit from operations, totalled
$12.6m. In 2021, adjustments to profit from
operations totalled $44.6m, as shown in the
table below, and included the amortisation of
acquired intangible assets of $6.7m; an $8.6m
impairment charge for the Fordoun property
following the transaction with Marubeni-Itochu;
and $25.9m for inventory provisions largely
related to the economic downturn following the
COVID-19 pandemic. For further information,
please see NGM A.
Adjusting Items
Adjusting item
Impairment of goodwill
Legal fees
Total adjustment to profit from operations
Adjusting item
Amortisation of acquired intangible assets
PPE impairments
Net inventory impairments
Restructuring costs
Settlement of warrant claim
Loss on disposal of business
Gain on disposal of Canadian assets
Gain on surrender of lease
Total adjustment to loss from operations
Gain on surrender of lease
Total adjustment to loss before tax
Strategic ReportHunting PLC Annual Report and Accounts 2022 39
Group Review
Summary Group Cash Flow
EBITDA (NGM C)
Add: share-based payments
Working capital movements (NGM L)
Lease payments
Net interest and bank fees paid
Net tax (paid) received
Proceeds from business and asset disposals
Net gains on business and asset disposals
Legal fees to defend patent infringement claim
Settlement of warranty claim
Restructuring costs
Other (NGM N)
Free cash flow (NGM O)
Capital investments (NGM M)
Intangible asset investments
Investments in businesses
Convertible financing – Well Data Labs
Dividends paid to equity shareholders
Net purchase of treasury shares
Net cash flow
Foreign exchange
Movement in total cash and bank (note 26)
Opening total cash and bank
Closing total cash and bank (NGM J)
2022
$m
52.0
9.9
61.9
(86.6)
(8.0)
(2.9)
(3.9)
9.0
(2.8)
(5.6)
–
–
0.5
(38.4)
(16.4)
(5.6)
(3.5)
–
(13.6)
(7.7)
(85.2)
(4.5)
(89.7)
114.2
24.5
2021
$m
3.1
9.2
12.3
22.8
(10.6)
(0.4)
0.6
35.9
(0.6)
–
(1.7)
(2.0)
(1.9)
54.4
(6.6)
(2.7)
(8.9)
(2.5)
(12.8)
(7.6)
13.3
(0.8)
12.5
101.7
114.2
In 2021, the Group paid $1.7m to settle
a warranty claim in relation to the transfer
of assets, and their condition, as part of
a corporate transaction in 2020.
In total, investments in associates and joint
ventures were $3.5m (2021 – $5.1m). In 2021,
the Group acquired the 40% non-controlling
interest in HES UK, which was purchased from
Marubeni-Itochu for $3.8m.
Restructuring costs paid totalled $2.0m
in 2021, reflecting the limited changes to the
Group’s organisational structure in that year.
During 2021, the Group provided $2.5m
in convertible financing to Well Data Labs.
As a result of the above and other cash inflows
of $0.5m, a net outflow of $38.4m for free cash
flow was recorded compared to a net inflow
of $54.4m in 2021.
Capital investment increased during the
year and totalled $16.4m (2021 – $6.6m).
Expenditure in the year included $3.9m for
Hunting Titan, mainly in respect of the
automation of the Pampa facility and the
development of pre-loaded guns; $7.2m for
North America, with $1.9m on recommissioning
one of US Manufacturing’s facilities and $2.1m
on Dearborn mostly in relation to a new shot
peen machine; $2.3m in respect of the
relocation of the Group’s facility in Tuas,
Singapore, which was funded by the receipt
of $2.4m from the exit of the Benoi Road lease;
and $1.5m on the relocation to the UK’s new
headquarters in London.
Intangible asset investments were $5.6m
(2021 – $2.7m), with $1.6m in Hunting Titan
relating to internal development costs for new
products and technology, $2.3m in software
and IT infrastructure across the Group, and
$1.7m in relation to distribution rights.
During the year, the Group made a further
investment in Cumberland Additive totalling
$1.6m, increasing the Group’s equity share to
29.2%, and $1.9m into its Indian joint venture
with Jindal SAW.
Dividends paid to Hunting PLC shareholders
in the year totalled 8.5 cents per share
(2021 – 8.0 cents), which absorbed $13.6m
(2021 – $12.8m). A 2022 Final Dividend totalling
4.5 cents per share has been proposed by
the Board, which will be paid on 12 May 2023,
subject to approval by shareholders at the
Company’s Annual General Meeting in
April 2023.
During the year, 2.1m Ordinary shares were
purchased as treasury shares through
Hunting’s Employee Benefit Trust for a total
consideration of $7.9m (2021 – $7.9m). These
shares will be used to satisfy future awards
under the Group’s share award programme.
This was offset by $0.2m (2021 – $0.3m)
received on the disposal of treasury shares.
Overall, in the year, the Group recorded a net
cash outflow of $85.2m (2021 – $13.3m inflow),
which was predominantly driven by the
absorption of cash into working capital
as noted above.
As a result of the above cash outflows and
$4.5m foreign exchange losses, total cash and
bank was $24.5m (NGM J) at the year-end
(31 December 2021 – $114.2m).
Balance Sheet
Property, plant and equipment was $256.7m
at 31 December 2022 (2021 – $274.4m).
Depreciation of $26.6m, disposals of $7.0m and
other items of $1.1m more than offset additions
of $17.0m to give the closing balance noted.
Right-of-use assets totalled $26.0m at
31 December 2022 compared to $24.7m
at 31 December 2021. The movement during
the year included additions of $5.1m as new
lease arrangements were entered into, largely
in relation to the move of the Company’s UK
headquarters. Lease modifications were $3.8m
including a lease extension taken on a facility
in Wuxi, China, offset by lease curtailments
largely in relation to the change in the UK
headquarters. Additions and modifications
were offset by depreciation of $6.4m and
adverse foreign exchange movements of
$1.2m, leading to an overall net increase of
$1.3m being recorded.
Goodwill reduced by $8.6m from $164.1m
to $155.5m following an impairment charge of
$7.0m in relation to Enpro Subsea and adverse
foreign exchange movements of $1.6m.
Other intangible assets reduced by $0.5m
to $35.7m at 31 December 2022. Additions
of $5.7m on internal development of new
products, distribution agreements and software
systems were offset by amortisation charges
of $4.4m and adverse foreign exchange
movements of $1.8m.
Investments in associates and joint ventures
increased by $0.7m to $20.1m at 31 December
2022. The investment of $1.9m in the joint
venture company with Jindal SAW and the
additional investment in Cumberland Additive
of $1.6m were offset by the Group’s share of
losses from associates and joint ventures
recognised in the year of $2.7m and adverse
foreign exchange movements of $0.1m.
Hunting PLC Annual Report and Accounts 2022Strategic Report 40
Group Review
Balance Sheet
Summary Group Balance Sheet
Property, plant and equipment
Right-of-use assets
Goodwill
Other intangible assets
Investments in associates and joint ventures
Working capital (NGM E)
Taxation (current and deferred)
Provisions
Other net assets (NGM H)
Capital employed (NGM I)
Total cash and bank (NGM J)
Lease liabilities
Shareholder loan from NCI
Net (debt) cash (note 26)
Net assets
Equity shareholders’ funds
Non-controlling interests
Total equity
As markets improved, the working capital
requirements of the Group grew throughout the
year, leading to an overall increase of $84.8m
(NGM E), with the balance at 31 December
2022 being $362.8m (2021 – $278.0m).
Inventory increased by $67.7m to $272.1m
at the year-end, which included inventory
provisions of $50.0m compared to provisions
of $59.5m in 2021. Receivables increased
significantly by $75.8m to $233.0m as activity
levels improved. The increases in inventories
and receivables were partly offset by a $58.7m
increase in trade and other payables to $142.3m.
Net tax assets on the balance sheet were
$4.0m at 31 December 2022 compared
to a net tax asset of $1.4m in the prior year.
Net tax assets have risen largely as a result
of the recognition of previously unrecognised
deferred tax assets, reflecting improved profit
expectations in certain business units in the
UK and Middle East.
Provisions increased to $8.9m (2021 – $8.1m)
in the year and other net assets increased by
$1.6m to $4.3m (2021 – $2.7m) as fees related
to the Asset Based Lending facility were
capitalised on inception.
As a result of the above changes, capital
employed in the Group increased by $63.4m
to $856.2m. The return on average capital
employed was, therefore, 1% in 2022
compared to (4)% in 2021 (NGM R).
Net debt (note 26) at 31 December 2022 was
$10.0m (2021 – $78.5m net cash). Net debt
includes $30.6m of lease liabilities, with little
change from 2021. Total cash and bank
balances decreased by $89.7m during the year,
as described above, to $24.5m (NGM J).
Total equity at 31 December 2022 was
$846.2m, which, after non-controlling interests
of $1.6m, resulted in equity shareholders’ funds
of $844.6m (2021 – $869.9m).
2022
$m
256.7
26.0
155.5
35.7
20.1
362.8
4.0
(8.9)
4.3
856.2
24.5
(30.6)
(3.9)
(10.0)
846.2
844.6
1.6
846.2
2021
$m
274.4
24.7
164.1
36.2
19.4
278.0
1.4
(8.1)
2.7
792.8
114.2
(31.8)
(3.9)
78.5
871.3
869.9
1.4
871.3
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 foreign exchange swaps to convert
US dollars into the different currencies required
by the entities. Spot and forward foreign
exchange contracts are also used to mitigate
the exposure caused by purchases and sales
in non-functional 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.
$160.0m Revolving Credit Facility
The Group retained access to its $160.0m
multi-currency RCF for the first five weeks
of 2022, with covenants and terms remaining
unchanged until the facility was cancelled on
7 February 2022, as part of the refinancing
exercise detailed below.
This is a decrease of $25.3m since
31 December 2021 and reflects the loss for
the year attributable to equity shareholders
of $4.6m; dividends paid of $13.6m; the net
purchase of treasury shares of $7.7m and
adverse foreign exchange movements and
other items of $8.8m, being offset by a net
credit of $9.4m in relation to share awards.
Financial Capital Management
Hunting ended 2022 with a robust balance
sheet and a total cash and bank balance
of $24.5m (2021 – $114.2m). As previously
reported, on 7 February 2022 the Group
entered a new $150m Asset Based Lending
(“ABL”) facility, which replaced the $160m
Revolving Credit Facility (“RCF”).
Given the “covenant-light” structure of the ABL,
the new facility has materially increased the
Group’s liquidity through the trading cycle
and provides Hunting with a more flexible and
reliable source of committed funding to pursue
new growth opportunities.
In our Going Concern assessment on page 111,
the Directors consider the likelihood that the
Group will require access to the facility, or any
other source of external funding, to support our
existing operations in the next 12 months.
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.
Strategic ReportHunting PLC Annual Report and Accounts 2022 41
Group Review
No amounts were drawn in the facility up to its
cancellation. The covenants that prevailed for
the first few weeks of 2022, which exclude the
impact of IFRS 16 adoption for covenant testing
purposes, included:
• The ratio of net debt to consolidated EBITDA
permitted under the revolving credit facility
must not exceed a multiple of three times
(the “leverage covenant”); and
• Consolidated EBITDA must also cover
relevant finance charges by a minimum
of four times (the “interest cover covenant”).
$150.0m Asset Based Lending Facility
On 7 February 2022, the Company concluded
a refinancing of its core borrowing facilities by
entering into a $150m Asset Based Lending
(“ABL”) facility. The ABL facility has a four-year
term maturing on 7 February 2026 and
replaces the $160.0m Revolving Credit Facility.
An accordion feature of up to $50.0m has also
been agreed. Assuming there is lender support
to do so at the appropriate time, this feature
allows the Company to increase the total facility
quantum to $200.0m.
Although the ABL is a “covenant-light” funding
solution, financial covenants are still a feature.
However, unlike the RCF, the ABL financial
covenants are only measured under certain
conditions, principally once utilisation of the
facility goes through a predefined threshold
i.e. 87.5% of the “Line Cap” (“Line Cap” is
defined as the lesser of the total facility amount
and the Borrowing Base), at which point the
Fixed Charge Cover Ratio (“FCCR”) is
measured and must be complied with.
The FCCR is a financial covenant that looks
back over the trailing 12-month period to assess
whether EBITDA covers the Company’s Fixed
Charges at a ratio of at least 1:1.
The main objective of the refinancing was
to deliver a more flexible funding arrangement,
leveraging the strength of the Group’s balance
sheet to unlock bank funding by linking the
Group’s borrowing capacity to secured asset
values rather than earnings. The ABL construct
provides a degree of insulation against the
historical cyclicality of the oil and gas sector
and the sensitivity of a conventional RCF
earnings-based covenant regime.
The three asset classes that form the
“Borrowing Base” against which bank capital
can be advanced are North American trade
receivables, inventories and freehold properties.
These asset classes have demonstrated
strong value resilience “through the cycle”.
The Borrowing Base may be recalibrated
periodically based on the then-prevailing
in-scope asset values, as would be typical for
facilities of this nature. Accordingly, availability
under the ABL facility will fluctuate to the extent
that the underlying asset values change over
time, either up or down.
Whereas the RCF depended on a certain level
of EBITDA being maintained to access the
facility, the amount available in an ABL structure
moves in line with the borrower’s balance sheet,
which, in Hunting’s case, is historically much
more stable than earnings. It is this robustness
in Hunting’s balance sheet that underpins the
commercial justification for moving the Group’s
funding base from an earnings-based RCF into
an ABL arrangement.
The collateral reporting cycle for the period
ending 31 December 2022 delivered asset
values (after the discounts as prescribed by the
terms of the ABL credit agreement have been
applied) amounting to $164.3m. The difference
between the total facility quantum available to
the Company under the ABL (i.e. $150.0m) and
the discounted asset values described above
was $14.3m. This is referred to as “Suppressed
Availability”. This figure represents the amount
of over collateralisation provided by the Group
and, subject to the constraints and thresholds
described above in terms of when compliance
with the FCCR covenant testing is triggered,
means that not only does the entire $150.0m
remain available for utilisation by the Group,
but collateral values can, in aggregate, move
downwards by this amount before access
to ABL proceeds are impeded.
Annual field examinations and asset appraisals
are conducted by specialist, bank appointed,
third-party valuation firms in order to assess the
nature and commercial viability of the secured
ABL assets, so that appropriate discounts, or
“advance rates”, can be determined. The initial
asset appraisals were completed in H2 2021
and consequently the advance rates to be
applied in each category for the first 12 months
of the ABL’s tenor were imputed. The annual
review of the relevant prevailing discount rates
was conducted during September and October
of 2022. The findings of the Field Examiners
concluded that no adjustment to the discount
rates would be required.
As previously reported, the opening availability
at 7 February 2022 was based on in-scope
trade receivables and inventory balances only.
The legal process to finalise accession of the
in-scope freehold properties successfully
completed on 7 July 2022, at which point an
additional $37.5m was added to the Borrowing
Base, enabling access to the full $150.0m
facility quantum from that point onwards, again
subject to the thresholds and constraints
described above.
In January 2023, one of the banks in the ABL
lending group provided a $2.4m letter of credit
in favour of one of the Group’s major customers,
which has an expiration date of February 2026.
This amount has been permanently carved out
of the total facility amount that Hunting is able
to utilise under the ABL.
In summary, the ABL structure continues to
provide the Group with access to consistently
higher levels of committed liquidity than would
have been available under the now-cancelled
RCF, due to significantly reduced sensitivity
to the prevailing earnings environment.
It is management’s view that, despite the
significant reduction in cash balances since
December 2021 to fund the current increase
in working capital, the Group’s primary source
of financing remains resilient and continues
to provide a strong foundation on which the
strategic growth aspirations of the Company
may be established.
Due to the exchange control restrictions
in China, in the year, three additional working
capital credit facilities totalling CNY240.0m
($34.7m) were arranged to provide support
for the large OCTG supply contract awarded
to the Group’s Chinese subsidiary by CNOOC.
The facilities were organised bilaterally between
the Company and three local banks namely
Bank of Jiangsu (CNY50.0m), ICBC
(CNY25.0m) and HSBC China (CNY165.0m).
The facilities have been arranged on an
uncommitted, unsecured basis. Further details
relating to the specifics of these facilities can
be found in note 30.
On behalf of the Board
Jim Johnson
Chief Executive
Bruce Ferguson
Finance Director
2 March 2023
Hunting PLC Annual Report and Accounts 2022Strategic Report Throughout 2022, Hunting has
reported against four operating
segments, which reflect the
geographic split of our global
businesses.
From 1 January 2023, Hunting
will be reporting its Subsea
Technologies businesses as
a separate operating segment.
42
Segmental Review
Segmental
Review
Hunting Titan
Hunting Titan launched new products
in the year, including the H-3 Perforating
System™, which aligns with evolving onshore
completion techniques.
The segment also increased its manufacturing
capacity for pre-loaded guns to address
customer demand.
To meet the increasing activity across the
oil and gas industry, Hunting Titan has invested
in new capacity in Mexico.
North America
Hunting’s North America operating segment
has seen a strong return to growth in the year,
as demand for OCTG and accessories
manufacturing increased strongly as domestic
and international projects restarted.
In Canada, Hunting’s OCTG business has seen
continued growth leading to good profits being
reported, following the restructuring of the
business in 2020.
The Advanced Manufacturing group increased
its sales order book in the year, with strong
progress being made to diversify revenue with
non-oil and gas sales.
The Subsea Technologies group also has
reported a strong run of large order wins in
the year, particularly for its titanium and steel
stress joints.
Strategic ReportHunting PLC Annual Report and Accounts 2022 43
Segmental Review
EMEA
During 2022, the Group transitioned its
European OCTG operations to a new business
model, following the restructuring that
concluded at the end of 2021. Hunting now
focuses on threading services and pipe
logistics in the UK.
In the year, Hunting’s Netherlands and
Aberdeen facilities commenced a major OCTG
threading order for Tubacex, which led to new
shifts being added.
With the market growth seen in the Middle
East, activity within the Group’s Dubai and
Saudi Arabia facilities increased.
Asia Pacific
While the Asia Pacific segment was impacted
by the closure of the Shanghai port in the early
part of the year, in H2 2022 the segment saw
a strong return to growth as the impact of the
pandemic declined.
The segment secured Hunting’s largest ever
OCTG order in August 2022, with a $86m
contract with CNOOC. This will predominantly
be completed during 2023.
The segment has also consolidated its facilities
in Singapore and has now integrated its OCTG,
accessories and well intervention manufacturing
capabilities into a single site.
Hunting PLC Annual Report and Accounts 2022Strategic Report 44
Segmental Review
Hunting Titan
Market Indicators*
US land – average rig count
US land – drilling spend
Canada – average rig count
Canada – total drilling spend
Revenue
Perforating Guns and Hardware
Energetics
Instruments
Perforating Systems
Other Products
External revenue
Inter-segment revenue
Segment revenue
Profitability
EBITDA
EBITDA margin
Operating profit (loss)
Adjusting items
Adjusted operating profit (loss)
Adjusted operating margin
Other Financial Measures
Capital investment
Property, plant and equipment
Inventory
Operational
Headcount (year-end)
Headcount (average)
Sales order book – external
Operating sites
Service and distribution centres
Operational footage
2022
705
100.8
178
15.1
106.1
69.7
70.7
246.5
11.3
257.8
8.2
266.0
24.7
9
10.3
5.6
15.9
6
3.9
51.9
122.6
656
595
29.8
5
12
651
2021
460
67.3
130
9.3
66.1
49.1
61.9
177.1
7.3
184.4
4.9
189.3
8.0
4
(9.0)
8.1
(0.9)
0
1.1
54.0
85.5
517
449
13.7
5
12
651
#
$bn
#
$bn
$m
$m
$m
$m
$m
$m
$m
$m
$m
%
$m
$m
$m
%
$m
$m
$m
#
#
$m
#
#
Kft2
*Source: Spears & Associates – December 2022 Drilling and Production Report.
Introduction
Hunting Titan’s business focuses
predominantly on the US and Canadian
onshore drilling and completion markets.
The segment manufactures from five main
operating sites, four in the US and one
in Mexico.
Hunting Titan has a network of distribution
centres throughout the US and Canada from
which the majority of the segment’s sales are
derived. Hunting Titan also utilises the global
manufacturing footprint of the wider Group
to assist in meeting customer demand and,
during the year, the Electronics business unit,
which is part of the North America operating
segment, continued to manufacture switches
on behalf of Hunting Titan.
Market Overview
US onshore drilling and production spend
increased by 50% in 2022 to $100.8bn, up
from $67.3bn in 2021. The average US onshore
rig count increased by 53% in 2022 to 705
active units compared to 460 units in 2021.
In Canada, drilling spend increased 62% from
$9.3bn in 2021 to $15.1bn in 2022, while the
average rig count increased by 37% in the year
to 178 active units, compared to 130 units
in 2021.
This market data underpins the strong growth
in the performance of Hunting Titan throughout
the year driven by the higher price for WTI
crude oil along with the increase in the number
of active frac jobs reported in the year.
Segment Performance
Segment revenue increased 41% to $266.0m
(2021 – $189.3m), given the continued
strengthening of US and Canadian onshore
drilling markets seen throughout the year.
During the year, Hunting Titan’s international
sales increased by 24% from $27.2m in 2021
to $33.6m in 2022, as drilling increased within
Asia Pacific, the Middle East and South America.
Further, inter-segment sales increased 67%
from $4.9m in 2021 to $8.2m in 2022.
EBITDA for the year was $24.7m up significantly
from $8.0m in 2021, with an EBITDA margin
of 9% compared to 4% in 2021, reflecting the
improved performance in all four of the
segment’s revenue streams.
Profit from operations for the year was $10.3m
(2021 – $9.0m loss), which reflects the higher
production volumes recorded during 2022 as
market activity increased, coupled with the
impact of some price increases implemented.
An adjusting item totalling $5.6m was charged
in the year, relating to legal expenses incurred
in defending a patent infringement challenge
from a competitor.
Adjusted profit from operations was therefore
$15.9m for the year (2021 – $0.9m loss).
Hunting Titan’s revenue streams are divided
into four sub-groups: (i) perforating guns and
hardware; (ii) energetics; (iii) instruments; and
(iv) other.
Strategic ReportHunting PLC Annual Report and Accounts 2022 45
Segmental Review
Perforating Guns and Hardware
Sales of Perforating Guns and Hardware
increased 61% in the year from $66.1m in 2021
to $106.1m in 2022.
During the year, Hunting Titan has introduced
the H-3 Perforating System™ to clients in
North America. The system allows for in-field
efficiency increases in well completion
procedures, as well as allowing internal
manufacturing efficiencies to be captured
to improve production costs. Across the year,
there has been strong customer acceptance
of the new system and sales volumes have
increased steadily throughout.
Internationally, the Group has focused its sales
efforts on the E-Gun™ perforating system and
in the year saw increased sales volumes in
South America and the Middle East.
In line with the evolving industry, demand for
pre-loaded gun (“PLG”) systems has increased
in the year, driven in part by the focus on
completion costs by clients. Sales volumes of
PLG systems have increased 98% in the year,
with the Group now stocking PLGs at its Milford,
Pampa, Williston and Brockway facilities.
In H2 2022, the Group began an investment
programme to expand the manufacturing
of perforating systems at the Group’s Mexico
facility, to support demand in North and
South America.
With this new capacity coming on stream
during 2023, the Group is planning to increase
its manufacturing volumes of gun systems by
c.20% during 2023.
Energetics
During 2022, sales volumes of energetics
charges also increased as market activity
recovered, leading to higher year-on-year
revenue. Price increases were implemented
during the year as demand increased. Overall,
sales of Energetics increased 42% in the year
from $49.1m in 2021 to $69.7m in 2022.
Titan has invested in new perforating
system manufacturing capacity in Mexico
to meet demand across North America.
Following investment in the production of
detonating cord since 2020, Hunting Titan sold
c.2.0m feet to both internal and external clients
during the year compared to c.0.5m feet in
2021, with manufacturing volumes increasing
steadily with demand throughout 2022.
Instruments
Sales of addressable switches and instruments
have increased materially in the year and have
outperformed management’s expectations.
Due to component supply chain constraints,
and to ensure the Group delivered for its
customers in the year, Hunting Titan focused
its switch sales to those integrated into the
Group’s perforating systems.
Sales volumes of addressable switches
increased c.10% in the year as commodity
prices and the rig count continued to
strengthen throughout the year. Overall, sales
of instruments increased 14% in the year from
$61.9m in 2021 to $70.7m in 2022.
New Technology
Hunting Titan continues to develop and
introduce new technology to clients to support
in-field activity, in the drive to increase safety
and lower completion costs.
In late 2022, Hunting Titan launched a new
high temperature rated ControlFire™ switch,
which allows for new markets to be pursued
domestically in the US and internationally.
The Group will shortly be launching the H-4
Perforating System™, which is a self-orientating
system that will improve the accuracy of well
completions. Along with H-4™, EQUAFrac OP™,
a new line of consistent hole shaped charges
designed for the H-4™ will also be launched.
Hunting will also be launching a new Perf+
shooting panel to clients during 2023. The new
panel will have the ability to automate firing and
increase accuracy during a frac-job and will
support further in-field efficiencies for the
Group’s clients.
Manufacturing and Distribution
At the year-end, Hunting Titan operated from
five operating sites and 12 distribution centres,
located in the US and Canada.
Hunting Titan has invested in
additional detonating cord capacity.
Other Financial Information
During the year, Hunting Titan recorded capital
investment of $3.9m (2021 – $1.1m) mainly
relating to new production capacity in Mexico,
investment in new automated manufacturing
cells at the Group’s Pampa facility, in addition
to new equipment purchases for the Milford
and Wichita Falls facilities.
Inventory increased by $37.1m to $122.6m
in the year, as market conditions improved
across all areas of the business, coupled with
the forward purchasing of critical components
and raw materials.
As the US onshore drilling market improved
throughout the year, selected recruitment
commenced within the segment, leading
to a 27% year-on-year increase in headcount
to 656 (2021 – 517).
Hunting PLC Annual Report and Accounts 2022Strategic Report 46
Segmental Review
North America
Market Indicators*
US land – average rig count
US offshore – average rig count
US – total drilling spend
Canada – average rig count
Canada – total drilling spend
Revenue
OCTG and Premium Connections
Advanced Manufacturing
Subsea Technologies
Intervention Tools
Other product lines
External revenue
Inter-segment revenue
Segment revenue
Profitability
EBITDA
EBITDA margin
Operating profit (loss)
Adjusting items
Adjusted operating profit (loss)
Adjusted operating margin
Other Financial Measures
Capital investment
Property, plant and equipment
Inventory
Operational
Headcount (year-end)
Headcount (average)
Sales order book – external
Operating sites
Service and distribution centres
Operational footage
2022
705
15
104.2
178
15.1
154.3
67.3
69.0
10.5
24.0
325.1
24.6
349.7
30.1
9
1.1
7.0
8.1
2
7.2
180.0
108.7
973
909
312.5
13
2
1,324
#
#
$bn
#
$bn
$m
$m
$m
$m
$m
$m
$m
$m
$m
%
$m
$m
$m
%
$m
$m
$m
#
#
$m
#
#
Kft2
*Source: Spears & Associates – December 2022 Drilling and Production Report.
2021
460
14
69.8
130
9.3
97.1
55.4
58.8
5.8
15.8
232.9
21.7
254.6
6.0
2
(38.7)
22.6
(16.1)
-6
4.1
195.1
78.1
836
837
156.4
14
2
1,380
Introduction
Hunting’s North America segment incorporates
the US businesses and the OCTG business
in Canada, and generates revenue from most
of the Group’s product lines.
The main areas of focus, for most businesses
in the segment, are the domestic US and
Canada markets, with the Subsea and
Advanced Manufacturing businesses more
internationally focused. In addition, the segment
manufactures components on behalf of
Hunting Titan, when required.
The segment also generates a large proportion
of the Group’s non-oil and gas sales, which are
derived from the Advanced Manufacturing
group and the Trenchless business that
services the telecommunications sector.
Market Overview
US total drilling and production spend
increased by 49% in 2022 to $104.2bn,
up from $69.8bn in 2021, driven by higher
commodity prices reported during the year.
The average US onshore rig count increased
by 53% in 2022 to 705 active units compared
to 460 units in 2021, which supported
Hunting’s onshore businesses within the North
America segment. The average US offshore rig
count increased in the year to 15 active units
compared to 14 units in 2021.
In Canada, drilling spend increased by 62%
from $9.3bn in 2021 to $15.1bn in 2022, while
the average rig count increased by 37% in the
year to 178 active units compared to 130 units
in 2021.
Segment Performance
In 2022, segment revenue increased by 37%
from $254.6m in 2021 to $349.7m in 2022 as
activity and enquiry levels improved materially
during the year. Price increases have been
implemented across most product lines within
the segment as market conditions improved
and demand increased, leading to EBITDA of
$30.1m (2021 – $6.0m) and an EBITDA margin
of 9% (2021 – 2%).
The segment recorded a profit from operations
of $1.1m (2021 – $38.7m loss), reflecting the
higher volumes and prices recorded across
the period.
Adjusting items totalled $7.0m in the year and
comprise the goodwill impairment of the Enpro
Subsea business unit. Adjusting items in 2021
totalled $22.6m and mainly comprised the
inventory provision of $18.9m.
After adjusting items, the segment recorded
an adjusted profit from operations of $8.1m
(2021 – $16.1m loss) and an adjusted operating
margin of 2% (2021 – (6)%).
Strategic ReportHunting PLC Annual Report and Accounts 2022 47
Segmental Review
OCTG and Premium Connections
The Group’s North America OCTG, Premium
Connections and Accessories manufacturing
businesses saw strong growth during 2022
as activity levels within Hunting’s core trading
markets accelerated.
During the year, demand for Hunting’s
proprietary TEC-LOCK Wedge™ semi-
premium connection continued to accelerate
as US onshore clients increased drilling activity.
As the year progressed, enquiries for offshore
drilling projects increased, utilising the
Group’s SEAL-LOCK™ and WEDGE-LOCK™
connections and, notably, in larger diameter
sizes more common with deep water
drilling projects.
In Canada, the segment’s OCTG business
saw a strong performance in the year as drilling
expenditures and rig counts increased.
Following the restructuring of the Group’s
Canadian business in 2020, which saw the
closure of the manufacturing facility and the
adoption of a third-party outsourced
manufacturing business model, the business
has returned to profitability, driven by demand
for Hunting’s TKC-4040™ connection.
The sales order book within the Premium
Connections business unit has more than
tripled during 2022, reflecting the strengthening
outlook for both onshore and offshore activity
across the region, with a strong outlook for
2023 anticipated.
The Accessories Manufacturing business unit
saw a similar increase to its sales order book
in the year, which has supported the domestic
growth seen across Hunting’s US businesses,
but has also successfully won material orders
for offshore drilling projects in South America
where activity has grown strongly, particularly
in Brazil and Guyana, as development projects
continue to be sanctioned. All facilities within
this business group have moved to a two shift
pattern during the year, reflecting the steadily
increasing demand of most products.
Well intervention equipment being
prepared for shipping.
Further, as market conditions improved, price
increases were implemented on most product
lines within these businesses.
The Advanced Manufacturing group has
seen a strong increase in its sales order
book in the year.
Advanced Manufacturing
The Advanced Manufacturing group has seen
its total sales order book increase by 55%,
ending 2022 with a value of $121.1m.
The Hunting Dearborn business unit made
strong in-roads into building its non-oil and gas
business, with new order wins in the power
generation, aviation and space sectors being
secured in the year. Hunting Dearborn’s sales
order book was $71.3m at the year-end and
comprised c.68% of non-oil and gas work.
During 2022, the business experienced some
supply chain constraints, particularly in the
sourcing of high-nickel alloy raw materials,
which has slowed the delivery of some orders.
However, this issue receded as the year has
progressed.
Within the Hunting Electronics business unit,
the sales order book has also increased
steadily in the year and reached $49.8m
at the year-end. The business was impacted
by supply constraints for microchips during
the year, which affected all industries, and
led to performance below management’s
expectations. However, this issue is declining
and the business is likely to see a strong 2023
as the above order book is worked through.
The Electronics business is also pursuing more
non-oil and gas revenue and, as part of the
Hunting 2030 strategic ambition, now targets
a sales mix of 70% of non-oil and gas sales
by the end of the decade.
Subsea Technologies
2022 was a strong year of growth for the
Group’s Subsea Technologies business group,
which comprises the Spring, Stafford and
Enpro business units. Subsea Technologies’
sales order book has increased by 139%
to $105.1m at the end of the year.
The Subsea Spring business unit won a
number of large orders during the year to supply
its steel and titanium stress joints (“TSJs”)
to clients operating in the Gulf of Mexico and
in South America, which will be for subsea
developments tying back to traditional floating
production platforms and FPSO facilities.
The latter application is particularly innovative
as the use of TSJs improves the cash flow
efficiencies of an FPSO as more oil can be
removed from these vessels over time, bringing
the oil to market quicker and thus generating
cash flows for operators in shorter timescales.
This innovative design, of hanging the stress
joints from the porches above the water line,
drastically improves safety and simplifies
installation procedures. The Subsea Spring
business believes that TSJs can be applied
to all new-build FPSOs globally and, therefore,
sees strong growth opportunities in Africa and
Asia Pacific, as well as good growth in the
US and South America.
The Stafford business unit saw a strong
increase in enquiry levels for its hydraulic valves
and couplings in the year as global activity
levels increased.
The Enpro business unit reported a more
challenging year as new projects utilising its
technology did not materialise in the time
frames anticipated by management. However,
in line with the rest of the segment, the outlook
for Enpro’s Flow Access Modules, in addition
to Energy Transition opportunities, positions
the business positively for 2023.
As noted elsewhere, the Subsea Technologies
business group will be a separate operating
segment of the Group with effect from
1 January 2023.
Well Intervention
The Group’s well intervention business
saw good growth in the year as clients
recommenced the purchasing of capital
equipment, leading to a much-improved
financial performance.
Other Product Lines
The Trenchless business unit reported a
particularly strong year as telecommunication
infrastructure programmes across the US
continued, which generated strong demand for
the business’ drill stems. Given that the rollout
of 5G networks across the US will continue into
the medium term, the outlook for this business
is extremely promising.
Other Financial Information
During the year, the North America segment
recorded capital investment of $7.2m
(2021 – $4.1m), as new equipment was
purchased at a number of the segment’s
facilities.
Inventory increased by $30.6m to $108.7m
as activity increased across all of the segment’s
business units.
The year-end headcount increased to 973
(2021 – 836), as rehiring recommenced across
most business units, in line with the sales order
book increases noted elsewhere in this report.
Hunting PLC Annual Report and Accounts 2022Strategic Report 48
Segmental Review
EMEA
(Europe, Middle East and Africa)
Market Indicators*
Europe – average rig count
Europe – well count
Europe – spend
North Sea – average rig count
North Sea – spend
Middle East – spend
Revenue
OCTG and Premium Connections
Intervention Tools
Perforating Systems
Other product lines
External revenue
Inter-segment revenue
Segment revenue
Profitability
EBITDA
EBITDA margin
Operating loss
Adjusting items
Adjusted operating loss
Adjusted operating margin
Other Financial Measures
Capital investment
Property, plant and equipment
Inventory
Operational
Headcount (year-end)
Headcount (average)
Sales order book – external
Operating sites
Operational footage
2022
74
687
14.5
30
13.4
19.0
32.4
20.9
5.4
10.6
69.3
2.2
71.5
(2.1)
-3
(6.0)
–
(6.0)
-8
0.7
14.3
23.6
247
226
28.3
8
236
2021
82
717
12.6
26
11.2
16.5
30.3
15.4
4.6
7.4
57.7
0.4
58.1
(7.3)
-13
(26.2)
15.0
(11.2)
-19
0.5
9.7
23.1
224
220
21.8
8
236
#
#
$bn
#
$bn
$bn
$m
$m
$m
$m
$m
$m
$m
$m
%
$m
$m
$m
%
$m
$m
$m
#
#
$m
#
Kft2
*Source: Spears & Associates – December 2022 Drilling and Production Report.
Introduction
Hunting’s European operations comprise
businesses in the UK, Netherlands and Norway.
These operations provide OCTG (including
threading, pipe storage and accessories
manufacturing) and well intervention products
in the UK; OCTG and well testing equipment
manufacturing in the Netherlands; and well
intervention services and distribution in Norway.
Hunting’s Middle East operations are located
in Dubai, UAE and Dammam, Saudi Arabia.
The Group’s operations in Saudi Arabia are
through a 65% arrangement with Saja Energy.
Market Overview
Activity across the EMEA region has increased
as energy security and the higher commodity
price environment stimulated new activity.
Within Europe, drilling spend increased 15%
from $12.6bn in 2021 to $14.5bn in 2022.
Of note has been the increase in the average rig
count in the UK North Sea from 8 to 10 units,
which supported Hunting’s UK OCTG business.
In the Middle East region, drilling spend also
increased by 15% from $16.5bn in 2021 to
$19.0bn in 2022. The rig counts in Iraq and
Saudi Arabia have also increased strongly
at 33% and 18% respectively, reflecting the
restart of drilling following the exit from the
COVID-19 pandemic.
Segment Performance
The EMEA operating segment’s revenue
increased by 23% in the year from $58.1m
in 2021 to $71.5m in 2022. The segment’s
EBITDA loss narrowed during the year and was
$2.1m compared to a loss of $7.3m in 2021 and
the EBITDA margin went from (13)% to (3)%.
The loss from operations was $6.0m
(2021 – $26.2m loss) for the year. There
were no adjusting items for the year. In 2021,
the adjusted loss from operations for the
segment was $11.2m after adjustments totalling
$15.0m, including impairments to the carrying
values of PPE and inventories being recorded.
OCTG and Premium Connections
2022 has been a year of transition for the
segment, following the restructuring of the
European OCTG business in December 2021.
The UK business unit successfully won new
clients, including new threading contracts for
clients operating in the North Sea, but also
increased its pipe storage and logistics
business for a wider range of customers
who operate in the region.
The Group’s Netherlands facility also had
a successful year, with the business winning
an OCTG threading contract with Tubacex
for a project in Brazil. The contract began in
March 2022 and continued throughout the year,
with a third shift being added in Holland during
Q3 2022 to complete this important order.
Hunting’s Aberdeen threading and accessories
manufacturing business has supported this
contract and increased to two shifts in 2022.
Well Intervention and Well Testing
The segment saw a notable increase in
enquiries for well intervention products in the
second half of the year, as clients recommenced
capital equipment purchasing. Of note has
been the increase in activity in Saudi Arabia
and Norway, where new orders were secured
as activity increased.
The Group’s Well Testing business unit
recorded a steady performance in the year.
Organic Oil Recovery
Hunting’s licensed Organic Oil Recovery
(“OOR”) technology made strong progress
towards commercialisation during 2022,
following COVID-19 delays in pilot tests.
During the year, the business progressed
dialogue with clients operating in Angola,
Kuwait, Nigeria, Oman, Saudi Arabia and the
UK, most of which have progressed to formal
dialogue with respect to pilot tests and
reservoir treatments to improve oil recovery
within end-of-life fields.
Of note has been the Scott field treatment in
the UK, which commenced in November 2022.
CNOOC, the operator of the field, has
accelerated its plans for this technology
following the initial treatment and test results
reported in 2021.
Other Financial Information
During the year, there was limited investment
in property, plant and equipment.
Inventory increased marginally to $23.6m
compared to December 2021 of $23.1m.
There was an increase in the average headcount
from 220 at the end of 2021 to 226. As part
of the segment’s restructuring, 11 employees
were transferred to Marubeni-Itochu in 2022.
Strategic ReportHunting PLC Annual Report and Accounts 2022 49
Segmental Review
Asia Pacific
Market Indicators*
Far East – average rig count
Far East – spend
Middle East – spend
Revenue
OCTG and Premium Connections
Other product lines
External revenue
Inter-segment revenue
Segment revenue
Profitability
EBITDA
EBITDA margin
Operating loss
Adjusting items
Adjusted operating loss
Adjusted operating margin
Other Financial Measures
Capital investment
Property, plant and equipment
Inventory
Operational
Headcount (year-end)
Headcount (average)
Sales order book – external
Operating sites
Operational footage
2022
171
17.9
19.0
68.6
5.0
73.6
6.8
80.4
(0.7)
-1
(3.4)
–
(3.4)
-4
2.6
7.7
19.3
309
301
102.4
3
531
#
$bn
$bn
$m
$m
$m
$m
$m
$m
%
$m
$m
$m
%
$m
$m
$m
#
#
$m
#
Kft2
2021
160
12.6
16.5
42.0
4.6
46.6
1.5
48.1
(3.6)
-7
(6.8)
(0.1)
(6.9)
-14
0.4
6.5
18.8
302
341
19.7
4
545
*Source: Spears & Associates – December 2022 Drilling and Production Report.
Introduction
Hunting’s Asia Pacific operating segment
covers three operating facilities across China,
Indonesia and Singapore and services
customers predominantly in Asia Pacific
and the Middle East. In Singapore, Hunting
manufactures OCTG premium connections
and accessories and well intervention
equipment. The Group’s Indonesia facility
completes threading and accessories work.
In China, the Group operates from a facility
in Wuxi, which has OCTG threading and
perforating gun manufacturing capabilities.
Market Overview
Across the Asia Pacific region drilling spend
increased 42% from $12.6bn in 2021 to
$17.9bn in 2022, with the average rig count
increasing 7% as activity improved rising from
160 to 171 units as drilling increased in
Indonesia, Malaysia, Thailand and Vietnam.
As noted previously, Middle East drilling spend
increased 15% in the year from $16.5bn in 2021
to $19.0bn in 2022, with the increases being
led by new drilling in Iraq and Saudi Arabia.
In China, drilling spend is estimated to have
increased 5% from $23.4bn in 2021 to $24.5bn
in 2022.
Segment Performance
Revenue in the year increased 67% to $80.4m
compared to $48.1m in the prior year, as market
conditions improved, particularly in the second
half of the year. In the early months of 2022, the
segment’s performance was impacted by the
closure of the Shanghai port, which led to raw
material supply chain constraints. However, this
position eased in the second half of the year.
The segment’s EBITDA loss narrowed from
$3.6m in 2021 to $0.7m in 2022, and the
EBITDA margin improved from (7)% to (1)%.
The loss from operations for 2022 was $3.4m
compared to $6.8m in 2021. There were no
adjusting items in the year. The adjusted loss
from operations in 2021 was $6.9m.
OCTG and Premium Connections
In H1 2022, the segment saw reduced trading
as raw material supply chain constraints
resulted from the closure of the Shanghai port
in China. However, as these restrictions were
lifted, the performance of the segment
improved in the second half.
In May 2022, the Singapore facilities were
consolidated into a single site in the Tuas port
region. The new facility, totalling c.58,200 sq ft,
now provides OCTG, accessories and well
intervention manufacturing in a single location.
This will increase efficiencies and lower the
carbon footprint of the Group’s operations
in the region.
In August 2022, the Group announced a major
OCTG supply contract with CNOOC, which
management estimates to be valued at up
to $86m. The order requires China-sourced
OCTG to be threaded with Hunting’s proprietary
SEAL-LOCK XD™ premium connection and
will be used in an offshore drilling project.
The majority of the order will be completed
during 2023.
During the year, a key development for the
business was the recommencement of drilling
in the Kurdistan region of Iraq and Kuwait, as
COVID-related restrictions were lifted. In H2
2022, new tenders were issued, with the Group
securing a number of orders with operators in
the region. The outlook for new opportunities
is extremely promising as drilling and market
conditions improve across the Middle East.
India Joint Venture
During the year, the Group progressed the
development of its new threading facility in
the Nashik province, adjacent to Jindal SAW’s
steel mill.
In H2 2022, equipment deliveries and staff
training commenced, with new employees
visiting the Group’s Singapore and US facilities.
Threading is due to commence in H1 2023
to take advantage of the domestic oil and gas
market across the Indian sub-continent, as
local materials sourcing requirements imposed
by the government on new oil and gas drilling
projects increase.
New Technology
In parallel with the segment’s traditional oil
and gas activities, Hunting continued its
collaboration with Helios Energy to develop
and manufacture micro-hydro generators.
Installations were completed in the Philippines
in the year, following successful trials in 2021.
The segment is also developing its network
within the geothermal sub-sector of the market,
as new projects are commissioned across
the region.
Other Financial Information
Inventory increased during the year to $19.3m
(2021 – $18.8m).
Additions of $2.6m to PPE in the year were
modest and includes the $2.3m investment
in the new Singapore facility, which was funded
by the receipt of $2.4m to exit the Benoi
Road facility.
There was a slight increase in the headcount
from 302 to 309 in the year, as activity
levels improved.
Hunting PLC Annual Report and Accounts 2022Strategic Report 50
Our Business Model
Our Business
Model
Hunting’s financial and operational
resources enable us to leverage
our core competencies in systems
design and production, precision
engineering and quality print-part
manufacturing. This allows us to
add value for our stakeholders.
We have a
strong brand
and reputation
Hunting’s standing in the global oil and gas
industry is supported by our skilled employees,
our manufacturing and safety policies, and
our aim to be close to where our customers
operate. A key part of our strategy for growth
and ambition for a high calibre reputation
is through our commitment to our clients,
with many oil service and exploration and
production companies relying on our expertise.
We have skilled
manufacturers
The training and development of our
employees helps us deliver for our customers.
We operate complex machinery, underpinned
by rigorous Health and Safety and Quality
Assurance protocols, which support our
service and products offering.
Strategic ReportHunting PLC Annual Report and Accounts 2022 51
Our Business Model
We add value for
our customers
A common theme across all of 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 compromising on quality.
We develop
proprietary
technology
Developing our own proprietary technologies
has been a strategic objective for the Group.
Through the development of our proprietary
know-how, we are well positioned to secure
market share by utilising our intellectual property.
We strategically
source critical
materials
Strong
stakeholder
engagement
The Group has a strategy of ensuring that
critical materials 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 wide range
of suppliers with regular two-way dialogue
on quality expectations.
Our engagement activities with our customers,
suppliers and employees enable the Board
to understand the needs of all our key
stakeholders, and allow us to execute our
strategy more efficiently. The discussions with
our customers help us shape our new product
development strategy, as clients seek to
commercialise oil and gas reserves as safely
and cost effectively as possible.
We train and
develop
our people
The Group has a strong reputation for being
a responsible employer, which is reflected
in the average tenure and voluntary workforce
turnover rate. This demonstrates Hunting’s
commitment to its employees and its drive
to nurture a mutually beneficial relationship
between the Company and its employees.
Significant
capital resources
The Group retains a strong balance sheet,
supportive shareholders and a $150m Asset
Based Lending facility, which was finalised in
February 2022. This financial strength will assist
us in our growth strategy in the coming years.
Hunting PLC Annual Report and Accounts 2022Strategic Report 52
Our Business Model
Our operational resources,
products and services drive value
creation for our stakeholders.
01.
Our Resources
Our financial capital and
operational resources, including
our human capital, enable us
to be a critical supplier in the
oil and gas supply chain.
These resources are also being
applied to energy transition and
non-oil and gas sectors.
Financial
Shareholders
For more information, see pages 61 and 62
Lenders
For more information, see page 62
Operational
Facilities
For more information, see page 55
Quality Assurance
For more information, see page 55
Intellectual Property
For more information, see page 55
Employees
For more information, see pages 62 and 63
02.
Our Operating
Segments
Our global presence enables
us to deliver for a client wherever
our expertise is required.
Hunting’s leading Quality
Assurance protocols and robust
Health and Safety practices help
us leverage our position in the
supply chain.
Health, Safety and Environment
(“HSE”)
Hunting Titan
North America
Europe, Middle East and Africa (“EMEA”)
Asia Pacific
Quality and Operational
Excellence
For more information, see pages 55 to 57
Strategic ReportHunting PLC Annual Report and Accounts 2022 53
Our Business Model
03.
Our Products
and Services
Hunting’s diverse product
portfolio enables us to participate
in most oil and gas projects
undertaken by our clients.
Our intellectual property portfolio
supports our position in the
supply chain and is a barrier to
entry for other potential suppliers.
Oil Country Tubular Goods (“OCTG”)
Perforating Systems
Advanced Manufacturing
Subsea
Intervention Tools
Other
For more information, see pages 58 and 59
04.
Our Stakeholders
Our stakeholders enable us
to deliver our business strategy.
Our employees work closely
with customers and suppliers
and through that engagement
we help to position the Company
for the future.
Shareholders and Lenders
Customers
Employees
Suppliers
Environment
Governments
Communities
For more information, see pages 60 to 67
Hunting PLC Annual Report and Accounts 2022Strategic Report 54
Our Business Model
01. Our Resources
01. Our Resources
A significant portion
of our manufacturing
occurs in high-end,
specialist facilities
utilising sophisticated
machines.”
Operating sites
Operating footprint
29
2.7m sq ft
1,317
$256.7m
74%
Net book value PPE
Machines
ISO 9001: 2015 (Quality) accredited facilities
Our skilled workforce
assists us in adding value
for our customers.
Strategic ReportHunting PLC Annual Report and Accounts 2022 55
Our Business Model
01. Our Resources
Quality Assurance
Hunting’s reputation and standing within the
global energy industry is supported, in part,
by the provision of strongly quality-assured
products.
Each product line manufactured by the Group
has a bespoke quality assurance programme,
which operates under Group-level principles.
Detailed policies are implemented within
all facilities and are reported to the Board
at each meeting of Directors, in addition to
more detailed reports being presented to the
Ethics and Sustainability Committee, which
supports the Group’s wider ESG and
sustainability objectives.
In 2022, the Group’s manufacturing reject rate
was 0.13% (2021 – 0.13%).
Quality Assurance/Manufacturing
Reject Rate
(%)
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. In 2022, the Group
consolidated its facilities in Singapore, leading
to the reduction noted.
More facilities across the Group are working
towards these ISO accreditations, continuing
the Group’s commitment to monitoring and
enhancing quality, while reducing the
environmental impact of our operations and
improving Health, Safety and Environmental
(“HSE”) standards.
Hunting’s Quality Management System
(“QMS”) is certified and accredited for these
ISO standards. Operational and production
excellence is a key driver of our engagement
and relationship with customers.
2022
2021
2020
0.13
0.13
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.
0.24
Facility ISO 9001: 2015 Accreditations
(%)
2022
2021
2020
74
80
71
Intellectual Property
Developing our own proprietary technologies
is 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.
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 manufacturing
disciplines and facilities. Our administration,
finance and sales staff are also encouraged
to develop their skills through training and
professional development programmes.
Empower Our Business Units
Our chosen industries of focus are
fast-paced sectors 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.
Apply Unified Operating Standards
and Procedures
Demanding health, safety and quality
assurance 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.
Operational
Facilities
The Group has 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.
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’ requirements and to take
advantage of particular market opportunities.
Our distribution centres are primarily used
in the Hunting Titan and intervention tools
business groups, where close proximity
to drilling operations is important.
Our Quality Assurance
procedures underpin
Hunting’s standing and
reputation within the
oil and gas industry.
Hunting PLC Annual Report and Accounts 2022Strategic Report 56
Our Business Model
02. Our Operating Segments
02. Our Operating
Segments
Hunting reports its performance mainly
based on its key geographic operating
regions. Hunting Titan is a large, separate
division, which is reported as a stand-alone
segment that operates in several
geographic locations.
1
2
3
4
Image key
1 Precision engineered
parts are the basis
of our revenue.
2 An Enpro FAM unit
being deployed.
3 Hunting Dearborn
manufactures complex
components.
4 Skilled engineers
underpin our reputation.
Hunting Titan
Hunting Titan manufactures and distributes
perforating products and accessories.
The segment’s products include perforating
gun systems, shaped charge technologies,
detonating cord and well completion
instrumentation.
The business has four manufacturing
facilities in the US and one facility in Mexico,
supported by 12 distribution centres,
primarily located in Canada and the US.
North America
The North America segment supplies
OCTG, premium connections, subsea
equipment, intervention tools, electronics
and complex deep hole drilling and
precision machining services for the
US and overseas markets.
The North America segment has
13 operating facilities, mainly located
in Texas and Louisiana.
Europe, Middle East and Africa
(“EMEA”)
The EMEA segment derives its revenue
from the supply of OCTG, pipe storage,
threading services and the manufacture
of intervention tools. The segment has
operations in the Netherlands, Norway,
Saudi Arabia, the UAE and the UK.
The segment also acts 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 derived from the manufacture of
premium connections and accessories and
OCTG supply. Manufacturing facilities are
located in China, Indonesia and Singapore.
The facility in China also manufactures
perforating guns for Hunting Titan.
Through its joint venture with Jindal SAW,
the segment is also establishing a new
threading facility in India.
Strategic ReportHunting PLC Annual Report and Accounts 2022 57
Our Business Model
02. Our Operating Segments
Operational sites
Distribution centres
Year-end employees
(2021 – 5)
Hunting Titan 5
North America 13
8
Asia Pacific 3
Europe, Middle
East and Africa
(“EMEA”)
(2021 – 14)
(2021 – 8)
(2021 – 2)
(2021 – 12)
12
2
0
0
(2021 – 0)
(2021 – 517)
(2021 – 836)
656
973
247
309
(2021 – 224)
(2021 – 4)
(2021 – 0)
(2021 – 302)
1
2
Image key
1 Our products are
used in many parts
of the wellbore.
2 High end CNC
machinery is a
critical part of our
manufacturing base.
Total
29
(2021 – 31)
14
(2021 – 14)
2,258
(2021 – 1,949)
Total year-end employees includes 73 (2021 – 70) head office and corporate personnel.
Hunting PLC Annual Report and Accounts 2022Strategic Report 58
Our Business Model
03. Our Products and Services
03. Our Products
and Services
Overview
Oil Country
Tubular Goods
(“OCTG”)
Operating Basis:
Manufacturing
Trading
Perforating
Systems
Operating Basis:
Manufacturing
Advanced
Manufacturing
Operating Basis:
Manufacturing
Subsea
Operating Basis:
Manufacturing
Intervention
Tools
Operating Basis:
Manufacturing
Equipment
Rental
Trading
Other Revenue
Operating Basis:
Manufacturing
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.
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.
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.
The Hunting Electronics business manufactures
printed circuit boards capable of operating in
extreme conditions. These businesses work
collaboratively with customers implementing
their designs to their specifications.
The Subsea division produces high quality
products and solutions for the global subsea
industry covering titanium and steel stress joints,
hydraulic couplings, chemical injection systems,
valves, weldment services, flow access modules
and plug and abandonment products.
Hunting’s Subsea Technologies business
group is focused on deep water developments,
with customers ranging from integrated majors
to deep water OEM equipment providers.
From 1 January 2023, the Subsea Technologies
businesses will be reported as a separate
operating segment.
The Group manufactures a range of downhole
intervention tools, including slickline tools,
e-line tools, mechanical plant, coiled tubing
and pressure control equipment.
The rental component of this business is capital
intensive and results are dependent on asset
utilisation and rental rates.
Hunting offers a
• North America
The Group has restructured
• Commodity prices
comprehensive range of
tools, including innovative
and proprietary technologies.
• EMEA
• Asia Pacific
its sales function and
organisational structure
in 2022.
• Competition
Across the Group, efforts have been stepped
up to diversify revenue streams and leverage
our core competencies into new markets.
In the year, Hunting has developed new sales
streams in the military and medical sectors,
primarily via our Dearborn and Electronics
businesses.
In the year, the Group’s Asia Pacific segment
delivered its first batch of micro-hydro
generation systems.
The Group has also established a global energy
transition sales group to pursue carbon capture
and geothermal business opportunities.
Hunting’s complex, precision
• North America
Hunting has continued
• Product quality
• Asia Pacific
to develop non-oil and gas
sales, with most operating
segments now tasked with
increasing sales into sectors
outside of oil and gas.
machining capabilities are
applicable to many other
sectors outside of oil and gas.
The Group has successfully
positioned itself with a
number of defence-related
businesses who recognise
our expertise.
Differentiators
Presence
Focus Areas
Risks
Revenue – $m
Global Operating
Related Strategic
Related Principal
Hunting is one of the largest
• North America
During the year, the Group
• Commodity prices
independent providers of
• EMEA
OCTG connection technology,
• Asia Pacific
including premium
connections.
commenced the
construction of a new
• Shale drilling
• Competition
premium threading facility
• Product quality
2022
2021
2020
172.5
258.8
264.7
in India to serve the
domestic and regional
markets.
Hunting has a market-leading
Operating sites:
position in the US, supported
• North America
by a strong portfolio of
patented and unpatented
• Mexico
• China
technology.
Hunting Titan continues
to launch new technology
to clients and, in the year,
introduced the H-3
Perforating System™.
• Commodity prices
• Shale drilling
• Competition
• Product quality
2022
2021
2020
251.9
181.7
154.5
Distribution centres:
• North America
• Asia Pacific
Hunting Dearborn is a world
• North America
Both businesses within the
• Commodity prices
• Product quality
leader in the 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.
Advanced Manufacturing
group have successfully
diversified their sales order
books, with the Dearborn
business, in particular,
winning new aviation,
power generation and
space-related sales.
business has won new
orders for its titanium stress
joints, which are being
utilised on FPSO facilities,
which is a new market
for this product.
Hunting’s expertise ranges
• North America
The Subsea Spring
• Commodity prices
• Product quality
from the manufacture of high
• EMEA
pressure seals to complex
welding of stress joints.
2022
2021
2020
2022
2021
2020
2022
2021
2020
2022
2021
2020
59.6
75.1
74.3
58.8
69.0
69.8
36.4
25.8
30.7
34.6
23.2
22.1
Strategic ReportHunting PLC Annual Report and Accounts 2022 59
Our Business Model
03. Our Products and Services
Differentiators
Hunting is one of the largest
independent providers of
OCTG connection technology,
including premium
connections.
Global Operating
Presence
• North America
• EMEA
• Asia Pacific
Related Strategic
Focus Areas
During the year, the Group
commenced the
construction of a new
premium threading facility
in India to serve the
domestic and regional
markets.
Related Principal
Risks
• Commodity prices
• Shale drilling
• Competition
• Product quality
Revenue – $m
2022
2021
2020
172.5
258.8
264.7
Hunting has a market-leading
position in the US, supported
by a strong portfolio of
patented and unpatented
technology.
Operating sites:
• North America
• Mexico
• China
Hunting Titan continues
to launch new technology
to clients and, in the year,
introduced the H-3
Perforating System™.
• Commodity prices
• Shale drilling
• Competition
• Product quality
2022
2021
2020
251.9
181.7
154.5
Distribution centres:
• North America
• Asia Pacific
• North America
• North America
• EMEA
Hunting Dearborn is a world
leader in the 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.
Hunting’s expertise ranges
from the manufacture of high
pressure seals to complex
welding of stress joints.
• Commodity prices
• Product quality
• Commodity prices
• Product quality
Both businesses within the
Advanced Manufacturing
group have successfully
diversified their sales order
books, with the Dearborn
business, in particular,
winning new aviation,
power generation and
space-related sales.
The Subsea Spring
business has won new
orders for its titanium stress
joints, which are being
utilised on FPSO facilities,
which is a new market
for this product.
The Group manufactures a range of downhole
The rental component of this business is capital
intervention tools, including slickline tools,
intensive and results are dependent on asset
e-line tools, mechanical plant, coiled tubing
utilisation and rental rates.
and pressure control equipment.
Hunting offers a
comprehensive range of
tools, including innovative
and proprietary technologies.
• North America
• EMEA
• Asia Pacific
The Group has restructured
its sales function and
organisational structure
in 2022.
• Commodity prices
• Competition
Across the Group, efforts have been stepped
In the year, the Group’s Asia Pacific segment
up to diversify revenue streams and leverage
delivered its first batch of micro-hydro
our core competencies into new markets.
generation systems.
In the year, Hunting has developed new sales
streams in the military and medical sectors,
The Group has also established a global energy
primarily via our Dearborn and Electronics
transition sales group to pursue carbon capture
businesses.
and geothermal business opportunities.
Hunting’s complex, precision
machining capabilities are
applicable to many other
sectors outside of oil and gas.
The Group has successfully
positioned itself with a
number of defence-related
businesses who recognise
our expertise.
• North America
• Asia Pacific
• Product quality
Hunting has continued
to develop non-oil and gas
sales, with most operating
segments now tasked with
increasing sales into sectors
outside of oil and gas.
2022
2021
2020
2022
2021
2020
2022
2021
2020
2022
2021
2020
59.6
75.1
74.3
58.8
69.0
69.8
36.4
25.8
30.7
34.6
23.2
22.1
OCTG are steel alloy products and comprise
We are licensed to apply a variety of third-party
casing and tubing used in the construction and
thread forms and generic API threads.
completion of the wellbore. Hunting machines
We source OCTG products from a significant
threads to connect OCTG using flush or
semi-flush joints and can manufacture
premium and semi-premium connections
number of major global steel producers and
have strong, long-term relationships in the US,
Canada, Europe and Asia Pacific. Hunting also
and accessories using our own technologies
trades pipe, which is a lower margin activity,
such as SEAL-LOCK™, WEDGE-LOCK™
to help support customer relationships.
and TEC-LOCK™.
Hunting Titan manufactures perforating systems,
The business mainly “manufactures to stock”
energetics, firing systems and logging tools.
and hence uses a wide distribution network.
Products are mainly used in the completion
Some manufacturing is done to order, sourced
phase of a well. The production, storage and
from international telesales.
distribution of energetics is highly regulated and
there are significant barriers for new entrants
to the market.
Advanced Manufacturing includes the
The Hunting Electronics business manufactures
Hunting Dearborn business, which carries
printed circuit boards capable of operating in
out deep hole drilling and precision machining
extreme conditions. These businesses work
of complex measurement-while-drilling/
logging-while-drilling (“MWD/LWD”) and
formation evaluation tool components.
collaboratively with customers implementing
their designs to their specifications.
The Subsea division produces high quality
Hunting’s Subsea Technologies business
products and solutions for the global subsea
group is focused on deep water developments,
industry covering titanium and steel stress joints,
with customers ranging from integrated majors
hydraulic couplings, chemical injection systems,
to deep water OEM equipment providers.
valves, weldment services, flow access modules
and plug and abandonment products.
From 1 January 2023, the Subsea Technologies
businesses will be reported as a separate
operating segment.
Overview
Oil Country
Tubular Goods
(“OCTG”)
Operating Basis:
Manufacturing
Trading
Perforating
Systems
Operating Basis:
Manufacturing
Advanced
Manufacturing
Operating Basis:
Manufacturing
Subsea
Operating Basis:
Manufacturing
Intervention
Tools
Operating Basis:
Manufacturing
Equipment
Rental
Trading
Other Revenue
Operating Basis:
Manufacturing
Hunting PLC Annual Report and Accounts 2022Strategic Report 60
Our Business Model
04. Our Stakeholders
04. Our Stakeholders
Introduction
The Group’s stakeholders enable the delivery
of Hunting’s business model and strategy.
Stakeholder engagement forms a key element
of our culture and is an area which has
increased over the past few years.
Understanding the needs of our shareholders,
customers, suppliers and workforce is
achieved through regular dialogue.
Image key
1 Stakeholder
communications
are an area of focus
for management.
2 Most of our facilities
are ISO 9001: 2015
compliant.
3 Precision engineering
is a core competence,
which will support our
diversification strategy.
1
Shareholders and Lenders
Our shareholders provide equity capital to
the Group. The Directors regularly engage with
shareholders to discuss strategy, governance
and other matters. This feedback is used to
refine our strategic plans.
Our Employees
Hunting’s employees deliver our strategic
plans. As the COVID pandemic receded in the
year, engagement activities increased, with the
Directors meeting employees at the Dearborn
facility in June 2022, where a town hall was
organised and questions were put to the Board.
Our Customers
Our clients are critical to the financial success
of the Group. Customer dialogue helps us
shape our product development strategy
and provides focus to our service offering.
Suppliers
Hunting’s focus on our supply chain has
increased in importance during 2022 as raw
material and component costs have increased.
We have worked hard to ensure a secure
supply chain in the year, to enable us to
continue to deliver for our customers.
Environment and Climate
The Group takes seriously its commitment to
environmental compliance and stewardship.
We have continued to increase and refine our
climate-related disclosures. Our Task Force on
Climate-related Financial Disclosures (“TCFD”)
statement, in line with the UK’s Listing Rules
requirements, provides key information to
stakeholders about the impact of the Group’s
activities on the environment, along with the
Group’s efforts to manage and mitigate its
direct and indirect climate change impacts.
In 2022, Hunting also commenced a process
to assure its carbon data, which will support
the future setting of science-based carbon
reduction targets.
Governments
The Group has continued its engagement
with local tax authorities in the year to remain
fully compliant with all evolving legislation.
Communities
Hunting continues to assist communities
through a wide range of activities, including
fund raising events or community donations.
Each region is encouraged to develop their
own community engagement initiatives to align
with local cultural practices as well as Hunting’s
corporate values.
2
3
Strategic ReportHunting PLC Annual Report and Accounts 2022 61
Our Business Model
04. Our Stakeholders
Precision
engineering for
critical sectors.
Shareholders
Hunting’s shareholders provide a key source
of capital to enable growth for the longer term.
The Group has one class of Ordinary shares.
At 31 December 2022, the total number
of Ordinary shares in issue was 164.9m
(2021 – 164.9m), and the number of
shareholders on the register was 1,285
(2021 – 1,337).
In 2022, Hunting PLC’s Ordinary shares
achieved a TSR of 102% on an annualised
basis, reflecting the Group’s return to growth
and improving market outlook. For the
definition of TSR please see page 255.
Shareholder Engagement
Regular shareholder engagement meetings are
organised through an annual calendar of work.
During the year, the Group purchased 2.1m
Ordinary shares, which were transferred to
Hunting’s Employee Benefit Trust, for a total
cost of $7.9m.
The Chief Executive and Finance Director meet
institutional investors following the publication
of the Group’s half and full-year financial results
– and throughout the year.
Returns achieved by shareholders, by holding
the Company’s Ordinary shares, are measured
through Total Shareholder Return (“TSR”).
TSR forms a large portion of the longer-term
remuneration paid to the executives of the
Group, with demanding vesting targets
measured against our industry peers.
The Chairman and Senior Independent Director
meet investors annually to discuss governance
and other matters.
Major Shareholders
The Company’s major shareholders, as at
31 December 2022, are listed in the table below.
Major Shareholders
At 31 December 2022
BlackRock, Inc.
J P Morgan Asset Management
Hunting Investments Limited
Franklin Templeton
GLG Partners
Schroder Investment Management
Slaley Investments Limited
Orbis Investment Management
Hunting Employee Benefit Trust
J Trafford – as trustee
David RL Hunting
– as trustee
– other beneficial
Dimensional Fund Advisers
Issued share capital – at 31 December 2022
Notes
6
(1/4/5)
(5)
(2/5)
(1/2/3/4/5)
Number of
Ordinary shares
13,209,147
12,493,386
11,003,487
10,705,975
9,080,364
6,990,651
6,424,591
6,354,213
5,310,062
5,228,660
194,120
3,157,750
1,875,950
5,024,878
164,940,082
% of ISC
8.0
7.6
6.7
6.5
5.5
4.2
3.9
3.9
3.2
3.2
0.1
1.9
1.1
3.1
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 5,228,660 Ordinary shares.
3. David RL Hunting and his children are or could become beneficiaries under the relevant family trusts of which Mr Hunting is also a trustee.
4. David RL Hunting is a director 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 2 March 2023, the Hunting Family Interests, party to the agreement, totalled 24,195,900 Ordinary shares in the Company, representing 14.7% of the total voting rights.
6. On 26 January 2023, the Company was informed that BlackRock had reduced its holding to 6.7% of the issued share capital.
Total Shareholder Return
(Absolute %)
Dividend Per Share Declared
(cents)
2022
-22.2
2021
-45.2
2020
102.0
2022
2021
2020
$846.2m
Net Assets at 31 December 2022
8.0
9.0
9.0
Hunting PLC Annual Report and Accounts 2022Strategic Report
62
Our Business Model
04. Our Stakeholders
Board Engagement and Decision
Making – Shareholders
The Directors of Hunting receive a report
detailing the Company’s major shareholders
at each Board Meeting, with a briefing by
the Chief Executive and Finance Director
on meetings with shareholders that have
recently occurred, with key matters being
regularly discussed following this
engagement.
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. The Group’s Audit Committee
reviews dividend proposals as part of its
regular programme of work and makes a
recommendation 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 declare
dividends in US dollars, but pay in Sterling.
The Directors are proposing a 2022 Final
Dividend of 4.5 cents per share, which will
be subject to approval by shareholders
at the 2023 AGM.
Our Lenders
In 2022, the Group replaced its $160m
multi-currency revolving credit facility with
a $150m Asset Based Lending (“ABL”) facility.
The ABL lending group now comprises
Wells Fargo and HSBC.
Board Engagement and Decision
Making – Lenders
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. Regular meetings between
the Chief Executive, Finance Director, Group
Treasurer and the ABL lenders were held
during the year to brief the banks on the
performance and position of the Group.
1
2
3
Image key
1 Our machinists receive
regular safety briefings.
2 Regular customer
dialogue assists us
in developing our
long-term strategy.
3 Our quality assurance
procedures support
our standing in the
industry.
Our Employees
Hunting’s reputation, which has been built over
many years, is underpinned by its highly skilled
employees, who are key to fulfilling the Group’s
strategic objectives. At 31 December 2022,
the Group had 2,258 employees (2021 – 1,949)
across its global operations. As the Group’s
businesses recovered from the impact of
COVID-19, along with a return to growth
of its core trading markets, most businesses
commenced hiring programmes to meet
anticipated demand.
The Group is committed to training and
developing all employees, which includes Health
and Safety training, professional development
and general career development initiatives.
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 has a strong reputation for being
a responsible employer, which is reflected in
the average tenure and voluntary workforce
turnover rate noted below. This demonstrates
Hunting’s commitment to its employees and its
drive to nurture a mutually beneficial relationship
between the Company and its employees.
9 years
Average employee tenure
(2021 – 10 years)
13%
Group employee voluntary turnover rate
(2021 – 11%)
Hunting takes diligent steps to achieve 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.
While the Board, through the work of the
Ethics and Sustainability Committee, monitors
procedures to comply with our published Code
of Conduct, responsibility for our employees
lies, for the most part, with local management
to enable local matters to be addressed,
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).
Strategic ReportHunting PLC Annual Report and Accounts 2022 Board Engagement and Decision
Making – Employees
Through the Ethics and Sustainability
Committee, the Board has formalised the
reporting of Human Resources and HSE
matters, with the Group’s Chief HR Officer
and Director of QAHSE providing reports
at each meeting of this recently formed
Committee. These senior managers are
also members of the Executive Committee.
The Directors organised an employee
engagement event at the Group’s Dearborn
facility in June 2022, where employees were
able to ask questions to the Board.
In addition, Annell Bay, the Company’s
designated non-executive Director for
employee engagement, met with the
Group’s senior leadership team in
September 2022, where further dialogue
was held.
All reports to the Group’s SafeCall service
are taken seriously, with care being taken
to retain confidentiality and anonymity
of all callers. Each report is investigated
thoroughly, with the Board receiving
briefings from Keith Lough, the Company’s
Senior Independent Director. During the
year the Group received two reports to
the SafeCall service (2021 – one report).
For further reporting on our approach
to business ethics, see page 83.
63
Our Business Model
04. Our Stakeholders
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.
In the year, the number of hours worked
increased by 24% to 4.7m hours (2021 – 3.8m
hours) as trading increased within the Group’s
businesses.
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, complying with
local regulatory requirements.
During the year, there were no fatalities across
the Group’s operations (2021 – nil), with
23 recordable incidents (2021 – 19). The total
recordable incident rate (“TRIR”) was 0.97
compared to 0.99 in 2021. This incident rate
reflects a 2% year-on-year decrease compared
to the prior year, despite new employees being
hired and activity increasing throughout the
year. The industry average incident rate in
2022 was 4.0 (2021 – 4.0). The total near miss
frequency rate (“TNMFR”) was 0.97 in 2022
(2021 – 0.78) reflecting 66 near misses
(2021 – 15). The increase in near misses mainly
relates to new employees joining the Group.
During 2022, the Group enhanced its SASB
reporting compliance to include vehicle incident
data. Please see pages 100 and 101 for more
information on compliance with the SASB
reporting framework.
0.97
0.99
0.97
Total Recordable Incident Rate
(“TRIR”)
2022
2021
2020
0.67
Total Near Miss Frequency Rate
(“TNMFR”)
0.80
0.68
2022
2021
2020
9
Number of Vehicle Incidents
For further reporting on Health and Safety,
see page 81.
Training
The Group operates an embedded Health and
Safety training programme for its employees,
with an on-boarding programme for new
employees. The Group also provides ethics
training through a Code of Conduct course,
to ensure awareness of our published 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.
For further reporting on employee attraction,
retention and development, and employee
engagement, see page 82.
Human Rights
We are committed to respecting and upholding
the human rights of all our employees. Our
approach is set out in our Code of Conduct,
and training in respect of human rights and
responsibilities is provided to employees
on a regular basis.
For further reporting on our approach
to human rights, see page 83.
Our Modern Slavery statement can be found
on our website.
Diversity
Hunting’s policies promote prejudice-free
decision making, ensuring all stakeholder
interests are taken into consideration and
commit Hunting to building a working
environment in which all individuals are able
to make best use of their skills, free from
discrimination, victimisation, harassment
and/or bullying, and in which all appointments
are based on merit.
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, with the new reporting
requirements published by the Financial
Conduct Authority noted on page 122.
For further reporting on diversity and
inclusion, see page 82.
Whistleblowing
The Board of Hunting has established
procedures 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 notice boards
across the Group’s facilities and within the
Group’s magazine published twice yearly,
the “Hunting Review”, which is available
to all employees.
Hunting PLC Annual Report and Accounts 2022Strategic Report 64
Our Business Model
04. Our Stakeholders
Our Customers
As a key participant in 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 of 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 compromising quality.
A major area of the Group’s customer
discussions in the year was the improving
outlook for energy demand and the ability of
the supply chain to meet client needs as and
when equipment purchasing recommenced
in earnest.
Hunting continues to engage its customer
base proactively to ensure our clients meet
their strategic objectives and continue to assist
customers with technology developments to
lower production costs or increase in-field safety.
Customer Engagement
Client engagement is key to the Group’s
understanding of the short- to medium-term
needs of our various clients. This dialogue helps
us shape our strategy and focus our product
research and development programmes.
In the year, the Group continued to launch
new products that directly addressed customer
needs, some of which resulted from close
customer collaboration in response to in-field
technical challenges. As part of our active
dialogue and engagement with our customer
base, key clients are usually 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 environment teams, which all assist
in the provision of key operational performance
information that supports global tenders
and the overall sales function.
Our Customer Channels to Market
Operators
Operators are the end consumers of our products and related services.
These include national oil companies, international oil companies and
independent exploration and production companies.
Service Companies
Our primary route to market is via other service providers, which generate the
majority of our revenue. These include “1st tier” service companies who can
provide project management services to operators. Key customers include
Halliburton, Baker Hughes and Schlumberger.
Steel Mills and Other Oil and Gas
Steel mills are key suppliers to our business; however, in some circumstances
we can perform threading services for them or supply OCTG products.
Other Revenue
Non-oil and gas sales are led by our Trenchless, E&P, Well Testing operations,
which have developed new customers within the aviation, defence, medical,
space and telecommunications sectors.
Split of
Group
revenue
c.11%
c.58%
c.24%
c.7%
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 (“API”);
• Society of Petroleum Engineers;
• International Association of Drilling
Contractors;
• Aberdeen Renewable Energy Group;
• Carbon Capture & Storage Association; and
• DeepWind.
The Group also attends various industry
conferences annually to profile the Group’s
products and services.
Anti-Bribery and Corruption (“ABC”)
The Group has processes and procedures in
place to monitor and assess the risk of bribery
and corruption occurring. Hunting’s Code
of Conduct training course includes detailed
modules on ABC compliance and risk
assessment procedures. Twice a year,
each major business unit completes a risk
assessment process, detailing management’s
views on its risk profile against 16 key ABC
considerations, and includes details of the
mitigating controls in place for each of these
risks. As part of the Group’s Internal Audit
function’s work programme, a review of these
risk registers is undertaken where the bribery
and corruption risk profile is challenged.
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 be transparent
in our business dealings. Due diligence on new
customers is also undertaken to ensure the
Group complies with international trading and
sanctions legislation. Where relevant, 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. The Group also has strong
entertainment and hospitality approval policies,
which support our commitment to conduct
business with the highest ethical standards.
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. Board approvals are also required
for contracts over a certain monetary value.
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 the final
capital allocation and the Board’s
consideration of customer matters.
For further reporting on our approach
to Business Ethics, see page 83.
Strategic ReportHunting PLC Annual Report and Accounts 2022 65
Our Business Model
04. Our Stakeholders
Our Suppliers
Hunting’s supplier base facilitates the Group
in achieving its purpose of providing high quality
products that our customers can rely on and
trust. The Group ensures that critical materials
are not sourced from a single supplier, which
provides assurance to our customers that
Hunting will always be in a position to deliver.
Long lead-time material supplies are regularly
reviewed to ensure market pricing remains
competitive. Hunting’s management of its
supply chain includes working with a wide
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, Health and Safety
performance and employment practices.
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.
Ethics and Governance
As with 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 issued to its suppliers and specifically our
Modern Slavery policy, which highlights the
Group’s ethical trading and fair labour policies.
During 2022, the Group commenced the rollout
of a Supplier Code of Conduct to support its
ethical trading policies.
For further reporting on our approach
to Business Ethics, see page 83.
Board Engagement and Decision
Making – Suppliers
The Board, through the work of the
Ethics and Sustainability Committee, reviews
the Group’s supply chain risk profile and
reviews engagement reports on the Group’s
dialogue with suppliers. This leads to
discussion and challenge by the Directors.
Environment
Introduction
Carbon and climate matters have become
an area of close scrutiny in recent years,
with the Board overseeing the development
and introduction of strong governance and
reporting initiatives that will support Hunting’s
commitment to these issues for the long term.
The Directors are mindful that all commitments
made by the Group should remain
proportionate to the size and profile of our
operations, but also to protect our earnings
and shareholder returns, which form the basis
of our investment case. Hunting has disclosed
its Scope 1 and 2 greenhouse gas emissions
since 2013, with the reporting process
integrated into our non-financial reporting
framework. This has led to attention being
given to energy efficiency programmes, which
have included low energy and higher efficiency
solutions being introduced into many of the
Group’s facilities, along with the migration
to lower carbon electricity arrangements.
Governance
The Board of Hunting recognises the
importance of a strong governance framework
to address carbon and climate matters as well
as long-term sustainability. In 2021, the Group
formed the Ethics and Sustainability
Committee, which comprises the independent
non-executive Directors of the Company.
The committee monitors and reviews a range
of non-financial reporting matters, including the
Group’s total carbon footprint, our reporting
against the framework published by the Task
Force on Climate-related Financial Disclosures
(“TCFD”), ESG, bribery and corruption, modern
slavery and sanctions as well as other key
areas. The Board has appointed Jim Johnson,
Hunting’s Chief Executive, to oversee the
development of these matters and coordinate
regular reporting of these issues to the Board.
The Chief Executive has in turn empowered
the Hunting Executive Committee to develop
strong carbon reduction and climate change
planning processes for integration into the
Group’s day-to-day operations.
Group Climate Policy and Commitment
to the Paris Accords
The Board of Hunting has committed to
the principles published in the 2015 Paris
Agreement, which aims to limit the increase
in global temperatures. The Group’s Climate
Policy was published in January 2020 and was
updated in January 2023 and can be found at
www.huntingplc.com.
As part of the Company’s commitment to
manage and reduce its carbon footprint, in
December 2022, the Board approved a new
carbon reduction ambition, whereby Hunting will
now target a 50% reduction in its Scope 1 and 2
emissions, from its base-line year of 2019,
by 2030. The Group is migrating its electricity
supplies to renewable energy sources, which
is a key initiative in its carbon reduction efforts.
The Board believes that these new carbon
reduction targets are realistic and achievable.
The Company has begun a process to
independently assure its carbon data with
a view to setting science-based targets
in the near future.
For further information on Hunting’s climate
and ESG and wider Sustainability efforts,
please see pages 68 to 101.
Annual Greenhouse Gas 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 is
committed to addressing environmental issues
and embedding a low carbon culture within
our operating facilities and our employees.
New facilities take into account environmental
impact considerations, including protection
from extreme weather events, such as wind
storms and flooding. The Company has elected
to disclose the breakdown of its greenhouse
gas emissions, to enable stakeholders to
understand the overall mix of emissions
and the likely areas of emissions reduction,
as the Group continues to evolve its initiatives
to contain and reduce its carbon footprint.
Tonnes CO2e
Scope 1
– Fuel consumption, including natural gas
– Vehicle consumption, including diesel and gasoline
Total
Scope 2
– Electricity consumption
Total
2022
2021
2020
2019
(base line year)
2,411
3,367
5,778
1,680
2,491
4,171
3,267
3,338
6,605
4,128
2,972
7,100
16,644
16,644
14,688
14,688
18,811
18,811
28,774
28,774
Total Scope 1 and Scope 2 greenhouse gas emissions
22,422
18,859
25,416
35,874
Intensity Factor – kg of CO2e per $k of revenue
30.2
36.2
40.6
37.4
Hunting PLC Annual Report and Accounts 2022Strategic Report 66
Our Business Model
04. Our Stakeholders
The Group submits its greenhouse gas data to
the Carbon Disclosure Project, which is available
at www.cdp.net. The data reported, and carbon
dioxide conversion factors used to report the
Group’s carbon footprint, are based on those
published by BEIS and DEFRA in the UK
(www.defra.org.uk) and the International Energy
Agency. The Group has also participated in a
number of other initiatives, including the Energy
Saving Opportunity Scheme, which requires
Hunting’s UK facilities to be audited for energy
efficiency, with recommendations provided
to reduce energy usage.
In 2022, total Scope 1 and 2 GHG emissions
were 22,422 tonnes (2021 – 18,859 tonnes).
In the UK, total Scope 1 and 2 emissions
in 2022 were 359 tonnes of carbon dioxide
equivalent compared to 474 tonnes in 2021.
Intensity Factor
The Group’s intensity factor is based on total
carbon dioxide equivalent emissions divided
by the Group’s revenue in 2022, and was
30.2kg/$k of revenue, compared to 36.2kg/$k
of revenue in 2021.
Scope 1 and 2 Carbon Dioxide
Equivalent Emissions
(tonnes)
Governments
Hunting’s global operating footprint extends
across 11 countries.
As a consequence of this, the Group interacts
with a number of global regulators, governments
and tax authorities to ensure that Hunting retains
a good reputation and business standing within
each region of operation and also 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 include 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.
30,000
25,000
20,000
15,000
10,000
5,000
0
2020
Scope 1
2021
Scope 2
2022
2030 target
Intensity Factor
(kilogrammes CO2 per $k revenue)
2030 Target
2022
2021
2020
30.0
30.2
36.2
40.6
Board Engagement and Decision
Making – Environment
The Board has continued to oversee
the development of carbon and climate
initiatives, which includes the Group’s
maiden TCFD report, which was published
in the 2021 Annual Report in March 2022.
Hunting has commenced an initiative to
assure its carbon data with Standard &
Poor‘s Trucost which will lead to further
initiatives to reduce the Group’s carbon
and climate impact. Further, as part of this
process, the development of ESG initiatives
and carbon data management has been
introduced into the annual bonus objectives
of the executive Directors, as noted in the
Annual Report on Remuneration.
When evaluating how we should organise our
business affairs, a wide variety of factors are
considered, including operational efficiency,
risk management and taxation. If tax
regulations 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 evasion 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;
• As part of the work of the Audit
Committee, tax matters are also
monitored. Further, details can be
found in the Audit Committee Report
on pages 155 to 159;
• Day-to-day matters are delegated to
the Group’s Head of Tax and a small
team of in-house tax professionals who
hold a combination of accounting and
tax qualifications;
• An annual review of our tax policies form
part of our internal Group Manual review
procedures; and
• Ongoing monitoring of tax legislation
that will have an impact on us, including
engaging specialist advisers when
appropriate.
Communities
The Board encourages community-focused
initiatives, with the Executive Committee
responsible for identifying local activities and
projects to support. This delegation allows
regional cultural practices to be taken
into account.
Local community sponsorships or charitable
donations are encouraged, following approval by
a member of the Board or Executive Committee.
Most businesses within the Group normally
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.
For further reporting on community
engagement, see pages 81 and 82.
Strategic ReportHunting PLC Annual Report and Accounts 2022
The following sections and cross references
provide a summary of where details of key
stakeholder and associated engagement and
decision making is located within the 2022
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 61 and 62);
• lenders (page 62);
• employees (pages 62 and 63);
• customers (page 64);
• suppliers (page 65);
• environment and climate change
(pages 65 and 66);
• governments (page 66); and
• communities (page 66).
67
Our Business Model
04. Our Stakeholders
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 its statutory duty during 2022
and under section 172 of the Companies Act
2006 (the “Act”), the Directors 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 and 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 rewarded for their efforts.
Following engagement with a wide range of
stakeholders, the following actions were taken:
• Our global Human Resources function
continues to monitor workforce
remuneration, hiring and retention policies
to ensure our employees are paid fairly when
compared to similar companies in our sector.
• As part of our ongoing employee
engagement, the majority of US employees
have undertaken harassment training
in 2022.
• Our Code of Conduct training programmes
were updated during the year, with a full
rollout to all Group employees planned
for 2023.
• Following consultation with investor
groups in 2021, the Board has implemented
climate change reporting procedures.
These included:
– risk assessments were carried out
by all businesses;
– engagement of Standard & Poor’s
Trucost to assure our carbon data;
– enhancement of carbon reporting
policies to ensure further alignment with
the GHG Protocol published by World
Resources Institute; and
• Over the years, we have fostered long-
– NEBOSH Award in Environmental
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.
• 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,
in particular 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.
Awareness at Work training was provided
to all UK Managers.
• Hunting’s TEK-HUB™ continues to build
relationships with innovative individuals and
organisations that are developing
technologies which align with our customers’
and wider stakeholders’ requirements.
• The Company has recently sold a series
of micro-hydro generating systems to
generate electricity for rural communities
in the Philippines.
• Following the implementation of our
strategy to diversify some of our technical
expertise into non-oil and gas sectors,
the Board has been in discussions with
customers to deliver high precision
engineering technology to the medical,
defence and electronics sectors.
• The Board continues to monitor senior
management engagement with customers,
suppliers and other stakeholders.
On behalf of the Board
Jim Johnson
Chief Executive
2 March 2023
Bruce Ferguson
Finance Director
Hunting PLC Annual Report and Accounts 2022Strategic Report
68
Environmental, Social
and Governance (ESG)
Environmental, Social
and Governance (ESG)
Introduction
Operating responsibly and
ethically is firmly embedded
in our strategy and culture.
Over the past two years we have
formalised our ESG programmes,
which are reported to the Board’s
Ethics and Sustainability
Committee. We have also
reported in line with the SASB
standards and have accounted
for our contribution towards the
UN Sustainable Development
Goals (“SDGs”).
Governance
The establishment of the Ethics and
Sustainability Committee in 2021 signalled the
Group’s commitment to monitoring, managing
and mitigating ESG matters that are both
financially material in influencing the value of
the business and are important to our markets,
our employees, other stakeholders and the
environment. These areas are overseen by
the Ethics and Sustainability Committee,
with executive responsibility vested in our
Chief Executive, supported by the Executive
Committee and internal ESG steering group.
During 2022, Hunting further enhanced its
carbon reporting policies with further alignment
with the GHG Protocol published by the World
Resources Institute and updated its data
collection platform to improve data accuracy.
In the year we appointed Standard & Poor’s
Trucost to assure our 2022 carbon data
against the AA1000 standard.
Our Approach to ESG
People are at the heart of our business,
and ensuring the safety, health and well-being
of every person employed by the Company,
or associated with our business, is a priority.
Operating responsibly and ethically, with
a focus on the most efficient allocation of
resources, is firmly embedded in our strategy
and culture. This is reflected in our reporting,
where the most significant material issues
are discussed throughout this report.
A micro hydro generator
and distribution system
(HeliosAtlas™) deployed
in the Philippines.
Strategic ReportHunting PLC Annual Report and Accounts 2022 69
Environmental, Social
and Governance (ESG)
At a glance
Ethics and
Sustainability
Committee
Safety remains
a priority
Committee established in
2021 and met on two occasions
in 2022.
Zero
Fatalities
(2021 – zero)
23
Recordable incidents
(2021 – 19)
Waste and
environmental
impact
Zero
Environmental fines or recordable
environmental incidents
Gender diversity
improvements
37%
of the Board are women
(2021 – 29%)
28%
of senior management are women
(2021 – 25%)
24%
of overall workforce are women
(2021 – 23%)
Carbon assurance
procedures
introduced
Appointment of Standard &
Poor’s Trucost (“S&P”) to assure
our carbon data collection in line
with the AA1000 standard.
Decarbonisation
journey continues
New carbon reduction targets set
in December 2022.
22,422
Scope 1 and 2 GHG emissions in tonnes CO2e
(2021 – 18,859 tonnes CO2e)
30.2
Intensity factor in kg CO2e/$’000 of revenue
(2021 – 36.2)
Hunting PLC Annual Report and Accounts 2022Strategic Report 70
Environmental, Social
and Governance (ESG)
Our sustainability
framework
Our approach to ESG is illustrated
through our sustainability
framework, which underpins
our ambition to create long-term
and sustainable value for all
our stakeholders.
Within the context of sound ESG governance
at a Board and Executive level, our six key
areas of focus are:
1 Operating safely
2 Supporting and developing our people
3
Delivering innovative, high quality and
reliable products
4 Fostering mutually beneficial partnerships
5 Supporting communities around us
6
Managing our environmental performance
and mitigating our impacts
We indicate the progress we have made
against these commitments on the pages that
follow. As we progress our reporting journey,
we will set, align, and report on additional
targets and KPIs for all these commitments.
Our six focus areas align with the material
issues that we have identified and support our
contribution to the United Nations’ Sustainable
Development Goals (“SDGs”).
Our Ambition
Creating long-term, sustainable value, responsibly.
Our Commitments
Operating
safely
Supporting and
developing our
people
Delivering
innovative,
high quality
and reliable
products
Fostering
mutually
beneficial
partnerships
Supporting
communities
around us
What this means
Achieving and
maintaining the
highest standards
of safety for
our employees,
customers, suppliers
and the public.
Attracting and
retaining our highly
skilled workforce.
Providing training
and development.
Promoting diversity
and workplaces
that are free from
prejudice.
Meeting and
pre-empting the
needs of our
customers and
the environment,
through innovation,
customisation and
the highest levels
of quality control.
Fostering sound and
positive partnerships
with our customers
and suppliers,
industry bodies,
and regulators in
the regions in which
we operate. Respect
for human rights.
Making a positive
contribution to the
communities in
which we operate.
Managing
our
environmental
performance and
KPI for each
mitigating our
impacts
Protecting and
minimising our
impact on the
environment in which
we operate and
where our products
are used. Focus
on climate change
– setting and
achieving emissions
reductions, and
mitigating climate-
related risks.
Strategic ReportHunting PLC Annual Report and Accounts 2022 Environmental, Social
and Governance (ESG)
71
1
2
3
Image key
1 Jim Johnson
(Chief Executive)
and Liese Borden
(Chief HR Officer)
taking part in the Trees
for Houston initiative
at the Hunting Bayou.
2 Celebrating Safety
Milestones – 10 years
Accident-Free in
Batam, Indonesia.
3 Hunting’s QAHSE
in the UK.
Hunting PLC Annual Report and Accounts 2022Strategic Report 72
Environmental, Social
and Governance (ESG)
How we report
Framework/standard
Task Force on
Climate-related Financial
Disclosures (“TCFD”)
What this is
A framework for climate-related financial disclosure
that is structured around four thematic areas: governance,
strategy, risk management, and metrics and targets, with
a strong focus on risks and opportunities related to the
transition to a low-carbon economy.
Our disclosure and where to find it
Full adoption of TCFD in 2022, following initial
disclosure in 2021.
For further information please see pages 88 to 101.
CDP (formerly the Carbon
Disclosure Project)
Operates a global disclosure system, via an annual survey,
to support companies, cities and regions in measuring
and managing environmental impacts.
We make an annual submission to CDP.
For further information please see page 79.
Sustainability Accounting
Standards Board (“SASB”)
SASB Standards, part of the IFRS Foundation, guide
the disclosure of financially material sustainability information
by companies to their investors, having identified the subset
of ESG issues most relevant to financial performance in
77 industries.
We report against two standards: Oil & Gas –
Services and Industrial Machinery & Goods,
to the degree that these are relevant.
For further information please see pages
100 and 101.
United Nations Sustainable
Development Goals (“SDG”)
The SDGs comprise 17 interlinked global goals designed to
be a “blueprint to achieve a better and more sustainable
future for all”.
We have identified SDGs 3, 5, 6, 7, 8, 9, 12,
13 and 17 as areas where we can make
a positive contribution.
Global Reporting Initiative
(“GRI”)
GRI is an independent standard-setting organisation, which
enables businesses to report on their significant impacts on
the economy, environment and society, including impacts
on human rights.
Our materiality assessment and ongoing reporting
has been informed by the guidance published by
GRI. For further information please see our website
www.huntingplc.com.
UK Modern Slavery Act
The Act requires organisations to develop and publish
a Modern Slavery Act statement in the form of an annual
report, outlining the steps taken to combat human trafficking
and modern slavery throughout its supply chain.
The Board approves our annual Modern
Slavery Act statement, which is signed
by the Chief Executive.
We report annually on our website
www.huntingplc.com.
UK Bribery Act
UK Payments
to Government
regulation 2015
ISO 14001
ISO 50001
This requires organisations to put in place adequate
procedures to prevent, monitor and risk assess bribery
and corruption.
We report on this through our Annual Report
each year. Reports are presented to the Ethics
and Sustainability Committee twice a year.
This requires large and publicly listed oil, gas, mining
and logging companies incorporated in the UK to annually
disclose the payments they make to governments on a
country-by-country and project-by-project basis.
An international standard for designing and implementing
an environmental management system.
An international standard for designing, implementing
and maintaining an energy management system.
We report annually on our website
www.huntingplc.com.
Our Quality Management System is compliant with
these standards. Energy, Carbon, HSE and Quality
Assurance reports are reviewed by the Ethics and
Sustainability Committee twice a year.
Strategic ReportHunting PLC Annual Report and Accounts 2022 73
Environmental, Social
and Governance (ESG)
Innovation and trust
determines our success
Our purpose is central to and
permeates every aspect of what
we do and how we do it.
Our purpose
To be a highly trusted innovator and manufacturer of technology and products
that create sustainable value for our stakeholders.
Core competencies
• Systems Manufacturing
• Precision Engineering
• Print-part manufacturing
In the oil and gas sector
Oil Country
Tubular Goods
(“OCTG”)
Perforating
Systems
Advanced
Manufacturing
Subsea
Intervention
Tools
and in other sectors
Carbon capture
&
geothermal
Data analytics
&
Machine learning
Medical
Aviation
&
Space
Naval
Power Generation
Hunting PLC Annual Report and Accounts 2022Strategic Report 74
Environmental, Social
and Governance (ESG)
Our material
ESG issues
In 2021, we undertook a materiality assessment
in which we:
• identified key issues that determine our ability
to create value as a business, as well as those
issues that could affect the decision making
of stakeholders in relation to the Company,
first through a benchmarking exercise and
second through direct interviews;
• mapped and prioritised these issues based
on stakeholder feedback;
• considered the inputs of company leadership
and aligned with our business priorities; and
• identified and reported on ten material
ESG issues.
Our commitments
Operating safely
Achieving and maintaining the highest
standards of safety for our employees,
customers, suppliers and the public.
Supporting and developing our people
Attracting and retaining our highly skilled
workforce. Providing training and development.
Promoting diversity and workplaces that are
free of prejudice.
Delivering high quality products
and services
Meeting and pre-empting the needs of
our customers and the environment, through
innovation, customisation and the highest
levels of quality control.
Fostering mutually beneficial
partnerships
Fostering sound and positive partnerships with
our customers and suppliers, industry bodies,
and regulators in the regions in which we
operate. Respect for human rights.
Supporting communities around us
Making a positive contribution to the
communities in which we operate.
Managing our environmental
performance, mitigating our impacts
Protecting and minimising our impact on the
environment in which we operate and where
our products are used. Focus on climate
change – setting and achieving emissions
reductions and mitigating climate-related risks.
In 2022, we have continued to review and
consider the external landscape and sought
feedback from stakeholders. We have again
considered inputs from leadership in confirming
our material issues and mapping these against
our commitments that form part of our
sustainability framework.
Material issue
• Health and Safety.
• Employee Engagement.
• Diversity and Inclusion.
What we measure
• Fatalities.
• Total recordable incident rate.
• Near miss frequency rate.
• Vehicle incidents.
• Voluntary turnover.
• Representation of women
on the Board, in management
and in the workforce.
• Engagement level.
Where to find it
For further information
please see pages 63
and 82.
For further information
please see pages 82
and 83.
• Quality Assurance.
• Manufacturing reject rate.
• % of facilities compliant with
For further information
please see page 55.
ISO 9001: 2015.
• Business ethics.
• Human rights.
• Whistleblowing incidents.
For further information
please see page 83.
• Community engagement.
• Charitable donations.
• Environmental stewardship.
• Climate reporting and
decarbonisation strategy.
• Climate change adaption and
transition.
• TCFD reporting.
• GHG emissions and intensity.
• Water consumption.
• Environmental incidents.
• Waste monitoring.
For further information
please see pages 81
and 82.
For further information
please see pages 78
to 80.
Strategic ReportHunting PLC Annual Report and Accounts 2022 75
Environmental, Social
and Governance (ESG)
Our contribution
to the SDGs
The 2030 Agenda for Sustainable Development,
adopted by all United Nations member states
in 2015, provides a shared blueprint for peace
and prosperity for people and the planet,
now and into the future. At its heart are the
17 Sustainable Development Goals (“SDGs”),
which are an urgent call for action by all
countries – developed and developing –
in a global partnership. They recognise that
ending poverty and other deprivations must
go hand-in-hand with strategies that improve
health and education, reduce inequality,
and spur economic growth – all while tackling
climate change and working to preserve our
oceans and forests.
At Hunting, we believe we can make a
contribution towards achieving these goals,
and that every contribution – no matter how
small – can have an impact on the betterment
of our society and the environment in which
we operate.
We have identified nine SDGs as areas
where we can make a positive contribution.
Good health and
well-being
Affordable and
clean energy
Responsible
consumption
and production
The health and safety of our employees is of utmost
importance to us. We have a responsibility for the
health and safety of those who use or are affected by
our services and equipment. We believe that we can
address employee and community health through the
systems we have in place, the training and support we
provide, our access to healthcare, and through innovation
and technology – by building and implementing
safety-enhancing features in the work we do.
Gender equality
Through the technology, products and services we
provide to the oil and gas sector, we assist in the safe,
and reliable extraction of resources, while minimising
environmental impacts.
As a responsible and efficient operator we strive to
limit the consumption of the materials we use, and
to increase recycling and integration into the circular
economy. We are conscious of the need for responsible
sourcing of materials.
Decent work and
economic growth
Climate action
Our aim is to ensure that our workplaces and decision
making are free from prejudice, and that hiring and
promotion is based on merit. Not only do we aim
to improve gender representation in our business,
but we are specifically seeking to promote diversity
on our Board and among our senior leadership.
We have a skilled and diverse workforce, operating
in 11 countries across the globe. We place a great
focus on attracting and retaining talented employees,
and ensuring that they are engaged and can develop
to their full potential. We have measures in place to
identify and guard against modern slavery and
human trafficking.
We recognise that climate change is a global challenge
and a risk to our business, and that we can make a
positive contribution towards climate change mitigation
by improving our energy efficiency mix, and reducing
our GHG emissions. We also recognise the need to
understand and plan for climate change impacts
and transition.
Clean water
and sanitation
Industry, innovation
and infrastructure
Partnership for
the goals
We monitor and manage our water usage,
understanding that water is a valuable and constrained
resource, especially in some of the regions in which we
operate. We protect water resources, guarding against
potentially hazardous emissions to water bodies.
We support inclusive and sustainable industrialisation,
and produce and work with innovative technology that
is safe and efficient.
We recognise that the achievement of the SDGs
requires partnership and collaboration.
Through Hunting’s TEK-HUB™, we seek to attract
innovative individuals and companies to develop
technology partnerships. By working in true collaboration,
we will bring innovations to market under licence.
Hunting PLC Annual Report and Accounts 2022Strategic Report
76
Case Study
Singapore – new facility,
lower carbon footprint
Hunting’s consolidated facility
in Singapore is yielding
significant benefits.
New office opening ceremony
in Singapore. Jim Johnson
(Chief Executive) and Daniel Tan
(Managing Director – Asia Pacific).
The Group has now brought
together the manufacturing
of all product lines under
one facility, to generate
operational synergies and
to reduce costs.
Singapore facility investment
$2.3m
C.45%
Reduction in electricity consumption
in Singapore targeted
Strategic ReportHunting PLC Annual Report and Accounts 2022 77
Case Study
After a lengthy search, the integrated and
award-winning development at JTC Space @
Tuas presented itself as a good real estate fit
for Hunting. Most importantly, the new location
needed to meet the Company’s ambition for
a sustainable operating site, allowing Hunting
to put into practice environmental stewardship.
The new development started on the right
low-carbon footing as it followed guidelines set
out by Singapore’s Building and Construction
Authority (“BCA”).
This site was also a suitable location to
accommodate the sizable workforce – it has a
number of prominent green features, boosting
the health and wellbeing of the workforce,
to create a sustainable workplace. The new
Hunting location is also conveniently situated
within walking distance of public transport,
including the Gul Circle Mass Rapid Transit
(“MRT”) station on the East West line, and
several bus stops.
All operating activities were transferred to JTC
Space @ Tuas by April 2022. The successful
consolidation of the three product lines –
OCTG, Completion Accessories and Well
Intervention into a single highly efficient facility
has resulted in enhanced administrative
efficiency, improved quality services to our
customers, and substantial reduction in our
carbon footprint.
The building has been awarded the “Green
Mark Platinum” certification by BCA. This is
the highest award and accolade available in the
Green Mark Incentive Scheme, a building rating
system that is supported by a comprehensive
framework, designed to evaluate a building’s
environmental impact and performance.
A key feature has been the built-in resource
efficiency that will decrease electricity and
water consumption through:
• the east-west orientation of the building,
which reduces heat gain;
• the installation of highly efficient chilled water
plants in the industrial complex, which is used
for the air-conditioning systems;
• the installation of energy-efficient LED lighting
throughout the facility and, in all common
areas, occupancy sensors to control lighting
when not in use;
• the use of accredited water fittings that reduce
water flow rates and consumption; and
• its proximity to the MRT station system, which
is an electric powered railway transportation
– the principal mode of public transport
in Singapore.
Hunting will continue to take action to reduce its
carbon emissions, with existing plans already
in place to further lower the carbon footprint of
the Tuas facility in Singapore. This includes the
option to install a rooftop Solar PV System to
further reduce carbon emissions.
Sustainability was at the heart of our
decision when choosing to consolidate
our facilities at JTC Space @ Tuas.
We have plans in place to further lower
our carbon footprint. One way to
achieve this is by optimising resource
efficiency, including the possibility
of installing solar panels.”
Daniel Tan
Managing Director
Asia Pacific
www.huntingplc.com
Hunting PLC Annual Report and Accounts 2022Strategic Report 78
Environmental, Social
and Governance (ESG)
Environmental
stewardship
Our Carbon Measurement,
Reporting and Targets
Hunting has disclosed its Scope 1 and 2
GHG emissions since 2013, in accordance
with the principles of the Kyoto Protocol,
with the reporting process integrated into our
non-financial reporting framework. Since our
Scope 1 and 2 emissions are under our control,
we choose to report and reduce these as
a priority.
In 2022, the Board approved a new carbon
reduction target of 50% from our 2019
base-line year by 2030. The Group continues
to drive our intensity factor (calculated as total
emissions divided by revenue) to less than 30.
In 2023, we will commence the collection of
certain Scope 3 emissions, including electricity
transmission and distribution emissions,
commuting and business travel emissions
and relevant supply chain emissions.
Our Commitment:
Protecting and minimising our impact on the
environment in which we operate and where
our products are used.
Material Issues:
• Environmental stewardship;
• Climate reporting and decarbonisation
strategy; and
• Climate change adaptation and transition.
SDGs
Environmental management and compliance,
the efficient use of natural resources such as
energy, water and raw materials, as well as
reducing our waste footprint, are critical areas
for the business.
The Group’s Quality Management System
(“QMS”) is compliant with the globally
recognised ISO 14001 (Environmental)
standard and 74% 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.
Among the environmentally responsible
initiatives that we have continued to implement
across the Group during the year are:
• The introduction of energy efficiency
solutions, including more efficient lighting;
• Improved water capture and recycling; and
• Increased waste recycling.
These initiatives are continuously enhanced
to incrementally reduce the Group’s overall
carbon footprint and environmental impact.
Energy and Climate Change
Energy management, carbon emissions
and related climate matters have become the
subject of global focus, and intense external
and internal scrutiny in recent years.
At Hunting we recognise the reality of climate
change, and the role that companies have in
mitigating our contributions and addressing
its impacts.
The Hunting Board has committed to
the principles published in the 2015 Paris
Agreement, which aims to limit the increase
in global temperatures.
Our Climate Policy was updated in January
2023. The Board has overseen the development
and introduction of strong governance and
reporting initiatives that will support Hunting’s
commitment to these issues in the short,
medium and long term. A significant
development during the year has been
the advancement of our TCFD reporting.
Hunting’s Carbon Reporting Roadmap
2013
2019
2020
2021
2022 and beyond
Began Scope 1 and 2
GHG emissions
reporting.
Publication of first
carbon reduction and
intensity targets.
Initial TCFD disclosures
published, including
governance and
physical risk analysis.
External advisers
appointed.
First TCFD disclosures.
TCFD Steering group
formed.
Full TCFD disclosure.
S&P Trucost appointed
to assure carbon data
collation processes
against AA1000
standard.
Science-based targets
considered.
Strategic ReportHunting PLC Annual Report and Accounts 2022
79
Environmental, Social
and Governance (ESG)
Scope 1 and 2 Carbon Dioxide
Equivalent Emissions
(tonnes)
Electricity purchased – Group
(GWh)
2022
2021
2020
43.4
40.5
48.6
Renewable energy purchased – Group
(GWh)
Climate Change Impact
and Transition
As our world transitions to a low carbon
economy in response to, and to mitigate, climate
change, there will be a significant impact on
our business and our ability to create value.
Currently, around $47.6m or 7% of our revenue
contribution is from non-oil and gas sectors
(2021 – $37.6m or 7%).
2022
2021
2020
8.7
Our efforts to align our business model to
take into account and pre-empt this transition,
and the opportunities that this potential for
diversification has for the business, are
described in our Climate Change statement.
6.3
5.8
An integral part of our risk management
approach ensures that new facilities take into
account environmental impact considerations,
including protection from extreme weather
events, such as severe storms and flooding.
We participate in the annual CDP survey,
and our latest submission is available on
www.cdp.net. The data reported, and carbon
dioxide conversion factors used to report the
Group’s carbon footprint, are based on those
published by BEIS and DEFRA in the UK
(www.defra.org.uk) and the International
Energy Agency.
To monitor Hunting’s climate related risks and
opportunities, the Group has elected to adopt
three primary carbon and climate metrics:
• Scope 1 and 2 GHG emissions
(tonnes CO2e);
• Intensity factor (kg of CO2e per $‘000
of revenue); and
• Non-oil and gas revenue ($m and %).
The Group’s total Scope 1 and 2 emissions
in 2022 were 22,422 tonnes CO2e
(2021 – 18,859 tonnes CO2e).
In the UK, total Scope 1 and 2 emissions
in 2022 were 359 tonnes CO2e
(2021 – 474 tonnes CO2e).
The Group’s intensity factor is based on total
carbon dioxide equivalent emissions divided by
the Group’s revenue in 2022, and was 30.2 kg/$k
of revenue (2021 – 36.2 kg/$k of revenue).
We are also starting to collect certain Scope 3
emissions data during 2023.
30,000
25,000
20,000
15,000
10,000
5,000
0
2020
2021
2022
2030 target
Scope 1
Scope 2
Intensity Factor
(kilogrammes CO2 per $k revenue)
2030 Target
2022
2021
2020
30.0
30.2
36.2
40.6
Our Carbon Footprint
Setting our Scope 1 and 2 emissions targets
means we have given attention to improving
our energy efficiency programmes, including
the introduction of low energy and higher
efficiency solutions into many of the Group’s
facilities, along with the migration to lower
carbon electricity arrangements. We are also
undertaking initiatives to increase the
contribution of renewables to our energy mix.
Importantly, we aim to introduce a low carbon
culture within our operating facilities and among
our employees.
We are migrating the electricity we purchase
towards more renewable and sustainable
sources. In the US, where the majority of the
Group’s facilities are located, wind generation
capacity is substantial, giving the Board
confidence that a large proportion of our carbon
footprint (predominantly Scope 2 electricity
usage) can be eliminated by moving to
renewable energy. In the UK, the Group’s
Aberdeen and London operations have secured
renewable energy supplies. 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.
Annual Energy Summary
Energy Type
Natural gas – Group
Natural gas – UK
Vehicle consumption and process emissions – Group
Vehicle consumption and process emissions – UK
Electricity purchased – Group
Electricity purchased – UK
Renewable electricity purchased – Group
Renewable electricity purchased – UK
Units
GWh
GWh
Tonnes CO2e
Tonnes CO2e
GWh
GWh
GWh
GWh
2022
7.9
0.7
3,367
0.7
43.4
0.4
8.6
0.4
2021
8.5
0.2
2,491
1.4
40.5
1.4
6.3
0.3
2020
13.7
2.6
3,338
3.3
48.6
1.4
5.8
0.4
Hunting PLC Annual Report and Accounts 2022Strategic Report 80
Environmental, Social
and Governance (ESG)
1
2
Image key
1 A micro-hydro
generator installed
in the Philippines.
2 Metal recycling is
practiced in the
majority of facilities.
Water Management
Water management is becoming a key
feature of Hunting’s sustainability strategy,
with measures being introduced to recycle
more fresh water across the Group’s facilities.
Our primary water consumption is for property
and equipment needs. Hunting has a number
of water supplies, some provided by utility
networks and some from boreholes drilled at
some locations. Our long-term sustainability
plans include measuring all water inputs and,
from 2023, we will be reporting the percentage
of water recycled in line with SASB guidance.
We monitor our water usage and operational
risk, and have adopted proactive water
management. Where water is used as part
of our manufacturing process, the waste (e.g.
cooling) water is not discharged into the original
water source. For example, as part of the
regional Environmental and Water Management
strategy in the EMEA region, the Fordoun site
monitors the water discharged from operational
activities twice per calendar year. Additionally,
we are committed to conserving and protecting
freshwater resources whenever possible
– from water withdrawal, to use and reuse
where possible; whilst contaminated water
is collected and disposed of as special waste,
destined for further recycling.
In the year, there was an increase in water
consumption as activity levels increased across
the Group.
Fresh Water Consumption
(‘000 cubic metres)
163
2022
2021
69
2020
2019
256
300
Waste Management and Recycling
We are mindful of the need to responsibly
source and consume materials.
During the year, the majority 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.
Scope 1 and 2 Greenhouse Gas Emissions
(tonnes CO2e) per operating segment
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
North America
Titan
Asia Pacific
EMEA
Scope 1
Scope 2
Strategic ReportHunting PLC Annual Report and Accounts 2022 81
Environmental, Social
and Governance (ESG)
Society – people
and communities
Our Commitment:
• Supporting and developing our people:
Attracting and retaining our highly-skilled
workforce. Providing training and
development. Promoting diversity and
workplaces that are free of prejudice.
• Fostering mutually beneficial
partnerships: Fostering sound and
positive partnerships with our customers
and suppliers, industry bodies and
regulators in the regions in which we
operate. Respect for human rights.
• Supporting communities around us:
Making a positive contribution to the
communities in which we operate.
Material Issues:
• Health and Safety;
• Employee engagement;
• Diversity and inclusion;
• Human rights; and
• Community engagement.
SDGs
Our ability to successfully deliver on our
objectives, and the reputation that we have
built over many years, rests on the values and
behaviours of our highly skilled and committed
employees. At 31 December 2022, the Group
employed 2,258 people across our global
operations (2021: 1,949 people). With 43%
of these employees employed in our North
America operations, 29% at Hunting Titan, 14%
in Asia Pacific, and 11% in the EMEA (Europe,
Middle East and Africa) operating segment.
Health and Safety
Hunting is committed to achieving and
maintaining our high standards of safety,
health and environment goals of “No Accidents,
No Harm to People, and No Damage to
the Environment”.
Our culture has entrenched best practice,
and we employ rigorous Health and Safety
practices. Our HSE policy guides the way we
work, putting safety first and, at a minimum,
complying with local regulatory requirements.
Our approach ensures:
• Regular audit and maintenance reviews
of facilities;
• Appropriate training and education
of all staff;
• That we seek the accreditation and
alignment of long-standing internal
programmes with internationally recognised
standards; and
• Regular reporting to the Board.
Each local business is required to develop
tailored Health and Safety policies to suit
their environment. Hunting has defined rules
and guidelines for HSE training, protective
equipment, and high-risk operations. This
is covered by the Group’s Health, Safety and
Environmental Global Manual that is accredited
to ISO 14001: Environmental Management
System and in accordance with ISO 45001:
Occupational Health and Safety Management
System. Our target is to achieve zero
recordable incidents. In 2022:
• There were no fatalities in the Group
(2021 – 0).
• Recordable incidents 23 (2021 – 19).
The total recordable incident rate is calculated
by multiplying the number of incidents by
200,000 and dividing the total numbers of
hours worked based on guidance issued by the
Occupational Safety and Health Administration
(“OSHA”). In 2022, this was 0.97 in the US
(2021 – 0.99). The industry average incident
rate in 2022 was 4.0 (2021 – 4.0).
The near miss frequency rate is calculated by
multiplying the number of incidents by 200,000
and dividing by the total numbers of hours
worked. In 2022, our near miss rate was 0.97
(2021 – 0.78) as a result of 66 near misses
(2021 – 15).
Employees By Region (at year-end)
Town Hall QAHSE
meeting in Singapore.
5
1
4
3
2
1. US 43%
2. Hunting Titan 29%
3. Asia Pacific 14%
4. EMEA 11%
5. Central 3%
Hunting PLC Annual Report and Accounts 2022Strategic Report
82
Environmental, Social
and Governance (ESG)
We have engaged specialist services to provide
climate, noise and air quality testing to achieve
an accurate sample of our operations to ensure
compliance and safety for all its employees.
As a result of this monitoring, we have been
able to continuously improve the working
conditions across all platforms.
Through our internal HSE Management System
OnBase, processes, communication, training
and reporting are now completely seamlessly
captured within one application across the
Group, and ensure that all operations are
in compliance with local regulatory agencies.
We operate an embedded Health and Safety
training programme for all employees, with
each shop-floor member of staff attending
weekly “Tool Box” sessions, where HSE
messaging is re-enforced.
Employee Attraction, Retention
and Development
To attract and retain our highly skilled staff,
and to address the key demands of the industry,
our employees are remunerated fairly, which,
in addition to a base salary, can comprise a
range of healthcare and pension benefits and
can include an annual bonus that reflects
performance levels.
We are committed to training and developing
all employees, which includes Health and Safety
training, professional development and general
career development initiatives.
Employee Engagement
Since 2019, we have increased our
engagement activities through perception
surveys and town hall meetings. In addition,
engagement processes have been embedded
within all business units to enhance transparent
two-way dialogue between the Board and the
Group’s employees.
Our first all-employee Gallup Q12 survey took
place in 2019. We are planning on repeating
the survey in 2023; we will again utilise Gallup’s
Q12 survey.
1
Our employees are also encouraged to engage
in dialogue with management to raise issues
of concern. These procedures are supported
by an independent reporting service operated
by SafeCall, where confidential matters can
be raised with the Board.
Diversity and Inclusion
We are a responsible employer. We are
committed to creating a positive workplace
environment for all our employees that is safe,
respectful, fair and inclusive – free of any form
of harassment, bullying and discrimination.
Our approach focuses on recruitment, training
and development, conditions of work and
disciplinary procedures.
Hunting’s Gender Diversity Policy commits us 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 the right Board shortlists
comprising of an appropriate gender
balance; and
• a periodic review by the Nomination
Committee of its progress in complying
with best practice recommendations.
Hunting is committed to an ethnically diverse
workforce, across its global operating footprint
in 11 countries. We remain North America
focused, with over 74% of employees from
the region at 31 December 2022.
2
Image key
1 Employee fitness
sessions.
2 Hunting’s Asia Pacific
community outreach
initiative.
Workforce
Board
Senior Management
1
1
1
2
2
2
1. Male 76%
2. Female 24%
1. Male 63%
2. Female 37%
1. Male 72%
2. Female 28%
Strategic ReportHunting PLC Annual Report and Accounts 2022 83
Environmental, Social
and Governance (ESG)
ESG governance
Our Commitment:
• Fostering mutually beneficial
partnerships: Fostering sound and
positive partnerships with our customers
and suppliers, industry bodies, and
regulators in the regions in which we
operate. Respect for human rights.
Material Issues:
• Business ethics; and
• Human rights.
SDGs
Human Rights
We are committed to upholding the human
rights of all our stakeholders including
employees, local communities, customers and
suppliers, and achieve this through measures
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;
• Acting with honesty, transparency
and integrity in all of our dealings with
our workforce.
This is implemented through our Code of
Conduct within the business and, increasingly,
in our supply chain.
We have a zero-tolerance stance on slavery
and trafficking, and we expect the same from
our business and trading partners.
We demonstrate our compliance to corporate
regulations through:
• our Ethical Employment and Trading Policy;
• our Modern Slavery, Human Trafficking
Transparency Statement; and
• Hunting’s Ethics Reporting Procedures.
We pride ourselves on the way in which
our values are lived in our daily interactions,
within the business and outside of it, and are
committed to upholding the highest levels of
integrity and ethics in all our business dealings.
Business Ethics
Hunting’s Code of Conduct (the “Code”)
underpins all of our engagements, internally
and externally.
In it, our CEO Jim Johnson notes that: “At the
heart of our success has been an ethos of
honesty and integrity”.
All employees and business partners are
provided with a copy of the Code and are
expected to adhere to it. The Code of Conduct
deals with a broad range of issues, including:
• Preventing corruption, including measures
that prevent bribery and corruption in our
dealings with government officials;
• Personal integrity, including money
laundering;
• Conflicts of interest;
• Employee share dealing;
• Human rights;
• Harassment and equal opportunity; and
• Our approach to national and international
trade, including compliance with laws and
regulations, competition, and export and
import controls.
As part of a compulsory programme for new
employees, the Group provides ethics training
through a Code of Conduct training course,
to ensure awareness of our published policies.
Hunting’s Code of Conduct training course
includes detailed modules on ABC compliance
and risk assessment procedures.
Through the SafeCall facility, we have created
a confidential channel of communication to
the Board, both within the business and in
our supply chain, to report any breaches
of the Code.
At the heart of our
success has been
an ethos of honesty
and integrity.”
Hunting PLC Annual Report and Accounts 2022Strategic Report
84
Case Study
Health and safety
is a top priority
While health and safety has
always been a top priority
for Hunting, the arrival
of COVID-19 presented an
opportunity for the Group to
review and refine its approach
to its HSE management
reporting systems. Given that
in-person site visits became
more challenging, the need
for a seamless, integrated
and cloud-based system
became imperative, and has
since been implemented.
Strategic ReportHunting PLC Annual Report and Accounts 2022 85
Case Study
Not only does the HSE management system
provide for continuous reporting by all operating
sites in a consistent and ‘live’ manner, it also
provides useful insights, e.g. risk analysis, for
management review and action. By monitoring
and tracking ‘real time’ information, any
potential areas of concern can be flagged
and investigated, promoting a proactive
safety culture.
The management system became fully
operational in 2022. It allows Hunting to
continuously enhance it, making it a dynamic
management system that adapts to any new
requirements at a Group, country and
operational level. This is an additional safeguard
to maintain compliance with respective
regulatory agencies.
While this integrated management system has
been a significant step forward in the collation
and analysis of data, Hunting recognises that
people remain a fundamental component of
health and safety. Any system relies on the
integrity of data collation and capture, and
suitable checks are in place for this. Moreover,
the behavioural aspect of health and safety
remain a priority, particularly in recognising the
dangers of workplace complacency, especially
when performing routine jobs and repetitive
tasks. This is where refresher safety training
and ongoing communication play a significant
role. Hunting places great emphasis on
receiving suggestions to improve our
procedures, in particular from shop-floor
employees. Safety suggestion boxes and
observation cards are installed at all facilities.
These are anonymous and are presented and
discussed in quarterly management meetings,
attended by all levels of the organisation,
including managing directors, with a view
to implementing corrective and preventative
action plans to identify and eliminate hazard,
risk, and unsafe behaviours.
HSE is recognised as a top priority right from the
top of the organisation, with the Chief Executive
personally driving safety engagements, and at
least quarterly reporting and reviews at every
level of the organisation, right up to the Board.
Hunting PLC Annual Report and Accounts 2022Strategic Report 86
Case Study
Technology development
to drive industry
efficiency
Driving technology
enhancements to improve
efficiencies via collaboration.
Hunting’s TEK-HUB™ is an
innovative company-customer
partnership that seeks to
attract individuals and
companies in co-developing
and accelerating the
commercialisation of
new technologies.
Strategic ReportHunting PLC Annual Report and Accounts 2022 87
Case Study
By collaborating with
technology developers, we
see benefits at several levels:
1
2
3
By taking technologies to market and into
the field in a reduced timeframe, society
accesses the benefits of that technology
on a wider scale sooner. This is particularly
important for technologies that reduce
or offset carbon emissions. Organic Oil
Recovery is an example of a technology
that increases oil production, but CO2 cost
per barrel is very low compared to drilling,
completing and bringing a new well online.
By collaborating with technology developers,
Hunting avoids duplicating efforts to solve
the same problem. There are financial,
time and opportunity costs and energy/CO2
savings, which free up resources to solve
new problems. For example, Hunting’s
Ezi-Shear Seal valve demonstrates how
developing an existing technology and
deploying it into Hunting’s core markets
significantly reduced the time to market
without duplicating development efforts.
The sales effort involved in commercialising
a new product is energy intensive,
particularly for small companies with no or
limited international presence. Compare that
to Hunting, with regional sales offices around
the globe, which provides the opportunity
for shorter travel distances to regional
customers, compared to taking international
flights. By combining multiple customers
and technologies/product lines into each
trip, the carbon cost per sale is minimised.
Our approach to collaboration.
1. Identify
2. Evaluate
3. Develop
4. Commercialise
Screen technology
to assess suitability for
TEK-HUB™ partnership.
Verify technical feasibility
and the market potential
of the product.
Detailed product planning
for all elements of the
technology.
Production run and product
launch to customers.
For developers, the benefits of partnering with Hunting are significant,
including access to capital, an international presence and an
established and extensive customer base.
If you’re a technology developer and are interested in finding out
more about how Hunting can help you develop and market your
idea through a global partnership, get in touch using the email
address on page 248.
Hunting PLC Annual Report and Accounts 2022Strategic Report 88
Environmental, Social
and Governance (ESG)
Task Force on Climate-Related
Financial Disclosures (“TCFD”)
2022 has seen the Directors focus on the
progression of the Group’s reporting pillars of
Strategy, Risk Management and Metrics and Targets.
Compliance
Under FCA Listing Rule 9.8.6(8)b for premium
listed companies, Hunting is required to report
on a ‘comply or explain’ basis against the
TCFD Recommendations and Recommended
Disclosures in respect of the financial year
ended 31 December 2022. The climate-related
financial disclosures, which follow, are
consistent with the four reporting pillars of
(i) Governance (page 89); (ii) Strategy (pages 90
to 96); (iii) Risk Management (pages 96 and 97);
and (iv) Metrics and Targets (pages 97 to 99)
contained within the TCFD Recommended
Disclosures. The Directors believe that Hunting
is compliant with Listing Rule 9.8.6(8)b, with the
following one exception:
• Hunting has not reported its Scope 3
emissions as recommended by part (b) of
Metrics and Targets and has not completed
a materiality assessment. This is due to the
complexity of the Group’s global businesses
and its respective supply chains and the
costs associated with gathering this data.
The Group anticipates to be compliant
no later than 2025.
The Company has not committed to a Net Zero
Target, as noted below, however; during 2023
a Net Zero plan will be developed, as required
by the recommendations published by the
UK government.
Climate Policy
In 2020, the Directors approved a Climate
Policy (located at www.huntingplc.com), which
commits the Board to Group-level monitoring
of climate-related opportunities and risks.
This Policy acknowledges the global goal
to limit global warming to 1.5oC in line with
the Paris Accords and commits the Group to
assisting in the delivery of this ambition through
a reduction in its global carbon footprint.
In December 2022, the Board set new targets
to be delivered by 2030. The Group will
endeavour to reach these targets in the coming
years as low-carbon initiatives are extended
throughout the Company and are made more
widely available in each geographic region
of operation.
Progress in 2022
The Directors’ approach to the development of
the Group’s TCFD reporting in 2022 has been
to focus on the progression of the reporting
pillars of Strategy, Risk Management and
Metrics and Targets.
Strategy
During 2022, the Board of Hunting has
considered and approved a broad-based
strategic ambition to pivot its revenue and
therefore its investment profile to more non-oil
and gas sales. The Board has approved a
strategy to target a material increase in non-oil
and gas sales by 2030, to include energy
transition and other markets such as medical,
defence and power generation sales which
align to the existing core competencies
of the Group.
Risk Management
In 2021, management developed a
Group-level climate change risk assessment
and completed due diligence on its geographic
footprint, to evaluate the transition and physical
risk profile of the Group, based on different
climate change scenarios extending to 2050.
In 2022, management broadened the risk
assessment framework to include inputs
from each business unit within the Group
to understand the risk profile of the proposed
pivot to lower oil and gas-related sales, in
addition to the physical risks associated with
Hunting’s asset base. The risk assessment
presented on pages 96 and 97 incorporates
these additional disclosures. The Group has
begun to develop a high level model which
explores the financial impact of each business
unit based on three scenarios including
(i) a ‘Business as Usual’ global warming
scenario (ii) a Middle Case or a 2.0oC global
warming scenario and (iii) a ‘Rapid Transition’
scenario or a 1.5oC global warming scenario.
Further disclosures in respect to this analysis
are likely to be developed in the coming years.
Metrics and Targets
The Directors of Hunting have reviewed its
carbon reduction targets, which were initially
published in 2019, and have increased its
reduction target to 50% (from 10%) from
its base-line emissions year of 2019 by 2030.
This new target relates to the Group’s
operational Scope 1 and 2 emissions only.
Carbon Data Collection
and Assurance
During 2022, management implemented
a more detailed carbon data reporting policy
which aligns to the GHG Protocol issued by the
World Resources Institute (www.wri.org) and
also enhanced the data collection methodology
through the Group’s global financial
consolidation system.
To support this data collection, the Group
appointed Standard & Poor’s Trucost to provide
assurance services against the AA1000
standard over Hunting’s policies and Scope 1
and 2 greenhouse emissions data which are
being externally published. The results of this
process are to be delivered to the Company
in April 2023.
Carbon Reduction Commitment
The Board believes that its primary strategy
to reduce its carbon footprint will be through
the securing of renewable energy electricity
contracts for all of the Group’s facilities.
C.80% of Hunting’s Scope 1 and 2 greenhouse
gas emissions are derived from the consumption
of electricity, with each business unit now
tasked with reducing its reliance on fossil fuel
originated electricity.
The Directors have considered a possible
commitment to a Net Zero target, but after
further analysis of its current emissions profile
they are still not able to make this commitment
given the level of emissions derived from its
North America operations. This is due to the
lack of available renewable electricity capacity
in Texas where the majority of the Group’s
facilities are located. As noted above, the
Directors have, however, committed to a
stronger carbon reduction target by 2030.
However, the Board notes that the Group’s total
Scope 1 and Scope 2 emissions in 2022 were
22,422 tonnes of CO2e and at a carbon price
of €97 per tonne (www.carboncredits.com)
on 21 February 2023, the total cost to the
Group to purchase carbon offsets would
have been c.€2.2m.
Scope 3 Emissions Reporting
In 2023 management is to complete a base-line
assessment and commence the collection
of certain Scope 3 data including electricity
transmission and distribution emissions,
commuting and business travel emissions
and certain supply chain emissions.
Strategic ReportHunting PLC Annual Report and Accounts 2022 89
Environmental, Social
and Governance (ESG)
Governance
The Board of Hunting has put in place a
robust climate-related governance framework
to oversee and deliver on its objectives going
forward. This governance framework is
summarised below.
Climate Governance Framework
Hunting PLC Board
Audit
Committee
Ethics and Sustainability
Committee
Nomination
Committee
Remuneration
Committee
Hunting Executive
Committee
ESG Steering
Group
TCFD Working
Group
Disclosure (a) Board Oversight
The Chief Executive has been charged
with oversight and responsibility for all TCFD
matters. Since 2020, the Board has been
briefed by the Group’s central compliance
function and the Group Company Secretary on
the TCFD reporting requirements and the work
streams underway across the Group to assess
compliance. This includes evaluation of the
transition and physical risks facing the Group
and the opportunities climate change presents
to the Company.
Climate change perspectives and strategic
initiatives including the pursuit of energy
transition opportunities as well as the pivot
of revenue to more non-oil and gas sales are
therefore included in the Board’s strategic
planning discussions, which include merger
and acquisition opportunities being considered.
Further, in 2021 the Directors appointed
WillisTowersWatson (“WTW”) to assist in the
assessment of the Group’s physical risk profile,
based on the location of its current and
non-current assets. This exercise will be
repeated in 2024. The Board maintains an
Ethics and Sustainability Committee to monitor
Hunting’s overall governance and reporting
framework in the area of climate change and
wider ESG issues. The Ethics and Sustainability
Committee comprises the non-executive
Directors of the Company (pages 116 and 117).
The Committee meets twice a year, with
carbon, climate and TCFD matters being
regular agenda items.
This Committee also monitors, on behalf of the
Board, Hunting’s progress against its current
emissions reduction targets. All members of the
Board attend each meeting of the Committee,
with its activities and actions completed during
the year detailed on pages 129 to 131.
While the Ethics and Sustainability Committee
reviews these important non-financial matters,
the Audit Committee retains key oversight of
Hunting’s public disclosures on these areas,
including the information contained in its
Annual Report and other Stock Exchange
announcements and the evaluation of the
risk profile of the Group in respect to climate
change. Further, the Audit Committee reviews
the climate-related risk assessments prepared
by each business unit, and a consolidated
climate risk register prepared by the Group’s
central finance function.
Disclosure (b) Management’s
Role in Assessing Climate risks
and Opportunities
Members of the Group’s senior leadership
team including the Group Company Secretary,
Chief HR Officer, General Counsel and Director
of QAHSE are invited to meetings of the Ethics
and Sustainability Committee. These managers
in turn are supported by the Hunting Executive
Committee; a formal ESG internal steering
group comprising operational and finance staff;
and a TCFD steering group, the latter being
charged with developing formal reporting and
new strategies to curtail the Group’s carbon
footprint, to reduce its impact on the
environment and to provide direction
on Hunting’s sustainability ambitions.
The responsibility of managing climate risks
is vested in the Executive Committee which
comprises the senior operational leaders of
the Company. The Group’s central compliance
function oversees TCFD external reporting and
compliance matters and works with the
Executive Committee to develop that
Company’s climate-related objectives.
Management completed a Group-level climate
risk register in 2021 and in 2022 developed a
broader risk register following input from each
business unit. The results of this process are
noted on pages 90 and 91. As part of this
process, strategic opportunities were
considered by each business unit which
formed part of the Group’s wider plan to pivot
revenue to more non-oil and gas revenue and
the new market opportunities which underpin
this strategy.
A summary of the transition and physical
risks facing the Group are presented on
pages 92 to 96.
As noted above, in 2022, more granular local
reporting and data collection protocols were
implemented across all of the Group’s business
units, with regular briefings organised by the
central compliance function.
For more information of the Group’s wider
governance framework, please refer to the
Corporate Governance Report on pages
119 to 126.
Hunting PLC Annual Report and Accounts 2022Strategic Report 90
Environmental, Social
and Governance (ESG)
Strategy
Disclosure (a) – Description of
Risks and Opportunities in the
Short, Medium and Long term
Hunting has not presented risk management
analysis based on the geographic split of its
global operations or by the various industry
sectors it sells products and services as
recommended by part (a) of Strategy. Hunting
is a global energy services group, focused,
almost entirely, on the oil and gas industry and
therefore each of its global operating segments
are faced with the same climate change
opportunities and risks. Therefore, the Board
believes this approach to climate change
analysis not to be relevant to Hunting.
Climate Risk Management
As noted in the Risk Management section on
pages 102 to 109, the Group has a broad-based
risk management process, which includes a
submission by each business unit three times
a year of the major risks, and mitigating controls,
facing their operations. This is reviewed by the
Group’s Audit Committee. Climate Change risk
has been included as a principal risk, given the
Group’s focus on the oil and gas industry as
well as current sentiment within financial and
investment markets towards traditional energy
businesses. As part of the Hunting’s TCFD
reporting, Hunting’s central compliance function
prepares a Group-level climate risk assessment,
which assesses the short, medium and
long-term risks including corporate-level risks
such as consideration to reputation and wider
financial market risk, given the scrutiny of
climate change by investors and lenders.
During 2022, the Group issued a business unit
risk assessment questionnaire which gives a
deeper consideration to Hunting’s longer-range
risks, including revenue and expenditure risks,
in addition to analysis of major cash generating
units within the Group in respect to the impact
of climate change. The central compliance
function oversees the Group’s annual insurance
renewal for all of Hunting’s businesses, working
with specialists from WTW and in 2021
completed a physical climate risk assessment
for Hunting’s climate exposures which extends
to 2050.
In the table below, ‘short term’ references
a timeframe of less than five years; ‘medium
term’ references a timeframe of between five
and 10 years; and ‘long term’ references a time
scale of greater than 10 years.
Climate Change Risk Analysis – based on a ‘Rapid Transition or 1.5oC or lower’ climate change scenario to 2050
Category
1. Market
Transition Risk
Rating:
Low/Medium
Timeframe:
Long Term
Financial Impact:
Revenue
2. Technology
Transition Risk
Rating:
Low/Medium
Timeframe:
Long Term
Financial Impact:
Revenue
3. Labour
Transition Risk
Rating:
Medium/High
Timeframe:
Short to Medium Term
Financial Impact:
Expenditures
Description of Risk
Management Actions
Hunting’s primary revenue streams are derived
from the oil and gas industry.
The drive by many global governments and
economies to reduce emissions may impact long
term oil and gas demand, which in turn will impact
Hunting’s long term revenue profile.
During 2022, the Board reviewed a number of primary energy
demand scenarios developed by Wood Mackenzie and the
International Energy Agency (“IEA”), which included energy
transition projections and oil and gas demand scenarios to 2050.
These are noted on page 92. From this analysis, the Directors
of Hunting believe that there is a robust outlook for oil and gas
in the long term i.e. to 2050 and beyond, which will drive strong
demand for Hunting’s energy-focused products through this
timeframe. The Directors will continue to monitor these
projections and government legislation and will also track its
customers and suppliers who are also developing compliance to
this long-range change to the energy industry. As noted on pages
28, 29 and 95, the Board is putting initiatives in place to diversify
its revenue streams, which do not rely on the global oil and gas
market, to minimise earnings volatility over time but also to
address this long-term revenue risk profile as noted in the Chief
Executive’s Statement on pages 26 to 29 and also on page 95.
Hunting’s products and services are primarily
targeted at the oil and gas industry, given its
expertise and know-how of this sector.
Should the pace of the energy transition be more
rapid than what is currently projected, certain of
the Group’s product lines and technologies will
be less adaptable to a lower carbon energy world
or could become obsolete.
The Directors believe that the Group’s engineering excellence,
particularly within the Group’s Advanced Manufacturing group
has the ability to diversify the long term revenue streams of the
Group. As part of the business unit level risk assessment the
adaptability to non-oil and gas markets was explored. Most
businesses across the Group believe that revenues from new
markets, using Hunting’s core competencies will enable a level
of transition to occur and are therefore well placed to develop
non-oil and gas sales. In December 2022, a global Energy
Transition sales group was formed to pursue carbon capture
and geothermal revenue. Please refer to Climate Opportunities
on pages 95 and 96.
Historically, the oil and gas sector has provided
highly competitive rates of pay and benefits and,
therefore, has always been an attractive sector
to work in.
The Directors have monitored labour risk during 2022 through
the Remuneration and Ethics and Sustainability Committees to
ensure possible labour market issues in Hunting’s various regions
of operation are minimised.
However, with recent volatility across the industry,
along with the global climate agenda, there has
been a change in perception of the global oil and
gas sector, which may present a continuing risk
of attracting and retaining skilled talent. The
consequence of this risk is that employee costs
may rise in the short to medium term to ensure
Hunting can achieve its strategic objectives.
In the year, Group-wide pay increases were implemented
to attract and retain employees.
Strategic ReportHunting PLC Annual Report and Accounts 2022 As a premium listed Company focused on the
oil and gas industry, Hunting is faced with the
likelihood of increased operating costs, including
insurance and tax costs. It is possible that
Hunting’s insurance costs could rise in the future,
given its presence in the global energy supply
chain in addition to the location of certain facilities
in the Gulf of Mexico. Further, it is likely that
western governments will introduce taxation
on companies, based on carbon footprint.
The Board has announced a 2030 Strategy which will
target a material increase in non-oil and gas revenue by 2030.
This initiative, in part, is to support a less volatile earnings profile,
but also to minimise sector-related cost increases such as
Directors’ & Officers’ liability insurance seen across the energy
sector. Further, given that the Group has a relatively low carbon
footprint, compared to other energy companies such as
exploration and production businesses, any carbon related
taxation is likely to be modest, given Hunting’s drive to reduce
Scope 1 and 2 emissions.
91
Environmental, Social
and Governance (ESG)
Climate Change Risk Analysis continued
Category
4. Insurance and Tax
Description of Risk
Management Actions
Transition Risk
Rating:
Low/Medium
Timeframe:
Short to Medium Term
Financial Impact:
Expenditures
5. Assets
Physical Risk
Rating:
Low/Medium
Timeframe:
Long Term
Financial Impact:
Assets and Liabilities
The global operating footprint of the Group, is
potentially exposed to the impact of more volatile
and severe weather events due to climate change.
These events have the ability to damage the
Group’s property, plant and equipment thus
impairing Hunting’s ability to generate revenue.
6. Financial Markets
Transition Risk
Rating:
Medium
Timeframe:
Short to Medium Term
Financial Impact:
Capital and Financing
With the increased attention climate change
is being given by financial markets, the standing
of energy-related companies has come under
increased scrutiny in recent years. Many investors
who wish to invest in the oil and gas sector look
for evidence of a Net Zero plan as part of their
investment screening. Energy transition risk
imputed by shareholders, lenders and market
commentators has the potential to impact funding
support from equity/debt financial institutions.
7. Regulatory, Legal and Compliance
In 2021, Hunting focused its climate change analysis on
the physical risks facing the Group including carrying out an
assessment of each operational location in respect of possible
extreme weather risks out to 2050. The outcomes to this analysis
are presented on pages 94 to 96. In 2022, the Group completed
long-range financial impact analysis on its major cash generating
units. The Directors believe that given Hunting’s long-term
presence in Louisiana and Texas, which periodically suffers from
tornadoes and other extreme weather events, has given the
Group strong experience in managing this risk. The Directors are
therefore satisfied that appropriate attention is given to this area.
The Directors believe that investors and lenders will be more
demanding in respect of the provision of financing in the future.
However, this risk is partially mitigated by the Board’s Hunting
2030 Strategy and its ongoing access to equity capital markets.
Transition Risk
Rating:
Medium
Timeframe:
Short to Medium Term
Financial Impact:
Expenditures
Capital and Financing
8. Reputation
Transition Risk
Rating:
High
Timeframe:
Short to Medium Term
Financial Impact:
Capital and Financing
Regulatory and compliance risk with respect to
climate has increased in the past year, including
the introduction of TCFD reporting requirements
and the demand for long-term planning
disclosures to address climate change. The
Directors of Hunting believe that regulatory and
compliance costs are likely to increase over time
as companies address carbon and climate issues,
which will likely require additional human capital
to meet stakeholder expectations as well as to
develop and implement Net Zero strategies.
As noted in the Risk Management section on pages 96 and 97,
the Directors believe that regulatory compliance with climate
change legislation could differ substantially given the various
government and political agendas where Hunting’s stakeholders
are located.
Management are continuously monitoring regulatory
and compliance changes across its various jurisdictions.
Many stakeholders have become more aware
of climate change, linking a Company’s response
to the climate debate to long term reputation.
Many companies are beginning to respond to
this reputational risk by addressing stakeholder
concerns, which range from strong carbon
reduction commitments to publishing energy
transition strategies.
The Directors believe that a proportionate response to climate
change planning is being implemented, which protects
shareholders’ short to medium term interests, including earnings
and capital returns. Over time, the Directors will increase the
disclosures in this area as longer-term plans are agreed.
The Directors monitor the Company’s market capitalisation
against the value of its net assets which provides an indication of
how various investors view Hunting’s response to climate change.
Hunting PLC Annual Report and Accounts 2022Strategic Report 92
Environmental, Social
and Governance (ESG)
Disclosure (b) – The Impact of
Climate Risks and Opportunities
IEA Projected Fossil Fuel Demand: 1990-2050
Climate Risks
Transition Risks
Market and Revenue
The Directors regularly receive reports from the
Chief Executive on the short to medium-term
outlook for oil and gas demand, given that this
is a key revenue driver for the Group.
As noted in the Market Summary, market
indicators include rig count data and drilling
and production spend data, published by
Spears & Associates, supports the Group’s
wider financial reporting needs, including
impairment reviews.
During 2022, the Board has also continued
to review the long-term outlook for energy,
specifically the current thinking in respect
to oil and gas demand.
In October 2022, the International Energy
Agency (“IEA”) issued its annual energy outlook
which provides a perspective on the long-term
changes to energy demand and its primary
energy inputs. As noted in the chart opposite,
the outlook for oil and gas, which is assumed
to be a ‘Business as Usual’ scenario, remains
robust to 2050 with oil demand remaining flat
for this timescale, with a small decline in natural
gas demand. Overall the contribution of oil and
gas to the total energy mix reduces from c.80%
to 60%, although the majority of this decline
is related to coal and gas inputs.
The Board has also commissioned energy
demand analysis from Wood MacKenzie which
analyses a range of climate change scenarios.
These range from a ‘Business as Usual’
scenario where global governments do not
achieve their carbon reduction ambitions,
to a ‘Rapid Transition’ scenario where current
climate change commitments are fully met,
which will contain global warming to a
maximum of 1.5oC as prescribed by the 2015
Paris Accords. The chart opposite provides a
high level view of the possible changes to global
oil and gas demand and therefore to Hunting’s
revenue profile to 2050, which indicates a
possible c.60% reduction in revenue in a
“Rapid Transition” scenario.
These energy demand scenarios have
implications for Hunting’s long-term strategy as
the Group’s products and services, and overall
revenue profile, is driven by oil and gas demand
and investment in the exploration and
production of hydrocarbons.
Impact: The Board believes that this primary
energy mix to 2050 published by the IEA
supports Hunting’s long-term focus on energy,
underpinned by the pivot to non-oil and gas
sales in this timescale.
500
450
400
350
300
250
200
150
100
50
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0
1990
2000
2010
2020
2030
2040
2050
0
Oil
Coal
Natural gas
Share of fossil fuels in (right axis)
Source: IEA.
‘Business As Usual’ and ‘Rapid Energy’ Transition Scenarios
for Energy Demand: 2020 to 2050
Mtoe
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
2019
ETO TPED Oil
AET-1.5 TPED Oil
Source: Wood MacKenzie.
Technology
International commentators believe that climate
reduction commitments are very challenging,
given (a) the pace of global warming and
(b) the absence of technologies to assist
in material carbon mitigation and reduction.
The Directors of Hunting believe that its
strategic ambition to assist its clients in making
drilling operations safer and more efficient will
place Hunting in a valuable part of the energy
transition narrative, as brownfield developments
extract oil and gas more efficiently, reducing the
need for green field project developments.
Impact: Hunting’s current technology offering
enables the efficient and safe delivery of
hydrocarbons. While there is a risk that certain
products could become obsolete in the long
term, the Directors believe that a number of
its product lines are directly applicable to the
energy transition and non-oil and gas markets
which provides a level of resilience to its
long-range revenue profile.
2050
Regulatory, Legal and Compliance
International policies and legislation in respect
to climate change and climate action have
increased in pace, examples of which include
new reporting procedures introduced into the
UK for publicly listed companies along with the
encouragement for all businesses to commit
to a Net Zero ambition.
Further to this, initiatives such as the UK’s
Energy Savings Opportunities Scheme, which
required energy audits of businesses to identify
carbon-reduction measures, provide an
indication of western governments’ ambitions
to achieve carbon containment.
Impact: It is likely that climate-related
legislation will increase over time, which will
lead to higher compliance, legal, operational
and administrative costs to keep pace with
these new regulations.
Strategic ReportHunting PLC Annual Report and Accounts 2022 93
Environmental, Social
and Governance (ESG)
Reputation
Hunting’s standing in the global oil and gas
industry underpins the Group’s strategic
objectives of delivering strongly quality-assured
products and services to its customers.
The oil and gas market is highly competitive
and therefore Hunting’s operational objectives
focus on strong HSE and Quality Assurance
procedures, which are disclosed on pages 55
to 57, to maintain our leadership in the industry.
Hunting’s association with the oil and gas
industry is, however, believed to be a medium
risk in the long term in respect to investor and
shareholder perceptions, given the negative
media attention of traditional primary
energy sources.
However, the Directors believe that Hunting’s
strong relationships with customers and
suppliers will support its ambition to play a key
role in the energy transition, which will support
the Board’s ambitions to pivot revenue to more
non-oil and gas sources. Further, the Directors
believe that secure energy sources from
regions such as North America continue
to play a key role in global economic stability.
Impact: Hunting’s reputation and standing
in the energy industry is critical to its long term
resilience. Participation in the oil and gas
industry has a potentially negative impact on
reputation which may manifest itself in a lower
share price and market capitalisation of the
Company; however, this is offset by the positive
contribution of the Group’s products and
technology relevant to the energy transition.
Expenditures
Hunting has not completed detailed analysis
of the long-term impact of climate change on
the cost base of the Group, however, notes that
key components to its cost structure could be
impacted over time. Further work in the area
is to be completed during 2023.
Labour Costs – Hunting’s products and
services are delivered by a highly skilled
workforce comprising of engineers, machinists
and professional services staff. The competition
for talent remains a principal risk to the
Company as noted on page 109, with
employment costs likely to increase in the long
term, to attract and retain employees to the
oil and gas industry.
Tax Costs – to encourage the pivot away from
traditional oil and gas primary energy sources,
it is likely that taxation of companies by
governments based carbon footprint may
be introduced in the future. Given the modest
level of emissions produced by the Group,
the Directors believe that the potential tax cost
to the Group is low, as noted on page 91.
Energy Costs – in 2022 electricity costs
totalled $4.5m. It is possible that as the energy
transition progresses, the cost of electricity will
increase as more expensive primary energy
sources are adopted.
Facility Exposure To Severe Weather Events based on RCP4.5
and RCP8.5 climate scenarios to 2050
Percentage of facilities operated by the group
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
River flood
Tropical cyclone
Fire stress
Drought stress
Precipitation
Heat stress
Coastal flood
Current – 2023
RCP4.5 – 2050
RCP8.5 – 2050
Source: Company.
Assets and Liabilities
The Group has completed high level scenario
analysis to examine the potential impact of
climate change on the current and non-current
assets of the Group.
Capital and Financing
The Group has not completed detailed analysis
of its cash flows in respect of climate change,
however the Directors note the following in
respect to future capital allocations:
Capital Investments – it is likely that new
investment in facilities will occur over time
to align with the physical risks to the Group’s
facilities noted on pages 94 to 96.
The Directors believe that Hunting’s diverse
operational footprint will in the short to medium
term mitigate the majority of operational risks
as many sites are configured in similar ways.
Dividends – the Directors note that
shareholder distributions are a key element to
the Group’s investment case and will endeavour
to support this strategy in the long term.
Capital allocations may change over time
to enable the Group to pivot to non-oil and
gas revenue streams, which may lead to
lower distributions.
Acquisitions – Hunting has a strategy
to develop its non-oil and gas revenue which
in part will be funded by internally generated
cash flows.
Legal and Regulatory Costs – with
increased stakeholder pressure to reduce the
consumption of oil and gas generally, it is likely
that new legislation will be introduced in the
medium to long term, which will increase
compliance costs.
Insurance Premiums – the Group maintains
a broad-based insurance programme covering
many risk areas. Property damage and business
interruption policies are in place, which cover
potential losses to severe weather events.
Given the location of certain of the Group’s
facilities in Texas and Louisiana which are
subject to wind storms, it is possible that the
cost of this insurance cover will increase over
time as the long term risk profile of these
operations increases.
However, the Directors believe that given
Hunting’s diversified operational footprint,
the risk of loss of operations is low. However,
the cost of insurance cover could potentially
increase given the concentration of the Group’s
facilities in Texas and Louisiana.
Litigation Costs – climate-related litigation
is a further potential cost pressure which may
materialise over time, as activism increases.
Access to Equity and Debt Capital Markets
The Group relies on equity and debt markets
to fund its businesses. These stakeholders
are increasingly demanding strong ESG and
long-term sustainability credentials from
companies, and in the absence of this, is
unlikely to fund businesses which do not give
attention to this. The Group has access to a
$150m Asset Based Lending facility to 2026,
with discussions already underway with key
stakeholders to identify key ESG metrics to
support future re-financing.
Hunting PLC Annual Report and Accounts 2022Strategic Report 94
Environmental, Social
and Governance (ESG)
Total Invested Value (£m) by facility vs Weather Risk Score (max = 48)
Weather risk score
35
30
25
20
15
10
5
0
0
20
40
60
80
100
120
Total Insured Value £m
Source: Company.
Revenue ($m) by facility vs Weather Risk Score (max = 48)
Weather risk score
35
30
25
20
15
10
5
0
0
20
40
60
80
100
120
140
160
Revenue $m
Source: Company.
Physical Risks
In December 2021, the Board and the Ethics
and Sustainability Committee reviewed an
independent report that presented the Group’s
physical risk profile with respect to climate
change and which presented analysis of
Hunting’s operating locations and their
respective risk profiles against a variety
of weather events.
The report also detailed a longer-range risk
analysis incorporating a number of climate
scenarios and how this could potentially impact
the Group’s operations. The results of this
analysis are summarised below.
Impact: Given the concentration of facilities in
Texas and Louisiana, locations that periodically
experience tornadoes and wind storms, c.80%
of the Group’s operating locations are in
higher-risk locations.
All facilities are built to withstand these weather
events, which minimises production downtimes
when these events occur. Recent weather
events in the US have shown that facilities
facing such weather are only offline for a few
days at a time.
As part of the Group’s strategic planning,
the majority of products and services offered
by Hunting can be manufactured in multiple
facilities, which mitigates the risk of loss
of revenue.
WTW has evaluated the longer-range climate
risk to the Group’s operating locations, applying
the following two scenarios up to 2050:
Scenario 1 – RCP4.5 (an increase in global
temperature by 2-3°C by 2050).
Scenario 2 – RCP8.5 (an increase in global
temperatures by 4°C by 2050).
It can be noted that in climate scenarios 1 and 2
there is an increase in weather risk, in respect of:
(i) tropical cyclones;
(ii) fire stress;
(iii) precipitation; and
(iv) drought stress.
However, all other risks are currently known
and evaluated by the Board under the Group’s
current operational risk programme. It is
therefore noted that, on this basis, the Group’s
asset base risk is appropriately mitigated for the
long term with actions and controls in place.
The charts on the left present the insured asset
values and revenue risk of the Group, by
location, as a function of the weather event
scores independently applied by WTW.
WTW applied a risk factor to 14 weather events
of between 0 and 5, with the maximum
possible score of 48 for all weather events.
The total insured value figure is the value of
assets held at each location, which are covered
by Hunting’s global insurance programme and
which covers both property damage and
business interruption insurances.
It can be noted all facilities report a weather risk
score of between 10 and 30, with only a small
number of facilities recording a higher
concentration of insured assets by value.
The Board believes that the overall asset risk
is mitigated across the Group’s diversified
physical global operations.
The Directors have also received reports
detailing where key products lines are
manufactured and the relative climate risk
associated with each of these sites.
Similar to the asset and weather risk chart, the
Directors have reviewed the Group’s revenue
by operating location as a function of WTW
weather event scores.
The Board understands which facilities are key
revenue generators and the risk of loss should a
weather event hit a particular facility. It can again
be noted that a small number of facilities have
a higher concentration of revenue, however,
the overall revenue risk is mitigated across
the Group’s diversified global operations.
Strategic ReportHunting PLC Annual Report and Accounts 2022 95
Environmental, Social
and Governance (ESG)
Climate Opportunities
Resource Efficiency
The Group retains an ongoing lean
manufacturing programme which is aimed at
increasing productivity and reducing costs of
operation. In 2022, the costs saving estimated
by this programme were $1.4m. Key resource
inputs for the Group include the availability
of power and water.
Energy Source
The Group’s carbon emissions footprint,
presented as a function of operating segment
is noted on pages 80 and 99. The Board
believes that simple, but meaningful, carbon
reduction strategies will drive down the Group’s
emissions and include:
i.
Moving electricity contracts for Group
facilities to renewable-based energy
arrangements;
ii. Building a zero emission vehicle fleet over
time, including heavy and light duty vehicles
and the provision of all-electric cars to
relevant staff;
iii. Installation of solar panels on relevant
facilities, for a zero emission base load
energy feed; and
iv. Tree and grass planting strategy at Group
facilities to offset residual carbon emissions.
Products and Services
The Directors of Hunting have assessed the
opportunities that climate change presents
to the Group and note the following:
i.
Participation in Non-oil and Gas Primary
Energy Development
An area of focus within the global energy
industry is geothermal energy development.
These projects present a long-term
opportunity for the Company to provide Oil
Country Tubular Goods (“OCTG”) premium
and semi-premium connections and
accessories to operators. Hunting has
industry leading products and expertise
in this area and therefore accessing these
markets is believed to be relatively low risk.
The Group has analysed the global market
for geothermal and believes that the Asia
Pacific and North America regions hold
good opportunities to develop revenue in
this sector given the number of projects
announced over the past two years.
The Directors also note that a number
of the Group’s major customers are also
commencing the climate journey, with
energy transition plans being announced.
Hunting’s relationship with key exploration
and production companies and international
energy service groups has been established
over many years, with Hunting being a
trusted member of the global energy supply
chain. The Board therefore believes that
Hunting can successfully leverage its brand
and reputation to remain a key participant
in the Energy Transition.
Hunting’s Core Competencies – Current and Target Markets
al
G e oth er m
C arb o n c a
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i
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g
g
Core
Competencies
Systems Manufacturing
Precision Engineering
Print-part Manufacturing
Well
Intervent i o n
Carbon captu r e
Geothermal
ii. Participation in Carbon Capture
and Storage Projects
As noted in the Market Summary, on page
33, a large number of carbon capture and
storage projects are to be completed within
the 2025 to 2030 timeframe, to offset
carbon dioxide build-up in the atmosphere.
These projects, which require carbon
dioxide re-injection into known oil and gas
fields, or greenfield developments, present
a long-term opportunity for the Company to
provide OCTG, premium and semi-premium
connections and accessories to operators.
The Group’s Energy Transition sales group is
exploring stronger participation in this market.
iii. Diversification into Other Non-oil
and Gas Sectors
The chart above illustrates the Group’s key
product lines and core competencies and
demonstrates that the majority of Hunting’s
businesses have expertise to diversify into
other growth sectors, such as medical,
space, aviation and naval. Hunting has
launched a medium term strategy to
materially increase non-oil and gas sales
by 2030, which is supported by this analysis
and has taken steps to drive new sales,
particularly within the Group’s Advanced
Manufacturing group.
Supply Chain
Our commitment to the delivery of innovative,
high-quality, and reliable products is of material
importance to the achievement of our ‘total
customer satisfaction’ goal, and this is reflected
in our Quality Policy and our Sustainability
Framework. Hunting’s total commitment
to Quality is shown through operational
excellence, and comprehensive Quality
Management System (“QMS”) supported by
strong management oversight, which includes
supply chain risk management. This is no easy
task, especially with the various disruptions that
have affected supply chains worldwide.
The Group’s supply chain is predominantly
related to raw material supplies, including
the responsible resourcing of readily available
materials such as carbon steel, nickel, and
chrome-based specialist steel alloys which are
used in the manufacture of Hunting’s various
products. Traditionally, these materials
constitute a very low risk in terms of availability
and price changes. Over the last few years, we
have seen significant supply chain disruptions,
resulting in a strong surge in demand, price
increases and uncertain availability.
Measuring and reducing carbon emission
across the Company’s supply chain is intricate
and challenging, but Hunting’s role in this effort
is driven by products which deliver more
efficient drilling procedures. The Company is
increasing its efforts to communicate its carbon
reduction ambitions to its supplier base,
through a Supplier Code of Conduct which
was introduced in Q4 2022.
Hunting PLC Annual Report and Accounts 2022Strategic Report
96
Environmental, Social
and Governance (ESG)
A small proportion of our products contain
electronic components which can contain
critical materials as defined by the National
Research Council. These are a very small
proportion of our purchased materials and
constitute a low risk to the Company. However,
for critical materials such as tungsten, required
for Hunting Titan’s charge production, we carry
out regular risk assessments to identify potential
supply chain risks. In addition, all other identified
critical raw materials and/or components
are regularly reviewed, forecasted for sales,
availability, and projected market pricing,
to create a purchase plan.
At all times, Hunting has existing mitigation
plans in place should there be a supply chain
interruption. For example, we maintain, and
in some circumstances have increased, a safe
stock, or buffer stock, for critical materials and
components. We also have a highly diverse
and multiple approved suppliers in place as
part of our supply chain, for example ranging
from Chinese to domestic US steel mills. In
some areas, we have expanded our approved
supplier list.
Adaption and Mitigation
As noted above, the Group is pivoting revenue
to more non-oil and gas sources, including
the development of Energy Transition revenue
including geothermal and carbon capture
opportunities.
Investment in Research and Development
Hunting’s investment in the research and
development of new products and technologies
is a strategic objective to maintain market
leadership in its core markets. In 2022, research
and development expenditure totalled $4.8m.
Operations
The majority of the Group’s operations are
orientated to the oil and gas industry; however,
all businesses have been tasked with
developing more non-oil and gas revenue.
Acquisitions and Divestments
As noted elsewhere, the Group’s ambition
to develop more non-oil and gas sales will
be achieved through targeted acquisitions
and an overall strategic rebuilding of the
Group’s portfolio.
In December 2021 Hunting exited from the
capital intensive OCTG pipe supply business
in Aberdeen as part of a wider restructuring
to cut costs and to refocus the EMEA operating
segment on growth and profitability.
Access to Capital
The Group maintains a $150m Asset Based
Lending facility which matures in 2026.
The Directors believe that Hunting continues
to have access to both equity and debt markets,
given the strength of its position in the oil and
gas, and wider energy industry.
Business Unit Resilience and Adaptability
Number of Business Units
7
6
5
4
3
2
1
0
Low
Low/Moderate
Moderate
Moderate/High
High
Level of Adaptability
Disclosure (c) – Climate resilience
based on a 1.5oC scenario
As part of the TCFD risk assessment process,
disclosures from each of the Group’s business
units were requested, which included details
of the resilience of its operations and business
model in a 1.5oC climate scenario by 2050.
While Hunting is currently focused on the oil
and gas sector, the Group retains diverse
manufacturing capabilities and participates
in sectors as diverse as aerospace, medical
and space.
A key factor that will determine the impact on
the Group is the adaptability of our businesses
to transition to different sectors. Until our plans
are further developed we have taken a
conservative approach and have considered
how adaptable our businesses are with minimal
capital investment.
Furthermore, for some of our businesses
the opportunities to adapt will depend on the
potential development of new markets such
as carbon capture and storage, the use of
hydrogen as an energy source together with
the expansion of the geothermal market and
our ability to compete in these areas. The chart
above summarises this assessment, with the
majority of the Group’s businesses reporting
a ‘Moderate’ or ‘High’ level of adaptability if
energy markets changed materially.
The Directors have also considered the
potential impact that climate change could
have on the financial statements of the Group.
All businesses, with the exception of the
Electronics, Dearborn and Trenchless units i.e.
c.7% of 2022 revenue reported that long-term
revenue would decline materially, by at least
50%, in the Rapid Transition scenario. The
Group has also started to develop a high-level
model focused on the long-term financial
impact of different climate change scenarios,
including ‘Business as Usual’, ‘Middle Case’
and ‘Rapid Transition’ scenarios.
Risk Management
Hunting’s climate-related Risk Management
disclosures are detailed on pages 90 and 91.
During 2022, the Group’s central compliance
function developed a specific climate-change
risk assessment process to be completed by
each business unit within the Group to enable
an integrated risk register to be assembled.
Disclosure (a) Climate Risk
Identification
The Directors’ view is that climate change
risk is a principal risk to the Group and has
been embedded into our Risk Management
processes to which the Group’s senior
leadership team can respond in an appropriate
manner. Further information on climate change
risk can be found on page 107 within Risk
Management.
Each business unit within the Group completes
a broad-based risk assessment three times a
year. The results of the process are consolidated
into a Group-level risk register, which includes
details of the risk and the associated mitigating
controls. This includes financing, reputational,
legal and insurance risk as well as other
operational risks faced by the Company.
The Group’s Audit Committee reviews the
Group-level risk register three times during the
year as part of its annual schedule of work with
input from the Group Finance Director, Group
Financial Controller, the Head of Risk and
Reporting and the Internal Auditor.
In 2022, the Group’s central compliance
function introduced a climate-specific risk
questionnaire to all businesses within the
Group, which asked for key information on
transition and physical risks related to climate
change, as well as strategic opportunities
as the energy transition accelerates. The risk
assessment framework was based on the
TCFD guidance as illustrated in the chart
on page 97.
Strategic ReportHunting PLC Annual Report and Accounts 2022 97
Environmental, Social
and Governance (ESG)
The results of the process were reviewed and
consolidated by the Group’s central compliance
and finance functions and fed into the scenario
analysis presented on page 96. This analysis
was reviewed by the Directors at its meeting
in February 2023 and will be debated further
at the meeting of the Ethics and Sustainability
Committee in June 2023. Further, this analysis
will be completed annually as part of the
Group’s wider risk management procedures.
Disclosure (b) Climate Risk
Management
Following the risk identification process,
management has been challenged to develop
processes and procedures to mitigate and
reduce its climate related risks and impact.
This includes the reduction of the carbon
footprint of each business units; management
of the physical risk profile of each business
or facility, which includes dialogue with the
Group’s insurers and other business units
to develop production synergies for Hunting’s
product portfolio; and the broader efforts to
decarbonise the Group’s supply chain, whether
that be to develop non-oil and gas sales or to
introduce more efficient products and services
to reduce the environmental impact of our
customers oil and gas activities.
Disclosure (c) Integration
of Climate Risk Identification
and Management
The climate-related governance processes
highlighted on page 89 have been introduced
to allow the Board to have direct oversight
of the risks, opportunities and climate-related
strategies being considered by the Group’s
management.
There is also direct access between
the Directors, Chief Executive and senior
management team to enable climate matters
to be challenged. Further, the senior
management team has empowered each
business unit leader to address climate matters
on a decentralised basis, to enable regional
considerations to be integrated into the Group’s
overall processes. In addition, the Board has
ensured that financially-orientated risks are
reviewed by the Audit Committee, with the
broader strategic and operational risks being
reviewed by the Ethics and Sustainability
Committee to ensure broad-based challenge
is given to management and all levels of the
workforce on this important area.
Metrics and Targets
Disclosure (a) Metrics
To monitor Hunting’s climate related risks and
opportunities, the Group has elected to adopt a
broad number of metrics to enable investors to
monitor climate-related risks and opportunities.
These are presented in the accompanying
table on page 98.
Disclosure (b) Scope 1 and 2
Emissions
The Group currently collects Scope 1 and 2
greenhouse emissions data based of the
Greenhouse Gas Protocol published by
the World Resources Institute. The data is
consolidated on an operational control basis,
through the Group’s central finance global
financial consolidation system.
Scope 1 emissions in 2022 were 5,778 tonnes
(2021 – 4,171 tonnes) and Scope 2 emissions
were 16,644 tonnes (2021 – 14,688 tonnes).
Between 2020 and 2021, the Group reported
a reduction in its greenhouse gas emissions,
primarily driven by lower trading activity due
to the COVID-19 pandemic, but also due to
a wider restructuring of the Group to prepare
for a return to growth of its core markets.
This process has included Hunting closing and
consolidating certain facilities. As noted last
year, the Directors anticipated an increase to
emissions in 2022, as global energy markets
recovered in line with economic activity.
As noted earlier, the Group has not completed
a materiality assessment in respect of its Scope
3 emissions and has not reported any Scope 3
emissions in this report.
Disclosure (c) Targets
In 2019, the Group published its maiden
carbon reduction targets, committing to a
10% reduction in total Scope 1 and Scope 2
emissions within 10 years while containing its
intensity factor (calculated as total emissions
divided by revenue) to less than 30. The base
year for these targets was the carbon data
reported within Hunting’s 2019 Annual Report
and Accounts.
Following further discussion in 2022, the
Directors have agreed to increase the Group’s
Scope 1 and 2 emissions reduction target to
50% below the 2019 base-year by 2030. The
equates to absolute emissions of 17,937 tonnes
by 2030.
Carbon dioxide equivalent emissions are
calculated using factors published by DEFRA in
the UK to derive its total Scope 1 and 2 emissions.
The Group has also set increased non-oil and
gas targets by 2030.
TCFD Risk Assessment Chart
Transition Risks
Policy and Legal
Technology
Market
Reputation
Physical Risks
Acute
Chronic
Opportunities
Resource Efficiency
Energy Source
Products/Services
Markets
Resilience
Risks
Opportunities
Strategic Planning
Risk Management
Financial Impact
Revenues
Expenditures
Income
Statement
Cash Flow
Statement
Balance
Sheet
Assets and Liabilities
Capital and Financing
Source: TCFD – Recommendations of the Task Force on Climate-Related Financial Disclosures – 2017.
Hunting PLC Annual Report and Accounts 2022Strategic Report 98
Environmental, Social
and Governance (ESG)
Sector Specific and Cross-Sector Metrics & Targets
Metric
Revenue – oil and gas:
$m
Description of Metrics/Reason for adoption
Hunting’s core markets are oil and gas related, therefore the long term
monitoring of this measure assists in the understanding of the Group’s resilience.
2022
678.2
2021
484.0
Revenue – non-oil and gas:
$m
Hunting’s longer-term resilience can, in part, be monitored by the development
of non-oil and gas sales.
47.6
37.6
Expenditure – total cost
of electricity:
$m
Expenditure – insurance
premiums:
£m
Expenditure – research
and development:
$m
Assets and Liabilities –
capital expenditures:
$m
Scope 1 GHG emissions:
tonnes
The long-term cost of energy, including the purchasing of renewable energy,
is a key metric to understanding the financial impact of the energy transition.
The cost of insurance, including product liability and property damage/business
interruption cover, is a key metric in understanding the Group’s perceived risk
profile.
The long-term diversification to non-oil and gas revenue will require investment
in new technology and research.
The investment in non-current assets provides an indication of the long-term
viability of the Company’s investment case.
Hunting’s Scope 1 carbon footprint provides investors data on the Group’s
contribution to climate change.
Scope 2 GHG emissions:
tonnes
Hunting’s Scope 2 carbon footprint provides investors data on the Group’s
contribution to climate change.
Water consumption:
‘000s cubic metres
Hunting’s water consumption provides investors with data on this impact
on the planet.
Lean manufacturing savings:
$m
The Group’s drive for higher efficiencies in its operations provides an indication
of its efforts to lower its environmental impact.
Carbon emissions
offset cost:
€m
Market capitalisation:
$m
Net asset value:
$m
Renewable energy
purchased:
GWh
Assets exposed
to heat stress risk:
%
Assets exposed
to precipitation risk:
%
The cost of purchasing carbon credits (Scope 1 and 2 emissions only)
to become a Net Zero business.
The value of the Group’s equity provides an indication of the future value
of the Group’s cash generating assets.
The book value of the Group’s assets, compared to the Company’s market
capitalisation, provides an indication of the future value investors place on the
Group’s assets.
The level of renewable energy purchased provides an indication of the Group’s
drive to lower emissions.
The proportion of assets exposed to heat stress risk provides an indication
of the physical risk exposure of the Group.
The proportion of assets exposed to precipitation risk provides an indication
of the physical risk exposure of the Group.
4.5
4.3
4.8
22.0
4.1
4.1
4.7
9.3
5,778
4,171
16,644
14,688
163
1.4
2.2
69
3.2
1.8
662.4
378.0
846.2
871.3
8.6
74
70
6.3
74
70
Strategic ReportHunting PLC Annual Report and Accounts 2022 99
Environmental, Social
and Governance (ESG)
Scope 1 and 2 Greenhouse Gas Emissions (tonnes CO2e)
against 2030 Target
Scope 1 and 2 Greenhouse Gas Emissions (tonnes CO2e)
by Operating Segment
30,000
25,000
20,000
15,000
10,000
5,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
2020
2021
2022
2030 target
0
North America
Titan
Asia Pacific
EMEA
Scope 1
Scope 2
Source: Company.
Scope 1
Scope 2
Source: Company.
Electricity Purchased by the Group (GWh)
Renewable Energy Purchased by the Group (GWh)
50
40
30
20
10
0
2020
2021
2022
10
8
6
4
2
0
2020
2021
2022
Source: Company.
Source: Company.
Intensity Factor (kg CO2e per $k revenue)
Non-Oil and Gas Sales ($m)
50
40
30
20
10
0
2020
2021
2022
2030 target
50
40
30
20
10
0
2020
2021
2022
Source: Company.
Source: Company.
Hunting PLC Annual Report and Accounts 2022Strategic Report 100
Environmental, Social
and Governance (ESG)
Sustainability Accounting Standards Board Information
Oil & Gas – Services
Topic
Emissions
Reduction
Services & Fuels
Management
Water
Management
Services
Chemicals
Management
Ecological
Impact
Management
Workforce
Health & Safety
Business Ethics
& Payments
Transparency
Accounting metric
Total fuel consumed, percentage
renewable, percentage used in:
(1) on-road equipment and vehicles; and
(2) off-road equipment.
Discussion of strategy or plans to address
air emissions-related risks, opportunities,
and impacts.
Percentage of engines in service that
meet Tier 4 compliance for non-road
diesel engine emissions.
(1) Total volume of fresh water handled
in operations; and
(2) percentage recycled.
Discussion of strategy or plans to address
water consumption and disposal-related
risks, opportunities and impacts.
Volume of hydraulic fracturing fluid used,
percentage hazardous.
Discussion of strategy or plans to address
chemical-related risks, opportunities
and impacts.
Average disturbed acreage per
(1) oil and
(2) gas well site
Discussion of strategy or plan to address
risks and opportunities related to
ecological impacts from core activities.
(1) Total recordable incident rate (TRIR);
(2) fatality rate;
(3) near miss frequency rate (NMFR);
(4) total vehicle incident rate (TVIR); and
(5) average hours of health, safety and
emergency response training for:
(a) full-time employees,
(b) contract employees, and
(c) short-service employees.
Description of management systems used
to integrate a culture of safety throughout
the value chain and project life cycle.
Amount of net revenue in countries
that have the 20 lowest rankings in
Transparency International’s Corruption
Perception Index.
Category
Quantitative
SASB Code
EM-SV-110a.1
Reported
by Hunting
Yes
Section
Environment
Page
navigation
Pages 65
and 66
Discussion
and Analysis
EM-SV-110a.2
Yes
Quantitative
EM-SV-110a.3
n/a
Task Force on
Climate-Related
Financial Disclosures
Pages
88 to 100
Environmental
Stewardship: Water
Management
Environmental
Stewardship: Water
Management
Page 80
Page 80
Quantitative
EM-SV-140a.1
Yes
Discussion
and Analysis
EM-SV-140a.2
Yes
Quantitative
EM-SV-150a.1
n/a
Discussion
and Analysis
EM-SV-150a.2
n/a
Quantitative
EM-SV-160a.1
n/a
Discussion
and Analysis
EM-SV-160a.2
n/a
Quantitative
EM-SV-320a.1
Yes
Yes
Yes
n/a
Our Stakeholders:
Health and Safety
Page 63
Society: People and
Communities
Pages 81
and 82
Discussion
and Analysis
EM-SV-320a.2
Yes
Society: People and
Communities
Pages
81 and 82
Quantitative
EM-SV-510a.1
Yes
Description of the management system
for prevention of corruption and bribery
throughout the value chain
Discussion
and Analysis
EM-SV-510a.2
Yes
Management of the
Legal & Regulatory
Environment
Critical Incident
Risk Management
Discussion of corporate positions related
to government regulations and/or policy
proposals that address environmental
and social factors affecting the industry.
Description of management systems
used to identify and mitigate catastrophic
and tail-end risks.
Discussion
and Analysis
Discussion
and Analysis
EM-SV-530a.1
Yes
EM-SV-540a.1
n/a
Our Stakeholders:
Anti-Bribery and
Corruption (“ABC”)
and Payments to
Governments
Our Stakeholders:
Training
Our Customers:
Anti-Bribery and
Corruption
Pages 64
and 66
Page 63
Page 64
ESG governance:
Business Ethics
Our Business Model:
Our Stakeholders
Page 83
Pages
60 to 66
Strategic ReportHunting PLC Annual Report and Accounts 2022
101
Environmental, Social
and Governance (ESG)
Activity Metrics
Activity metric
Number of active rig sites
Number of active well sites
Total amount of drilling performed
Total number of hours worked by all employees
Industrial Machinery & Equipment
Topic
Energy
Management
Employee Health &
Safety
Accounting metric
(1) Total energy consumed;
(2) percentage grid electricity; and
(3) percentage renewable.
(1) Total recordable incident rate (TRIR);
(2) fatality rate; and
(3) near miss frequency rate (NMFR).
Fuel Economy &
Emissions in
Use-phase
Materials Sourcing
Remanufacturing
Design & Services
Activity Metrics
Sales-weighted fleet fuel efficiency
for medium- and heavy-duty vehicles.
Sales-weighted fuel efficiency
for non-road equipment.
Sales-weighted fuel efficiency
for stationary generators.
Sales-weighted emissions of:
(1) nitrogen oxides (NOx); and
(2) particulate matter (PM) for:
(a) marine diesel engines,
(b) locomotive diesel engines,
(c) on-road medium- and
heavy-duty engines, and
(d) other non-road diesel engines.
Description of the management
of risks associated with the use
of critical materials.
Revenue from remanufactured products
and remanufacturing services.
Activity metric
Number of units produced by product category
Number of employees
Category
Quantitative
Quantitative
Quantitative
Quantitative
SASB Code
EM-SV-000.A
EM-SV-000.B
EM-SV-000.C
EM-SV-000.D
Reported
by Hunting
n/a
n/a
n/a
Yes
Section
Page
navigation
Our Stakeholders:
Health and Safety
Page 63
Category
Quantitative
SASB Code
RT-IG-130a.1
Quantitative
RT-IG-320a.1
Reported
by Hunting
Yes
Section
Our Business Model:
Our Environment
Page
navigation
Pages 65
and 66
Yes
Yes
Yes
Our Stakeholders:
Health and safety
Society: People and
Communities
Page 63
Pages 81
and 82
Quantitative
RT-IG-410a.1
n/a
Quantitative
RT-IG-410a.2
n/a
Quantitative
RT-IG-410a.3
n/a
Quantitative
RT-IG-410a.4
n/a
Discussion
and Analysis
RT-IG-440a.1
Yes
Page 65
Quantitative
RT-IG-440b.1
n/a
Category
Quantitative
Quantitative
SASB Code
RT-IG-000.A
RT-IG-000.B
Reported
by Hunting
n/a
Yes
Section
Page
navigation
Our Business Model:
Our Operating
Segments
Pages 56
to 57
Hunting PLC Annual Report and Accounts 2022Strategic Report
102
Risk Management
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 management processes
and internal controls are effective
in identifying the Group’s principal
risks and emerging risks.
Ethics and Sustainability
Committee
• Monitors key non-financial matters,
including human capital, HSE and
Quality Assurance;
• Reviews the Group’s carbon and
climate data; and
• Reviews bribery and corruption,
modern slavery and sanctions
procedures.
Audit Committee
• Oversees 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 Business
Unit 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.
Strategic ReportHunting PLC Annual Report and Accounts 2022 103
Risk Management
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, whilst allowing the Group
to achieve its strategic objectives and deliver
value to shareholders.
External Risks
The Board recognises that a number of risks
are not within the direct control of management,
including energy market factors such as
commodity pricing and daily supply/demand
dynamics driven by economic or geopolitical
movements and climate change. These factors
are regularly assessed by the Board and are
considered alongside the risk management
framework operated by the Group.
The roles and responsibilities within the
risk management hierarchy are described
in detail below.
The Board
The Board of Hunting has responsibility
for developing and maintaining a robust risk
management framework and for monitoring
the Group’s system of internal control to ensure
it remains effective and fit for purpose.
The Board is also responsible for developing
the Group’s strategic objectives. The balance
between the Board’s desire to meet these
strategic objectives and its appetite for risk
creates the risk culture within the Group, which
impacts capital investment decision-making,
consideration of new acquisitions, other
organic growth opportunities and management
of finances.
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 relative to its impact and the 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.
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.
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, conducts a formal review of the
Group’s Risk Register three times a year.
The Group’s Principal Risks are disclosed
on pages 105 to 109. 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 these 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.
Ethics and Sustainability
Committee
The Ethics and Sustainability Committee was
established in 2021 to improve Board oversight
and guidance on these matters. The
Committee reviews and monitors the Group’s
policies, targets, initiatives and reporting on
a wide range of activities that includes:
greenhouse gas emissions, compliance with
the Task Force for Climate-Related Financial
Disclosures, recycling, bribery and corruption,
modern slavery and trading sanctions
compliance. The Committee also reviews
whistleblowing procedures, stakeholder
engagement and section 172 reporting.
Although the Audit Committee has final
approval on externally reported information,
the Ethics and Sustainability Committee has
the power to formulate and instigate initiatives
through Group management.
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 review 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 and establish major accounting
and policy changes on a timely basis. Group
management is 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.
Segment and Business
Unit Management
The management of each business unit has
responsibility for establishing an effective system
of controls and processes for its business,
which, at a minimum, meets the requirements
set out in the Group Manual and complies
with any additional local requirements. Local
management is empowered, under Hunting’s
decentralised philosophy, to manage the risks
in their respective markets.
Assurance
The Board uses 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 and provides
regular reports to the Board.
Hunting PLC Annual Report and Accounts 2022Strategic Report 104
Risk Management
Hunting also receives guidance from a number
of external advisers. In particular, guidance
from the Group’s insurance broker, who
arranges, among other policies, 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.
Insurance brokers also ensure gaps in cover
are identified and in recent years have advised
on cyber risk and ongoing weather-related risks.
Hunting’s external auditor provides assurance
to the Board regarding the accuracy and
probity of Hunting’s consolidated financial
statements. The auditor also reviews all of
Hunting’s non-financial statements, including
governance disclosures included in the Annual
Report, and provides observations on the
financial controls in operation across the
Group based on the external audit.
Hunting’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.
Emerging Risks
Alongside the process of identifying the Group’s
current risks, management is challenged to
identify and consider emerging risks that may
impact the Group at some point in the future.
Management monitors emerging risks
through observing press comment including
industry-specific journals, discussions with
shareholders, advisers, customers and
suppliers, attendance at structured forums,
review of comments published by other
companies, review of insurance company risk
assessments, and internal debate by senior
executive committees. The Audit Committee
has not identified any risks emerging through
2022 and as at the year-end.
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.
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.
Risk Management
Procedures
The Board has reviewed its risk management,
principal risks and internal control processes
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 2022 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 consolidated 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 consolidated 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
business, 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-controls 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.
These principal local risks are reported to
Group management. In addition, in order to
heighten Group monitoring of the potential for
fraud, local management reports on local fraud
risk irrespective of its perceived potential low
impact on the local business.
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 executive Director, together with
local management, is allocated responsibility
for managing each separate risk identified
in the Group Risk Register.
Strategic ReportHunting PLC Annual Report and Accounts 2022 105
Risk Management
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 proposals 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.
The Group’s principal risks are identified below
and on the pages following. 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
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 set out below.
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.
Movement in Risks (Post-control) During the Year
h
g
H
i
t
c
a
p
m
i
l
a
i
c
n
a
n
F
i
w
o
L
Low
6
5
8
8
7
3
2
1
4
2
Key
Current status
Prior year status
1 Competition
2 Geopolitics
3 Shale drilling
4 Climate change
5 Commodity prices
6 HSE
7 Key executives
8 Product quality
Probability
High
Effectiveness of Internal Controls
h
g
H
i
t
c
a
p
m
i
l
a
i
c
n
a
n
F
i
w
o
L
Low
2
1
Key
4
2
1
Post-control status
Pre-control status
6
6
5
5
8
3
3
4
7
8
8
7
Probability
High
Hunting PLC Annual Report and Accounts 2022Strategic Report
106
Risk Management
1. Competition
2. Geopolitics
Nature of the Risk
The provision of goods and services to oil and gas drilling companies
is highly competitive. As the demand for oil and gas services and
products weakened during the COVID period, competitors reduced
prices in order to maintain market share in certain market segments.
This increased pressure on Hunting’s businesses to do likewise and
consequently margins were put under pressure and this continues
despite growing demand in the current market. 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.
Competition risk also arises in respect of the sourcing of supplies
such as raw materials and labour when markets are tight and supply
chains are constrained. Looking further ahead, advancements in
alternative energy sources are considered a risk to the oil and gas
market in the long term.
Nature of the Risk
The location of the Group’s markets is determined by the location of
Hunting’s customers’ drill sites – Hunting’s products must go where
the drilling companies choose to operate. To compete effectively,
Hunting often establishes a local operation in those regions; however,
significantly volatile environments are avoided.
The Board has a strategy to develop its global presence and diversify
geographically.
Operations have been established in key geographic regions around
the world, including expansion into India, recognising the high growth
potential these territories offer. The Group carefully selects from which
countries to operate, 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 scale and nature of these geopolitical
issues, and their impact on the Group, actual and potential, have
increased since Russia’s invasion of Ukraine and the increased global
involvement, real and rhetorical, in the conflict. In addition, tensions
between the US and China have also been exacerbated during this
period, both regions of which are important markets for the Group.
Consequently this risk has heightened over the last twelve months
despite the new growth opportunities arising from governments
initiating energy security measures in order to reduce their reliance
on Russia-sourced oil and gas.
Controls and Actions
Areas exposed to high political risk are noted by the Board and are
strategically avoided. Global sanctions and international disputes are
also closely monitored with compliance procedures in place to ensure
Hunting avoids high risk countries or partners. The Board and
management closely monitor projected economic trends in order to
match capacity to regional demand. In the medium term, the Group’s
investment in Jindal Hunting Energy Services Limited, a new joint
venture in India, is expected to reduce reliance on Chinese mills
for export business.
The Group’s exposure to different geographic regions is described
on pages 56 and 57.
Movement in the Year
Competition to source inputs to the oil and gas services industry was
strong throughout 2022. With the world emerging from the COVID
pandemic, demand for products from oil and gas services suppliers
is rising, triggering supply chain issues, rising raw materials prices and
a tightening of the market for skilled machinists, all of which underpins
the persistently high level of competition risk. Consequently this risk
has not moved over the last twelve months.
Controls and Actions
Management teams having been working to widen the Group’s sources
of supplies, have introduced structured training programmes to internally
develop a higher proficiency of new machinists in working on multiple
product lines and has increased starting salaries for entry-level operators.
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
traditionally enables the Group to offer reduced lead-times and a
focused product range appropriate to each region. With supply chain
issues, including a tight labour market, arising from the increased market
demand, exacerbated by geopolitical events, Hunting management
has worked ever more closely with customers in order to develop their
awareness of these challenges, to place orders with Hunting earlier than
usual and to be more consenting of longer lead-times in the short-term.
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. In addition, the Group continues to widen its
product offering beyond the oil and gas market, as detailed within the
Chief Executive’s Statement on pages 26 to 29.
The Group’s operating activities are described in detail on pages 50 to 67.
Strategic ReportHunting PLC Annual Report and Accounts 2022 107
Risk Management
3. US Shale Drilling
4. Climate Change
Nature of the Risk
The Group provides products to the oil and gas shale drilling industry.
Oil and gas produced from US onshore shale remains a relatively
expensive source of hydrocarbons, despite advances in technology
that continue to reduce these costs, and the production life of a shale
well is relatively short compared with conventional wells.
Consequently, shale drilling is more sensitive to a decline in commodity
prices compared with conventional sources, so it is more likely to
be curtailed when prices drop and therefore more likely to 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 production forecasts by market observers such as the US
Energy Information Administration predict a slow pace of recovery,
with some of the larger firms identifying overworked oilfields and less
productive new wells. Consequently there remains uncertainty over
the timing and rate of recovery of shale drilling and as a result the
potential for an adverse impact on future results as cash flows
generated from trading activity due to a protracted reduction in shale
drilling activity remains high.
Nature of the Risk
Failure to adapt to climate change or to mitigate the Company’s impact
on the environment has the potential to damage the Company’s
reputation and cause issues in a number of areas, including:
• potential destruction of demand for hydrocarbons if an aggressive
carbon reduction policy is adopted;
• financial institutions may increase their margins on borrowings;
• difficulty in attracting appropriate executives and other employees;
• loss of investors and market analysts; and
• restrictions in the type of use for leased assets imposed by
climate-conscious lessors.
In addition, climate change has the potential to cause the following
beyond the Company’s influence:
• increased incidence and severity of flooding, countryside fires and
abnormal weather patterns causing disruption to the Company
directly and/or our customers and suppliers;
• loss of customers or suppliers through their own failure to comply
with climate based regulations;
• increased cost and/or incidences of asset purchases in order
to comply with new technological regulations;
• energy costs and liability insurance premiums increase; and
• increased taxation on perceived non-sustainable industries
as governments set about using the tax system to pay for their
net carbon emissions targets.
Movement in the Year
Climate change transitioned from an emerging risk to a principal risk
for Hunting during 2021. Climate risk commenced the 2022 financial
year as a high risk and has remained high throughout the year.
Controls and Actions
The Board monitors rig count and general completion activities within
the US shale industry. In addition, local management maintains an
ongoing dialogue with key customers operating within the US market.
In addition to providing products specifically designed for onshore
shale drilling, such as the TEC-LOCK Wedge™ connection, 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.
Controls and Actions
The Group takes seriously its commitment to environmental
compliance and stewardship. We have continued to increase and
refine our climate-related disclosures. In December 2022, the Board
approved a new carbon reduction ambition whereby Hunting will
now target a 50% reduction in its scope 1 and 2 emissions, from its
base-line year of 2019, by 2030. The Group is migrating its electricity
supplies to renewable energy resources and the Company has
begun a process to assure its carbon data with a view to setting
science-based targets in the near future. The Board has committed
to the principles published in the 2015 Paris Accord, which aims to
limit the increase in global temperatures. The Group’s Climate Policy
was published in January 2020 and updated in December 2022.
In addition, the Group has established the following workgroups:
The Group’s operating activities are described in detail on pages 50 to 67.
• an Ethics and Sustainability Committee to monitor and review
non-financial climate-based matters;
• the Executive Committee is charged with the responsibility
of reducing carbon emissions;
• an ESG Steering Group to develop reporting procedures
that include the impact of climate change on the Group;
• an internal TCFD Working Group; and
• an Energy Transition project team in Aberdeen to pursue
projects which align to the evolving industry.
The Group’s environmental, climate and TCFD disclosures
are described in detail on pages 68 to 85 and 88 to 101.
Hunting PLC Annual Report and Accounts 2022Strategic Report 108
Risk Management
5. Commodity Prices
6. Health, Safety and the
Environment (“HSE”)
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.
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.
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.
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.
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).
The Group, its customers and its suppliers are dependent on
personal interaction which has the potential to disrupt, or even close
business operations if personnel become unavailable.
Movement in the Year
Hunting’s exposure to this risk was relatively high at the start of the
year and has remained as such during the year. The WTI oil price
commenced the year at $75 a barrel, increased to over $120 in the
summer and declined to $80 at the year-end, reflecting the volatility
caused by differences in the supply and demand and other influences
such as geopolitics. Furthermore, the prices of many of the Group’s
raw materials have been increasing due to supply constraints and
rising inflation.
Movement in the Year
The Group experienced an HSE recordable incident rate of 0.97
in the year, which is significantly below the industry average (4.0)
and is similar to the Group’s record in prior years. This particular
risk pertaining to HSE incidents therefore continues to be relatively
low post-controls.
Controls and Actions
Working capital, and in particular inventory levels, are closely
managed to ensure the Group remains sufficiently agile to meet
changes in demand.
Controls and Actions
The Board targets achieving a record of nil incidents and full
compliance with the laws and regulations in each jurisdiction in which
the Group operates.
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.
The Group is undertaking a measured diversification into non-oil and
gas sectors which should mitigate this risk. In addition, management
continues to reduce production costs and develop new technologies,
including automation and robotics, that help mitigate the impact of
any further adverse movement in commodity prices in the future.
Further information on the movement in commodity prices during
the year is detailed on page 30.
Every Group facility is overseen by a Health and Safety Officer with
the responsibility for ensuring compliance with current and newly
issued HSE standards. Local management is focused on the training
of new employees in Hunting’s stringent safety procedures.
The Board receives a Group HSE compliance report at every
Board meeting.
The Group’s HSE performance is detailed on pages 63, 81 and 82.
Strategic ReportHunting PLC Annual Report and Accounts 2022 109
Risk Management
7. Key Executives
8. Product Quality
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.
With the pandemic declining globally, business activity has started
to pick up placing constraints on the market for recruiting skilled
machinists particularly in the US, which has the potential to
compromise product quality in the near term.
Movement in the Year
Executives with fungible skills are capable of migrating to other
industries with less exposure to cyclicality and may consequently
move to where the prospects of career growth may appear to be
brighter; the impact of COVID-19 on the oil and gas industry
highlighted the risk of this issue. The risk of losing a key executive was
therefore heightened in 2021 as a result and remained at that level
throughout 2022.
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
Remuneration packages are regularly reviewed to ensure that
key executives are remunerated in line with market rates including
enhanced pension arrangements. External consultants are engaged
to provide guidance on best practice. In response to the heightened
risk of losing key executives, base salaries were raised during 2021
and 2022 and a new pension scheme was set up for certain US
employees in order to provide an incentive to remain with the Group.
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.
Details of executive Director remuneration are provided in
the Remuneration Committee Report on pages 132 to 135.
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. Starting salaries for new
recruits have been increased in order to attract more experienced
operators and businesses in the Group have established structured
training programmes that will improve the proficiency of their
machinists and enable them to work on multiple product lines.
Where appropriate, a formal programme of machine maintenance
and asset replacements has been established in order to mitigate
the risk of machine breakdowns affecting product quality.
The Group’s commitment to product quality is detailed on page 55.
Hunting PLC Annual Report and Accounts 2022Strategic Report 110
Viability and Going Concern
Viability and
Going Concern
Viability statement
Introduction
Hunting has a diverse 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 104 and 105 and include
a review of the Group’s exposure to the oil
and gas industry, competitor action, customer
plans, geopolitics 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, discussing their operational plans
and related capital expenditure programmes,
with a natural focus on the earlier years in
which projects will be in progress, or
committed, and for which requirements for
goods or services from Hunting will be more
certain. 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. These macro, longer term forecasts
are subject to significant volatility.
Due to the complexities in projecting forward
any meaningful outlook beyond three years,
the Group’s bank funding facilities are generally
limited to a similar period. This enables the
Group to reduce the risk of either being
underfunded or overfunded, thereby mitigating
non-utilisation fees, beyond the foreseeable
future by being able to negotiate new facilities
to accommodate revised operational and
strategic changes expected during that
additional period. The current Asset Based
Lending facility (“ABL”) is a four-year $150m
bank borrowing facility that commenced in
February 2022 and includes an option that
allows Hunting to increase the facility by
$50m subject to the lenders’ credit approval.
Financial projections beyond this period are too
uncertain for the Group to commit to a longer
facility. The Group’s Treasury department
generally aims to initiate negotiations for a
facility renewal approximately twelve months
before the maturity date and the most recent
outlook would contribute to those discussions.
Taking these factors into consideration, 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.
Consideration of Principal Risks
The nature of the Group’s operations exposes
the business to a variety of risks which are
noted on pages 105 to 109. The Board
regularly reviews the principal risks and
assesses the appropriate controls and further
actions as described on pages 104 and 105
given the Board’s appetite for risk as described
on pages 103 and 104. The Board has further
considered their potential impact within the
context of the Group’s viability.
Despite the cash-positive position at
31 December 2022, the Group started to utilise
the ABL in January 2023 in order to fund the
additional working capital requirements that
are inherently required by a growing business
that continues to win sizeable sales contracts.
These contracts are generally for less than one
year and often incorporate interim milestone
payments to the Group. Consequently,
utilisation of the ABL is expected to significantly
reduce as cash inflows are received from
H1 2023 and the Group is expected to
be cash-positive by the end of 2023.
Assumptions
In assessing the long term viability of the Group,
the Board made the following assumptions:
• global exploration and production spend,
excluding Russia, China and Central Asia, is
expected to rise by 59% from 2022 to 2026;
• demand for energy service products
improves in the medium term, given the
global outlook for oil and gas demand, which
is driven by growth within emerging markets,
partly driven by the recovery post-COVID
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, actioned
during the COVID period, enables the
business to remain competitive within
the weaker sectors of the global energy
markets, particularly within the offshore
and international markets;
• the Group continues to widen its customer
base beyond the oil and gas industry,
including the aerospace, military, power
generation and medical markets; 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 and losses derived from politically
stable regions such as North America,
Europe and South East Asia.
In addition, a downside case of the financial
projections was produced to model a meaningful
deterioration in market conditions and this
revealed no concerns regarding viability.
Conclusion
The Board believes that the Group’s strategy
for growth, its positive approach towards
mitigating its impact on climate change, the
diverse customer, supplier and product base,
the resilience of its business model 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.
Strategic ReportHunting PLC Annual Report and Accounts 2022 111
Viability and Going Concern
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. In addition, management
sensitised the forecasts to reflect plausible
downside scenarios. These demonstrated that
the Group is able to maintain sufficient cash
resources to meet its liabilities as they fall due
over the next twelve months. The Board is also
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 has considered it
appropriate to adopt the going concern basis
of accounting in preparing these consolidated
financial statements.
Going concern
statement
Introduction
The Group’s principal cash outflows include
capital investment, labour costs, inventory
purchases, lease payments, purchase of
treasury shares and dividends. With the
exception of lease payments, the timing and
extent of these cash flows are controlled by
local management and the Board. The Group’s
principal cash inflows are generated from the
sale of its products and services, the level of
which is dependent on 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 2022,
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 a $150m secured
committed Asset Based Lending facility
(“ABL”), which commenced in February 2022.
Throughout 2022, the ABL and the Group’s
prior borrowing facility were undrawn. In early
2023, the Group will temporarily utilise the
ABL in order to fund the Group’s expanding
business. The Group’s internal financial
projections indicate that the Group is expected
to return to a cash-positive position during
2023 and consequently has sufficient liquidity
to meet its funding requirements over the next
twelve months.
Hunting PLC Annual Report and Accounts 2022Strategic Report 112
Directors’ Report
Directors’
Report
Statement of Directors’
Responsibilities
The Directors are responsible for preparing the
Annual Report and the financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare
financial statements for each financial year.
Under that law the Directors are required to
prepare the group financial statements in
accordance with United Kingdom adopted
international accounting standards. The
financial statements also comply with
International Financial Reporting Standards
(IFRSs) as issued by the IASB. The Directors
have also chosen to prepare the parent
company financial statements under United
Kingdom adopted international accounting
standards. 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
Company and of the profit or loss of the
Company for that period.
In preparing these financial statements,
International Accounting Standard 1 requires
that Directors:
• properly select and apply accounting policies;
• present information, including accounting
policies, in a manner that provides relevant,
reliable, comparable and understandable
information;
• provide additional disclosures when
compliance with the specific requirements
of the financial reporting framework are
insufficient to enable users to understand
the impact of particular transactions, other
events and conditions on the entity’s financial
position and financial performance; and
• make an assessment of the Company’s
ability to continue as a going concern.
The Directors are responsible for keeping
adequate accounting records that are sufficient
to show and explain the company’s
transactions and disclose with reasonable
accuracy at any time the financial position
of the Company and enable them to ensure
that the financial statements comply with
the Companies Act 2006. They are also
responsible for safeguarding the assets of the
company and hence for taking reasonable
steps for the prevention and detection of fraud
and other irregularities.
The Directors are responsible for the
maintenance and integrity of the corporate and
financial information included on the Company’s
website. Legislation in the United Kingdom
governing the preparation and dissemination
of financial statements may differ from
legislation in other jurisdictions.
Responsibility Statement
We confirm that to the best of our knowledge:
• the financial statements, prepared in
accordance with the relevant financial
reporting framework, give a true and fair
view of the assets, liabilities, financial position
and profit or loss of the Company and the
undertakings included in the consolidation
taken as a whole;
• the strategic report includes a fair review
of the development and performance of the
business and the position of the Company
and the undertakings included in the
consolidation taken as a whole, together
with a description of the principal risks
and uncertainties that they face; and
• the Annual Report and financial statements,
taken as a whole, are fair, balanced and
understandable and provide the information
necessary for shareholders to assess the
company’s position and performance,
business model and strategy.
This responsibility statement was approved
by the Board of Directors at their meeting
on 28 February 2023.
Directors
The Directors of the Company during the year
and up to the date of signing these accounts
are listed on pages 116 and 117.
Registered Office
On 24 June 2022, the Company moved its
registered office to 30 Panton Street, London,
SW1Y 4AJ.
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 2022.
The Strategic Report incorporates the
Chairman’s Statement, Chief Executive’s
Statement and Outlook, Market Summary,
Key Performance Indicators, Group Review,
Segmental Review, Stakeholder Engagement
disclosures, Business Model and Strategy ESG
and Sustainability and Risk Management and
is located on pages 4 to 109.
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
financial position and performance, as follows:
• changes in the Group and its interests
(pages 28 and 29);
• dividends (page 5);
• future developments (pages 28 and 29);
• risk management, objectives and policies
(pages 102 to 105);
• bribery and corruption (pages 63 to 66);
• ethnicity and diversity (page 82); and
• greenhouse gas emissions and
environmental matters (pages 65 and 66,
68 to 80 and 88 to 101).
In addition, information relating to the Directors’
indemnity provisions and dividend waivers,
Annual General Meeting, dividends, Directors’
powers and interests, share capital, political
donations, research and development and
significant agreements, can be found within the
Shareholder and Statutory Information section
located on pages 248 to 251.
Strategic ReportHunting PLC Annual Report and Accounts 2022 113
Directors’ Report
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
be found on page 67 and also on the Group’s
website www.huntingplc.com.
The Directors’ Stakeholder Engagement and
decision making disclosures are summarised
within the Strategic Report on pages 60 to 66,
and include 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.
Approval of Accounts
The 2022 Annual Report and Accounts,
were approved by the Directors at its meeting
on Tuesday 28 March 2023.
By order of the Board
Ben Willey
Company Secretary
2 March 2023
Hunting PLC Annual Report and Accounts 2022Strategic Report 114
Overview
Corporate
Governance
John (Jay) F. Glick
Chairman
Developments in the year
have shown that many
economies need secure
oil and gas, therefore the
Group’s strategy to focus
on this important sector
is proving to be correct.”
Chairman’s Overview
Introduction
2022 has been a year which has seen
the global energy industry return to growth,
following the challenges of the past two years
due to the COVID-19 pandemic.
Following a slow first quarter, momentum
in industry activity accelerated throughout
the remainder of the year as many western
economies rolled back COVID-19 restrictions,
allowing travel, entertainment and hospitality
and industrial growth to occur.
For Hunting, this macro-economic
improvement has been reflected in the
Group’s financial results for the year, with
strong increases in revenue and a return
to an adjusted profit before tax.
Developments in the year have shown that
many economies need secure oil and gas,
therefore the Group’s strategy to focus on
this important sector is proving to be correct.
As part of our 2030 strategic ambition, Hunting
is also planning for a longer-term pivot to other
industries which need our skills and core
competencies. Good progress has been made
on many fronts to improve performance and
efficiencies, while pursuing growth opportunities
within and without the oil and gas sector.
I would therefore like to commend Jim Johnson,
our Chief Executive, for the efforts over the past
two years in steering the Group successfully
through those difficult times, while placing
Hunting on solid foundation for the future.
ESG and Sustainability
From a governance perspective, 2022 has
been a year which has seen the embedding
of procedures which were implemented in
2021, which included our focus on ESG and
Sustainability matters, with Hunting making
great progress throughout the year, including
the setting of stronger carbon emissions
targets and widening of our climate-related
risk procedures.
This is detailed throughout this report with
some of the Board’s decision making reflecting
Hunting’s progress in respect to ESG matters
across the Group, with the Company remaining
well positioned to develop these further in the
year ahead.
While Hunting has always fostered a fantastic
working environment, new processes to attract
new employees has also been a key initiative
in the year as our businesses show clear
signs of growth.
Corporate GovernanceHunting PLC Annual Report and Accounts 2022 115
Overview
9.0 cents
Dividends declared in the year
(2021 – 8.0 cents)
5%
Average base salary increases
across workforce
(2021 – 9%)
Remuneration of the Executive
Directors
The Remuneration Committee has spent
a great deal of time over the past two years
balancing the performance of the Company
with a suitable and fair level of remuneration to
the executive Directors. The Board, as a whole,
has been supportive of a fair application of the
Directors’ Remuneration Policy during this time
but has also applied downward discretion to
share awards during 2020 and 2021 which
reflect, in part, the broader shareholder
experience during COVID-19.
For 2022, the Remuneration Committee has
approved the payment of an annual bonus
which reflects the exceeding of targets set at
the start of the year, and as activity accelerated
in H2 2022. The bonus payments reflect the
maximum opportunity to both executive
Directors, reflecting a strong performance
of the Company in the year.
In line with the workforce base salary increases
proposed by management, in October 2022
the Remuneration Committee also approved
a 5% base salary increase to both Jim Johnson
and Bruce Ferguson. The new salaries were
applied in December 2022.
In summary, the Board is satisfied with the
decision making of the Committee, given the
challenges over the past two years and the
clear return to growth and stronger profitability.
John (Jay) F. Glick
Chairman
2 March 2023
“ The Directors are
proposing a Final
Dividend of 4.5 cents
per share, to be approved
by shareholders at the
2023 AGM.”
Board Changes
In March 2022, the Board proposed Paula
Harris as a new, independent, non-executive
Director, submitting her election to
shareholders for approval. At the Company’s
Annual General Meeting (“AGM”) in April 2022,
the necessary votes in favour were received,
with Paula joining the Board and all of its
Committees on 20 April 2022.
At the AGM, the Company also saw the
retirement of Richard Hunting, after nearly
50 years of service to Hunting. While the
Board will miss his counsel, we wish him
a happy retirement.
As part of the Board’s long-term rotation
and succession planning in January 2023
Stuart Brightman was appointed as a new,
independent non-executive Director. Stuart
brings strong manufacturing, strategy and
investor engagement expertise to the Board.
With our 2030 strategic ambition now being
announced, he will be playing a major part
in the oversight of this long-term pivot of the
Group’s revenue to new sectors outside of
oil and gas.
While the Board’s gender balance has
temporarily shifted due to Stuart’s appointment,
further recruitment to the Board is planned for
the coming year.
Later in 2023, the Board will also begin planning
for my own retirement in 2024. This process
will be led by Keith Lough, Hunting’s Senior
Independent Director and announcements will
be made in due course as this process evolves.
Dividends
Reflecting the Board’s confidence in the future
performance of the Company, based on the
strong market fundamentals of the oil and gas
industry, the Directors increased the Interim
Dividend paid to shareholders to 4.5 cents per
share. This distribution was paid in October 2022.
The Directors are proposing a Final Dividend
of 4.5 cents per share, to be approved by
shareholders at the 2023 AGM. Subject
to this approval, the dividend will be paid
on 12 May 2023, bringing the total distribution
to shareholders to $14.4m (2021 – $12.6m).
Hunting PLC Annual Report and Accounts 2022Corporate Governance 116
Board of Directors
Board of Directors
External Appointments
Jay is currently a non-executive
director and chairman of
TETRA Technologies Inc.
Committee Membership
N E I
John (Jay) F. Glick
Non-executive Chairman
Nationality
American.
Length of Service
8 years; appointed to the
Board as a non-executive
Director in 2015 and is viewed
as independent. In 2017, Jay
was appointed non-executive
Chairman. In September 2020,
Jay was re-appointed for a
further, three-year term. Age 70.
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.
Arthur James (Jim) Johnson
Chief Executive
External Appointments
None.
Committee Membership
I
Nationality
American.
Length of Service
31 years; appointed to the Board
as a Director and Chief Executive
in 2017. Age 62.
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.
Bruce Ferguson
Finance Director
Annell Bay
Non-executive Director
Nationality
British.
External Appointments
None.
Nationality
American.
Length of Service
29 years; appointed to the Board
as a Director and Finance
Director in 2020. Age 51.
Committee Membership
I
Skills and Experience
Bruce is a Chartered
Management Accountant and
has held senior financial and
operational positions within the
Group since 1994. From 2003
to 2011, Bruce was the financial
controller of the Group’s
European operations. From
2011, Bruce held the position of
managing director of Hunting’s
EMEA operating segment and
has been a member of the
Executive Committee since
its formation in 2018.
Length of Service
8 years; appointed to the Board
as a non-executive Director in
2015 and is viewed as
independent. In February 2021,
Annell was re-appointed for
a final three-year term. Annell
is Chair of the Remuneration
Committee and is also the
Company’s designated
non-executive Director for
employee engagement. Age 67.
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
N E R A
Corporate GovernanceHunting PLC Annual Report and Accounts 2022 117
Board of Directors
Key to committees
N Nomination Committee
E Ethics and Sustainability Committee
R Remuneration Committee
A Audit Committee
I
By invitation
Chair
Stuart M. Brightman
Non-executive Director
Nationality
American.
Length of Service
Appointed to the Board in
January 2023 as a non-executive
Director and is viewed as
independent. Age 66.
Skills and Experience
Stuart has spent the majority
of his career at TETRA
Technologies Inc. (“TETRA”),
Dresser Inc. and Cameron Iron
Works. During his time at TETRA,
Stuart held the position of Chief
Operating Officer between 2005
and 2009, when he was
appointed Chief Executive Officer,
a position he held to 2019, before
his retirement from the business.
Paula Harris
Non-executive Director
Nationality
American.
Length of Service
1 year; appointed to the Board
as a non-executive Director in
April 2022 and is viewed as
independent. Age 59.
Skills and Experience
Paula has extensive oilfield
services experience following a
33 year career at Schlumberger,
the international energy services
group, where latterly she was
Director of Stewardship.
External Appointments
Stuart is currently a non-
executive director of NexTier
Oilfield Solutions Inc.
Committee Membership
N E R A
External Appointments
Carol is currently a non-executive
director of IQE plc.
Committee Membership
N E R A
Carol Chesney
Non-executive Director
Nationality
American and British.
Length of Service
5 years; appointed to the Board
as a non-executive Director in
2018 and is viewed as
independent. Carol is Chair of the
Audit Committee. In April 2021,
Carol was re-appointed for a
further three-year term. Age 60.
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 Company
Secretary of Halma plc.
External Appointments
Paula is currently a non-
executive director of Chart
Industries, Inc and Helix Energy
Solutions Group, Inc.
Committee Membership
N E R A
Keith Lough
Senior Independent Non-executive Director
External Appointments
Keith is currently the non-
executive Chairman of
Rockhopper Exploration plc
and Southern Water.
Committee Membership
N E R A
Nationality
British.
Length of Service
5 years; appointed to the Board
as a non-executive Director in
April 2018 and appointed Senior
Independent Director in August
2018. In April 2021, Keith was
re-appointed for a further
three-year term. Age 64.
Skills and Experience
Keith was formerly the non-
executive Chairman of Gulf
Keystone Petroleum Limited
and previously held a number
of executive positions within
other energy-related companies,
including British Energy plc and
LASMO plc.
Hunting PLC Annual Report and Accounts 2022Corporate Governance 118
Executive Committee
Executive
Committee
Jason Mai
Managing Director – Hunting Titan
Daniel Tan
Managing Director – Asia Pacific
Nationality
American.
Length of Service
7 years; joined Hunting in 2016.
Age 54.
Nationality
Singaporean.
Length of Service
15 years; joined Hunting in 2008.
Age 60.
Scott George
Managing Director – North America
Liese Borden
Chief HR Officer
Nationality
American.
Length of Service
13 years; joined Hunting in 2010.
Age 49.
Nationality
American.
Length of Service
5 years; joined Hunting in 2018.
Age 61.
Dane Tipton
Managing Director – Subsea Technologies
Ryan Elliott
Chief IT Officer
Nationality
American.
Length of Service
13 years; joined Hunting in 2010.
Age 51.
Nationality
American.
Length of Service
10 years; joined Hunting in 2013.
Age 45.
Randy Walliser
Manager Director – Canada
Gregory T. Farmer
Global Director – QAHSE/Compliance
Nationality
Canadian.
Length of Service
4 years; joined Hunting in 2019.
Age 62.
Nationality
American.
Length of Service
30 years; joined Hunting in 1993.
Age 56.
Stewart Barrie
Managing Director – EMEA
Ben Willey
Group Company Secretary
Nationality
British.
Length of Service
11 years; joined Hunting in 2012.
Age 54.
Nationality
British.
Length of Service
13 years; joined Hunting in 2010
and was appointed Group
Company Secretary in 2013.
Age 49.
Bruce Ferguson and Jim Johnson are also members of the Executive Committee.
Corporate GovernanceHunting PLC Annual Report and Accounts 2022 119
Corporate
Governance Report
Corporate
Governance Report
Compliance
The Board of Hunting PLC has adopted governance principles aligned
with the 2018 UK Corporate Governance Code (the “Code”), which
can be found at www.frc.org.uk. Hunting PLC is reporting its Corporate
Governance compliance against this Code.
The Board has assessed its compliance with the Code and notes
the following provision to which it is not compliant:
The pension contribution rate of the Chief Executive (who is resident
in the US) currently does not align with the workforce as required by
provision 38 of the Code. Mr Johnson was appointed prior to the
implementation of the 2018 Code. It should be noted that since his
appointment to the Board in 2017, the pension contribution Jim Johnson
received from the Company averaged 11% of base salary. Under the
current Directors’ Remuneration Policy, the Board has agreed that the
pension contribution rates for all new executive Director appointments
will be capped at 12% of base salary, in line with the UK workforce.
As noted in the Remuneration Committee Report, during 2022 the
Committee has overseen the development of a new deferred savings
plan in the US, which will be implemented in 2023. The new plan allows
for the Group’s US senior employees to make additional pension savings
contributions over the US 401k limit. The contribution rates of this new
plan fully align executive management to the workforce, with an overall
contribution rate of 6% of base salary. The Board believes these
arrangements align with typical US compensation practices and enables
Hunting to be competitive in this key labour market. Should any future
Chief Executive of the Company be appointed by the Board who is
resident in the US, it is anticipated that they will be offered participation
in this new savings plan.
Governance Framework
Introduction
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, 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 Governance Framework
Market
environment
and other
external factors
Nomination
Committee
Our purpose
Stakeholder
engagement
Executive
Directors
1
Strategic intent
2
Challenge and
decision making
3
Short/long-term plan
Non-executive
Directors
Ethics and
Sustainability
Committee
Risk
management
Business
strategy
Execution and
value creation
(Business Model)
Strategic and
financial
performance
KPIs
Audit
Committee
Remuneration
Committee
Hunting PLC Annual Report and Accounts 2022Corporate Governance 120
Corporate
Governance Report
The Board discusses strategic planning and long-term growth
objectives. Once the Board has agreed on these strategic plans,
they are rolled out across the Group’s 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 (see pages 102 to 105), and
supporting procedures, help the Board refine its decision making, as the
opportunities and risks for long-term success and growth are evaluated
against the risk appetite and culture of the Group. Following this, the
Group’s Business Strategy and Model are put into action.
The Board has four subcommittees to which it delegates governance
and compliance procedures:
• the Nomination Committee, whose report can be found on pages 127
and 128;
• the Ethics and Sustainability Committee, whose report can be found
on pages 129 to 131;
• the Remuneration Committee, whose report can be found on pages
132 to 154; and
• the Audit Committee, whose report can be found on pages 155 to 159.
These Board Committees support the Directors in their decision making.
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 Ethics and Sustainability Committee was formed in 2021 to
support the Group’s development of environmental, climate, social and
governance (“ESG”) decision making. As long-term sustainability and
climate-related matters become more important to our stakeholders,
this Committee has been formed to oversee and monitor our existing
practices, but to also monitor new long-term strategies to reduce our
impact on the environment, improve our sustainability and to monitor our
stakeholder engagement procedures and to oversee our ethics policies.
The Remuneration Committee ensures that executive pay remains
aligned with Company performance, workforce remuneration and the
broader shareholder experience. The Remuneration Committee ensures
the executive Directors remain motivated and incentivised, as the senior
leadership team executes the Board approved strategy on a day-to-day
basis.
The Audit Committee’s responsibilities include reviewing the Group’s
financial results and challenging management, internal audit and external
audit functions.
The Board and its Committees are further supported by an Executive
Committee, comprising of senior leaders across the Group. The Executive
Committee oversees the implementation of the Group’s growth
objectives and ensures that the risks and opportunities presented
are actively managed.
Board Leadership and Company Purpose
(Section 1 of the Code)
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 approves 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, which
all businesses within the Group and their 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 Directors monitor Hunting’s trading performance, including progress
against the Annual Budget, reviewing regular management accounts
and forecasts, comparing forecasts to market expectations and
assessing 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 the remuneration structure of the wider workforce.
The Board approves all key recommendations from the Nomination
Ethics and Sustainability, Remuneration and Audit Committees and
approves all appointments to these Committees.
Board Activities
Board and Committee materials are circulated in a timely manner
ahead of each meeting.
At each meeting, the Chief Executive updates the Board on key
operational developments, provides an overview of the global oil and gas
market, reports on Health and Safety, and highlights milestones reached
towards the delivery of Hunting’s strategic objectives. The Finance Director
provides an update on the Group’s financial performance, position,
trading 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 then reviewed regularly by the
Board and are supported by periodic presentations by members of the
Executive Committee.
The Board met eight times in 2022 (2021 – seven times), with the
attendance record noted below:
Number of meetings held
Number of meetings attended (actual/possible):
Annell Bay
Carol Chesney
Bruce Ferguson
John (Jay) Glick
Paula Harris (from 20 April 2022)
Richard Hunting (to 20 April 2022)
Jim Johnson
Keith Lough
8
8/8
8/8
8/8
8/8
5/5
3/3
8/8
7/8
Corporate GovernanceHunting PLC Annual Report and Accounts 2022 26 Jan
28 Feb
20 Apr
31 May
27 Jul
24 Aug
5 Oct
7 Dec
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Board Tenure
1. < 3 years 38%
2. 3-6 years 38%
3. 6-9 years 24%
•
•
•
•
3
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
1
2
4 years
Average tenure of the Board
– at 2 March 2023
(2021 – 9 years)
5 years
Average tenure of the non-executive Directors
– at 2 March 2023
(2021 – 11 years)
121
Corporate
Governance Report
2022 Board Meetings and Agenda Items
Standing Items
Chief Executive’s Report
Finance Director’s Report
Operational Reports
Quality Assurance, Health, Safety & Environmental Reports
Shareholder Report
Other Items
Annual/Interim Report and Accounts
Board Evaluation
Risk Review
AGM Preparation
Trading Statement
Strategy
Organisation and Personnel Review and Succession
Annual Budget
Chairman/Senior Independent Director Investor Feedback
Tenure
The average tenure of the Board, at 2 March 2023, is four years
(2021 – nine years).
Within the non-executive Directors the average tenure is five years
(2021 – eleven years), following the retirement of Richard Hunting.
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.
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
the 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 Remuneration Committee Report on page 143.
Composition and Diversity
At the Company’s 2022 Annual General Meeting (“AGM”) on 20 April 2022,
Richard Hunting retired from the Board after nearly 50 years of service to
Hunting, which included being Chair of the Company from 1989 to 2017.
The Board is grateful for Richard’s service and advice over many years
and wish him a happy retirement.
As part of the Board’s focus on refreshing its skills and expertise as
Hunting enters another growth phase, in March 2022, Paula Harris was
proposed for election at the AGM. Following receipt of the relevant votes
in favour, Paula joined in the Board at the conclusion of the AGM. Ms
Harris has joined all of the Committees of the Board from appointment.
Further, on 3 January 2023, the Company announced the appointment
of Stuart Brightman as an independent non-executive Director.
Mr Brightman has joined all of the Committees of the Board from
appointment.
The Director search process completed in 2022 has explored the
required skills and expertise to assist the Company in its next phase
of growth, with a strong list of candidates interviewed, with the search
process to continue in 2023 to address the geographic and gender
balance of the Board.
Recent appointments are part of a planned and orderly succession
of the Board, as Jay Glick and Annell Bay will be retiring as Directors
in 2024.
For further information on the biographical details of the Board
of Directors, please see pages 116 and 117.
Hunting PLC Annual Report and Accounts 2022Corporate Governance 122
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With this process of refreshing, the diversity of the Board is as follows:
Board of Directors and Executive Committee
At 2 March 2023
Gender
Men
Women
Other categories
Not specified/prefer not to say
Ethnicity
White British or other White (including minority-white groups)
Mixed/Multiple Ethnic Groups
Asian/Asian British
Black/African/Caribbean/Black British
Other ethnic group, including Arab
Not specified/prefer not to say
Number of
Board Members
5
3
–
–
Number of
Board Members
7
–
–
1
–
–
Number of senior
positions on the
Board (CEO, CFO,
SID and Chair)
4
–
–
–
%
of Board
63
37
–
–
Number of senior
positions on the
Board (CEO, CFO,
SID and Chair)
4
–
–
–
–
–
%
of Board
87
–
–
13
–
–
Number in
executive
management
11
1
–
–
Number in
executive
management
10
–
2
–
–
–
%
of executive
management
92
8
–
–
%
of executive
management
83
–
17
–
–
–
With this gender balance and current allocation of roles within the composition of the Board, Hunting is compliant to one of the three requirements
under Listing Rule 9.8.6. The Directors anticipate that this non-compliance to the gender and senior role requirements will be resolved within the next
12 months as the refreshing of the Board continues.
Board Gender Diversity
1. Male 63%
2. Female 37%
1
Board Ethnic Diversity
1. Caucasian 87%
2. Other 13%
1
2
2
Purpose
To be a highly trusted innovator and manufacturer of technology
and products that create sustainable value for our stakeholders.
At the heart of Hunting’s long-term strategy and success is a reputation
based on trust and reliability. Hunting’s products are designed 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.
We choose to operate in the oil and gas industry, 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
innovative technologies and products to enable us to lead the market
and be the supplier of choice.
Our products and services include precision-engineered components
that are quality assured to exceed the highest levels of industry regulation.
Our employees are highly trained to ensure our operations are safe and
deliver total customer satisfaction.
The Directors have approved Hunting’s continued focus on energy-related
markets, while using the earnings generated from that sector to diversify
into other sectors that utilise our core competencies and offer an
attractive return.
Culture
The Group has been operating since 1874 and, therefore, has a long
history, with a strong culture, including support for employees across all
of its global operations. The Culture of the Group extends to maintaining
high business standards and 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 60 to 66.
To retain our staff, and to address the key demands of the industry,
our employees are fairly remunerated, which, in addition to a competitive
base salary, can comprise a range of healthcare and pension benefits
and can include an annual bonus that reflects performance levels. Given
the competitive landscape of our industry, our base levels of pay are well
above minimum wage thresholds.
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.
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.
Corporate GovernanceHunting PLC Annual Report and Accounts 2022 123
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Our Purpose – to be a trusted innovator and manufacturer of technology and products that create sustainable value
for our stakeholders.
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
Our Culture – to train and develop our people to make sure we maintain a highly skilled workforce.
Flat
Management
Structure
Hunting operates short chains of
command to allow rapid decision
making aimed at meeting
customer deadlines.
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.
Highly Skilled
The majority of our workforce
is highly skilled and are
encouraged to develop through
additional training programmes.
Our People
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 Annual Report and Accounts 2022Corporate Governance 124
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Governance Report
Engagement processes have been embedded within all business units
to enhance transparent two-way dialogue between the Board and the
Group’s employees. During the year, the Board met with employees at
our Dearborn business, as part of our ongoing engagement programme.
Our employees are also encouraged to engage in dialogue with
management to raise issues of concern. These procedures are
supported by an independent reporting service operated by SafeCall,
where confidential matters can be raised with the Board.
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.
In line with the recommendations of the Code, the Board has established
procedures to monitor Culture and to ensure the views of the workforce
are understood by the Directors. In 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. It is
anticipated that the survey will be repeated in 2023. 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 2022 and January 2023 to discuss governance, strategy and
other matters. During the year, the Chief Executive and Finance Director
also regularly 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 normal
forum 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,
appointing the auditor and providing the Directors with powers to
transact Company business on behalf of its members. The Chief
Executive normally provides a presentation of the Group’s performance
and answers questions from shareholders.
At the Company’s Annual General Meeting in April 2022, an open
meeting was held where shareholders had the opportunity to meet the
Directors and to ask questions. All resolutions were passed at the AGM
with good majorities, with no resolutions receiving less than 80% of votes
in favour. 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.
The Company’s 2023 Annual General Meeting is again being planned
as an open meeting. Shareholders will be able to access the AGM
via a webcast, where questions can be submitted ahead and during
the meeting to be answered by the Board.
Stakeholder Engagement
Details of engagement activities with all our key stakeholders and the
Board can be found, within the Strategic Report, on pages 60 to 66.
Speak Up/Whistleblowing Service
An independent and anonymous whistleblowing reporting service
has been in place for many years, allowing any employee access
to the Board to raise matters of concern. During the year, there were
two reports received through the SafeCall service (2021 – one report).
Reports received are reviewed by Keith Lough, the Group’s Senior
Independent Director, who also receives and approves all investigation
reports and corrective actions.
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 and five independent non-executive
Directors, one of whom is the Senior Independent Director.
The profiles and experience of each Director are found on pages 116
and 117. In line with the Code’s recommendations, the Notice of Annual
General Meeting incorporates 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;
• promote 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 planning 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.
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 remains motivated and
incentivised through a responsible remuneration policy; and
• ensure the integrity of financial information and internal control
and risk management processes are effective and defensible.
Corporate GovernanceHunting PLC Annual Report and Accounts 2022 125
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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 are:
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 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 2022, excluding the Chairman, the Board comprised
67% independent non-executive Directors. Including the Chairman,
71% of the Board comprised independent Directors.
With the appointment of Stuart Brightman on 3 January 2023 at the date
of signing these accounts, being 2 March 2023, the Board comprises
75% independent non-executive Directors.
The Board, including the Chairman, has access to professional advisers, at
the Company’s expense, to fulfil their various Board and Committee duties.
Board Independence
(including Chairman)
At 31 December 2022
1. Independent 71%
2. Non-Independent 29%
Board Independence
(excluding Chairman)
At 31 December 2022
1. Independent 67%
2. Non-Independent 33%
1
1
2
2
External Appointments
The Group has procedures in place that permit the executive Directors
to join one other company board. 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 senior
leaders of the Group and the executive Directors. The ExCo meets
formally four times, to discuss the quarterly performance of each
operating segment, strategic initiatives, including the progress of capital
investment programmes, Quality Assurance and HSE performance,
in addition to Human Resources, Information Technology and Risk
Management reports.
For further information on the biographical details of the Executive
Committee, please see page 118.
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 the
recommendation of 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.
As noted above, Richard Hunting retired as a Director at the Company’s
AGM on 20 April 2022, while Paula Harris was elected by shareholders
at the AGM and joined the Board on the same date. Further, Stuart
Brightman was appointed to the Board on 3 January 2023.
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
Expertise
Upstream oil and gas, US energy market
development and US quoted companies.
Stuart Brightman Oilfield services and manufacturing, investor
Carol Chesney
Jay Glick
Paula Harris
Keith Lough
relations, business transformation.
Accounting, UK corporate governance, ethics
compliance and UK quoted companies.
Oilfield services and manufacturing, US energy
market development and US quoted companies.
Oilfield services and manufacturing, US energy
market development, investor stewardship and ESG.
Accounting, upstream oil and gas, UK energy
regulation and market development and
UK quoted companies.
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 section
(pages 102 to 105) and the Audit Committee Report (pages 155 to 159)
of the Annual Report and Accounts. The Risk Management section
includes information on the Group’s principal and emerging risks,
as required by the Code.
Hunting PLC Annual Report and Accounts 2022Corporate Governance
126
Corporate
Governance Report
Remuneration
(Section 5 of the Code)
Clarity and Simplicity
The Directors’ Remuneration Policy is based on fixed and variable
emoluments. Fixed emoluments are benchmarked against other global
energy services companies and UK listed companies, 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
and complexity.
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 Directors’ Remuneration Policy, and can include pension
and healthcare benefits as well as an annual bonus and long-term
incentives. Shareholder engagement is a key theme of the 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 reflected in the Directors’ Remuneration Policy.
Risk, Predictability and Proportionality
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 in
the chart opposite, the remuneration paid to the Chief Executive over
time has aligned well with the Group’s performance, with annual
bonus and long-term incentives only vesting on performance.
Alignment
The Board and the Remuneration Committee have reviewed the
Company’s Purpose, Values and Culture and believe 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.
• Malus and clawback provisions are in place for all variable remuneration,
with additional triggers introduced in 2021 to reflect best practice;
• The Committee has flexibility within the Directors’ Remuneration Policy
to exercise appropriate discretion; and
• Pension provisions for new executive Director appointments will align
with the workforce.
Further, in 2021 the Remuneration Committee introduced ESG and
carbon-focused deliverables into the executive Directors’ personal
objectives contained in the Annual Bonus Plan.
The chart following summarises the components of executive
remuneration and the key performance indicators that are inputs
to the remuneration outcomes.
Summary of Remuneration Structure and KPIs
Fixed
Variable
Base
Salary
Benefits
Pension
Provision
Annual
Bonus
Long-Term
Incentive
KPIs
KPIs
Profit before tax
ROCE
Personal
Objectives
ROCE
TSR
EPS
Safety
Quality Assurance
FCF
Adjusted Result before Tax ($m) vs CEO Pay ($k)
3,000
2,500
2,000
1,500
1,000
500
0
2019
CEO Pay ($k) (left axis)
CEO Pay (£k)
2021
Adjusted PBT ($m) (right axis)
Adjusted PBT (right axis)
2020
2022
100
75
50
25
0
-25
-50
The current Directors’ Remuneration Policy was approved by
shareholders on 21 April 2021. The Policy aligns Hunting’s remuneration
practices with the 2018 UK Corporate Governance Code, and includes:
• Increasing the alignment of the pension arrangements of executive
Directors with the workforce; and
The Board believes that the remuneration framework aligns with the
Purpose 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.
• Introducing a post-employment shareholding policy for the executive
On behalf of the Board
Directors.
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 132 to 154. In respect of the current
Directors’ Remuneration Policy and the 2018 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;
John (Jay) F. Glick
Chairman
2 March 2023
Corporate GovernanceHunting PLC Annual Report and Accounts 2022 127
Nomination
Committee Report
Nomination
Committee Report
The work of the Nomination
Committee during 2022
has focused on the ongoing
refreshing of the Board, given
the rotation of Directors
required by early 2024.”
Introduction
The work of the Nomination Committee during 2022 has focused on the
ongoing refreshing of the Board, given the rotation of Directors required
by early 2024.
In the year, shareholders approved the appointment of Paula Harris,
as a new independent non-executive Director. Paula’s experience of the
oilfield services sector will be invaluable as the Company navigates the
ever-changing global energy market.
In the second half of 2022, the Committee continued its search for
new Directors, with interviews with candidates and members of the
Committee occurring throughout September and October, resulting
in the appointment of Stuart Brightman as a new independent
non-executive Director on 3 January 2023.
The Committee was also briefed on the reorganisation of the Company’s
Executive Committee. The development of future talent has been
another area of focus for the Board in recent years and supports the
changes made to the Company’s senior management structure.
In December 2022, the Board undertook an internally facilitated
effectiveness evaluation. Results from this process were considered
at the February 2023 Meeting of Directors.
In summary, the Committee has operated effectively during the year and
has made good progress in its efforts to enhance procedures to develop
and identify future talent, in addition to planning for an orderly succession
within the Board over the coming years.
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 meets as required to discuss succession matters and,
in 2022, met four times.
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 on the left.
John (Jay) F. Glick
Chair of the Nomination
Committee
Number of meetings held
Number of meetings attended
(actual/possible):
Annell Bay
Carol Chesney
Bruce Ferguson
John (Jay) Glick (Committee Chair)
Paula Harris (from 20 April 2022)
Richard Hunting (to 20 April 2022)
Jim Johnson
Keith Lough
Member
4
Invitation
4/4
4/4
–
4/4
–
–
–
4/4
–
–
4/4
–
3/3
1/1
4/4
–
Hunting PLC Annual Report and Accounts 2022Corporate Governance 128
Nomination
Committee Report
Appointment of Paula Harris
As part of the ongoing strategy to refresh the Board and provide an
orderly succession and, where appropriate, to address diversity targets,
the Board in 2021 commenced a search process to appoint new
Directors, given that Annell Bay and I will reach the end of our nine year
terms as independent non-executive Directors in 2024.
On 3 March 2022, the Company announced the proposed appointment
of Paula Harris as a new independent non-executive Director, and
following receipt of the relevant votes in favour at the Company’s Annual
General Meeting on 20 April 2022, Ms Harris was appointed to the Board
and all of its Committees.
Details of Ms Harris’ skills and expertise are noted on pages 117 and 125.
Heidrick & Struggles assisted the Committee in the search process
for Ms Harris. Other than in this role, Heidrick’s do not have any other
relationship with the Company.
Retirement of Richard Hunting, CBE
On 20 April 2022, Richard Hunting, non-executive Director, retired from
the Board after nearly 50 years of service to the Company.
The Directors note Richard’s invaluable service to Hunting, which
included being Chair of the Company from 1991 to 2017, and wish
him a happy retirement.
Appointment of Stuart Brightman
Following the discussions of the Nomination Committee across the year,
in respect of the rotation of Directors and refreshing of the Board, the
Committee met a number of times in the second half of 2022 to consider
new Director candidates.
Interviews were held during September and October and following the
December 2022 meeting of the Committee, a proposal was submitted
to the Board to appoint Stuart Brightman as a new independent
non-executive Director. Stuart was appointed on 3 January 2023,
and was appointed to all of the Board’s Committees from this date.
Following the Company’s Articles of Association, Stuart will automatically
retire at the Hunting’s 2023 Annual General Meeting and will offer himself
for re-appointment by shareholders on 19 April 2023.
Details of Mr Brightman’s skills and expertise are noted on pages 117
and 125.
Heidrick & Struggles assisted the Committee in the search process for
Mr Brightman. Other than in this role, Heidrick’s do not have any other
relationship with the Company.
Board Gender Balance
With the appointment of Stuart Brightman, the gender balance of
the Board has shifted to below what is recommended by the Financial
Conduct Authority. The Nomination Committee has continued its
deliberations and will be making a new appointment in the coming year,
given the gender requirements in the UK for Board gender composition.
Future Director Rotation
Annell Bay and I are both due to retire in early 2024, therefore further
succession planning will occur during the year ahead. Keith Lough,
Hunting’s Senior Independent Director will be leading the search
for my replacement, with the process shortly to commence.
Senior Management Development and Succession
As part of new procedures introduced by the Committee, the evaluation
of the senior leadership team and their direct reports has been undertaken.
This has led to the Board identifying high-potential candidates,
who continue to receive formal development and training to enhance
the pipeline of talent for the most senior roles within the Company,
including at the Executive Committee and Board levels.
In September 2022, a restructuring of the Executive Committee was
implemented, following the announcement of the retirement of Rick
Bradley, Hunting’s Chief Operating Officer (“COO”). Dane Tipton, a
member of the Company’s senior management team for many years,
was promoted to the Executive Committee as Managing Director
of Hunting’s Subsea Technologies businesses.
The role of COO has been eliminated to save corporate costs, with all
Managing Directors on the Executive Committee now reporting directly
to Jim Johnson, Hunting’s Chief Executive.
Internal Board Evaluation
In December 2022, the Board completed an internally facilitated board
evaluation, which was coordinated by the Company Chairman and
Company Secretary.
The process included the completion of a governance and board
effectiveness questionnaire, the feedback from which was reviewed
by the Board at its meeting in February 2023. The Directors noted
the observations and implemented plans to address the findings.
Terms of Reference and Committee Effectiveness
At its December 2022 meeting, the Committee reviewed its terms
of reference and considered its effectiveness, concluding that its
performance had been satisfactory during the year.
On behalf of the Board
John (Jay) F. Glick
Chair of the Nomination Committee
2 March 2023
Corporate GovernanceHunting PLC Annual Report and Accounts 2022 129
Ethics and Sustainability
Committee Report
Ethics and Sustainability
Committee Report
The work of the Ethics and
Sustainability Committee has
developed in the year, following
its formation in 2021 and good
progress in the areas of ESG
and Sustainability have been
made across the Company.”
John (Jay) F. Glick
Committee Chair
Number of meetings held
Number of meetings attended
(actual/possible):
Annell Bay
Carol Chesney
Bruce Ferguson
John (Jay) Glick (Committee Chair)
Paula Harris
Jim Johnson
Keith Lough
Member
2
Invitation
2/2
2/2
–
2/2
2/2
–
2/2
–
–
2/2
–
–
2/2
–
Introduction
The work of the Ethics and Sustainability Committee has developed in
the year, following its formation in 2021 and good progress in the areas
of ESG and Sustainability have been made across the Company.
In March 2022, Hunting published its maiden report against the
requirements of the Task Force on Climate-related Financial Disclosure
framework, in line with the UK’s requirements. In the year, climate risk
evaluation was expanded across the Group to include inputs from
all global businesses and is now integrated into the Company’s Risk
Management Framework. As noted in this report and within the ESG
and Sustainability section of the Strategic Report, Hunting’s carbon data
is currently being assured by Standard & Poor’s Trucost. This process
is due to complete in April 2023.
These new carbon and climate reporting initiatives have been overseen
by the Committee during the year and continue Hunting’s commitment
to expanding its reporting in this area and integrating more sustainability
initiatives across the Group.
Our employees continue to be our most important asset and
regular HR reports have been reviewed by the Committee in the year,
which have included training and development initiatives and a review
of compensation, in light of the inflationary pressures facing all
global companies.
Composition
The Committee currently comprises the independent non-executive
Directors of the Company and is chaired by Jay Glick. Details of the
Committee’s experience can be found in the biographical summaries
set out on pages 116, 117 and 125.
Frequency and Attendance of Meetings
The Committee met twice in the year, as planned, in June and
December 2022.
The attendance record of Committee members and Board invitees
is noted in the table below on the left.
In addition to the Directors, the regular attendees to meetings of the
Committee include the Group’s Chief HR Officer, the Global Director
of QAHSE and the Group’s General Counsel.
Terms of Reference and Committee Effectiveness
The Committee operates under written terms of reference which
are published on the Company’s website at www.huntingplc.com.
In December 2022, the Committee considered its effectiveness,
in line with the other Board committees.
Hunting PLC Annual Report and Accounts 2022Corporate Governance 130
Ethics and Sustainability
Committee Report
Responsibilities
The principal responsibilities of the Ethics and Sustainability Committee
are to:
• Monitor the Group’s Scope 1 and 2 greenhouse emissions
and the initiatives to contain and reduce its carbon footprint;
• Monitor public disclosures in respect of the Task Force
on Climate-related Financial Disclosures framework;
• Monitor the risks and opportunities which climate change
presents to the Group’s operations;
• Monitor the Quality Assurance and Health, Safety and
Environmental reports prepared by the Executive Committee;
• Monitor the Group’s employee and human capital matters,
including engagement with Hunting’s workforce;
• Monitor the Group’s interaction with other key stakeholders,
including customers, suppliers and communities;
• Monitor the Group’s Modern Slavery Act initiatives;
• Monitor the Group’s policies and procedures in respect
to sanctioned territories;
• Monitor the Group’s whistleblowing procedures; and
• Monitor the Group’s anti-bribery and corruption initiatives.
Work Undertaken by the Committee During 2022
The Committee discussed, reviewed and made a number of decisions
on key areas in 2022, which are set out below:
Jun
Dec
Carbon
Procedures for measuring and monitoring
the Group’s Scope 1 and 2 emissions
TCFD analysis and reporting
Climate scenario reports
Stakeholders
Employee and workforce report
Code of Conduct training report
Whistleblowing summary report
Quality Assurance and Health and Safety report
Community report
Ethics
Anti-bribery and corruption reports
Entertainment and hospitality summary
Modern slavery analysis
Customer and supplier risk analysis
Sanctions and export compliance
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
SASB Reporting Framework
During the year, the Group has reported against the SASB reporting
standard for Oil and Gas – Services and Industrial Equipment and
Machinery standards, which are noted on pages 100 and 101.
Carbon and Climate
The Group has reported Scope 1 and 2 emissions in its Annual Reports
for a number of years and in 2019 published its first carbon reduction
targets. These targets committed Hunting to reducing its carbon
footprint to 32,287 tonnes of CO2e by 2029, which was 10% below
the level reported for the year ended 31 December 2019.
In December 2022, the Committee and Board approved new carbon
reduction targets, which now commit Hunting to reducing its carbon
footprint (scope 1 and 2 emissions only) to 50% of the 2019 level
or to 17,937 tonnes CO2e by 2030.
The Committee and wider Board has monitored the enhancement of
the internal reporting of the Group’s carbon emissions data, with a new
carbon reporting policy manual issued to all Group businesses in
May 2022, and enhanced data collection within the twice yearly carbon
data reporting submissions.
The Committee also reviewed the work completed in the year in respect
to the TCFD disclosures, which are included on pages 88 to 99.
Hunting’s TCFD reporting aligns with the four recommended pillars
of governance, strategy, risk management and targets. In the year,
additional climate risk management procedures were rolled out across
the Group with all business units required to report on energy transition
plans and business sustainability in a rapid energy transition scenario.
Further, the TCFD disclosures include the 11 recommended areas of
narrative proposed by the TCFD panel, which was issued in 2017 and
updated in 2021.
For further information on the areas of carbon and climate, please refer
to the Strategic Report.
Employees
The Committee received workforce reports from the Group’s Chief HR
Officer in the year, which included details of employee changes, tenure
and engagement initiatives undertaken. Of note has been the focus
on the development of talent across the Company, with training and
development programmes being a key area of consideration.
The HR reports also included diversity and inclusion planning which
are to be put in place in the coming years.
Quality Assurance and HSE (“QAHSE”)
As part of its review work, the Committee received Quality Assurance
and Health and Safety reports from the Group’s Director for QAHSE.
In the year, new reporting procedures, to include vehicle incident
monitoring in line with the SASB standards, were implemented.
For further information on QAHSE performance, please refer to the
Strategic Report.
Corporate GovernanceHunting PLC Annual Report and Accounts 2022
131
Ethics and Sustainability
Committee Report
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.
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.
In 2023, a new Code of Conduct training programme will be rolled out,
which reflects new procedures introduced by the Company since 2018,
and which now includes sustainability and climate change considerations.
Procedures were introduced during 2016 and continued in 2022,
whereby each business unit across the Group completed due diligence
on its workforce to highlight employment risks in relation to trafficking
and slavery.
Communities
The Committee also reviewed a report which summarised Community
initiatives which were undertaken by the Group’s businesses throughout
the year.
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 Modern Slavery Act
report in March 2022, located at www.huntingplc.com.
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.
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 reviewed the compliance procedures relating
to the Bribery Act at its December meeting, 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.
In 2023 a new “Code of Conduct” training course will be rolled out to
all employees of the Group, which incorporates information on modern
slavery and trafficking.
In the year, the Company also introduced a Supplier Code of Conduct,
which commits businesses within Hunting’s supply chain to many of
the principles contained in the Company’s Code of Conduct.
Sanctions and Export Compliance
The Group sells products to over 70 countries which presents a general
risk of export and sanctions compliance.
Hunting has detailed procedures in place that monitor sales in medium
to high risk territories, where End User disclosures, company evaluation
and analysis are completed prior to a sales order being agreed.
The Committee received regular reports on these sales and procedures.
In the year, the Company introduced a Supplier Code of Conduct, which
commits businesses in Hunting’s supply chain to many of the principles
contained in the Company’s Code of Conduct.
On behalf of the Board
John (Jay) F. Glick
Chairman
2 March 2023
Hunting PLC Annual Report and Accounts 2022Corporate Governance 132
Remuneration
Committee Report
Remuneration
Committee Report
Introduction
On behalf of the Board, I am pleased to present the Remuneration
Committee Report to shareholders for the year ended 31 December
2022. This letter 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.
The Committee met six times in 2022, as noted in the table below.
The Committee is pleased to note the Group’s adjusted profit from
operations in the year, with a financial performance that exceeded
the targets set due to strengthening core markets.
The Committee has maintained a consistent approach to decision
making, to ensure executive management remained motivated and are
retained; the latter issue being a particular area of focus as the Board has
seen clear evidence of a tightening labour market across all levels of the
organisation. The retention of talent has, therefore, been an area of
discussion by the Board and Remuneration Committee throughout the
year, as rehiring has started in earnest within the oil and gas industry.
As activity levels increased across most of the Group’s regions,
in particular across Hunting’s core trading market of North America,
all segments across the Group reported good year-on-year growth
in revenue, which led to annual bonuses being accrued within most
business units. The annual bonus targets set for the organisation were
exceeded, as performance accelerated in the second half of the year,
resulting in bonuses at the maximum level.
The vesting of the 2020 grant under the Hunting Performance Share Plan
has, however, recorded a 7.5% outcome reflecting a partial vesting of the
Strategic Scorecard component of the award. The Earnings Per Share,
Return on Capital Employed and Total Shareholder Return performance
targets were not met.
The Committee deferred the determination of annual base salary
adjustments for executive Directors until Q4 2022, to allow more time
for rapidly changing market conditions to be considered. In October,
the Committee decided to increase the salaries of the executive Directors
by 5%, in-line with the average workforce increase implemented across
all regions of the Group’s operations in response to general increases
in inflation and cost of living seen in the year.
In summary, the Committee is satisfied that the remuneration outcomes
of the executive Directors reflect a strong performance as the Company
has returned to growth.
The Committee is pleased
to note the Group’s adjusted
profit from operations in
the year, with a financial
performance that exceeded
the targets set due to
strengthening core markets.”
Annell Bay
Chair of the Remuneration
Committee
Number of meetings held
Number of meetings attended
(actual/possible):
Annell Bay (Committee Chair)
Carol Chesney
Bruce Ferguson
John (Jay) Glick
Paula Harris (from 20 April 2022)
Richard Hunting (to 20 April 2022)
Jim Johnson
Keith Lough
Member
6
Invitation
6/6
6/6
–
–
3/3
–
–
5/6
–
–
6/6
6/6
1/1
3/3
6/6
–
Corporate GovernanceHunting PLC Annual Report and Accounts 2022 133
Remuneration
Committee Report
Major Decisions Made by the Committee
Base Salary and Fee Review
The Committee met in August and October 2022 to consider adjustments
to the base salaries of the executive Directors and the wider workforce.
In August 2022, the Committee was briefed by the Chief Executive and
the Chief HR Officer on ongoing employee retention and labour issues,
which were primarily driven by a tightening labour market within the oil
and gas industry, coupled with the impact of inflationary pressures and
general increases in the cost of living reported in the year. To address
these issues, the Board approved a 5% average increase in base salaries
across the Group’s workforce. This was implemented in Q4 2022.
The Committee held a meeting in October 2022 to deliberate on possible
base salary increases for the senior leadership team and received data
from the Chief HR Officer on the base salary increases that were
proposed for the Executive Committee, which aligned with the workforce
and which averaged 5.0%.
The Committee then considered the base salary of the Chief Executive
and Finance Director and, following discussion, awarded a 5.0% base
salary increase to both executives, with effect from 1 December 2022.
Mr Johnson’s base salary has, therefore, increased to $810,338 p.a.,
while Mr Ferguson’s base salary has increased to £317,625.
The Board met in December 2022 to review the annual fees of the
non-executive Directors and, following discussion, it was determined
that the annual fees of the non-executive Directors should be increased
to £64,000 with effect from 1 January 2023 to reflect their current time
commitments and the fact that fee levels have been frozen for more than
ten years. The additional fees for the Committee Chairs and the Senior
Independent Director remain at £10,000 per annum.
In addition, the Committee discussed the annual fee of Hunting’s
non-executive Chair in December 2022 and, following receipt of
benchmarked fee data from Mercer, determined that Mr Glick’s
fee should be increased to £205,000 also from 1 January 2023.
Annual Bonus
In December 2021, the Committee reviewed the 2022 Annual Budget
targets, which focused on a return to profitability, following two years
of losses during the COVID-19 pandemic. These were stretching targets,
given the volatility in the global oil and gas industry, coupled with
geopolitical tensions that were building at the time.
Shortly after the end of the 2022 financial year, the Committee was
pleased to review the financial outturn for 2022, which included the
return to pre-tax profitability on an adjusted basis and positive returns on
capital employed, due to strong growth in Hunting’s core trading market
of North America, reflecting solid activity levels within the US onshore
drilling market, buoyant activity in Canada and growing international
activity. The Committee noted that the targets set at the start of the
year had been strongly exceeded, leading to a maximum annual bonus
outturn in respect of the financial targets.
The Committee met in January 2023 to review the delivery of each
executive Directors’ personal/strategic performance objectives. In-line
with the outcome of the financial bonus targets, the Committee noted
the strong delivery of the objectives set at the start of the year, including
delivery of a medium-range strategic framework and other key
sustainability objectives. Following discussion, the Committee agreed
the bonus awards for the executive Directors. Based on these outcomes,
the executive Directors will receive a maximum bonus, being 200% of
base salary received in the year for the Chief Executive and 150% for
the Finance Director. The Committee has not applied discretion to this
annual bonus outcome.
75% of the bonus will be delivered in cash with the remaining 25% to be
utilised in the purchase of Ordinary shares in the Company to be held for
two years from the vesting date, in-line with the usual operation of the
Annual Bonus Plan.
HPSP Award Grant
In March 2022, the Committee granted awards under the Hunting
Performance Share Plan. As part of its discussions, and in line with the
shareholder approved Directors’ Remuneration Policy, the Committee
introduced a Free Cash Flow performance condition for the 2022 award,
alongside the Earnings Per Share, Return on Capital Employed, Total
Shareholder Return and Strategic Scorecard performance conditions.
Introducing this additional metric incorporates another strategic KPI into
the HPSP, which provides a better balance of performance targets for
the executive Directors to achieve. The awards encourage earnings and
cash generation growth, as the Company operates in a new growth
phase of the oil and gas industry.
HPSP Awards Vesting
The 2020 awards under the HPSP are due to vest on 3 March 2023
and incorporate four performance conditions, being ROCE (35%),
EPS (25%), TSR (25%) and a Strategic Scorecard (15%). The EPS and
ROCE performance conditions were based on performance targets
to be delivered for the financial year ending 31 December 2022.
The Strategic Scorecard comprises two non-financial measures,
being the Group’s Safety and Quality performance.
Following measurement of the financial elements of the award,
the EPS and ROCE performance conditions for the 2020 awards
recorded a nil vesting.
The TSR performance condition was measured independently by
Mercer and recorded a below median ranking against the 13 peer group
comparators. This has led to a nil vesting of this portion of the 2020 award.
The Strategic Scorecard recorded a 15% vesting (or 100% of the
Scorecard portion). In-line with the operation of the Policy, given that the
financial targets had not been met, the Committee halved this amount,
leading to a 50% vesting of the Scorecard.
Overall, the total vesting of the 2020 HPSP grant was 7.5% of the maximum.
The Committee is aware that shareholders wish companies to be
mindful of the potential for awards granted during the pandemic to result
in windfall gains. The Committee reviewed the outcome and noted that
the face value of this award was reduced by 20% at the time of grant
to minimise the risk of a windfall gain occurring.
2022 AGM Result
At the Company’s AGM held on 20 April 2022, the Company received
89.9% votes in favour of the resolution to approve the 2021 Annual
Report on Remuneration.
Context of Remuneration Awarded in 2022
The Group’s performance in the year, as noted above, has led to a 100%
vesting of the annual bonus opportunity and a 7.5% vesting of the 2020
HPSP award. The annual bonus outcome reflects an “Above Target”
outcome, reflecting strong in-year performance, while the HPSP vesting
reflects a “Below Target”, vesting given the impact of COVID-19 on the
Company’s financial performance.
The single figure of total remuneration for Jim Johnson was, therefore,
$2.7m in 2022 and $1.0m for Bruce Ferguson.
In 2021, the single figure total for Jim Johnson was $1.2m and for Bruce
Ferguson was $0.6m. This remuneration paid reflected a “Below Target”
performance for both the annual bonus award and 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.
Hunting PLC Annual Report and Accounts 2022Corporate Governance 134
Remuneration
Committee Report
US Deferred Savings Plan
As part of the Committee’s wider remit to review the general
compensation frameworks in operation across the Group, including that
of the Executive Committee, a process to design and implement a new
Non-Qualified Deferred Savings Plan across the Group’s US companies
was initiated in the year.
The plan will fully align the post-retirement benefits of US executive
Directors with the workforce, with a contribution limit of 6% of base salary.
Such plans are commonplace in the US and the Committee and the
Board believe this to be an important component of the Group’s US
compensation framework to drive recruitment and retention in its key
labour market of North America.
This plan will operate as a non-qualified plan alongside Hunting’s existing
401k arrangements and allow additional employee and employer
contributions, above the current 401k US IRS base salary limit.
The new plan will be operational from 1 April 2023. At present, the
current Chief Executive will not participate in this arrangement.
Activities Undertaken by the Remuneration Committee During 2022
Overall Remuneration
Annual base salary review
Review senior management annual emoluments
Review total remuneration against benchmarked data
Items Specific to Annual Bonus
Approve annual bonus including delivery of personal/strategic performance targets
Review Annual Bonus Plan rules
Agree personal/strategic 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
Review terms of reference
Jan
Mar
Apr
Aug
Oct
Dec
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Corporate GovernanceHunting PLC Annual Report and Accounts 2022
135
Remuneration
Committee Report
Competitiveness of Executive Director Remuneration
In-line with the Directors’ Remuneration Policy’s objective of providing the
Chief Executive and Finance Director with levels of remuneration that are
competitive in the market, the Committee receives regular updates on
market levels of remuneration using external benchmarks.
The Chief Executive’s remuneration is benchmarked against global peers
who are mostly headquartered or publicly listed in the US, and who are
of a similar profile and size to Hunting. The Finance Director’s remuneration
is benchmarked against UK listed companies of a similar size.
The most recent external benchmarking exercise highlighted that the
Chief Executive’s total remuneration is significantly below the median
market level among the relevant peers for his role, with the Finance
Directors’ remuneration moderately below the median against the
relevant peer group for his role.
The Committee recognises that as a UK company and, therefore,
subject to UK governance requirements, but with the majority of its
business in the US, a core consideration needs to be the flexibility
to offer competitive remuneration to roles in the US.
Therefore, in order to better understand the competitive position for
the CEO, the Committee has also recently undertaken further analysis
of executive remuneration structures, as well as actual remuneration
received, on the basis of historical single figures of total remuneration,
at a select group of comparators chosen on the basis that they are
the companies closest to Hunting in terms of their size.
The findings of this review illustrate how Hunting’s current levels of
variable remuneration are significantly lower than among our peers,
principally due to Hunting’s lower long-term incentive opportunity
at target performance.
The review also highlighted how Hunting’s approach to variable
pay differs from our peers with four of the six comparators operating
restricted stock unit plans in addition to performance awards, which
resulted in more consistent pay outcomes over time.
However, the review also found that Hunting’s pay outcomes have been
broadly correlated with shareholder returns demonstrating a strong
pay-for-performance alignment.
While the findings in part validate the Committee’s approach
to remuneration over time, they also highlights factors around
competitiveness of executive Director remuneration for it to consider
in reviewing the current Policy in preparation for Hunting’s next triennial
Policy vote at the 2024 AGM.
In order to ensure that our major shareholders are able to provide their
input early in the process of the review, the Committee intends to begin
discussions with investors about possible changes to the remuneration
Policy in Q2 2023.
On behalf of the Board
CEO total remuneration opportunity mix at target and maximum
for full year 2021 ($k)
$
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
$6,573
$5,580
$4,163
$3,162
Peers average
– Target
Hunting
– Target
Peers average
– Max
Hunting
– Max
Bonus
Salary
LTIP – Restricted Stock Unit
LTIP – Performance Stock Unit
CEO pay mix at maximum (%)
%
100
80
60
40
20
0
65%
24%
11%
Peers median
60%
27%
13%
Hunting
Salary
Bonus
LTIP
Peer group comprises: Oceaneering International, Core Laboratories, Drill-Quip, Petrofac,
DMC Global, and Oil States International. Figures are in USD ‘000s unless otherwise specified.
Salary, bonus & LTI ($k) paid vs 3-year TSR (%)
$
4,000
3,000
2,000
1,000
%
300
200
100
0
Annell Bay
Chair of the Remuneration Committee
2 March 2023
0
2018
2019
2020
2021
2018
2019
2020
2021
-100
Peers
Hunting
Salary
Bonus
LTIP (left axis)
3 year TSR (right axis)
Hunting PLC Annual Report and Accounts 2022Corporate Governance 136
Remuneration at a glance
Remuneration at a glance
Remuneration Policy and 2022 AGM Result
The remuneration framework operated in the year was consistent
with the Policy approved by shareholders on 21 April 2021, with 92%
of votes in favour. Details of the Policy can be found within the 2020
Annual Report and Accounts at www.huntingplc.com.
At the Annual General Meeting of the Company on 20 April 2022,
the resolution to approve the 2021 Annual Report on Remuneration
was supported by a vote of 89.9% in favour.
Link to Strategy and KPIs
The Group’s Key Performance Indicators are described in detail on
pages 34 and 35, and include financial measures such as adjusted
profit before tax, return on average capital employed and adjusted
diluted earnings per share targets. Non-financial measures are also
included in the targets for HPSP awards and include measurable
objectives related to the Group’s Quality and Safety performance.
Quality and Safety both underpin Hunting’s standing and reputation
in the global energy industry which, in turn, support the Group’s
long-term strategy.
Company Performance Summary
As noted in the Letter from the Chair of the Remuneration Committee,
the Group reported a return to profitability after two years of losses,
with an adjusted profit before tax (“PBT”) of $10.2m and a ROCE of 1%.
The adjusted PBT and ROCE portions of the annual bonus exceeded
the targets set by the Board in the Annual Budget and, following the
Committee’s determination that both executive Directors had fully
achieved their personal objectives, approved the vesting of a
maximum bonus opportunity. Performance measurement of the 2020
awards under the HPSP recorded a combined 7.5% vesting, based
on a nil vesting of the TSR performance condition, nil vesting of the
EPS and ROCE performance conditions and 7.5% vesting of the
Strategic Scorecard. The Committee reviewed the vesting outcome
of the HPSP, noting that the targets were set immediately prior to the
onset of the COVID-19 pandemic and determined that this was
appropriate in light of the overall shareholder experience.
2022 Annual Bonus Targets and Outcome
The annual bonus for executive Directors is based on adjusted profit
before tax, return on average capital employed and personal/strategic
performance targets.
Target adjusted profit before tax
Target ROCE
Actual adjusted profit before tax
$1.9m
1.00%
$10.2m
1.45%
A significant TSR element also helps align executive remuneration
with the shareholder experience. These KPIs are central to Hunting’s
long-term success and are fully integrated into the remuneration
framework approved by shareholders.
Actual ROCE
Base Salaries
In H2 2022, the Board approved a 5% base salary increase across
the Group’s workforce and also approved base salary increases for
the Hunting Executive Committee of 5%.
The Committee discussed base salary increases for the executive
Directors and, after careful consideration, approved a 5% base salary
increase for both Directors. Jim Johnson’s base salary has, therefore,
increased to $810,338 and Bruce Ferguson’s base salary has
increased to £317,625. The salary increases were implemented in
December 2022, in line with the wider workforce.
Annual Bonus
In 2022, the financial targets set by the Board in the Annual Budget
were exceeded and reflected a return to adjusted profitability and the
generation of a positive return on average capital employed with both
of these goals exceeded by more than 20%. The Committee also
reviewed the delivery of the personal/strategic performance
objectives by the executive Directors. Following careful consideration
and discussion, it was agreed that the objectives had been met in full,
leading to annual bonus awards at the maximum level. On this basis,
Jim Johnson will receive a bonus of $1,550k and Bruce Ferguson will
receive a bonus of £456k ($561k). 75% of the annual bonus will be
delivered in cash, as per the normal operation of the Annual Bonus
Plan, with the remaining 25% to be utilised to purchase Ordinary
shares, to be retained for two years from the vesting date.
Base Salaries
Chief Executive
Finance Director
$810,338
from 01.12.22
£317,625
from 01.12.22
2022 Annual Bonus
Chief Executive
Finance Director
$1,550k
£456k
Corporate GovernanceHunting PLC Annual Report and Accounts 2022
137
Remuneration at a glance
Hunting Performance Share Plan (“HPSP”)
The Group’s 2020 HPSP grant incorporated adjusted diluted EPS,
ROCE, relative TSR and Strategic Scorecard performance conditions
measured over three financial years ending 31 December 2022.
ROCE
Adjusted diluted EPS
Relative TSR
Strategic Scorecard
– Safety
– Quality Assurance
Proportion
35%
25%
25%
Threshold Vesting
8%
40 cents
Median
7.5%
7.5%
2.0
0.8
2020 HPSP Outcome
The outcomes are presented below:
ROCE
Adjusted diluted EPS
Relative TSR
Strategic Scorecard
– Safety
– Quality Assurance
Performance
1.45%
4.7 cents
Below Median
0.88
0.17
Vesting
nil
nil
nil
3.75%
3.75%
Under the rules of the Plan, vesting of the Strategic Scorecard
element of the HPSP is capped at 7.5%, being half of the maximum
of 15%, as the financial targets were not met. Therefore on this basis,
the 2020 HPSP grant has vested at 7.5%. Jim Johnson will, therefore,
be entitled to receive 48,990 Ordinary shares on the vesting date of
3 March 2023. Mr Ferguson will be entitled to receive 6,827 Ordinary
shares. Further, under the HPSP rules, dividend equivalents accrued
over the vesting period totalling 21.5 cents per vested share will be
added to this award. All the post-tax shares retained will be held
for a minimum of two years, in line with the 2018 Directors’
Remuneration Policy.
2020 Awards Under the HPSP Vesting on 3 March 2023
Chief Executive
Finance Director
48,990
Shares will vest
6,827
Shares will vest
Shareholder Returns
Total shareholder return (“TSR”) is measured against a peer group
of 13 companies, all focused on upstream oil and gas services.
For the three years ended 31 December 2022, Hunting had a
Below Median ranking resulting in a nil vesting of the TSR element
of the 2020 HPSP award.
150
125
100
75
50
25
0
31/12/12
31/12/14
31/12/16
31/12/18
31/12/20
31/12/22
Hunting PLC
DJ US Oil Equipment & Services
Chief Executive
1. Fixed $982k
2. Annual Bonus $1,550k
3. HPSP $167k
Total $2,699k
3
1
Finance Director
1. Fixed $435k
2. Annual Bonus $561k
3. HPSP $23k
Total $1,019k
2
3
1
2
Hunting PLC Annual Report and Accounts 2022Corporate Governance
138
Directors’ Remuneration Policy
Directors’
Remuneration Policy
Policy Overview
The Directors’ Remuneration Policy (the “Policy”) applied by the Hunting
Board for the executive and non-executive Directors of the Company,
was approved by shareholders at the Annual General Meeting held
on 21 April 2021.
The Policy is designed to comply with the principles of the 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 with both corporate and individual
performance.
The remuneration opportunities of the Chief Executive and Finance
Director are based on externally benchmarked data aimed at providing
them with competitive levels of remuneration in the relevant market.
The Chief Executive’s remuneration is benchmarked against global
peers who are mostly headquartered, or publicly listed in the US, and
who are of a similar profile and size to Hunting, while also being reputable
peers in the oil and gas equipment and services sector. The Finance
Director’s remuneration is benchmarked against UK listed companies
of a similar size.
Non-executive Director fees are set at levels that take into account the
time commitment and responsibilities of each role. Given the small size
of the Hunting Board, each non-executive Director is required to give an
above average time commitment to Group matters. The non-executive
Directors do not receive 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 Board. The Chairman’s fee
is set by the Remuneration Committee. The Remuneration Policy tables
that follow provide an overview of each element of the Directors’
Remuneration Policy.
The 2018 UK Corporate Governance Code sets out principles against
which the Committee should determine the Policy for executives. A
summary of the principles and how the revised Directors’ Remuneration
Policy reflects these is set out earlier in the Corporate Governance
Report on page 126.
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 the 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.
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.
Other
The Committee reserves the right to make any remuneration payments
and payments for loss of office (including exercising any discretions
available to it in connection with such payments) that are not in-line
with the Policy outlined above, where the terms of the payment were
agreed either:
• before the Policy came into effect; or
• at a time when the relevant individual was not a Director of the
Company and, in the opinion of the Committee, the payment was not
in consideration for the individual becoming a Director of the Company.
Corporate GovernanceHunting PLC Annual Report and Accounts 2022 139
Directors’ Remuneration Policy
Executive Director Remuneration Policy Table
Fixed Emoluments
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
Changes to policy
proposed
• Base salaries are set at
• There is no prescribed
• Individual and Group
• None.
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.
competitive rates, which take
into account the individual’s
country of residence and
primary operating location
as well as pay for similar roles
in comparable companies.
• Aimed at the market mid-point.
• Annual increases take into
account Company
performance, inflation in the UK
and 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 currently contributes
on behalf of the Chief Executive
to a US 401K deferred savings
plan and an additional deferred
compensation scheme.
• The Finance Director receives
an annual cash sum in lieu of
contributions to a company
pension scheme.
Benefits
• To provide normal
benefits appropriate to
the country of residence.
• Each executive Director is
provided with healthcare
insurance and a company car
with fuel benefits or allowance
in lieu.
• Additional benefits may be
provided to ensure the Group
remains competitive within
the relevant local market.
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 vary
• None.
• None.
based on individual
circumstances and local market
practice. Further details are set
out on page 142.
• Any future executive Director
appointees in the UK will
receive a base salary pension
contribution of 12% in line with
the majority of UK employees.
Any future executive Director
appointees in the US will have
a contribution cap of 12% of
base salary, provided through
qualified and non-qualified
savings plans.
• There is no maximum value set
on benefits. They are set at a
level that is comparable to
market practice.
• None.
• None.
Hunting PLC Annual Report and Accounts 2022Corporate Governance 140
Directors’ Remuneration Policy
Executive Director Remuneration Policy Table
Variable Emoluments
Purpose and link to strategy
Annual Bonus
• To incentivise annual
delivery of financial and
operational targets.
• To provide high reward
potential for exceeding
demanding targets.
Hunting Performance Share
Plan (“HPSP”)
• To align the interests
of executives with
shareholders in growing
the value of the business
over the long term.
Operation
Maximum opportunity
Performance metrics
Changes to policy
proposed
• The Chief Executive and
Finance Director have
a maximum opportunity
of 200% and 150% of salary,
respectively.
• 80% of the Annual
• None.
Bonus will be based on
financial measures, with
the remainder based on
strategic/personal
performance measures,
selected annually by the
Remuneration
Committee to reflect key
performance indicators
for the year ahead.
• The vesting of the
strategic/personal
component is normally
subject to a financial
underpin. Should the
financial targets not be
met, a 50% vesting cap
of the personal/strategic
component would
normally be
implemented.
• Chief Executive: 450%
• Achievement of a
• None.
of base salary.
• Finance Director: 210%
of base salary.
threshold performance
target results in a 25%
vesting for any portion
of the award.
• Awards will vest on
achievement of financial
and strategic
performance measures,
measured over a
three-year performance
period.
• Financial measures
will include EPS, ROCE
and TSR and will receive
an aggregate weighting
of 85% of each award.
A fourth measure, in the
form of a Strategic
Scorecard, which will
comprise a number of
sub-measures, will have
an aggregate weighting
of 15% of each award.
• Should the financial
targets of the grant not
be met, the vesting of the
Strategic Scorecard is
reduced by 50%.
• Awards are subject to the
Annual Bonus Plan rules
adopted by the Board in 2010.
• 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 any Annual Bonus is
normally 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,
gross misconduct or actions
that cause reputational damage
to the Company.
• 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 malus
and clawback provisions, which
cover cases of material financial
misstatement, calculation error,
gross misconduct or actions
that cause reputational damage
to the Company.
• 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.
• In respect of vested shares,
participants are eligible to
receive an amount equivalent to
dividends paid by the Company
during the vesting period once
the final vesting levels have
been determined, either in cash
or shares.
Corporate GovernanceHunting PLC Annual Report and Accounts 2022 141
Directors’ Remuneration Policy
Purpose and link to strategy
Minimum Stock Ownership
Requirement
• To encourage the
retention of shares under
award to the executive
Directors.
• To align the long-term
interests of the Directors
with shareholders.
Post-Employment
Shareholding Requirement
• To continue to align the
long-term interests of
the executive Directors
with shareholders for
a period after they have
left the Group.
• To incentivise good
succession planning.
Operation
Maximum opportunity
Performance metrics
Changes to policy
proposed
• Directors have five years to
achieve the required holding
level from the date of their
appointment to the Board.
• The Board has discretion
to extend this time period
if warranted by individual
circumstances.
• Directors are required to retain
a holding in Hunting shares for
a period after stepping down
as an executive Director.
• The Committee will have
discretion to reduce/waive
the requirement in exceptional
circumstances.
• The target holding of the Chief
• None.
• None.
Executive is equal to the market
value of 500% of base salary
and for the Finance Director
200% of base salary.
• None.
• None.
• Executive Directors must
continue to hold shares
equivalent to the lesser of their
actual ownership at the date of
stepping down as an executive
Director and 200% of base
salary, for a minimum of
12 months.
• This requirement will apply
to shares acquired under the
deferred Annual Bonus and
HPSP granted after the
2021 AGM.
Non-executive Director Remuneration Policy Table
The remuneration of the non-executive Directors is designed to reflect the time and commitment of each to their respective roles.
Purpose and link to strategy
Chairman and Non-
executive Director Fees
• To attract and retain
high-calibre non-
executive Directors
by offering a market
competitive fee.
Operation
Maximum opportunity
Performance metrics
Changes to policy
proposed
• None.
• None.
• Fees paid to the non-executive
Directors are benchmarked
against 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 aggregate maximum fees
for all non-executive Directors
within the Company’s Articles
of Association are £750,000.
• 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 for his
responsibilities including
chairing the Nomination and
the Ethics and Sustainability
Committee.
• The non-executive Directors
are paid a basic fee.
• Directors may be paid an
additional fee to reflect their
responsibilities — for example
Directors who chair the Board’s
Audit and Remuneration
Committees and the Senior
Independent Director.
• 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
Requirements
• To align the non-
executive Directors’
interests with the
long-term interests
of shareholders.
• Non-executive Directors are
• The target holding for the
• None.
• None.
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.
Chairman and non-executive
Directors is equal to 100%
of the annual fee.
Hunting PLC Annual Report and Accounts 2022Corporate Governance 142
Directors’ Remuneration Policy
Detailed Policy
Amendments to the Policy
The oil and gas industry remains a competitive marketplace, therefore
recruiting and retaining the right individuals to deliver long-term
shareholder growth is a key focus of management and the Remuneration
Committee. It is anticipated that recruitment and retention will remain a
challenge for the sector and, therefore, the Committee will continue to
keep the approved Policy under review, and will make any necessary
revisions after appropriate consultation and approval from shareholders
has been received.
Choice of Performance Metrics
The corporate strategy includes promoting the long-term success of the
Group by investing in its existing products and services portfolio through
capital investment or by acquisition and growing the business in a way
that is aligned with the evolving global energy industry.
The performance of the executive Directors in executing this strategy
is evaluated by the following key performance indicators (“KPIs”), which
drive the variable components of the executive Directors’ emoluments.
The HPSP performance conditions and growth targets can be amended
by the Remuneration Committee, with the targets set annually when
each award is granted, following an assessment of the growth prospects
of the Group.
Taken together, the Committee believes that the executive Directors
are appropriately incentivised to deliver both short- and long-term
performance based on these metrics.
Performance condition
Adjusted Profit before Taxation
Variable incentive
Annual Bonus
Return on Average Capital Employed
Annual Bonus/HPSP
Total Shareholder Return
Adjusted Diluted Earnings Per Share
Free Cash Flow
HPSP
HPSP
HPSP
Strategic/Personal Objectives
Annual Bonus/HPSP
Pension
The Group contributes to the pension arrangements of both the Chief
Executive and Finance Director.
Jim Johnson currently participates in the Group’s US 401K deferred
savings plan. In addition, and consistent with similarly long-tenured US
employees, the Group contributes to a deferred compensation scheme.
In practice, this compensation scheme is operated on a money purchase
basis. Annual contributions for Jim Johnson are up to an equivalent of
18% of salary. Bruce Ferguson receives an annual cash sum equivalent
to 12% of base salary, which is aligned with the contribution rate offered
to the majority of UK employees.
Relevance to Employee Pay
The Policy tables summarise the remuneration structure that operates
for executive Directors 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.
Base Salaries and Fees
Base salaries and fees are reviewed annually. In considering appropriate
salary levels for the executive Directors, the Committee takes into
account their experience and personal performance, the remuneration
paid by comparable companies in terms of asset size, revenues, profits,
number of employees, market capitalisation and the complexity and
international spread of group operations, as well as Group-wide salary
increases and applicable rates of inflation. Other relocation and taxation
agreements are also in place for key executives. Base fee increases for
the non-executive Directors are based on external benchmarking of
market data for fees paid by comparable companies.
Benefits
Other benefits provided to the executive Directors as part of their
remuneration package include the provision of appropriate healthcare
insurance, life and disability insurance, car and fuel benefits.
Rationale
Adjusted PBT is a management KPI used to measure the performance
of the Group. PBT reflects the achievements of the Group in a given
financial year and recognises sustained profitability measured against
an agreed Annual Budget.
ROCE is a management KPI used to measure the performance of the
Group. ROCE reflects the value created on funds invested in the short
and medium term.
Reflects the Group’s long-term goal to achieve superior levels
of shareholder return.
To encourage sustained levels of earnings growth over the long term.
To encourage sustained levels of cash generation to fund growth
and shareholder distributions.
To capture and incentivise delivery of key strategic milestones
that contribute to long-term success.
Annual Bonus
An Annual Bonus Plan is in place for the executive Directors, which
was adopted by the Board in 2010. The Plan is designed to provide
an incentive/reward for performance and reflects the competitive
markets in which the Group conducts its business.
80% of the Annual Bonus is based on financial measures, with the
remainder based on personal/strategic performance objectives that
are set annually by the Remuneration Committee to reflect key priorities
for the year ahead.
75% of any Annual Bonus award is paid in cash with the remaining 25%
to be utilised to purchase Hunting shares, which are required to be held
by the executive Director for a period of two years.
Corporate GovernanceHunting PLC Annual Report and Accounts 2022 143
Directors’ Remuneration Policy
HPSP
The HPSP was approved by shareholders in April 2014. Share awards
granted to the executive Directors under the HPSP in recent years have
been based on a blend of Total Shareholder Return, Adjusted Diluted
Earnings per Share, Return on Average Capital Employed and a Strategic
Scorecard. In 2022 a Free Cash Flow metric was introduced to improve
the balance of the plan towards delivering earnings and cash generation
from the Group’s operations.
All performance conditions are measured at the end of the relevant
three-year performance period and awards to the executive Directors
will be proportional to the total vesting level achieved. Subject to the
achievement of performance conditions, awards will typically vest
on the third anniversary of the grant. For awards made in 2018 and
onwards, vested shares are subject to an additional two-year holding
period (subject to settlement of any tax charges on vesting).
The maximum face value of the grant to the Chief Executive is 450%
of base salary and 210% of base salary for the Finance Director. Actual
award levels are reviewed ahead of each grant to ensure they are
appropriate, taking into account factors such as share price performance
and the performance of the Group. An amount equivalent to dividends
paid by the Company during the vesting period is added to the awards
once the final vesting levels have been determined.
Stock Ownership Policy
The Company operates a stock ownership policy whereby the Directors
and senior managers are required to build and maintain a minimum
shareholding in the Company’s Ordinary shares. For executive Directors,
the primary mechanism of building the required shareholding is retaining
vested shares received from the deferred element of the Annual Bonus
and from long-term incentive schemes operated by Hunting. Those
subject to this requirement have a period of five years from the date
of employment or appointment to an executive role to comply.
The Chief Executive is required to maintain a minimum holding of shares
equal to a market value of 500% of base salary, the Finance Director
a minimum holding of 200% of base salary and the non-executive
Directors a minimum holding of 100% of annual fees. Certain executives
of the Group are required to build and maintain a minimum holding of
shares in the Company equal to a market value of between 100% and
200% of base salary. The value of holdings in shares reported in the
Annual Report on Remuneration includes Ordinary shares held by the
individual and also the post-tax value of vested, but unexercised, share
awards and options.
The Company has adopted a post-employment shareholding policy
requiring executive Directors to maintain a level of share ownership after
stepping down from the Board. Both the Chief Executive and the Finance
Director will be required to continue to hold the lesser of their actual
ownership at the date of stepping down and 200% of salary for a
minimum of 12 months. This policy will apply to shares acquired under
the Annual Bonus and HPSP granted after the 2021 AGM, and will be
subject to the discretion of the Committee in exceptional circumstances.
Executive Director Service Contracts
All existing executive Directors’ Service Contracts are rolling one-year
agreements and contain standard provisions allowing the Company to
terminate summarily for cause, such as gross misconduct. The Service
Contracts can be reviewed at the Company’s Registered Office, on
request by a shareholder.
Jim Johnson and Bruce Ferguson entered into Service Agreements
with the Company on 7 December 2017 and 2 June 2020, respectively.
Under the terms of these Service Agreements, both the Company and
the Directors are required to give one year’s notice of termination. Messrs
Johnson and Ferguson are entitled to receive a Performance Bonus on
an annual basis, the quantum being determined by the Remuneration
Committee. Messrs Johnson and Ferguson are also entitled to
participate in the Hunting Performance Share Plan and any other
long-term incentive schemes operated by the Company. Under the
terms of their Service Agreements, benefits may include the provision
of a company car and fuel benefits, long-term disability and healthcare
benefits offered by the Company, as well as participation in pension
schemes operated by the Company. Following a change of control,
in-line with standard UK practice, all stock options and stock-based
awards granted will be tested for performance and pro-rated for time
unless the Committee, acting fairly, decides otherwise.
Non-executive Director Letters of Appointment
On appointment, each non-executive Director is provided with a letter of
appointment that sets out the responsibilities and time commitments for
the role. Additional duties, as requested by the Nomination Committee,
including chairing a Board subcommittee, are also incorporated into the
letters of appointment and fees paid. Non-executive Director appointments
are usually for a fixed three-year term, which can be terminated by either
party at any time.
External Board Appointments
The Company may authorise an executive Director to undertake a
non-executive directorship outside of the Group provided it does not
interfere with their primary duties. During the year neither executive
Director held any external positions.
Payment for Loss of Office
The Committee has considered the Company’s policy on remuneration
for executive Directors leaving the Company and is committed to applying
an approach consistent with best practice to ensure that the Company
pays no more than is necessary. In-line with normal market practice,
the policy distinguishes between “Good Leavers” and “Bad Leavers”.
A “Good Leaver” is defined as an employee who has ceased to be
employed by the Group due to death, ill-health, injury, disability,
redundancy, retirement, the employee’s company ceasing to be a
Group member or for any other reason if the Committee so decides.
In the case of a Good Leaver, taking account of local conditions,
the Policy normally allows:
• payment in lieu of notice equal to 12 months’ base salary, pension
contributions, contractual benefits and any other legal entitlements;
and
• payment of a bonus for the period worked subject to the achievement
of the relevant performance conditions; and any unvested long-term
incentives vest at the normal time subject to the achievement of the
relevant performance conditions, and pro-rated based on the period
of service as a proportion of the vesting period.
If an executive Director departs the Group for any other reason than
those specified in the Good Leaver definition above then he/she is
treated as a Bad Leaver and unvested long-term incentives lapse
immediately on cessation of employment.
Hunting PLC Annual Report and Accounts 2022Corporate Governance 144
Directors’ Remuneration Policy
New Director Policies
As the Board of Hunting is refreshed with new executive and non-
executive Director appointments, the policy for remuneration for the new
Board members will align with those detailed above. Hunting needs to be
able to attract and retain the best executive and non-executive Directors
in the market place. The Remuneration Committee believes that the
policy will enable the Company to achieve its recruitment aims.
For executive Director appointments, the fixed component of total
emoluments will target the market mid-point, subject to geographic
considerations of the candidate and relevant labour market practices.
Where new appointees have initial base salaries set below market, any
shortfall may be managed with phased increases over a period of two
to three years, subject to the individual’s development and performance
in the role. The Service Contracts will be rolling one-year agreements
with standard provisions. The fixed component of the emoluments
will comprise base salary, including any appropriate relocation or tax
equalisation agreements, benefits (including healthcare insurance,
pension contributions, car benefits) and any other components deemed
necessary to secure an appointment. The variable component to the
emoluments will be implemented in line with the policies above, subject
to any future amendments to these arrangements being approved by
shareholders. Annual performance-linked cash bonus arrangements
will include awards up to 150% and 200% of base salary for a new
Finance Director and Chief Executive, respectively. The maximum
awards under the HPSP are 210% and 450% of base salary for a
new Finance Director and Chief Executive, respectively. The Committee
anticipates applying UK market standard change of control provisions
within new Service Contracts.
In addition, for new appointees, the Committee may offer additional cash
and/or share-based elements when it considers these to be in the best
interests of the Company and shareholders. Any such payments would
take account of remuneration relinquished when leaving the former
employer and would be structured to reflect the nature, time horizons and
performance requirements attaching to that remuneration. Shareholders
will be informed of any such payments at the time of appointment.
For non-executive Director appointments, the benchmarked fees against
companies of similar size and profile to Hunting will be applied.
Consideration of Employment Conditions Elsewhere
in the Group
The Committee considers the general basic salary increases for
the broader employee population when determining the annual salary
increases for the executive Directors. Employees have not been
consulted in respect of the design of the Company’s senior executive
remuneration policy.
Shareholder Consultation and Feedback
When determining remuneration, the Committee takes into account
views of leading shareholders and best practice guidelines issued
by institutional shareholder bodies. The Committee is always available
for feedback from shareholders on the remuneration policy and
arrangements, and will undertake a further consultation with our largest
shareholders in advance of any significant future changes to the
remuneration policy. The Committee will continue to monitor trends and
developments in corporate governance and market practice to ensure
the structure of executive remuneration remains appropriate.
Remuneration Scenarios for Executive Directors
The remuneration scenarios of the executive Directors for a fixed, target
and maximum performance are presented in the charts below. Potential
reward opportunities are based on Hunting’s Remuneration Policy,
applied to annualised 2022 remuneration data.
Chief Executive
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
$6,019k
59%
26%
15%
$3,454k
51%
23%
26%
$7,763k
68%
20%
12%
Target
Maximum
Maximum Stretch
$889k
100%
Fixed
Total Fixed
Annual Bonus
HPSP
Finance Director
3,000
2,000
1,000
0
$1,782k
44%
32%
24%
$1,108k
36%
25%
39%
$2,175k
54%
26%
20%
Target
Maximum
Maximum Stretch
$434k
100%
Fixed
Total Fixed
Annual Bonus
HPSP
Assumptions made for each scenario are as follows:
• Fixed: latest salary, benefits and normal pension contributions
or payments in lieu of pension contributions.
• Target: fixed remuneration plus half of maximum annual cash bonus
opportunity plus 50% vesting of awards under the HPSP.
• Maximum: fixed remuneration plus maximum annual cash bonus
opportunity plus 100% vesting of all long-term incentives.
• Maximum Stretch: including the impact of a hypothetical 50% increase
in share price on the value of the HPSP in accordance with the
reporting regulations.
• The Finance Director is paid in Sterling and the equivalent total
remuneration scenarios are as follows – fixed £353k; target £899k,
maximum £1,446k and maximum stretch of £1,765k.
On behalf of the Board
Annell Bay
Chair of the Remuneration Committee
2 March 2023
Corporate GovernanceHunting PLC Annual Report and Accounts 2022 145
Annual Report on Remuneration
Annual Report
on Remuneration
Introduction
The principles set out in the Directors’ Remuneration Policy (the “Policy”) have been applied throughout the year.
Compliance Statement
The Directors’ Remuneration Policy and 2022 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 2022 Annual Report on Remuneration, which includes the Letter from the Chair of the Remuneration Committee, details how the
approved Directors’ Remuneration Policy was applied during 2022. This report was approved by the Remuneration Committee at its meeting
on Monday 27 February 2023.
Role
The Committee is responsible for developing and implementing the Directors’ Remuneration Policy for the Company and has direct oversight of the
remuneration of the executive Directors, Company Chair and Company Secretary. The Chair and Chief Executive are consulted on proposals relating
to the remuneration of the Finance Director and designated senior management. Where appropriate, the Chair and other Directors are invited by the
Committee to attend meetings, but are not present when their own remuneration is considered. The Committee also reviews and monitors the
remuneration framework of the Company’s Executive Committee and monitors 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 Ms Harris and Messrs Brightman and 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. Paula Harris was appointed to the Committee, following her appointment as a
Director at the Company’s Annual General Meeting (“AGM”) on 20 April 2022 and Stuart Brightman was appointed by the Board on 3 January 2023.
The Committee met six times during 2022 and attendance details are shown on page 132.
On 2 March 2023, being the date of signing the accounts, the members of the Committee and their unexpired terms of office were:
Director
Annell Bay
Stuart Brightman
Carol Chesney
Paula Harris
Keith Lough
Latest appointment date
2 February 2021
3 January 2023
23 April 2021
20 April 2022
23 April 2021
Unexpired term as at
2 March 2023
11 months
34 months
14 months
26 months
14 months
Shareholder Voting at the 2022 AGM
At the Company’s AGM held in April 2022, 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
113,995,982
12,797,732
3,191
126,796,905
% of
votes cast
89.9
10.1
–
100.0
i. A vote withheld is not a vote in law and is not included in the percentage for votes cast.
The Directors’ Remuneration Policy was last approved by shareholders at the 2021 AGM, receiving 92.0% votes in favour.
Hunting PLC Annual Report and Accounts 2022Corporate Governance 146
Annual Report on Remuneration
External Advisers
During the year, Mercer and Pearl Meyer were engaged by the Committee to provide remuneration consultancy services. Their appointments were
subject to formal tenders and both companies are regarded as independent, having been appointed by and acting under direction of the Committee.
Mercer is a signatory to the UK Remuneration Consultants’ Group Code of Conduct and provides UK governance advice and compensation
benchmarking, while Pearl Meyer provides US remuneration data for consideration by the Committee.
The total cost of advice to the Committee during the year to 31 December 2022 was $136,613 (2021 – $91,722) and includes fees paid in respect
of review work in salary benchmarking, Policy review, share plans and remuneration reporting disclosure requirements. Fees are charged on a time
basis for consultancy services received. Neither Mercer nor Pearl Meyer have any other connection to the Company or any Director.
Single Figure Remuneration
2022
Executive
Jim Johnson
Bruce Ferguson
Non-executives
Annell Bay
Carol Chesney
Jay Glick
Paula Harris (from 20 April 2022)
Richard Hunting (to 20 April 2022)
Keith Lough
Total
2021 (restated)
Executive
Jim Johnson
Bruce Ferguson
Non-executives
Annell Bay
Carol Chesney
Jay Glick
Richard Hunting
Keith Lough
Total
Fixed
Variable
Base salary
/feesi
$000
Benefitsii
$000
Pensioniii
$000
Sub total
$000
Annual
bonusiv
$000
HPSP
awardsvi
$000
Sub total
$000
2022 total
remuneration
$000
775
374
86
86
227
52
22
86
1,708
68
17
–
–
–
–
–
–
85
139
44
–
–
–
–
–
–
183
982
435
86
86
227
52
22
86
1,976
1,550
561
–
–
–
–
–
–
2,111
167
23
–
–
–
–
–
–
190
1,717
584
–
–
–
–
–
–
2,301
2,699
1,019
86
86
227
52
22
86
4,277
Fixed
Base salary
/feesi
$000
Benefitsii
$000
Pensioniii
$000
Sub total
$000
Variable
Annual
bonusv
$000
HPSP
awardsvii
$000
Sub total
$000
2021 total
remuneration
$000
744
388
96
96
253
83
96
1,756
67
18
–
–
–
–
–
85
54
45
–
–
–
–
–
99
865
451
96
96
253
83
96
1,940
154
62
–
–
–
–
–
216
146
92
–
–
–
–
–
238
300
154
–
–
–
–
–
454
1,165
605
96
96
253
83
96
2,394
i.
In August and October 2022, the Committee met to discuss base salary increases for the wider workforce and executive Directors. The Committee noted the average 5% base salary
increase that was to be implemented across the Group’s workforce in December 2022 and also the base salary increases awarded to the Hunting Executive Committee, which had been
set at 5%. Mr Johnson and Mr Ferguson were each awarded increases of 5%, in-line with increases to the workforce and Executive Committee. Their revised salaries with effect from
1 December 2022 were $810,338 p.a. and £317,625 p.a., respectively. The average £:$ exchange rate in the year was 1.2323 (2021 – 1.3753).
ii. Benefits include the provision of healthcare insurance, company car and fuel benefits.
iii. Mr Johnson’s single figure pension remuneration represents Company contributions payable to his US pension arrangements. Mr Ferguson’s pension figure represents a cash sum in lieu
of a Company pension contribution, which is set at 12% of his annual base salary.
iv. With the return to strong growth of its core energy markets, particularly in the second half of the year, the annual bonus targets were exceeded, leading to a maximum opportunity in respect
of the financial targets, being awarded. In January 2023, the Committee met to consider the delivery of the personal performance objectives set at the start of 2022, and following
discussion, agreed that the objectives had also been met in full, leading to the maximum opportunity being awarded for this component of the bonus. On this basis, Mr Johnson will receive a
bonus payment of $1,550k, being 200% of his base salary paid in 2022, and Mr Ferguson will receive a bonus payment of £456k/$561k, being 150%. The bonuses will be paid in March 2023
and, in-line with the usual operation of the Annual Bonus Plan, 25% of the bonus after tax will be utilised to purchase Ordinary shares in the Company, to be retained for a minimum of two years.
In 2021, Mr Johnson’s annual bonus was $154k and Mr Ferguson’s annual bonus was $62k. The bonuses after tax were utilised to purchase Ordinary shares in the Company, 75% of which
to be retained for a minimum of one year and 25% to be retained for two years.
v.
vi. The share awards granted in 2020 under the HPSP had a three-year performance period to 31 December 2022 and will vest on 3 March 2023. The 2020 grant comprised the following four
performance conditions EPS, TSR, ROCE and a Strategic Scorecard. Given that the targets were set prior to the COVID-19 pandemic, the EPS and ROCE targets were not met and therefore
have recorded a nil vesting. The TSR performance condition vesting at the threshold level was independently measured by Mercer and recorded a Below Median outcome vesting leading
to nil vesting of this portion of the 2020 grant. Further, the Strategic Scorecard was also measured leading to a full vesting of this portion of the grant. However, in-line with operation of the
Directors’ Remuneration Policy, this portion of the award has been capped at 7.5% in line with the Policy. In total the 2020 grant under the HPSP records a 7.5% vesting. On this basis,
Mr Johnson will receive 48,990 Ordinary shares at a market value of £2.723 per share, plus a cash payment of 21.5 cents per share, equalling the dividends paid during the vesting period.
The total value of Mr Johnson’s vested award was $167,158. Following measurement, Mr Ferguson will receive 6,827 Ordinary shares, with a total value of $23,294. For the purposes of the
single figure calculation, the average mid-market closing price of £2.723 during Q4 2022 has been applied to the number of vested shares and converted to dollars using the average £:$
exchange during Q4 2022, being $1.1741. Further details of the vesting calculation are shown on page 150.
vii. The share awards granted in 2019 under the HPSP had a three-year performance period to 31 December 2021 and incorporated four performance conditions. The awards were measured
against the relevant performance conditions, with a nil vesting recorded for the EPS, TSR and ROCE performance conditions. A 7.5% vesting of the Strategic Scorecard (after application of
the vesting cap on this element), was also recorded. On this basis, Messrs Johnson and Ferguson received 31,688 and 2,026 Ordinary shares, respectively. Mr Ferguson’s 2019 HPSP grant
was made when he was managing director of the Group’s EMEA operating segment, a below Board position and which incorporated both performance-based and time-based share
awards. On the vesting date, Mr Ferguson received an additional 18,005 Ordinary shares in respect of vested time-based awards. For the purposes of the single figure calculation,
the average mid-market closing price of £3.28 on the vesting date of 21 March 2022 was applied, with the 2021 single figure table being restated to reflect the actual vested amount.
Corporate GovernanceHunting PLC Annual Report and Accounts 2022 147
Annual Report on Remuneration
The remuneration of Bruce Ferguson and the non-executive Directors is originally denominated in Sterling and is as follows:
2022
Executive
Bruce Fergusoni
Non-executives
Annell Bayii
Carol Chesneyiii
Jay Glickiv
Paula Harris (from 20 April 2022)v
Richard Hunting (to 20 April 2022)vi
Keith Loughvii
2021 (restated)
Executive
Bruce Fergusoni/viii
Non-executives
Annell Bayii
Carol Chesneyii
Jay Glickiv
Richard Huntingvi
Keith Loughvii
Fixed
Base salary
/fees
£000
Benefits
£000
Pension
£000
Sub total
£000
Variable
Annual
bonus
£000
HPSP
awards
£000
Sub total
£000
2022 total
remuneration
£000
304
70
70
184
42
18
70
13
36
–
–
–
–
–
–
–
–
–
–
–
–
353
70
70
184
42
18
70
456
19
475
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
828
70
70
184
42
18
70
Fixed
Base salary
/fees
£000
Benefits
£000
Pension
£000
Sub total
£000
Variable
Annual
bonus
£000
HPSP
awards
£000
Sub total
£000
2021 total
remuneration
£000
282
70
70
184
60
70
13
33
–
–
–
–
–
–
–
–
–
–
328
70
70
184
60
70
45
69
114
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
442
70
70
184
60
70
i. Bruce Ferguson’s base salary was increased to £317,625 p.a. on 1 December 2022.
ii. Annell Bay: Chair of the Remuneration Committee and designated non-executive Director for workforce engagement, with an annual fee of £70,000.
iii. Carol Chesney: Chair of the Audit Committee with an annual fee of £70,000.
iv. Jay Glick: Chair of the Company with an annual fee of £183,750.
v. Paula Harris was appointed to the Board on 20 April 2022, with an annual fee of £60,000.
vi. Richard Hunting retired from the Board on 20 April 2022.
vii. Keith Lough is the Company’s Senior Independent Director with an annual fee of £70,000.
viii. The 2019 HPSP vesting value has been restated to reflect the market price on the date of vesting being 21 March 2022.
Salary and Fees
The Committee met in August and October 2022 to discuss the level of base salary increases for the executive Directors and received data from the
Chief HR Officer, detailing proposed salary increases for the Group’s workforce and Hunting Executive Committee, which averaged 5%. These salary
increases were implemented in December 2022. Following a review, the Committee awarded a 5% base salary increase to Jim Johnson, Chief Executive,
to $810,338 p.a. from 1 December 2022, which aligned with the wider workforce. Further, the Committee awarded a 5% base salary increase to
Bruce Ferguson, Hunting’s Finance Director, to £317,625 p.a. from 1 December 2022.
In December 2022, the Board reviewed the fee levels for the non-executive Directors and Chair of the Company. From 1 January 2023, the non-executive
Director annual base fee was increased to £64,000 and the annual fee for the Company Chair was increased to £205,000. The additional fees for
chairing the Board Committees and Senior Independent Director remained unchanged at £10,000 per annum.
Pensions (audited)
In-line with other similarly long-tenured employees in the US. Jim Johnson is a member of a deferred compensation scheme in the US, which is
anticipated to provide a lump sum on retirement, and also contributes to a US 401k match deferred savings plan. Company contributions to the
former arrangement were $121,194 (2021 – $36,512) 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 savings plan, totalling $18,300 (2021 – $17,400). Mr Ferguson receives a cash sum in lieu of
pension contributions, representing 12% of his annual base salary. This contribution level aligns with the UK workforce, as required by the 2018 UK
Corporate Governance Code. In the year, Mr Ferguson’s company contribution in lieu of pension was $43,902/£35,626 (2021 – $46,520/£33,000).
Hunting PLC Annual Report and Accounts 2022Corporate Governance 148
Annual Report on Remuneration
Annual Performance-Linked Bonus Plan (audited)
The annual performance-linked bonus plan for 2022 was based on the following metrics:
Proportion of award
60%
20%
20%
Performance metric
Adjusted profit before tax
Adjusted return on capital employed
Strategic/personal performance objectives
Delivery of Financial Objectives
The annual bonus targets are normally based on the Annual Budget agreed by the Board in December of the prior financial year. The 2022 Annual
Budget agreed by the Board in December 2021 contained financial targets of an adjusted profit before tax of $1.9m and adjusted ROCE of 1.0%,
reflecting a return to profitability following the COVID-19 pandemic. The Committee agreed that these targets were stretching given the losses
recorded in 2021. The financial performance targets for the 2022 Annual Bonus were thus set as follows:
Adjusted profit before tax
Adjusted return on capital employed
Threshold vesting
$1.5m
0.8%
Target vesting
$1.9m
1.0%
Maximum vesting
$2.3m
1.2%
Actual result
$10.2m
1.45%
% vesting
100
100
As in prior years, the annual bonus starts to accrue when 80% of the Annual Budget targets are met, and increases on a straight-line basis up to
120% of the budget (or bonus) target. Given the return to growth of the Company’s core markets, which accelerated particularly in the second half
of the year, the Annual Bonus targets were exceeded, with a full vesting of these portions of the Annual Bonus award.
Delivery of Strategic/Personal Performance Objectives
The strategic/personal performance objectives agreed by the Committee with the executive Directors in early 2022 are summarised in the table below.
Detailed analyses of these outcomes follow this table.
Jim Johnson
(Chief Executive)
Strategic Development of the Group (50%)
• Present to the Board a strategy to 2030.
• Continue the pursuit of strategic opportunities to grow the Group’s
Bruce Ferguson
(Finance Director)
Strategic Development of the Group (50%)
• Present to the Board a strategy to 2030.
• Continue the pursuit of strategic opportunities to grow the Group’s
core oil and gas and non-oil and gas businesses.
core oil and gas and non-oil and gas businesses.
• Present a plan to improve EBITDA performance and returns, focusing
on those businesses that will generate a return on capital which is
higher than the Company’s cost of capital.
• Present a plan to improve EBITDA performance and returns, focusing
on those businesses that will generate a return on capital which is
higher than the Company’s cost of capital.
Organisational Effectiveness (25%)
• Human Resources – to continue workforce planning as the Group
returns to growth, including requirements for the 2030 strategic plan,
the mapping of succession for all key management positions.
• Develop a Diversity and Inclusion Policy. Define community initiatives
to be implemented across the Group.
• Continue employee engagement initiatives.
• IT – continue delivery of D365 rollout. Implement robust patching and
cyber training programmes. Migrate UK and Asia Pacific IT systems
to new infrastructure. Monitor overall global standardisation of
IT infrastructure.
Operational and Financial Effectiveness (35%)
• Enhance management information highlighting financial performance,
liquidity and other KPIs. Develop a product line income statement
by both legal entity and geographic region.
• Develop the internal audit function and standardise controls reporting.
• Present an organisational assessment of the global finance team.
• IT – continue delivery of D365 rollout. Implement robust patching and
cyber training programmes. Migrate UK and Asia Pacific IT systems
to new infrastructure. Monitor overall global standardisation of
IT infrastructure.
ESG and Leadership (25%)
• Develop SASB reporting for external publication.
• Develop sustainability messaging for internal and external stakeholders.
• Continued focus on Quality and Safety to support Hunting’s standing
ESG and Leadership (15%)
• Develop SASB reporting for external publication.
• Develop sustainability messaging for internal and external stakeholders.
• Continued focus on Quality and Safety to support Hunting’s standing
within the oil and gas industry.
• Show development plans for the senior leadership team.
• Further develop processes to track carbon data.
within the oil and gas industry.
• Show development plans for the senior leadership team.
• Further develop processes to track carbon data.
Corporate GovernanceHunting PLC Annual Report and Accounts 2022 149
Annual Report on Remuneration
During the year, the Committee was updated on the progress of the objectives set for the executive Director’s for the year ended 31 December 2022
and noted the following outcomes:
Strategic Development of the Group
Throughout 2022, the executive Directors presented to the Board elements of the Hunting 2030 Strategic Plan, which was externally announced
on 2 March 2023. The core elements of the 2030 plan are to focus Hunting’s strategic ambition on (i) remaining a critical supplier to the oil and gas
industry; (ii) focus on expanding its Subsea Technologies and Energy Transition capabilities; (iii) committing to developing a material level of revenue
from non-oil and gas sources by 2030.
Further, the Committee noted that throughout the year, the executive Directors had regularly updated the Board on the business performance of each
business unit, which included revenue and margin enhancement for the next 24 months, in addition to ongoing restructuring to position the Group for
growth going forward.
The Committee noted that strong progress was made within the Advanced Manufacturing group to develop non-oil and gas revenue, which had been
particularly successful within the Hunting Dearborn business. The Board also reviewed the Group’s Energy Transition strategy, which included the
formation of a global sales group in December 2022 to pursue global carbon capture and geothermal opportunities.
The Committee reviewed the targets set for each executive Director and concluded that this portion of the bonus had been completed in full.
Organisational and Financial Effectiveness & Leadership
The Committee has regularly reviewed Hunting’s human capital requirements in the year, as the Group has returned to growth. To support concerns
over the cost of living and to continue to retain and recruit key engineers and other employees, the Board approved a 5% average base salary
increase across the workforce.
In addition, the Chief HR Officer also led the implementation of enhanced HR policies across the Group.
In June 2022, the Board also met employees at an engagement event at the Dearborn facility where a workforce question and answer session was
held. For further information please see pages 60 and 63.
The Committee noted that the Board had reviewed product line income statements, based on the Group’s legal structure which had supported the
understanding of key profit drivers.
The Committee noted that the internal function had made a strong contribution to the development of process flow maps for the Hunting Titan and
US Manufacturing businesses. This planning assisted the D365 ERP rollout, which continued throughout the year, and which remains on track for
completion in 2023.
The Group’s cyber security efforts including extensive staff training were noted, in addition to the ongoing consolidation of the global data centres
utilised by Hunting.
The Committee reviewed the targets set for each executive Director and concluded that this portion of the bonus had been completed in full.
ESG and Leadership
In 2022, the Group published its maiden TCFD report within the 2021 Annual Report and Accounts. In the year, additional risk procedures and
scenario analysis were developed, which are detailed on pages 88 to 99.
The Group has reported information that aligned with the SASB Oil Field and Industrial Equipment standards, following work started by the central
compliance function in 2021.
The Committee noted the enhanced ESG and Sustainability information incorporated into the 2022 Annual Report and Accounts. Further,
the Committee noted the launch of a new Company website in early 2023, which included detailed Sustainability disclosures and incorporated
compliance to the TCFD and CDP reporting frameworks.
The Committee noted the progress of the Group’s carbon reporting capabilities, including the enhancing of policies, data collection and the
commencement of an assurance programme with Standard & Poor’s Trucost.
Overall, the Committee noted the strong progress in internal and external reporting on ESG and Sustainability matters.
The Committee reviewed the targets set for each executive Director and concluded that this portion of the bonus had been completed in full.
Annual Bonus Outcome
Accordingly, the Committee concluded that all strategic/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
Adjusted profit before tax
Return on average capital employed
Strategic performance objectives
Percentage of annual bonus awarded
60%
20%
20%
Mr Johnson was, therefore, awarded a bonus for the year of $1,550k, and Mr Ferguson was awarded a bonus of $561k. In line with the normal
operation of the Annual Bonus, 100% of the bonus will be delivered in cash in March 2023, with 25% of the post-tax bonus to be utilised to purchase
Ordinary shares in the Company, to be retained for two years, in line with the Directors’ Remuneration Policy.
Hunting PLC Annual Report and Accounts 2022Corporate Governance 150
Annual Report on Remuneration
2020 HPSP Vesting (audited)
The 2020 awards under the HPSP have been measured against the performance conditions following completion of the three-year performance
period ended 31 December 2022. The 2020 awards were based on four performance conditions – adjusted ROCE (35%); adjusted diluted EPS (25%);
relative TSR (25%) and a Strategic Scorecard (15%) comprising two sub-measures being the Group’s Safety and Quality performance.
Performance is measured over three financial years ending 31 December 2022. A summary of the performance achieved is detailed below:
Adjusted diluted EPS
ROCE
Relative TSR
Strategic Scorecard
– Safety
– Quality
% of award
25%
35%
25%
7.5%
7.5%
Threshold
vesting target
40 cents
8.0%
Recorded
Maximum
performance
vesting target
4.7 cents
60 cents
1.45%
13.0%
Median Upper quartile Below median
2.00
0.8
<1.00
0.5
0.88
0.17
% vesting
outcome
nil
nil
nil
3.75%
3.75%
Similar to the annual bonus, and in-line with the Remuneration Policy, vesting of the Strategic Scorecard component of the HPSP is subject to an
underpin whereby a 50% vesting cap on this element is applied in cases where the financial targets for the year are not met. The vesting outcome
above reflects the application of this cap.
The Total Shareholder Return (“TSR”) performance condition was measured by Mercer in January 2023, following completion of the three-year
performance period. Hunting’s TSR performance against the 13 comparator companies was then ranked, resulting in a Below Median performance
corresponding to nil vesting of this portion of the grant.
Overall, the total vesting of the 2020 HPSP award is 7.5%. The vesting date of the 2020 HPSP award is 3 March 2023. Mr Johnson will, therefore,
receive 48,990 Ordinary shares and Mr Ferguson will receive 6,827 Ordinary shares. A cash equivalent of dividends paid by the Company during
the vesting period, totalling 21.5 cents per vested share, will be added to the award on the vesting date. The 2020 HPSP vesting has been calculated
as follows:
Jim Johnson
Bruce Ferguson
Number of
shares granted
in 2020
653,205
91,022
Vesting
%
7.5
7.5
Number of
shares vested*
48,990
6,827
Value of vested
shares at
31 December
2022
$
156,625
21,826
Value of
dividends at
21.5 cents
per share
$
10,533
1,468
Total
award value
$
167,158
23,294
Value attributable
to share price
growth
$
5,982
834
*
As per the methodology for reporting the values of unvested awards, the average price of a Hunting PLC share during Q4 2022 of £2.723 has been applied and converted to US dollars
at an exchange rate of 1.1741 for the period. The share price on the date of grant was £2.619.
In accordance with the Directors’ Remuneration Policy, these vested shares are to be held for two years from the vesting date.
2019 HPSP Vesting (audited)
The 2019 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*
Bruce Ferguson*
– Performance-based
– Time-based
Number of
shares granted
in 2019
422,507
27,008
18,005
Value of vested
shares at
21 March
2022
$
137,968
Number of
shares vested
31,688
2,026
18,005
8,819
78,374
Value of
dividends at
23 cents
per share
$
7,444
476
4,230
Vesting
%
7.5
7.5
100
Total
award value
$
145,412
9,295
82,604
Value attributable
to share price
reduction
$
103,240
6,601
58,661
*
The value of the awards have been restated at the market price of £3.28 per share on 21 March 2022, based on shares sold to cover tax liabilities. Mr Ferguson’s time-based award
is a legacy award granted prior to his appointment to the Board. Further details have been included under the share interests table.
In accordance with the 2018 Directors’ Remuneration Policy, these vested shares are to be held for two years from the vesting date.
Corporate GovernanceHunting PLC Annual Report and Accounts 2022 151
Annual Report on Remuneration
2022 HPSP Grant (audited)
On 4 March 2022, the Committee approved the grant of nil-cost share awards to Jim Johnson and Bruce Ferguson under the rules of the HPSP.
Awards will vest on 4 March 2025, subject to the achievement of the performance metrics, with a two-year holding period then applying to the
post-tax vested shares.
The 2022 grant under the HPSP to the executive Directors was at the normal quantum, as detailed in the Directors’ Remuneration Policy on
pages 138 to 144, following two award cycles in 2020 and 2021 where the quantum of the award had been reduced by c.20%, to avoid windfall
gains on vesting.
Details of the grant are as follows:
Jim Johnson
Bruce Ferguson
Award as a % of
base salary
450%
210%
Number of shares
under grant
1,217,058
289,408
Face value of
award at threshold
vesting of 25%
$
868,219
212,348
Face value of
award at threshold
vesting of 100%
$
3,472,875
849,393
In 2022, the Committee agreed to the introduction of a Free Cash Flow (“FCF”) performance condition to better balance the financial targets within
the HPSP. The performance conditions and targets encourage strong growth in earnings (EPS), capital efficiency (ROCE) and cash generation (FCF),
in addition to the important ESG metrics within the Strategic Scorecard, namely Quality and Safety performance. A TSR metric continues to be
utilised, to reflect shareholder returns over the performance period. The targets for each performance condition are as follows:
Performance condition
TSRi
EPSii
FCFi
ROCEii
Strategic Scorecardi
– Safety
– Quality
i. Measured across the three-year vesting period.
ii. Measured for the year ended 31 December 2024.
The following quoted businesses comprise the TSR comparator group for the 2022 award:
Akastor
Drill-Quip
Expro Group
Flotek Industries
Forum Energy Technologies
National Oilwell Varco
Nine Energy
Oceaneering
Oil States International
Schoeller-Bleckmann
Proportion
of award
20%
20%
20%
25%
7.5%
7.5%
TechnipFMC
Tenaris
Vallourec
Threshold
vesting target
Maximum
vesting target
Median Upper Quartile
24.9 cents
$172m
8.0%
16.6 cents
$115m
4.0%
2.00
0.8
>1.00
0.5
The face value of the 2022 award is based on the closing mid-market share price on 3 March 2022, which was 219.5 pence per share.
Payments to Past Directors (audited)
Richard Hunting retired as a non-executive Director on 20 April 2022. All fees were paid to Mr Hunting up to this date, with no further payment made
to him after this date.
Peter Rose retired as a Director of the Company on 15 April 2020. The emoluments paid during 2022 to Mr Rose were wholly related to his vested
2019 awards under the HPSP, whereby 5,311 Ordinary shares in the Company were delivered to him when exercised on 12 April 2022, with a
pro-rated value of $23,539.
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 Johnsoniii
Bruce Fergusoniii
Non-Executives
Annell Bay
Carol Chesney
Jay Glick
Paula Harris
Richard Hunting
– As trustee
– As Director of Hunting Investment Limited
Keith Lough
At 31 December
2022ii
At 31 December
2021ii
469,463
170,839
419,234
124,316
18,769
24,000
75,923
–
468,133
194,960
11,003,487
24,000
18,769
14,000
75,923
–
468,133
194,960
11,003,487
24,000
i. Beneficial share interests are those Ordinary shares owned by the Director or spouse, which the Director is free to dispose.
ii. Or cessation date.
iii. Jim Johnson’s total shareholding includes 83,617 Ordinary shares that were retained under the 2021 Bonus plan and from HPSP share awards exercised in 2021 and 2022 and which are
restricted from being sold for up to a period of two years. Mr Ferguson’s total shareholding includes 42,407 Ordinary shares which are subject to the same restriction.
Hunting PLC Annual Report and Accounts 2022Corporate Governance 152
Annual Report on Remuneration
There have been no further changes to the Directors’ share interests in the period 31 December 2022 to 2 March 2023.
The Group operates 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 2022
is presented below:
Director
Jim Johnson
Bruce Ferguson
Annell Bay
Carol Chesney
Jay Glick
Paula Harris
Keith Lough
Required holding
expressed as a
multiple of base
salary or fee
5
2
1
1
1
1
1
Requirement
met*
N
Y
Y
Y
Y
N
Y
* 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 2022 of £3.33.
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
Bruce Ferguson
Total
Interests at
1 January
2022
422,507
653,205
757,732
Options/
awards
granted
in year
–
–
–
– 1,217,058
1,833,444 1,217,058
27,008
91,022
172,203
–
18,005
308,238
–
–
–
289,408
–
289,408
Options/
awards
exercised
in year
(31,689)
–
–
–
(31,689)
(2,026)
–
–
–
(18,005)
(20,031)
Options/
awards
Interests at
lapsed
31 December
in year
2022
(390,818)
–
–
653,205
–
757,732
– 1,217,058
(390,818) 2,627,995
(24,982)
–
–
–
–
(24,982)
–
91,022
172,203
289,408
–
552,633
Exercise
price
p
Nil
Nil
Nil
Nil
Grant date
21.03.19
03.03.20
04.03.21
04.03.22
Date
exercisable
21.03.22
03.03.23
04.03.24
04.03.25
Expiry date
–
–
–
–
Nil
Nil
Nil
Nil
Nil
21.03.19
03.03.20
04.03.21
04.03.22
21.03.19
21.03.22
03.03.23
04.03.24
04.03.25
21.03.22
21.03.29
03.03.30
04.03.31
04.03.32
21.03.29
Scheme
HPSP^
HPSP^
HPSP^
HPSP^
HPSP~
HPSP~
HPSP~
HPSP~
HRSP*
^ 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.
* The Group operates a time-based share award programme as part of the shareholder approved Hunting Performance Share Plan for certain non-Board employees, which vest based
on continued service to the Company throughout the performance period. The HRSP awards to Mr Ferguson noted above reflect historical awards made to him under this programme,
prior to his appointment as an executive Director in 2020.
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 paid (received)ii
Dividends paid to Hunting PLC shareholdersii
Capital investmentii
2022
$m
223.7
3.9
13.6
16.4
2021
$m
178.4
(0.6)
12.8
6.6
Change
+25.4%
+750.0%
+6.3%
+148.5%
Includes staff costs for the year (note 7) plus benefits in kind of $29.2m (2021 – $27.5m), which primarily comprises US medical insurance costs.
i.
ii. Please refer to page 174.
Executive Director Remuneration and the Wider Workforce
The changes to the remuneration of the Chief Executive in 2022 compared to 2021 and those of the total workforce are as follows:
Base salary
Bonus
Benefits
Chief Executive
+4.2%
+906.5%
+71.1%
Average employee
+4.8%
+1,650.0%
-2.8%
The average salary for employees in 2022 increased by 5%. This reflects the change in the average monthly employee headcount compared to the prior
year, along with base salary increases implemented in 2022, in addition to certain businesses achieving strong growth, leading to bonuses being paid.
Corporate GovernanceHunting PLC Annual Report and Accounts 2022 153
Annual Report on Remuneration
Changes to Director and Employee Pay
The table below is presented in compliance with the Shareholder Rights Directive II. The changes to the pay of the executive Directors exclude
pension contributions and share awards. If a Director has not served for the entire year, they are shown as not applicable. The percentage change to
the emoluments of the global employees in 2022 reflects the movement in their average base salaries, the payment of a maximum bonus opportunity
to the executive Directors and benefits in kind.
Jim Johnson
Bruce Fergusoni
Annell Bay
Carol Chesney
Jay Glick
Paula Harrisii
Keith Lough
Global employees
i. Based on the pro-rated data from Mr Ferguson’s date of appointment to the Board on 15 April 2020.
ii. Paula Harris was appointed to the Board on 20 April 2022.
Chief Executive Workforce Pay Ratio
Year
2019
2020
2021
2022
Method
Option A
Workforce Pay Quartiles
Option A
Workforce Pay Quartiles
Option A
Workforce Pay Quartiles
Option A
Workforce Pay Quartiles
2018 to 2019
-37%
n/a
+11%
+46%
+5%
n/a
+56%
Nil
2019 to 2020
-29%
n/a
Nil
Nil
Nil
n/a
Nil
-7%
2020 to 2021
+1%
+60%
Nil
Nil
Nil
n/a
Nil
+8%
2021 to 2022
+127%
+148%
Nil
Nil
Nil
n/a
Nil
+15%
25th percentage
pay ratio
49:1
$45,666
22:1
$51,239
21:1
$52,699
55:1
$48,736
50th percentile
pay ratio
38:1
$58,603
18:1
$61,329
17:1
$63,718
43:1
$62,108
75th percentile
pay ratio
22:1
$99,521
10:1
$107,314
11:1
$102,807
26:1
$105,704
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 is not
required to present this information, given that its UK workforce is below the reporting threshold, as detailed in the regulations. Option A has been
selected by the Committee as it believes this methodology aligns closely with the Chief Executive’s single figure remuneration calculation.
The Remuneration Committee believes that the compensation framework in operation across the Group is appropriate and, in addition to a base
salary and benefits appropriate to the relevant jurisdiction of operation, can include annual bonuses and participation in long-term incentive
programmes. External benchmarking is a regular feature of the Group’s overall pay framework, to ensure Hunting remains competitive in its chosen
markets. Hunting’s UK employees averaged 158 in the year (2021 – 165), which represents 8% (2021 – 9%) of the Group’s total average workforce
in 2022. The basis of the workforce pay calculations is aligned with the basis of preparation of the single figure table on page 146, comprising fixed
and variable emoluments and 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 2022.
The changes to the pay quanta and ratios in the year mainly reflect the higher annual bonuses accrued, following the exceeding of the Annual Budget
targets set in late 2021.
Executive Director Remuneration and Shareholder Returns
The following chart compares the TSR of Hunting PLC between 2013 and 2022 to the DJ US Oil Equipment and Services indices. In the opinion
of the Directors, this index is the most appropriate against which the shareholder return of the Company’s shares should be compared because
it comprises other companies in the oil and gas services sector.
The accompanying table details remuneration of the Chief Executive:
2022 – Jim Johnson
2021 – Jim Johnsonv
2020 – Jim Johnson
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
Single figure
remuneration
$000i
2,699
1,165
1,179
2,229
3,715
819
3,974
941
1,031
4,808
4,442
Annual cash
bonus
%ii
100
10
10
39
100
33
67
Nil
Nil
57
42
ESOP/PSP/
HPSP
% vestingiii
8
8
16
66
75
4
13
Nil
Nil
Nil
Nil
LTIP
% awardiv
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Nil
100
100
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.
v. Restated as per single figure table disclosure on page 146.
Hunting PLC Annual Report and Accounts 2022Corporate Governance 154
Annual Report on Remuneration
Total Shareholder Return
(Rebased to 100 at 31 December 2012)
150
125
100
75
50
25
0
31/12/12
31/12/13
31/12/14
31/12/15
31/12/16
31/12/17
31/12/18
31/12/19
31/12/20
31/12/21
31/12/22
Hunting PLC
DJ US Oil Equipment & Services
Implementation of Policies in 2023
The remuneration policies for 2023 will be applied in line with those detailed on pages 138 to 144.
Salary and Fees
In December 2022, the Board agreed to increase the annual fee of the non-executive Chair of the Company to £205,000 and increase the annual
base fee of the other independent non-executive Directors to £64,000, with effect from 1 January 2023. These changes reflect the higher number
of Board and Committee meetings held, particularly since the formation of the Ethics and Sustainability Committee in 2021. There was no change
to the additional fees paid for Committee Chairs or the Senior Independent Director.
The Remuneration Committee will meet in August 2023 to consider base salary changes for the executive Directors. Any changes are likely to align
with any 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. Bruce Ferguson will continue to receive a cash sum in lieu of a pension contribution, which will be fixed at 12% of his base salary.
No changes are anticipated to the provision of benefits that will continue to include healthcare insurance, a company car and fuel benefits.
Annual Bonus
The annual performance-linked bonus for 2023 will operate in line with the 2021 Directors’ Remuneration Policy. The Committee will disclose details
of performance against the pre-set financial targets and personal/strategic performance objectives after the year-end, as the Board believes that
forward disclosure of the financial targets is commercially sensitive.
HPSP
On 2 March 2023, an award under the Hunting Performance Share Plan will be granted to the executive Directors and wider members of the Group.
The awards to the Chief Executive and Finance Director will be issued at the normal quantum of 450% of base salary for Mr Johnson and 210%
of base salary for Mr Ferguson. The performance conditions to be adopted for the award include EPS (20%); ROCE (25%); Free Cash Flow (20%);
TSR (20%); and the Strategic Scorecard (15%). The performance targets will be detailed in the Stock Exchange announcement that accompanies
the award, which can be located at www.huntingplc.com.
On behalf of the Board
Annell Bay
Chair of the Remuneration Committee
2 March 2023
Corporate GovernanceHunting PLC Annual Report and Accounts 2022
155
Audit Committee Report
Audit Committee
Report
Introduction
With the Company reporting a profit from operations during 2022,
following two years of losses, the work of the Audit Committee has
focused on the review of new reporting procedures implemented by
the Group’s central finance function, in addition to the restarting of field
work within the internal audit function.
The Committee has been pleased with the introduction of a new inventory
valuation model, which reflects the diverse product lines sold across the
Group. In particular, the model allows for a consistent approach to the
complex issues of balancing management judgement on future usage
with inventory values, which reflect the future market outlook. Overall, the
Committee is extremely satisfied with the performance of management
and the conclusions of the external auditor, as noted in their report.
With the COVID-19 pandemic behind us, Hunting’s internal audit function
returned to a more normal work programme, with a full plan completed
in the year. The Company has added to the resourcing of the function
in the year, which will broaden the coverage of the work programme
going forward.
As part of the Committee’s half year and full year procedures, impairment
reviews of the Group’s current and non-current assets were completed,
which has resulted in a goodwill impairment charge being recorded
within the Enpro Subsea business unit.
Further, the Committee has also reviewed the adjusting items proposed
by management and, following discussion with the external auditor,
approved of two items, in respect of the Enpro impairment and also
exceptional legal fees incurred in the year.
Finally, the Committee noted the successful negotiation of the Asset
Based Lending facility in February 2022. The facility has added support
to Hunting’s Going Concern and Viability statements, as it has materially
increased the Group’s long-term liquidity.
The Audit Committee has
focused on the review of
new reporting procedures
implemented by the Group’s
central finance function,
in addition to restarting field
work within the internal
audit function.”
Carol Chesney
Chair of the Audit
Committee
Number of meetings held
Number of meetings attended
(actual/possible):
Annell Bay
Carol Chesney (Committee Chair)
Bruce Ferguson
John (Jay) Glick
Paula Harris (from 20 April 2022)
Richard Hunting (to 20 April 2022)
Jim Johnson
Keith Lough
Member
4
Invitation
4/4
4/4
–
–
2/2
–
–
4/4
–
–
4/4
4/4
1/1
2/2
4/4
–
Hunting PLC Annual Report and Accounts 2022Corporate Governance 156
Audit Committee Report
Composition and Frequency of Meetings
The Committee currently comprises five independent non-executive
Directors and is chaired by Carol Chesney. During the year, Paula Harris
joined the Committee following her appointment by shareholders.
Following his appointment to the Board on 3 January 2023, Stuart
Brightman also joined the Committee. Mrs Chesney is a qualified
Chartered Accountant and is considered to have recent and relevant
financial experience. Ms Bay (Chair of the Remuneration Committee),
Ms Harris and Messrs Brightman and Lough 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 116, 117 and 125.
The Committee normally 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 2022, 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 in the table on page 155. All Directors
and internal and external auditors are normally invited to attend meetings.
Work Undertaken by the Committee During 2022
Financial Report
Annual Report and Full Year Results announcement
Going Concern basis
Viability Statement
Half Year Report and Half Year Results announcement
Review accounting policies
Internal controls and risk management
Risk management and internal controls report
Key risks and mitigating controls
Effectiveness of internal controls and internal audit function
Internal audit report
Internal audit programme and resourcing
External auditor
Auditor’s objectives, 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
Review of Committee Effectiveness
In December 2022, the Committee reviewed its effectiveness and the
Committee Chair reported these findings to the Board. No issues were
identified in this review process.
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;
• consider and approve any adjusting items proposed by management;
• 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 approving the proposed audit programmes, scope
and resourcing;
• 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; and
• monitor corporate governance and accounting developments.
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Corporate GovernanceHunting PLC Annual Report and Accounts 2022 157
Audit Committee Report
As noted in the 2021 Annual Report and Accounts, the responsibility
for reviewing the Company’s anti-bribery and corruption, modern
slavery and sanctions compliance was transferred to the Ethics and
Sustainability Committee and forms part of the annual schedule of work
of this new Committee.
Review of the 2022 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 operating 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
2022 Annual Report and Accounts were as follows:
Inventory Valuation and Provisioning Procedures
A major area of review for the Committee for the 2022 half and full year
results was the Group’s inventory valuation and provisioning procedures.
Following feedback received from the external auditor during the 2021
year-end audit process, the Group’s central finance function further
improved the processes and controls around inventory provisioning,
with particular focus on ensuring these processes and controls were
consistent throughout the Group’s business units. The new methodology
provides a consistent basis on which the gross and net inventory values
for each major product line are assessed. The model provides flexibility
to account for the different inventory turns and of different product lines
as the Group navigates the varying equipment purchasing cycles of its
customers, whether that be for onshore or offshore projects. The Audit
Committee reviewed reports by both management and the external
auditor on this process, discussing any variations to the output of
inventory values and, in summary, were satisfied that there was good
alignment between the external auditor and management regarding
any assumptions made. The table below summarises the gross and net
inventory held by the Group, with the movements to inventory provisions
being highlighted.
Gross inventory
Provisions
Net inventory
Provisions as % of Gross inventory
At
31 December
2021
$m
263.9
(59.5)
204.4
23%
Movement
in year
$m
58.2
9.5
67.7
At
31 December
2022
$m
322.1
(50.0)
272.1
16%
The Committee reviewed the inventory sold in the year, written off or
otherwise utilised through trading and was satisfied with the carrying
values, as presented.
Impairment Reviews
The Committee also received reports on the possible impairment of
goodwill and other non-current assets held on the consolidated balance
sheet. A review for impairment triggers was undertaken at the half year
and a review of indefinite life assets was undertaken for the full year,
resulting in a $7.0m charge being recorded against the goodwill held
for the Enpro Subsea cash generating unit. The Committee noted the
business units where headroom for the carrying value of goodwill was
more limited, with these units undertaking detailed modelling as part of
the year-end audit process to support the values recorded. Management
continues to utilise independent drilling and production projections
published by Spears & Associates to support its analysis, with
summaries presented in the Market Summary section of this report
on pages 30 to 33.
Property, Plant and Equipment (“PPE”)
The year-end balance sheet includes $256.7m (2021 – $274.4m) for
PPE. This represents approximately 30% of the Group’s net assets
(2021 – 31%). The movement in PPE reflects depreciation of $26.6m,
disposals of $7.0m and other items totalling $1.1m offset by additions
of $17.0m. The Committee reviewed the PPE impairment tests and,
following discussion, was satisfied that the assumptions and the
disclosures in the year-end accounts were appropriate.
Inventories
At the year-end, the Group held $272.1m (2021 – $204.4m) of inventory.
This represents approximately 32% of the Group’s net assets (2021 – 23%).
Inventory levels have started to increase again as activity levels and the
Group’s sales order book increase, and due to higher levels of critical
stocks due to supply chain concerns. As noted above, more detailed
valuation analysis of inventory was completed in the year as the new
inventory provisioning methodology was introduced, with the Committee
satisfied that a robust process is now in place, which encompasses all
key product lines sold by the Group.
Goodwill
The year-end balance sheet includes $155.5m (2021 – $164.1m) of
goodwill. This represents approximately 18% of the Group’s net assets
(2021 – 19%), with Hunting Titan representing 74% of the year-end
balance (2021 – 70%). As noted above, a $7.0m impairment to goodwill
held in respect of the Enpro Subsea cash generating unit was recorded
in the year, which was primarily driven by changes to the discount rates
applied to the impairment model. The Committee considered and
challenged the discount rates and the factors used in the goodwill
review process. After discussion, it was satisfied that the carrying values
recorded and the disclosures in the year-end accounts were appropriate.
Other Intangible Assets
The year-end balance sheet includes other intangible assets of
$35.7m (2021 – $36.2m). This represents approximately 4% of the
Group’s net assets (2021 – 4%). The amortisation charge recorded
in the consolidated income statement was $4.4m (2021 – $9.3m.
The Committee considered and confirmed the appropriateness of
the assumptions and factors used in the review process and were
comfortable with the carrying values, as recorded.
Right-of-use Assets
The year-end balance sheet includes right-of-use assets of $26.0m
(2021 – $24.7m). This represents approximately 3% of the Group’s
net assets (2021 – 3%). The movement in the year is predominantly
attributed to a lease in Wuxi, China being extended. This addition was
offset by the leases that were exited in relation to the Singapore facility
consolidation and the change in the headquarters in London. The
Committee reviewed the movement in the carrying values of these items
and confirmed the appropriateness of the assumptions and factors used
in the review process and were comfortable with the items, as recorded.
Revenue Recognition
Given the Group’s improving results in 2022, revenue recognition
received ongoing focus in the year, particularly given the complexity of
certain sales contracts within the Subsea Spring business and in China
in respect of the CNOOC contract, and following challenge from the
external auditor, additional review procedures were introduced.
Adjusting Items and Presentation of Financial Statements
The Group has reviewed the use of a “middle” column within its
consolidated income statement and, in line with best practice, has
presented the year-end consolidated income statement on a pure
IFRS basis, without an “underlying” or “middle” column. The Committee
noted the proposal by management to table for approval by the Audit
Committee any material adjusting items to be presented in future.
At the 2022 year-end, the Group recorded two adjusting items totalling
$12.6m, which include $5.6m in respect of exceptional legal costs and
the $7.0m goodwill impairment in respect of the Enpro Subsea business.
The extraordinary legal costs incurred in the year, were due to a patent
infringement challenge by a competitor, which Hunting has defended.
The Committee agreed with management’s proposal that the legal trial,
which extended into H2 2022, supported the fees being exceptional
given materially lower levels of legal fees incurred historically and,
therefore, approved of the adjusting item.
In 2021, $44.9m of adjustments to profit before tax were recorded.
The external auditor reviewed the revised presentation of the Group’s
financial statements and the adjusting items proposed, and approved
of the presentation.
Hunting PLC Annual Report and Accounts 2022Corporate Governance 158
Audit Committee Report
Taxation
In view of the international spread of operations, the Committee monitors
tax risk, tax audits and provisions held for taxation. In particular, the
Committee noted that the Company had unrecognised deferred tax
assets in respect to Hunting’s US businesses. During the year-end
process, management assessed the probability of Hunting being able to
utilise these assets, concluding that more evidence of a market recovery
in the US needed to be observed to support the recognition of these
assets. This area is to remain under review during 2023 to assess the
evidence of recognising these assets, given the Group’s strengthening
end-markets.
Going Concern Basis and Viability Statement
Given the Group’s improved results reported in the year and the
strengthening medium-term outlook for Hunting’s businesses, the
Committee’s assessment of Going Concern and Viability has been
less challenging, compared to the past two years.
While the Group has reported a lower year-end cash and bank position
compared to 2021, the Committee noted that Hunting has absorbed part
of its cash balances in the investment in inventory to support the future
growth of the Group’s global businesses.
In addition, on 7 February 2022, Hunting successfully concluded the
negotiation of a $150 million Asset Based Lending facility, which adds
significant long-term liquidity to the Group, and is linked to the secured
value of inventories, freehold property and receivables held by Hunting’s
North American businesses.
As part of the Company’s 2022 half year and full year audit procedures,
management presented various trading scenarios to support the Going
Concern assumption, which were reviewed by the Committee and the
external auditor. This included a downside trading scenario.
As part of Hunting’s Viability procedures, management prepared an
extended forecast that provided trading projections to 2027. The Board
approved this in January 2023 and used it to support the carrying values
of assets held on the consolidated balance sheet.
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 4 to 113,
and believes that the 2022 Annual Report and Accounts, taken as a
whole, is fair, balanced and understandable. In arriving at this conclusion,
the Committee undertook the following:
• 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.
The Committee advised the Board of its conclusion that the 2022
Annual Report and Accounts, taken as a whole, was fair, balanced
and understandable at a Meeting of Directors on 28 February 2023.
Internal Audit
The Committee receives reports from the Internal Audit function.
The Chair of the Committee also had regular dialogue with the function
throughout the year. During the year, the activities of the function
returned to more normal operation, following the COVID-19 pandemic,
with nine field audits completed in the year.
In addition, the function increased its resources in the year, as hiring
restarted across the Group.
The Group continued to implement a new ERP system within a number
of businesses. To support this initiative, the Head of Internal Audit
provided consulting services to the Chief IT Officer in respect of best
practice control procedures and segregation of duties.
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 was 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
Deloitte LLP was appointed by the Group’s shareholders as external
auditor in 2019 and, therefore, no tenders have been undertaken in
the year due to their current tenure. This position also applies to the
engagement partner attached to the Group’s account. During the year,
the US audit partner rotated off the Hunting account, with a new
partner appointed.
The external auditor presented reports at the February, April, August and
December meetings of the Audit Committee during 2022. Further, the
Chair of the Committee also had regular dialogue with the audit partner
throughout the year.
On 28 February 2023, a full-year report by Deloitte was considered
ahead of publication of the Group’s 2022 Annual Report and Accounts.
In April 2022, Deloitte presented its Management Controls Report, which
highlighted control improvements they recommended could be made
by the Group.
The Committee normally 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.
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 desktop reviews for smaller, low risk
entities. Approximately, over 78% of the Group’s reported revenue and
the Group’s net assets were audited, covering 17 reporting units, including
a number of investment holding companies, across seven countries.
Corporate GovernanceHunting PLC Annual Report and Accounts 2022 159
Audit Committee Report
Materiality
The Committee discussed materiality with the auditor regarding both
accounting errors to be brought to the Audit Committee’s attention and
amounts to be adjusted so that the financial statements give a true and
fair view. Overall, audit materiality was set at $4.0m (2021 – $3.5m).
This equates to approximately 0.6% of the Group’s total external revenue
reported in 2022. Furthermore, the auditor agreed to draw to the Audit
Committee’s attention all identified, uncorrected misstatements greater
than $0.2m and any misstatements below that threshold considered
to be qualitatively material.
ESEF Reporting
The Group is required to produce its annual report in XHTML format,
an electronic format known as a structured report, to comply with the
European Single Electronic Format (“ESEF”) reporting requirements.
Digital tags were applied to the Group’s consolidated financial
statements within its 2021 Annual Report and Accounts and the
structured report was successfully submitted to the FCA’s National
Storage Mechanism in March 2022. A qualified IT provider was involved
in the preparation of the structured report and Deloitte completed a
number of assurance procedures on the structured report.
During the year, ESEF tagging requirements were extended to include
the notes to the financial statements. In addition, Deloitte has again been
asked to review the Group’s tagging procedures and report against
these new requirements.
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 102 to 109.
As noted above, a new inventory valuation methodology was
introduced successfully in 2022, which addressed a number of control
recommendations highlighted by the auditor as part of the 2021
year-end. In February 2023, Deloitte reported that there were no material
issues identified in these specific areas during the 2022 year-end.
On behalf of the Board
Carol Chesney
Chair of the Audit Committee
2 March 2023
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 was 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, including
management challenge on any items within the scope of the audit;
• a report from the Finance Director and the Group Financial Controller;
and
• finalisation of the audit work ahead of completion and announcement
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, and reviewed a
Transparency Report prepared by 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 $0.2m (2021 – $0.2m), there were no non-audit services
fees paid during the year (2021 – $nil). The scope and extent of non-audit
work undertaken by the external auditor was monitored by, and required
prior approval from, the Committee to ensure that the provision of such
services did not impair their independence or objectivity.
Auditor Reappointment
Following discussion in February 2023, the Committee approved the
recommendation to propose the reappointment of Deloitte LLP at the
Company’s 2023 Annual General Meeting.
Hunting PLC Annual Report and Accounts 2022Corporate Governance 160
Independent Auditor’s Report
to the Members of Hunting PLC
Independent Auditor’s Report
to the Members of Hunting PLC
Report on the audit of the financial statements
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 2022 and of the group’s loss for the year then ended;
• the group financial statements have been properly prepared in accordance with United Kingdom adopted international accounting standards;
• the parent company financial statements have been properly prepared in accordance with United Kingdom adopted international accounting
standards 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.
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 41 for the consolidated financial statements, and notes C1 to C20 for the parent company financial statements.
The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom adopted international accounting
standards 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 we have not provided any non-audit services
prohibited by the FRC’s Ethical Standard 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.
Hunting PLC Annual Report and Accounts 2022Financial Statements 161
Independent Auditor’s Report
to the Members of Hunting PLC
3. Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current
year were:
Within this report, key audit matters are identified as follows:
• inventory valuation;
• revenue recognition; and
• goodwill and non-current asset impairment.
Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
Materiality
The materiality that we used for the group financial statements was $4.0 million which was determined on the basis of revenue.
Scoping
The scope of our group audit includes a number of reporting units across the group, whose results taken together account
for 78% and 84% of the group’s revenue and net assets respectively. Our audit work covered group operations in seven
countries covering 17 reporting units, including a number of investment holding companies.
Significant changes
in our approach
Due to the continued improved financial performance of the group, we determined it appropriate to move to an activity-based
metric as the basis for determining materiality, as opposed to a solvency-based metric used in previous years. As revenue
is considered a key metric for the primary users of the financial statements, we used revenue as the primary benchmark
to determine materiality.
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the
financial statements is appropriate.
Our evaluation of the directors’ assessment of the group’s and parent company’s ability to continue to adopt the going concern basis of accounting
included:
• we obtained management’s assessment of going concern for the group, understanding the process followed by management, including the
budgets and forecasts covering the foreseeable future and the assumptions on which management’s assessment is based and evaluated these
assumptions applied;
• we made enquiries as to the process followed by management and obtained an understanding of the relevant controls, including over: the
preparation of budgets and forecasts covering the foreseeable future; the assumptions on which the assessment is based; and management’s
plans for future actions;
• with respect to the cash flow forecasts that drive the going concern assessment, we evaluated the reliability of the underlying data and challenged
management on the assumptions applied, comparing to external industry data where relevant;
• we assessed the terms of the asset-based borrowing facility that was entered into in February 2022 and understood whether any amounts had
been drawn down or were considered, in order to determine whether covenants in the agreement would impact the going concern assessment;
• we performed a stand-back assessment and considered all relevant audit evidence obtained, whether corroborative or contradictory, for any
indicators of possible management bias; and
• we assessed whether management’s use of the going concern basis of accounting for the year end financial statements is appropriate,
and that the disclosures in the financial statements are appropriate and sufficiently detailed.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the group’s and parent company’s ability to continue as a going concern for a period of at least
twelve months from when the financial statements are authorised for issue.
In relation to the reporting on how the group has applied the UK Corporate Governance Code, we have nothing material to add or draw attention
to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern
basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
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.
Hunting PLC Annual Report and Accounts 2022Financial Statements 162
Independent Auditor’s Report
to the Members of Hunting PLC
5.1. Inventory valuation
Key audit matter
description
The group holds inventory of $272.1 million (2021: $204.4 million), net of a provision of $50.0 million (2021: $59.5 million).
The cyclical and current trading environment and market conditions continue to expose the group to the risk of over-valuation
of aged inventory and appropriateness of provisioning model. There is a risk that certain inventory lines held may remain
technically relevant but demand in the marketplace may be low and therefore there could be excess inventory on hand that
will never be sold at or above its carrying amount.
How the scope
of our audit
responded to the
key audit matter
Management’s judgement in assessing the valuation of inventory is primarily based on expectations of future sales,
the forecast turn period and inventory utilisation plans, combined with their consideration of historical sales and their
assessment of the continued technological relevance of the group’s products.
Refer to page 157 of the Audit Committee report and notes 1, 20 and 41 to the financial statements for disclosures relating
to management’s critical judgements and key assumptions, inventory and principal accounting policies, respectively.
We performed the following procedures to assess the valuation of management’s inventory reserves:
• obtained an understanding of the relevant controls over the inventory valuation process, including how management
estimate their inventory reserves;
• obtained and assessed the inventory provisioning models (including mechanical accuracy) and supporting and detailed
analysis prepared by management, to determine whether appropriate methodologies have been applied with reference
to the level of write-offs and evidence of sale of slow-moving stock in the period to 31 December 2022, and that they
appropriately reflect the current market conditions;
• challenged any key assumptions such as the historical sales period used to drive expected forward turns, the forecast
turn period applied and any additional adjustments factored in by management to uplift recent historical sales run rates to
better reflect future trading expectations. This included consideration of historically achieved revenue levels, any significant
changes in business structure or markets, third party industry forecasts, production capacity levels and current revenue
run rates to demonstrate whether the inferred future revenue levels are reasonable;
• where appropriate, evaluated management’s comparison of forecast sales against relevant third-party forecasts
as a stand-back assessment on the future utilisation of current inventory levels; and
• considered the available support from management, including current sales transactions, used to determine an
appropriate net realisable value to assess whether inventory is being held at an appropriate amount. Where considered
appropriate, we also made direct enquiries of sales and operational personnel.
Key observations
We are satisfied that the judgements taken by management are appropriate in light of the current market conditions.
Hunting PLC Annual Report and Accounts 2022Financial Statements 163
Independent Auditor’s Report
to the Members of Hunting PLC
5.2. Revenue recognition
Key audit matter
description
The revenue recognised by the group in 2022 is $725.8 million (2021: $521.6 million).
The group’s revenue recognition policy does not generally require a high level of judgement under IFRS 15, however there
is a risk relating to the appropriateness of revenue recognition criteria for revenue that is recognised ‘over time’ when there
are material judgments spanning the period end. The key business units with overtime revenue, and therefore where we
have identified a key audit matter, are Stafford Spring and Dearborn, which recognised total revenue of $25.0 million
(2021: $21.7 million) and $35.7 million (2021: $35.3 million) respectively.
There is a potential fraud risk present given the impact of these judgements on the result for the year and the possibility
of manipulation. This risk has increased in the year given the changing nature and increasing complexity of the group’s
contracts, with an increasing portion being recognised over time.
The key risks in respect of revenue recognition are:
• determining whether it is appropriate to recognise revenue over time or at a point in time, depending on the specific terms
of individual contractual arrangements with customers; and
• for contracts which are material and where revenue is recognised over time, whether the estimated cost at completion
is accurate, given this impacts the calculation of revenue to be recognised.
Refer to page 157 of the Audit Committee Report and notes 3 and 41 to the financial statements.
We obtained an understanding of the relevant controls over the revenue process, including how the estimated costs
to complete are reviewed and challenged.
We identified significant and:
• assessed the appropriateness of the revenue recognition model in place, with due consideration of the underlying
contractual agreement, and evaluated how the terms were interpreted under the IFRS 15 criteria and assessed the
appropriateness of estimated costs to complete by:
– inspecting the relevant bill of materials and assessing how estimated costs to complete were valued, for example
by matching bills to purchase orders from suppliers or recent purchases of the same material;
– inspecting the labour cost estimate and comparing rates to labour rates and comparing the hours to similar contracts
or internal schedules;
– understanding how much overhead was allocated to contracts (including the estimated future overhead to come)
to assess reasonableness; and
– evaluating historical estimating accuracy by comparing forecast and actual profit.
How the scope
of our audit
responded to the
key audit matter
Key observations
We are satisfied that revenue has been recognised appropriately and in accordance with IFRS 15 ‘Revenue from Contracts
with Customers’.
Hunting PLC Annual Report and Accounts 2022Financial Statements 164
Independent Auditor’s Report
to the Members of Hunting PLC
5.3. Goodwill and non-current asset impairment
Key audit matter
description
The Group balance sheet has a significant level of goodwill and non-current assets. This includes goodwill of $155.5 million
(2021: $164.1 million), which is tested annually for impairment. Intangible assets of $35.7 million (2021: $36.2 million) include
customer relationships, unpatented technology and patents and trademarks. The property, plant and equipment balance
is $256.7 million (2021: 274.4million) and the right of use assets amounted to $26.0 million (2021: $24.7 million).
Testing a cash-generating unit (“CGU”) for impairment requires determination of its recoverable amount, which is a
judgemental assessment that depends on the forecast future financial performance of the CGU, future market performance
and relevant terminal growth rates. The Group has seen recovery in the period, with further forecast recovery expected.
We identified a key audit matter with respect to the Enpro CGU and related disclosures in the financial statements given the
sensitivity of the CGU’s valuation to changes in the forecast revenue assumption, as well as the broader macro-economic
environment’s impact on discount rates. The goodwill recognised relating to Enpro is $5.5 million, after an impairment of
$7.0 million was recognised. The valuation is dependent on the market penetration of new technologies and therefore there
remains risk in the uptake of this technology.
Refer to page 157 of the Audit Committee report and notes 1, 15 and 41 to the financial statements.
How the scope
of our audit
responded to the
key audit matter
Across each of the group’s material CGUs we assessed the risk of material misstatement by performing the following
procedures:
• sensitising each key driver of the cash flow forecasts, 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, whilst
considering the potential impact of climate on the long term forecasts; and
• calculating the degree to which the key assumptions would need to change before an impairment would be triggered.
In respect of the Enpro CGU, in addition to the above, we evaluated:
• whether the future cash flow forecasts and the timing of the forecast recovery in performance of these forecasts
are appropriate;
• the forecast revenue and growth assumptions and how management have incorporated the impact of new products
and new tenders, as well as the reasonableness of the timing and phasing of market recovery;
• 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 our independently calculated discount rates derived by our valuations specialists.
We also assessed the sensitivity disclosures included in the financial statements (note 15) to assess whether the
assumptions selected to sensitise, and the associated range, were reasonable in light of our understanding of the risks
associated with the future performance of the CGU.
Key observations
We are satisfied that the no additional impairment should be recognised in respect of goodwill and non-current assets and
consider the impairment recognised in relation to Enpro is based on reasonable assumptions. The sensitivity disclosures in
the financial statements appropriately present the CGUs that are most sensitive to potential future changes in key assumptions.
Hunting PLC Annual Report and Accounts 2022Financial Statements 165
Independent Auditor’s Report
to the Members of Hunting PLC
6. Our application of materiality
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
Rationale for the
benchmark applied
Group financial statements
$4.0 million (2021: $3.5 million)
0.6% of revenue (0.4% net assets)
Due to the continued improved financial performance of the
group, we determined it appropriate to an activity-based
metric as the basis for determining materiality, as opposed
to the solvency-based metric used in previous years. As
revenue is considered a key metric for the primary users of
the financial statements, we used revenue as the primary
benchmark to determine materiality.
Parent company financial statements
$3.6 million (2021: $3.0 million)
Parent company materiality equates to 0.4% (2021: 0.3%) of
net assets, which is capped at 90% (2021:86%) of group
materiality.
Given that the Company’s balance sheet is mostly made up
of investments and intercompany receivables, we consider
net assets to be the most relevant benchmark.
1. Revenue $725.8m
2. Group materiality $4.0m
1
2
Group materiality
$4.0m
Component materiality range
$1.4m to $3.6m
Audit Committee reporting threshold
$0.2m
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.
Performance
materiality
Basis and rationale
for determining
performance
materiality
Group financial statements
70% (2021: 70%) of group materiality
Parent company financial statements
70% (2021: 70%) of parent company materiality
In determining performance materiality, we considered the following factors:
• our knowledge from the previous audits; and
• our overall assessment of the control environment and likely misstatements, including the fact that we have placed
reliance on the relevant controls over revenue within the Hunting Titan, US Manufacturing and US Connections
operating units.
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of $200,000 (2021: $175,000), 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.
Hunting PLC Annual Report and Accounts 2022Financial Statements 166
Independent Auditor’s Report
to the Members of Hunting PLC
7. An overview of the scope of our audit
7.1. Identification and scoping of components
The group has 56 (2021: 57) 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 10 (2021: 12) operating units across the group
that were subject to full scope reporting on their complete financial information, which included three (2021: four) holding company reporting units.
Specific audit procedures over certain balances were performed at a further seven (2021: ten) operating units, 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 over 78% (2021: over 80%) of the group’s revenue and net assets. The range
of component materiality levels is $1.4 million to $3.6 million (2021: $1.1 million to $2.8 million).
Revenue
1. Full audit scope 68%
2. Specified audit procedures 10%
3. Review at group level 22%
1
Net assets
1. Full audit scope 67%
2. Specified audit procedures 17%
3. Review at group level 16%
3
2
1
3
2
7.2. Our consideration of the control environment
A new ERP system (“D365”) was implemented in the group’s US Connections operating unit in 2021. As a result of this implementation, consistent
with our audit plan and our approach on business units already live (Hunting Titan and US Manufacturing), we adopted a controls reliance approach
across the revenue processes within this business unit, with the exception of controls over the cut-off assertion. The ERP system continues to be
rolled out across the group, with a number of smaller business units having gone live in FY22. Consistent with our approach in 2021, we involved
our IT specialists to obtain an understanding of the associated general IT controls (“GITCs”), in areas such as information security, user access and
change management. Further, we assessed the data conversion and migration, with focus on inventory compilation such as count and cost at date
of migration.
Elsewhere across the group, we obtained an understanding of relevant manual controls within the financial reporting processes, controls relevant
to our significant risks, and any other controls we deemed relevant. In addition, we obtained an understanding of the key GITCs within Cognos,
management’s reporting and consolidation software.
7.3. Our consideration of climate-related risks
In planning our audit, we have considered the potential impact of climate change on the Group’s business and its financial statements.
The Group continues to develop its assessment of the potential impacts of climate change with specific transitional and physical climate related risks
identified in the Strategic Report on pages 90 to 96.
As a part of our audit, in particular with respect to the key audit matter identified on goodwill and non-current asset impairment discussed in section
5.3 above, we obtained and challenged management’s climate-related risk assessment, holding discussions with management to understand the
process of identifying climate-related risks, the determination of mitigating actions and the impact on the Group’s financial statements.
As explained in note 1 on page 175, the Directors’ view is that the external long-term forecasts used in preparing their forecasts incorporate climate
change developments, supporting the view that there will be a robust demand for the Group’s oil and gas products for a significant time span.
Estimates made using these forecasts do not currently identify any concerns regarding the carrying values or expected lives of longer-lived assets,
including goodwill.
We performed our own qualitative risk assessment of the potential impact of climate change on the Group’s account balances and classes of
transaction and did not identify any reasonably possible risks of material misstatement. Our procedures were performed with the involvement of
our climate change specialists and included evaluated whether appropriate disclosures have been made in the financial statements, and reading
disclosures included in the Strategic Report to consider whether they are materially consistent with the financial statements and our knowledge
obtained in the audit.
Hunting PLC Annual Report and Accounts 2022Financial Statements 167
Independent Auditor’s Report
to the Members of Hunting PLC
7.4. Working with other auditors
In carrying out our scoping procedures as described above, our audit work covered group operations in seven (2021: seven) countries,
covering 17 (2021: 22) reporting units, including a number of head office entities. Three (2021: four) reporting units were within the group team’s
scope and residual 14 (2021: 18) were covered by the component audit teams.
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 process. We visited our US component team during the year, and performed a detailed review of their work over areas
including key judgements and significant risks using technology to access component auditors’ working papers remotely. We also requested that
a number of reporting documents be completed by each component team for our review.
Further, specific audit procedures over the central functions and areas of significant judgement including taxation, treasury and goodwill and
non-current asset impairment were performed by the group audit team centrally.
8. Other information
The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon.
The directors are responsible for the other information contained within the annual report.
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.
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 course of 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 this gives rise to a material
misstatement in the financial statements themselves. 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.
We have nothing to report in this regard.
9. Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, 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.
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.
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/auditors
responsibilities. This description forms part of our auditor’s report.
Hunting PLC Annual Report and Accounts 2022Financial Statements 168
Independent Auditor’s Report
to the Members of Hunting PLC
11. Extent to which the audit was considered capable of detecting irregularities,
including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,
outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable
of detecting irregularities, including fraud is detailed below.
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, internal audit and the audit committee about their own identification and assessment of the risks
of irregularities including those that are specific to the group’s sector;
• 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;
• the matters discussed among the audit engagement team including significant component audit teams and relevant internal specialists, including
tax, valuations, 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 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 that the group operates in, 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, patent law, 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 legislation, health, safety and
the environment (“HSE”), international trading laws and environmental regulations.
11.2. Audit response to risks identified
As a result of performing the above, we identified revenue as a key audit matter related to the potential risk of fraud. The key audit matters section
of our report explains the matter in more detail and also describes the specific procedures we performed in response to that key audit matter.
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 and the Audit Committee 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 and reviewing internal audit reports; 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.
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 Annual Report on Remuneration 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.
Hunting PLC Annual Report and Accounts 2022Financial Statements 169
Independent Auditor’s Report
to the Members of Hunting PLC
13. Corporate Governance Statement
The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate
Governance Statement relating to the group’s compliance with the provisions of the UK Corporate Governance Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement
is materially consistent with the financial statements and our knowledge obtained during the audit:
• the Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties
identified set out on page 111;
• the Directors’ explanation as to its assessment of the Group’s prospects, the period this assessment covers and why the period is appropriate
set out on page 110;
• the Directors’ statement on fair, balanced and understandable set out on page 158;
• the Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on pages 104, 105 and 110;
• the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on pages 104
and 105; and
• the section describing the work of the audit committee set out on page 156.
14. Matters on which we are required to report by exception
14.1. 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.
14.2. 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 Annual Report on 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.
15. Other matters which we are required to address
15.1. 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. The period of total uninterrupted engagement including previous renewals and
reappointments of the firm is four years, covering the years ending 31 December 2019 to 31 December 2022.
15.2. 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).
16. 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.
As required by the Financial Conduct Authority (“FCA”) Disclosure Guidance and Transparency Rule (“DTR”) 4.1.14R, these financial statements form
part of the European Single Electronic Format (“ESEF”) prepared Annual Financial Report filed on the National Storage Mechanism of the UK FCA
in accordance with the ESEF Regulatory Technical Standard (“ESEF RTS”). This auditor’s report provides no assurance over whether the annual
financial report has been prepared using the single electronic format specified in the ESEF RTS. We have been engaged to provide assurance
on whether the annual financial report has been prepared using the single electronic format specified in the ESEF RTS and will report separately
to the members on this.
William Smith
(Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
2 March 2023
Hunting PLC Annual Report and Accounts 2022Financial Statements 170
Consolidated Income Statement
Consolidated
Income Statement
For the year ended 31 December 2022
Revenue
Cost of sales
Gross profit
Selling and distribution costs
Administrative expensesii
Net operating income and other expenses
Profit (loss) from operations
Finance income
Finance expense
Share of associates’ and joint ventures’ loss
Loss before tax from operations
Taxation
Loss for the year
Loss for the year attributable to:
Owners of the parent
Non-controlling interests
Loss per share
Basic
Diluted
Notes
3
4
6
8
8
16
9
10
10
2022
$m
725.8
(554.4)
171.4
(46.1)
(124.9)
1.6
2.0
3.0
(4.7)
(2.7)
(2.4)
(1.3)
(3.7)
(4.6)
0.9
(3.7)
cents
(2.8)
(2.8)
2021i
$m
521.6
(456.7)
64.9
(38.1)
(105.2)
(1.3)
(79.7)
1.5
(3.5)
(3.8)
(85.5)
(4.2)
(89.7)
(85.8)
(3.9)
(89.7)
cents
(53.2)
(53.2)
i.
ii.
The administrative expenses and net operating income and other expenses for 2021 have been represented since the 2022 Half Year Report to show a better classification given the nature
of the adjusting items.
Included in administrative expenses is the net impairment reversal on trade and other receivables recognised in the year of $0.6m (2021 – $1.6m net impairment loss).
The notes on pages 175 to 227 are an integral part of these condensed consolidated financial statements.
Hunting PLC Annual Report and Accounts 2022Financial Statements 171
Consolidated Statement
of Comprehensive Income
Consolidated Statement
of Comprehensive Income
For the year ended 31 December 2022
Comprehensive income:
Loss 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:
– gains originating on cash flow hedges arising during the year
Reclassified to profit or loss during the year:
Fair value gains and losses:
– losses on cash flow hedges transferred to the income statement
Items that will not be reclassified to profit or loss:
Remeasurement of defined benefit pension schemes
Other comprehensive income (expense) after tax
Total comprehensive expense for the year
Total comprehensive expense for the year attributable to:
Owners of the parent
Non-controlling interests
Notes
32,35
2022
$m
(3.7)
(9.9)
0.3
(9.6)
0.1
0.1
(9.4)
(13.1)
(13.3)
0.2
(13.1)
2021
$m
(89.7)
0.5
−
0.5
−
(0.2)
0.3
(89.4)
(85.8)
(3.6)
(89.4)
Total comprehensive expense attributable to owners of the parent arises from the Group’s continuing operations.
Hunting PLC Annual Report and Accounts 2022Financial Statements 172
Consolidated Balance Sheet
Consolidated
Balance Sheet
At 31 December 2022
ASSETS
Non-current assets
Property, plant and equipment
Right-of-use assets
Goodwill
Other intangible assets
Investments in associates and joint ventures
Investments
Trade and other receivables
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Investments
Current tax assets
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
11
12
13
14
16
17
18
19
20
18
21
17
22
24
25
27
22
24
25
27
19
33
33
34
35
2022
$m
256.7
26.0
155.5
35.7
20.1
4.8
2.8
13.7
515.3
272.1
232.4
29.4
–
0.1
534.0
141.8
9.1
4.9
4.6
3.4
163.8
370.2
3.2
21.5
3.9
4.3
6.4
39.3
846.2
66.5
153.0
15.8
609.3
844.6
1.6
846.2
2021
$m
274.4
24.7
164.1
36.2
19.4
4.6
2.0
10.3
535.7
204.4
155.4
108.4
6.8
0.9
475.9
83.0
8.9
1.0
3.1
3.0
99.0
376.9
2.7
22.9
3.9
5.0
6.8
41.3
871.3
66.5
153.0
38.0
612.4
869.9
1.4
871.3
The notes on pages 175 to 227 are an integral part of these consolidated financial statements. The financial statements on pages 170 to 227 were
approved by the Board of Directors on 2 March 2023 and were signed on its behalf by:
Jim Johnson
Director
Bruce Ferguson
Director
Registered number: 0974568
Hunting PLC Annual Report and Accounts 2022Financial Statements
173
Consolidated Statement
of Changes in Equity
Consolidated Statement
of Changes in Equity
At 1 January 2022
Profit (loss) for the year
Other comprehensive income (expense)
Total comprehensive income (expense)
Transfer of cash flow hedging gains to the initial
carrying value of hedged items
Dividends paid to Hunting PLC shareholders
Treasury shares
– purchase of treasury shares
– disposal of treasury shares
Share options and awards
– value of employee services
– discharge
– taxation
Transfer between reserves
Notes
36
Year ended 31 December 2022
Share
capital
(note 33)
$m
66.5
Share
premium
(note 33)
$m
153.0
Other
components
of equity
(note 34)
$m
38.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(8.8)
(8.8)
(0.1)
–
–
–
9.4
(9.1)
–
(13.6)
Retained
earnings
(note 35)
$m
612.4
(4.6)
0.1
(4.5)
Non-
controlling
interests
$m
1.4
0.9
(0.7)
0.2
Total
$m
869.9
(4.6)
(8.7)
(13.3)
–
(0.1)
(13.6)
(13.6)
(7.9)
0.2
–
8.9
0.2
13.6
(7.9)
0.2
9.4
(0.2)
0.2
–
–
–
–
–
–
–
–
–
Total
equity
$m
871.3
(3.7)
(9.4)
(13.1)
(0.1)
(13.6)
(7.9)
0.2
9.4
(0.2)
0.2
–
At 31 December 2022
66.5
153.0
15.8
609.3
844.6
1.6
846.2
At 1 January 2021
Loss for the year
Other comprehensive income (expense)
Total comprehensive income (expense)
Dividends paid to Hunting PLC shareholders
Treasury shares
– purchase of treasury shares
– disposal of treasury shares
Share options and awards
– value of employee services
– discharge
Acquisition of non-controlling interest
Transfer between reserves
Year ended 31 December 2021
Share
capital
(note 33)
$m
66.5
Share
premium
(note 33)
$m
153.0
Other
components
of equity
(note 34)
$m
52.3
Retained
earnings
(note 35)
$m
692.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.2
0.2
–
–
–
8.7
(10.4)
–
(12.8)
(85.8)
(0.2)
(86.0)
(12.8)
(8.1)
0.3
–
10.2
3.4
12.8
Notes
36
38
Non-
controlling
interests
$m
12.2
(3.9)
0.3
(3.6)
–
–
–
–
–
(7.2)
–
Total
$m
964.4
(85.8)
–
(85.8)
(12.8)
(8.1)
0.3
8.7
(0.2)
3.4
–
Total
equity
$m
976.6
(89.7)
0.3
(89.4)
(12.8)
(8.1)
0.3
8.7
(0.2)
(3.8)
–
At 31 December 2021
66.5
153.0
38.0
612.4
869.9
1.4
871.3
Hunting PLC Annual Report and Accounts 2022Financial Statements 174
Consolidated Statement
of Cash Flows
Consolidated Statement
of Cash Flows
For the year ended 31 December 2022
Operating activities
Profit (loss) from operations
Adjusting items (NGM A)
Depreciation and non-adjusting amortisation (NGM C)
EBITDA (NGM C)
Share-based payments expense
(Increase) decrease in inventories
Increase in receivables
Decrease in payables
Increase (decrease) in provisions
Net taxation (paid) received
Net (gain) loss on disposal of property, plant and equipment
Net gain on curtailment of leases
Proceeds from disposal of property, plant and equipment held for rental
Purchase of property, plant and equipment held for rental (NGM M)
Fair value gain on disposal of held-for-sale asset
Legal fees incurred defending patent infringement claim
Settlement of warranty claim related to corporate transaction
Restructuring costs
Other non-cash flow items
Net cash inflow (outflow) from operating activities
Investing activities
Interest received
Proceeds from disposal of property, plant and equipment
Proceeds from disposal of held-for-sale assets
Proceeds from disposal of business
Increase (decrease) in current investments
Investment in associates and joint ventures
Convertible financing – Well Data Labs
Purchase of property, plant and equipment (NGM M)
Purchase of intangible assets
Net cash inflow (outflow) from investing activities
Financing activities
Interest and bank fees paid
Payment of lease liabilities
Net proceeds on disposal of lease liabilities
Increase in bank borrowings
Purchase of non-controlling interest
Dividends paid to Hunting PLC shareholders
Purchase of treasury shares
Proceeds on disposal of treasury shares
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
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
37
16
17
38
36
21
25
2022
$m
2.0
12.6
37.4
52.0
9.9
(72.3)
(76.2)
61.9
0.2
(3.9)
0.3
(3.1)
0.2
(0.5)
–
(5.6)
–
–
0.3
(36.8)
1.2
6.6
–
–
6.7
(3.5)
–
(15.9)
(5.6)
(10.5)
(4.1)
(8.0)
2.2
2.9
–
(13.6)
(7.9)
0.2
(28.3)
(75.6)
107.4
(4.5)
27.3
29.4
(2.1)
27.3
2021
$m
(79.7)
44.6
38.2
3.1
9.2
26.6
(19.0)
15.2
(1.7)
0.6
(0.2)
–
–
(0.9)
(0.4)
–
(1.7)
(2.0)
(0.2)
28.6
0.6
2.2
2.2
31.5
(6.9)
(5.1)
(2.5)
(5.7)
(2.7)
13.6
(1.0)
(10.6)
−
−
(3.8)
(12.8)
(7.9)
0.3
(35.8)
6.4
101.7
(0.7)
107.4
108.4
(1.0)
107.4
Hunting PLC Annual Report and Accounts 2022Financial Statements 175
Notes to the Consolidated
Financial Statements
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 248. 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 4 to 113. The financial statements consolidate those of Hunting PLC (the “Company”) and its subsidiaries (together referred to as
the “Group”), including the Group’s interests in associates and joint ventures 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 international accounting standards in conformity with the requirements
of the Companies Act 2006. 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 (note 29). The Board’s
consideration of the applicability of the going concern basis is detailed further in the Strategic Report on page 111.
The principal accounting policies applied in the preparation of these financial statements are set out in note 41. These policies have been consistently
applied to all the years presented.
In the prior year, the consolidated income statement included presentation of alternative performance measures, previously referred to as underlying
results, in addition to IFRS measures. Hunting has revised the format of the condensed consolidated income statement in the current year to present
a single column only with IFRS measures in line with current practice and guidance. The format of the relevant income statement notes has also been
updated. Adjusted profitability measures used by management have been presented in the Non-GAAP Measures section, which includes further
information on the definitions, purpose and reconciliation to IFRS measures. The prior year numbers have not been restated as this is a presentational
change only.
Critical Judgements and Key Assumptions
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 concerning future expectations and
other key sources of estimation uncertainty at the end of the reporting period and which may have a significant risk of causing a material adjustment
to the carrying amounts of assets and liabilities within the next financial year.
Critical judgements were made in the following areas:
• In determining if the contractual terms for various significant subsea contracts met the requirements of over time revenue accounting as described
in note 41;
• In considering whether the conditions were appropriate to recognise deferred tax assets (see note 9); and
• In the assessment of whether an extension option, early termination option or a purchase option in a lessee contract is likely to be exercised by the
entity. See note 24.
The key estimates used in the preparation of the accounts were:
• The estimates of future cash flows in the budget and extended forecasts considered in the impairment test for cash generating units and the
carrying values (see note 15); and
• Estimates of future turn rates by inventory line item in determining inventory provisions (see note 20).
Climate Change
The Directors have considered the potential impact that climate change could have on the financial statements of the Group and recognise that
climate change is a principal risk that the Group will monitor and will react to appropriately. In the judgement of the Directors, the external mid and
long-term forecasts used by the Company incorporate climate change developments, and support the view that there will be robust demand for
the Group’s oil- and gas-based products for a significant time span. The Group utilises mid-term forecasts to consider whether there any concerns
regarding the carrying values or expected lives of longer-lived assets, including goodwill. Climate related risks are not expected to have a significant
adverse impact on the Group’s revenue or EBITDA in the medium term. The Directors also believe there is significant operational adaptability in the
Group’s asset base to move into other non-hydrocarbon product lines, if required.
The Directors believe that there are no other critical judgements or estimates applied in the preparation of the consolidated financial statements.
Hunting PLC Annual Report and Accounts 2022Financial Statements 176
Notes to the Consolidated
Financial Statements
1. Basis of Preparation continued
Adoption of New Standards, Amendments and Interpretations
There are no new standards that came into effect for the current financial year. A number of amended standards became effective for the financial
year beginning on 1 January 2022; however, the Group did not have to change its accounting policies or make retrospective adjustments as a result
of adopting these amendments.
Future Standards, Amendments and Interpretations
The following standards, amendments and interpretations are effective subsequent to the year-end, and have not been early adopted. The Directors
do not expect that the adoption of the standards and amendments listed below will have a material impact on the financial statements of the Group
in future periods.
• Amendments to IAS 1 and IFRS Practice Statement 2 – Disclosure of Accounting Policiesii
• Amendments to IAS 8 – Definition of Accounting Estimatesii
• Amendments to IAS 12 – Deferred Tax Related to Assets and Liabilities Arising from a Single Transactionii
• IFRS 17 Insurance Contractsii
• Amendment to IAS 1: Non-current Liabilities with Covenantsi/iv
• Amendment to IAS 1: Classification of Liabilities as Current or Non-current Liabilitiesi/iii
• Amendment to IFRS 16: Lease Liability in a Sale and Leasebacki/iv
i. Not yet endorsed by the UK as at the date of authorisation of the financial statements.
ii. Mandatory adoption date and effective date for the Company is 1 January 2023.
iii. Mandatory adoption date and effective date for the Company has been deferred until not earlier than 1 January 2024.
iv. Mandatory adoption date and effective date for the Company is 1 January 2024.
Interest Rate Benchmark Reform – Phase 2 – Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
The impact of the reform and replacement of benchmark interest rates such as GBP LIBOR and other interbank offered rates (“IBORs”) is ongoing.
None of the Group’s hedge accounting has been impacted by the reform regarding LIBOR, as none of the Group’s hedging relationships have any
exposure to interest rate benchmarks that are subject to the proposed regulatory reform. The Group’s cash at bank and in hand balances of $29.4m,
bank overdrafts of $2.1m and the bank borrowing of $2.8m at the year-end have interest rates that are referenced to Central Bank base rates and
have not been affected by the IBOR reforms. There is currently uncertainty around the precise nature of these changes. To transition existing
contracts and agreements that reference LIBOR to SONIA (in respect of Sterling denominated contracts) or SOFR (in respect of US dollar
denominated contracts), adjustments for term differences and credit differences might need to be applied to SONIA and/or SOFR, to enable
the benchmark rates to be economically equivalent on transition. Any amounts borrowed under the Asset Based Lending (“ABL”) facility, which
commenced on 7 February 2022 (see note 30(d)(i)), will be charged interest based on SOFR plus a margin. The Group’s treasury department
is responsible for managing the Group’s LIBOR transition plan.
2. Segmental Reporting
For the year ended 31 December 2022, the Group has been reporting on four 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 Hunting PLC Board
examines the Group’s performance mainly from a geographic perspective, based on the location of the operating activities, as well as by product
group, in order to understand the drivers of Group performance and trends. Due to its size and the nature of its operations, Hunting Titan’s activities
are reported separately.
The Board assesses the performance of the operating segments based on revenue and adjusted operating profit. Adjusted operating profit
is a profit-based measure and excludes the Group’s share of results from associates and joint ventures as well as the effects of adjusting items
(see NGM A). The Directors believe that using the adjusted operating profit provides a more consistent and comparable measure of the operating
segment’s financial performance from one period to the next. This adjusted measure is used by management for planning, resource allocation and
reporting purposes. Adjusted operating profit is reconciled to the unadjusted IFRS result in NGM B. It is important to note that the adjusted operating
profits are quite frequently higher than the IFRS operating profits as they often exclude significant costs and should not be regarded as a complete
picture of the operating segment’s financial performance. The operating segment’s unadjusted operating profit is also presented alongside the
adjusted operating profit.
Finance income and finance expense are not allocated to segments, as this type of activity is overseen by the Group’s central treasury function,
which manages the funding position of the Group.
Inter-segment sales are priced in line with the transfer pricing policy on an arm’s length basis and are eliminated on consolidation. Costs and overheads
are apportioned to the operating segments on the basis of time attributed to those operations by senior executives.
Accounting policies used for segmental reporting reflect those used for the Group. The UK is the domicile of Hunting PLC.
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 the
H-2™ and H-3™ 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 and Mexico, and is supported by strategically-located distribution centres across
North America.
Hunting PLC Annual Report and Accounts 2022Financial Statements 177
Notes to the Consolidated
Financial Statements
2. Segmental Reporting continued
North America
The segment’s businesses supply premium connections, oil country tubular goods (“OCTG”), subsea equipment, intervention tools, electronics
and complex deep hole drilling and precision machining services for the US, Canada and overseas markets. A significant portion of the segment’s
electronics, complex hole drilling and precision machining work is for non-oil and gas sectors. The segment also manufactures perforating system
products for Hunting Titan. Although located in the UK, Enpro has been classified as part of this segment, as it falls under the management of the
Subsea business in the US, and it participates in global offshore projects. The Group’s Canadian business now focuses on OCTG threading, which
is subcontracted to facilities which hold manufacturing licences for Hunting’s premium and semi-premium connections. The segment also includes
the results of the Group’s legacy exploration and production activities in the Southern US and offshore Gulf of Mexico.
Europe, Middle East and Africa (“EMEA”)
Hunting’s European operations comprise businesses in the UK, Netherlands and Norway. Revenue from this segment is generated from the supply
of OCTG (including threading, legacy pipe storage and accessories manufacturing) and the sale and rental of in-field well intervention products in
the UK; OCTG and well testing equipment manufacture in the Netherlands; and multi-product line services and distribution in Norway. The European
OCTG businesses are concentrating on accessory manufacturing and yard services. Hunting’s Middle East manufacturing operations are located
in Dubai, UAE and Dammam, Saudi Arabia. The Group’s operations in Saudi Arabia are carried out through a subsidiary in which Hunting has a 65%
controlling interest and Saja Energy, our business partner, which holds the remaining shares. Hunting’s manufacturing capabilities in Saudi Arabia
focus on well intervention equipment and OCTG products. In addition, Saudi Arabia acts as a sales hub for other products manufactured globally
by the Group, including Well Testing and Perforating Systems.
Asia Pacific
In Indonesia and Singapore, OCTG premium connections and accessories and well intervention equipment are manufactured. In China, OCTG
threading and perforating gun manufacturing are carried out in the facility in Wuxi. The perforating guns are sold to Hunting Titan and also in its
domestic markets. In order to diversify its revenue streams, the segment has also begun selling micro-hydro generators.
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
North America
EMEA
Asia Pacific
Total from operations
Net finance expense
Share of associates’ and joint ventures’ loss
Profit (loss) before tax from operations
Adjusting items by operating segment:
Legal fees
Impairment of goodwill
Total
segment
revenue
$m
266.0
349.7
71.5
80.4
767.6
Inter-
segment
revenue
$m
(8.2)
(24.6)
(2.2)
(6.8)
(41.8)
2022
Total
external
revenue
$m
257.8
325.1
69.3
73.6
725.8
Adjusted
result
$m
15.9
8.1
(6.0)
(3.4)
14.6
(1.7)
(2.7)
10.2
Hunting
Titan
$m
(5.6)
–
(5.6)
Adjusting
items
$m
(5.6)
(7.0)
–
–
(12.6)
–
–
(12.6)
2022
North
America
$m
–
(7.0)
(7.0)
Reported
result
$m
10.3
1.1
(6.0)
(3.4)
2.0
(1.7)
(2.7)
(2.4)
Total
$m
(5.6)
(7.0)
(12.6)
Hunting PLC Annual Report and Accounts 2022Financial Statements
178
Notes to the Consolidated
Financial Statements
2. Segmental Reporting continued
(a) Segment Revenue and Profit continued
Hunting Titan
North America
EMEA
Asia Pacific
Exceptional item not apportioned to
operating segmentsi
Total from operations
Net finance expense
Share of associates’ loss
Profit (loss) before tax from operations
Total
segment
revenue
$m
189.3
254.6
58.1
48.1
−
550.1
Inter-
segment
revenue
$m
(4.9)
(21.7)
(0.4)
(1.5)
−
(28.5)
2021
Total
external
revenue
$m
184.4
232.9
57.7
46.6
−
521.6
Adjusted
result
$m
(0.9)
(16.1)
(11.2)
(6.9)
−
(35.1)
(2.0)
(3.5)
(40.6)
Adjusting
items
$m
(8.1)
(22.6)
(15.0)
0.1
1.0
(44.6)
−
(0.3)
(44.9)
Reported
result
$m
(9.0)
(38.7)
(26.2)
(6.8)
1.0
(79.7)
(2.0)
(3.8)
(85.5)
i.
The $1.0m gain recognised on the disposal of a lease and the corresponding right-of-use asset was not allocated to an operating segment as the original property provisions were not
allocated to an operating segment at the time they were recognised.
Adjusting items by operating segment:
Amortisation of acquired intangible assets
Impairments of property, plant and
equipment
Impairments of inventories
Reversal of impairments of inventories
Settlement of warranty claim related to a
corporate transaction
Restructuring costs
Loss on disposal of business
Profit on disposal of Canadian assets
Profit on surrender of lease
Hunting
Titan
$m
(4.9)
−
(3.9)
0.8
−
(0.1)
−
−
−
(8.1)
North
America
$m
(1.8)
−
(18.9)
0.8
(1.7)
(1.2)
−
0.2
−
(22.6)
2021
EMEA
$m
−
(8.6)
(5.2)
−
−
(0.3)
(0.9)
−
−
(15.0)
Asia
Pacific
$m
−
−
−
0.5
−
(0.4)
−
−
−
0.1
A breakdown of external revenue by products and services is presented below:
Perforating Systems
OCTG
Advanced Manufacturing
Subsea
Intervention Tools
Other
Total
Revenue from products is further analysed between:
Oil and gas
Non-oil and gas
Total
Central
$m
−
−
−
−
−
−
−
−
1.0
1.0
2022
$m
251.9
258.8
75.1
69.0
36.4
34.6
725.8
678.2
47.6
725.8
Total
$m
(6.7)
(8.6)
(28.0)
2.1
(1.7)
(2.0)
(0.9)
0.2
1.0
(44.6)
2021
$m
181.7
172.5
59.6
58.8
25.8
23.2
521.6
484.0
37.6
521.6
Hunting PLC Annual Report and Accounts 2022Financial Statements
179
Notes to the Consolidated
Financial Statements
2. Segmental Reporting continued
(b) Other Segment Items
Hunting Titan
North America
EMEA
Asia Pacific
Total
Depreciationi
$m
7.5
19.2
3.6
2.7
33.0
2022
Amortisation
$m
1.3
2.8
0.3
–
4.4
Impairmentii
$m
(0.1)
5.5
1.7
–
7.1
Depreciationi
$m
7.6
21.0
3.8
3.2
35.6
2021
Amortisation
$m
6.2
2.9
0.1
0.1
9.3
Impairmentii
$m
4.4
23.9
14.1
(0.1)
42.3
i. Depreciation in 2022 comprises depreciation of property, plant and equipment $26.6m (2021 – $28.9m) and depreciation of right-of-use assets $6.4m (2021 – $6.7m).
ii.
Impairment for 2021 has been revised to reflect the change in presentation of the inventory provisions movements in note 20. Impairment comprises the reversal of net impairment of trade
and other receivables $0.6m (2021 – $1.6m net impairment charge), the net inventory impairment charge of $0.7m (2021 – $32.1m net impairment charge restated), goodwill $7.0m (2021 – $nil)
and property, plant and equipment $nil (2021 – $8.6m).
(c) Geographical Segment Information
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
North America – US
North America – UKi
North America – Canada
North America
EMEA – UKi
EMEA – Rest of Europe
EMEA – Middle East
EMEA
Asia Pacific – China
Asia Pacific – Indonesia
Asia Pacific – Singapore
Asia Pacific
Unallocated assets:
Deferred tax assets
Total non-current assets
2022
$m
178.8
2.2
1.3
182.3
268.8
4.2
0.8
273.8
19.7
5.5
1.5
26.7
10.6
2.9
5.3
18.8
13.7
515.3
2021
$m
181.5
2.4
0.6
184.5
292.5
9.4
1.2
303.1
19.5
7.2
2.1
28.8
3.3
3.2
2.5
9.0
10.3
535.7
i.
The value of non-current assets located in the UK, the Group’s country of domicile, is $23.9m (2021 – $28.9m).
Revenue from external customers attributable to the UK, the Group’s country of domicile, included in the EMEA and North America operating
segments, is $34.5m (2021 – $35.4m). Revenue attributable to foreign countries totalled $691.3m (2021 – $486.2m). Revenue attributable to the US,
the Group’s largest individual foreign country where revenue is earned, is $517.4m (2021 – $366.9m), which represents 71% (2021 – 70%) of the
Group’s revenue from external customers. Revenue attributed to an individual country is based on where the invoice is raised; however, customers
can either be domestic or international customers.
(d) Major Customer
Included in external revenue is revenue of $63.5m (2021 – $69.4m), which arose from sales to the Halliburton Company Group (“Halliburton”),
the Group’s largest customer. This represents 9% (2021 – 13%) of the Group’s revenue from external customers. All of Hunting’s operating segments
have benefited from trading with Halliburton. In 2022, no single customer contributed more than 10% to the Group’s external revenue, and in 2021
no other single customer contributed more than 10% to the Group’s external revenue.
Hunting PLC Annual Report and Accounts 2022Financial Statements 180
Notes to the Consolidated
Financial Statements
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
North America
EMEA
Asia Pacific
Total
Hunting Titan
North America
EMEA
Asia Pacific
Total
Revenue
from contracts
with customers
$m
256.5
317.8
64.8
73.5
712.6
Revenue
from contracts
with customers
$m
184.0
228.8
54.4
46.5
513.7
2022
Rental
revenue
$m
1.3
2.2
4.5
0.1
8.1
2021
Rental
revenue
$m
0.4
2.3
3.3
0.1
6.1
Other
revenue
$m
–
5.1
–
–
5.1
Other
revenue
$m
−
1.8
−
−
1.8
Total
external
revenue
$m
257.8
325.1
69.3
73.6
725.8
Total
external
revenue
$m
184.4
232.9
57.7
46.6
521.6
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. Revenue is typically recognised for products when the product
is shipped or made available to customers for collection and for services either on completion of the service or, at a minimum, monthly for services
covering more than one month. The amount of consideration is not adjusted for the effects of a significant financing component as, at contract
inception, the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good
or service will be one year or less.
4. Net Operating Income and Other Expenses
Operating income from subleasing assets (note 24)
Gain on disposal of property, plant and equipment
Gain on curtailment of leases
Fair value gain on disposal of held-for-sale asset
Government grants
Foreign exchange gainsii
Other incomeiii
Total operating income
Loss on disposal of property, plant and equipment
Foreign exchange lossesiv
Research and development costs expensed
Loss on disposal of business
Other operating expensesv
Total other operating expenses
Net operating income and other expenses
2022
$m
2.1
1.1
3.2
–
0.3
1.6
1.6
9.9
(1.4)
(1.9)
(4.8)
–
(0.2)
(8.3)
1.6
2021i
$m
1.3
0.5
1.0
0.4
0.8
0.6
0.7
5.3
(0.1)
(0.6)
(4.7)
(0.9)
(0.3)
(6.6)
(1.3)
i.
ii.
iii.
iv.
v.
The amounts disclosed for 2021 were revised, following the change in presentation of the consolidated income statement, to include amounts that were previously disclosed separately
as adjusting amounts. Details of the adjusting items can be found in NGM A.
Includes fair value losses on derivatives designated in a cash flow hedge of $0.1m (2021 – $nil) and fair value losses on derivatives designated in a fair value hedge of $nil (2021 – $0.1m).
Includes fair value gains on derivatives not designated in a hedge of $0.1m (2021 – $nil).
Includes fair value gains on derivatives designated in a fair value hedge of $0.1m (2021 – $nil).
Includes fair value losses on derivatives not designated in a hedge of $0.1m (2021 – $0.1m) and $0.1m (2021 – $nil) loss on curtailment of leases.
During the first half of 2022, the Group’s Asia Pacific operating segment completed the relocation of its facilities to a new, single site in the Tuas port
region of Singapore. As a result of this relocation, the Group disposed of the relevant lease liabilities and derecognised the related right-of-use assets,
recording a net gain of $2.4m and a net receipt of $2.4m to exit the lease at Benoi Road. The gain on Benoi Road together with other lease
curtailments resulted in a net gain of $3.1m during the year.
Hunting PLC Annual Report and Accounts 2022Financial Statements 181
Notes to the Consolidated
Financial Statements
5. Material Items
Due to their size and nature, the following items have been disclosed separately, as required by IAS 1.
Legal fees
Impairments of goodwill
Total
2022
Gross
amount
$m
(5.6)
(7.0)
(12.6)
Tax
impact
$m
–
–
–
During the year, Hunting incurred legal fees of $5.6m in defending a claim made by a competitor against the Group relating to a patent infringement.
These costs have been included in administrative expenses. No tax has arisen in relation to these legal fees due to the fact deferred tax is not
currently recognised in relation to this jurisdiction.
Following the annual review of goodwill, a charge of $7.0m was recognised in relation to Enpro Subsea. Further details can be found in note 15.
The impairment charge has been included in administrative expenses. No tax has arisen because the impairment of this goodwill is not a tax
deductible expense.
Impairments of property, plant and equipment
Net impairments of inventories
Total
2021
Gross
amount
$m
(8.6)
(25.9)
(34.5)
Tax
impact
$m
0.8
0.5
1.3
In 2021, a number of material charges were recognised following the transactions with Marubeni-Itochu that resulted in a change in the European
OCTG business’ future activity. The material charges comprised an impairment of the Fordoun property by $8.6m as the use of the property and
expected cash flows for the property changed; and the impairment of pipe inventory of $5.2m to match the net realisable value determined through
the due diligence work.
During 2021, certain inventory was written down to its net realisable value due to reduced turn rates, increased ageing of inventories and inventory
selling prices being lowered following the slower-than-anticipated return to economic growth for many developed economies after the COVID-19
pandemic, which in turn impacted the drilling activity and equipment purchasing of some of the Group’s clients. The net impairment charge
considered to be relevant for adjustment in 2021 was $25.9m, which included the $5.2m charge recognised as part of the restructuring exercise
discussed above.
6. Profit (Loss) from Operations
The following items were credited (charged) in arriving at profit (loss) from operations:
Staff costs (note 7)
Depreciation of property, plant and equipment (note 11)
Amortisation of intangible assets (included in cost of sales and administrative expenses) (note 14)
Impairments of property, plant and equipment (included in cost of sales) (note 11)
Impairment of goodwill (included in administrative expenses) (note 13)
Net gain on curtailment of leases (note 4)
Loss on disposal of business (note 4)
Fair value gain on disposal of held-for-sale asset (note 4)
Net gain (loss) on disposal of property, plant and equipment (note 4)
Net lease charges included in profit (loss) from operations (note 24)
Research and development expensed (note 4)
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
2022
$m
(194.1)
(26.6)
(4.4)
–
(7.0)
3.1
–
–
(0.3)
(5.1)
(4.8)
2022
$m
(2.8)
(0.6)
(3.4)
(0.2)
(3.6)
2021
$m
(150.7)
(28.9)
(9.3)
(8.6)
–
1.0
(0.9)
0.4
0.4
(7.3)
(4.7)
2021
$m
(2.1)
(0.5)
(2.6)
(0.2)
(2.8)
Hunting PLC Annual Report and Accounts 2022Financial Statements 182
Notes to the Consolidated
Financial Statements
7. Employees
Wages and salaries (including annual cash bonuses)
Social security costs
Share-based payments (note 37)
Pension costs
– defined contribution schemes (note 32)
– unfunded defined benefit schemesi (note 32)
Net gains on the unfunded DB scheme’s assets and liabilities 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:
Total staff costs included in reported profit (loss) from operations (note 6)
Staff costs – net gains on the unfunded DB scheme’s assets and liabilities included in net finance expense
Staff costs capitalised as R&D
i.
The amounts disclosed were revised to include the unfunded defined benefit schemes operating in the Middle East of $0.2m in 2021.
The average monthly number of employees by geographical area (including executive Directors) during the year was:
North America
Europe
Asia Pacific
Central America, Middle East and Africa
The average monthly number of employees by operating segment (including executive Directors) during the year was:
Hunting Titan
North America
EMEA
Asia Pacific
Central
The actual number of employees at the year-end was 2,258 (2021 – 1,949).
2022
$m
(164.4)
(12.7)
(9.9)
(7.2)
(0.3)
–
(194.5)
2022
$m
(194.1)
–
(0.4)
(194.5)
2022
Number
1,486
223
301
92
2,102
2022
Number
595
909
226
301
71
2,102
2021
$m
(125.0)
(9.7)
(9.2)
(7.0)
(0.2)
0.2
(150.9)
2021
$m
(150.7)
0.2
(0.4)
(150.9)
2021
Number
1,302
223
341
51
1,917
2021
Number
449
837
220
341
70
1,917
Hunting PLC Annual Report and Accounts 2022Financial Statements
183
Notes to the Consolidated
Financial Statements
7. Employees continued
Key management comprises the Board and the eleven members of the Executive Committee who acted during the year. Their aggregate
remuneration in the year was:
Salaries, annual cash bonuses and short-term employee benefits
Post-employment benefits
Share-based payments
2022
$m
(10.8)
(0.4)
(3.4)
(14.6)
2021i
$m
(5.4)
(0.3)
(2.4)
(8.1)
i. Salaries, annual cash bonuses and short-term employee benefits for 2021 have been restated to include non-executive fees of $0.6m.
Remuneration of the Board, included as part of key management compensation, can be found in the Annual Report on Remuneration on pages 145
to 154. The Annual Report on Remuneration disclosures do not include Executive Committee members who are not part of the Board and disclose
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 consolidated income statement.
The total amounts for Directors’ remuneration in accordance with Schedule 5 to the Accounting Regulations were as follows:
Salaries, annual cash bonuses and short-term employee benefits
Gains on exercise of share awards
Post-employment benefits
2022
$m
(3.9)
(0.2)
(0.2)
(4.3)
The Group contributes on behalf of the Chief Executive to a US 401K deferred savings plan and an additional deferred compensation scheme.
The Finance Director receives an annual cash sum in lieu of contributions to a company pension scheme.
8. Net Finance Expense
Finance income:
Interest on bank balances and deposits
Foreign exchange gainsi
Fair value gains on derivative financial instruments
Other finance income
Finance expense:
Interest on lease liabilities
Bank fees and commissions
Foreign exchange losses
Other finance expenseii
Net finance expense
Foreign exchange gains include gains of $0.1m (2021 – $nil) in relation to lease liabilities.
i.
ii. Other finance expense includes fair value losses on derivatives not designated in a hedge of $0.2m (2021 – $0.1m).
2022
$m
0.4
1.3
0.8
0.5
3.0
(1.2)
(2.1)
(1.0)
(0.4)
(4.7)
(1.7)
2021
$m
(2.1)
(0.2)
(0.1)
(2.4)
2021
$m
0.3
0.1
0.7
0.4
1.5
(1.5)
(1.3)
(0.6)
(0.1)
(3.5)
(2.0)
Hunting PLC Annual Report and Accounts 2022Financial Statements
184
Notes to the Consolidated
Financial Statements
9. Taxation
Current tax
– current year charge
– adjustments in respect of prior years
Deferred tax
– origination and reversal of temporary differences
– change in tax rate
– adjustments in respect of prior years
Taxation charge
2022
$m
(4.3)
(0.7)
(5.0)
3.5
(0.2)
0.4
3.7
(1.3)
2021
$m
(1.7)
(0.4)
(2.1)
(0.1)
(0.8)
(1.2)
(2.1)
(4.2)
The tax charge for the year was $1.3m (2021 – $4.2m) and the effective tax rate (“ETR”) was minus 54% (2021 – minus 5%). The Group’s ETR is
significantly different to that which might be expected from prevailing jurisdictional rates as it was impacted by a mix of profits and losses in different
businesses and is distorted when deferred tax was not fully recognised in loss-making jurisdictions. As there was a small overall loss before tax for
the year, the impact of differences in the make-up of losses and profits across the Group had a greater impact on the overall Group ETR. This is
particularly notable in the US, where deferred tax is not recognised on the federal tax losses generated in the year. The loss before tax generated in
the US (and other jurisdictions where deferred tax has not been recognised), is then offset at a Group level by profitable jurisdictions, mainly the UK,
Canada and China, where tax was recognised on these profits as they arose.
When the adjusting items are excluded, the Group’s adjusted ETR is 13% (2021 – minus 12%). The calculation of the adjusted tax charge and
adjusted effective tax rate can be found in NGM D.
The adjustments in respect of prior years within both current tax and deferred tax, totalling a charge of $0.3m (2021 – $1.6m charge) mainly relate
to true-ups of prior year balances.
Legislation to increase the UK standard rate of corporation tax from 19% to 25% from 1 April 2023 was enacted in 2021. UK deferred tax balances
have been calculated at 19% or 25% depending upon when the balance is expected to unwind.
The table below reconciles the tax on the Group’s loss 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 of 4% (2021 – 22%) was used, as this reflects the applicable rates for the
countries applied to their respective profits/losses in the year. The weighted average applicable rate is lower than one would normally expect due to
the mix of profitable and loss-making jurisdictions in the Group. The total tax charge for the year is different to the weighted average rate of tax of 4%
(2021 – 22%) for the following reasons:
Reported loss before tax
Tax at 4% (2021 – 22%)
Permanent differences including tax credits
Current year deferred tax not recognised
Recognition of previously unrecognised deferred taxes
Change in tax rates
Adjustments in respect of prior years
Taxation
2022
$m
(2.4)
0.1
(4.7)
(1.5)
5.3
(0.2)
(0.3)
(1.3)
Tax effects relating to each component of other comprehensive income were as follows:
Exchange adjustments
Fair value gains originating on cash
flow hedges arising during the year
Fair value losses transferred to the
income statement
Remeasurement of defined benefit
pension schemes
2022
Tax (charged)
credited
$m
–
Before tax
$m
(9.9)
After tax
$m
(9.9)
Before tax
$m
0.5
2021
Tax (charged)
credited
$m
−
0.4
0.1
0.1
(9.3)
(0.1)
–
–
(0.1)
0.3
0.1
0.1
(9.4)
−
−
(0.2)
0.3
−
−
−
−
The tax relating to the components of other comprehensive income comprises a deferred tax charge of $0.1m (2021 – $nil).
2021
$m
(85.5)
18.7
(3.7)
(16.8)
−
(0.8)
(1.6)
(4.2)
After tax
$m
0.5
−
−
(0.2)
0.3
Hunting PLC Annual Report and Accounts 2022Financial Statements
185
Notes to the Consolidated
Financial Statements
9. Taxation continued
Tax-related Judgements
The Group is subject to income taxes in numerous jurisdictions and significant judgement is required in determining the worldwide provision for those
taxes, as tax legislation can be complex and open to different interpretation. Deferred tax assets are only recognised to the extent that it is probable
that future taxable profits will be available, against which the temporary differences can be utilised. The recoverability of deferred tax assets is
supported by deferred tax liabilities against which the reversal can be offset and the expected level of future profits. This is considered by jurisdiction,
or by entity, dependent on the tax laws of the jurisdiction. Where there is both a history of loss making and continued loss making in the year, stronger
supporting evidence is required to meet recognition policy criteria. Supporting evidence reviewed includes: whether actual results, when excluding
non-recurring items, meet or exceed budget; the level of taxable profits generated in the base case and downside case of longer-term forecasts;
and the nature of how the deferred tax assets arose and how this relates to the ongoing activities of the business.
The recognition of deferred tax assets as at 31 December 2022 has been based on the forecast accounting profits in the 2023 and 2024 Budget and
the extended forecast period as presented to the Board. This is the same forecast that is used to derive cash flows for the goodwill impairment test,
per note 15. For periods extending beyond the extended forecast period, profits have been assumed to grow in a manner consistent with the terminal
growth rate assumptions used for impairment testing. In addition, a risk factor has been applied to reduce future profits for the extended forecast
period and beyond. These adjustments are to reflect the potential decrease in reliability of forecasts for future periods beyond the Board-approved
budget period.
Historical tax losses make up the majority of the deductible temporary differences. These losses mainly arose from varying factors including
non-recurring events such as losses arising at the start of newly formed businesses and the COVID-19-related downwards pressures on the profits
in previous years. The majority of the deferred tax not recognised in the Group is in relation to deferred tax arising in the US. Based on the review
of tax adjusted forecasts, as noted above, management have assessed that currently there is not sufficient support for the recognition of a deferred
tax asset in respect of historical tax losses and other deductible temporary differences in the US due to uncertainty in recovery. Management will
continue to monitor the position in the US and if current forecasts are met then it is expected that the recognition criteria set by Management could
be met within the next one to two years.
The main jurisdiction where we have a change in deferred tax recognition is the UK. Previously unrecognised deferred tax assets have been
recognised in the period in respect of historical tax losses and other deductible temporary differences in the UK, due to taxable profits arising in
the year and continued forecast improved profitability in future periods with the deferred tax assets being forecast to be recovered within nine years.
Recognition of the UK deferred tax asset is dependent on the accuracy of the budget and extended forecast period. In assessing the recoverability
of deferred tax assets a sensitivity analysis is applied to the extended forecast period accounting profits, to consider a plausible downside scenario.
Under the sensitivity analysis, the recovery period of the previously unrecognised deferred tax assets now recognised in the year, would be extended
by two years.
10. Loss per Share
Basic earnings (loss) per share (“EPS”) is calculated by dividing earnings (loss) attributable to Ordinary shareholders by the weighted average number
of Ordinary shares outstanding during the year.
For diluted earnings (loss) per share, the weighted average number of outstanding Ordinary shares was adjusted to assume conversion of all dilutive
potential Ordinary shares. Dilution arises through the possible issue of shares to satisfy awards made under the Group’s long-term incentive plans.
Reconciliations of the loss and weighted average number of Ordinary shares used in the calculations are set out below:
Basic LPS
Effect of dilutive long-term incentive plans
Diluted LPSi
2022
Loss
attributable to
Ordinary
shareholders
$m
(4.6)
–
(4.6)
Basic weighted
average number
of Ordinary
shares
millions
160.3
9.8
170.1
Loss
attributable to
Ordinary
shareholders
$m
(85.8)
−
(85.8)
2021
Basic weighted
average number
of Ordinary
shares
millions
161.2
5.9
167.1
Loss
per share
cents
(2.8)
–
(2.8)
Loss
per share
cents
(53.2)
−
(53.2)
i.
For the years ended 31 December 2022 and 31 December 2021, the Group reported a loss and so the effect of dilutive share options and long-term incentive plans was anti-dilutive
(i.e. they reduced the loss per share) and, therefore, they were not used to calculate diluted loss per share.
The calculation of adjusted earnings (loss) per share can be found in NGM B.
Hunting PLC Annual Report and Accounts 2022Financial Statements 186
Notes to the Consolidated
Financial Statements
11. Property, Plant and Equipment
Year ended 31 December 2022
Land and
buildings
$m
Plant, machinery
and motor
vehicles
$m
Rental tools
$m
Oil and gas
exploration and
development
$m
Cost:
At 1 January 2022
Exchange adjustments
Additions
Disposals
Reclassification from inventories (note 20)
At 31 December 2022
Accumulated depreciation and impairment:
At 1 January 2022
Exchange adjustments
Charge for the year
Disposals
At 31 December 2022
267.3
(4.5)
4.7
(12.0)
–
255.5
(80.2)
3.1
(6.0)
5.2
(77.9)
338.2
(3.5)
10.9
(13.9)
–
331.7
(261.2)
2.8
(18.2)
13.7
(262.9)
Net book amount
177.6
68.8
24.7
(1.5)
0.5
(1.2)
1.6
24.1
(16.4)
0.9
(1.9)
1.2
(16.2)
7.9
2.4
256.7
Year ended 31 December 2021
Land and
buildings
$m
Plant, machinery
and motor
vehicles
$m
Rental tools
$m
Oil and gas
exploration and
development
$m
Cost:
At 1 January 2021
Exchange adjustments
Additions
Disposals
Reclassification from inventories
Reclassification
At 31 December 2021
Accumulated depreciation and impairment:
At 1 January 2021
Exchange adjustments
Charge for the year
Impairment of assets (note 15(d))
Disposals
Reclassification
At 31 December 2021
267.7
(0.6)
1.5
(1.4)
−
0.1
267.3
(66.9)
0.5
(6.4)
(8.6)
1.3
(0.1)
(80.2)
355.0
(0.4)
3.6
(19.9)
−
(0.1)
338.2
(258.7)
0.3
(20.9)
−
18.0
0.1
(261.2)
Net book amount
187.1
77.0
The net book amount of property, plant and equipment at 1 January 2021 was $307.1m.
24.0
(0.1)
0.9
(0.6)
0.5
−
24.7
(15.8)
0.1
(1.3)
−
0.6
−
(16.4)
8.3
Total
$m
741.6
(9.5)
17.0
(27.1)
1.6
723.6
(467.2)
6.8
(26.6)
20.1
(466.9)
Total
$m
757.6
(1.1)
6.5
(21.9)
0.5
−
741.6
(450.5)
0.9
(28.9)
(8.6)
19.9
−
(467.2)
111.4
–
0.9
–
–
112.3
(109.4)
–
(0.5)
–
(109.9)
110.9
−
0.5
−
−
−
111.4
(109.1)
−
(0.3)
−
−
−
(109.4)
2.0
274.4
Included in the net book amount is expenditure relating to assets in the course of construction of $0.1m (2021 – $0.1m) for buildings, $0.9m
(2021 – $1.0m) for plant and machinery, and $nil (2021 – $5.4m) for rental tools.
Group capital expenditure committed for the purchase of property, plant and equipment, but not provided for in these financial statements,
amounted to $3.7m as at 31 December 2022 (2021 – $5.6m).
The net book amount of land and buildings of $177.6m (2021 – $187.1m) comprises freehold land and buildings of $173.7m (2021 – $185.8m)
and capitalised leasehold improvements of $3.9m (2021 – $1.3m). The net book value of land and buildings that are leased out is $5.4m
at 31 December 2022 (2021 – $4.8m).
In early July 2022, the legal process to finalise accession of the in-scope US freehold properties into the ABL Borrowing Base was completed.
The relevant US properties that security has been granted over as a requirement of the ABL had a carrying value of $88.2m at 31 December 2022.
Security was previously granted over specific PPE with a carrying value of $187.0m at 31 December 2021 as a requirement of the Group’s committed
revolving credit facility, which was terminated in February 2022.
Hunting PLC Annual Report and Accounts 2022Financial Statements 187
Notes to the Consolidated
Financial Statements
12. Right-of-use Assets
Cost:
At 1 January 2022
Exchange adjustments
New leases
Lease cessations
Modifications
At 31 December 2022
Accumulated depreciation and impairment:
At 1 January 2022
Exchange adjustments
Depreciation charge for the year
Lease cessations
At 31 December 2022
Net book amount
Cost:
At 1 January 2021
Exchange adjustments
New leases
Lease cessations
Modifications
At 31 December 2021
Accumulated depreciation and impairment:
At 1 January 2021
Depreciation charge for the year
Lease cessations
At 31 December 2021
Net book amount
The net book amount of right-of-use assets at 1 January 2021 was $29.8m.
Year ended 31 December 2022
Land and
buildings
$m
Plant, machinery
and motor
vehicles
$m
63.5
(3.0)
4.8
(8.6)
4.0
60.7
(40.1)
1.8
(6.1)
8.6
(35.8)
24.9
2.2
–
0.3
(0.2)
(0.2)
2.1
(0.9)
–
(0.3)
0.2
(1.0)
1.1
Year ended 31 December 2021
Land and
buildings
$m
Plant, machinery
and motor
vehicles
$m
88.6
(0.3)
1.7
(27.4)
0.9
63.5
(60.1)
(6.3)
26.3
(40.1)
23.4
1.9
−
0.4
(0.1)
−
2.2
(0.6)
(0.4)
0.1
(0.9)
1.3
Total
$m
65.7
(3.0)
5.1
(8.8)
3.8
62.8
(41.0)
1.8
(6.4)
8.8
(36.8)
26.0
Total
$m
90.5
(0.3)
2.1
(27.5)
0.9
65.7
(60.7)
(6.7)
26.4
(41.0)
24.7
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 $2.1m (2021 – $1.1m) for land and buildings.
During the year the Group entered into new leases of $5.1m including $4.4m for the Group’s new UK headquarters. The Group also had lease
modifications of $3.8m including a lease extension of $8.6m in Wuxi, China offset by lease curtailments of $4.7m for the Group’s previous UK
headquarters and $0.6m for a manufacturing facility disposed of as part of the consolidation of the Singapore facilities. The new lease for the facility
at Tuas, Singapore, together with the corresponding right-of-use asset, were recognised in 2021 when the lease was signed.
Hunting PLC Annual Report and Accounts 2022Financial Statements 188
Notes to the Consolidated
Financial Statements
13. Goodwill
Cost:
At 1 January
Exchange adjustments
At 31 December
Accumulated impairment:
At 1 January
Exchange adjustments
Impairment charge for the year (note 15(b))
At 31 December
Net book amount
The net book amount of goodwill at 1 January 2021 was $164.2m.
2022
$m
532.0
(4.9)
527.1
(367.9)
3.3
(7.0)
(371.6)
2021
$m
532.0
−
532.0
(367.8)
(0.1)
−
(367.9)
155.5
164.1
Details of the allocation of goodwill by cash-generating unit (“CGU”), identification of the material CGU and impairment sensitivity disclosures are given
in note 15(b).
14. Other Intangible Assets
Cost:
At 1 January 2022
Exchange adjustments
Additions
Disposals
At 31 December 2022
Accumulated amortisation and impairment:
At 1 January 2022
Exchange adjustments
Amortisation charge for the year
Disposals
At 31 December 2022
Net book amount
Customer
relationshipsi
$m
Unpatented
technology
$m
Patents and
trademarks
$m
Software
$m
Other
$m
Year ended 31 December 2022
219.8
(0.9)
–
(211.8)
7.1
(213.3)
0.2
(0.7)
211.8
(2.0)
5.1
81.9
(0.5)
1.0
–
82.4
(72.9)
0.6
(1.0)
–
(73.3)
9.1
74.9
(1.4)
0.6
(0.4)
73.7
(60.8)
0.3
(1.6)
0.4
(61.7)
12.0
14.7
(0.2)
2.3
(0.2)
16.6
(8.3)
0.2
(0.9)
0.2
(8.8)
7.8
1.9
(0.2)
1.8
–
3.5
(1.7)
0.1
(0.2)
–
(1.8)
1.7
Total
$m
393.2
(3.2)
5.7
(212.4)
183.3
(357.0)
1.4
(4.4)
212.4
(147.6)
35.7
i.
The accumulated cost, depreciation and impairment of those customer relationships where the relationship has ended or where the relationship with the customer has changed from when
the business was acquired have been disposed of during the year.
Hunting PLC Annual Report and Accounts 2022Financial Statements 189
Notes to the Consolidated
Financial Statements
14. Other Intangible Assets continued
Cost:
At 1 January 2021
Exchange adjustments
Additions
Disposals
Reclassification
At 31 December 2021
Accumulated amortisation and impairment:
At 1 January 2021
Amortisation charge for the year
Disposals
At 31 December 2021
Net book amount
Customer
relationships
$m
Unpatented
technology
$m
Patents and
trademarks
$m
Software
$m
Year ended 31 December 2021
219.9
−
−
(0.1)
−
219.8
(212.6)
(0.8)
0.1
(213.3)
6.5
80.6
−
1.5
−
(0.2)
81.9
(68.2)
(4.7)
−
(72.9)
9.0
73.9
(0.1)
0.9
−
0.2
74.9
(58.0)
(2.8)
−
(60.8)
14.1
14.4
−
0.3
−
−
14.7
(7.3)
(1.0)
−
(8.3)
6.4
Other
$m
1.9
−
−
−
−
1.9
(1.7)
−
−
(1.7)
0.2
Total
$m
390.7
(0.1)
2.7
(0.1)
−
393.2
(347.8)
(9.3)
0.1
(357.0)
36.2
The net book amount of other intangible assets at 1 January 2021 was $42.9m.
All intangible assets are regarded as having a finite life and are amortised accordingly. Amortisation charges relating to intangible assets were charged
to cost of sales and administrative expenses in the consolidated income statement.
Internally generated intangible assets have been included within patented and unpatented technology as shown in the table below:
Cost:
At 1 January
Exchange adjustments
Additions
Reclassification
At 31 December
Accumulated amortisation and impairment:
At 1 January
Exchange adjustments
Amortisation charge
At 31 December
Net book amount
2022
Internally
generated
patented
technology
$m
Internally
generated
unpatented
technology
$m
2021
Internally
generated
patented
technology
$m
Internally
generated
unpatented
technology
$m
11.8
(0.3)
0.6
–
12.1
(6.0)
0.1
(0.6)
(6.5)
5.6
28.5
(0.5)
1.0
–
29.0
(19.5)
0.6
(1.0)
(19.9)
9.1
10.7
−
0.9
0.2
11.8
(5.4)
−
(0.6)
(6.0)
5.8
27.2
−
1.5
(0.2)
28.5
(18.6)
−
(0.9)
(19.5)
9.0
Hunting PLC Annual Report and Accounts 2022Financial Statements 190
Notes to the Consolidated
Financial Statements
15. Impairment of Non-current Assets
(a) Impairment Testing Process
(i) Cash-generating Units (“CGUs”)
In Hunting, CGUs are generally separate business units. In certain cases combinations of business units that are tightly integrated through inter-
company trading or have a shared management or cost base are treated as a CGU. The recoverable amount for each CGU was 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 nominal cash
flows (inclusive of inflation) 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 its business risk profile. This method allows approved capital projects that are in progress to be included. The recoverable amount
calculations use discounted pre-tax nominal cash flow projections. The key assumptions for the recoverable amount calculations are revenue growth
rates, taking into account the impact these have on margins, terminal growth rates and the discount rates applied. 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.
For 2023 and 2024, cash flows are based on the latest detailed budget, as approved by the Board. For 2025 to 2027, management 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 applied judgemental changes to revenue
growth expectations, if appropriate, to reflect circumstances specific to the CGU. Having determined the projected revenues, management 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 2022 to 2027 vary
between 3% and 22% (2021 – CAGR from 2021 to 2026 between 6% and 25%). After 2027, a terminal value was calculated assuming growth of
50 basis points above assumed inflation (2021 – 50 basis points), giving nominal growth rates between 2% and 6% (2021 – between 0% and 4%).
Cash flows were discounted using nominal pre-tax rates between 14% and 18% (2021 – 10% and 15%). The discount rates reflected 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 was also given to other factors such as a small-cap premium, currency risk, operational risk
and country risk. Required returns on equity were determined using the CAPM model, which is then incorporated into a weighted average cost of
capital (“WACC”) calculation. Risk free rates are determined using long-dated Government borrowing instruments. As a result of the major economic
changes that occurred in 2022, these risk free rates have increased significantly and this is the main driver of the increase in rates.
We have considered indicators of impairment in the carrying value of the assets, including the excess of the value calculated under the FVLCD
methodology described above, compared to our market capitalisation and the modest excess versus the consolidated net assets of the Group.
We have considered the significant volatility of our share price over the period, the relatively illiquid nature of our share trading and specific factors
influencing the behaviour of some shareholders to exposure in our sector at present.
(ii) Impairment Tests for 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 value of either its fair value less costs of disposal, or its value-in-use. The FVLCD or the value-in-use is a Level 3 measurement
as per the fair value hierarchy as defined within IFRS 13 due to unobservable inputs used in the valuation. If the cash flows of an asset cannot be
assessed individually, then the asset or a group of assets are aggregated into a CGU and tested as described above. For loss-making associates
with material carrying values, impairment tests were conducted and no impairment was identified.
Hunting PLC Annual Report and Accounts 2022Financial Statements 191
Notes to the Consolidated
Financial Statements
15. Impairment of Non-current Assets continued
(b) Impairment Tests for Goodwill
(i) Allocation
Goodwill is allocated to the Group’s cash-generating units (“CGUs”) as follows:
CGU
Hunting Titan
US Subsea
Enpro
Dearborn
US Manufacturing
At 31 December
Operating
segment
Titan
North America
North America
North America
North America
2022
$m
114.9
15.0
5.5
7.6
12.5
155.5
2021
$m
114.9
15.0
14.1
7.6
12.5
164.1
Goodwill is tested at least annually for impairment. A charge of $7.0m (note 13) was recognised as a result of the goodwill impairment reviews carried
out in the year and related solely to the Enpro CGU (2021 – $nil). In addition to the impairment charge, the goodwill balance decreased by $1.6m due
to foreign exchange movements.
(ii) Material CGU
Hunting Titan is the only CGU that is significant in relation to the Group’s total carrying amount of goodwill, representing 74% (2021 – 70%) of the
balance. There has been a steady improvement in performance during 2022 and there continues to be a positive future outlook for US onshore activity
levels. This has resulted in headroom over the carrying value of $229.1m (2021 – $175.9m) in the year-end test in which cash flows were discounted
using a nominal pre-tax rate of 15% (2021 – 12%). Given current market expectations, there are no reasonably foreseeable changes in the expected
CAGR between 2022 and 2027 or changes in discount rates that would result in a material impairment charge in the next financial year.
(c) CGU Sensitivities
In considering sensitivities of material changes to impairment, a materiality level of $4.0m has been used (2021 – $3.5m).
(i) Enpro
At the 2021 year-end, Enpro was identified as being sensitive to potential future material impairments. Cash flows were discounted using a nominal
pre-tax rate of 16% (2021 – 13%). This change in the discount rate was the main driver of the impairment charge of $7.0m as noted above, together
with a modest reduction in management’s growth assumptions. A reduction in the forecast revenue CAGR between 2022 and 2027 by 5% in
actual results or future forecasts, or a further increase in discount rates by 2%, could result in a material impairment charge in the next financial year.
At 31 December 2002, the Group is carrying $5.5m of goodwill and $4.4m of other intangibles in respect of this CGU. Enpro is part of the North
America operating segment.
(ii) Dearborn
In the year-end test performed, cash flows were discounted using a nominal pre-tax rate of 15% (2021 – 12%) and no impairment was identified.
Should the forecast revenue CAGR deteriorate between 2022 and 2027 by 7% in actual results or future forecasts, this could result in a material
impairment charge in the next financial year. Dearborn is part of the North America operating segment.
(iii) Other CGUs
For other CGUs that carry goodwill, management has concluded that there are no reasonable changes in key assumptions that will give rise
to material goodwill impairment charges within the next financial year.
(d) Impairment of Property, Plant and Equipment
No impairment has been charged against property, plant and equipment during 2022. In 2021, an impairment charge of $8.6m was made, which
related to the restructuring of the European OCTG business and the consequential change of usage and expected cash flows for the property used
by the business. This charge was shown in the EMEA operating segment (note 2(a)).
Hunting PLC Annual Report and Accounts 2022Financial Statements 192
Notes to the Consolidated
Financial Statements
16. Investments in Associates and Joint Ventures
Movement on investments in associates and joint ventures:
At 1 January
Exchange adjustments
Additions
Share of associates’ and joint ventures’ loss for the year
At 31 December
2022
$m
19.4
(0.1)
3.5
(2.7)
20.1
2021
$m
18.1
−
5.1
(3.8)
19.4
During the year, the Group invested $1.9m in its Indian joint venture arrangement with Jindal SAW, and a further $1.6m in Cumberland Additive
Holdings LLC (“Cumberland”), increasing its effective interest to 29.2%. During 2021, the Group purchased 27% of the share capital of Cumberland
for $5.1m.
The investments in associates and joint ventures, including the name, country of incorporation and proportion of ownership interest, are disclosed
in note C19.
(a) Material Associates and Joint Ventures
The tables below provide summarised financial information for Rival Downhole Tools LC (“Rival”), which is considered to be a material associate
of the Group. The Group has a 23.5% interest in the equity shares of Rival. The information disclosed reflects the amounts presented in the financial
statements of Rival and not Hunting PLC’s share of those amounts. They have been amended to reflect adjustments made by Hunting when using
the equity method, including fair value adjustments and modifications for differences in accounting policy.
Summarised statement of comprehensive income:
Revenue
Loss from operations
Total comprehensive expense
Rival
2022
$m
39.6
(6.8)
(6.8)
2021
$m
27.2
(13.4)
(13.4)
The Group’s share of Rival’s loss from operations was $1.6m (2021 – $3.2m). Amortisation of $0.3m (2021 – $0.3m) was charged in the year to the
Group’s income statement in relation to the intangible assets recognised at the time the investment in Rival was made.
Summarised balance sheet:
Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Net assets
Reconciliation to carrying amounts:
Opening net assets at 1 January
Loss for the year
Closing net assets
Group’s share of equity %
Group’s share of net assets
Goodwill
Other intangible assets
Carrying amount at 31 December
Rival
2022
$m
24.2
17.4
41.6
(2.6)
(6.8)
(9.4)
32.2
39.0
(6.8)
32.2
23.5%
7.5
2.1
2.4
12.0
2021
$m
35.2
10.4
45.6
(0.5)
(6.1)
(6.6)
39.0
52.4
(13.4)
39.0
23.5%
9.1
2.1
2.7
13.9
(b) Individually Immaterial Associates and Joint Ventures
In addition to the material associates disclosed above, the Group also has interests in a number of individually immaterial associates and joint ventures,
all of which are unlisted, that are accounted for using the equity method. The Group’s share of the results and its aggregated assets and liabilities,
are as follows:
Aggregate carrying amount of individually immaterial associates and joint ventures
Share of immaterial associates’ and joint ventures’ loss for the year
2022
$m
8.1
(0.8)
2021
$m
5.5
(0.3)
Hunting PLC Annual Report and Accounts 2022Financial Statements 193
Notes to the Consolidated
Financial Statements
17. Investments
Non-current:
Listed equity investments and mutual funds
Well Data Labs convertible financing
Current:
Cash deposits with more than 3 months to maturity
2022
$m
1.9
2.9
4.8
–
2021
$m
1.9
2.7
4.6
6.8
In February 2021, the Group entered into a strategic alliance with Well Data Labs, a data analytics business focused on the onshore drilling market,
through the provision of $2.5m in convertible financing, which had a fair value of $2.9m (2021– $2.7m) at the year-end (note 29(b)).
18. Trade and Other Receivables
Non-current:
Prepayments
Other receivables
Current:
Contract assets (note 23)
Trade receivables
Accrued revenue
Gross receivables
Less: provisions for impairment
Net receivables
Prepayments
Other receivables
Net book amount
Current:
Contract assets (note 23)
Trade receivables
Accrued revenue
Gross receivables
Less: provisions for impairment
Net receivables
Prepayments
Other receivables
Net book amount
2022
$m
2.7
0.1
2.8
2022
Contracts
with
customers
$m
Rental
receivables
$m
Other
receivables
$m
8.6
180.1
2.0
190.7
(3.3)
187.4
–
–
187.4
Contracts
with
customers
$m
9.9
126.5
3.7
140.1
(4.3)
135.8
−
−
135.8
–
0.9
–
0.9
–
0.9
37.9
4.3
43.1
–
2.1
0.2
2.3
(0.4)
1.9
–
–
1.9
2021
Rental
receivables
$m
Other
receivables
$m
−
1.3
0.1
1.4
(0.3)
1.1
−
−
1.1
−
0.3
−
0.3
−
0.3
15.9
2.3
18.5
2021
$m
1.7
0.3
2.0
Total
$m
8.6
183.1
2.2
193.9
(3.7)
190.2
37.9
4.3
232.4
Total
$m
9.9
128.1
3.8
141.8
(4.6)
137.2
15.9
2.3
155.4
Current and non-current other receivables generally arise from transactions outside the usual operating activities of the Group and comprise
receivables from tax (VAT, GST, franchise taxes, and sales and use taxes) of $0.6m (2021 – $1.1m), derivative financial assets of $0.6m (2021 – $0.1m)
and other receivables of $3.2m (2021 – $1.4m), which are financial assets measured at amortised cost.
The Group does not hold any other collateral as security and no assets have been acquired through the exercise of any collateral previously held.
In accordance with the requirements of the Group’s committed ABL bank facility, security has been granted over certain US and Canadian trade
and other receivables, which had a carrying value of $96.3m at 31 December 2022. For the receivables pledged as security, their carrying value
approximates their fair value. Security was previously granted over certain trade and other receivables with a carrying value of $102.4m at
31 December 2021 as a requirement of the Group’s committed revolving credit facility, which was terminated in February 2022.
Hunting PLC Annual Report and Accounts 2022Financial Statements
194
Notes to the Consolidated
Financial Statements
18. Trade and Other Receivables continued
Impairment of Trade and Other Receivables
The Group applies 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 based on macro-economic information and the Group’s view of economic conditions over the
expected lives of the receivables. The contract assets relate to unbilled work in progress and have substantially the same risk characteristics as
the trade receivables for the same types of contracts. It has, therefore, been concluded that the expected loss rates for trade receivables are
a reasonable approximation of the loss rates for the contract assets.
At 31 December 2022, the ageing of the Group’s gross financial assets, based on days overdue, is as follows:
Trade receivables – contracts with customers
Trade receivables – rental receivables
Trade receivables – other
Total trade receivables
Contract assets
Accrued revenue – contracts with customers
Accrued revenue – rental receivables
Other receivables
Not
overdue
$m
101.9
0.5
0.9
103.3
8.6
2.0
0.2
3.8
117.9
1 – 30
days
$m
36.6
0.6
–
37.2
–
–
–
–
37.2
31 – 60
days
$m
17.6
0.3
–
17.9
–
–
–
–
17.9
61 – 90
days
$m
8.2
0.5
–
8.7
–
–
–
–
8.7
91 – 120
days
$m
9.5
0.1
–
9.6
–
–
–
–
9.6
More than
120 days
$m
6.3
0.1
–
6.4
–
–
–
–
6.4
Total gross
financial
assets
$m
180.1
2.1
0.9
183.1
8.6
2.0
0.2
3.8
197.7
Since the year-end 31 December 2021, there has been a modest decrease in the ageing of trade receivables despite the increase in trade receivables
by $55.0m from $128.1m to $183.1m at 31 December 2022, with trade receivables not overdue at the year-end comprising 56% of gross trade
receivables compared to 53% at 31 December 2021. Overdue debts arise due to a number of different factors, including the time taken in resolving
any disputes, a culture of slow/late payment in some jurisdictions, and some debtors experiencing cash flow difficulties.
At 31 December 2021, the ageing of the Group’s gross financial assets, based on days overdue, is as follows:
Trade receivables – contracts with customers
Trade receivables – rental receivables
Trade receivables – other
Total trade receivables
Contract assets
Accrued revenue – contracts with customers
Accrued revenue – rental receivables
Other receivables
Not
overdue
$m
66.7
0.5
0.3
67.5
9.9
3.7
0.1
1.3
82.5
1 – 30
days
$m
21.6
0.4
–
22.0
–
–
–
0.1
22.1
31 – 60
days
$m
15.7
0.3
–
16.0
–
–
–
–
16.0
61 – 90
days
$m
6.7
0.1
–
6.8
–
–
–
–
6.8
91 – 120
days
$m
7.8
–
–
7.8
–
–
–
–
7.8
More than
120 days
$m
8.0
–
–
8.0
–
–
–
0.1
8.1
Total gross
financial
assets
$m
126.5
1.3
0.3
128.1
9.9
3.7
0.1
1.5
143.3
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(b)(iv).
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. 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.
Hunting PLC Annual Report and Accounts 2022Financial Statements 195
Notes to the Consolidated
Financial Statements
18. Trade and Other Receivables continued
Impairment of Trade and Other Receivables continued
Whilst a proportion, 9% (2021 – 12%), of the Group’s trade receivables are more than 90 days overdue, the majority of 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. Where 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.
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 consolidated income statement within administrative
expenses. Subsequent recoveries of amounts previously written off are credited against the same line item.
Credit risk arises on accrued revenue where goods or services have been provided to a customer but the amount is yet to be invoiced. The accrued
revenue balance is short-term and relates to customers with a strong credit history. Therefore, the expected credit losses on this balance are
immaterial and no provision for impairment has been recognised.
During the year, the movements on the provisions for impairment were as follows:
At 1 January 2022
Charge to the consolidated income statement – lifetime expected credit losses
Unused provisions released to the consolidated income statement
Utilised against receivables written off
At 31 December 2022
Contracts
with
customers
$m
(4.3)
(0.2)
0.9
0.3
(3.3)
2022
Rental
receivables
$m
(0.3)
(0.1)
–
–
(0.4)
Total
$m
(4.6)
(0.3)
0.9
0.3
(3.7)
The provision for the impairment of trade and other receivables has decreased by $0.9m to $3.7m at the year-end, as the risk of bad debts for
the Group in the coming months decreases with the increase in activity in the oil and gas sector. Debtors are not experiencing the same cash flow
difficulties they had during the global economic downturn, which was brought about by COVID-19. Financial assets that were written off during the
year are no longer subject to enforcement activity.
At 1 January 2021
Charge to the consolidated income statement – lifetime expected credit losses
Unused provisions released to the consolidated income statement
Utilised against receivables written off
At 31 December 2021
Contracts
with
customers
$m
(4.0)
(1.6)
0.1
1.2
(4.3)
2021
Rental
receivables
$m
(0.5)
(0.3)
0.2
0.3
(0.3)
Total
$m
(4.5)
(1.9)
0.3
1.5
(4.6)
Hunting PLC Annual Report and Accounts 2022Financial Statements 196
Notes to the Consolidated
Financial Statements
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 total deferred tax shown in the balance sheet is as follows:
At 1 January
Exchange adjustments
Credit (charge) to the consolidated income statement
Change in tax rates
Total credit (charge) to the consolidated income statement
Taken direct to equity
At 31 December
2022
$m
13.7
(6.4)
7.3
2022
$m
3.5
–
3.9
(0.2)
3.7
0.1
7.3
2021
$m
10.3
(6.8)
3.5
2021
$m
5.5
0.1
(1.3)
(0.8)
(2.1)
−
3.5
The change in tax rates relates to an increase in the blended State rate applied to the recognised US deferred tax liability balance (2021 – UK deferred
tax balances). The UK standard rate of corporation tax will increase from 19% to 25% from 1 April 2023. UK deferred tax balances have been
calculated at 19% or 25% depending upon when the balance is expected to unwind.
Deferred tax assets of $354.8m gross and $87.1m tax (2021 – $377.7m gross and $92.1m tax) have not been recognised as the assessment
of recoverability at 31 December 2022 is that it is uncertain and therefore does not meet the criteria for recognition under IAS 12. This includes
$216.9m gross and $51.0m tax (2021 – $262.9m gross, and $61.5m tax) in respect of trading losses, the majority of which do not have an expiry date.
A deferred tax asset of $24.2m (2021 – $16.1m) has been recognised in respect of tax losses in various locations where recognition assessment has
provided support that sufficient future taxable profits will be available against which the tax losses could be utilised. See note 9 for further details on
the recognition assessment performed at each balance sheet date.
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
Accumulated tax depreciation
Share-based payments
Other
Tax losses
Inventory
Goodwill and intangibles
Accumulated tax depreciation
Share-based payments
Other
At
1 January
2022
$m
16.1
1.4
(14.1)
(1.6)
0.4
1.3
3.5
Exchange
adjustments
$m
(0.4)
(0.1)
0.3
0.2
–
–
–
At
1 January
2021
$m
12.0
1.0
(7.8)
(2.0)
0.4
1.9
5.5
Exchange
adjustments
$m
0.1
−
−
−
−
−
0.1
(Charge)
credit to
income
statement
$m
8.5
(0.5)
(5.7)
0.5
0.4
0.7
3.9
(Charge)
credit to
income
statement
$m
4.0
0.4
(5.7)
0.8
(0.1)
(0.7)
(1.3)
Change in
tax rates
$m
–
–
(0.2)
–
–
–
(0.2)
Taken direct
to equity
$m
–
–
–
–
0.2
(0.1)
0.1
Change in
tax rates
$m
−
−
(0.6)
(0.4)
0.1
0.1
(0.8)
Taken direct
to equity
$m
−
−
−
−
−
−
−
At 31
December
2022
$m
24.2
0.8
(19.7)
(0.9)
1.0
1.9
7.3
At 31
December
2021
$m
16.1
1.4
(14.1)
(1.6)
0.4
1.3
3.5
Net
deferred
tax
assets
$m
10.0
0.8
(0.3)
0.3
1.0
1.9
13.7
Net
deferred
tax
assets
$m
7.0
1.4
−
0.2
0.4
1.3
10.3
Net
deferred
tax
liabilities
$m
14.2
–
(19.4)
(1.2)
–
–
(6.4)
Net
deferred
tax
liabilities
$m
9.1
−
(14.1)
(1.8)
−
−
(6.8)
Hunting PLC Annual Report and Accounts 2022Financial Statements
197
Notes to the Consolidated
Financial Statements
20. Inventories
Raw materials
Work in progress
Finished goods
Gross inventories
Less: provisions for impairment
Net inventories
Gross inventories:
At 1 January
Exchange adjustments
Inventory additions
Expensed to cost of sales in the consolidated income statement
Reclassification to property, plant and equipment (note 11)
Disposal of business
At 31 December
Provisions for impairment:
At 1 January
Exchange adjustments
Charge to the consolidated income statement (cost of sales)
Provisions utilised against inventories written off
Provisions released to the consolidated income statement
At 31 December
2022
$m
118.7
82.7
120.7
322.1
(50.0)
272.1
2022
$m
263.9
(3.7)
584.5
(521.0)
(1.6)
–
322.1
(59.5)
0.9
(6.4)
9.3
5.7
(50.0)
2021
$m
87.7
51.4
124.8
263.9
(59.5)
204.4
2021i
$m
325.6
0.1
369.8
(399.6)
(0.5)
(31.5)
263.9
(37.2)
0.1
(34.4)
9.7
2.3
(59.5)
Net inventories
272.1
204.4
i.
The inventory provision movements for 2021 have been revised to align them with the current year presentation, and are discussed below.
The Group’s inventory is highly durable and is well maintained and it can hold its value well with the passing of time. The nature of our market is
that demand for products depends on the technical requirements of the projects being developed. For some markets and product lines there may
be a limited number of sales, or even no sales, to form a benchmark in the current year. Management looks at relevant historical activity levels and
has to form a judgement as to likely future demand in light of market forecasts and likely competitor activities. The complexity of this process was
exacerbated during the COVID-19 downturn, which severely impacted economic activity in both 2021 and 2021, lowering oil and gas prices and
demand, and therefore reducing inventory turn rates and increasing the ageing of inventories.
During 2021, the Group reported a $22.3m increase in the inventory provision to $59.5m, which represented 23% of gross cost balances.
Charges of $34.4m were recognised and $9.7m of provisions were utilised in the period, and $2.3m of provisions were released. A net charge of
$25.9m was recognised as a material item (note 5) and as an adjusting item (NGM A). The 2021 movement analysis has been adjusted to break out
provisions released to the income statement into the release of unutilised provisions and utilisations in the year, which have been amalgamated with
full write-offs. During 2022, conditions have improved and provisions have reduced by $9.5m to $50.0m at 31 December 2022, which represents
16% of gross cost balances. The reduction in provisions has largely been through the utilisation of provisions. New charges in the year broadly offset
the reversal of unutilised provisions that occur when inventory that has been provided for is sold for more than its net realisable value.
In 2021, the Group was carrying pressure control equipment (“PCE”) inventory in North America that was particularly impacted by the capital
constraints applied during the COVID-19 pandemic downturn. Provisions in respect of this equipment of $11.3m were carried at 31 December 2021.
At 31 December 2022, the provision is $10.9m, reflecting some utilisation against sales. This inventory is still considered sensitive to changes in future
expectations and a 20% reduction in expected turn rates would increase the provisions by $1.0m. Management has considered the judgements and
estimates made in each of the Group’s businesses and, other than PCE, has not identified any individual estimates, which in the event of a change,
would lead to a material change in the next financial period. Provisions for inventories held at NRV are subject to change if expectations change.
Inventories of $194.5m are expected to be realised within 12 months of the balance sheet date (2021 – $128.8m) and $37.2m after 12 months
(2021 – $75.6m).
In accordance with the requirements of the Group’s committed ABL bank facility, security has been granted over inventories in certain US and
Canadian subsidiaries, which had a carrying value of $142.9m. Security was previously granted over inventories with a gross value of $184.3m
at 31 December 2021 as a requirement of the Group’s committed revolving credit facility, which was terminated in February 2022.
Hunting PLC Annual Report and Accounts 2022Financial Statements 198
Notes to the Consolidated
Financial Statements
21. Cash and Cash Equivalents
Cash at bank and in hand
Fixed Term Funds
Short-term deposits with less than 3 months to maturity
Cash and cash equivalents
2022
$m
29.4
–
–
29.4
2021
$m
96.8
6.8
4.8
108.4
Cash at bank and in hand and short-term deposits are carried at amortised cost. Fixed Term Funds are financial assets carried at fair value through
profit or loss. The maximum exposure to credit risk is the carrying amount of each class of financial assets mentioned. Please see note 30(c)(i) for
further disclosures on credit risk.
As shown in note 26, cash and cash equivalents for cash flow statement purposes also includes bank overdrafts shown in borrowings in note 25.
22. Trade and Other Payables
Non-current:
US deferred compensation plan obligation (note 32(b)(i))
Other payables
Social security and other taxes
Current:
Trade payables
Accruals
Social security and other taxes
Contract liabilities (note 23)
Other payablesi
2022
$m
1.9
0.8
0.5
3.2
2022
$m
66.8
56.9
7.8
8.8
1.5
141.8
2021
$m
1.9
0.6
0.2
2.7
2021
$m
40.5
28.7
5.9
6.1
1.8
83.0
i. Other payables include derivative financial liabilities of $0.1m (2021 – $0.2m).
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 (note 18)
Net trade receivables – contracts with customers
2022
$m
8.6
(8.8)
180.1
(3.3)
176.8
2021
$m
9.9
(6.1)
126.5
(4.3)
122.2
2020
$m
9.8
(2.4)
109.1
(4.0)
105.1
(a) Significant Changes in Contract Assets and Contract Liabilities
Contract assets decreased from $9.9m at 31 December 2021 to $8.6m at 31 December 2022 due to decreased levels of bespoke customer
work-in-progress in the Subsea Spring business, which were offset by an increase in bespoke customer work-in-progress in Dearborn.
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 increased from $6.1m at 31 December 2021 to $8.8m at 31 December 2022, reflecting the improvement in orders
for the region.
Hunting PLC Annual Report and Accounts 2022Financial Statements
199
Notes to the Consolidated
Financial Statements
23. Contract Assets and Liabilities continued
(b) Revenue Recognised in Relation to Contract Liabilities
The following table shows how much of the revenue recognised in the relevant 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
(c) Unsatisfied Performance Obligations
2022
$m
29.7
–
29.7
2021
$m
2.2
−
2.2
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 expected to be recognised as revenue in the following periods:
Hunting Titan
North America
EMEA
Asia Pacific
Revenue within 1 year
Revenue after 1 year
2022
Revenue
$m
29.8
312.5
28.3
102.4
473.0
402.3
70.7
473.0
2021
Revenue
$m
13.7
156.3
21.8
19.7
211.5
180.6
30.9
211.5
The amounts disclosed above do not include variable consideration, which is subject to significant risk of reversal.
It is expected that 85% of the transaction price allocated to unsatisfied performance obligations as of 31 December 2022 will be recognised as revenue
in the 2023 financial year (2021 – 85% in 2022) and the remaining 15% in future years (2021 – 15% after 2022).
24. Leases
The Group leases various offices, warehouses, equipment and vehicles. Rental contracts for offices and warehouses are typically made for fixed
periods of between three and ten years, but may have extension options as described below. Rental contracts for equipment and vehicles are
typically made for fixed periods of between three and seven years. The Group also has short-term leases and leases of low-value assets. 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.
As at 31 December 2022, the Group did not have any commitments for leases that were due to commence in 2023 or later. There were no
commitments for leases at the end of 2021.
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 is 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 Consolidated Balance Sheet
The analysis of right-of-use assets is presented in note 12.
Lease liabilities
Current
Non-current
2022
$m
9.1
21.5
30.6
2021
$m
8.9
22.9
31.8
During the first half of 2022, the Group’s Asia Pacific operating segment completed the consolidation of its facilities to a single site in the Tuas port
region of Singapore. As a result of this relocation, the Group exited a number of leases, with the lease for Tuas signed in October 2021 for an initial
term of three years. During the year, the Group‘s UK headquarters moved to different premises, with the lease at Hanover Square reassigned and
a new ten-year lease for the Panton Street premises signed.
During the second half of the year, Wuxi, China extended a lease on one of its facilities, thereby increasing lease liabilities.
Hunting PLC Annual Report and Accounts 2022Financial Statements
200
Notes to the Consolidated
Financial Statements
24. Leases continued
(b) Amounts Recognised in the Consolidated Income Statement
The consolidated income statement includes the following amounts relating to leases:
Depreciation of right-of-use assets (note 12)
Net gain on surrender of leases (note 4)
Expense relating to short-term leases and leases of low-value assets
(included in cost of sales and administrative expenses)
Lease charges included in profit (loss) from operations
Interest on lease liabilities (included in finance costs) (note 8)
Foreign exchange gains on lease liabilities (note 8)
Lease charges included in loss before tax
2022
$m
(6.4)
3.1
(1.8)
(5.1)
(1.2)
0.1
(6.2)
2021
$m
(6.7)
1.0
(1.6)
(7.3)
(1.5)
–
(8.8)
Following the relocation of the Group’s Asia Pacific businesses’ facilities to a new, single site in the Tuas port region of Singapore, relevant lease
liabilities were disposed and the related right-of-use assets were derecognised, recording a net gain of $2.4m on the lease at Benoi Road.
The gain on Benoi Road together with other lease curtailments in the period resulted in a net gain of $3.1m during the year, which was recognised
in net operating income and other expenses in note 4.
(c) Amounts Recognised in the Statement of Cash Flows
Payments for short-term and low-value leases (included as part of net cash inflow from operating activities)
Payments for capitalised leases
Lease surrender receipt (payment) – consolidated statement of cash flows
2022
$m
(1.8)
(8.0)
2.2
(7.6)
2021
$m
(1.6)
(9.3)
(1.3)
(12.2)
Payments for short-term leases, payments for leases of low-value assets and variable lease payments that are not included in the measurement of the
lease liabilities are presented within cash flows from operating activities. Payments for the principal and interest elements of recognised lease liabilities
and the lease surrender payment are presented within cash flows from financing activities.
The Group received a net receipt of $2.4m to exit the lease at Benoi Road and made lease curtailment payments of $0.2m in the year, resulting
in a net receipt of $2.2m in the consolidated statement of cash flows.
On 19 April 2021, the lease and the sub-lease on a property held by a UK head office company were surrendered. A final payment of $1.3m was
made to settle the lease.
The analysis of the contractual, undiscounted cash flows relating to lease liabilities is shown in note 30(d)(iii).
(d) 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. Income from subleasing these assets during the year was $2.1m (2021 – $1.3m) and is included in operating income note 4. The Group
also earns revenue from the rental of tools, which are items of property, plant and equipment, as disclosed in note 11. Rental revenue earned during
the year was $8.1m (2021 – $6.1m) as shown in note 3.
The table below shows the maturity analysis of the undiscounted future lease payments expected to be received in relation to non-cancellable
operating leases:
Year one
Year two
Year three
Year four
Year five
Year six
Total lease income receivable
Property
2022
$m
1.9
1.0
0.9
0.7
0.7
0.7
5.9
Property
2021
$m
0.7
0.7
0.5
0.3
–
–
2.2
Hunting PLC Annual Report and Accounts 2022Financial Statements
201
Notes to the Consolidated
Financial Statements
25. Borrowings
Non-current:
Shareholder loan from non-controlling interest
Current:
Bank borrowings unsecured (note 30(d)(i))
Bank overdrafts secured
Total borrowings
2022
$m
3.9
2.8
2.1
4.9
8.8
2021
$m
3.9
–
1.0
1.0
4.9
In accordance with the requirements of the Group’s committed ABL bank facility, security has been granted over certain freehold property,
receivables and inventories. The carrying amounts of the assets pledged as security are disclosed in notes 11, 18 and 20. Security was previously
granted over certain property, plant and equipment, receivables and inventories as a requirement of the Group’s committed revolving credit facility.
The shareholder loan from a non-controlling interest, bank borrowings and the bank overdrafts are financial liabilities measured at amortised cost.
The shareholder loan and bank overdrafts are denominated in US dollars and the bank borrowings are denominated in Renminbi. The shareholder
loan is interest-free and not repayable on demand.
26. Changes in Net Cash (Debt)
Hunting operates a centralised treasury function that manages all cash and loan positions throughout the Group and ensures funds are used
efficiently through the use of cash concentration account structures and other such measures. Net cash (debt) (NGM K) is a non-GAAP measure;
however, management and the Group treasury function monitor total cash and bank (NGM J) to ensure there is sufficient liquidity to meet business
requirements. As the Group manages funding on a total cash and bank basis, internal reporting focuses on changes in total cash and bank and this
is presented in the Strategic Report. The net cash (debt) reconciliation below provides an analysis of the movement in the year for each component
of net cash (debt) split between cash and non-cash items. Net cash (debt) comprises total cash and bank less total lease liabilities and the
shareholder loan from a non-controlling interest.
Cash and cash equivalents (note 21)
Bank overdrafts secured (note 25)
Cash and cash equivalents – per cash flow statement
Cash deposits with more than 3 months to maturity (note 17)
Total lease liabilities (note 24)
Shareholder loan from non-controlling interest (note 25)
Bank borrowings (note 25)
Liabilities arising from financing activities
Total net cash (debt)
At
1 January
2022
$m
108.4
(1.0)
107.4
6.8
(31.8)
(3.9)
–
(35.7)
78.5
Non-cash
movements
on lease
liabilitiesi
$m
–
–
–
Exchange
movements
$m
(4.5)
–
(4.5)
At
31 December
2022
$m
29.4
(2.1)
27.3
–
(8.4)
–
–
(8.4)
(8.4)
(0.1)
1.6
–
0.1
1.7
(2.9)
–
(30.6)
(3.9)
(2.8)
(37.3)
(10.0)
Cash flow
$m
(74.5)
(1.1)
(75.6)
(6.7)
8.0
–
(2.9)
5.1
(77.2)
i. Non-cash movements on lease liabilities comprise new leases of $4.6m, lease modifications of $2.6m and interest expense of $1.2m.
During the year, $1.0m of loan facility fees were amortised and $3.0m were paid in respect of the Asset Based Lending (“ABL”) facility. The fees for the
ABL facility were capitalised in prepayments and are amortised over the expected useful life of the facility.
Cash and cash equivalents (note 21)
Bank overdrafts secured (note 25)
Cash and cash equivalents – per cash flow statement
Cash deposits with more than 3 months to maturity (note 17)
Total lease liabilities (note 24)
Shareholder loan from non-controlling interest (note 25)
Liabilities arising from financing activities
Total net cash (debt)
At
1 January
2021
$m
102.9
(1.2)
101.7
–
(40.3)
(3.9)
(44.2)
57.5
Non-cash
movements
on lease
liabilitiesi
$m
–
–
–
–
(2.3)
–
(2.3)
(2.3)
Exchange
movements
$m
(0.7)
–
(0.7)
At
31 December
2021
$m
108.4
(1.0)
107.4
(0.1)
0.2
–
0.2
(0.6)
6.8
(31.8)
(3.9)
(35.7)
78.5
Cash flow
$m
6.2
0.2
6.4
6.9
10.6
–
10.6
23.9
i. Non-cash movements on lease liabilities comprise new leases of $1.8m, interest expense of $1.5m and lease modifications of $1.0m, offset by disposals of $2.0m.
During 2021, $0.3m of loan facility fees were amortised and $0.3m were paid in respect of the ABL facility.
Hunting PLC Annual Report and Accounts 2022Financial Statements 202
Notes to the Consolidated
Financial Statements
27. Provisions and Contingent Liabilities
(a) Provisions
At 1 January 2022
Exchange adjustments
Charged to the consolidated income statement
Charged to right-of-use assets
Provisions utilised
Unwinding of discount
Unutilised amounts reversed
Remeasurement
At 31 December 2022
Provisions are due as follows:
Current
Non-current
Asset
decommissioning
and
remediation
$m
4.3
(0.1)
–
0.5
(0.6)
0.1
(0.1)
(0.4)
3.7
Other
$m
3.8
(0.1)
2.2
–
(0.7)
–
–
–
5.2
2022
$m
4.6
4.3
8.9
Total
$m
8.1
(0.2)
2.2
0.5
(1.3)
0.1
(0.1)
(0.4)
8.9
2021
$m
3.1
5.0
8.1
Asset decommissioning and remediation obligations of $3.7m (2021 – $4.3m) relate to the Group’s obligation to restore leased properties and the
Group’s obligation to dismantle, remove and restore items of property, plant and equipment for the Group’s legacy exploration and production (“E&P”)
activities. The restoration provisions of $1.5m are expected to be utilised at the end of the respective leases, with $0.1m within one year, $0.9m within
two years and $0.5m in ten years. The provision of $2.2m in relation to the Group’s E&P activities is expected to be used over the next twelve years,
with approximately $0.2m within one year, $1.3m in year two and $0.7m in years seven to twelve. The timing and amounts of these payments are best
estimates based on operators’ and reserve engineers’ experience. Provision is made on a discounted basis; however, the impact of discounting is not
material.
Other provisions include provisions for onerous contracts of $0.7m (2021 – $0.4m), restructuring provisions of $0.2m (2021 – $0.3m), provision for a
pension fund for officers and ratings in the mercantile marine industry from a legacy subsidiary of $0.9m (2021 – $1.0m), warranties and tax indemnities
of $1.1m (2021 – $1.6m), litigation costs of $1.8m (2021 – $nil) and $0.5m (2021 – $0.5m) for various other items.
(b) Contingent Liabilities
The Group recognises provisions for liabilities when it is more likely than not a settlement will be required and the value of the economic outflow can
be estimated reliably. Liabilities that are not provided for in the financial position of the Group are disclosed, unless the probability of an economic
outflow is considered to be remote. In the 2021 Annual Report and Accounts, a claim against the Group from a competitor relating to a patent
infringement was disclosed. The Group continues to deny any such infringement and will defend this claim robustly. The legal case was settled in
Hunting’s favour in early January 2023. However, the competitor still has the right to make an appeal. Based on the legal process conducted to date,
and an update from the legal advisers, Hunting does not believe that an outflow is probable. Although management continues to believe it is unlikely
the case will be lost, the maximum potential exposure, based on legal advice, is estimated at $3.0m.
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. However, where derivatives
do not meet the hedge accounting criteria, they are classified as “held for trading” for accounting purposes and are accounted for at fair value through
profit or loss. The Group has used spot and forward foreign exchange contracts to hedge its exposure to exchange rate movements during the year.
Foreign exchange outright contracts are used to manage exposures, with funding swaps being used to produce required currencies when needed.
Fair values of outstanding derivative financial instruments:
Forward foreign exchange contracts – cash flow hedges
Forward foreign exchange contracts – fair value hedges
Foreign exchange swaps – not in a hedge
Net book amount
2022
2021
Total
assets
$m
0.4
0.1
0.1
0.6
Total
liabilities
$m
–
–
(0.1)
(0.1)
Total
assets
$m
−
−
0.1
0.1
Total
liabilities
$m
−
−
(0.2)
(0.2)
Net fair value gains on contracts that are not designated in a hedge relationship of $0.6m (2021 – $0.5m) were recognised in the consolidated income
statement during the year, with $nil (2021 – $0.1m loss) in net operating income and other expense (note 4) and a net $0.6m gain (2021 – $0.6m gain)
in net finance expense (note 8).
Hunting PLC Annual Report and Accounts 2022Financial Statements 203
Notes to the Consolidated
Financial Statements
28. Derivatives and Hedging continued
(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 receivables and payables during the year. The value of the forward foreign exchange contract matches the value of the trade receivables and
payables and they move in opposite directions as a result of movements in the GBP/USD or EUR/USD exchange rates, being the hedged risk. Fair
value gains of $0.1m (2021 – $0.1m losses) were recognised in the consolidated income statement in net operating income and other expense (note 4)
during the year. At the year-end, the fair value of derivative assets designated in a fair value hedge was $0.1m (2021 – immaterial).
(c) Cash Flow Hedge
The Group entered into contracts to purchase materials from suppliers in a currency other than the Group 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, EUR/USD, EUR/NOK, EUR/GBP, GBP/USD and the CNY/USD exchange rates, being
the hedged risk. This will effectively result in recognising inventory at the fixed foreign currency rate for the hedged purchases. It is anticipated that the
materials will be sold within 12 months after purchase, at which time the amount previously deferred in equity and included as part of the cost of
inventory, will impact profit or loss as part of the cost of inventories sold.
The Group also entered into forward foreign exchange contracts to hedge certain receipts from customers and these highly probable forecast
transactions have been designated in a cash flow hedge relationship. The value of the forward foreign exchange contract matches the value of the
forecast cash flow and they move in opposite directions as a result of movements in the GBP/USD, GBP/NOK and GBP/EUR exchange rates, being
the hedged risk. It is anticipated that the trade receivables will be collected within 12 months after the invoice is issued, at which time the amount
previously deferred in equity, will be taken to profit or loss.
During the year, the Group entered into contracts to purchase a machine and an intangible asset from suppliers in a currency other than the Group
subsidiary’s functional currency. These highly probable forecast transactions have been designated in a cash flow hedge relationship and hedged
using forward foreign exchange contracts. The value of the forward foreign exchange contract matches the value of the forecast asset purchases
and they move in opposite directions as a result of movements in the GBP/USD and EUR/USD, being the hedged risk. This will effectively result
in recognising the assets at the fixed foreign currency rate for the hedged purchases. As the fair value gains or losses will form part of the base
cost of the assets, these will impact profit or loss as part of the depreciation or amortisation charge of the assets.
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. The balance on the cash flow hedge reserve at the beginning of the year is immaterial and at the year-end is a post-tax
gain of $0.3m. The movements during the year are shown in note 34.
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
2022
0.4
18.5
3 January 2023 to
21 August 2023
1:1
(0.4)
2021
<0.1
2.4
18 January 2022 to
3 January 2023
1:1
<(0.1)
$m
$m
$m
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 consolidated
income statement during the year and previous year.
(d) 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.
29. Financial Instruments
This note provides information about the Group’s financial instruments, including an overview of all financial instruments held by the Group; specific
information about each type of financial instrument; and information about determining the fair value of the instruments, including judgements and
estimation uncertainty involved.
The Group’s exposure to various risks associated with the financial instruments is discussed in note 30. The maximum exposure to credit risk at the
end of the reporting period is the carrying amount of each class of financial assets. Contract assets are not financial assets; however, they are explicitly
included in the scope of IFRS 7 for the purpose of the credit risk disclosures in note 30.
Hunting PLC Annual Report and Accounts 2022Financial Statements 204
Notes to the Consolidated
Financial Statements
29. Financial Instruments continued
(a) Financial Instruments at Amortised Cost
The carrying values of the Group’s financial instruments at amortised cost are as follows:
Financial assets at amortised cost:
Trade and other receivables (note 18):
Trade receivables
Accrued revenue
Other receivables – non-current
Other receivables – currenti
Less: provisions for impairment
Cash and cash equivalents (note 21):
Cash at bank and in hand
Cash deposits with less than 3 months to maturity
Investments (note 17):
Cash deposits with more than 3 months to maturity
Financial liabilities at amortised cost:
Trade and other payablesii (note 22):
Trade payables
Accruals – currentiii
Other payables – currentiv
Borrowings (note 25):
Shareholder loan from non-controlling interest
Bank borrowings unsecured
Bank overdrafts secured
2022
$m
2021
$m
183.1
2.2
0.1
3.1
(3.7)
29.4
–
–
214.2
(66.8)
(29.4)
(1.0)
(3.9)
(2.8)
(2.1)
(106.0)
128.1
3.8
0.3
1.1
(4.6)
96.8
4.8
6.8
237.1
(40.5)
(21.5)
(1.2)
(3.9)
–
(1.0)
(68.1)
i. Excludes non-financial assets of $0.6m (2021 – $1.1m) and those financial assets measured at fair value of $0.6m (2021 – $0.1m).
ii. Excludes non-current payables of $0.8m (2021 – $0.6m) as these are non-financial liabilities.
iii. Excludes accruals of $27.5m (2021 – $7.2m) for accruals recognised under IAS 19 and IFRS 2 that are outside the scope of IFRS 7. 2021 accruals were restated to exclude these items.
iv. Excludes non-financial liabilities of $0.4m (2021 – $0.4m) and financial liabilities measured at fair value of $0.1m (2021 – $0.2m).
Amounts recognised in profit or loss in relation to financial instruments carried at amortised cost were:
Net foreign exchange gains (losses) included in operating income and other operating expenses (note 4)
Net foreign exchange gains (losses) included in net finance expense (note 8)
Interest on bank balances and deposits (note 8)
Bank fees and commissions (note 8)
Other finance income (note 8)
(b) Financial Instruments Measured at Fair Value
(i) Valuation Techniques used to Determine Fair Values
There have been no changes to the valuation techniques used during the year since the previous year-end.
2022
$m
(0.3)
0.2
0.4
(2.1)
0.1
2021
$m
0.1
(0.5)
0.3
(1.3)
–
Fixed Term Funds (“FTFs”) and money market funds (“MMFs”) are debt instruments measured at fair value through profit or loss, with the fair value
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 value gains on these instruments were immaterial in the year and were recognised in finance income.
The listed equity investments and mutual funds are equity instruments measured at fair value through profit or loss, with the fair value 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 value gain
or loss for the year was $nil on these instruments. The fair value gain in 2021 of $0.2m was recognised in finance income (note 8) during the year.
The fair value of the convertible financing provided to Well Data Labs in February 2021 was determined by considering the probability weighted
average of the different scenarios’ discounted cash flows using a discount rate of 12% (2021 – 8%). The most significant unobservable inputs to the
fair value calculation are the probability of a conversion to equity and change of control assumptions. The fair value at 31 December 2022 was $2.9m
(2021 – $2.7m) (note 17), with fair value gains of $0.2m (2021 – $0.2m) recognised in finance income during the year (note 8). At 31 December 2022,
management considers there to be no reasonable changes in unobservable inputs that would result in a significant change in fair value.
The following instruments do not qualify for measurement at either amortised cost or at fair value through other comprehensive income (“FVTOCI”).
Therefore they are financial instruments that have mandatorily been measured at fair value through profit or loss (“FVTPL”):
• 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 foreign exchange market on the balance sheet date. Details of the fair value gains and losses
recognised during the year on derivative contracts are given in note 28.
• The fair value of foreign currency swaps is determined by calculating the present value of the estimated future cash flows in each currency for both
legs of the swap based on observable yield curves. One leg’s present value is converted into the other currency using the current spot exchange rate.
Hunting PLC Annual Report and Accounts 2022Financial Statements 205
Notes to the Consolidated
Financial Statements
29. Financial Instruments continued
(b) Financial Instruments Measured at Fair Value continued
(ii) Fair Value Hierarchy
The following tables present the Group’s net financial assets and liabilities that are measured and recognised 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
Well Data Labs convertible financing
Current derivatives in a hedge
Derivative financial assets
Current derivatives held for trading
Derivative financial assets
Derivative financial liabilities
Equity instruments at fair value through profit or loss
Listed equity investments and mutual funds
Debt instruments at fair value through profit or loss
Well Data Labs convertible financing
Fixed Term Funds
Current derivatives held for trading
Derivative financial assets
Derivative financial liabilities
Fair value at
31 December
2022
$m
1.9
2.9
0.5
0.1
(0.1)
5.3
Fair value at
31 December
2021
$m
1.9
2.7
6.8
0.1
(0.2)
11.3
Level 1
$m
Level 2
$m
Level 3
$m
1.9
–
–
–
–
1.9
–
–
0.5
0.1
(0.1)
0.5
–
2.9
–
–
–
2.9
Level 1
$m
Level 2
$m
Level 3
$m
1.9
–
6.8
–
–
8.7
–
–
–
0.1
(0.2)
(0.1)
–
2.7
–
–
–
2.7
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.
Level 3 – unobservable inputs used in the valuation.
• 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 FTFs and listed equities and mutual funds are based on quoted market prices, and therefore the fair value measurements are
categorised in Level 1 of the fair value hierarchy.
• Due to unobservable inputs used in the valuation, the fair value of the Well Data Labs financial asset is a Level 3 measurement as per the fair value
hierarchy.
(iii) Amounts Recognised in Profit or Loss
During the year, the following gains and losses were recognised in relation to financial instruments measured at fair value through profit or loss:
Fair value gains on the listed equities and mutual funds (other finance income – note 8)
Fair value gain on Well Data Labs convertible financing (other finance income – note 8)
Fair value gains on money market funds (other finance income – note 8)
Fair value gains (losses) on financial instruments mandatorily measured at fair value through profit or loss:
Net fair value gains (losses) on derivative financial instruments (note 4)
Net fair value gains on derivative financial instruments (net finance expense – note 8)
Fair value gain on disposal of held-for-sale asset – operating income (note 4)
2022
$m
0.1
0.2
0.1
–
0.6
–
2021
$m
0.2
0.2
–
(0.2)
0.6
0.4
The fair value gains on the listed investments and mutual funds and the Well Data Labs convertible financing are unrealised gains recognised in profit
or loss attributable to balances held at the end of the reporting period.
(iv) Fair Values of Other Financial Instruments Carried at Amortised Cost
Due to their short-term nature, the carrying value of cash deposits with more than three months to maturity, contract assets, trade receivables,
accrued revenue, other receivables considered to be financial assets, cash and cash equivalents, trade payables, accruals and other payables
considered to be financial liabilities, bank overdrafts and bank borrowings approximates their fair value.
Hunting PLC Annual Report and Accounts 2022Financial Statements 206
Notes to the Consolidated
Financial Statements
30. Financial Risk Management
The Group’s activities expose it to certain financial risks, namely market risk (including currency, fair value interest rate and cash flow interest rate
risks), as well as 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 risks 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,
together with the investment of surplus cash. 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 cooperation with the Group’s operating companies.
(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, Chinese Renminbi and Saudi Arabia Riyal. Foreign exchange risks arise from future commercial 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.
Foreign exchange rates that the Group has the largest exposures to are:
Average exchange rate to US dollars
Year-end exchange rate to US dollars
Sterling
Chinese Renminbi
Saudi Arabia Riyal
Canadian dollars
2022
0.81
0.83
2021
0.73
0.74
2022
6.73
6.92
2021
6.45
6.37
2022
3.75
3.75
2021
3.75
3.75
2022
1.30
1.35
2021
1.25
1.26
The aggregate net foreign exchange losses recognised in profit or loss during the year were $nil (2021 – $0.4m loss).
(i) Transactional Risk
The exposure to exchange rate movements in significant future commercial 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.
Treasury engages with business units to help identify transactional exposures. External hedging activity is then performed by Treasury on behalf
of the business units to ensure that transactional risk is managed appropriately and in accordance with Treasury policy. 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 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 consolidated income statement in the following year.
At 31 December 2022
Functional currency of Group’s entities:
Sterling
US dollars
Canadian dollars
Euro
Chinese CNY
At 31 December 2021
Functional currency of Group’s entities:
Sterling
US dollars
Canadian dollars
Euro
Chinese CNY
Currency of denomination
Sterling
$m
US
dollars
$m
UAE
dirham
$m
Singapore
dollars
$m
Saudi Arabia
Riyal
$m
Chinese
Renminbi
$m
Other
currencies
$m
–
(2.8)
–
(0.1)
–
(2.9)
(2.2)
–
(1.5)
0.6
(0.1)
(3.2)
–
(1.2)
–
–
–
(1.2)
–
(1.3)
–
–
–
(1.3)
–
1.4
–
–
–
1.4
–
2.4
–
–
–
2.4
(0.1)
(0.1)
–
–
–
(0.2)
Currency of denomination
Sterling
$m
US
dollars
$m
UAE
dirham
$m
Singapore
dollars
$m
Saudi Arabia
Riyal
$m
Chinese
Renminbi
$m
Other
currencies
$m
–
(0.5)
–
(0.5)
–
(1.0)
0.9
–
(1.6)
0.9
0.1
0.3
–
(1.5)
–
–
–
(1.5)
–
(2.0)
–
–
–
(2.0)
–
(0.4)
–
–
–
(0.4)
–
0.1
–
–
–
0.1
0.1
(0.5)
–
–
–
(0.4)
Total
$m
(2.3)
(1.6)
(1.5)
0.5
(0.1)
(5.0)
Total
$m
1.0
(4.8)
(1.6)
0.4
0.1
(4.9)
Financial instruments comprise cash balances, trade and other receivables, accrued revenue, trade and other payables, accrued expenses, finance
lease liabilities, provisions and intra-Group balances. Derivatives designated in a cash flow hedge are excluded as fair value gains and losses arising
on these are recognised in other comprehensive income.
Hunting PLC Annual Report and Accounts 2022Financial Statements 207
Notes to the Consolidated
Financial Statements
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. This has previously been hedged using foreign exchange swaps
that have been designated in a net investment hedge to hedge the foreign currency translation risk. 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. The accumulated foreign exchange net post-tax gains included in
the currency translation reserve in respect of net investment hedges at the beginning and end of the year is $25.0m.
(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 Group’s 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, investments, derivative financial instruments, accrued revenue, outstanding trade
receivables, other receivables and contract assets.
At the year-end, the Group had credit risk exposure 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 whether through exposure to individual
customers, specific industry sectors and/or regions.
(i) Credit Risk: Total Cash and Bank
Hunting PLC’s Board approves the treasury policies that determine which counterparties can be used. Due diligence is carried out prior to the
authorisation of a bank or financial institution as an approved counterparty. For banks and financial institutions, exposure limits are set for each
approved counterparty, as well as the types of transactions that may be entered into. Approved institutions that the Group’s 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 AAA-mf Fitch rating for money market funds. 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, cash at bank and in hand totalled $29.4m (2021 – $96.8m), with $19.7m (2021 – $80.8m) deposited with banks with Fitch short-term
ratings of F1 to F1+. Of the remaining $9.7m (2021 – $16.0m), $6.2m (2021 – $14.9m) 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. This cash balance could
be used by the Group to service intercompany loans, which total $5.2m at the year-end. In order for the Group to access the balance of $1.0m,
a dividend would need to be declared.
During the year, the treasury function invested surplus cash in line with its cash management and investment policies in short-term deposits,
Fixed Term Funds (“FTFs”) and money market funds (“MMFs”). The use of these deposits and funds enables the treasury function to diversify
its counterparty concentration risk by depositing funds with various financial institutions and improve the yields on a portion of its surplus cash.
Each FTF is 100% maturity-matched with a single, self-liquidating, investment-grade fixed income instrument, which is transparent to the investor.
Unless there is a credit issue with the underlying issuer, FTFs are not dependent on secondary market sales for liquidity. As all proceeds from each
FTF are derived from the maturity of a single underlying instrument, the maturity amount of each FTF is known precisely on the date of investment.
All FTFs offer exposure to financial institutions with investment-grade credit ratings.
The credit ratings of the financial institutions where the Group’s total cash and bank balances have been invested are listed below:
Cash at bank and in hand
Cash at bank and in hand
Short-term deposits with less than 3 months to maturity
Cash deposits with more than 3 months to maturity
Fixed Term Funds
Derivative financial assets
Derivative financial assets
F1 to F1+
Credit rating
Fitch
N/A
Fitch
Fitch
Fitch
Fitch
Fitch
F2
F1
F1
AA-(dcr)
A+(dcr)
2022
$m
19.7
9.7
–
–
–
0.2
0.4
2021
$m
80.8
16.0
4.8
6.8
6.8
–
0.1
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.
Hunting PLC Annual Report and Accounts 2022Financial Statements 208
Notes to the Consolidated
Financial Statements
30. Financial Risk Management continued
(c) Credit Risk continued
(ii) Credit Risk: Receivables
The Group makes sales to a large number of different customers; however a significant proportion of sales are made to service companies in the
oil and gas sector. The majority of the Group’s customers are based in North America. On a quarterly basis, the Group’s entities submit information
to the head office on individual receivables balances greater than $0.2m, individual receivable balances greater than $32,500 and 90 days overdue,
and quarterly average receivables balances. At the year-end, trade receivables of $158.9m (2021 – $99.7m) comprised individual balances greater
than $0.2m, with no individual customer balance representing more than 7% (2021 – 8%) of the year-end receivables balance of $183.1m
(2021 – $128.1m).
The risk of customer default for outstanding trade receivables and accrued revenue and contract assets is continuously monitored. Credit account
limits are set locally by management and are primarily based on the credit quality of the customer taking into account past experience through trading
relationships and the customer’s financial position. As expected, the probability that a customer would default has declined throughout 2022 as
trading improved following the global economic downturn. The Group used Credit Benchmark software to monitor the creditworthiness and changing
credit profiles of its customers. Credit Benchmark uses a similar ratings framework to the main credit ratings agencies for classifying the credit quality
of a business. However, Credit Benchmark ratings are based on contributed risk views from leading global financial institutions, including 15 Global
Systemically Important Banks domiciled in the US, Continental Europe, Switzerland, the UK, Japan, Canada, Australia and South Africa. The
contributions are anonymised, aggregated and published twice monthly in the form of Credit Consensus Ratings and Aggregate Analytics.
Although in most cases the Credit Benchmark consensus rating of a business is based on a number of contributing views, there are instances where
there is only a single source on which the rating is based. During 2022, 37% of sales, which is more than $263m (2021 – 36%/$185m) of the Group’s
revenue, were made to customers with a Credit Benchmark investment-grade rating of bbb or higher, as shown in the table below. This includes
customers with a single-source rating, whereby the rating is based on only a single source rather than a consensus rating which has been derived
from a number of contributing views.
Credit Benchmark – Credit Consensus Ratings
aa
a
bbb
bb
b
c
No rating
% of Revenue
2022
2
16
19
3
3
0
57
2021
2
9
25
9
3
1
51
To reduce credit risk exposure from outstanding receivables, the Group has taken out credit insurance with an external insurer, subject to certain
conditions. Details of the impairment of trade and other receivables can be found in note 18.
(iii) Credit Risk: Other Financial Assets
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. Investments at the year-end amounted to $1.9m (2021 – $1.9m) and are expected to be fully recovered.
The Group has provided Well Data Labs with $2.5m in convertible financing, the fair value of which was $2.9m at 31 December 2022 (2021 – $2.7m).
The investment is considered to have a low credit risk and is expected to be fully recovered, although the credit risk of the debt instrument has
increased during the year. This increased risk has been reflected in the fair value calculation of the debt instrument.
Hunting PLC Annual Report and Accounts 2022Financial Statements 209
Notes to the Consolidated
Financial Statements
30. Financial Risk Management continued
(d) Liquidity Risk
(i) Bank Facilities
The Group’s treasury function ensures that there are sufficient committed facilities available to the Group, with an appropriate maturity profile,
to provide operational flexibility and to support investment in key Group projects.
The Group has sufficient credit facilities to meet both its long- and short-term requirements. The Group’s treasury function ensures flexibility in funding
by maintaining availability under committed credit facilities. The Group’s credit facilities are provided by a variety of funding sources and total $186.9m
(2021 – $164.2m) at the year-end.
The Group’s undrawn borrowing facilities were as follows:
Secured committed facilities
Unsecured uncommitted facilities
Secured uncommitted facilities
2022
$m
155.0
31.9
–
186.9
2021
$m
160.0
–
4.2
164.2
Following the cancellation of the RCF in February 2022, a $15m money market line and a $2m overdraft facility were withdrawn, as the banks
providing these facilities, although previously part of the RCF lending group, decided not to participate in the ABL arrangements and subsequently
withdrew their lending commitment to the Group.
Secured Committed Facilities: Asset Based Lending Facility
The Group’s Revolving Credit Facility (“RCF”) was cancelled on 7 February 2022, and replaced with a new $150.0m Asset Based Lending (“ABL”)
facility. The ABL facility has a four-year term, maturing on 7 February 2026. An accordion feature of up to $50.0m was also agreed. This feature allows
the Group to increase the total facility quantum to $200.0m, subject to the approval of its bank lending group.
The Group’s borrowing capacity is linked to secured asset values. The three main asset classes that form the “Borrowing Base” against which bank
capital is advanced are North American-based trade receivables, inventories and freehold property. The Group is required to submit various reports
to the facility agent each month so that any fluctuation in the carrying values of these assets are communicated to the lenders, and so that the
borrowing base may be recalibrated based on the most recent asset values. Accordingly, availability under the ABL facility will fluctuate to the extent
that the underlying asset values change over time, either up or down. The carrying amounts of the assets pledged as security is discussed in notes
11, 18 and 20.
The ABL financial covenants are only measured under certain conditions, principally once utilisation of the facility goes through a predefined threshold
i.e. 87.5% of the “Line Cap” (“Line Cap” is defined as the lesser of the total facility amount and the Borrowing Base), at which point the Fixed Charge
Cover Ratio (“FCCR”) is measured and must be complied with. The FCCR is a financial covenant that looks back over the trailing 12-month period to
assess whether EBITDA (as defined by the ABL facility agreement) covers the Group’s Fixed Charges (as defined by the facility agreement) at a ratio
of at least 1:1. Management has detailed the wider considerations regarding going concern and future covenant compliance in the Going Concern
Statement on page 111.
At inception of the ABL (and annually thereafter) a field examination and asset appraisal process was conducted by specialist, bank appointed,
third-party valuation firms in order to assess the nature and commercial viability of the secured ABL assets so that appropriate discounts, or “advance
rates”, could be determined. The initial asset appraisals were completed in H2 2021 and consequently the advance rates to be applied in each category
for the first 12 months of the ABL’s tenor were imputed. Applying these advance rates to the December 2021 carrying values of the in-scope asset
classes, Hunting’s opening availability under the ABL was in excess of $100m. The opening availability at 7 February 2022 was based on in-scope
trade receivables and inventory balances only. However, in early July 2022, the legal process to finalise accession of the in-scope US freehold
properties into the ABL Borrowing Base was completed. Consequently, the full facility quantum of $150.0m was made available for utilisation
by the Company, as the total value of the secured assets exceeded the current facility limit of $150.0m.
The Group did not make any drawdowns on the ABL during the year and it remained undrawn at the period end.
In January 2023, one of the banks in the ABL lending group provided a $2.4m letter of credit in favour of one of the Group’s major customers, which has
an expiration date of February 2026. This amount has been permanently carved out of the total facility amount that Hunting is able to utilise under the ABL.
Unsecured Uncommitted Facilities
In August 2022, the Asia Pacific operating segment was successful in winning an order worth up to $86m in revenue for Hunting’s proprietary
connection technology and associated OCTG for a large offshore project with CNOOC in China. The order is the largest OCTG and Premium
Connection order win in the Group’s recent history and, consequently, has demanded substantial working capital investment in order to procure
raw materials from local steel mills.
In light of strict regulations in China that apply to intercompany loans made by offshore companies to foreign invested entities, whereby treasury could
only provide $5.0m of the Group’s available cash as an intercompany loan, the treasury function had to consider a number of different funding options
in order to provide the liquidity required to support this contract. However, treasury was also able to provide support and oversight to the local Wuxi
finance team in arranging a series of bilateral working capital loans provided by local banks in Wuxi. Two of the facilities, Bank of Jiangsu for CNY50.0m,
(maturing October 2023) and ICBC for CNY25.0m (maturing December 2023) were arranged by the local finance team in Wuxi. A third facility for
CNY165.0m was provided by HSBC China in Suzhou, but arranged by Hunting’s treasury function in London by leveraging the global relationship
that the Group has established with the bank and that is managed out of the UK. There is no formal termination date on this facility, which means
it is available until further bilateral agreement.
The facilities totalling CNY240.0m ($34.7m) have all been arranged on an uncommitted, unsecured basis and are only available to the Group’s
Chinese subsidiary. Interest on all three facilities is based on the China Loan Prime Rate, which at 31 December 2022 stood at 3.65%. At the
year-end, $2.8m of the facilities were utilised, as shown in note 25.
Hunting PLC Annual Report and Accounts 2022Financial Statements 210
Notes to the Consolidated
Financial Statements
30. Financial Risk Management continued
(d) Liquidity Risk continued
(ii) Management of Cash
The Group needs to ensure that it has sufficient liquid funds available to support its working capital and capital expenditure requirements and that
adequate liquidity levels are maintained. All subsidiaries submit weekly and bi-monthly cash forecasts to the treasury function to enable it to monitor
the Group’s requirements. A consolidated 12-week forecast, produced weekly, is maintained by the Group’s treasury function, which monitors
long- and short-term liquidity requirements of the Group and also identifies any unexpected variances week-on-week.
Treasury’s cash management objective is to centrally manage and, where possible, to concentrate the Group’s cash and bank balances back to
the treasury function to ensure that funds are managed in the best interests of the Group. Short-term cash balances, together with undrawn facilities,
enable the treasury function to manage its day-to-day liquidity risk. Any short-term surplus is invested in accordance with Board-approved treasury
policy. This strategy is subject to legislative and regulatory constraints in certain jurisdictions such as exchange control restrictions and minimum
capital requirements. Where cash concentration cannot be applied, Group treasury approves all local banking arrangements, including the opening
and closing of bank accounts and the investment of surplus cash via bank deposits.
Cash Management Arrangements
In respect of the UK business units and head office companies, the treasury function has arranged a cash concentration structure with
HSBC Bank UK and Barclays Bank UK PLC whereby, at the close of each business day, any surplus balances held in certain subsidiaries’ bank
accounts are swept to treasury-owned accounts (“pool header” accounts), with a corresponding adjustment to the intercompany loan receivable,
or payable, between that subsidiary and treasury. Similarly, any end-of-day deficit in the same group of subsidiary accounts is funded by a cash
sweep from the treasury-owned pool header accounts, and the corresponding intercompany loan is adjusted accordingly. This arrangement enables
more efficient utilisation of UK-based entities’ surplus cash and at the same time allows the treasury function to meet any short-term funding needs
of the UK business units in a more coordinated fashion and from one single pool of liquidity.
In addition, a similar cash concentration structure has been organised with Wells Fargo Bank, N.A. in the US, whereby surplus and deficit cash
balances are swept to and from a single pool header account, held by one central US subsidiary, with a corresponding movement in the respective
companies’ intercompany loan balance. Treasury has systems in place that allow for same-day centralisation of net surplus cash balances in the
US to the UK, or indeed to fund any net cash deficit in the US cash concentration structure. As above, this arrangement allows treasury to efficiently
repatriate surplus operational cash from the US to the UK on a daily basis, if deemed cost effective to do so, and the most appropriate application
of that cash can then be decided upon by treasury. This arrangement also allows treasury to meet any short-term funding needs of the Group’s
US-based business units from cash resources held in, or borrowing facilities that have been arranged by, treasury in the UK.
For other regions, such as Canada and Singapore, while formal sweeping arrangements are not in place, treasury monitors balances on a daily
basis and periodically transfers surplus cash to the centre using similar intercompany loan arrangements as described above. The Group’s interests
in China are subject to the most highly regulated environment of all the Group’s active jurisdictions, in regards to cash management operations.
The free movement of cash both to and from China is a highly restricted activity and, as a consequence, treasury is unable to arrange intercompany
loans in the same way as it does for the rest of the Group. Treasury has organised banking arrangements with HSBC in China on behalf of the Group’s
Chinese business units and, therefore, has visibility of any cash balances held with HSBC and transaction data for these accounts via HSBC’s
proprietary online banking system. For balances held at other Chinese banks, treasury has visibility either via its SWIFT connection or from information
supplied by Hunting’s local entity.
Deposits and Investments of Surplus Cash
Short-term deposits and investments in FTFs and MMFs are held for the purpose of meeting short-term cash commitments, minimising counterparty
concentration risk and improving cash investment returns. Short-term deposits of surplus cash are made for varying periods of between one day and
three months, depending on the immediate cash requirements of the Group. These deposits earn interest at the respective short-term deposit rates.
The Group has invested surplus cash with MMFs as they are considered to be highly liquid since cash can be redeemed from each fund on a
same-day basis. The yield on the funds is calculated on the daily performance of the various instruments within a particular fund.
During the year, the treasury function has invested surplus cash in deposits, FTFs and MMFs, in line with its cash management and investment
policies that would enable a fair return, whilst maintaining the ability to access the cash easily. The use of these deposits and funds enables the
treasury function to diversify its counterparty concentration risk by depositing funds with various financial institutions and improve the yields on a
portion of its surplus cash. However, as the working capital requirements of the Group changed throughout the year, the use of these cash products
greatly reduced and by the end of 2022, there were no balances held in deposits.
At the end of 2021, the Group held $4.8m in deposits with a maturity less than three months, classified as cash and cash equivalents (note 21);
$6.8m in FTFs, classified as cash and cash equivalents (note 21); and held $6.8m in deposits with a maturity greater than three months, which were
classified as current investments on the balance sheet (note 17). The Group included the deposits with a maturity greater than three months in its
calculation of total cash and bank (see NGM J). At the end of 2022, no surplus cash was held in deposits or FTFs. The fair value gains recognised
on the FTFs and MMFs in the year of $0.1m (2021 – immaterial) and the interest earned on the deposits during the year of $0.3m (2021 – $0.1m)
were included in finance income.
Cash at bank earns interest at floating rates based on daily bank deposit rates.
Hunting PLC Annual Report and Accounts 2022Financial Statements 211
Notes to the Consolidated
Financial Statements
30. Financial Risk Management continued
(d) Liquidity Risk continued
(iii) Future Cash Flows of Financial Liabilities
The following tables analyse the expected timings of cash outflows for each of the Group’s non-derivative financial liabilities. The tables analyse
the cash outflows into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity dates of
the financial liabilities. The amounts disclosed in the tables are the contractual, undiscounted cash flows and include interest cash flows and other
contractual payments, where applicable, so will not always reconcile with the amounts disclosed in the consolidated balance sheet. The carrying
values are the amounts in the consolidated balance sheet and 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
Bank borrowings unsecured
Shareholder loan from non-controlling interest
Bank overdrafts secured
Total
Non-derivative financial liabilities:
Trade payables
Accrualsi
Other payables
Lease liabilities
Secured bank loans
Shareholder loan from non-controlling interest
Bank overdrafts secured
Total
On demand
or within
one year
$m
Between
one and
five years
$m
2022
After
five years
$m
66.8
29.4
1.0
8.9
0.7
2.8
–
2.1
111.7
–
–
–
16.4
1.6
–
–
–
18.0
–
–
–
9.5
–
–
3.9
–
13.4
On demand
or within
one year
$m
Between
one and
five years
$m
2021
After
five years
$m
40.5
21.5
1.2
9.1
0.5
–
1.0
73.8
–
–
–
21.8
–
–
–
21.8
–
–
–
4.9
–
3.9
–
8.8
Total
$m
66.8
29.4
1.0
34.8
2.3
2.8
3.9
2.1
143.1
Total
$m
40.5
21.5
1.2
35.8
0.5
3.9
1.0
104.4
Carrying
value
$m
66.8
29.4
1.0
30.6
–
2.8
3.9
2.1
136.6
Carrying
value
$m
40.5
21.5
1.2
31.8
–
3.9
1.0
99.9
i.
2021 has been restated to exclude accruals of $7.2m for accruals recognised under IAS 19 and IFRS 2 that are outside the scope of IFRS 7.
The Group had no net settled financial liabilities at the year-end (2021 – 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
2022
$m
47.5
(47.1)
Between
one and
five years
2022
$m
–
–
Total
2022
$m
47.5
(47.1)
On demand
or within
one year
2021
$m
43.4
(43.5)
Between
one and
five years
2021
$m
1.2
(1.2)
Total
2021
$m
44.6
(44.7)
(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 pages 40 and 41. 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 are made together with the parameters
for meeting external financial covenants.
Hunting PLC Annual Report and Accounts 2022Financial Statements
212
Notes to the Consolidated
Financial Statements
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, 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 2022. 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
(i) US Interest Rates
The sensitivity rate of 1.0% (2021 – 1.0%) 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 impact on the consolidated income statement, with all other variables held constant, in applying the sensitivity above results in a $0.1m
(2021 – $0.3m) increase or decrease in post-tax profit for an increase or decrease in US interest rates. There is no impact on other comprehensive
income (“OCI”) for a change in US interest rates.
(ii) Other Interest Rates
For all other interest rates, there is an immaterial impact on post-tax profit or loss for any reasonably possible changes in other interest rates,
based on historical volatility and a review of analysts’ research and banks’ expectations of future interest rates. There is no impact on OCI
for a change in other interest rates.
(b) Foreign Exchange Rate Sensitivity
Management has considered the impact of changes to the various foreign exchange rates on the exposed financial assets and liabilities disclosed
in note 30(a)(i). The sensitivity rates chosen 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. There is an immaterial impact on post-tax profit or loss and
on OCI for any reasonably possible changes in the foreign exchange rates.
Hunting PLC Annual Report and Accounts 2022Financial Statements 213
Notes to the Consolidated
Financial Statements
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 2022 these totalled $7.2m (2021 – $7.0m).
(b) Unfunded Defined Benefit Schemes
(i) US 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 consolidated income statement during the year were $0.1m (2021 – $nil) for the employer’s current service cost
(recognised in administrative expenses) and $nil (2021 – $0.2m gains) fair value gains or losses on the listed equities and mutual funds (recognised
in other finance income note 8).
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)
Remeasurement – excess of notional investment returns over interest cost
Present value of the obligation at the end of the year
2022
$m
1.9
0.1
(0.1)
1.9
2021
$m
1.7
–
0.2
1.9
The obligation of $1.9m (2021 – $1.9m) is presented in the consolidated balance sheet in non-current payables (note 22).
(ii) Middle East Defined Benefit Schemes
The Group operates two unfunded defined benefit pension schemes in Dubai and Saudi Arabia, whereby local law requires payment to be made to
an employee when they leave their employment with the business unit based on their salary and number of years of service. The combined obligation
at the year-end was $0.7m (2021 – $0.5m), with $0.2m (2021 – $0.2m) recognised in the consolidated income statement during the year.
33. Share Capital and Share Premium
The Company’s share capital comprises a single class of Ordinary shares, which are classified as equity.
At 31 December 2020, 2021 and 2022
Ordinary
shares of
25p each
Number
164,940,082
Ordinary
shares of
25p each
$m
66.5
Share
premium
$m
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 250. All of the Ordinary shares in issue are fully paid.
At 31 December 2022, 5,370,963 (2021 – 4,282,065) Ordinary shares were held by an Employee Benefit Trust. Details of the carrying amount are set
out in note 35.
Hunting PLC Annual Report and Accounts 2022Financial Statements 214
Notes to the Consolidated
Financial Statements
34. Other Components of Equity
At 1 January 2022
Exchange adjustments
Share options and awards
– value of employee services
– discharge
Fair value gains and losses
– gains originating on cash flow hedges arising
during the year
– gains transferred to balance sheet on disposal
of cash flow hedges
– losses transferred to income statement
on disposal of cash flow hedges
– taxation
Transfer between reserves
At 31 December 2022
At 1 January 2021
Exchange adjustments
Share options and awards
– value of employee services
– discharge
Transfer between reserves
At 31 December 2021
Merger
reserve
$m
25.4
–
Share-based
payments
reserve
$m
15.6
–
2022
Currency
translation
reserve
$m
(3.8)
(9.2)
Capital
redemption
reserve
$m
0.8
–
–
–
–
–
–
–
(13.6)
11.8
Merger
reserve
$m
38.2
–
–
–
(12.8)
25.4
9.4
(9.1)
–
–
–
–
–
15.9
Share-based
payments
reserve
$m
17.3
–
8.7
(10.4)
–
15.6
–
–
–
–
–
–
–
(13.0)
–
–
–
–
–
–
–
0.8
2021
Currency
translation
reserve
$m
(4.0)
0.2
Capital
redemption
reserve
$m
0.8
–
–
–
–
(3.8)
–
–
–
0.8
Hedge
reserve
$m
–
–
–
–
0.4
(0.1)
0.1
(0.1)
–
0.3
Hedge
reserve
$m
–
–
–
–
–
–
Total
$m
38.0
(9.2)
9.4
(9.1)
0.4
(0.1)
0.1
(0.1)
(13.6)
15.8
Total
$m
52.3
0.2
8.7
(10.4)
(12.8)
38.0
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 qualifying consideration. During the year, $13.6m (2021 – $12.8m) 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.
The share-based payments reserve represents the Group’s obligation to settle share-based awards issued to its employees. When employees
exercise their awards, the portion of the share-based payments reserve which represents the share-based payment charge for those awards
is transferred to retained earnings and the Group discharges its obligation.
The currency translation reserve contains the accumulated foreign exchange differences that arise from the translation of the financial statements
of the Group’s foreign operations into US dollars when the Group’s entities are consolidated, together with exchange differences arising on foreign
currency loans used to finance foreign currency net investments. The currency translation reserve also includes the accumulated foreign exchange
net gains in respect of net investment hedges, which will be released to the income statement on the disposal or dissolution of the relevant subsidiary.
The capital redemption reserve is a statutory, non-distributable reserve into which amounts are transferred following the purchase of the Company’s
own shares out of distributable profits.
The hedge reserve represents the accumulated fair value gains and losses in relation to the spot component of forward foreign exchange contracts
designated in a cash flow hedge that were taken out to hedge the purchase of an asset, such as PPE or inventory, in a foreign currency. The fair value
gain or loss accumulated in the hedge reserve is transferred to the cost of the asset when it is acquired.
Hunting PLC Annual Report and Accounts 2022Financial Statements 215
Notes to the Consolidated
Financial Statements
35. Retained Earnings
At 1 January
Loss for the year
Remeasurement of defined benefit pension schemes net of tax (note 32)
Dividends paid to Hunting PLC shareholders
Treasury shares
– purchase of treasury shares
– proceeds on disposal of treasury shares
Share options and awards
– discharge
– taxation
Acquisition of non-controlling interest
Transfer between reserves
At 31 December
The share options and awards taxation credit taken directly to equity of $0.2m (2021 – $nil) comprised a deferred 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
Cost of treasury shares disposed
At 31 December
2022
$m
612.4
(4.6)
0.1
(13.6)
(7.9)
0.2
8.9
0.2
–
13.6
609.3
2022
$m
(15.0)
(7.9)
3.7
(19.2)
2021
$m
692.6
(85.8)
(0.2)
(12.8)
(8.1)
0.3
10.2
–
3.4
12.8
612.4
2021
$m
(10.6)
(8.1)
3.7
(15.0)
At 31 December 2022, 5,370,963 Ordinary shares were held by the Employee Benefit Trust (2021 – 4,282,065). The Company purchased 2,130,142
(2021 – 2,703,100) additional treasury shares during the year for $7.9m (2021 – $8.1m). The loss on disposal of treasury shares during the year, which
is recognised in retained earnings, was $3.5m (2021 – $3.4m).
36. Dividends Paid to Hunting PLC Shareholders
Ordinary dividends:
2021 final dividend
2022 interim dividend
2020 final dividend
2021 interim dividend
2022
Cents
per share
4.0
4.5
–
–
8.5
$m
6.4
7.2
–
–
13.6
2021
Cents
per share
–
–
4.0
4.0
8.0
$m
–
–
6.4
6.4
12.8
A final dividend of 4.5 cents per share has been proposed by the Board, amounting to an estimated distribution of $7.2m. The proposed final dividend
is subject to approval by the shareholders at the Annual General Meeting to be held on 19 April 2023 and has not been provided for in these financial
statements. If approved, the dividend will be paid in Sterling on 12 May 2023, to shareholders on the register on 21 April 2023, 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 62.
Hunting PLC Annual Report and Accounts 2022Financial Statements 216
Notes to the Consolidated
Financial Statements
37. Share-based Payments
(a) 2009 Performance Share Plan (“PSP”)
(i) 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 were made to
employees, subject to continued employment during the vesting period. There were no performance conditions attached. The final grant under the
PSP occurred in 2013 and vested in 2016 and option holders had seven years in which to exercise their vested awards. Share awards can only be
exercised by the employees to whom they were granted. The PSP was replaced by the 2014 Hunting Performance Share Plan following shareholder
approval at the Annual General Meeting (“AGM”) of the Company on 16 April 2014. Details of the time-based share option 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
2022
Number of
shares
2,726
(866)
(859)
1,001
2021
Number of
shares
3,601
(875)
–
2,726
The weighted average share price at the date of exercise during 2022 was 282.0 pence (2021 – 218.5 pence).
Details of the time-based PSP awards and options outstanding at 31 December 2022 are as follows:
Date of grant:
17 April 2012
20 March 2013
Outstanding and exercisable at the end of the year
2022
Number of
shares
2021
Number of
shares
Normal
vesting date
Expiry date
–
1,001
1,001
17 April 2015
1,725
17 April 2022
1,001 20 March 2016 20 March 2023
2,726
The fair value charge to the consolidated income statement attributable to the time-based PSP is $nil (2021 – $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. The performance-based HPSP awards to the executive Directors and senior employees are divided into five tranches of
differing proportions. Each tranche is subject to a three-year vesting period and Company performance is measured against various performance
measures, as shown in the table below.
The performance period for the 2022 awards granted under the HPSP is 1 January 2022 to 31 December 2024. The vesting date of the 2022 award
is 4 March 2025 and, for share options, the option holder has seven years in which to exercise their vested awards. Share awards can only be exercised
by the employees to whom they were granted.
The award weightings for the years 2020, 2021 and 2022 are in the table below.
Performance measure
Total Shareholder Return (“TSR”) of a bespoke comparator group
Adjusted diluted earnings per share (“EPS”)
Return on average capital employed (“ROCE”)
Free cash low (“FCF”)
Balance strategic scorecard – non-financial KPIs comprising Quality and Safety performance
Details of the performance-based HPSP awards movements during the year are set out below:
Outstanding at the beginning of the year
Granted during the year to executive Directors
Granted during the year to senior employees
Vested and exercised during the year
Lapsed during the year
Outstanding at the end of the year
Award
weighting
2022
%
25
20
20
20
15
Award
weighting
2021
%
35
25
25
–
15
Award
weighting
2020
%
35
25
25
–
15
2022
Number of
shares
5,757,230
1,506,466
2,170,275
(95,035)
(1,697,611)
7,641,325
2021
Number of
shares
4,387,495
929,935
1,450,949
(226,292)
(784,857)
5,757,230
Hunting PLC Annual Report and Accounts 2022Financial Statements
217
Notes to the Consolidated
Financial Statements
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 2022 are as follows:
2022
Number of
shares
2021
Number of
shares
Normal
vesting date
Expiry date
Date of grant:
11 March 2016 – options
19 April 2018 – options
21 March 2019 – options
21 March 2019 – awards
3 March 2020 – options
3 March 2020 – awards
4 March 2021 – options
4 March 2021 – awards
4 March 2022 – options
4 March 2022 – awards
Outstanding at the end of the year
Exercisable at the end of the year
Weighted average remaining contractual life of options outstanding
at the end of the year
22,065
3,485
2,272
–
303,732
1,722,521
346,282
1,897,447
506,709
2,836,812
7,641,325
27,822
3,485
19 April 2021
22,065 11 March 2019 11 March 2026
19 April 2028
204,933 21 March 2022 21 March 2029
1,098,694 21 March 2022 21 March 2025
3 March 2030
3 March 2026
4 March 2031
4 March 2027
4 March 2032
4 March 2028
3 March 2023
3 March 2023
4 March 2024
4 March 2024
4 March 2025
4 March 2025
306,486
1,740,683
356,388
2,024,496
–
–
5,757,230
25,550
8.27 years
8.29 years
In 2022, a total of 95,035 awards were exercised (2021 – 226,292). The weighted average share price at the date of exercise during 2022 was
327.7 pence (2021 – 215.2 pence).
(ii) Time-based Awards
The Company also grants time-based share awards annually to senior employees under the HPSP, which are subject to a three-year vesting period.
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. For share options, option holders have seven years in which to exercise their
vested awards. Share awards can only be exercised by the employees to whom they were granted.
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
2022
Number of
shares
3,794,815
2,695,411
(882,875)
(225,105)
5,382,246
2021
Number of
shares
3,026,597
1,539,491
(688,908)
(82,365)
3,794,815
In 2022, a total of 882,875 awards were exercised (2021 – 688,908). The weighted average share price at the date of exercise during 2022 was
324.6 pence (2021 – 252.9 pence).
Details of the time-based HPSP awards outstanding at 31 December 2022 are as follows:
2022
Number of
shares
2021
Number of
shares
Normal
vesting date
Expiry date
Date of grant:
1 May 2014 – options
28 April 2015 – options
11 March 2016 – options
3 March 2017 – options
19 April 2018 – options
21 March 2019 – options
21 March 2019 – awards
3 March 2020 – options
3 March 2020 – awards
4 March 2021 – options
4 March 2021 – awards
4 March 2022 – options
4 March 2022 – awards
Outstanding at the end of the year
Exercisable at the end of the year
Weighted average remaining contractual life of options outstanding
at the end of the year
1,568
3,932
39,942
11,737
33,718
57,599
–
216,863
975,642
289,650
1,129,512
458,869
2,163,214
5,382,246
148,496
2,771
5,689
1 May 2017
28 April 2018
3 March 2020
19 April 2021
1 May 2024
28 April 2025
47,646 11 March 2019 11 March 2026
3 March 2027
23,578
19 April 2028
45,226
156,204 21 March 2022 21 March 2029
723,401 21 March 2022 21 March 2025
3 March 2030
238,428
3 March 2023
1,031,070
4 March 2031
314,094
4 March 2024
1,206,708
4 March 2032
–
4 March 2025
–
3,794,815
124,910
3 March 2023
3 March 2023
4 March 2024
4 March 2024
4 March 2025
4 March 2025
7.98 years
8.13 years
Hunting PLC Annual Report and Accounts 2022Financial Statements
218
Notes to the Consolidated
Financial Statements
37. Share-based Payments continued
(b) 2014 Hunting Performance Share Plan (“HPSP”) continued
(iii) Fair Value of HPSP Awards
The fair value of awards granted under the HPSP is calculated using two separate models:
(1) The fair value of awards subject to a market-related performance condition, specifically Company performance against the TSR of a bespoke peer
group, has been calculated using the Stochastic pricing model (also known as the “Monte Carlo” model).
The assumptions used in this model were as follows:
Date of grant/valuation date
Weighted average share price at grant
Exercise price
Expected dividend yield
Expected volatility
Risk-free rate
Expected life
Weighted average fair value at grant
2022
4 March 2022
226.0p
nil
nil
55.2%
1.04%
3 years
167.1p
2021
4 March 2021
261.9p
nil
nil
53.0%
0.10%
3 years
183.9p
(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
Weighted average fair value at grant
The methods to calculate the assumptions for both models are:
2022
4 March 2022
226.0p
nil
nil
55.2%
1.04%
3 years
226.0p
2021
4 March 2021
261.9p
nil
nil
53.0%
0.10%
3 years
261.9p
• 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 zero coupon UK
government bond yield 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 consolidated income statement attributable to the performance-based HPSP awards is $3.6m (2021 – $2.4m) and
the charge to the consolidated income statement in respect of time-based HPSP awards is $5.8m (2021 – $6.3m). These charges are recognised
in administrative expenses.
Hunting PLC Annual Report and Accounts 2022Financial Statements 219
Notes to the Consolidated
Financial Statements
37. Share-based Payments continued
(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 the HPSP and are subject to employees continued employment during the vesting period. 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.
(i) Performance-based Awards
The performance-based cash conditional awards to senior employees are divided into four tranches of differing proportions. Each tranche is
subject to a three-year vesting period and Company performance is measured against various performance measures as shown in the table below.
The performance period for the 2022 awards is 1 January 2022 to 31 December 2024.
The award weightings for the years 2020, 2021 and 2022 are in the table below.
Performance measure
TSR of a bespoke comparator group
Adjusted diluted earnings per share (“EPS”)
Return on average capital employed (“ROCE”)
Free cash low (“FCF”)
Balance strategic scorecard – non-financial KPIs comprising Quality and Safety performance
Details of the cash conditional performance-based award movements during the year are set out below:
Outstanding at the beginning of the year
Granted during the year
Outstanding at the end of the year
Award
weighting
2022
%
25
20
20
20
15
Award
weighting
2021
%
35
25
25
–
15
Award
weighting
2020
%
35
25
25
–
15
2022
Number of
shares
342,140
204,262
546,402
2021
Number of
shares
165,243
176,897
342,140
Details of the cash conditional performance-based awards outstanding at 31 December 2022 are as follows:
Date of grant:
3 March 2020
4 March 2021
4 March 2022
Outstanding at the end of the year
2022
Number of
shares
165,243
176,897
204,262
546,402
2021
Number of
shares
165,243
176,897
–
342,140
Normal
vesting date
3 March 2023
4 March 2024
4 March 2025
The charge to the consolidated income statement attributable to the performance-based cash conditional awards is $0.2m (2021 – $0.3m).
The fair value of the cash conditional performance-based awards is calculated at the date of grant using the same assumptions and model as the fair
value of the performance-based awards not subject to a market-related condition (see 37(b)(iii) above). The weighted average fair value of the award
at 31 December 2022 was 333.0 pence (2021 – 169.2 pence).
Hunting PLC Annual Report and Accounts 2022Financial Statements
220
Notes to the Consolidated
Financial Statements
37. Share-based Payments continued
(c) Cash Conditional Share Awards continued
(ii) Time-based Awards
The Company also grants time-based cash conditional awards annually, which are subject to a three-year vesting period. Annual awards of shares
may be made to employees subject to continued employment during the vesting period. There are no performance conditions attached.
Details of the cash conditional time-based 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 2022 was 328.0 pence (2021 – 247.5 pence).
Details of the cash conditional time-based awards outstanding at 31 December 2022 are as follows:
2022
Number of
shares
247,106
325,564
(40,233)
–
532,437
2021
Number of
shares
159,920
121,192
(15,182)
(18,824)
247,106
Date of grant:
19 April 2018
21 March 2019
3 March 2020
4 March 2021
4 March 2022
Outstanding at the end of the year
2022
Number of
shares
2021
Number of
shares
Normal
vesting date
–
–
89,036
117,837
325,564
532,437
1,482
19 April 2021
38,751 21 March 2022
3 March 2023
89,036
4 March 2024
117,837
4 March 2025
–
247,106
The charge to the consolidated income statement attributable to the time-based cash conditional awards is $0.3m (2021 – $0.2m).
The fair value of the cash conditional awards is calculated at the date of grant using the same assumptions and model as the fair value of
performance-based awards not subject to a market-related performance condition (see 37(b)(ii) above). The weighted average fair value of the award
at 31 December 2022 was 333.0 pence (2021 – 169.2 pence).
(d) Amounts Included in the Accounts
The charge to the consolidated income statement attributable to the cash conditional share awards is $0.5m (2021 – $0.5m) and the total charge
attributable to the equity-settled awards is $9.4m (2021 – $8.7m). The total charge to the consolidated income statement for the year for share-based
payments is $9.9m (2021 – $9.2m), see note 7. The total liability in relation to the cash-settled awards included in accruals at the year-end is $0.9m
(2021 – $0.6m), of which $nil (2021 – $nil) related to awards that had vested.
Hunting PLC Annual Report and Accounts 2022Financial Statements
221
Notes to the Consolidated
Financial Statements
38. Related-party Transactions
The following related-party transactions took place between wholly-owned subsidiaries of the Group and associates during the year:
Settlement of warranty claim related to a corporate transaction
Acquisition of non-controlling interest from Marubeni-Itochu
Disposal of pipe business to Marubeni-Itochu
Additional investment in Cumberland (note 16)
Investment in Indian joint venture arrangement with Jindal SAW (note 16)
Year-end balances:
Shareholder loan from non-controlling interest
2022
$m
–
–
–
(1.6)
(1.9)
(3.9)
2021
$m
(1.7)
(3.8)
31.5
–
–
(3.9)
The outstanding balances at the year-end are unsecured and have no fixed date for repayment.
During the year, revenue of $12.3m (2021 – $6.3m) was generated from sales to BestLink Tube Pte. Ltd., the minority interest holder in Hunting Energy
Services (China) Pte. Ltd.
All ownership interests in associates are in the equity shares of those companies. The ownership interests in associates, joint ventures and
subsidiaries are set out in notes C19 and C20 to the Company financial statements.
The key management of the Group comprises the Hunting PLC Board and members of the Executive Committee. Details of their compensation
are disclosed in note 7. The Hunting PLC Directors and the members of the Executive Committee had no material transactions other than as a result
of their service agreements.
Hunting PLC is the parent company of the Hunting PLC Group. 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 61). Accordingly, the Directors do not consider there to be an ultimate
controlling party.
(a) Restructuring of European OCTG Businesses
On 31 December 2021, the Group entered into a transaction with Marubeni-Itochu Steel Inc and Marubeni-Itochu Tubulars Europe PLC (collectively
referred to as Marubeni-Itochu), the non-controlling interest in Hunting Energy Services (UK) Limited (“HES UK”) and its subsidiary Hunting Energy
Services B.V. (“HES BV”), whereby Hunting purchased Marubeni-Itochu’s 40% interest in these companies for $3.8m and became the sole
shareholder. Hunting and Marubeni-Itochu also entered into a Business Purchase agreement on the same date, which included the sale of OCTG
inventory held by HES UK and HES BV to Marubeni-Itochi for $31.5m.
(b) Warranty Claim
In October 2021, the Group paid $1.7m in settlement of a warranty claim in relation to the transfer of assets, and their condition, as part of a corporate
transaction.
39. Events After the Balance Sheet Date
In January 2023, one of the banks in the ABL lending group provided a $2.4m letter of credit in favour of one of the Group’s major customers, which
has an expiration date of February 2026. This amount has been permanently carved out of the total facility amount that Hunting is able to utilise under
the ABL.
40. Authorisation of Financial Statements
These financial statements were authorised for issue in accordance with a resolution of the Board of Directors of Hunting PLC on 2 March 2023.
Hunting PLC Annual Report and Accounts 2022Financial Statements 222
Notes to the Consolidated
Financial Statements
41. 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 and joint ventures.
• 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 arising on business combinations are expensed to the consolidated income statement as incurred.
(b) Revenue
(i) Revenue from Contracts with Customers
• Revenue is recognised to depict the transfer of promised goods or services to customers and is measured at the amount that reflects
the consideration to which the Group expects to be entitled in exchange for those goods or services.
• 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; 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 has an enforceable right to payment for the work completed to date; 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.
• In respect of revenue that is recognised over time, Hunting uses an input method for measuring the progress towards completion of its
performance obligations and consequently for measuring the amount of revenue that is recognised. Specifically, revenue is recognised in
proportion to the total expected consideration that mirrors the costs incurred to date relative to the total expected costs to complete the
performance. This method is considered to be the most appropriate as the inclusion of all costs, being materials, labour and direct overheads,
best reflects the activities required in performing the promise to the customer.
• 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. These products include tubulars acquired by Hunting
as plain-end pipe on which lathing work has been applied and which are resold as threaded pipe; and
2. The manufacture of goods that are specifically designed for one particular customer but for which Hunting does not have an enforceable right
to payment for the work completed to date.
• The events that trigger the recognition of revenue at a point in time are most commonly: (i) delivery of the product in accordance with the
contractual terms; or (ii) when the product is made available to the customer for collection; or (iii) when the customer notifies the Group that the
customer has accepted the product following a period of inspection by the customer. Hunting utilises the customer acceptance approach when
Hunting is responsible for transporting goods (in addition to supplying them to the customer) and the risk of damage during transportation, due
either to the method or the distance, is considered sufficient to impede management from being able to substantively determine that control
of the goods would pass to the customer prior to acceptance.
• When revenue from a customer is recognised, the amount is reported as a contract asset if the performance obligation is incomplete as this asset
reflects that it is conditional upon Hunting completing the work. The revenue is reported as accrued income if the performance obligation has been
completed but a sales invoice has not yet been issued. The revenue is recognised as a trade receivable if a sales invoice has been issued as this
asset reflects that it is unconditional other than the passage of time. The Group reports a contract liability when amounts received and receivable
from the customer exceed the value of the work done to date, reflecting that the Group is obligated to transfer goods or services in order to settle
the prepayment from the customer.
(ii) Rental Revenue
• Rental revenue from operating leases, being leases in which Hunting does not transfer substantially all of the risks and rewards of the leased asset
to the customer, is recognised as the income is earned.
• Revenue from finance leases, being leases in which Hunting, as a manufacturer/dealer-lessor, transfers substantially all of the risks and rewards
of the leased asset to the customer, is measured as the fair value of the underlying asset or if lower the present value of the lease payments.
The carrying value of the leased asset minus the unguaranteed residual value is charged to cost of sales and interest earned during the term
of the lease is recognised as finance income.
(c) Interest
• Interest income and expense is recognised in the consolidated income statement using the effective interest method.
Hunting PLC Annual Report and Accounts 2022Financial Statements 223
Notes to the Consolidated
Financial Statements
41. Principal Accounting Policies continued
(d) Foreign Currencies
(i) Individual Subsidiaries’, Associates’ and Joint Ventures’ Financial Statements
• The financial statements for each of the Group’s subsidiaries, associates and joint ventures 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 consolidated 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 directly 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, associates and joint ventures are translated into US dollars at the exchange rates ruling
at the balance sheet date.
• The income statements of subsidiaries, associates and joint ventures 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 consolidated income statement as part of the gain or loss on disposal.
(e) Taxation
• The taxation recognised in the consolidated 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 consolidated 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 in the consolidated balance sheet and are reported as non-current assets and liabilities.
• Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it
is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not
recognised if the temporary difference arises from the initial recognition (other than in a business combination) of other assets and liabilities in a
transaction that affects neither the taxable profit nor the accounting profit. In addition, a deferred tax liability is not recognised if the temporary
difference arises from the initial recognition of goodwill.
• Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except where the
Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable
future. Deferred tax assets arising from deductible temporary differences associated with such investments are only recognised to the extent that
it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to
reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that
it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
• The recoverability of deferred tax assets is reviewed at each balance sheet date and deferred tax assets are recognised to the extent that sufficient
taxable profit is expected to be available to allow the deferred tax asset to be utilised.
• 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.
(f) Property, Plant and Equipment
• 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 and assets under construction are not depreciated.
• With the exception of oil and gas exploration and production equipment, assets are depreciated using the straight-line method at the following rates:
Freehold buildings
Leasehold buildings
Plant, machinery and motor vehicles
– 2% to 10%
– life of lease
– 6% to 331⁄3%
• The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
Hunting PLC Annual Report and Accounts 2022Financial Statements
224
Notes to the Consolidated
Financial Statements
41. Principal Accounting Policies continued
(g) Leases
• Lessees:
With regard to lessee contracts, the entity recognises a lease obligation as a liability and a right-of-use asset at the inception of the contract, except
with regard to the two exemptions noted below. In measuring the lease obligation, the entity takes account of all fixed payments and the known
amount of variable payments. Management also assesses the likelihood of the entity exercising extension options, early termination options and
purchase options when contractually offered, and incorporates the relevant assumed cash flows in the initial measurement. These future gross
cash flows are then discounted using the incremental borrowing rate (“IBR”) that is relevant to each lease. The interest rate implicit in the lease
is not used as the entity is unable to access the specific financials of the lessor that would be required in order to determine that rate. The IBR
is determined by reference to (i) the weighted average period of the lease term; and (ii) the risk-free rate of the currency of the lease, adjusted for
country-specific government bond yields for contracts denominated in the Euro; and (iii) the market risk premium associated with the currency
of denomination of the contract; and (iv) a financing spread associated with the financial status and country of location of the lessee entity; and
(v) an asset-specific adjustment associated with the perceived security that each type of asset provides to the lessor. The right-of-use asset is
usually initially measured as equal to the initial measurement of the lease liability plus any contracted remediation work that would be required
at the end of the lease term as there are usually no initial direct costs or lease payments made prior to the inception of the contract.
Whenever circumstances change post-inception, for example when the judged likelihood of whether an option will or will not be exercised, or indices
relevant to the measurement of variable payments change, or the lease term is extended with regard to a contract that does not offer an extension
option, the lease obligation is re-measured and the right-of-use asset is correspondingly amended. Re-measurement of the lease obligation is most
commonly based on a revised IBR as the change in circumstances has most commonly resulted from a change in the lease term.
The cost of the lease is subsequently recognised in the consolidated income statement as interest charged on the liability and as depreciation
charged on the right-of-use asset. Depreciation is charged on a straight-line basis over the lease term; to date the entity has not and is not
expected to exercise a purchase option which would otherwise shorten the depreciation period.
Hunting has adopted the two exemptions that permit lessees to charge the cost of certain leases directly to the consolidated income statement
on a straight-line basis over the lease term. The two exemptions apply to:
– leases that have a duration of one year or less; and
– leases of assets that would have cost $5,000 or less, when new, to acquire if the asset had been purchased rather than leased.
• Lessors:
Hunting leases equipment to customers in the capacity of a manufacturer/dealer lessor. Consequently, the leased asset is derecognised
and a finance lease receivable is recognised on the balance sheet in respect of the future amounts payable by the customer.
(h) 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 CGUs 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 in the consolidated balance sheet at the date of disposal is included
in the determination of the profit or loss on disposal.
(i) 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 occurs from the point when 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
Hunting PLC Annual Report and Accounts 2022Financial Statements
225
Notes to the Consolidated
Financial Statements
41. Principal Accounting Policies continued
(j) Investments in Associates and Joint Ventures
• The Group’s interests in these investments are accounted for using the equity method of accounting.
• Upon initial recognition as at the date of acquisition, the interests are recognised in the balance sheet at cost plus directly incurred
acquisition-related expenses. The excess of cost above the share of net assets is ascribed to goodwill and other intangible assets, as appropriate.
The intangible assets are subsequently amortised and presented in the consolidated income statement as part of the post-tax share of the
investments’ results.
• Subsequently, the carrying amount is adjusted to include the Group’s share of the increase or decrease in the investments’ net assets after the
date of acquisition. The Group’s share of the investments’ net profit or loss after taxation is incorporated in the consolidated income statement as
post-tax share of associates’ and joint ventures’ results. The Group’s share of the investments’ net assets plus direct acquisition expenses, goodwill
and other acquisition-related intangible assets are incorporated in the consolidated balance sheet as investments in associates and joint ventures.
(k) Impairments
• The Group assesses at least annually whether there is any indication that an asset is impaired, and undertakes an assessment for an impairment
if such an indication exists.
• In addition, the Group undertakes an annual impairment assessment of goodwill whether or not an indication of impairment actually exists.
• Where assets do not generate their own independent cash flows, they are tested at a cash generating unit (“CGU”) level and, if impairment is
identified, the carrying amount of the CGU is reduced to its recoverable amount. For assets that do generate independent cash flows, the specific
asset is impaired to its recoverable amount if impairment is identified.
• Where impairment exists, an asset or CGU is written down to its recoverable amount being the higher of: (a) its fair value minus costs to sell; and
(b) its value in use. Details of how value in use is determined are given in note 15.
• Impairments are recognised immediately in the consolidated income statement.
• An impairment to goodwill is never reversed. When applicable, an impairment of any other asset or CGU 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.
(l) 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.
(m) Cash and Cash Equivalents
• Cash and cash equivalents comprise cash at bank and in hand, short-term deposits and qualifying Fixed Term Funds (“FTFs”) and money market
funds with a maturity of less than three months from the date of deposit.
• Short-term deposits, FTFs 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. These instruments are held for the purpose
of settling current or potential cash commitments in the short term by the treasury function.
• For cash flow statement purposes, cash and cash equivalents include bank overdrafts. In the consolidated balance sheet, bank overdrafts are
shown within borrowings in current liabilities.
(n) 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 consolidated 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, contract assets, trade receivables, accrued revenue and other
receivables.
• Any other debt instruments, including the convertible financing, money market funds and Fixed Term Funds, which are subsequently not measured
at amortised cost have been measured at fair value through profit or loss.
• The Group’s financial assets that are (1) equity instruments, and (2) debt instruments that are convertible into equity, are subsequently measured
at fair value through profit or loss. Changes in the fair value of these 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 convertible debt instrument is currently a loan on which interest is earned prior to its potential conversion into equity, the conversion
of which is dependent upon events outside of the Group’s control.
• The Group applies lifetime expected credit losses (“ECLs”) to trade receivables, accrued revenue, contract assets and lease receivables,
both short-term and long-term, upon their initial recognition.
Hunting PLC Annual Report and Accounts 2022Financial Statements 226
Notes to the Consolidated
Financial Statements
41. Principal Accounting Policies continued
(o) 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.
(p) Debt Issue Costs
• Transaction costs in relation to the arrangement of the ABL facility are capitalised and subsequently amortised on a straight-line basis over
the expected useful life of the facility. The charge is recognised within finance expense in the income statement. Capitalised costs are presented
in the balance sheet as a reduction to any drawn down debt with any excess over the drawn amount presented as a prepayment for services.
(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 derivative 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 consolidated 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 consolidated income statement
if the changes in the fair value of the hedged item are taken to the consolidated 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
consolidated 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 property, plant and equipment,
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 consolidated income statement.
(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.
Hunting PLC Annual Report and Accounts 2022Financial Statements 227
Notes to the Consolidated
Financial Statements
41. Principal Accounting Policies continued
(s) Post-employment Benefits
• Payments to defined contribution retirement schemes are charged to the consolidated income statement when they fall due.
(t) Share-based Payments
• The Group issues equity-settled and cash-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 consolidated 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; the obligation to settle the cash-settled awards is recognised as a liability.
(u) Share Capital
• 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.
(x) Employee Benefit Trust
• The Hunting PLC Employee Benefit Trust (“EBT”) holds treasury shares, which are shares in Hunting PLC, for the purpose of issuing shares
to employees of the Group under share-based remuneration schemes. The EBT is consolidated in accordance with note 41(a) above.
• The cost of treasury shares is presented as a deduction from retained earnings in the consolidated balance sheet.
• The cost of shares issued to employees is recognised on a weighted average cost basis.
Hunting PLC Annual Report and Accounts 2022Financial Statements 228
Company Balance Sheet
Company Balance Sheet
At 31 December 2022
ASSETS
Non-current assets
Investments in subsidiaries
Other receivables
Current assets
Other receivables
Current tax asset
LIABILITIES
Current liabilities
Other payables
Provisions
Current tax liability
Net current assets (liabilities)
Non-current liabilities
Provisions
Net assets
Equity attributable to owners of the parent
Share capital
Share premium
Other components of equity
Retained earnings
Total equity
Notes
C4
C5
C5
C6
C13
C13
C14
C15
2022
$m
205.3
582.3
787.6
2.4
–
2.4
1.5
0.2
–
1.7
0.7
0.7
2021
$m
331.3
460.1
791.4
1.2
0.2
1.4
1.6
0.2
–
1.8
(0.4)
0.8
787.6
790.2
66.5
153.0
9.3
558.8
787.6
66.5
153.0
22.6
548.1
790.2
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 $9.5m (2021 – $92.7m) has been accounted for in the
financial statements of the Company.
The notes on pages 231 to 239 are an integral part of these financial statements. The financial statements on pages 228 to 239 were approved
by the Board of Directors on 2 March 2023 and were signed on its behalf by:
Jim Johnson
Director
Bruce Ferguson
Director
Registered number: 0974568
Hunting PLC Annual Report and Accounts 2022Financial Statements
229
Company Statement of Changes in Equity
Company Statement
of Changes in Equity
At 1 January 2022
Profit for the year and total comprehensive income
Dividends paid to equity shareholders
Treasury shares
– purchase of treasury shares
– disposal of treasury shares
Share options and awards
– value of employee services
– discharge
Transfer between reserves
Year ended 31 December 2022
Share
capital
$m
66.5
Share
premium
$m
153.0
Other
components
of equity
$m
22.6
Retained
earnings
$m
548.1
Total
equity
$m
790.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9.4
(9.1)
(13.6)
9.5
9.5
(13.6)
(13.6)
(7.9)
0.2
–
8.9
13.6
(7.9)
0.2
9.4
(0.2)
–
Notes
C16
C15
C15
C14
C14, C15
At 31 December 2022
66.5
153.0
9.3
558.8
787.6
At 1 January 2021
Profit for the year and total comprehensive income
Dividends paid to equity shareholders
Treasury shares
– purchase of treasury shares
– disposal of treasury shares
Share options and awards
– value of employee services
– discharge
Transfer between reserves
Year ended 31 December 2021
Share
capital
$m
66.5
Share
premium
$m
153.0
Other
components
of equity
$m
37.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8.7
(10.4)
(12.8)
Retained
earnings
$m
453.0
Total
equity
$m
709.6
92.7
92.7
(12.8)
(12.8)
(8.1)
0.3
–
10.2
12.8
(8.1)
0.3
8.7
(0.2)
–
Notes
C16
C15
C15
C14
C14, C15
At 31 December 2021
66.5
153.0
22.6
548.1
790.2
Hunting PLC Annual Report and Accounts 2022Financial Statements 230
Company Statement of Cash Flows
Company Statement
of Cash Flows
For the year ended 31 December 2022
Operating activities
Profit (loss) from operationsii
Impairment of subsidiaries
Share-based payments expense
(Increase) decrease in receivables
Increase (decrease) in payables
Net exchange differences
Taxation paid
Net cash inflow from operating activities
Investing activities
Interest received
Loan issued
Net cash outflow from investing activities
Financing activities
Interest and bank fees paid
Dividends paid to equity shareholders
Purchase of treasury shares
Disposal of treasury shares
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
C4
C16
2022
$m
(2.7)
126.0
9.4
(0.3)
(0.1)
(0.3)
(1.8)
130.2
15.9
(121.3)
(105.4)
(3.5)
(13.6)
(7.9)
0.2
(24.8)
–
–
–
2021i
$m
88.9
105.5
8.7
0.3
0.1
(0.1)
(0.1)
203.3
3.5
(186.4)
(182.9)
–
(12.8)
(7.9)
0.3
(20.4)
–
–
–
i.
The profit (loss) from operations line item is profit before interest and tax. In 2021, profit from operations was stated before impairment of investments of $105.5m. This has been restated
above.
ii. Within profit (loss) from operations is dividend income of $126.2m (2021 – $200.0m). Please refer to note C18 for further details.
Hunting PLC Annual Report and Accounts 2022Financial Statements 231
Notes to the Company
Financial Statements
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 248. The Company acts as a holding company for the Hunting PLC Group. Details of the Company’s associates and joint
ventures are given in note C19 and details of subsidiaries are given in note C20.
The financial statements of Hunting PLC have been prepared in accordance with international accounting standards and in conformity with the
requirements of the Companies Act 2006. 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 page 111.
From the perspective of the Company, the principal risks and uncertainties are integrated with the principal risks of the Hunting PLC Group and
are not managed separately. The principal risks and uncertainties of the Hunting PLC Group, which include those of the Company, are discussed
on pages 105 to 109 in the Risk Management section of the Annual Report and further detail on financial risks is provided within note C9.
The Company’s principal accounting policies applied in the preparation of these financial statements are the same as those set out in note 41
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.
The Company’s statement of cash flows for 2021 has been represented to show profit from operations inclusive of the exceptional impairment charge
of $105.5m, with profit from operations previously disclosed as $194.4m, and the impairment charge as a non-cash adjustment on a separate line.
Interest Rate Benchmark Reform – Phase 2 – Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
The impact of the reform and replacement of benchmark interest rates such as GBP LIBOR and US LIBOR is being assessed and is ongoing.
The Company’s interest-bearing loan receivable from the treasury company of $581.2m at the year-end has a variable interest rate that is referenced
to relevant central bank rates and will not be affected by the IBOR reforms. There is currently uncertainty around the precise nature of the changes to
benchmark interest rates. To transition existing contracts and agreements that reference LIBOR to SONIA (in respect of GBP denominated contracts)
or SOFR (in respect of USD denominated contracts), adjustments for term differences and credit differences might need to be applied to SONIA and/
or SOFR, to enable the two benchmark rates to be economically equivalent on transition. Group treasury is responsible for managing the Company’s
LIBOR transition plan.
Critical Accounting Estimates and Judgements
Critical judgements are those that the Directors have made in the process of applying the Company’s accounting policies and that have the most
significant effect on the amounts recognised in the Company’s financial statements. Key assumptions are those assumptions concerning future
expectations, together with other key sources of estimation uncertainty at the end of the reporting period that may have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
Estimates are continually evaluated, based on experience and reasonable expectations of future events. Accounting estimates were made regarding
future cash flows for the purposes of impairment testing relating to the carrying value of investments in subsidiaries. The estimated future gross cash
flows utilise independent market forecasts adjusted to reflect the Directors’ view of each subsidiary’s future trading prospects, can include known
growth projects, and are discounted at a rate that is determined for each business unit in isolation by consideration of their business risk profiles.
Further details of the impairment review are disclosed in note C4.
Other than estimates regarding future cash flows for the purposes of impairment testing for the Company’s investments in subsidiaries (see note C4),
management believes that there are no other critical judgements or estimates applied in the preparation of the Company’s financial statements.
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
2022
$m
(0.5)
2021
$m
(0.5)
Hunting PLC Annual Report and Accounts 2022Financial Statements 232
Notes to the Company
Financial Statements
C4. Investments in Subsidiaries
Cost:
At 1 January and 31 December
Impairment:
At 1 January
Impairment charge for the year
At 31 December
Net book amount
2022
$m
2021
$m
436.8
436.8
(105.5)
(126.0)
(231.5)
–
(105.5)
(105.5)
205.3
331.3
The Company’s subsidiaries are detailed in note C20. Investments in subsidiaries are recorded at cost, which is the fair value of the consideration
paid, less impairment.
(a) Impairment Tests
In respect of the carrying value of the Company’s investment in subsidiaries, assessments are undertaken at least annually to determine whether
there have been any events or changes in circumstances that indicate that the carrying value may be impaired. An impairment review is carried out
when such indicators are present by comparing the carrying value of a subsidiary to its recoverable amount. The recoverable amount is the higher
of fair value less costs of disposal (“FVLCD”) and value in use.
The recoverable amount for one of the investments was based on the net asset value of the investment. Following receipt of a $126.2m dividend, the
carrying value of the investment was compared to the net asset value of the investment and the deficit of $126.0m (2021 – $105.5m) was recognised
as an impairment charge in the income statement.
The recoverable amount for the other investment was determined using a fair value less costs of disposal (“FVLCD”) method, which represents the
value of the investment in a sales transaction on an arm’s length basis. As there is no active market for the Company’s subsidiaries, the FVLCD is
determined using discounted cash flow techniques based on the estimated future gross cash flows that are expected to be generated by each
subsidiary and are discounted at a rate that is determined for each subsidiary 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 value of each subsidiary’s debt has then been
deducted from the cash flows. The impairment review is carried out using projected cash flows based on what could have reasonably been known
as at 31 December 2022, the reporting date, of the conditions that existed at that date. 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 2023 and 2024, cash flows are based on the latest detailed budget as approved by the Hunting PLC Board. For 2025 to 2027, management
made revenue projections using Spears & Associates’ “Drilling and Production Outlook” independent reports as a default basis, selecting the most
appropriate geographic market and drivers (rig count, footage drilled or E&P spend) for each subsidiary. Management then applied judgemental
changes to revenue growth expectations, if appropriate, to reflect circumstances specific to the subsidiary. Having determined the projected revenues,
management 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 subsidiaries from 2022 to 2027 vary between 3% and 22% (2021 – CAGR from
2021 to 2026 between 6% and 25%). After 2027, a terminal value has been calculated assuming growth of 50 basis points above assumed inflation
(2021 – 50 basis points), giving nominal growth rates between 2% and 6% (2021 – between 0% and 4%). Cash flows were discounted using nominal
pre-tax rates between 14% and 18% (2021 – 10% and 15%). The discount rates reflected 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 subsidiary and expected levels
of leverage. Consideration has also been given to other factors such as currency risk, operational risk and country risk. Required returns on equity
were determined using the CAPM model, which is then incorporated into a weighted average cost of capital (“WACC”) calculation. Risk free rates are
determined using long-dated Government borrowing instruments. As a result of the major economic changes that occurred in 2022, these risk free
rates have increased significantly and this is the main driver of the increase in rates.
No impairment charges were recognised for the other investment determined using the FVLCD method. In the opinion of the Directors, following the
impairment review, the value of the investments in the subsidiaries is not less than the aggregate carrying value amount shown in the balance sheet
and that the carrying value of the investments is supported by their underlying net assets.
(b) Sensitivities
Management has reviewed various downside sensitivities versus the base case assumptions used in the projections. These covered revenue growth
rates, terminal revenue growth rates, discount rates and foreign exchange rates. Management has concluded that there are no reasonably foreseeable
changes in key assumptions that would give rise to an impairment charge.
Hunting PLC Annual Report and Accounts 2022Financial Statements 233
Notes to the Company
Financial Statements
C5. Other Receivables
Non-current:
Loans receivable from a subsidiary – interest-bearing
Prepayments
Current:
Receivables from subsidiaries
Prepayments
2022
$m
581.2
1.1
582.3
1.1
1.3
2.4
2021
$m
459.9
0.2
460.1
0.6
0.6
1.2
Receivables from subsidiaries’ current accounts are unsecured, interest free and repayable on demand. The Company does not hold any collateral
as security and no assets have been acquired through the exercise of any collateral previously held.
(a) Impairment of Receivables
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. 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.
(b) Impairment of Loan Receivable
The Company assesses on a forward-looking basis the expected credit losses (“ECLs”) at each balance sheet date associated with its loan receivable
from a subsidiary company carried at amortised cost. The impairment methodology applied, following the adoption of the general model under IFRS 9,
will depend upon 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 as at 31 December 2022 is compared with the risk
of default occurring at the date of initial recognition. 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. Macro-economic information is also
considered.
At 31 December 2022, the Company’s loan receivable was not overdue and the Company does not consider it necessary to provide for any
impairment. The loan receivable is expected to be fully recovered, as there is no recent history of default or any indications that the contractual
payments will not be made (see note C9(c)). The Company’s maximum exposure to credit risk is the fair value of the loan receivable, as described
in note C8.
(c) Impairment of Receivables from Subsidiaries and Other Receivables
None of the Company’s receivables from subsidiaries and other receivables (2021 – 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.
C6. Other Payables
Current:
Payables to subsidiaries
Accruals
Other payables
2022
$m
0.2
1.0
0.3
1.5
2021
$m
–
1.0
0.6
1.6
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
2022, the Company had no outstanding forward foreign exchange contracts (2021 – $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 $0.1m net gain (2021 – $0.1m gain) were recognised in the income statement during the year.
Hunting PLC Annual Report and Accounts 2022Financial Statements
234
Notes to the Company
Financial Statements
C8. Financial Instruments
(a) Financial Instruments at Amortised Cost
The loan receivable from a subsidiary and current receivables from subsidiaries of $582.3m (2021 – $460.5m) are financial assets measured at
amortised cost. The interest-bearing loans receivable from a subsidiary are unsecured and interest is charged based on a margin over bank lending
rates. During the year, the Company received interest of $16.0m (2021 – $3.5m) on the interest-bearing loan.
Payables to subsidiaries, accruals and other payables of $1.5m (2021 – $1.6m) are financial liabilities carried at amortised cost.
Net foreign exchange gains of $nil (2021 – $nil) were recognised in profit or loss during the year in relation to financial instruments carried
at amortised cost.
(b) Financial Instruments Measured at Fair Value
The Company has used forward foreign exchange contracts to hedge its exposure to exchange rate movements during the year. These financial
instruments do not qualify for measurement at either amortised cost or at fair value through other comprehensive income (“FVTOCI”), therefore they
are financial instruments that have mandatorily been measured at fair value through profit or loss (“FVTPL”). 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. Details of the fair value gains and losses recognised during the year on derivative contracts are given
in note C7.
(c) Fair Values of Other Financial Instruments Carried at Amortised Cost
Due to their short-term nature, the carrying value of current receivables from subsidiaries, payables to subsidiaries, accruals, other payables and
provisions approximates their fair value. The carrying value of the loan receivable from a subsidiary approximates its fair value as interest is charged
based on a margin over current bank lending rates.
C9. Financial Risk Management
The Company’s activities expose it to certain financial risks, namely market risk (including currency, cash flow interest rate and fair value interest rate
risks), as well as 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.
Loans receivable from a subsidiary of $0.2m (2021 – $0.5m) at the year-end are denominated in Sterling, with exchange differences being recognised
in the income statement in the following year.
The carrying amount of the Company’s financial liabilities included in accruals and other payables at 31 December 2022, on which exchange
differences would be recognised in the income statement in the following year, was $2.1m (2021 – $2.3m) for Sterling denominated financial liabilities.
(b) Interest Rate Risk
The Company is exposed to cash flow interest rate risk from its loans receivable from a subsidiary, which are at variable interest rates.
(c) Credit Risk
The Company’s credit risk arises from its outstanding current receivables and loans 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 significant in the ordinary course of the Company’s activities.
The interest-bearing loans receivable due from a subsidiary have not been impaired as no losses are expected from non-performance of this
counterparty. The credit risk at the time the loans were taken out was deemed low and there has not been an increase in the credit risk since the time
the loans were initially recognised. Therefore, management does not believe that there is a significant increase in credit risk such that the loans move
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 loans are with the Group’s central treasury company, which has sufficient cash, short-term deposits and credit facilities
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
loans. 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 Annual Report and Accounts 2022Financial Statements 235
Notes to the Company
Financial Statements
C9. Financial Risk Management continued
(d) Liquidity Risk
(i) Management of Cash
The Company has sufficient facilities available to satisfy its requirements. The Company submits weekly and bi-monthly cash forecasts to Hunting’s
treasury function to enable them to monitor the Company’s and the Group’s 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 (2021 – $nil).
(ii) Future Cash Flows of Financial Liabilities
The following table analyses the expected timings of cash outflows for each of the Company’s non-derivative financial liabilities. The table below
analyses the Company’s cash outflows into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual
maturity dates of the financial liabilities. The amounts disclosed in the table are the contractual, undiscounted cash flows and include interest cash
flows, where applicable, so will not always reconcile with the amounts disclosed in the Company balance sheet. The carrying values are the amounts
in the Company balance sheet and are the discounted amounts.
Non-derivative financial liabilities:
Payables to subsidiaries
Accruals
Other payables
2022
On demand
or within
one year
$m
0.2
1.0
0.3
1.5
Carrying
value
$m
0.2
1.0
0.3
1.5
2021
On demand
or within
one year
$m
–
1.0
0.6
1.6
Carrying
value
$m
–
1.0
0.6
1.6
The Company did not have any derivative financial liabilities at the end of 2022 or 2021.
C10. 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:
Loans receivable from subsidiary (note C5)
Capital employed
2022
$m
787.6
(581.2)
206.4
2021
$m
790.2
(459.9)
330.3
The decrease in total equity during the year is mainly attributable to the payment of dividends of $13.6m and the net increase in treasury shares of
$7.7m being offset by profit and total comprehensive income for the year of $9.5m and the increase of $9.2m for the net share-based payment charge.
The loans receivable from the Group’s treasury company largely increased when dividend income of $126.2m from subsidiaries was deposited with
the treasury company. The balance also increased as royalty income and interest income were received during the year. This was offset by dividend
payments of $13.6m, net payments for the purchase of treasury shares of $7.7m and $2.8m fees paid in relation to the new Asset Based Lending
facility for the Group that was signed in February 2022. There have been no significant changes in the Company’s funding policy during the year.
The Company is not subject to any externally imposed capital requirements.
Hunting PLC Annual Report and Accounts 2022Financial Statements
236
Notes to the Company
Financial Statements
C11. 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 2022.
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 sensitivity rate of 1.0% (2021 – 1.0%) 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 impact on the income statement, with all
other variables held constant, in applying the sensitivity results in a $4.7m (2021 – $3.7m) increase or decrease in post-tax profits for or an increase
or decrease in US interest rates. 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 sensitivity rate of 5.0% (2021 – 3.0%) for Sterling foreign exchange rates represents management’s assessment of a reasonably possible change,
based on historical volatility and a review of analysts’ research and banks’ expectations of future interest rates. The impact on the income statement,
with all other variables held constant, in applying the sensitivity results in an immaterial increase or decrease in post-tax profits for or an increase or
decrease in Sterling foreign exchange rates. There is no impact on OCI for a change in foreign exchange rates.
C12. 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.
C13. Share Capital and Share Premium
Please see note 33 of the Group’s financial statements.
C14. Other Components of Equity
At 1 January 2022
Share options and awards
– value of employee services
– discharge
Transfer between reserves
At 31 December 2022
Year ended 31 December 2022
Currency
translation
reserve
$m
(19.2)
Share-based
payments
reserve
$m
15.6
–
–
–
(19.2)
9.4
(9.1)
–
15.9
Merger
reserve
$m
25.4
–
–
(13.6)
11.8
Capital
redemption
reserve
$m
0.8
–
–
–
0.8
Total
$m
22.6
9.4
(9.1)
(13.6)
9.3
The currency translation reserve contains the accumulated foreign exchange differences arising on foreign currency loans used to finance foreign
currency net investments and also foreign exchange differences arising on the Company’s change in presentational currency from Sterling to US
dollars on 1 January 2013.
The share-based payments reserve represents the Company’s obligation to settle share-based awards issued to employees of the Hunting PLC
Group. When employees exercise their awards, the portion of the share-based payments reserve which represents the share-based payment charge
for those awards is transferred to retained earnings and the Group discharges its obligation.
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. During the year, $13.6m (2021 – $12.8m) 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.
The capital redemption reserve is a statutory, non-distributable reserve into which amounts are transferred following the purchase of the Company’s
own shares out of distributable profits.
Hunting PLC Annual Report and Accounts 2022Financial Statements 237
Notes to the Company
Financial Statements
C14. Other Components of Equity continued
At 1 January 2021
Share options and awards
– value of employee services
– discharge
Transfer between reserves
At 31 December 2021
C15. Retained Earnings
At 1 January
Profit for the year
Dividends paid to equity shareholders (note C16)
Treasury shares
– purchase of treasury shares
– proceeds on disposal of treasury shares
Share options and awards
– discharge
Transfer between reserves
At 31 December
Year ended 31 December 2021
Currency
translation
reserve
$m
(19.2)
–
–
–
(19.2)
Share-based
payments
reserve
$m
17.3
8.7
(10.4)
–
15.6
Merger
reserve
$m
38.2
–
–
(12.8)
25.4
Capital
redemption
reserve
$m
0.8
–
–
–
0.8
Total
$m
37.1
8.7
(10.4)
(12.8)
22.6
2021
$m
453.0
92.7
(12.8)
(8.1)
0.3
10.2
12.8
548.1
2021
$m
(10.6)
(8.1)
3.7
(15.0)
2022
$m
548.1
9.5
(13.6)
(7.9)
0.2
8.9
13.6
558.8
2022
$m
(15.0)
(7.9)
3.7
(19.2)
Retained earnings include the following amounts in respect of the carrying amount of treasury shares:
Cost:
At 1 January
Purchase of treasury shares
Cost of treasury shares disposed
At 31 December
At 31 December 2022, 5,370,963 Ordinary shares were held by the Employee Benefit Trust (2021 – 4,282,065). During the year, the Company
purchased 2,130,142 additional treasury shares for $7.9m. The loss on disposal of treasury shares during the year, which is recognised in retained
earnings, was $3.5m (2021 – $3.4m).
C16. Dividends Paid to Equity Shareholders
Please see note 36 of the Group’s financial statements.
C17. Share-based Payments
Please see note 37 of the Group’s financial statements.
C18. 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
Loans to subsidiary
Interest receivable on intercompany loans
Dividends received from subsidiaries
Year-end balances:
Payables to subsidiaries
Receivables from subsidiaries
Loans owed by subsidiaries
All balances between the Company and its subsidiaries are unsecured.
2022
$m
10.0
(9.7)
10.0
(121.3)
16.0
126.2
(0.2)
1.1
581.2
2021
$m
7.1
(9.6)
9.5
(186.4)
3.5
200.0
–
0.6
459.9
Hunting PLC Annual Report and Accounts 2022Financial Statements
238
Notes to the Company
Financial Statements
C18. Related-party Transactions continued
The Company serves as the intermediary for certain Group insurances and is also the head of the VAT group for UK central companies.
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 7 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.
Hunting PLC is the parent company of the Hunting PLC Group. 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 61). Accordingly, the Directors do not consider there to be an ultimate
controlling party.
C19. Associates and Joint Ventures
Associates are all entities over which the Group has significant influence but not control or joint control. This is generally the case where the Group
holds between 20% and 50% of the voting rights. Joint ventures are entities where the Group has joint control over the entity.
Associates and joint venturesi/ii
Rival Downhole Tools LC (23.5%)
Cumberland Additive Holdings LLC (29.2%)
Tianjin Huaxin Premium Connection Pipe Co Ltd (28.5%)
Hunting Airtrust Tubulars Pte. Ltd (50%)
Jindal Hunting Energy Services Limited (49%)
Registered addressiii
5535 Brystone Drive, Houston, Texas, 77041-7013, USA
3813 Helios Way, Suite B200, Pflugerville, Texas, 78660, USA
Jintang Road, Dongli District, Tianjin, 300301, China
19 Keppel Road, 08-05 JIT Poh Building, 089058, Singapore
A-1, UPSIDC Industrial Area, Nand Gaon Road, Kosi Kalan, Mathura,
Uttar Pradesh, 281403 India
i. All interests are in the Ordinary equity shares of those companies.
ii.
iii. Associates and joint ventures are incorporated and operate in the countries indicated.
Interest in company is held indirectly by Hunting PLC.
Changes During the Year
(a) Incorporation of Indian Joint Venture
In December 2021, the Group entered into an agreement for the formation of a new 49:51 joint venture with Jindal SAW Limited (“Jindal”) to pursue
new growth opportunities in India. The new joint venture entity, Jindal Hunting Energy Services Limited, was incorporated on 7 March 2022.
(b) Cumberland Additive Investment
The Group increased its investment in Cumberland Additive Holdings LLC during the year by $1.6m. The Group’s effective shareholding has increased
to 29.2% as a result of the additional investment.
C20. 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 (UK) Limited
Enpro Subsea Limited
Enpro Subsea Operations Limited
Enpro Subsea Group Limited
Enpro Subsea Ghana Ltd (83%)
Enpro Subsea Group Ghana Limited
PT Hunting Energy Asia
Hunting Alpha (EPZ) Limited (60%)
Hunting Energy de Mexico
Hunting Energy Services B.V.
Hunting Energy Services (Norway) AS
Hunting Energy Saudi Arabia LLC (65%)
Hunting Energy Services Limited
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
30 Panton Street, London SW1Y 4AJ, England
Badentoy Avenue, Badentoy Industrial Estate, Portlethen, Aberdeen,
AB12 4YB, Scotland
Badentoy Avenue, Badentoy Industrial Estate, Portlethen, Aberdeen,
AB12 4YB, Scotland
Badentoy Avenue, Badentoy Industrial Estate, Portlethen, Aberdeen,
AB12 4YB, Scotland
House No. F676/1, Angola Road, Kuku Hill, Osu, Accra, Ghana
House No. F676/1, Angola Road, Kuku Hill, Osu, Accra, Ghana
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
Avenida Los Olmos #105, Parque Industrial El Sabinal, Apodaca, Nuevo Leon,
Monterrey, Mexico
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
Hunting PLC Annual Report and Accounts 2022Financial Statements 239
Notes to the Company
Financial Statements
C20. Subsidiaries continued
Subsidiariesi/iii
Hunting Energy Services Pte. Ltd
Hunting Energy Services (China) Pte. Ltd. (70%)
Hunting Energy Services South Africa (Pty) Ltd
Hunting Energy Services (Thailand) Limited (49%)
Hunting Energy Services India Private Limited
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 Supply, Inc.
Hunting Titan, Inc.
Tenkay Resources, Inc.
Corporate activities
Hunting Energy Holdings Limitedii
Hunting Energy Services (International) Limited
Hunting Energy Services Overseas Holdings Limited
Hunting Oil Holdings Limitedii
Hunting Knightsbridge Holdings Limited
Huntaven Properties Limited
HG Management Services Ltd
Huntfield Trust Limitediv
Stag Line Limitediv
Hunting Aviation Limitedv
Hunting U.S. Holdings, Inc.
Registered address
16E Tuas Avenue 1, #01-61 Singapore 639537
16E Tuas Avenue 1, #01-61 Singapore 639537
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
602, Block A, Naurang House, 21 KG Marg, Canaught Place, New Delhi,
Central Delhi 110001, India
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
16825 Northchase Drive, Suite 600, Houston, Texas, 77060, USA
30 Panton Street, London SW1Y 4AJ, England
30 Panton Street, London SW1Y 4AJ, England
30 Panton Street, London SW1Y 4AJ, England
30 Panton Street, London SW1Y 4AJ, England
30 Panton Street, London SW1Y 4AJ, England
30 Panton Street, London SW1Y 4AJ, England
30 Panton Street, London SW1Y 4AJ, England
30 Panton Street, London SW1Y 4AJ, England
30 Panton Street, London SW1Y 4AJ, England
30 Panton Street, London SW1Y 4AJ, England
16825 Northchase Drive, Suite 600, Houston, Texas, 77060, USA
i. Except where otherwise stated, companies are wholly owned, being incorporated and operating in the countries indicated. All subsidiary undertakings have been included in the
consolidated financial statements.
Interest in company is held directly by Hunting PLC.
ii.
iii. All interests in subsidiaries are in the Ordinary equity shares of those companies. The proportion of voting rights is represented by the interest in the Ordinary equity shares of those
companies.
iv. Huntfield Trust Limited (registered number 00372215), Stag Line Limited (registered number 00151320) and Hunting Aviation Limited (registered number 00297743) 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. The company was previously liquidated in 2015; however it was restored to the Register of Companies by court order in 2018.
Changes to the Group
(a) Merging of Dutch Entities
The Group undertook a reorganisation of its Dutch entities, whereby Hunting Energy Services B.V. and Hunting Energy Services (Well Testing) B.V.
were merged, with Hunting Energy Services B.V. being the surviving entity.
(b) Other
Hunting Welltonic Limited was dissolved in March 2022.
Hunting Energy Services (Well Intervention) Limited changed its name to Hunting Energy Services Limited on 27 May 2022.
Hunting PLC Annual Report and Accounts 2022Financial Statements 240
Non-GAAP Measures
Non-GAAP
Measures
(unaudited)
The performance of the Group is assessed by the Directors using a number of measures, which are not defined under IFRS, and are therefore
considered to be non-GAAP measures (“NGMs”). However, the measures used by the Group may not be comparable with similarly described
measures presented by other businesses.
The Group presents adjusted profitability measures below, which exclude adjusting items (see NGM A). The adjusted results, when considered
together with results reported under IFRS, provide investors, analysts and other stakeholders with helpful complementary information and they aid
comparison of the Group’s financial performance from one period to the next. These adjusted measures are used by management for planning,
reporting and performance management purposes. The adjusted profitability measures are reconciled to unadjusted IFRS results on the face of the
income statement, with details of the adjusting items provided in NGM A. It is important to note that the adjusted results are quite frequently higher
than the IFRS results as they often exclude significant costs and should not be regarded as a complete picture of the Group’s financial performance,
which is presented by the IFRS results in the income statement.
In addition, the Group’s results and financial position are analysed using certain other measures that are not defined under IFRS and are therefore
considered to be NGMs. These measures are used by management to monitor ongoing business performance. This section provides a definition
of each NGM presented in this report, the purpose for which the measure is used, and a reconciliation of the NGM 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
A. Adjusting Items
Due to their size and nature, the following items are considered to be adjusting items and have been presented separately.
Impairments of goodwill (note 5)
Legal fees (note 5)
Total adjustments to profit (loss) from operations
Gross adjusting items
Tax attributable to adjusting items
Adjusting items after tax
Adjusting items after tax attributable to Ordinary shareholders
Adjusting items after tax attributable to non-controlling interests
Impairments of property, plant and equipment
Net impairments of inventories
Restructuring costs
Gain on disposal of Canadian assets
Gain on surrender of lease
Amortisation of acquired intangible assets
Settlement of warranty claim related to a corporate transaction
Loss on disposal of business
Total adjustments to profit (loss) from operations
Amortisation of acquired intangible assets – associates (note 16)
Total adjustments to loss before tax
2022
Gross
$m
(7.0)
(5.6)
(12.6)
2021
Gross
$m
(8.6)
(25.9)
(2.0)
0.2
1.0
(6.7)
(1.7)
(0.9)
(44.6)
(0.3)
(44.9)
Tax
$m
–
–
–
2022
$m
(12.6)
–
(12.6)
(12.6)
–
(12.6)
Tax
$m
0.8
0.5
–
–
(0.4)
(0.4)
–
0.2
0.7
–
0.7
Hunting PLC Annual Report and Accounts 2022Other Information 241
Non-GAAP Measures
Income Statement Non-GAAP Measures continued
A. Adjusting Items continued
Gross adjusting items
Tax attributable to adjusting items
Adjusting items after tax
Adjusting items after tax attributable to Ordinary shareholders
Adjusting items after tax attributable to non-controlling interests
The following items were recognised as adjusting items during 2021:
2021
$m
(44.9)
0.7
(44.2)
(42.1)
(2.1)
(44.2)
• Amortisation of acquired intangible assets relates to amortisation of intangible assets arising on the acquisition of businesses.
• A number of associated charges were recognised due to the restructuring of the European OCTG business, and the changes in future activity
resulting from the transactions with Marubeni-Itochu including: an impairment of the Fordoun property by $8.6m as the use of the property and
expected cash flows for the property had changed; impairment of pipe inventory of $5.2m to match the net realisable value determined through
the due diligence work; and a provision of $0.9m for the cost of repairs to a quantity of pipe.
• During 2021, certain inventory was written down to its net realisable value due to reduced turn rates, increased ageing of inventories and inventory
selling prices being lowered. A net impairment charge of $25.9m, including the $5.2m charge recognised on the Marubeni-Itochu transaction
discussed above, was recognised.
• In October 2021, the Group paid $1.7m in settlement of a warranty claim in relation to the transfer of assets, and their condition, as part of a
corporate transaction.
• Restructuring costs of $2.0m were incurred and paid during 2021. These relate to the implementation of cost-base reduction measures, which
began in 2020, with further headcount reductions being made in 2021 as a result of the continued negative impact of COVID-19 on activity levels.
Cumulatively by the end of 2021, $12.3m of expense and $12.7m of cash cost was incurred on the restructuring programme begun in 2020.
• On 19 April 2021, the lease and the sub-lease on a property held by a UK head office company were surrendered. A final payment of $1.3m was
made to settle the lease. Following the surrender of the lease, the gain recognised on the disposal of the lease and the corresponding right-of-use
asset was $1.0m. The gain was not allocated to an operating segment as the original property provisions were not allocated to an operating
segment at the time they were recognised.
• A further gain of $0.2m on the disposal of Canadian assets was recognised, following the gain of $0.8m recognised in 2020, in relation to the
closure of the Canadian operations. The Group received disposal proceeds of $1.8m for these assets during 2021.
B. Adjusted Profitability Measures
Certain reported profit and loss measures are adjusted for the items described in NGM A. This is the basis used by the Directors in assessing
performance.
Profit (loss) from operations – consolidated income statement
Add back adjusting items (NGM A)
Adjusted profit (loss) from operations
Share of associates’ and joint ventures’ profit (loss) – consolidated income statement
Add back adjusting items (NGM A)
Adjusted share of associates’ and joint ventures’ profit (loss)
Loss before tax from operations – consolidated income statement
Add back adjusting items (NGM A)
Adjusted profit (loss) before tax from operations
Loss for the year attributable to Ordinary shareholders – consolidated income statement
Add back adjusting items after tax attributable to Ordinary shareholders (NGM A)
Adjusted profit (loss) from operations attributable to Ordinary shareholders
Basic weighted average number of Ordinary shares (note 10)
Long-term incentive plans (note 10)
Adjusted weighted average number of Ordinary shares (note 10)
Adjusted earnings (loss) per share:
Adjusted basic EPS (LPS)
Adjusted diluted EPS (LPS)i
2022
$m
2.0
12.6
14.6
(2.7)
–
(2.7)
(2.4)
12.6
10.2
(4.6)
12.6
8.0
millions
160.3
9.8
170.1
2021
$m
(79.7)
44.6
(35.1)
(3.8)
0.3
(3.5)
(85.5)
44.9
(40.6)
(85.8)
42.1
(43.7)
millions
161.2
5.9
167.1
cents
cents
5.0
4.7
(27.1)
(27.1)
i.
For the year ended 31 December 2021, the Group reported a loss from operations attributable to Ordinary shareholders and so the effect of dilutive share options and long-term incentive
plans was anti-dilutive (i.e. they reduced the loss per share) and, therefore, they have not been used to calculate diluted loss per share.
Hunting PLC Annual Report and Accounts 2022Other Information 242
Non-GAAP Measures
Income Statement Non-GAAP Measures continued
C. EBITDA
Purpose: This profit measure is used as a simple proxy for pre-tax cash flows from operating activities. EBITDA is frequently used by analysts,
investors and other interested parties.
Calculation definition: Adjusted results before share of associates’ and joint ventures’ results, interest, tax, depreciation, impairment and amortisation.
Profit (loss) from operations – consolidated income statement
Add back adjusting items (NGM A)
Adjusted profit (loss) from operations (NGM B)
Add back:
Depreciation of property, plant and equipment (note 11)
Depreciation of right-of-use assets (note 12)
Non-adjusting amortisation of other intangible assets
EBITDA
2022
$m
2.0
12.6
14.6
26.6
6.4
4.4
37.4
52.0
2021
$m
(79.7)
44.6
(35.1)
28.9
6.7
2.6
38.2
3.1
D. Adjusted Tax Charge and Effective Tax Rate
Purpose: The weighted average effective tax rate represents the level of tax, both current and deferred, being borne by operations on an adjusted basis.
Calculation definition: The adjusted taxation charge (credit) divided by adjusted profit (loss) before tax, expressed as a percentage.
Taxation charge – consolidated income statement
Tax charge (credit) on adjusting items (NGM A)
Adjusted taxation charge
Adjusted profit (loss) before tax for the year (NGM B)
Adjusted effective tax rate
Adjusting items are taxed on an item-by-item basis as shown in NGM A.
Balance Sheet Non-GAAP Measures
2022
$m
(1.3)
–
(1.3)
10.2
13%
2021
$m
(4.2)
(0.7)
(4.9)
(40.6)
(12)%
E. 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 deferred bank fees, plus
inventories less trade and other payables excluding payables due to associates, derivative financial 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)
Add: non-working capital US deferred compensation plan obligation (note 22)
Less: non-working capital current other receivables and other payables
2022
$m
2.8
232.4
272.1
(141.8)
(3.2)
1.9
(1.4)
362.8
2021
$m
2.0
155.4
204.4
(83.0)
(2.7)
1.9
–
278.0
F. 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 adjusted cost of sales for the last three months of the year multiplied by 92 days, adjusted
for the impact of acquisitions and disposals when applicable.
Inventories (note 20)
Adjusted cost of sales for October to December
Inventory days
2022
$m
272.1
157.1
2021
$m
204.4
115.2
159 days
163 days
Hunting PLC Annual Report and Accounts 2022Other Information
243
Non-GAAP Measures
Balance Sheet Non-GAAP Measures continued
G. 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 when applicable.
Trade receivables (note 18)
Contract assets (note 18)
Accrued revenue (note 18)
Less: provisions for receivables (note 18)
Net receivables
Revenue for October to December
Trade receivable days
H. Other Net Assets
Purpose: Provides an analysis of other net assets in the Summary Group Balance Sheet in the Strategic Report.
Non-current investments (note 17)
Non-working capital US deferred compensation plan obligation (NGM E)
Non-working capital current other receivables and other payables (NGM E)
I. Capital Employed
Purpose: Used in the calculation of the return on average capital employed (see NGM R).
Calculation definition: Capital employed is total equity plus net or minus net cash as applicable.
The Group’s capital comprised:
Total equity – consolidated balance sheet
Net (cash) debt (note 26)
2022
$m
183.1
8.6
2.2
(3.7)
190.2
2021
$m
128.1
9.9
3.8
(4.6)
137.2
207.1
145.2
84 days
87 days
2022
$m
4.8
(1.9)
1.4
4.3
2021
$m
4.6
(1.9)
–
2.7
2022
$m
846.2
10.0
856.2
2021
$m
871.3
(78.5)
792.8
J. Total Cash and Bank
Purpose: Total cash and bank is a key metric for management and for the Group treasury function, which monitors this balance on a daily basis and
reviews weekly forecasts to ensure there is sufficient liquidity to meet business requirements. As the Group manages funding on a total cash and
bank basis, internal reporting focuses on changes in total cash and bank and this is presented in the Strategic Report.
Calculation definition: Cash and cash equivalents, comprising cash at bank and in hand, Fixed Term Funds, money market funds and short-term
deposits of less than three months to maturity from the date of deposit; and short-term deposits of more than three months to maturity from the date
of deposit; less bank overdrafts and bank borrowings.
The Group’s total cash and bank comprised:
Cash and cash equivalents (note 21)
Bank overdrafts secured – current borrowings (note 25)
Cash and cash equivalents – consolidated statement of cash flows
Bank borrowings – current borrowings (note 25)
Current investments – investment of surplus cash – consolidated balance sheet
2022
$m
29.4
(2.1)
27.3
(2.8)
–
24.5
2021
$m
108.4
(1.0)
107.4
–
6.8
114.2
Hunting PLC Annual Report and Accounts 2022Other Information
244
Non-GAAP Measures
Balance Sheet Non-GAAP Measures continued
K. Net Cash (Debt)
Purpose: Net cash (debt) is a measure of the Group’s liquidity and reflects the Group’s cash and liquid assets that would remain if all of its debt were
to be immediately paid off.
Calculation definition: Net cash (debt) comprises total cash and bank (NGM J) less total lease liabilities and the shareholder loan from a non-controlling
interest.
The Group’s net cash (debt) comprised:
Total cash and bank (NGM J)
Total lease liabilities (note 24)
Shareholder loan from non-controlling interests – non-current borrowings (note 25)
Cash Flow Non-GAAP Measures
L. 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
Foreign exchange
Exceptional items impacting working capital:
Net impairments of inventories (note 5)
Disposal of business
Adjustments:
Transfer to property, plant and equipment (note 11)
Capital investment debtors/creditors cash flows
Other non-cash flow movements
Other cash flow movement
Working capital – closing balance (NGM E)
Cash flow
2022
$m
24.5
(30.6)
(3.9)
(10.0)
2022
$m
278.0
0.5
–
–
(1.6)
(0.6)
0.1
(0.2)
(362.8)
(86.6)
2021
$m
114.2
(31.8)
(3.9)
78.5
2021
$m
358.3
1.1
(25.9)
(31.5)
(0.5)
0.1
(0.4)
(0.4)
(278.0)
22.8
M. 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 11)
Capital investment debtors/creditors cash flows (NGM L)
Cash flow
Per the consolidated statement of cash flows:
Purchase of property, plant and equipment held for rental – operating activities
Purchase of property, plant and equipment – investing activities
Cash flow
Hunting Titan
North America
EMEA
Asia Pacific
Central
Cash flow
2022
$m
17.0
(0.6)
16.4
0.5
15.9
16.4
3.9
7.2
0.7
2.6
2.0
16.4
2021
$m
6.5
0.1
6.6
0.9
5.7
6.6
1.1
4.1
0.5
0.4
0.5
6.6
Hunting PLC Annual Report and Accounts 2022Other Information
245
Non-GAAP Measures
Cash Flow Non-GAAP Measures continued
N. 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.
Increase (decrease) in provisions – consolidated statement of cash flows
Other non-cash flow items
2022
$m
0.2
0.3
0.5
2021
$m
(1.7)
(0.2)
(1.9)
O. 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 and
is a KPI used by management.
Calculation definition: All cash flows before transactions with shareholders and investment in non-current assets.
EBITDA (NGM C)
Add: share-based payment charge (note 37)
Working capital movements (NGM L)
Lease payments – consolidated statement of cash flows
Net interest and bank fees paid – consolidated statement of cash flows
Net tax received (paid) – consolidated statement of cash flows
Proceeds from business and asset disposals – consolidated statement of cash flows
Net gains on business and asset disposals – consolidated statement of cash flows
Legal fees to defend patent infringement claim – consolidated statement of cash flows
Restructuring costs – consolidated statement of cash flows
Settlement of a warranty claim related to a corporate transaction
Other operating cash and non-cash movements (NGM N)
Free cash flow
Reconciliation to the consolidated statement of cash flows:
Net cash inflow (outflow) from cash and cash equivalents
Cash flow from bank borrowings
Cash flow from current investments – investment of surplus cash
Net cash inflow (outflow) from total cash and bank
Add investment in non-current assets:
Purchase of property, plant and equipment
Purchase of property, plant and equipment held for rental
Purchase of intangible assets
Investments in associates and joint ventures
Convertible financing – Well Data Labs
Add (deduct) transactions with shareholders:
Purchase of treasury shares
Disposal of treasury shares
Purchase of non-controlling interest
Dividends paid to Hunting PLC shareholders
Free cash flow
2022
$m
52.0
9.9
61.9
(86.6)
(8.0)
(2.9)
(3.9)
9.0
(2.8)
(5.6)
–
–
0.5
(38.4)
(75.6)
(2.9)
(6.7)
(85.2)
15.9
0.5
5.6
3.5
–
25.5
7.9
(0.2)
–
13.6
21.3
(38.4)
2021
$m
3.1
9.2
12.3
22.8
(10.6)
(0.4)
0.6
35.9
(0.6)
–
(2.0)
(1.7)
(1.9)
54.4
6.4
–
6.9
13.3
5.7
0.9
2.7
5.1
2.5
16.9
7.9
(0.3)
3.8
12.8
24.2
54.4
Hunting PLC Annual Report and Accounts 2022Other Information
246
Non-GAAP Measures
Other Non-GAAP Measures
P. 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 Q).
Calculation definition: The amount in cents returned to Ordinary shareholders.
Interim dividend
Final dividend
2022
cents
4.5
4.5
9.0
2021
cents
4.0
4.0
8.0
Q. 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 (loss) per share attributable to Ordinary shareholders divided by the cash dividend per share to be returned to Ordinary
shareholders, on an accruals basis.
Earnings (loss) per share
Basic (NGM B/note 10)
Diluted (NGM B/note 10)
Dividend (NGM P)
Dividend cover
Basic
Diluted
2022
Adjusted
cents
Reported
cents
2021
Adjusted
cents
5.0
4.7
9.0
0.6x
0.5x
(2.8)
(2.8)
9.0
n/a
n/a
(27.1)
(27.1)
8.0
n/a
n/a
Reported
cents
(53.2)
(53.2)
8.0
n/a
n/a
R. Return on Average Capital Employed
Purpose: Measures the levels of return the Group is generating from its capital employed.
Calculation definition: Adjusted profit before interest and tax, amended to include the share of associates’ and joint ventures’ 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)
Adjusted profit (loss) from operations (NGM B)
Adjusted share of associates’ and joint ventures’ loss (NGM B)
Return on average capital employed
2022
$m
821.3
14.6
(2.7)
11.9
2021
$m
882.6
(35.1)
(3.5)
(38.6)
1%
-4%
Hunting PLC Annual Report and Accounts 2022Other Information
247
Financial Record
Financial Recordi
(unaudited)
Revenue
EBITDA
Depreciation and non-exceptional amortisation and
impairment
Profit (loss) from operations
Net finance expense
Share of associates’ and joint ventures’ profit (loss)
Profit (loss) before tax
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
Associates and joint ventures
Taxation (current and deferred)
Provisions
Other net assets
Capital employed
Total cash and bank
Lease liabilities
Other borrowings
Net cash (debt)
Net assets
Non-controlling interests
Equity attributable to owners of the parent
Net assets per share
2022
$m
725.8
52.0
(37.4)
14.6
(1.7)
(2.7)
10.2
(1.3)
8.9
cents
5.0
4.7
9.0
$m
256.7
26.0
191.2
362.8
20.1
4.0
(8.9)
4.3
856.2
24.5
(30.6)
(3.9)
(10.0)
846.2
(1.6)
844.6
cents
513.2
2021
$m
521.6
3.1
(38.2)
(35.1)
(2.0)
(3.5)
(40.6)
(4.9)
(45.5)
cents
(27.1)
(27.1)
8.0
$m
274.4
24.7
200.3
278.0
19.4
1.4
(8.1)
2.7
792.8
114.2
(31.8)
(3.9)
78.5
871.3
(1.4)
869.9
cents
528.4
2020
$m
626.0
26.1
(42.5)
(16.4)
(3.0)
–
(19.4)
0.9
(18.5)
cents
(10.0)
(10.0)
9.0
$m
307.1
29.8
207.1
358.3
18.1
6.0
(8.9)
1.6
919.1
101.7
(40.3)
(3.9)
57.5
976.6
(12.2)
964.4
cents
592.2
2019ii
$m
960.0
139.7
(45.4)
94.3
(1.2)
–
93.1
(17.0)
76.1
cents
45.0
43.9
5.0
$m
354.7
36.7
308.7
433.3
0.7
19.8
(8.4)
0.4
1,145.9
127.0
(45.2)
(3.9)
77.9
1,223.8
(15.9)
1,207.9
cents
733.3
2018ii
$m
911.4
142.3
(37.6)
104.7
(0.7)
–
104.0
(22.0)
82.0
cents
51.6
49.6
9.0
$m
360.2
–
329.7
436.5
0.7
13.7
(14.2)
3.2
1,129.8
65.2
–
(3.9)
61.3
1,191.1
(14.0)
1,177.1
cents
721.4
i.
ii.
Income statement measures are presented after reflecting adjusting items.
IFRS 16 Leases was adopted with effect from 1 January 2019. The modified retrospective approach was applied and consequently information for 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.
Hunting PLC Annual Report and Accounts 2022Other Information
248
Shareholder and Statutory Information
Shareholder and Statutory
Information
(unaudited)
Registered Office
30 Panton Street
London
SW1Y 4AJ
Company Number: 0974568 (Registered in England and Wales)
Telephone: +44 (0)20 7321 0123
Email: lon.ir@hunting-intl.com
Financial Calendar
The Company’s 2023 financial calendar is as follows:
Date
2 March 2023
2 March 2023
16 March 2023
19 April 2023
19 April 2023
20 April 2023
21 April 2023
12 May 2023
29 June 2023
24 August 2023
24 August 2023
5 October 2023
6 October 2023
26 October 2023
27 October 2023
Event
2022 Full Year Results Announcement
2022 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
Trading Statement
2023 Half Year Results Announcement
2023 Interim Dividend – Announcement date
Interim Dividend – Ex-dividend date
Interim Dividend – Record date
Trading Statement
Interim Dividend – Payment date
Financial Reports
The Company’s 2022 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:
+44 (0)371 384 2173
Equiniti is also the Company’s single alternative inspection location where, with prior appointment, individuals can inspect the register of members.
Hunting PLC Annual Report and Accounts 2022Other Information 249
Shareholder and Statutory Information
Analysis of Ordinary Shareholders
At 31 December 2022, the Company had 1,285 Ordinary shareholders (2021 – 1,337) who held 164.9m (2021 – 164.9m) 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
2022
2021
% of total
shareholders
% of total
shares
% of total
shareholders
% of total
shares
72.3
10.2
3.4
7.7
2.2
4.2
0.5
0.7
0.8
5.7
5.6
86.7
72.8
11.2
3.3
6.9
2.2
3.6
0.5
0.8
0.8
5.2
5.9
86.8
Further information on share capital can be found in note 33.
Annual General Meeting 2023
The AGM of the Company will take place on Wednesday 19 April 2023 at the Royal Automobile Club, 89 Pall Mall, London SW1Y 5HS, commencing
at 10.30a.m.
Format and Business of Meeting
The 2023 AGM is planned to be an Open Meeting, with shareholders welcome to attend.
The formal business of the AGM will involve 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 will also contain 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.
The AGM is to be broadcast via the internet. Details of the web-link will be included in the Notice of AGM. Prior to the formal business of the AGM,
a presentation will be delivered by the Chief Executive.
The Directors have made available to shareholders the ability to submit questions ahead of the AGM. These questions will be answered during
the presentation noted above. Shareholders are therefore asked to submit all questions, in relation to the business to be considered at the AGM,
by Monday 17 April 2023, to the Company’s Registered Office, for the attention of the Company Secretary. Alternatively, questions can be submitted
via email at lon.agm@hunting-intl.com.
Shareholder voting procedures follow the provisions of the Articles of Association of the Company (the “Articles”) 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”.
Voting on all resolutions at the AGM will be completed via proxy. Alternatively, shareholders may submit proxy voting instructions via the internet at
www.sharevote.co.uk or via Equiniti’s 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 10.30a.m. on Monday 17 April 2023.
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 2022, no 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 24,724,510 shares. Any shares
purchased will either be cancelled and the number of Ordinary shares in issue reduced accordingly, held in treasury, sold for cash or (provided Listing
Rule requirements are met) transferred for the purposes of or pursuant to an employee share scheme.
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 2023 AGM.
As part of the routine business to be considered at the AGM, all Directors’ will submit themselves for re-appointment, in addition to a resolution
proposing the re-appointment of Deloitte LLP as auditor to the Company and a resolution which gives the Audit Committee the authority to determine
the remuneration of the auditor.
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.
Hunting PLC Annual Report and Accounts 2022Other Information 250
Shareholder and Statutory Information
Employee Benefit Trust
The Group operates an Employee Benefit 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 2022, the Trust held 5,370,963 Ordinary shares in the Company
(2021 – 4,282,065). 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. The Trust has waived all dividends payable by the Company and voting rights in respect of the Ordinary shares held by it.
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 into 164,940,082 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 2022 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) 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 no 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
Articles. 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 61, 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 2022 was £0.5bn (2021 – £0.3bn).
Share Price
At 1 January
At 31 December
High during the year
Low during the year
2022
p
169.2
333.0
365.0
169.2
2021
p
223.0
169.2
289.6
144.4
Dividends
The Company normally pays dividends semi-annually. Details of the Company’s dividend policy is set out on page 62.
The Company paid the 2021 final dividend of 4.0 cents per share on 13 May 2022, which absorbed $6.4m of cash. At the Group’s 2022 Half Year
Results, the Board declared an interim dividend of 4.5 cents per share, which was paid to shareholders on 28 October 2022, and absorbed $7.2m
of cash. The Board is recommending a final dividend for 2022 of 4.5 cents per share, to be paid to shareholders on 12 May 2023, subject to approval
by shareholders at the Company’s 2023 AGM.
Hunting PLC Annual Report and Accounts 2022Other Information 251
Shareholder and Statutory Information
Directors
Powers of the Directors
Subject to the Articles, UK legislation and any directions prescribed by resolution at a general meeting, the business of the Company is managed
by the Board. The Articles 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. On appointment, in accordance with the Articles,
Directors may be appointed by a resolution of the Board but are then required to be re-appointed 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 Articles 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 2021, 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 $4.8m (2021 – $4.7m).
Political Contributions
It is the Group’s policy not to make political donations. Accordingly, there were no political donations made during the year (2021 – $nil).
Significant Agreements
The Company is party to the Asset Based Lending 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 Guidance Transparency Rule 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 2021
was published on 29 April 2022 and totalled $245,016.
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 250.
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 50 to 67);
• environmental matters, including impact of the Company’s business on the environment (pages 65 and 66; 68 to 80 and 88 to 101);
• employees (pages 62 and 63 and 81 to 85);
• respect for human rights (pages 63 and 83); and
• anti-bribery and corruption matters (pages 64 and 83).
Included within these disclosures are details of policies, outcomes, risk factors and related key performance indicators.
Hunting PLC Annual Report and Accounts 2022Other Information 252
Glossary
Glossary
A
B
Basic EPS*
Basic (loss) earnings per share – calculated
by dividing the (loss) earnings from operations
items attributable to Ordinary shareholders
by the weighted average number of Ordinary
shares in issue during the year.
bbl
Barrel of crude oil – one barrel of oil equals
159 litres or 42 US gallons.
BCA
The Building and Construction Authority
(Singapore).
BEIS
The UK Government’s Department for
Business, Energy & Industrial Strategy.
BOE
Barrel of Oil Equivalent.
bn
Billion.
bopd
Barrels of Oil Per Day.
ABC
Anti-Bribery and Corruption.
ABL
Asset Based Lending.
Adjusted*
Results for the year, as reported under IFRS,
adjusted for certain items as determined by
management, which is the basis used by
the Directors in assessing performance and
they aid a more effective comparison of the
Group’s financial performance from one period
to the next.
AED
United Arab Emirates dirham.
AGM
Annual General Meeting.
AMG
Advanced Manufacturing Group – combines
the precision engineering and manufacturing
capabilities in Hunting’s US segment for the
Electronics division and Hunting Dearborn
product lines.
API
American Petroleum Institute.
AUD
Australian dollar.
Average gross capital employed*
See NGM R.
C
c
Cents.
CAD
Canadian dollar.
CAGR
Compound Annual Growth Rate.
Capital employed*
See NGM I.
Capital investment – “Capex”*
See NGM M.
CCS
Carbon Capture and Storage.
CDP
Carbon Disclosure Project.
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.
CODM
Chief Operating Decision Maker.
CTR
Currency Translation Reserve.
Hunting PLC Annual Report and Accounts 2022Other Information Glossary
F
I
FCA
Financial Conduct Authority.
FRC
Financial Reporting Council.
FCCR
Fixed Charge Cover Ratio.
IAS
International Accounting Standards.
IBOR
Interbank Offered Rate.
ICBC
Industrial and Commercial Bank of China.
FPSO
Floating production, storage and offloading.
IEA
International Energy Agency.
Free cash flow*
See NGM O.
ft
Feet.
FTF
Fixed Term Fund.
FVLCD
Fair value less costs of disposal.
G
GAAP
Generally Accepted Accounting Principles.
GHG
Greenhouse Gas.
GRI
Global Reporting Initiative.
GWh
Gigawatt hour – 1 billion watt hours.
H
HPSP
Hunting Performance Share Plan.
HRSP
Hunting Restricted Share Plan.
HSE
Health, Safety and Environment.
IFRS
International Financial Reporting Standards
as adopted by the European Union.
Incident rate
An 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
manufacturing processes.
Inventory days*
See NGM F.
IP
Intellectual Property.
ISO
International Organization for Standardization.
K
k
Thousand.
KPI
Key Performance Indicator.
kWh
Kilowatt hour – 1,000 watt hours.
Kyoto Protocol
International agreement between nations
to mandate country-by-country reductions
in greenhouse gas emissions.
253
D
DEFRA
The UK Government’s Department
for Environment, Food & Rural Affairs.
Diluted EPS (LPS)*
Diluted earnings (loss) per share – calculated
by dividing earnings (loss) from operations
attributable to Ordinary shareholders by the
weighted average number of Ordinary shares
in issue during the year, as adjusted to assume
conversion of all dilutive potential Ordinary
shares. Dilution arises through the possible
issue of shares to satisfy awards made
under the Group’s long-term incentive plans.
When the effect of dilutive share options and
long-term incentive plans is anti-dilutive, they
are not included in the calculation of diluted
earnings (loss) per share.
Dividend cover*
See NGM Q.
Downhole
Downhole refers to something that is located
within the wellbore.
DPS*
See NGM P.
DPT
Direct Pull Tube.
DUC
Drilled-but-Uncompleted Well.
E
EBITDA*
See NGM C.
EBT
Employee Benefit Trust.
ECL
Expected Credit Losses.
EIA
US Energy Information Administration.
EMEA
Europe, Middle East and Africa.
ESEF
European Single Electronic Format.
ESG
Environmental, Social and Governance.
ETR
Effective Tax Rate.
EUR
Euro.
ExCo
The Hunting Executive Committee.
Hunting PLC Annual Report and Accounts 2022Other Information 254
L
Lean
A production practice that eliminates wasteful
processes, thereby reducing production time
and costs, and improving efficiency.
LIBOR
London Interbank Offered Rate.
LNG
Liquefied Natural Gas.
LTIP
Long-Term Incentive Plan.
M
m
Million.
m2
Square metre.
m3
Cubic metre.
mmBtu
1 million British thermal units.
MRT
Mass Rapid Transit System (Singapore).
Glossary
N
NCI
Non-controlling Interest.
Net Cash (Debt)*
See NGM K.
P
p
Pence.
PCB
Printed circuit board.
NGM
Non-GAAP measure – see pages 240 to 246.
PCE
Pressure control equipment.
NOK
Norwegian Kroner.
NMFR
Near miss frequency rate.
NRV
Net realisable value.
PLG
Pre-loaded gun.
PPE
Property, plant and equipment.
PSP
Performance Share Plan.
O
Q
OCI
Other comprehensive income.
QMS
Quality Management System.
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.
R
RCF
Revolving Credit Facility.
OEM
Original equipment manufacturer.
MWD/LWD
Measurement-while-drilling/Logging-while-
drilling.
OIA
Other intangible assets.
MWh
Megawatt hours – 1,000,000 watt hours.
OOR
Organic Oil Recovery.
OSHA
The US Occupational Safety and Health
Administration.
Recordable incidents
An OSHA recordable incident is recorded 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.
ROCE*
See NGM R.
Hunting PLC Annual Report and Accounts 2022Other Information 255
S
Glossary
T
W
S&P
Standard & Poor’s.
SASB
Sustainability Accounting Standards Board.
TCFD
Task Force on Climate-related Financial
Disclosures.
TNMFR
Total Near Miss Frequency Rate.
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.
Total Cash and Bank*
See NGM J.
Trade Receivable days*
See NGM G.
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.
TRIR
Total Recordable Incident Rate.
TSJ
Titanium Stress Joint.
SDG
The United Nations Sustainable Development
Goal.
TSR*
Total Shareholder Return – the net
share price change plus the dividends
paid during that period.
SGD
Singapore dollar.
SID
Senior Independent Director.
SOFR
US Secured Overnight Financing Rate.
SONIA
Sterling Overnight Index Average.
sq
Square.
SURF
Subsea, umbilicals, risers and flowlines.
TVIR
Total vehicle incident rate.
U
UAE
United Arab Emirates.
UK
United Kingdom.
US
United States.
USD
US dollar.
Wellbore
The wellbore refers to the drilled hole.
Well completion
Well completion refers to the processes of
preparing a well for production. This involves
the assembly of downhole tubulars and
equipment required to enable safe and efficient
production from an oil or gas well.
Well construction
Well construction refers to the initial drilling and
processes of constructing the wellbore in an oil
and gas well. These processes typically include
drilling and logging the hole; running,
cementing and logging the casing; hydraulic
fracturing or stimulating the well and monitoring
well performance and integrity.
Well intervention
Well intervention refers to any operation carried
out on an oil or gas well that maintains or
enhances the production of the well or provides
well diagnostics.
Working capital*
See NGM E.
WTI
West Texas Intermediate – the price per barrel
of Texas light sweet crude oil.
WTW
WillisTowersWatson.
* Non-GAAP measure.
Hunting PLC Annual Report and Accounts 2022Other Information 256
Professional Advisers
Professional
Advisers
Solicitors
CMS Cameron McKenna Nabarro Olswang LLP
Independent Auditors
Deloitte LLP
Joint Corporate Brokers
Jefferies International and
RBC Capital Markets
Financial Advisers
DC Advisory Limited
Insurance Brokers
WillisTowersWatson
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:
+44 (0)371 384 2173
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www.huntingplc.com
Hunting PLC
30 Panton Street
London SW1Y 4AJ
United Kingdom
Tel: +44 (0)20 7321 0123
Fax: +44 (0)20 7839 2072