Okay, good morning, everybody. Thanks for coming out today. I want to, I want to welcome everybody in the room. Glad you could make it today as we go over some of our half-year result highlights and points and want to welcome everybody that'll be listening online as well.
Before I get started and go into the presentation, there are just a couple points. In the last couple months, I've been able to get around quite a bit in the organization, from Dubai to our team in Pampa, Texas, Fryeburg, Maine, around Houston. And as always, I just want to give a thanks out to the team that I work with that has just done an exceptional job taking care of our customers, doing business in a proper and safe way. It's one of those things we, we don't talk about probably enough, but our safety record is literally the best ever in the company's history when you look at incident rates and things like that.
So, I'm proud of that, I'm proud of the work that they do, and just want to give a thanks for that. Going into our presentation today, we're gonna, we have highlights here. We're going to talk a lot about, in detail, about the results for the first half of the year. But I can sum up this whole slide in slide number one pretty easily by making a couple comments. One is this: this period has shown without a doubt that there's more to Hunting than onshore USA.
So we have seen a big pivot in our international business, driven by the high technology that we have in-house in a multiple portfolio of products, and that is really coming out strong right now. And now, as we go through more numbers, show you why we think that that's just still in early stages, and why it's important to look at the Hunting story, that we're very diversified.
We're well positioned for future growth in a lot of markets that are going to take off, whether it's energy transition, deep water, international, Middle East, you know, pick one. But just going over this, a very substantial increase in revenue year-over-year. We see that it's going to continue to grow.
We are showing confidence in our balance sheet and our ability to generate earnings by once again raising our dividend for the period. The backlog is literally at record levels right now, at about $530 million, and we don't see a stop in those, in those orders. One thing I always like to highlight with that backlog, keep in mind, a business like Titan is very short cycled, and so there really is not a backlog in that business unit.
We highlight some of the orders our team in Asia Pac has done well on. We've earlier this year, the CNOOC order that is well on its way to being completed, the Vadodara order in India, great, great attraction for us. We're really seeing a big uptick in inquiry level and in orders.
There's quite a few of the $15 million here, $20 million there in places like Kurdistan, in Egypt, in Kuwait, for example, is a hot market right now. So those areas are playing into, I think, our outlook going forward. Energy transition, we're going to talk a little bit about. Really, our goal and what we're doing now is preparing for energy transition, and that means you line up the suppliers. And one thing about Hunting is we are known as being a great partner for people.
Through our credibility, the culture of our company, we work well with partners. We've established some relationships that will be a help be the cornerstone of our energy transition work in the future. Restructuring, we made a note about that today.
I don't, I really don't think people understand the total impact of the restructuring we've done over the years. And when I get to OCTG, I'm going to specifically talk more about that. But we announced a few things today, mainly looking at making our footprint more efficient and/or going to where the market is, in the case of the transfer of product, of business into Dubai from the Netherlands. On the E&P assets, something that doesn't get talked about much, but this has been a process that's been going on all year.
Hunting, most of you probably don't even know, but I know Richard does, sitting there, but we had E&P assets that dated back to the 1940s. A lot of small working interests, royalty interests, some onshore, a few of them offshore. Our goal was to get out of this, right?
When oil's at these price levels, now's the time to sell. It's pretty much a wash from a balance sheet cash point of view. But one thing it did do was eliminate surprises on plug and abandonment opportunities, I guess, or liabilities going forward.
And that was one of those things when we would look at budgeting processes, we could never budget this because even our best guesses, we weren't the operators in these fields, so we were really at the whim of the operator as far as what they were going to do. But again, it's a plus. It's showing that we're not sitting still, that we're trying to continue to work our portfolio. Our KPI profile, you all see this.
I mean, we talk footage drill, we look at frac jobs, we look at global offshore spend, which I want to highlight, and really look at that number from 2021 to 2023 and look at more than 50% increase. If you follow like we do, you follow what Transocean's saying, Valaris is saying, the FMC's of the world, this business is going nowhere but north, and we're a key player in that area, and that's going to drive a lot of our activity going forward. Again, our sales book. You look at the depths of 2020, which I just need to remind people again that was literally the worst downturn in oil field service history.
When you look at a rig count in the States that started with a two, it even blew away the worst of what was 1986, and people thought that was horrible. So good recovery coming back. We think that trend's going to continue to go north. Growing OCTG profile. This shows you just since first quarter of 2022, where the revenue has been coming from and how it's been growing.
You'll notice Titan business kind of flat, but you'll see big growth in OCTG and in the other businesses all going in the right direction as well. And as we get to slide four, we break that down more. And the key today is, again, getting the story out. Our OCTG business today is delivering the best margins in the company's history. And you're gonna say like, "Wow, is that?" You know, it - no, it's true.
Those, those margins are there because we have changed the profile of that. Keep in mind that if you go back a couple of years, we were in the pipe distribution business in Canada; we're not now. We were in the pipe distribution business in Aberdeen with our North Sea contracts; that's gone now. So it's a much more capital-light business, and it highlights the fact that our technology is showing that it has a great home, whether it's onshore property, onshore opportunities, deepwater Gulf of Mexico, all over the area.
And when you look at our offering, able to do OCTG completion work in areas like Guyana, it's just a nice growing portfolio for us, and it's almost like going back to basics. If you look at where Hunting started in the 1960s, we started as an OCTG-related business, and so we wanna highlight that.
Titan Perforating Systems, pretty steady. Everybody gets freaked out about the rig count, and when is the bottom at? And I don't know where the bottom is. We've continued to see a fall in the US, but one of the big pluses has been the growth in the international business. And actually, quarter-over-quarter, our second quarter numbers were up 3% over the first quarter, which to me, given the market fundamentals, was pretty good because historically for us, second quarter was always impacted by the breakup in Canada.
Canada, we think we're the, definitely the number one player in Canada, and you always lose about two months in the second quarter period for road bans and the like. Rest of the business is showing some resilience. Subsea, we'll talk about a little bit later, that has a lot of upside to it.
Advanced Manufacturing, finally getting past a lot of supply chain issues. Non-oil and gas numbers on the bottom, nice increase, nice, nice, movement in that trend and direction of travel. EBITDA margins, great to go from negative to a positive. Our road forward, we're gonna highlight more about this in the path forward at the Capital Markets Day, that I hope you all attend. But really, our goal is to get to, like, 15% on this EBITDA margin number.
A lot of this is gonna be happening with efficiencies, cost reductions, but also pricing, new technology being introduced, higher utilization of facilities and the like. So we're confident we're well on the path to continue to improve our EBITDA performance. Record order book, again, just a snapshot there of where we're at as far as that goes.
As I mentioned, you'll see the perforating system is very small because we, I can't tell you six weeks from now what we're gonna sell on the perforating side. But other areas such as the OCTG, such as the Subsea, showing strong backlog growth and advanced manufacturing, where we're seeing the trends for more defense spending. The rocket business has been great for us with, you know, Elon Musk and Jeff Bezos's business, we're suppliers to them, and if you look at the outlook for them, it's just gonna continue to be more positive. And with that, I'm pa ssing it over to Bruce.
Thanks, Jim. Morning, everyone. Thanks for that intro, Jim. I'd just like to give a bit more detail on some of those positive themes that Jim's touching on here. I think the key takeaways for the half year, strong results coming through the half year, building on the momentum that Jim's talking around. Great order book, carrying on going forwards.
We're seeing our revenues increase by 42% from the same time last year to this time. We're seeing that margin improvement through, certainly through EBITDA margin, now getting to double digits, which is great to see, and we still got a strong balance sheet in play as well. So I'll just go into a little bit more detail in terms of some of the key metrics. Here's our revenue numbers here in terms of our H1 results flowing through.
Gross margin, similar to what we've seen over last year. Our product mix is different. We've now got OCTG almost providing half our business, compared to traditionally 33%. Now, that's been a traditionally a lower margin business, but some of the changes that Jim was alluding to has improved that margin to similar levels to our Subsea and also to our perforating business as well. So this is dropping through to a PBT of GBP 23 million. That's given us a much more improved performance.
Just pointing on the share of associates, that's been running at a loss over the last couple of years. We're now back into profitable territory. That's primarily due to our joint venture at Rival. That's when we took our drilling tool business, moved that into a joint venture.
US pickup is now generating PBT, and that's reflected through improved numbers there. So, as Jim was saying there, PBT of £17 million, good improvement. That's from the EPS of $0.096 and allowed us to propose that dividend of $0.05. Going into our product groups, and we're changing this up. We're trying to give more details on our product groups, on our business. So, we've now got our four main product groups.
We've simplified the amount of product groups we've got. We've got our comparatives up there to see how that momentum is playing out. We've also added the EBITDA figures for the first time by product group. We've also got an order book there as well to give a bit of visibility going forward.
If we look at our largest product group in terms of revenue, it's OCTG, for the reasons that Jim was alluding to there. So we're seeing good growth in US lands, good returns in Canada. That new business model is doing really well. We're seeing the Asia Pac business doing really well, with some large tenders and orders coming out for the likes of the Middle East and also offshore China, that we've discussed in RNS, and also some work coming through EMEA.
So, a really good growth, almost doubling our business from H1 2022 through to 2023... and delivering half of our EBITDA for the first six months. So that's a really key point. Great strong growth coming OCTG. Perforating systems, if you look at a key driver there is frac crews, US rig count, down between 15% to 20% this year.
I think the great thing about that is we're holding the line. We're seeing a growth in our international business with the perforating systems. We're seeing that grown by over 30% from 2016 to 2022. So that's helped cushion some of that offset of the lower rig count in frac crews. Manufacturing showing growth.
Again, we're seeing some of those supply chain constraints for our electronics business, for our Dearborn business. We've added a couple of new machines into Dearborn, have a management change there as well, so that's reflecting some good growth in that sector as well. Our Subsea, starting to see some really good tenders coming through into areas such as Guyana and Brazil, again, reflecting through the numbers.
So all in all, that's leading to that 477, which is 42% up on what we saw in 2022. The theme that this slide picks out, and this is looking at our, our segments, a more traditional way we, we grouped and reported on the business. These is a mixture of the the product lines and also the, the geographical segments.
This is where that revenue originates from. But really, the, the key theme of this slide is showing that we are... While the Titan business remains holding the line despite the the dropping rig counts, the growth, the offset is coming through that international business. It's from the areas such as North America. You've got EMEA, you've got Asia Pac, all showing some great, great results there.
North America doing really well despite that rig count, and that's $28 million EBITDA out of the $48.7 million. I'd highlight the Asia Pac business as well. If you look at that revenue, which was, you know, affected by, we saw the COVID, that horrible word, back in quarter one last year. We only did $31 million of revenue, we're now up at $86 million. So some good growth areas across all our key business units. In terms of balance sheet, we're happy with the balance sheet.
We set up the balance sheet so that we knew when the upcycle came, we could support the business growth through, especially through working capital absorption. That is just the cycle. We need inventory, we need trade debtors.
You know, so that is the biggest draw in terms of the working capital, and that's now gone from $360 to 445. In terms of leverage, we're still in a good place. We're at $51. We're 1x EBITDA. We're comfortable with that. We've got an ABL facility in place up at $150. Good headroom there as well.
So as we guided, and we'll talk about that later, we're looking for that working capital to unwind in the second half of the year, generate around $60 million in cash, and that will get us to a positive cash position by the end of the year. A little bit more on working capital. As we said, the inventories are up by $50 million, again, helping to support the 42% expansion in our revenue business.
Receivables are up, unsurprisingly, as well. We are looking to work that down over the remaining six months of the year. We are seeing supply chain constraints from our suppliers reduce, so we don't have to hold as much stock in order to protect our supply chains. The key thing for us as well, we're looking at the metrics, the efficiency of the working capital. A key one for us is working capital as a percentage of annualized revenue. We wanna make sure that that's going in the right direction.
Traditionally, that's been over 50%. We've got that to 42. We'll talk about more targets at the Capital Markets Day. We really wanna drive that down as well. The other metrics, key metrics, in terms of inventory days, receivable days, are going the right way.
Efficiency is important for us, and also the other thing is that we are just gonna unwind that working capital over this, the last six months. We will get ourselves back into a positive cash and bank position by the end of the year. In terms of our cash flow, obviously key for us. Always a lot of focus on this one. We've, we're getting those earnings momentums coming through, so EBITDA is perking up there. We're getting the large working capital movements we're just talking about there in terms of $86 million.
Some interest and tax flowing through to a negative cash flow of 40 million. CapEx is coming up a little bit, still well below our depreciation levels, but we are- we have been working our machines hard. Utilization is increasing, so we're having to replace some machinery.
In Dearborn, for example, a couple of new machines are coming into the facility up in Maine. That's helping us drive more, more sales, as we saw earlier. At the same time, you know, we're expecting that figure of CapEx to be, and the intangible assets, of around $35 to 40 million, which is not far off our depreciation levels going forward. Dividends flowing through there.
The net purchase of treasury shares, that is to support our share option schemes as well to avoiding dilution, so that's a, a useful and sensible use of cash for that. That gives a net cash outflow of $76 million. That gets us back to closing cash and bank that you saw at the half year of just over $51 million.
Our final slide, just to confirm in terms of guidance, we hit our guided target of EBITDA for the half year. We're still giving our guidance in terms of that we gave back in July of between $96 million and $100 million. So that's gonna be double what we saw in 2022. Similar performance in H2 to what we saw in H1 as well. In terms of EBITDA margin, how that's gonna play out, we're around about 10% now.
We see that continuing to improve, high utilization, better sales prices, and less cost inflation coming through supply chain. Just to confirm on our net cash, it's $0 to 25 million. And again, just to. We gave guidance back in July, which is quite unusual, but just raising that guidance for 2024, and we're comfortable with that number as well.
Okay. So with that, Jim, we'll...
Okay.
Hand back.
Thanks, Bruce. So I'm gonna go in and talk about the product groups in a little bit more detail. A lot of the, a lot of these points I've talked about already, 'cause I'm just excited to talk about how broad our offering is and the technology in that, that we have.
But if you look at the OC, OCTG premium connection side of the business, our technology allows us to play in a lot of different areas around the globe, whether it's deep water, just a reminder to you, deep water, whether it's the onshore shale plays, whether it's geothermal, whether it's carbon capture, we have the technology there. We have the, the people skills to make it happen, and we also have things like our test lab in Houston that allows us to continue to qualify products for operators.
All of these things come together, so our OCTG operation focuses on technology and our ability to be very agile manufacturers, like with the completion equipment that we manufacture for areas like Guyana, out of our facilities in Houma and in Houston, Texas. But order book strong, driven by, again, driven by US and Asia PAC orders. We've talked about the other areas there in the Techlok.
Bruce and I will be making a trip to India, like, two days after the Capital Markets Day, so we will commemorate and have the grand opening of our new facility in India, which will allow about 150,000 t200,000 tons a year of OCTG to go into the market with Hunting's connections on, primarily for India, but also gives an opportunity for us to export. Perforating systems.
Again, our performance was okay. I mean, it's, it is what it is, considering the market that you're in, and you can't totally separate yourself from that. But the team at Titan has done a great job on the international side of the business. Big upticks in Argentina, big upticks in Mexico and in the Middle East, driving the international sales. Domestically, it's kind of flatlined, and you all see the same numbers that I do.
But I, as I mentioned, we were able to increase sales first quarter to second quarter, and the outlook for third quarter is probably pretty flat and, and hopefully more of an uptick in fourth quarter as Canada kicks more into gear and people look to use up their budgets for the year. But, new product offerings coming out, the H3 product, which replaces the H1, has been readily accepted.
We had some supply chain issues earlier in the year. We've gotten through all that, so it's full speed ahead with the H3. And the H4, which is our oriented gun or special-oriented gun offering, we've had great results from the trials we've done with a number of major operators in the US, so that's hitting the market right now. Size of it, I can't tell you what it is. We just know it's a growing area that we think will drive some significant business for the Titan operation with the H4. And then preloaded guns, which is really more of what the industry wants these days.
Again, it's a safety issue. It's taking people off the rig site. It's company, wireline companies, beginning to eliminate gun loading facilities. We're now expanding that to Canada. And then we talked earlier about some restructuring.
We've closed the Oklahoma City site. Some people I know were like, "Well, why'd you do that? What's that mean?" Well, what it means is we're taking a close look at our efficiencies and what makes the best sense for driving profitability for the company. We closed Oklahoma City when the COVID downturn hit. We just didn't need it. We probably got a little ahead of our skis when we reopened it as business ramped up into 2022.
We looked at our footprint, we looked at the modernization, and our manufacturing engineers have done a brilliant job in places like Pampa and Monterrey on improving our efficiencies. So we looked at it and said, "We really just don't need that facility running." If anybody understands manufacturing, you know that absorption and utilization matters.
So with that X amount of SG&A assigned to that, we made the decision, let's just close the manufacturing. We're keeping it as a distribution center for Mid-Continent, but the work there can go to Pampa and or Monterrey, Mexico.
We still have tons of upside available to handle, hopefully, a much more booming market with no issues. So just wanted to set the record straight on that. Advanced manufacturing, our primary businesses that work with non-oil and gas. Defense business has been strong, as I mentioned. The rocket business has been strong. L3Harris submarine business has been strong. And the good thing is, we've had great momentum on the pricing side with these products now going into the second half of the year. So supply chain issues have gotten better.
At our electronics operation, which also manufactures the switches that goes into the Titan guns, we still have some struggles on some chip supplies there. It's still not uncommon for us to be quoting a 12-month lead time to the service people like the Schlumbergers of the world, but it is getting better. The outlook continues to be bright with, again, non-oil and gas, having a really strong outlook for these businesses going forward. Subsea, good momentum.
Doesn't look, you know, $33.7 to 42.5, but it is going in the right direction. So some basic points on that, our Stafford business, where we make the hydraulic couplings for the subsea tree world, has the biggest backlog it's probably had in seven or eight years right now.
At Spring, which we call, which is the home of the Titanium Stress Joint business, as you all remember, it was a business that was, like, I say it was almost, like, comatose when we bought it. But we saw the potential, we saw the upside that was gonna happen in deep water, and the—we knew the success this product had had. It's been reintroduced. The momentum is continuing with in places like Brazil, Gulf of Mexico, in Guyana with Exxon.
We think that's going to continue to accelerate. I think you all probably saw yesterday, Exxon's big announcement, another $16 billion they're going to spend in Guyana. We'll be there with these products to support that with them.
But another key area that is building going into the second half of the year is the Enpro business, which if you remember, the Enpro business basically allowed subsea customers in the subsea world to kind of step back from their tree design so they could add on later for reservoir details, you know, chemistry details, metering details, and it lowered the cost of the tree installation for the operator. And that business, literally, we bought it right after COVID hit.
I would make the comment, I felt like leaving Saigon at the end of the war. I mean, we left the UK right after we closed that, not to return for a year and a half. The business kind of flatlined because of decisions slowing in that.
But the last 60 days, we've seen a big acceleration in orders for Enpro, for Gulf of Mexico and West Africa. The the business case for making that acquisition remains strong, and we think there's big upside ahead. Plus, it allows us to talk to clients in a number of theaters on different products. So a lot more from this will be talked about at the Capital Markets Day. I am happy to tell you, if you look at our numbers, July subsea revenue number was $11 million, the highest I think we've reported ever.
And so that's telling you the trend for the second half. Don't take that $11 million times six, okay? I'm just telling you, though, it-- this is a business that can be lumpy, but it is going in the right directions with improved margins. Other manufacturing.
On this one, I'll highlight the well testing business. That's the one that we're relocating to Dubai, part of our restructuring. Looking at our customer base and looking at our cost basis, it was just the right decision to do, so that'll be relocated. Labor issues are easier there, better as far as availability goes, and that's where the clients are at. So a lot of this goes to a couple big service companies, and the final destination has been in areas like the Middle East, so we're making it closer to the market. Energy transition.
As I mentioned earlier in my slides, we've positioned ourselves with suppliers that we're going to be working with hand in hand to go into that energy transition market. I have to keep reminding people that when you look at areas like geothermal, this isn't new to Hunting.
Literally, 25 years ago, we supplied these products or some of our products in areas like the Salton Sea area of Southern California, in Indonesia, in the Philippines, in geothermal. Over the years, the uptake on geothermal wasn't much. There just wasn't a lot of new generation going. Now, I, I just read a thing yesterday, for example, in Indonesia, they want to triple their geothermal capacity in the next 10 years.
You have to use products like ours in these wells because of the temperature issues and the work that, the compression issues and the like that go on with tubulars. I highlight a couple things there because right now it's a small dollar figure, but the team is in place. We are capturing orders.
The SEAL-LOCK Flush SR product, for example, we did $2 million in this, in the first half of the year with a utility in the Netherlands, of all places, for geothermal. So we're there, we're seeing people, we're seeing tenders come out, and we believe it's got a great upside for Hunting with technology that we're already experts at. So the outlook, you know, it's going to be, I, I think, increasingly bright for us. All of our product lines are seeing growth.
All of our product lines are experiencing great opportunities in, in the international markets. When you look at the outlook for offshore drilling, it's just going to be those areas that I think are going to drive the more profitable products that we offer, as well as the opportunities going forward.
Again, I've, I've touched all of these points right now, and I won't say much more else about it because I hope you all are going to be showing up at our Capital Markets Day here in a couple of weeks. We're going to go over and talk in more detail. We've got the managing directors showing up from a lot of the product lines to go really deep dive into their products, what, how they work more, what the opportunities are, kind of define that better.
But our core competencies, Hunting is an expert in manufacturing, an expert in metallurgy and the, the adaption of different metallurgies within the product line. And I'll end that by saying what doesn't show up there a lot is the culture of Hunting is what makes this company successful.
We've got a great group of people that work in this organization, a great legacy that we continue to carry forward with the tradition of quality and safety in all that we do, and we build on all of that. Even in times of bad, you know, the downturn of 2020, we retained key assets because we knew this business would come back. We knew the rig count in the US was not going to stay at 240.
We knew that deep water would come back because, hey, 70% of the earth's covered by water, and oil and gas is not going away. So we've positioned ourselves well for today. That's why we were able to build a backlog over $500 million and why our best times are ahead of us. So why Hunting? We go through the different areas.
I'm not going to read them all to you because I think I've hit them all pretty good right now. But it all circles around great technology and great people with a product offering that's highly diverse, not based on one basin or one certain application. With that, I'm going to open it up for any questions to Bruce and I that you guys might have.
Alex Smith from Investec. Just a quick one, I guess, on working capital, and you had a good slide there. But I guess as OCTG orders become more paramount and larger in terms of revenue share, and the orders get slightly bigger, how do you kind of envisage kind of managing that working capital over, let's call it, the next few years? And then just a second one, with returning to net cash and having a bit of firepower, firepower for M&A, any areas that you particularly could target or are interested in for, you know, small bolt-on acquisitions that you could feel was quite valuable? Thank you.
Okay.
Go ahead.
In terms of working capital, Alex, yeah, of course, we do see OCTG being a big component for sales going forward. And that does require us to service the supply chain, you know, secure prepayments and secure mill allocations. But we've modeled that going forward. You know, we know the profile, we know the mill payments, we know the customer payments. They're all blue chip customers as well.
So that's why we're keeping our... You know, we've got a good headroom in terms of facility as well, and we can work within those working capital parameters. The key thing for us is driving down the metrics in terms of working capital, keeping an eye on inventory days, keeping an eye on working capital as a percentage of revenues. We're confident we can work that down the right way and generate the cash coming out the other end.
Yeah, and on the M&A side, it, we're sticking with what we've said in the past. The focus on M&A would be some addition in completion technology that would be tied into Titan, subsea related with good, again, good IP, or another manufacturing business with a tangential touch to oil and gas that would help in a more of a diversification and probably some energy transition. But we're not gonna be in the windmill business or making solar panels or anything like that, but that's kinda like the lay of the land.
Got it. Great. Thank you.
Thanks very much. Victoria McCullough at RBC. Can we start on the restructuring work that you announced, um, today? Could you give us an idea of, you know, can you quantify any efficiencies that, that you, that you're expecting this to generate in terms of this year or next year, and then the cost of that? And then secondly, you talked... Just to follow on there about working capital, where are you seeing the best bidding and tendering opportunities in terms of geographically?
And following on from that, is there a chance that we could see working capital increase in the, going into the second half of the year just because these contracts are larger and there's, there are more opportunities out there? Thanks.
I'll take the working capital.
Go ahead.
In terms of the regions, Victoria, I would say that it is through areas such as the Middle East, seeing some really large tenders and opportunities coming through the Middle East for OCTG, which is great to see. They seem to be away from that traditional $5 to 15 million into much larger quantums. We're also seeing into the areas that Jim was mentioning, the Guyana, Brazil as well.
So that's the sort of areas we're seeing as opportunities at the same time. Again, depends on you know the success factor of those tenders, and that's why we've got that headroom, because we're not certain what, how many of those tenders we will win.
If we do get high success rates, that could lead to more working capital requirements, but we do have the capacity to meet that, and we've modeled that possibility as well. So we're comfortable where we are, and in many ways, it'll be a nice problem to have on that side.
Just to follow up on that, sorry, would we, in that scenario, expect the cash to consist in a net debt position but have more visibility on your order book in that scenario?
In the terms of the time, yeah, that could be one scenario. We're winning more... You know, we win a lot of large contracts on the bounce, if you like, and that would lead us to, you know, a slower unwind of the working capital going forward, but with the larger order book, as you see on the other side.
Yeah. And on the restructuring, so if you look at Oklahoma City, the savings efficiencies on that were about $1.5 million a year. And when we looked at the total number, it's about between $3 million and $6 million. On the E&P side, it was pretty much a cash a wash as far as the sales versus what we had to walk away from, with a drive really to get rid of the plug and abandonment liability issues going forward.
Because we were never the operator, there was too many times we had too many surprises, where this is budgeted for a $600,000 P&A job, well, costs are up, it's $900,000. And you really have no, you have no control over that, 'cause you're not driving that train. So we wanted to get out of that business.
So those are kinda odd, but we think we got rid of about $2.5 to 3 million of potential liabilities with that exiting of the E&P business. On Holland, it's a combination of some lease issues that are gonna be... What was the savings on the lease issues? Property was over $1 million a year, but it's also really a gain in efficiency by being where the market is. As you all know, transportation's expensive, so closer to the market's gonna help, and we did some factoring in on that on what we thought the upside would be.
The cost, is there a one-off cost that we should think about related to these?
No, there's nothing, no, no costs on Oklahoma City, no costs on the E&P. It's like I said, it's kind of a wash. There were pluses and minuses as you shook it all out. CapEx-wise, we're spending about $3 to 4 million in Dubai. We needed to relocate from an existing site, so this will be a new purpose-built site that'll consolidate the existing service work we do there now for well intervention, as well as give us a newer facility for the well testing equipment manufacturing.
Thanks. I'll hand it to someone else now.
Thanks.
Hi there. Thank you. It's Jamie Franklin from Jefferies. So firstly, just on the Titan part of the business, obviously some very resilient results despite a declining US rig count. Just wanted to get your sense of pricing behavior of your key peers. And then secondly, on the closure of the Oklahoma facility, what is the overall impact on your capacity of that closure, and what are you left with in the US...
Okay.
Perforating gun market?
First of all, pricing has been very stable, so we haven't seen anything crazy, at least in the last quarter. I didn't, you know, it's been nice and stable. I wish it was going up more, but at least there's no issues right there. On the Oklahoma City capacity issue, part of the reason we closed it was because it was only running one shift, so there just it was just it didn't matter.
But to do things properly, you have a given amount of SG&A at a facility for taking care of the people, whatever you had to do. It just, we didn't see anything near term was gonna get us to two or three shifts on that. And again, with the investments, we up, we actually made more investments in Monterrey in the last 16 months.
We've invested more in the robotics side at Tampa. I was out there witnessing and seeing some of the great things the team has done there. So it's really no effect on our capacity. I mean, it could be, but it's not a factor.
Okay, great. Thank you. And then on the OCTG business, would you be able to give us any indication of the split between offshore and onshore, and international versus US, and then maybe some indication of recent pricing trends, among that?
Well, let me talk. Bruce, Bruce has those numbers, but let me talk to you more about pricing trends. So when I look at the commentary from my friends at Tenaris or Vallourec, and everybody sees the pricing trends on OCTG in the year, you know, down 20% in North America, like, that has no effect on us because, again, highlighting, we're out of the pipe business. We're not holding for distribution, for contracts. We do a service selling technology. So our pricing has not changed.
Our pricing is fine, no issues, staying steady. Internationally, which is the business we do out of Singapore, that goes into the Middle East and the like, we don't, again, we're not a stocking distributor, so if we're buying pipe, there's an order for it. And so you're locked in on buying X, selling at Y. That's the deal, and that's the margin. So we don't have a lot of speculative issues with inventory in the OCTG business. Breakdown, Bruce?
Breakdown, in rough terms, JB, you're looking at all that, majority of that Asia Pac, OCTG business is offshore, international. The US completion OCTG business is Guyana and the Gulf. So you're looking at 70%, give or take, international, offshore, 30% US land.
Okay, great. That's very helpful.
Just a rough guide, yeah.
Thank you.
Hi there, Dan Slater from Zeus. I was just wondering if you could perhaps give us a bit more color on 2024 EBITDA guidance, and what are the sort of components of that that are seeing that quite substantial growth that you're guiding to?
Is it possibly to do with order book and the visibility you get from that? We've had a big increase in OCTG, so are we expecting more chunky OCTG orders? You've seen perforating systems kind of plateau a little bit, so is that gonna return and make a contribution? Or I'm sure there are other things I haven't guessed at, but just a bit of color around that would be really helpful, if that's okay.
Well, Bruce can add some comments after me. We're seeing, by talking with our clients, we're seeing areas like Guyana go crazy, right? So are them next door. Perfect fit for our product offering. We've actually just opened an office in Brazil, so we're seeing a lot more Brazilian activity right now. We'll have a, we have a rep now on the ground, transferred down to be coordinating primarily our business from Spring into that marketplace.
So we see a big driver in the subsea side. We see a big driver in OCTG. And of course, we don't have the, we don't have all this booked, but your, the indications that we're seeing from drilling programs being announced, for example, Kuwait is just very, very busy right now with tender activity and drilling activity.
So it's really looking at all those across the board and saying, "This is the trends that we're seeing. There's no reason why they're gonna break." You look at our AMG business, the trend there continues to be positive. We continue to win new product offerings to some of our existing clients. It's kind of like program business. You get this part, and then you're locked in for three or four years. So for example, some of the submarine business, we have visibility in, into that.
So we see that, and we see in the US business, we see Gulf of Mexico steady, if not improving, based on announcements from some of our clients. We think that while the third quarter is gonna be softer onshore, our shale play business in the connection side and that is gonna remain steady and grow next year.
Canada's been a real bright spot for us, thanks to our team up there and what they've done. And then on Titan, we really think that, I, I'll say it till I'm blue in the face, price matters. And at $80 a barrel or $78 a barrel, and the fact that we see the natural gas picture tightening up this winter, I just think it's, it's setting up for a recovery in the rig count, which drives perforating activity and the like. So it, it's never an, it's never a truly accurate science. There's a lot of art on how you look at those projections going forward. Bruce, you got any comments on that?
I don't have too much more to add there, Jim. Yeah, we are guiding still $125 to 135, Dan, and I would say that there is a lot of detailed modeling behind that. You know, it is a bit of a crystal ball, but we are, it's a combination of, of all that. It's the order book. It's all those chats, the, the view of the tenders that we've got the benefit of seeing, that we're not talking around, in all the areas that, that offshore subsea, that's got a bit of longer term planning that gives us comfort there as well. The cost savings are coming through.
The losses in the MEA are closing, we're now profitable there as well. Some great tenders coming through Asia Pac. So it's all that in the round coming towards. You know, that's why we've been comfortable in sharing that guidance with you for 2024. So we're still holding together.
Perfect. That's really helpful. Thank you.
Thank you. Morning, thanks for the presentation. Toby Thornton from Equity Development. Got a few questions, please. Could you just remind us what the divisional range of gross margins is, broadly speaking? And give us an indication of whether you think that's going to change materially as part of getting to your 15% EBITDA margin.
If we threw out the blanket over it, it's around about OCTG was coming out at 24% gross margins. Perforating systems, the same. So that gives the blended gross margin of around, I think, we're 24, 25% for the half year.
That, that would give us that drop-through, but down to the 15%, not far off from that side. We're expecting improvement as things, you know, as we get more and more mix towards the Subsea, some of those projects, more critical, longer-term projects come through, we see the trend improve between 25% to 30% in the medium term, and that'll help get us to that 14% to 16% EBITDA margins.
Right. So some underlying mix improvement and volume improvement get you to...
Correct.
The EBITDA margin.
Yeah.
Okay. Thank you. Probably just another working capital question...
Okay.
For you.
Expecting it.
So consensus, obviously, a big increase in revenues this year as witnessed the first half performance, but I think next two years, as well, is kind of sustaining that, and a bit. So forget sort of timing in terms of when orders come in or batches of orders come in, what have you. Over that time period, with the consensus revenues as you see them, would you expect to be, well, leading question, working capital neutral, or...?
In the neutral range, yeah.
Yeah.
We're looking to look at a few things just to help our working capital efficiency, as well. So we are looking to reduce. We'll talk more about these targets in a couple of weeks, but trying to get that working capital to revenue, driving that down. But in broad terms, neutral to slight increases in working capital.
Yep. Yeah.
That's the range we're looking at going forward.
Okay. Thank you. Can you help us with cash tax as well? I find that quite difficult to guess at that number. Should that follow P&L tax?
Sorry?
Cash tax payments.
Yes, we are. There's a deferred tax asset that we're looking at, that we will, depending on the forecast going forward, look to bring that onto the balance sheet, which is going to help our, our tax rate going forward as well.
Right.
But...
So cash tax at a discount to P&L tax going forward?
Yes.
Yeah.
That's what we're modeling.
Okay. And finally, small question. Happy to take it offline if you like, would it be helpful to have the new subsea division EBIT numbers for the last two to four years, please, if you got them?
We can get that to you.
Yes.
Yeah.
Okay. Thank you.
Okay.
Yeah, hi, it's Alex Brooks at Canaccord. A couple of questions, and I fear I'm in danger of preempting the Capital Markets Day, but you obviously won a lot of really big OCTG orders in the last...
Mm-hmm.
F ew years. You've got a kind of unusual position in that market. Can you talk a bit to how you've been winning those and that, you know, who you've been winning those against, basically? You know, obviously, it's what, what are the factors that are making you win?
Sure.
And then I've got a second question, which on Advanced Manufacturing, which is... That's a very unusual business, because obviously, it goes to so many different end markets, and the rest of your business has a very concentrated customer base.
Right.
You know who you're selling to. How does biz dev work there? It's a really different operation to the rest of Hunting.
It is different because, like you said, it is very diversified, but the key point that everything comes around to is how complicated and complex the parts are we make. So I consider our Dearborn operation to be an aerospace manufacturer. It started out as a supplier to the US Navy with the Bath Iron Works up in Massachusetts, and up in Maine, years and years ago.
So we are making parts that fly on a, you know, shafts for jet engines on airplanes, I mean, to the most sophisticated downhole equipment that a Halliburton or Baker are using for MWD and LWD. You look at areas from a business development, okay, who needs that kind of quality and that kind of level?
It goes with our qualification with the certain defense contract qualifications and the like, and you assign sales teams to that. We had one gentleman, for example, just focusing on the space side of the business. Another key client of ours, where we have a contract manager, is with a division of Caterpillar. A company called Solar is a huge client of ours and has been for two decades.
So a lot of it is the fact that once you're established, it's hard to change, it's hard to put that risk into something, and it really just speaks to the dedication and the knowledge and skill level of the operation in Maine for what they can do.
I mean, I remember going through that, and it's like, "I don't even know how you do this," and I came from a manufacturing and machining background. So it's, there's very few people in the world that can do what they do. And that, also we're known. So again, we have a good oilfield business there, but the door is readily open just for the fact you tell somebody, "Hey, I'm making a, a jet engine shaft for General Electric." Well, you must have your act together, right? And that opens up doors for further opportunities.
Does that mean that the— Yeah, 'cause that's been a journey, that business. You know, you've owned it for a while. It— Obviously, it's transformed its profitability in the first six months of this year.
Right.
Does that mean you've kind of crossed the threshold, and as you just keep growing it, it's got the critical mass in all those sectors?
It, it...
That allows it to keep doing that?
It does. And what people don't appreciate was how badly that business was even impacted during COVID. We literally, because of the critical details that we do, for example, we, Pratt & Whitney is a client of ours. It wasn't the one, by the way, that had the powdered metal, so I'll, I'll kill that right now. It had nothing to do with that one. But certain products for Pratt & Whitney, you can't sell them or invoice until they're signed off by the client, right? They actually send people into our facilities, run through your quality plan, reinspect things, all this and that.
It. A lot of that business went to a standstill during COVID. A lot of the suppliers that we rely on, because this is not your basic carbon steel either. This is exotic forgings. This is exotic high nickel material. Couldn't get it.
Mills shut down. Because of COVID, they had work restrictions. So we really went through a lot of pain in that 18 months in that segment, and it bled into the electronics, as I mentioned as well. Everybody saw about the electronics component issue.
We couldn't get chips. We would go to our client and say, "I'm sorry, but your normal 24 weeks is now 60, and there's nothing you can do or we can do about it." So I highlight the fact that with supply chain issues getting better, there is lots of upside for the AMG side of the business. Your other question about how we sold the Asia orders, right? So if you look at the Seamok order, that was a case... First of all, it's the same, same crowd we always compete with.
Vallourec was there, with Vallourec slash Sumitomo, JFE, Tenaris, local Chinese companies tendering as well. But because of the criticality of those wells, the Chinese operator did not want anything but a Western technology. And so we teamed up with one of the biggest steel mills in China that we partner with on a daily basis. That's how we won the tender. Again, deep water, you know, except world-class connection technology, and that's how we pulled that deal together.
So internationally, when we're out there, because I, I've used the phrase over my, my long time in this business, we're almost like a virtual mill. If you look, and we'll go into more detail at the Capital Markets Day, I'm not tied into any mill.
I mean, people would be surprised that in the Gulf of Mexico, we put our products on Vallourec tubes, on Tenaris tubes, US Steel tubes. I mean, it's – we're independent. So when the technology is qualified, when it meets the operator's requirements, and in many cases, we're the only one that's passed the test, the connection test, for example, we then can go to the – work with different distributors or mills and get a package that makes sense for the end user. So it's really, everything's case by case, and it's your partners that are going to help you win those orders, as well as what you do on your own.
Thank you.
Okay.
Jim, we've had some questions through the webcast from Mick Pickup, some of which have already been addressed in the room. But if you can address these ones. The H-4 Gun, what are the new benefits for you and the client?
Well, for the client, it's a positioning gun, so it allows them to do the fracking without worrying about fiber optic cables getting blown away. It just allows them to position the frack better. The benefit to us is, it's again, it's just an added technology, and you want to be able to answer the client wherever he can, whatever application that he has. So it's a newer area.
There's been older ways that people have done this that are more mechanical, with weight bars and things like that. So we've provided guns to do orientation, but this is a much more electromechanical process to do it, and it's much more accurate in the phasing of where these shots are going to be.
Great, thank you. You mentioned Detcord in the release, and he recalls you talking about the market opportunity at your last Capital Markets Day.
Right.
Has that opportunity materialized, given the planned expansion?
Yeah, Detcord business has been great. We did another expansion. That is something that's running at a very high utilization rate. It's been a super investment for us.
Okay, great. Mick notices that you've moved intervention tools into the other category. What's the reasoning behind that?
Scale. I mean, the intervention tool business has come back. We had the numbers on the increase year-over-year.
Mm-hmm.
Very capital market, capital expenditure focused, and it was just a scale issue.
Great, and a final question, and I know this is something you're going to expand on at the Capital Markets Day, but can you just provide an update on the OOR, the Organic Oil Recovery division?
I'm gonna let Bruce handle that, since I always see he's smiling. He's the father of OOR for us. So go ahead, Bruce.
Thanks for that, Jim.
He stays close, close to it.
Still developing well. We've got some good traction with some blue-chip customers, both in North Sea and the Middle East. Revenues are going to be, this year, around $5 to 6 million. But with the successful trials we're seeing, we're hoping for a significant uptick next year and beyond. And we'll, we've got specific discussion on that for the, the Capital Markets Day event.... Great. Thank you. So there's no more questions through the webcast, but there are some more in the room.
Hi, thank you. Richard Dawson from Berenberg. So just final question from me on just on the non-oil and gas order book. So thanks for splitting out the revenue EBITDA, that's helpful. But how have you seen that develop over the first half? And have you started to see any orders come through from those alliances and agreements you signed during sort of June, July time? Or is it sort of a bit too early to say?
It's too early. Oh, I take that back. We did have some business in Brazil, for-- it was, it was OCTG related, not geothermal or, carbon capture with the Joule mill. But as far as the others go, no. We're in the-- It's a tender process. It's having our ducks all in a row so we can go do the tendering, and so that's kind of where we're at right now.
Just on that order book, any details on the non-oil and gas order book, have you seen-
No, I mean, it's growing. As I mentioned earlier, it's a two business. It's Dearborn, and again, the outlook for aerospace business continues to be strong. The demand for airplanes is crazy. The demand for rockets is crazy, submarine programs. So no, it's all going in the right direction. It should continue to show significant growth going into 2024 and beyond.
The electronics business, we've landed some military business with Textron. We've always had a part of that business that did work in the medical industry, and so our salespeople are working opportunities, and we feel pretty good about where we're at.
That's great. Thank you.
Thanks. Just a final one from me. On the depreciation for the first half, it was slightly higher than previous halves. Is there anything that's underlying in that, that we should... or should we expect that level of depreciat ion going forward?
No, it shouldn't be. It might be in tangible assets coming through. We've added some of the software costs in there, but really, there's not been a major amount of CapEx or any change in depreciation policy, Victoria. So it should be around that $35 million figure going forward. No major changes in your modeling that.
Okay, thanks.
Okay.
Anything else? Going once, going twice. Anyhow, I appreciate you all coming out today. I hope you all attend the Capital Markets Day. This is a great position that we're in right now. I can't emphasize that enough. It's been a hard road getting here. We've made lots of changes to the company, to the organization, to the asset portfolio base that we have, but I think better times are ahead, and this is a start of increased profitability for the company. So with that, thanks again for coming.