Hunting Regulatory News (HTG)

Hunting PLC

("Hunting" or "the Company" or "the Group")

2015 Full Year Results

Hunting PLC (LSE: HTG) the international energy services group today announces its full year results for the year ended 31 December 2015.

Operational Summary

· Continued development of global operating footprint

· commissioning commenced of high throughput premium connections facility at Ameriport, US, in Q4 2015 to serve North American energy markets;

· Cape Town, South Africa, facility commissioned providing threading, storage and service for sub-Sahara African markets;

· completion of facility expansion at Houma, US;

· expansion of Hunting Dearborn facility to reduce customer lead times;

· AMG manufacturing capability established in Singapore;

· new Hunting Titan/Drilling Tools shared distribution and service centre opened in Odessa, US.

· New product innovations developed and commercialised

· new H-1 perforating system trialled by customers in the year and commercialised during Q1 2016 by Hunting Titan;

· WEDGE-LOCK™ and SEAL-LOCK XD™ premium connections sales increased following first roll out in early 2015;

· new high temperature/high pressure hydraulic couplings developed and launched by Hunting Subsea;

· new directional drilling tools jointly developed by Drilling Tools, Hunting Specialty and Hunting Titan businesses.

· Cost reduction programme completed during the year

· 30% reduction in headcount in the year;

· four operating sites closed;

· three distribution centres being prepared for closure.

Financial Summary

· Cost reductions and tight cash management achieved in the year

· cost saving measures implemented across the Group;

· capital expenditure reduced to $81.1m as major projects were completed.

· Positive free cash flows* generated allowing pay down of net debt*

· $118.0m of free cash generated to give closing net debt of $110.5m;

· gearing* of 9% reported, even with continued capital investment.

· Revenue of $810.5m recorded in the year, with management actions limiting the impact on gross margins

· revenue decline in line with reductions in Global drilling and production expenditure;

· 24% underlying gross margin achieved in the year.

· Impairment and restructuring charges reflecting current market conditions

· charges for restructuring costs and impairment to property, plant and equipment, goodwill and other intangible assets totalling $259.7m.

· Underlying profit from operations* of $16.4m

· Reported loss from operations of $282.2m.

· Final dividend of 4.0 cents per share proposed, subject to shareholder approval

· subject to approval, the dividend will be paid on 6 July 2016, to shareholders on the register on 10 June 2016 with a cash cost of $5.9m;

· total dividends for the year 8.0 cents per share, with a total cash cost of $11.8m.

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

Reported - results for the year under IFRS.

* Non - GAAP measure ("NGM") 

Segmental results from continuing operations

An analyst presentation and webcast will be held at 10.30 a.m. today at the offices of Buchanan, 107 Cheapside, London, EC2V 6DN.

An audio webcast will be available on:

http://vm.buchanan.uk.com/2016/hunting030316/registration.htm 

Commenting on the results, Dennis Proctor, Chief Executive, said:

"Today's results reflect the severity and speed of the reduction in oil and gas activity, particularly across North America. While this has created challenges for all market participants, the Group has adapted quickly to the changing market environment and remains ready to respond when industry investment recovers."

For further information please contact:

Notes to Editors:

About Hunting PLC

Hunting PLC is an international energy services provider to the world's leading upstream oil and gas companies. Established in 1874, it is a premium listed public company traded on the London Stock Exchange. The Company maintains a corporate office in Houston and is headquartered in London. As well as the United Kingdom, the Company has principal operations in Canada, China, Indonesia, Kenya, Mexico, Netherlands, Norway, Singapore, Saudi Arabia, South Africa, Thailand, United Arab Emirates and the United States of America.

Chairman's Statement

Introduction

Hunting had a challenging year in 2015, with the downturn in oil prices proving deeper and more prolonged than almost anyone was predicting. Despite that, and the resulting need to rein in both replacement and growth capital investment, the Company has retained its manufacturing and production capabilities.

The Group has expanded into new regions, including Saudi Arabia and sub-Sahara Africa, while aligning its existing operations in North America with the current market conditions.

Capital investment during the year totalled $81.1m (2014 - $123.5m) which allowed us to finish or continue projects already underway in Texas, Louisiana, Maine and South Africa. Inevitably, in this environment, some projects have been deferred or held at the initial operating capability stage. Nevertheless, our strategy of retaining our core facilities and skills in readiness for the eventual recovery in our markets remains unchanged.

Performance

The year was one of two very different halves. In the first six months, we were able to take advantage of the market momentum and of orders received in 2014; but the decline in business from customers, who were themselves under extreme pressure, meant that the second half was very difficult.

Underlying profit before tax from continuing operations was $9.4m (2014 - $212.4m), reflecting the overall difficult operating environment in the year as a whole.

As with many of our peers, Hunting has undertaken a review of the carrying values of property, plant and equipment, goodwill and other intangible assets, leading to a total impairment of $252.6m being charged to the Group's income statement (2014 - $60.9m). Amortisation of acquired intangible assets and other exceptional items charged to the income statement in the year totalled $46.0m (2014 - $43.0m). This has led to a reported loss before tax from continuing operations of $289.2m (2014 - $108.5m profit).

Dividend

The Board is recommending a final dividend of 4.0 cents per share (2014 - 22.9 cents per share), representing a fine balance between loyalty to our shareholders and our wish to maintain a strong balance sheet. Total dividends declared for the year were therefore 8.0 cents per share (2014 - 31.0 cents per share).

Governance

In February 2015 we welcomed two new independent non-executive Directors to the Board, Annell Bay and Jay Glick. Annell has extensive experience in the upstream exploration segment of our industry, having worked previously with integrated majors and large independent exploration companies. Jay has also brought a wealth of energy-related manufacturing experience to the Board, having led one of our US peers for many years, prior to his retirement from executive duties. As both these segments of the industry are Hunting's partners, competitors and customers, their combined insight has been valuable during this volatile year.

The Board remains compact, capable and dedicated and I thank all my fellow Directors for their wisdom during these challenging times.

I am also pleased to note our enhanced Strategic Report which describes how our current strategy creates long-term value, combined with our approach to risk management. While the energy industry is distressed at present, Hunting's position in the industry will be strong when the recovery occurs.

Further, I wish to record my gratitude to all of our people. For those who have had to go, I express my deep regret. For those remaining, I am extremely grateful. We do not know when the return to normality in our markets will come, but come it certainly will.

Richard Hunting, C.B.E.

Chairman

3 March 2016 

Chief Executive's Review and Outlook

Introduction

2015 will be remembered in the global energy industry as a generational decline in investment and activity levels. The severity and speed of the reduction in activity, particularly across North America, has created challenges for all market participants. The Group has adapted quickly to the changing market environment, and at the same time prepared for a return to growth, with its manufacturing and service capabilities intact - ready to respond when industry investment recovers.

Hunting's efforts in 2015 have focused on six strategic goals:

1) reducing its cost base to align with the short-term outlook for the industry;

2) maintaining its global manufacturing capability;

3) investing in new facilities where strong future growth is forecast;

4) demonstrating technological excellence with new products launched to assist customers with the delivery of projects in a more efficient and productive way;

5) maintaining margins where Hunting has product leadership; and

6) reducing inventories to generate cash and manage net debt.

While the early part of 2016 continues to indicate a difficult market environment, Hunting remains well placed to deliver quality products and industry leading service to its customer base, which will position the Group well for the eventual recovery.

Market Backdrop

The performance of all the businesses within the Group has been impacted by the macro-economic drivers of the industry during the year. WTI crude oil prices declined 30% in absolute terms during 2015 to $37 per barrel; global rig counts have reduced 26% and global drilling and production expenditure has been cut by 32% to c.$267bn during the year, leading to a decrease in demand for Hunting's products and services.

This environment has led to common themes being reported by many businesses within the Hunting group, with industry participants cancelling or deferring orders, demanding aggressive price reductions across all product groups and in-housing production to increase pricing pressure on global vendors.

Our Response

Hunting's response to the current market environment has been clear. The Group has undertaken a major reduction in workforce across all of its operations to align its businesses with these lower activity levels. Headcount has reduced by 30% to 2,784 at the year end (2014 - 4,003).

Management has reviewed the Group's manufacturing operations and in the year closed four facilities including its Canada Drilling Tools operation in Nisku, Canada, the US Manufacturing facility at Woodlawn, Louisiana, and rationalised the US Drilling Tools business. The Group has also initiated plans to close three distribution centres. The Group will also continue to monitor its global operational footprint to maximise its operating efficiency, as new facilities are commissioned.

The Group has been firmly focused on cash generation to allow it to continue to invest for the future, while at the same time managing net debt levels appropriately. In 2015, Hunting generated $118.0m of free cash flow resulting in year end net debt of $110.5m to give gearing of 9% (2014 - 9%), even though capital investments absorbed $81.1m (2014 - $123.5m) in the year.

In order to capture new business opportunities Hunting completed and commissioned a new facility in Cape Town, South Africa, which will enable the Group to access and serve operators throughout sub-Sahara Africa with manufacturing, service, repair and storage capabilities. A satellite repair facility has been commissioned in Mombasa, Kenya, which will further serve operators on the east coast of Africa, where significant offshore gas discoveries will drive further exploration and development activity in the coming years.

In Q1 2016, the Group also completed its new premium connection manufacturing facility in Ameriport, US. The facility has been designed as a high throughput plant, allowing for the manufacture of premium connections with a wide range of diameters, serving the North American and international markets.

Hunting has also built and commissioned a world-class premium connection test facility to accelerate the in-house development of new connections and thread forms. The facility can test high pressure/high temperature connections, simulating deep water drilling environments, which assists Hunting's technology development that include the recently developed SEAL-LOCK XD™ and WEDGE-LOCK™ premium connection product lines.

The Group's facility at Fryeburg, US, has been expanded to increase its high precision manufacturing capabilities, including MWD/LWD tools and critical aerospace parts. Final commissioning of the facility will occur in Q1 2016.

During 2015, Hunting's Advanced Manufacturing Group ("AMG") commenced operations in Singapore, giving customers in the region access to Hunting's electronics product lines, including MWD/LWD printed circuit boards.

Hunting Titan has commercialised and launched the H-1 perforating system for use in well completions. The system draws on Hunting's expertise in electronics, pressure control, perforating and premium connections and delivers a safe, reliable and efficient total perforating solution to Hunting's global customers.

While most businesses reported a decline in activity, Hunting Subsea reported a good performance in the year, due to strong momentum in the deep water drilling segment of the industry.

Our threading facility at Marrero, Louisiana, has also seen very strong demand for large diameter threaded pipe for use in deep water projects and had a busy order book in the year, which continued in to the early months of 2016.

While the Group's revenue has reduced in the year, as detailed below, management have defended pricing and margins wherever possible principally through reducing the cost base.

Financial Summary

Hunting's performance in the year has seen revenue decline 42% from $1,386.5m in 2014 to $810.5m. This is broadly in line with the reduction in industry expenditures reported by leading sector commentators and data sources.

While employee related costs were reduced during the year, total cost of sales and net other operating expenses were $794.1m (2014 - $1,168.7m) leading to a decline in underlying profit from continuing operations to $16.4m (2014 - $217.8m), with underlying diluted earnings per share reducing from 100.0 cents in 2014 to 3.1 cents.

Given the market backdrop and future market projections, management has undertaken an asset impairment review. As a result, the Board is reporting a number of non-cash impairments: a goodwill impairment charge of $208.2m for the year in respect of a number of group businesses, an other intangible asset impairment charge of $11.2m against customer relationships relating to the Electronics and Doffing acquisitions, an impairment charge to property, plant and equipment of $26.8m within the Drilling Tools business and a $6.4m impairment charge against the Group's oil and gas related assets. Total exceptional charges, comprising these impairments, together with amortisation of acquired intangible assets of $38.9m and $7.1m restructuring costs incurred during the year, were $298.6m (2014 - $103.9m).

The reported loss from continuing operations, before interest and tax, in 2015 was therefore $282.2m (2014 - $113.9m profit) leading to a reported diluted loss per share of 156.1 cents (2014 - earnings per share 44.8 cents) being recorded.

Outlook

Simply put: not good, certainly for the next few months. The degree and speed of the oil and gas industry contraction, coupled with project delays/cancellations, E&P bankruptcies, currency volatility, full out oil production and geopolitical influences will strain the confidence of industry leaders thus freezing any positive decisions. We are in a wilderness without a single path to guide us.

Certainly, $145 oil created enough new supply to drive prices to the current $30 level. With equal certainty, $30 oil will strangle production enough to drive the price back up. With such an inelastic commodity, the outlook is always the same - a sudden snapback comes when least expected.

Oversupply is driving this painful contraction and this oversupply is driven by oil producing countries seemingly blind to their own destructive actions globally and especially within their own countries. Damage to future supplies requiring long lead times is approaching permanence and any future demand growth will require massive capital and oilfield service capacity.

During this bleak period, we will continue to protect gross margins, emphasise quality and remain focused on health and safety. Absent large volume intake, each of our facilities is measured by free cash generation. Costs will be reduced to maintain free cash until no option exists but to close or, if possible, consolidate the product lines into another facility.

The Group maintains an excellent balance sheet, best of class global manufacturing facilities, producing complex, proprietary components led by an experienced management team. An industry recovery is assured, followed by strong momentum, but timing is elusive. The Group has and will continue to act decisively to safeguard an exciting and profitable future.

Group Performance and Development

Results from Continuing Operations

The Group's revenue in 2015 was $810.5m, a decline of 42% compared to 2014. This fall in activity levels has significantly impacted profitability with underlying EBITDA falling to $61.9m (2014 - $269.8m) and EBITDA margin reducing from 19% in 2014 to 8% in 2015.

Underlying profit from continuing operations reduced to $16.4m in the year (2014 - $217.8m) and the underlying profit margin correspondingly reduced to 2% in 2015 (2014 - 16%).

At the half year, management carried out an impairment review, which resulted in a charge to goodwill of $35.2m. Expectations for a recovery in commodity prices and activity levels have declined markedly since this review and in carrying out its year end assessment, management have decided to reflect an additional $173.0m impairment charge, bringing the total for the year to $208.2m (2014 - $49.6m). Further details can be found in note 10.

Management also carried out a review of the carrying value of other intangible assets, which lead to the Group recognising an impairment charge of $11.2m (2014 - $nil) for customer relationships originally recognised on the Electronics and Doffing acquisitions.

Reviews of the carrying value of assets held within the Group's Drilling Tools business were completed in the year, leading to a $26.8m (2014 - $nil) impairment charge to property, plant and equipment held by the Group. This assessment has not changed at the year end.

The decline in commodity prices has also impacted the carrying values of the Group's oil and gas assets held by the Exploration and Production business unit. An impairment charge of $6.4m has been reflected for the year (2014 - $11.3m).

During the year, management acted to control costs, with the number of employees at December 2015 falling by 30% versus December 2014. In addition, the Drilling Tools business in Canada was closed. These actions gave rise to restructuring costs of $7.1m (2014 - $nil).

The charge in the year for the amortisation of acquired intangible assets held by the Group totalled $38.9m (2014 - $42.8m).

In total, amortisation, impairments and exceptional items charged to the Group's income statement were $298.6m in the year (2014 - $103.9m).

As a consequence of these charges, Hunting has recorded a reported loss from continuing operations of $282.2m (2014 - $113.9m profit).

Net finance expense during the year was $6.8m (2014 - $4.9m), principally reflecting interest on net borrowings. In October 2015, the Group refinanced its revolving credit facility, leading to a new five year $350m facility being agreed with a syndicate of five banks. The terms and covenants attached to the new facility are similar to Hunting's old facility, which was due to expire in August 2016.

Underlying profit before tax was $9.4m (2014 - $212.4m). Following the charges for asset impairments, intangible asset amortisation and other exceptional items, the reported loss before tax was $289.2m (2014 - $108.5m profit), which resulted in a tax credit of $57.8m for the year (2014 - $36.7m charge).

The Group's underlying tax rate has been adversely impacted by the non recognition of tax relief on losses in some overseas jurisdictions and the reversal of US production incentive tax credits from prior years. The underlying effective tax rate was 57% (2014 - 27%).

Underlying diluted earnings per share decreased to 3.1 cents in 2015 (2014 - 100.0 cents) and the reported diluted loss per share was 156.1 cents (2014 - earnings per share 44.8 cents).

Results from Discontinued Operations

The sale of Gibson Shipbrokers concluded on 31 March 2015, with the Group recording a $3.8m gain on the sale in the 2015 income statement. Other items totalling $0.4m relating to the sale of Gibson Energy in 2008 have been recorded in the year.

Segmental Trading Review

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

i Relates to amortisation of acquired intangible assets.

Hunting Energy Services

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

In 2015, Hunting Energy Services reported revenue of $806.3m (2014 - $1,376.4m). Underlying profit from continuing operations also declined to $20.7m (2014 - $217.6m). Charges for amortisation of acquired intangible assets, impairments and exceptional items recorded in the year totalled $292.2m (2014 - $92.6m), leading to a reported loss from continuing operations of $271.5m (2014 - $125.0m profit).

Well Construction

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

During the year the segment reported a 44% decline in revenue to $211.4m (2014 - $378.3m). With the exception of the Premium Connections unit and Hunting Dearborn, all businesses within the segment recorded a loss from operations in the year. In addition, the segment absorbed $3.3m of start-up costs relating to Africa and AMG in Asia (2014 - $1.6m). This led to a decline in underlying profit from continuing operations of 96% to $1.9m in the year (2014 - $53.0m). The impairments recorded against goodwill for this segment totalled $66.1m (2014 - $49.6m), the impairment of customer relationships in the Electronics and Doffing businesses was $11.2m (2014 - $nil) and impairment of property, plant and equipment within the Drilling Tools business totalled $26.8m (2014 - $nil). Charges for the amortisation of acquired intangibles and restructuring were $9.7m (2014 - $7.5m). This led to a reported loss from continuing operations for the segment of $111.9m (2014 - $4.1m). Capital investment within the segment totalled $49.4m, mainly associated with the construction of new facilities for the Group's Premium Connections unit and Hunting Dearborn. With the reduction in workforce programme completed within the year, the year end number of employees reduced by 36% to 717 (2014 - 1,122).

Premium Connections

Hunting's Premium Connection business has reported a reduction in activity levels, with onshore drilling declining rapidly in the early part of the year, while offshore demand for Hunting's range of connections was more robust throughout 2015 but gradually slowed over the course of the year.

Technical activity in the year has been led by the commercialisation and driving of sales of Hunting's SEAL-LOCK XD™ and WEDGE-LOCK™ premium connections. During 2015, a range of diameters within the SEAL-LOCK XD™ range were developed and tested with a view to participating in a range of heavy oil programmes across North America. The WEDGE-LOCK™ premium connection has been utilised by a range of customers for deep water applications and extensive development work has been underway throughout the year to widen, test and certify this family of connections. The commissioning of Hunting's world-class connection test facility late in 2015 will accelerate this process.

Of particular note has been the success at Hunting's Marrero facility, which reported strong demand for large diameter premium connections for use in deep water projects in the Gulf of Mexico. The facility has been busy throughout 2015 and has an order book extending into 2016, as offshore projects in the region continue.

Hunting's new facility at Ameriport US has now been commissioned. This $48.9m facility allows for high throughput threading activities to be undertaken and will serve activity in the Gulf of Mexico and international deep water drilling programmes. With the opening of this facility, Hunting's Woodlawn manufacturing facility has been closed and prepared for sale, with further threading facilities in the Houston area to be rationalised.

Drilling Tools

Hunting's Drilling Tools business underwent a major restructuring programme during the year to align the business with the lower activity environment, with 63% of the workforce being released in the year to contain costs. In Canada, due to the subdued market for Hunting's drilling tool product and service lines, a decision was taken in October 2015 to close its operations in the country and transfer all tools back to the US. As a consequence of this, the Group's facility in Nisku, Alberta, has been closed.

Construction OCTG

Hunting's OCTG business has also reported a decline in the footage sold or traded in the year compared to 2014. Competition has also been aggressive during the year, as global steel mills have continued to supply product cheaply, in some instances selling at a loss, to maintain production volumes.

In Africa, Hunting has completed and commissioned its manufacturing, repair and storage facility in Cape Town, South Africa. The local management team has marketed Hunting's capabilities across Africa, leading to enquiries being made. To complement this new facility, a satellite service and repair facility has been commissioned in Mombasa, Kenya, this being a 60:40 partnership arrangement with a local energy service group in the country. The facility is aimed at assisting operators to develop the extensive East African offshore gas fields.

Advanced Manufacturing Group

Hunting Dearborn has reported a good performance during the year, as demand for precision machined products, including housings for MWD/LWD measuring tools remained strong, with demand declining as industry activity levels reduced during the year. A strategic goal for the business has been to address the long production lead times associated with the manufacture of its products. To reduce this, the facility has been expanded by 44% during 2015 to give a total manufacturing footprint of 213,600 square feet and the expansion is operational. Further equipment rationalisation will be carried out during 2016 based on the level of demand.

During 2015, Hunting Electronics continued to report subdued activity with end-users continuing to source components from the Far East. To address this shift in purchasing, Hunting opened a facility in Singapore to commence the manufacture of a range of electronic components. In the US, the workforce within the Electronics business was reduced by 41% in the year.

Hunting Specialty

Hunting Specialty has been particularly impacted by the decline in commodity prices and rig counts, leading to customers demanding price reductions for many products. The business has addressed this market environment by reducing headcount by 44% in the year and brought in-house manufacturing processes that were previously outsourced to third parties.

Hunting Trenchless

The Hunting Trenchless business has also reported a difficult year resulting in an employee headcount reduction of 40%. The business has worked with the Drilling Tools business to develop and market a wider range of mud motors and is planning to introduce a WEDGE-LOCK™ thread form to its customers during 2016.

Well Completion

The Well Completion segment comprises the Hunting Titan, Manufacturing and Accessories and Hunting's International Completion businesses.

Revenue in the segment declined 43% in the year to $488.6m (2014 - $862.6m), with underlying profit from continuing operations reducing by 90% to $14.2m (2014 - $140.8m). Impairment to the carrying value of goodwill for the Hunting Titan, US Pipe and Indonesian businesses totalled $112.2m and other charges, comprising amortisation of acquired intangible assets and restructuring costs, totalling $34.6m led to a reported loss from continuing operations of $132.6m (2014 - $106.1m profit).

Capital investment within the segment totalled $20.0m, mainly associated with the construction of new facilities. Following the reduction in the workforce, the year end number of employees reduced by 32% to 1,574 (2014 - 2,298).

Hunting Titan

Hunting Titan's performance in the year was impacted by the decline in the number of well completions being finalised in the year. To align the business with the current market environment, 21% of the workforce across the business was released during 2015 and a number of sites are being prepared for closure.

Hunting Titan continues to leverage synergies through the manufacture of perforating guns and associated components throughout the Group's global manufacturing network, including Canada, Mexico and China, where lower production costs can be achieved.

While a rationalisation of the number of distribution centres across North America has been underway since Q4 2015. Hunting Titan has opened two distribution centres, in the US, and Clinterty, Scotland, to capture new opportunities. In Europe, growth opportunities have been identified on the UK Continental Shelf, where plug and abandonment programmes are expected to increase over the coming years, leading to new requirements for Titan's perforating systems and accessories, while in Norway, continued drilling and development activity on the Norwegian Continental Shelf has created new markets for Titan's whole range of products.

During 2015, Hunting Titan completed the development and launch of the H-1 perforating system. The system has the potential to revolutionise perforating procedures completed by customers, as it materially reduces the set up times and personnel required in-field to configure a perforating gun procedure. The technology utilises many of Hunting's core competencies in connections, electronics, perforation and pressure control technologies. The H-1 perforating system completed a number of successful field trials during Q4 2015, with positive feedback being received by customers, leading to full commercialisation and sales efforts being underway since the start of 2016.

Manufacturing and Accessories

Hunting's Manufacturing and Accessories business reported a strong performance in the early months of the year, but this declined as the industry downturn persisted for the balance of 2015.

International Completion

Hunting's international completion businesses extend from Canada through to Europe, the Middle East and Asia Pacific. In the year, Hunting's Asia Pacific businesses remained profitable on an underlying basis, with losses being recorded in Canada and the UK.

Hunting's Canadian operations reported declining activity as heavy oil and tar sand related programmes became unviable and loss making with the reduced oil price, leading to the number of wells being drilled declining by c.50% compared to 2014. Hunting has aligned its operations with this lower level of activity, with a 52% reduction in workforce during the year. However, Hunting has achieved a number of successes including the continued use of Hunting's premium connection in "Vacuum Insulated Tubing" applications for the transportation of heavier oils. The business has also collaborated with a major steel maker to jointly market threaded pipe utilising Hunting's 4040 premium connection.

In the Middle East, while the pricing environment for oil products and services has been challenging, activity levels have been sustained, with drilling and capital expenditures remaining unchanged compared to 2014. In June 2015, Hunting signed a joint venture agreement with SG Petroleum in Saudi Arabia which will allow Hunting to manufacture certain product lines in the kingdom and sell to the major companies operating in-country. A facility has been commissioned and new personnel hired to increase the Group's business presence in the country.

In Europe, Hunting's UK operations have been affected by a near decade low in new drilling activity but also the high taxation of operators. Hunting has restructured its operations, including a reduction in the workforce of 17% to align with the current operating environment. While operations in the UK have been depressed, new investment in the Group's Netherlands facility and entry into Norway in the year are targeting ongoing drilling across the whole region, including the increasing number of plug and abandonment programmes planned as production ceases from older fields.

In Asia Pacific, Hunting maintains operations in Singapore, Indonesia, Thailand and China. During the year, activity levels declined with general market conditions. While the performance of the business reduced in the year, which led to a 34% reduction in employees across the region, Hunting has continued to develop its presence in the area, particularly in Singapore. In March 2015, the Hunting Board approved the investment in a major new facility in Singapore, which will consolidate four locations into one campus. The new campus will combine threading, manufacturing and service capabilities and also include the electronics and precision machining capabilities of Hunting's AMG business group. While the phasing of this investment has been moved into late 2016 and 2017, due to the market environment, plans for the consolidation of Hunting's operations continue, with planning applications being secured and early stage investment made throughout the year.

Well Intervention

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

Revenue in the segment declined 22% in the year to $106.3m (2014 - $135.5m), with underlying profit from continuing operations reducing by 81% to $4.6m (2014 - $23.8m). Impairment to the carrying value of goodwill totalled $29.9m and other charges, comprising amortisation of acquired intangibles and restructuring costs totalling $1.7m, led to a reported loss from continuing operations of $27.0m (2014 - $23.0m profit).

Capital investment within the segment totalled $8.6m, mainly associated with the construction of new facilities. With the programme to reduce the workforce completed within the year, the year end number of employees reduced by 17% to 428 (2014 - 513).

Hunting Subsea

During the year, the Subsea business reported strong sales and profits as deep water drilling programmes, mainly in the Gulf of Mexico, continued. While business momentum remained strong for the majority of the year, as the business entered Q4 2015, a declining order book, due to the ongoing curtailment of drilling by global operators, led to a reduction in workforce of 19% in the year. The business continued to introduce new coupling products, valves and chemical injector solutions to the market throughout the year, which has contributed to the excellent results being delivered.

Well Intervention

The well intervention business group has also been impacted by the market, however, sales of its pressure control system and Thru Tubing intervention tools have continued throughout the year, with new business being secured across the Middle East.

Hunting's UK-based rental equipment business has been adversely impacted during the year, but plans are being drawn up to focus more on African drilling markets, where better market opportunities are anticipated.

Exploration and Production

Hunting's exploration and production business has oil and natural gas well investments mainly in the Southern US and offshore shallow waters in the Gulf of Mexico, holding equity interests in 47 producing properties. On a Barrel of Oil Equivalent basis ("BOE"), production in the year was 118,000 BOE (2014 - 143,000 BOE), with reserves at 31 December 2015 being 0.6m BOE (2014 - 0.9m BOE).

In 2015, the business reported an underlying loss from operations of $4.3m (2014 - $0.2m profit). During 2015, the unit participated in drilling one successful onshore development well and a successful offshore recompletion.

Following a year end valuation of reserves, which requires individual oil and gas properties to be impaired when the estimated realisable value is less than the book value based on future production and commodity prices, the business has taken an impairment charge of $6.4m (2014 - $11.3m), which has been shown as an exceptional item, reflecting a reduction in the value of reserve estimates and higher retirement obligation cost estimates. Reported loss from operations for 2015 was $10.7m (2014 - $11.1m).

Summary Group Cash Flow

Cash Flow

EBITDA was $61.9m (2014 - $269.8m), reflecting the weakness in the global energy markets, leading to lower revenues and profits for the Group.

Working capital movements generated $96.0m of cash inflows (2014 - $3.8m), impacted by the decline in business activity levels, but also reflecting the Group's focus on working capital management.

Net interest paid and bank fees increased in the year to $7.4m from $5.6m in 2014, reflecting fees paid on the new five year facility.

Tax paid in the period decreased by $16.1m, reflecting the lower levels of taxable income generated.

Restructuring costs gave rise to cash outflows of $5.9m (2014 - $nil) as a result of workforce reduction programmes.

Replacement capital investment decreased by 68% to $22.0m in 2015 (2014 - $69.0m), as the Group cut non-essential expenditures. Key components included $6.4m on the manufacturing facility at Houma, US, $6.1m on drilling tools and rental equipment and $6.3m on machinery and equipment. Exploration and production capital investment totalled $3.0m during the year.

As a result of the above, free cash flow was $118.0m in the year (2014 - $182.3m).

Expansion capital investment during 2015 was $59.1m (2014 - $54.5m) as the Group's internal capital investment programme progressed. The Group incurred $20.2m on its new premium threading and test facility at Ameriport, US, $9.3m on the new regional facility in Cape Town, South Africa, $6.4m at Hunting Dearborn, $1.6m on the new AMG regional facility in Singapore, $2.9m on drilling tools and rental equipment and $11.5m on machinery and equipment. Other expansion capital investments totalled $7.2m.

Total dividends paid in the year to PLC equity shareholders were $39.8m. This comprises the payment of the final dividend for 2014 of 22.9 cents and the 2015 interim dividend of 4.0 cents. Dividends will continue to be declared in cents, with a Sterling equivalent paid, following a formal process of conversion. The final dividend for 2015 is proposed at 4.0 cents, and, if approved by shareholders, will result in an outflow of $5.9m.

Net debt has reduced by $20.5m to $110.5m (2014 - $131.0m) at the end of the year.

Group Funding and Position at Year End

Financial Capital Management

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

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

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

2015 has been a year of decline for the Group, as activity levels materially decreased within its core markets leading to a reduction in revenues and profits for the Group. However, cash generation has remained strong and sufficient to continue to fund the Group's capital investment programme and reduce net debt by $20.5m to $110.5m (2014 - $131.0m), with gearing being 9% at 31 December 2015 (2014 - 9%).

The Group's financial position remains robust, with total credit facilities of $414.6m in place (2014 - $649.8m) of which $350.0m (2014 - $584.7m or £375.0m) is committed. A new five year $350m revolving committed facility ("RCF") was agreed in October 2015 with a syndicate of five banks, comprising Lloyds, Barclays, HSBC, Wells Fargo and DBS. The new facility, which expires in October 2020, has similar terms and covenants to the old facility.

The ratio of net debt to EBITDA permitted under the RCF must not exceed a multiple of three times. EBITDA must also cover relevant finance charges by a minimum of four times. For covenant testing purposes, the Group's definition of EBITDA is adjusted to exclude exceptional items, include the share of associates' post-tax results and exclude the fair value charge for share awards. Similarly, net debt and finance expenses are adjusted to accord with the definition within the facility agreement. EBITDA, for covenant test purposes, is based on the previous twelve month period, measured twice yearly at 30 June and 31 December. At 31 December 2015 both these covenants were met.

The Group's net debt 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 provided by the Group's total credit facilities remains adequate to provide ongoing flexibility and to support the investment in key projects.. Return on average capital employed is a KPI management use to assess business unit performance. The Group's underlying return on average capital employed has decreased to 1% in 2015, reflecting the decline in trading (2014 - 13%).

The Board considers each dividend proposed based on the information available to it at the time. Consideration is given to the financial projections of business performance and capital investment needs, together with feedback from shareholders and advisers.

Further detail on financial risks is provided within note 26 of the 2015 Annual Report and Accounts.

Balance Sheet

Given the severe downturn across the energy industry in 2015, management undertook an impairment review exercise ahead of the Group's half and full year results, as noted previously. Both exercises analysed the carrying value of goodwill for each relevant cash generating unit across the Group, based on future cash projections, while adopting appropriate discount rates. Impairment to goodwill recorded in the year totalled $208.2m. Further details of the impairment are detailed in note 10. Other changes to goodwill relate to an adverse impact from foreign exchange of $1.8m. As a result, the Group's goodwill has decreased by $210.0m compared to 2014.

Other intangible assets have reduced by $44.4m, the main movements being an amortisation charge for the year of $40.8m, an impairment charge of $11.2m and foreign exchange of $0.4m, offset by the capitalisation of technology and software development costs of $8.0m.

Property, plant and equipment has decreased by $12.2m. Additions of $77.1m were offset by depreciation of $43.6m, impairment of assets held within the Group's Drilling Tools business unit totalling $26.8m, impairment of oil and gas assets of $6.4m and $0.2m transferred to inventories. The net book value on disposals amounted to $5.9m and adverse foreign exchange adjustments totalled $6.4m.

Working capital has decreased by $104.8m. The reduction in activity levels, together with management's focus on working capital led to cash inflows of $96.0m. Foreign exchange had $12.3m favourable impact on working capital, but this was offset by $3.5m of non-cash adjustments.

Tax balances show net assets of $10.7m at 31 December 2015 (2014 - $55.2m net liabilities). This reflects the move from taxable profits in 2014 to a recovery of tax paid in prior years utilising tax losses generated during 2015.

Provisions have reduced by $6.7m principally due to the settlement of vacant leasehold property obligations.

As a result of the above changes, capital employed in the Group has reduced by $290.7m to $1,278.6m.

Cash generation has been well managed during the year, resulting in an overall cash inflow in 2015 reducing net debt by $20.5m to $110.5m at 31 December 2015.

Net assets at 31 December 2015 were $1,168.1m, which, after non-controlling interests of $26.2m, result in equity shareholders' funds of $1,141.9m (2014 - $1,408.1m). This is a decrease of $266.2m over 31 December 2014, which reflects the loss for the year attributable to equity shareholders of $226.6m and $39.8m of dividend payments, offset by other items of $0.2m.

Supplementary Information

The following disclosures can be found at the end of this announcement

· Our Business Model

· Our Business Strategy

· Principal Risks

· Viability Assessment and Going Concern Basis

· Key Performance Indicators

· Selected non-GAAP measures

Statement of Directors' Responsibilities

The Directors confirm that the 2015 Annual Report and Accounts, which will be issued on 10 March 2016, complies with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority in respect of the requirement to produce an annual financial report.

The Directors confirm that to the best of their knowledge and belief:

· the financial statements have been prepared in accordance with International Financial Reporting Statements ("IFRSs") as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group and the Company;

· the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess a company's performance, business model and strategy;

· the Strategic Report in the 2015 Annual Report and Accounts, from which this narrative is extracted, includes a fair review of the development and performance of the Group's operations and the year-end position of the Group, together with a description of the principal risks and uncertainties they face. The Strategic Report also details the Group's policies on human rights, gender balance and its Scope 1 and 2 greenhouse gas emissions.

A list of current Directors is maintained on the Hunting PLC website: www.huntingplc.com.

This responsibility statement has been prepared in connection with the 2015 Annual Report and Accounts of the Group for the year ended 31 December 2015. Certain parts of the Annual Report and Accounts are not presented within this announcement.

By order of the Board

Ben Willey

Company Secretary

3 March 2016

Forward-looking statements

This announcement contains certain forward-looking statements. The forward-looking statements are not intended to be guarantees of future performance but are based on current views and assumptions and involve known and unknown risks, uncertainties and other factors that may cause actual results to differ from any future results or developments expressed or implied from the forward-looking statements. 

Consolidated Income Statement

For the year ended 31 December 2015

i. Relates to amortisation of intangible assets that arise on the acquisition of businesses (referred to hereafter as amortisation of acquired intangible assets). 

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2015

Consolidated Balance Sheet

As at 31 December 2015

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

For the year ended 31 December 2015

Notes to the Consolidated Financial Statements

1. Basis of Preparation

The financial statements consolidate those of Hunting PLC (the "Company") and its subsidiaries (together referred to as the "Group") and include the Group's interests in associates.

The financial statements have been prepared in accordance with the Companies Act 2006 and those International Financial Reporting Standards ("IFRS") and IFRS Interpretations Committee ("IFRS IC") Interpretations as adopted by the European Union. The financial statements have been prepared on a going concern basis under the historical cost convention as modified by the revaluation of available-for-sale financial assets, the defined benefit pension asset and those financial assets and financial liabilities held at fair value through profit or loss. The Board's consideration of the applicability of the going concern basis is detailed further on pages 48 and 49.

The principal accounting policies applied in the preparation of these financial statements are set out in note 37 of the 2015 Annual Report and Accounts. These policies have been consistently applied to all the years presented.

Adoption of New Standards, Amendments and Interpretations

The following standards, amendments and interpretations have been adopted and are effective for the Group's accounting period beginning on or after 1 January 2015:

· Annual Improvements to IFRSs 2011-2013 Cycle

Although the adoption of these amendments represents a change in accounting policy, comparative figures for 2014 have not been restated for these, as the changes do not impact the financial performance or position of the Group.

The following standards, amendments and interpretations are effective subsequent to the year end and are being assessed to determine whether there is a significant impact on the Group's results or financial position:

· IFRS 9 Financial Instruments*

· IFRS 15 Revenue from Contracts with Customers*

· IFRS 16 Leases*

· Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception*

· Amendments to IAS 1: Disclosure Initiative

· Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture*

· Amendments to IAS 27: Equity Method in Separate Financial Statements

· Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation

· Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations

· Amendments to IAS 19: Defined Benefit Plans: Employee Contributions

· Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses*

· Amendments to IAS 7: Disclosure Initiative*

· Annual Improvements to IFRSs 2010-2012 Cycle

· Annual Improvements to IFRSs 2012-2014 Cycle

* Not yet endorsed by the European Union.

2. Critical Accounting Estimates and Judgements

The preparation of financial statements requires management to make judgements and assumptions about the future, resulting in the use of accounting estimates. These will, by definition, seldom equal the related actual results and adjustments will consequently be necessary. Estimates are continually evaluated, based on experience, consultation with experts and reasonable expectations of future events. Accounting estimates are applied in determining the carrying amounts of the following significant assets and liabilities:

3. Segmental Reporting

The Group reports on seven operating segments, three of which are discontinued operations, in its internal management reports, which are used to make strategic decisions by the Hunting PLC Board, the Group's Chief Operating Decision Maker ("CODM"). The Group's continuing operating segments are strategic business units that offer different products and services to international oil and gas companies and undertake exploration and production activities.

The Group measures the performance of its operating segments based on revenue and profit from operations, before exceptional items and the amortisation of acquired intangible assets. Accounting policies used for segment reporting reflect those used for the Group. Inter-segment sales are priced on an arm's length basis.

(a) Continuing Operations

The Well Construction segment provides products and services used by customers for the drilling phase of oil and gas wells, along with associated equipment used by the underground construction industry for telecommunication infrastructure build-out and precision machining services for the energy, aviation and power generation sectors.

The Well Completion segment provides products and services used by customers for the completion phase of oil and gas wells.

The Well Intervention segment provides products and services used by customers for the production, maintenance and restoration of existing oil and gas wells.

The Exploration and Production segment includes the Group's oil and gas exploration and production activities in the Southern US and offshore Gulf of Mexico. The Board of Hunting will not be making any new capital investment, beyond where the division has contractual commitments. No exploration and evaluation activities have occurred during the year. The division will in future focus on producing out its remaining reserves, with a view to winding down the operation.

Costs and overheads incurred centrally are apportioned to the continuing operating segments on the basis of time attributed to those operations by senior executives.

(b) Discontinued Operations

The discontinued operations comprise Gibson Shipbrokers, which was sold on 31 March 2015, Field Aviation, which was sold in 2012, and Gibson Energy, which was sold in 2008. Gibson Energy and Field Aviation continue to generate accounting entries due to sale-related transactions and are required for reconciliation purposes.

The following tables present the results of the operating segments on the same basis as that used for internal reporting purposes to the CODM.

(c) Results from Operations

i. Relates to amortisation of acquired intangible assets.

(d) Other Segment Items