Investor Presentation Fourth Quarter 2014 KCA Deutag is a leading - - PowerPoint PPT Presentation

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KCA Deutag is a leading international drilling and engineering company working onshore and offshore with a focus on safety, quality and operational performance

Fourth Quarter 2014

Investor Presentation

Disclaimer

1

The distribution of this presentation in certain jurisdictions may be restricted by law. Persons into whose possession this presentation comes are required to inform themselves about and to

• bserve any such restrictions.

This presentation contains forward-looking statements concerning KCA Deutag. These forward- looking statements are based on management’s current expectations, estimates and

• projections. They are subject to a number of assumptions and involve known and unknown risks,

uncertainties and other factors that may cause actual results and developments to differ materially from any future results and developments expressed or implied by such forward-looking

• statements. KCA DEUTAG has no obligation to periodically update or release any revisions to the

forward-looking statements contained in this presentation to reflect events or circumstances after the date of this presentation.

2

Agenda

1

Q4 Key Highlights

2

Business Update

3

Business Unit Financials

4

Group Results

5

Summary

Q4 Key highlights

KCA Deutag is a leading international drilling and engineering company working onshore and

• ffshore with a focus on safety, quality and operational performance

1

2014 Group revenue of $2.1bn (2013: $2.1bn) and EBITDA of $314.7m (2013: $301.2m) with growth from 3 of the 5 business segments

2

Q4 2014 Group revenue and EBITDA of $536.2m (Q4 2013: $596.6m) and $71.4m (Q4 2013: $108.8m) respectively

3

Contract backlog of $8.1bn (as at 1 February 2015) across a blue chip customer base

4

Cost savings and business efficiency measures implemented to offset impact of difficult market conditions

5

Shareholders have committed to additional funding of up to $100m to support growth capex with $50m being received in Q1, 2015

3

Market conditions - business update

4

Bentec Platform services RDS

Note: MODUs full year EBITDA $27m represented 8% of total EBITDA.

Integrated land drilling Offshore drilling services & design

• Working with clients to

provide operational efficiencies

• Main volume impact is in

the UK North Sea (3 platforms moving to stacking mode)

• Some projects ramping

up in activity

• Completion of major

projects had led to lower activity since H2 2014

• Reduced capex spend by
• il majors has impacted
• n activity
• Strong backlog in H1

2015 for external and internal rigs and top drives

• More difficult market for

Bentec to secure H2 backlog but some success coming through

• Reasonably stable to

date

• Utilisation continues to be

softer in Nigeria and Europe

• Russia remains strong

but Ruble devaluation makes this challenging

• New builds coming online

throughout 2015 $150m / 42% of total¹ $32m / 9% of total¹ $98m / 28% of total¹ $46m / 13% of total¹

Land drilling Bentec

Responding to the challenging market environment

5

• Major cost saving initiative well underway
• 5% salary reduction implemented 1 March 2015, along side c.450

proposed redundancies worldwide

• All suppliers are being approached for discounts
• Business wide efficiency drive with location / BU specific cost

saving initiatives

• Maintaining high focus on working capital
• A reduction in our capital expenditure programme with no new

growth capex commitments expected during 2015

6

2015 committed and contracted growth capex

Rig Client Country Cost ($m)1 Contract length

Rig 1 BP Khazzan Oman c.31 5yrs + 2x1yr options Rig 2 BP Khazzan Oman c.31 5yrs + 2x1yr options Rig 3 BP Khazzan Oman c.31 5yrs + 2x1yr options Rig 4 Lukoil Russia c.30 3yrs + 3x1yr options Rig 5 Shell Brunei Brunei c.37 3yrs + 3x1yr options Rig 6 Bashneft Russia c.29 3yrs Rig 7 BP Khazzan Oman c.31 5yrs + 2x1yr options Rig 8 BP Khazzan Oman c.31 5yrs + 2x1yr options

New build land rigs schedule New build land rig contracts

• All ongoing capex projects were initiated in 2014 and

are supported by long term contracts

• Up front contributions of $40m received from clients
• Shareholders have committed to additional funding
• f up to $100m to support the committed growth

capex with $50m being received in Q1, 2015

• No new growth capex commitments in 2015 currently

proposed

Construction Operational

All new build capital expenditure is targeted at a minimum 18% IRR

• Total 2015 capex spend on ongoing new build

construction projects c.$130m

• EBITDA run rate attributable to all 8 new rigs c.$65-

75m per annum

• EBITDA contribution from those rigs that will start up

in 2015 is c.$45m

PO Rig R'cd Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 1 2014 2 2014 3 2014 4 2014 5 2014 6 2014 7 2014 8 2014 2015 2014

Houston

Ben Loyal jack-up rig

Baku London

Stavanger Bad Bentheim Tyumen Nizwa Ben Rinnes jack-up rig

St. Johns

Bergen Dubai

Land Drilling Platform Services RDS offices MODUs Bentec Regional offices

A diversified portfolio of assets

Aberdeen (HQ)

Map excludes work over land rigs, defined as being below 900HP.

PRESENCE IN KEY AREAS

127 56 51 41 16 30 60 90 120 150 Europe North Africa Middle East North Sea Russia

LTM Q4 2014 EBITDA split by region 7

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 TRIR per 200,000 man hours

Total recordable incident rate improvement

TRIR

8

KCAD TRIR at end of Q4 2014 was 0.351 injuries per 200,000 man hours worked IADC industry average 0.752 for 2014

Note: IADC stands for International Association of Drilling Contractors.

• Sustained progress made on improving TRIR performance, which is well below IADC industry

average

• Achieved the best annual safety performance in company history

Health, safety and environmental performance

9

Despite market environment, backlog remains strong

Total contract backlog as at 1 October 2014 Contract backlog by BU as at 1 October 2014

NB: Backlog figures exclude revenue generated in the year to date.

Total contract backlog as at 1 February 2015 Contract backlog by BU as at 1 February 2015

$483 $1,140 $724 $1,622 $3,969 $4 $121 $374 $4,377 $4,875 2,000 4,000 6,000 8,000 10,000 2014 2015 2016 2017+ Total Contract Option $1,261m $1,098m $5,998m $8,844m $m $487m $1,137 $729 $1,650 $3,516 $45 $333 $4,232 $4,609 2,000 4,000 6,000 8,000 10,000 2014 2015 2016 2017+ Total Contract Option $m $1,182m $1,062m $5,882m $8,125m $2,030m $144m $5,636m $90m $224m Land drilling Bentec Platforms RDS MODUs $2,080m $203m $6,176m $104m $281m Land drilling Bentec Platforms RDS MODUs

Q4 2014 Q41 2013 Variance 2014 YTD 20131 YTD Variance $m $m $m % $m $m $m % Revenue 167.6 185.7 (18.1) (9.8)% 680.6 684.8 (4.2) (0.6)% EBITDA pre support costs allocation1 34.6 46.4 (11.8) (25.4)% 161.6 160.7 0.9 0.5% Support costs allocation (3.4) (3.0) (0.4) 13.3% (12.1) (10.9) (1.2) 11.0% EBITDA post support costs allocation1 31.2 43.4 (12.2) (28.0)% 149.5 149.8 (0.3) (0.2)% Margin % 18.6% 23.3% 22.0% 21.9%

10

• Revenue and EBITDA for Q4, 2014 decreased on Q4, 2013 principally because of bad

debt provisions booked against certain receivables in Nigeria and Russia

• Activity and EBITDA in Q4, 2014 was also down on Q4, 2013 due to lower utilisation in

Nigeria and Europe plus contract start up activities in Algeria

• Russia remains strong with high utilisation levels and the new Lukoil rig, which spudded in

October, now fully operational

• The Middle East remains a good market with a year on year EBITDA increase, and we

expect this to continue with the new BP Khazzan rigs coming on line in 2015 and beyond

• Utilisation softened slightly in the quarter to 72%, down from 74% in the prior quarter

primarily due to Nigeria and Europe

Financial Performance to 31 December 2014

Land Drilling

• verheads (such as HR, Supply Chain and IT costs) to the operational business segments. 2014 figures are presented on the

same basis.

Q4 2014 Q41 2013 Variance 2014 YTD 20131 YTD Variance $m $m $m % $m $m $m % Revenue 101.8 57.8 44.0 76.1% 293.1 225.8 67.3 29.8% EBITDA pre support costs allocation1 16.8 11.3 5.5 48.9% 35.4 28.9 6.5 22.5% Support costs allocation (1.7) (0.6) (1.1) NM (3.8) (2.8) (1.0) 35.7% EBITDA post support costs allocation1 15.1 10.7 4.4 41.6% 31.6 26.0 5.5 21.3% Margin % 14.8% 18.5% 10.8% 11.5%

Bentec

11

• Bentec delivered a very strong fourth quarter with 76% revenue growth from Q3, 2014
• 2 of the 7 rigs for Enafor Algeria were delivered in 2014, with the balance to be delivered in

the first half of 2015. Together with the rigs being constructed for the Land Drilling business this provides a healthy backlog for Bentec into Q3

• Orders for 28 top drives obtained during 2014
• During the fourth quarter $3.2m of equity earnings from IDTEC, Bentec’s joint venture in

Oman, were included. This was significantly higher than in the prior year due to the higher Oman workload from the Khazzan project and third party activity

Financial Performance to 31 December 2014

• verheads (such as HR, Supply Chain and IT costs) to the operational business segments. 2014 figures are presented on the of

same basis. EBITDA shown is net of elimination of internal EBITDA on consolidation.

Platform Services

12

Financial Performance to 31 December 2014

• verheads (such as HR, Supply Chain and IT costs) to the operational business segments. 2014 figures are presented on the

same basis.

Q4 2014 Q41 2013 Variance 2014 YTD 20131 YTD Variance $m $m $m % $m $m $m %

Revenue

211.3 216.5 (5.2) (2.4)% 808.9 755.6 53.3 7.1%

EBITDA

pre support costs allocation1

30.1 34.5 (4.4) (12.8)% 106.6 96.5 10.1 10.5%

Support costs allocation

(2.1) (2.2) 0.1 (4.5)% (8.2) (7.7) (0.5) 6.5%

EBITDA

post support costs allocation1

28.0 32.3 (4.3) (13.4)% 98.4 88.5 9.6 10.9%

Margin %

13.3% 14.9% 12.2% 11.7%

• Our Platforms business continued to deliver strong earnings in Q4, 2014 with only a slight

reduction of 2% from the same period in the prior year

• This year on year quarterly reduction is due mainly to the release of a contractual related

provision in Azerbaijan in Q4, 2013 and lower Norway activity in Q4, 2014

• Full year EBITDA is up 11% on 2013, reflecting the award of previously announced

contracts in Angola, the Far East and Canada, as well as continued good execution of existing contracts and delivery of service to our customers

RDS

13

• []

Financial Performance to 31 December 2014

• Our RDS business unit had lower revenues and EBITDA than both Q3, 2014 and Q4, 2013

largely as a result of lower activity on greenfield projects

• This drives a reduction in full year EBITDA of 13%, post allocation of support costs
• The Hebron project in Canada has now moved into the pre operational phase with our

Platform Services business, which drove lower activity for RDS

• A revised pricing strategy was agreed on another greenfield project to secure long term

work but with the effect of reducing EBITDA in the quarter

• Brownfield project activity remained relatively stable with a small increase in Norway

• verheads (such as HR, Supply Chain and IT costs) to the operational business segments. 2014 figures are presented on the

same basis.

Q4 2014 Q41 2013 Variance 2014 YTD 20131 YTD Variance $m $m $m % $m $m $m %

Revenue

66.0 100.3 (34.3) (34.2)% 317.9 359.4 (41.5) (11.5)%

EBITDA

pre support costs allocation1

7.0 17.1 (10.1) (59.1)% 49.4 56.0 (6.7) (11.9)%

Support costs allocation

(1.0) (0.7) (0.3) 42.8% (3.1) (2.8) (0.3) 10.7%

EBITDA

post support costs allocation1

6.0 16.4 (10.4) (63.3)% 46.2 53.2 (7.0) (13.1)%

Margin %

9.1% 16.3% 14.5% 14.8%

MODUs

14

• EBITDA improved from $10.4m in 2013 to $26.8m in 2014 reflecting strong operating

performance from our 2 jack-up rigs during 2014, together with improved performance from the drilling barges in 2014 compared to the prior year

• The sale of the three tender barges was completed within the year with the Glen Esk

completed in August and the Glen Tanar and Glen Affric in October

• Both the remaining jack ups were on contract throughout Q4 2014 and achieved EBITDA2
• f c.$8m

Financial Performance to 31 December 2014

(such as HR, Supply Chain and IT costs) to the operational business segments. 2014 figures are presented on the same basis.

Q4 2014 Q41 2013 Variance 2014 YTD 2013 YTD Variance $m $m $m % $m $m $m %

Revenue

26.4 41.6 (15.2) (36.5)% 131.3 156.7 (25.4) (16.2)%

EBITDA

pre support costs allocation1

9.4 10.9 (1.5) (13.7)% 29.0 12.5 16.5 N/M

Support costs allocation

(0.6) (0.6) (0.0) (0.0)% (2.2) (2.1) (0.1) 4.8%

EBITDA

post support costs allocation1

8.8 10.3 (1.5) (14.4)% 26.8 10.4 16.4 N\M

Margin %

33.3% 24.7% 20.4% 6.6%

Group Results

Financial Performance to 31 December 2014

15

Revenue and EBITDA ($m) Q4 2014 Q4 2013 2014 YTD 2013 YTD Revenue from business units 573 602 2,232 2,183 Eliminations (37) (5) (121) (27) Total revenue 536 597 2,111 2,156 EBITDA from business units 89 113 353 328 Corporate costs/other (6) (5) (22) (25) Exchange gain / (loss) (12) 1 (16) (2) Total EBITDA 71 109 315 301

Cash flow and working capital

Financial Performance to 31 December 2014

16

Working Capital2

9

Free Cash Flow

9

• Cash flow from operating activities was strengthened due to

improvements in working capital partially offset by higher cash taxes

• Capital expenditure was slightly increased on Q2 2014 as the Group

continues to invest in the land drilling fleet once secure contracts have been won

Strong cash flows with improved year on year operating cash flows:

• Significant improvement in working capital position driven largely by

improved position on receivables

• Significant revenue growth 2013 vs 2012 with higher DSO drove

an increase in receivables in 2013

• 2014 year on year revenue is relatively flat with lower activity in

Q4, 2014 resulting in lower year end receivables than prior year

• Cash flow benefits of increased payables associated with advance

payments from customers principally for new rigs, together with management of vendor payments

• Small increase in stock due to Bentec work in progress increases, inventory

for new land rigs partially offset by disposal of barges

Q4 2014 Q4 2013 2014 YTD 2013 YTD Cash flow from operating activities

107.4 145.3 286.9 134.3

Capital expenditure

(53.4) (26.5) (201.8) (127.1)

Proceeds from sale of Fixed Assets

18.2 (1.1) 30.7 53.0

Net interest

(45.0) (41.6) (105.8) (93.1)

Other

6.6 (3.2) 7.9 (4.4)

Cash flow from investing activities

(73.6) (72.4) (269.0) (171.6)

Equity injection

0.0 0.0 0.0 59.0

Foreign exchange1

14.4 5.6 0.1 3.6

Net Cash flow before debt drawdown/(repayment)

48.2 78.5 18.0 25.3

Drawdown/(repayment) of debt and debt issuance costs

(15.4) (13.8) 2.5 5.5

Net cash flow

32.8 64.7 20.5 30.8

61 (107) (120) (100) (80) (60) (40) (20) 20 40 60 80 2014 Delta 2013 delta Cash impact of delta ($m)

17

Capital structure

Net leverage as at 31 December 2014

Amount Utilised Coupon Maturity Facility Rating1 Recovery Rating Net Leverage2 Revolver ($250m)3 49.2 L+400 May-19 B3/B 3/3 0.16x Senior Secured Term Loan 373.2 L(100)+525 May-20 B3/B 3/3 1.19x Total Bank Debt 422.4 1.34x UK Finance Senior Secured Notes 375.0 7.250% May-21 B3/B 3/3 1.19x Globe Luxembourg Senior Secured Notes 500.0 9.625% May-18 B3/B 3/3 1.59x Total Institutional Debt 875.0 2.78x Finance lease & other debt 13.9

• Aug-18
• 0.04x

Gross Debt 1,311.3 4.17x Cash 62.4 0.20x Net Debt 1,248.9 3.97x

326 351 353 315 1,169 1,265 1,273 1,249 3.59x 3.61x 3.61x 3.97x 0.00x 0.50x 1.00x 1.50x 2.00x 2.50x 3.00x 3.50x 4.00x 4.50x 5.00x 200 400 600 800 1,000 1,200 1,400 Q1 2014 Q2 2014 Q3 2014 Q4 2014

Net debt/ LTM EBITDA Net debt & LTM EBITDA $m

LTM EBITDA Net debt Net debt/EBITDA

Closing remarks

18

• Despite challenging market conditions in Q4 delivered full year on year EBITDA growth for 2014
• Continued delivery of important contract wins
• Backlog at February 2015 of $8.1bn continues to underpin future earnings despite difficult market

conditions

• Actions continue to optimise the group portfolio and increase business efficiency, with further

savings already being realised

• Underpinned by a stable and experienced management team focused on further delivery of

results

• Continued shareholder support for growth capex with committed additional funding of up to

$100m, $50m being received in Q1, 2015

19

Q & A

investor.relations@kcadeutag.com