Investor Presentation First Quarter 2015 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

First Quarter 2015

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

1

Q1 Key Highlights

2

Business Update

3

Business Unit Financials

4

Group Results

5

Summary

Agenda

Q1 Key highlights

KCA Deutag is a leading international drilling and engineering company working

• nshore and offshore with a focus on safety, quality and operational performance

1

2015 Group revenue and EBITDA of $466m (Q1 2014: $514m) and $76.1m (Q1 2014: $80.8m) respectively

2

Contract backlog of $7.9bn (at 1 May 2015) across a blue chip customer base

3

Cost saving initiatives continue with 5% salary reduction implemented 1 March 2015 and all other areas progressing well

4

$50m rights issue proceeds received from our shareholders during Q1 2015

5

Successful period of new build rig start ups with the first 3 BP Khazzan rigs

• perational in Oman in Q1 and a further rig in Russia in April 2015

3

Business update

4

Bentec Platform services RDS

Note: MODUs LTM EBITDA $19.9m represented 5.7% of total EBITDA before corporate costs.

Integrated land drilling Integrated land drilling Offshore drilling services & design Offshore drilling services & design

• Continue to work with

clients to provide

• perational efficiencies
• No further changes to our

contracted positions since last earnings call

• Reduced capex spend by
• il majors continues to

impact activity

• Significant reductions in

staffing levels implemented

• Strong H1 backlog

continues from previous

• rders
• 3 new land rig orders,

and one offshore drilling package provides a healthy H2 order book

• International markets much

less volatile

• Russia utilisation remains

strong, despite the weak Ruble

• Utilisation continues to be

softer in Nigeria, Europe and recently Kurdistan

• New builds coming online

throughout 2015 $151.5m / 43.6% of total¹ $41.0m / 11.8% of total¹ $97.6m / 28.1% of total¹ $37.5m / 10.8% of total¹

Land drilling Bentec

Cost saving initiatives continue

5

1. A drive to reduce staff costs and discretionary spending which has already led to significant savings a) 5% salary reduction implemented 1 March b) Salary freezes across the businesses c) c.450 redundancies worldwide d) Significant reduction in discretionary spending 2. Reducing costs in supply chain delivered through a companywide initiative across all operations and business units a) 271 suppliers approached, negotiations closed with 175 b) Reduction in capex spending, with no new growth capex during 2015 3. Significant senior management focus on working capital and the full delivery of the various cost reduction initiatives a) Bi-weekly 13 week cash forecasting process b) Monthly BU review meetings with KPI & forecasting updates

Khazzan: phase 1 up and running

6

• Contract awarded by BP for the construction and
• peration of three new build 2000 HP fast moving

land rigs for the Khazzan field in Oman

• Rigs secured on a 5 year contract plus options
• Contract received at the beginning of 2014 and rigs

designed and manufactured by Bentec and its joint venture in Oman, IDTec LLC

• After an intensive commissioning, crew training and

test phase, the rigs started operations in January, February and March of this year

• A great achievement for the Land projects

department, Oman Operations and both Bentec and IDTec teams

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

North Sea /Norway 27 Plat. Europe & Caspian 7 Rigs 7 Caspian Plat. Russia 17 Rigs Middle East 14 Rigs Angola 3 Plat. Africa 14 Rigs Russia Sakhalin 3 Plat. Brunei 1 Rig Myanmar 1 Plat.

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

Years

LTM Q1 2015 EBITDA split by region 7

8

KCAD TRIR at end of Q1 2015 was 0.311 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 February 2015 Contract backlog by BU as at 1 February 2015

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

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

$M $M

10

• Lower revenues compared to Q1 2014 but higher EBITDA and improved margins due to

new build rigs coming online

• Successfully delivered and spudded the first 3 Khazzan rigs for BP in Oman. These rigs

should contribute very favourably to our profitability going forward

• Our Russian business continues to enjoy high levels of utilisation and EBITDA
• Our European and Nigerian businesses continue to face utilisation headwinds, due to the

wider market environment and local content issues respectively

• Overall our utilisation for the quarter was 74%

Financial Performance to 31 March 2015

Land Drilling

business segments. 2014 and 2015 are presented on the same basis.

Q1 2015 Q1 2014 Q1 2015 Q1 2014 Result Result YTD YTD $m $m $m % $m $m $m % Revenue 146.7 168.0 (21.3) -12.7% 146.7 168.0 (21.3) -12.7% EBITDA pre support allocation 40.4 38.5 1.9 5.0% 40.4 38.5 1.9 5.0% Support cost allocation (2.6) (2.8) 0.2

• 7.7%

(2.6) (2.8) 0.2

• 7.7%

EBITDA post support allocation 37.8 35.7 2.1 6.0% 37.8 35.7 2.1 6.0% margin 25.8% 21.3% 25.8% 21.3% Variance Variance

Bentec

11

• Strong Q1 delivered as the 7-rig order for Enafor continues to make its’ way thorugh
• manufacturing. The business also completed internal two rigs for the BP Khazzan project
• In the prior year, orders were at an early stage and thus earnings recognition could not be
• achieved. This compares with Q1 2015 where more mature projects allow us to record

strong results

• Pipeline looks sound for Bentec who received a number of new orders during Q1 for rigs

and components albeit at lower margins

Financial Performance to 31 March 2015

business segments. 2014 and 2015 are presented on the same basis. EBITDA is stated gross of eliminations of $1.3m.

Q1 2015 Q1 2014 Q1 2015 Q1 2014 Result Result YTD YTD $m $m $m % $m $m $m % Revenue 90.3 26.3 64.0 NM 90.3 26.3 64.0 NM EBITDA pre support allocation 11.3 0.8 10.5 NM 11.3 0.8 10.5 NM Support cost allocation (0.5) (0.7) 0.2 -25.5% (0.5) (0.7) 0.2 -25.5% EBITDA post support allocation 10.8 0.1 10.7 NM 10.8 0.1 10.7 NM margin 12.0% 0.5% 12.0% 0.5% Variance Variance

Platform Services

12

Financial Performance to 31 March 2015

• Operations remain largely in-line with prior quarters.
• We did experience a fall back in our Norwegian rental business which saw lower demand

during the quarter. Weather conditions also hampered operations in Norway

• Our Myanmar and Sakhalin operations saw flat activity quarter on quarter and our

Azerbijani business saw a small improvement on Q4 2014

• We continued work on the Hebron platform in Canada at similar levels to the prior quarter

business segments. 2014 and 2015 are presented on the same basis.

Q1 2015 Q1 2014 Q1 2015 Q1 2014 Result Result YTD YTD $m $m $m % $m $m $m % Revenue 189.8 188.7 1.1 0.6% 189.8 188.7 1.1 0.6% EBITDA pre support allocation 24.5 25.1 (0.6)

• 2.4%

24.5 25.1 (0.6)

• 2.4%

Support cost allocation (1.8) (1.9) 0.1

• 5.8%

(1.8) (1.9) 0.1

• 5.8%

EBITDA post support allocation 22.7 23.2 (0.5)

• 2.1%

22.7 23.2 (0.5)

• 2.1%

margin 12.0% 12.3% 12.0% 12.3% Variance Variance

RDS

13

Financial Performance to 31 March 2015

• Activity continued at lower levels, particularly on greenfield projects
• We have acted to reduce costs in this business by reducing headcount, particularly in

regard to contracted employees who work on a project by project basis for RDS

• The Hebron project has seen reduced activity compared to the prior year as it comes to

the end of this scope of work

• Brownfield activity is more positive, with results stable in this area
• We continue to develop activity where we see growth and have recently opened a new
• ffice in Sakhalin

business segments. 2014 and 2015 are presented on the same basis.

Q1 2015 Q1 2014 Q1 2015 Q1 2014 Result Result YTD YTD $m $m $m % $m $m $m % Revenue 59.6 96.0 (36.4) -37.9% 59.6 96.0 (36.4) -37.9% EBITDA pre support allocation 8.9 17.7 (8.8) -49.7% 8.9 17.7 (8.8) -49.7% Support cost allocation (0.6) (0.7) 0.1

• 8.9%

(0.6) (0.7) 0.1

• 8.9%

EBITDA post support allocation 8.3 17.0 (8.7) -51.3% 8.3 17.0 (8.7) -51.3% margin 13.9% 17.7% 13.9% 17.7% Variance Variance

MODUs

14

• This business unit now contains just two jack ups: the Ben Rinnes and the Ben Loyal. This

explains the drop in revenue and EBITDA compared to Q1 2014

• Excluding the self-erecting tender barges the comparable 2014 Q1 figure for EBITDA

before support cost allocation was $6.1m

• The Ben Loyal suffered damage on 11 February whilst jacking-up on location in the Gulf of
• Mexico. The rig had to return to port for repairs which are primarily covered by insurance

(other than an excess) and following repair the rig went back on day rate in early April

Financial Performance to 31 March 2015

business segments. 2014 and 2015 are presented on the same basis.

Q1 2015 Q1 2014 Q1 2015 Q1 2014 Result Result YTD YTD $m $m $m % $m $m $m % Revenue 21.2 40.7 (19.5) -47.9% 21.2 40.7 (19.5) -47.9% EBITDA pre support allocation 5.5 12.6 (7.1) -56.1% 5.5 12.6 (7.1) -56.1% Support cost allocation (0.4) (0.5) 0.1 -27.1% (0.4) (0.5) 0.1 -27.1% EBITDA post support allocation 5.2 12.1 (6.9) -57.4% 5.2 12.1 (6.9) -57.4% margin 24.3% 29.7% 24.3% 29.7% Variance Variance

Group Results

Financial Performance to 31 March 2015

15

Revenue and EBITDA ($m) Q1 2015 $m Q1 2014 $m 2015 YTD $m 2014 YTD $m Revenue from business units 507.7 520.2 507.7 520.2 Eliminations (41.5) (6.3) (41.5) (6.3) Total revenue 466.2 513.9 466.2 513.9 EBITDA from business units 84.8 88.1 84.8 88.1 Eliminations (1.3) (0.0) (1.3) (0.0) Corporate costs/other (5.5) (6.2) (5.5) (6.2) Exchange (1.9) (1.1) (1.9) (1.1) Total EBITDA 76.1 80.8 76.1 80.8

Cash flow and working capital

Financial Performance to 31 March 2015

16

Working Capital2

9

Free Cash Flow

9

• Working capital includes $50m of cash, received as equity

into KCA Deutag Holdings I, pushed down into KCA Deutag Alpha as an advanced payment against rig purchases

• Underlying working capital increases due to early

collections at year end and delayed collection on MODU receivables in Q1 ’15 which were received post month end

• Capital expenditure increased due to the high level of

activity on the previously committed new build rigs

• Acquisition of non-controlling interest represents the buy-
• ut of our former partners of our Omani business

1

Q1 2015 Q1 2014 2015 YTD 2014 YTD $'m $'m $'m $'m Cash flow from operating activities 65.7 81.8 65.7 81.8 Capital expenditure (55.8) (22.4) (55.8) (22.4) Proceeds from sale of Fixed Assets 0.9 3.2 0.9 3.2 Interest received 3.8 0.0 3.8 0.0 Other 6.2 1.7 6.2 1.7 Acquisition of non-controlling interests (25.0) 0.0 (25.0) 0.0 Cash flow from investing activities (70.0) (17.5) (70.0) (17.5) Interest paid (12.9) (4.0) (12.9) (4.0) Foreign exchange 5.7 (1.0) 5.7 (1.0) Net Cash flow before debt drawdown/(repayment) (11.5) 59.3 (11.5) 59.3 Drawdown/(repayment) of debt and debt issuance costs (11.9) (1.7) (11.9) (1.7) Net cash flow (23.4) 57.6 (23.4) 57.6

17

Capital structure

Net leverage as at 31 March 2015

Amount Utilised Coupon Maturity Facility Rating1 Recovery Rating Net Leverage2 Revolver ($250m)3 33.4 L+400 May-19 B3/B 3/3 0.11x Senior Secured Term Loan 372.2 L(100)+525 May-20 B3/B 3/3 1.20x Total Bank Debt 405.6 1.31x UK Finance Senior Secured Notes 375.0 7.250% May-21 B3/B 3/3 1.21x Globe Luxembourg Senior Secured Notes 500.0 9.625% May-18 B3/B 3/3 1.61x Total Institutional Debt 1,280.6 4.13x Finance lease & other debt 12.5

• Aug-18
• 0.04x

Gross Debt 1,293.1 4.17x Cash 23.0 0.07x Net Debt4 1,270.1 4.10x

Closing remarks

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• Sound Q1 performance in the current challenging market conditions
• Strong backlog position at $7.9bn across a blue chip company base
• Successful spud 4 new build rigs: 3 in Oman for BP and one in Russia
• Significant contract win for Bentec securing good utilisation of our facilities through 2015
• Receipt of $50m of rights issue proceeds from our shareholders
• Continued commitment to our cost saving initiatives

19

Q & A

investor.relations@kcadeutag.com