Investor Presentation Second 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

Second 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

Q2 Key Highlights

2

Business Update

3

Business Unit Financials

4

Group Results

5

Summary

Agenda

Q2 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 YTD Group revenue and EBITDA of $874.3m (Q2 2014 YTD: $1,054.7m) and $141.3m (Q2 2014 YTD: $169.8m) respectively. Q2 2015 Group revenue of $408.1m (Q2 2014: $540.9m) and Q2 2015 EBITDA of $65.2m (Q2 2014: $89.0m) respectively

2

Contract backlog of $7.6bn (at 1 August 2015) across a blue chip customer base

3

A further new build rig spudded ahead of schedule in Russia on 16 April. Three remaining new build rigs in Oman and Brunei remain on track for delivery in 2015 completing our new rig delivery programme

4

$50m of committed funding from KCAD Holdings I limited shareholders still available for draw down if required

5

Cost reduction programme continues to deliver an ongoing benefit to EBITDA with further initiatives to improve efficiency and reduce costs being implemented

3

Business update

4

Bentec Platform services RDS

Note: MODUs LTM EBITDA $22.1m represented 6.8% of total EBITDA before corporate costs.

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

• No further change to

Platforms portfolio activity since Q1

• A slight increase in

activity in Norway equipment rental business, but still below previous results

• Reduced capex spend by
• il majors continues to

impact activity

• Significant reductions in

headcount implemented to counteract the reduced revenue levels

• Strong H1 backlog

continues from previous

• rders
• Good capacity usage for

2015

• Tendering activity

continuing to secure 2016 capacity

• International markets much

less volatile than US, however certain markets have been more heavily impacted

• Continuing strong activity

in Middle East, Russia and Algeria

• Lower activity in Nigeria

and Europe where utilisation is very soft $140.7m / 43.3% of total¹ $40.0m / 12.3% of total¹ $94.0m / 28.9% of total¹ $27.8m / 8.6% of total¹

Land drilling Bentec

Cost saving initiatives continue

5

1. A drive to reduce staff costs and discretionary spending which has delivered significant savings a) Salary reduction and salary freezes across the business b) c.250 redundancies worldwide in overhead positions c) Significant reduction in discretionary spending 2. Reducing costs in supply chain delivered through a companywide initiative across all operations and business units 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

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 Q2 2015 EBITDA split by region 6

7

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

• Maintaining good annual safety performance

Health, safety and environmental performance

KCAD TRIR at end of Q2 2015 was 0.321 injuries per 200,000 man hours worked

8

Despite market environment, backlog remains strong

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

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

9

• Lower revenues and EBITDA compared to Q2 2014 and Q1 2015
• Successfully delivered and spudded a new build rig in Russia
• Our operations in Russia, Algeria and Oman continue to enjoy high levels of utilisation and

EBITDA

• Our European, Nigerian and Kurdistan businesses continue to see weakening utilisation,

largely due to the wider market environment

• Overall our utilisation for the quarter was 74%, in line with the prior quarter

Financial Performance to 30 June 2015

Land Drilling

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

Q2 2015 Q2 2014 Q2 2015 Q2 2014 Result Result YTD YTD $m $m $m % $m $m $m % Revenue 157.5 188.9 (31.4) -16.6% 304.2 356.9 (52.7) -14.8% EBITDA pre support allocation 36.6 48.4 (11.8) -24.4% 77.0 86.9 (9.9) -11.4% Support cost allocation (2.0) (2.8) 0.8 -29.8% (4.5) (5.6) 1.1 -18.8% EBITDA post support allocation 34.6 45.6 (11.0) -24.1% 72.4 81.3 (8.9) -10.9% margin 22.0% 24.1% 23.8% 22.8% Variance Variance

Bentec

10

• Revenues and EBITDA lower than Q2 2014
• Bentec maintains a reasonable backlog which will ensure that the business has a good

level of utilisation through to the end of the year

• Currently in final stages of completion of 7 rigs for a client in Algeria and 3 rigs for KCAD in

Oman and Brunei

• Now ramping up the work on the 3 rigs for a customer in Russia and 1 rig for a customer

in Azerbaijan

• Tendering activity ongoing to secure order backlog for 2016

Financial Performance to 30 June 2015

business segments. EBITDA is also shown before eliminations. 2014 and 2015 are presented on the same basis.

Q2 2015 Q2 2014 Q2 2015 Q2 2014 Result Result YTD YTD $m $m $m % $m $m $m % Revenue 50.2 63.7 (13.5) -21.2% 140.5 90.0 50.5 56.1% EBITDA pre support allocation 4.7 6.9 (2.3) -32.9% 16.0 7.8 8.2 NM Support cost allocation (0.5) (0.7) 0.3 -37.0% (1.0) (1.4) 0.4 -31.4% EBITDA post support allocation 4.2 6.2 (2.0) -32.4% 15.0 6.4 8.6 NM margin 8.4% 9.8% 10.7% 7.1% Variance Variance

Platform Services

11

Financial Performance to 30 June 2015

• Continued good performance given current market conditions
• Our Angola, Myanmar and Canada operations experienced flat activity quarter on quarter,

whereas Azerbaijan and Sakhalin saw lower EBITDA due to currency devaluation and the impact of client contract adjustments

• Our Norway business saw a small improvement on Q1 2015 due to stronger equipment

rental activity

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

Q2 2015 Q2 2014 Q2 2015 Q2 2014 Result Result YTD YTD $m $m $m % $m $m $m % Revenue 172.2 208.2 (36.0) -17.3% 362.0 396.9 (34.9)

• 8.8%

EBITDA pre support allocation 21.3 25.7 (4.4) -17.1% 45.8 50.8 (5.0)

• 9.8%

Support cost allocation (1.4) (2.0) 0.6 -28.9% (3.2) (3.9) 0.7 -17.6% EBITDA post support allocation 19.9 23.7 (3.8) -16.1% 42.6 46.9 (4.3)

• 9.2%

margin 11.6% 11.4% 11.8% 11.8% Variance Variance

RDS

12

Financial Performance to 30 June 2015

• Activity levels significantly reduced, primarily due to a lack of opportunities for Greenfield

projects

• We continue to reduce costs in this business as projects reduce in size
• Brownfield activity is more resilient, however projects tend to be smaller and we are seeing

increased pressure on prices

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

Q2 2015 Q2 2014 Q2 2015 Q2 2014 Result Result YTD YTD $m $m $m % $m $m $m % Revenue 39.6 82.8 (43.2) -52.2% 99.2 178.8 (79.6) -44.5% EBITDA pre support allocation 5.1 15.1 (10.0) -66.1% 14.0 32.8 (18.8) -57.3% Support cost allocation (0.5) (0.7) 0.2 -29.3% (1.1) (1.4) 0.3 -19.4% EBITDA post support allocation 4.6 14.4 (9.8) -68.0% 12.9 31.4 (18.5) -59.0% margin 11.6% 17.4% 13.0% 17.6% Variance Variance

MODUs

13

• Improved performance over Q1 2015 when the Ben Loyal jack up rig experienced damage

to one of its legs and was therefore off day rate for a period. The rig was back to work in April and is currently working under a short-term contract extension at a reduced day rate

• The Ben Rinnes continues to operate offshore Angola
• The self-erecting tender barges, which were sold in Q4 2014, contributed $7.5m of the

EBITDA before support allocation during H1 2014

Financial Performance to 30 June 2015

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

Q2 2015 Q2 2014 Q2 2015 Q2 2014 Result Result YTD YTD $m $m $m % $m $m $m % Revenue 22.4 35.6 (13.2) -37.1% 43.6 76.3 (32.7) -42.9% EBITDA pre support allocation 7.5 5.4 2.1 40.1% 13.0 18.0 (4.9) -27.5% Support cost allocation (0.3) (0.5) 0.2 -42.9% (0.7) (1.0) 0.4 -35.1% EBITDA post support allocation 7.2 4.8 2.4 49.1% 12.3 16.9 (4.6) -27.0% margin 32.1% 13.6% 28.3% 22.2% Variance Variance

Group Results

Financial Performance to 30 June 2015

14

Revenue and EBITDA ($m) Q2 2015 $m Q2 2014 $m 2015 YTD $m 2014 YTD $m Revenue from business units 442.1 579.1 949.8 1,099.2 Eliminations (34.0) (38.2) (75.5) (44.5) Total revenue 408.1 540.9 874.3 1,054.7 EBITDA from business units 70.5 94.7 155.2 182.8 Eliminations (0.1) (1.1) (1.3) (1.1) Corporate costs/other (4.4) (5.5) (9.9) (11.8) Exchange (0.8) 0.9 (2.7) (0.1) Total EBITDA 65.2 89.0 141.3 169.8

Q2 2015 Q2 2014 2015 YTD 2014 YTD $'m $'m $'m $'m Cash flow from operating activities 84.4 42.1 150.1 123.8 Capital expenditure (24.5) (61.1) (80.4) (83.5) Proceeds from sale of Fixed Assets 2.2 0.5 3.1 3.7 Interest received 4.6 0.4 8.4 0.4 Other (3.5) (2.4) 2.7 (0.7) Acquisition of non-controlling interests 0.0 0.0 (25.0) 0.0 Cash flow from investing activities (21.2) (62.6) (91.2) (80.1) Interest paid (49.6) (50.1) (62.5) (54.1) Foreign exchange (10.2) (4.9) (4.5) (5.9) Net Cash flow before debt drawdown/(repayment) 3.4 (75.5) (8.1) (16.3) Drawdown/(repayment) of debt and debt issuance costs (4.6) (81.2) (16.5) (82.8) Net cash flow (1.2) (156.7) (24.6) (99.1)

Cash flow and working capital

Financial Performance to 30 June 2015

15

Working Capital2

9

Free Cash Flow

9

• Cashflow from working capital improved due to collections

by Bentec for the rigs delivered to Algeria since the year end

• In addition there is a favourable working capital impact of

lower levels of activity and lower cash taxes

• Excluding the rights issue accounting between Holdings

and Alpha:

• The working capital cashflow of $34m inflow would

have been a $58m inflow

• The capital expenditure of $24.5m would have

been $48.5m

1

16

2015 committed and contracted growth capex

Rig Country Cost ($m)1 Contract length Status

Rig 1 Oman c.31 5yrs + 2x1yr options Operating Rig 2 Oman c.31 5yrs + 2x1yr options Operating Rig 3 Oman c.31 5yrs + 2x1yr options Operating Rig 4 Russia c.30 3yrs + 3x1yr options Operating Rig 5 Brunei c.37 3yrs + 3x1yr options In construction Rig 6 Russia c.29 3yrs Operating Rig 7 Oman c.31 5yrs + 2x1yr options In construction Rig 8 Oman c.31 5yrs + 2x1yr options In construction

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
• The 2015 growth capex plan is almost complete, with no new

growth capex commitments currently proposed

• Maintenance capex spend for 2015 $80m - $85m

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

• Remaining capex spend in 2015 c.$54m
• All contracts remain in place without any re-negotiation of

terms

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

17

Capital structure

Net leverage as at 30 June 2015

Utilisation 30th June 2015 Coupon Maturity Facility Rating1 Recovery Rating Net Leverage2 Revolver ($250m)3 41.7 L+400 May-19 B3/B 3/3 0.15x Senior Secured Term Loan 371.3 L(100)+525 May-20 B3/B 3/3 1.30x Total Bank Debt 413.0 1.44x UK Finance Senior Secured Notes 375.0 7.250% May-21 B3/B 3/3 1.31x Globe Luxembourg Senior Secured Notes 500.0 9.625% May-18 B3/B 3/3 1.75x Total Institutional Debt 1,288.0 4.50x Finance lease & other debt 12.2

• Aug-18
• 0.04x

Gross Debt 1,300.2 4.55x Cash 45.4 0.16x Net Debt 1,254.8 4.38x

Closing remarks

18

• Stable Q2 performance in the current challenging market conditions
• $50m of committed funding from our shareholders still available for draw down if required
• Successful start up of 5 of the 8 new build rigs, with 3 more on track for delivery in 2015
• Cost initiatives delivering bottom line savings
• Strong backlog position at $7.6bn across a blue chip company base

19

Q & A

investor.relations@kcadeutag.com