Investor Presentation First 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

First 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

Key Highlights

2

Commercial Developments

3

Business Overview

4

Group Results

5

Summary

3

Q1 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

Group revenue and EBITDA of $513.9m (Q1 2013: $474.7m) and $80.8m (Q1 2013: $56.2m) respectively

2

Improved operational and financial performance from Land Drilling, RDS, Platforms and MODUs

3

Successful refinancing has pushed our earliest significant maturities out to 2018

4

Contract backlog of $8.5bn (as at 1 May 2014) across a blue chip customer base

5

Net debt/LTM EBITDA leverage fell from 4.0x at Q4 2013 to 3.41x by Q1 2014

Integrated Land Drilling Offshore Drilling Services & Design

US$181m EBITDA (54% of total)¹ US$154m EBITDA (46% of total)¹

Land Drilling Bentec Platform Services Rig Design Services (RDS)

• Leading international

premium drilling rig owner and operator

• Design and manufacture of

high-end premium land rigs and components

• Leading global platform service
• perator outside North America
• Rig design engineering from

concept to commission

• Operations: Russia, Africa,

Middle East, Europe and SE Asia

• Facilities: Germany, Russia,

Oman

• Operations: UK North Sea,

Norway, Azerbaijan, Russia, SE Asia and Africa

• Offices: Aberdeen, Baku,

Bergen, Houston, London

Market-leading international drilling & engineering company

4 Design & Engineering Design & Manufacture Own & Operate Own & Operate Manage Manage

• Rigs: High end fleet of

53 drilling rigs, 4 workover rigs

• 94% of new rigs since

2007 have been built by Bentec

• Facilities: Capacity for

12-16 rigs and 50 top drives2 p.a.

• Staff: c.3,050 managing

drilling operations on 39 platforms

• Approx. 60% of

platforms designed or refurbished by RDS

• Staff: c.850 engineers

and support staff

¹ LTM BITDA pre-exceptional items, excluding MODUs and prior to allocation of central overheads. EBITDA by segment for 2013 has been re-presented to reallocate support costs which were previously shown as central overheads (such as HR, Supply Chain and IT costs) to the operational business segments. 2014 figures are presented on the same basis.

Europe (inc North Sea) 23% Russia 20% Africa 14% Caspian 13% Middle East 11% SE Asia 10% Other 9% 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

Continued strong market position and balanced portfolio of assets across highly attractive international markets

Aberdeen (HQ)

5

adjustments and excluding central overheads of $53m. Map excludes work over land rigs, defined as being below 900HP.

PRESENCE IN KEY AREAS 2013 EBITDA split by region

North Sea /Norway 25 Plat. Europe & Caspian 8 Rigs Azerbaijan 7 Plat. Russia 15 Rigs Middle East 12 Rigs Angola 3 Plat. Africa 17 Rigs Sakhalin 3 Plat. Brunei 1 Rig Myanmar 1 Plat.

126 55 50 40 15 30 60 90 120 150 Europe North Africa Middle East North Sea Russia

Years

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 TRIR per 200,000 man hours

Total Recordable Incident Rate Improvement (TRIR)

TRIR (average) 6

Health, safety and environmental performance

Mar -14

KCAD TRIR at end Q1 2014 was 0.501 injuries per 200,000 man hours worked IADC industry average 0.812 for 2013

IADC figures are annual and are not released until after year end, therefore no 2014 information is available. Note: IADC stands for International Association of Drilling Contractors.

Significant new contracts – Platforms, Canada

7

Contract nature Drilling operations and maintenances services on the Hebron platform in Canada Contract length & timeframes 12 years fixed (3 years pre-operations, 9 years operations and maintenance) with option to extend Customer ExxonMobil Contract value Multi-million dollar

“The award of our first contract in Canada by ExxonMobil Canada Properties is an excellent

• result. We look forward to continuing to develop a strong working relationship as we work on

this project together.” Rune Lorentzen, President of Offshore, KCA Deutag

8

Healthy backlog providing high level earnings visibility for the future

$1,258 $839 $1,595 $3,692 $51 $141 $4,015 $4,207 2,000 4,000 6,000 8,000 10,000 2014 2015 2016 and thereafter Total backlog $m Contract Option $980m $5,610m $7,899m $1,310m $1,726m $251m $5,737m $173m $12m Land Drilling Bentec Platforms RDS MODUs

Total contract backlog as at 1 March 20141 Contract backlog by BU as at 1 March 20141 Total contract backlog as at 1 May 2014 Contract backlog by BU as at 1 May 2014

$1,635 $273 $6,370 $144 $55 Land Drilling Bentec Platforms RDS MODUs $1,072 $895 $1,885 $3,852 $54 $127 $4,445 $4,626 2,000 4,000 6,000 8,000 10,000 May to Dec 2014 2015 2016 and thereafter Total backlog $m Contract Option $1,126m $1,022m $6,330m $8,478m

Mar to Dec 2014

Q1 2014 Q1 2013 Variance 2014 YTD 2013 YTD Variance $m $m $m % $m $m $m %

Revenue 168.0 150.5 17.5 11.6 168.0 150.5 17.5 11.6 EBITDA

pre support costs allocation1

38.5 30.3 8.2 27.1 38.5 30.3 8.2 27.1 Support costs allocation (2.8) (2.4) (2.8) (2.4) EBITDA

post support costs allocation1

35.7 27.9 7.8 28.0 35.7 27.9 7.8 28.0 Margin % 21.3 18.5 21.3 18.5

9

• Strong Q1 2014 performance with utilisation of 81% for the quarter (80% in

Q1 2013)

• Improved utilisation and cost savings from the business efficiency

programme have contributed to improving EBITDA in Europe versus Q1 2013 and Q4 2013

• Africa also saw improvement versus Q1 and Q4 2013 with two new rigs

delivered in Algeria in mid 2013 contributing to the year on year uplift in EBITDA

• Russia results softened for the quarter due to a seasonal downturn in CDS

activity and a rig moving between clients Financial Performance to 31 March 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.

Q1 2014 Q1 2013 Variance 2014 YTD 2013 YTD Variance $m $m $m % $m $m $m %

Revenue 26.3 40.9 (14.6) (35.7) 26.3 40.9 (14.6) (35.7) EBITDA

pre support costs allocation1

0.8 3.3 (2.5) (75.8) 0.8 3.3 (2.5) (75.8) Support costs allocation (0.7) (0.8) (0.7) (0.8) EBITDA

post support costs allocation1

0.1 2.5 (2.4) (96.0) 0.1 2.5 (2.4) (96.0) Margin % 0.4 6.1 0.4 6.1

Bentec

10

• Q1 2014 saw a significant reduction in revenue and EBITDA compared to the

same period in 2013 and Q4 2013

• This is simply due to the manufacturing completion status of current rig orders

and timing of component sales

• The order backlog is strong and higher EBITDA is expected later in the year,

particularly in the second half

• During Q4 2013 we announced Bentec’s biggest ever contract award for 7

desert rigs for Enafor, Algeria

• Order intake on top drives has also been strong during Q1 2014

Financial Performance to 31 March 2014

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

same basis.

Platform Services

11

Financial Performance to 31 March 2014

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

same basis.

Q1 2014 Q1 2013 Variance 2014 YTD 2013 YTD Variance $m $m $m % $m $m $m %

Revenue 188.7 169.5 19.2 11.3 188.7 169.5 19.2 11.3 EBITDA

pre support costs allocation1

25.1 19.7 5.4 27.4 25.1 19.7 5.4 27.4 Support costs allocation (1.9) (1.6) (1.9) (1.6) EBITDA

post support costs allocation1

23.2 18.1 5.1 28.2 23.2 18.1 5.1 28.2 Margin % 12.3 10.7 12.3 10.7

• New contract awards during 2013 in Angola and the Far East contributed to

strong EBITDA growth from the same quarter 2013 (28.2%)

• High activity levels in Azerbaijan and Angola were also a contributing factor,

while activity levels in Sakhalin remained stable

• UK EBITDA steady compared to Q1 2013 despite higher revenue, due to an

increase in lower margin reimbursables

• Norway revenue and EBITDA reduced on the same period last year due to

lower activity in the pipe rental business, lower reimbursables and the stacking

• f the Ringhorne platform

RDS

12

• []

Financial Performance to 31 March 2014

• Continued extremely strong performance from the RDS business with

EBITDA growth of 66.7% on Q1 2013

• Work on a number of large projects from 2013, such as Hebron in Canada

and Statoil Mariner in the UK North Sea, has continued but will reduce in coming quarters as they reach completion

• Recent new awards maintain a healthy backlog

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

same basis.

Q1 2014 Q1 2013 Variance 2014 YTD 2013 YTD Variance $m $m $m % $m $m $m %

Revenue 96.0 81.4 14.6 17.9 96.0 81.4 14.6 17.9 EBITDA

pre support costs allocation1

17.7 10.8 6.9 63.9 17.7 10.8 6.9 63.9 Support costs allocation (0.7) (0.6) (0.7) (0.6) EBITDA

post support costs allocation1

17.0 10.2 6.8 66.7 17.0 10.2 6.8 66.7 Margin % 17.7 12.5 17.7 12.5

MODUs

13

• The two jackups (Ben Rinnes and Ben Loyal) contributed $5.6m EBITDA 2 in the

quarter versus $4.5m in Q1 2013

• New contracts have now been signed for both jackups commencing May 2014
• The Ben Avon jack up, which was disposed of in March 2013, incurred a loss of

$3.5m in Q1 2013

• The three barges (Glen Esk, Glen Tanar and Glen Affric) were profitable in Q1

2014 at $6.5m EBITDA2 compared to $1.2m in Q1 20132 Financial Performance to 31 March 2014

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

Q1 2014 Q1 2013 Variance 2014 YTD 2013 YTD Variance $m $m $m % $m $m $m %

Revenue 40.7 39.3 1.4 3.6 40.7 39.3 1.4 3.6 EBITDA

pre support costs allocation1

12.6 2.6 10.0 382.4 12.6 2.6 10.0 382.4 Support costs allocation (0.5) (0.4) (0.5) (0.4) EBITDA3

post support costs allocation1

12.1 2.2 9.9 447.0 12.1 2.2 9.9 447.0 Margin % 29.7 5.6 29.7 5.6

Group Results

Financial Performance to 31 March 2014

14

Revenue and EBITDA ($m)

Q1 2014 Q1 2013 2014 YTD 2013 YTD Revenue from business units 520 483 520 483 Consolidation adjustments (6) (8) (6) (8) Total revenue 514 475 514 475 EBITDA from business units 88 61 88 61 Corporate costs/other (7) (5) (7) (5) Total EBITDA 81 56 81 56

Cash Flow and Working Capital

Financial Performance to 31 March 2014

15

Working Capital

9 (60)

*Deltas denote working capital movements from Q4 2013 and Q4 2012 respectively.

Free Cash Flow

9

• Main driver for stronger operating cash flow was the improvement in

working capital (see right) and higher EBITDA

• Cash flow from investing activities includes capital expenditure and cash

interest payments:

• Reduced levels of capital expenditure offset by:
• Disposal proceeds from the sale of the Ben Avon jack up rig

in Q1 2013

• Slightly lower interest payments in Q1 2014
• Reduction in working capital in Q1 2014.
• Higher receivables due to increased activity were offset by

$22m early collection in Q1 2014 for the 4th rig for a customer in Algeria

• Increase in payables due to advance payments received for

rigs to be manufactured by Bentec and then operated by the Land business unit

• Offset by higher work in process in Bentec associated with

new build rig orders received at the end of 2013 15 (92) (60.0) (50.0) (40.0) (30.0) (20.0) (10.0)

• 10.0

Q1 2014 Delta* Q1 2013 Delta* Cash Impact of Delta ($m)

Working Capital Delta

Working Capital Delta

Q1 2014 Q1 2013 2014 YTD 2013 YTD Cash flow from operating activities 82 (46) 82 (46) Cash flow from investing activities (21) 2 (21) 2 Equity injection 40 40 Foreign exchange (1) 4 (1) 4 Net Cash flow before debt repayment 60 60 Drawdown/(repayment) of debt (net issuance costs) (2) (12) (2) (12) Net cash flow 58 (12) 58 (12)

61

649

32 155 50

500

50 2014 Mar-15 Mar-16 Jun-16 Mar-17 2018 2019 2020 2021

Off B/S Guarantee Facility Senior Secured Notes $50m Additional RCF approved in A&E Liquidity Facilities Term Loans 255 93 16

Capital Structure

Pre and post refinancing

New maturity profile ($m)

250 500 375 375

2014 Mar-15 Mar-16 Jun-16 Mar-17 2018 2019 2020 2021

New Senior Secured Notes TLB Existing Senior Secured Notes Liquidity facilities

Previous maturity profile ($m)

38

17

Pro-forma EBITDA and Net Debt

Pro-forma net debt Pro-forma EBITDA

$m Q1 2014 LTM EBITDA 325.4 Exclusion of loss on the Barges1 1.2 Exclusion of Ben Avon2 (0.2) Pro-forma new land rigs3 2.8 Algerian rigs lease charge added back4 3.8 Pro-forma Q1 2014 LTM EBITDA 333.0 Facility Q1 2014 Actual Sale of SET rigs1 Refinancing Pro-forma Cash (65) (50) (20) (135) Capex facility 29 (29)

• TLB

151 (151)

• TLC

530 (530)

• New WCF ($250m)
• New Term Loan B & SSN
• 750

750 Existing SSN 500 500 Other 24 24 Total debt 1,169 (50) 20 1,139

• Q1 2014 EBITDA and net debt have been

calculated on a pro-forma basis for use in leverage calculations on the following slide

• This slide provides a reconciliation to group

results

5x 4.8x 4x 3.4x

• 0.50

1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00

• 200

400 600 800 1,000 1,200 1,400 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Pro-forma Net debt and EBITDA ($m) Net Debt LTM EBITDA Net debt/LTM EBITDA

• 135
• 67

500 500 2 2 24 24 180 530 375 375

• 200

200 400 600 800 1000 1200 1400 Cash Senior secured notes 2018 Liquidity facilities Other TLB & Capex facility TLC New TLB Senior secured notes 2021

Net Debt Pre and Post Refinancing

As at 31 March 2014

18 Net Debt 31 March 2014 – Pre refinancing Net Debt 31 March 2014 – Pro-forma2 post refinancing

• Refinancing successfully completed 13 May 2014
• Existing Term Loan C, Term Loan B, Capex and

Working Capital facilities repaid

• New $375 million new Term Loan B and $375 million

2021 Senior Notes drawn

Net debt / LTM EBITDA

Net debt1

$1,169m $1,139m

Closing remarks

19

• Continued strong performance in Q1 2014 provides an excellent foundation for 2014 and beyond
• Excellent backlog of $8.5bn underpins future earnings
• Important contract wins with more in the pipeline
• Successful refinancing means no significant debt maturities until 2018
• Actions continue to optimise the business portfolio and increase business efficiency in 2014
• Growth opportunities are only being pursued where they provide robust capex returns driving

increased cash generation based upon long term contracts

• All of this is underpinned by a stable and experienced management team focused on further

delivery of results

20

Q & A

investor.relations@kcadeutag.com