www.kcadeutag.com 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
www.kcadeutag.com
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
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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 observe 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.
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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 onshore and offshore with a focus on safety, quality and operational performance
12015 Group revenue and EBITDA of $466m (Q1 2014: $514m) and $76.1m (Q1 2014: $80.8m) respectively
2Contract backlog of $7.9bn (at 1 May 2015) across a blue chip customer base
3Cost 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
5Successful period of new build rig start ups with the first 3 BP Khazzan rigs operational in Oman in Q1 and a further rig in Russia in April 2015
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Business update
4
Bentec Platform services RDS
1 LTM EBITDA, % split of total including MODUs, before corporate costs/ other of $38m.Note: MODUs LTM EBITDA $19.9m represented 5.7% of total EBITDA before corporate costs.
Integrated land drilling Integrated land drilling Offshore drilling services & designOffshore drilling services & design
• Continue to work with clients to provide operational efficiencies
• No further changes to our contracted positions since last earnings call
• Reduced capex spend by oil majors continues to impact activity
• Significant reductions in staffing levels implemented
• Strong H1 backlog continues from previous orders
• 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
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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
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• Contract awarded by BP for the construction and operation 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 Loyaljack-up rig
Baku
London
Stavanger
Bad Bentheim
Tyumen
Nizwa
Ben Rinnesjack-up rig
St. Johns
Bergen
Dubai
Land Drilling Platform Services RDS offices MODUs BentecRegional 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 /Norway27 Plat.
Europe & Caspian7 Rigs
7 CaspianPlat.
Russia17 Rigs
Middle East
14 Rigs
Angola3 Plat.
Africa14 Rigs
RussiaSakhalin3 Plat.
Brunei 1 Rig
Myanmar1 Plat.
127
56 5141
16
0
30
60
90
120
150
Europe NorthAfrica
MiddleEast
North Sea Russia
Ye
ars
LTM Q1 2015 EBITDA split by region
7
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KCAD TRIR at end of Q1 2015 was 0.311 injuries per 200,000 man hours worked
IADC industry average 0.752 for 2014
1Total Recordable Incident Rate per 200,000 man hours. This is a rolling 12 month average.2 KCAD Total Recordable Incident Rate is directly comparable with IADC’s Total Recordables (RCRD) statistic. 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
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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
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• 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
1 EBITDA is shown before and after allocation of central support costs (such as HR, Supply Chain and IT costs) to the operational 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
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• Strong Q1 delivered as the 7-rig order for Enafor continues to make its’ way thorughmanufacturing. 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
1 EBITDA is shown before and after allocation of central support costs (such as HR, Supply Chain and IT costs) to the operational 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
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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
1 EBITDA is shown before and after allocation of central support costs (such as HR, Supply Chain and IT costs) to the operational 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
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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 office in Sakhalin
1 EBITDA is shown before and after allocation of central support costs (such as HR, Supply Chain and IT costs) to the operational 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
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• 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
1 EBITDA is shown before and after allocation of central support costs (such as HR, Supply Chain and IT costs) to the operational 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 $m %
Revenue 21.2 40.7 (19.5) -47.9% 21.2 40.7 (19.5) -47.9%
EBITDA
pre support allocation 5.5 12.6 (7.1) -56.1% 5.5 12.6 (7.1) -56.1%
Support cost allocation (0.4) (0.5) 0.1 -27.1% (0.4) (0.5) 0.1 -27.1%
EBITDA
post support allocation 5.2 12.1 (6.9) -57.4% 5.2 12.1 (6.9) -57.4%
margin 24.3% 29.7% 24.3% 29.7%
Variance Variance
Group ResultsFinancial Performance to 31 March 2015
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Revenue and EBITDA ($m) Q1 2015$m
Q1 2014$m
2015 YTD$m
2014YTD$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 capitalFinancial Performance to 31 March 2015
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Working Capital2
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1Denotes the effect of foreign exchange rate changes on cash and bank overdrafts.2Deltas denote working capital movements YTD compared to the prior year.
Free Cash Flow
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• 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-out 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
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Capital structureNet 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
1 All facilities have ratings outlooks of positive / stable.2 Based on Q1 2015 LTM EBITDA of $310m.3 Revolver is split $75/$175m non cash/cash, the amount shown represents the cash element.4 Net debt per the balance sheet is $1,220.2. The difference to the above relates to capitalised arrangement fees of $49.9
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
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