investor presentation - kca deutag€¦ · fourth quarter 2015 investor presentation . disclaimer 1...
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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
Fourth 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
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.
2
1 Q4 Key Highlights
2 Business Update
3 Business Unit Financials
4 Group Results
5 Summary
Agenda
Q4 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
1
2015 full year revenue and EBITDA of $1,668.8m (2014: $2,110.9m) and
$289.8m (2014: $314.7m) respectively.
Q4 2015 Group revenue of $396.0m (Q4 2014: $536.2m) and Q4 2015
EBITDA of $79.1m (Q4 2014: $71.4m) respectively
2 Contract backlog of $6.3bn (at 1 February 2016) across a blue chip
customer base
3 Successful delivery and start up in Q4 of 2 new build rigs in Oman and 1 rig
in Brunei, completing our rig build programme of 8 new rigs delivered since
the end of Q3 2014
4 $115m of available liquidity at 31 December 2015. Post year end
completion of $80m Oman rig financing transaction provides a further boost
to liquidity
5 Sale of the Ben Loyal jack up rig completed in Q4
3
Market Overview
4
• Oil price fell below $30 / bbl in
January 2016 resulting in
increased market uncertainty
• Significant reduction in capex
spending since the peak in
2014
o Operators focused on cost
cutting and capital delays
o Spending is being prioritised to
resilient markets with low cost
breakeven
• Analysts are expecting 2017
capex to decline by a further
10%2
1Source: Capital IQ as at 23 March 2016 2 Source: JPMorgan Global E&P Capex Survey March 2016
1
2
Business update
5
Bentec Platform services RDS
1 LTM EBITDA, % split of total including MODUs, before corporate costs/ other of $21.2m.
Note: MODUs LTM EBITDA $22.4m represented 7.2% of total EBITDA before corporate costs.
Integrated land drilling Offshore drilling services & design
• Most of our International
operations continue to
perform relatively well
despite market conditions
• Some weakness
particularly in the North
Sea and Angola
• Reduced capex spend by
E&P companies
continues to severely
impact activity and
revenues
• We remain focused on
preservation of positive
EBITDA through cost
management
• Significant reduction in
tendering activity
throughout 2015
• Reduced component
sales activity although
stable workload in After
Sales
• Highly competitive, weak
market conditions
• Utilisation remains soft in
Nigeria, Europe and
Kurdistan
• Increased market
uncertainty with additional
pricing pressure and
indications of activity
reduction
$164.2m / 52.8% of total¹ $19.0m / 6.1% of total¹ $89.5m / 28.8% of total¹ $15.8m / 5.1% of total¹
Land drilling Bentec
6
• Cost reduction initiatives have contributed to margin maintenance through the market downturn
Group performance
Houston
Baku
London Bad
Bentheim
Tyumen
Nizwa
Ben Rinnes jack-up rig
St.
Johns
Bergen
Dubai
Land Drilling Platform Services RDS offices MODUs Bentec Regional offices
KCAD operations are diversified across resilient Eastern Hemisphere markets
Aberdeen (HQ)
Map excludes work over land rigs, defined as being below 900HP.
Map shows position at 1 February 2016
PRESENCE IN KEY AREAS
North Sea
/Norway
28 Plat.
Europe &
Caspian
7 Rigs
Caspian
7 Plat.
Russia
16 Rigs
Middle
East
16 Rigs
Angola
3 Plat.
Africa
13 Rigs
Russia
Sakhalin
3 Plat.
Brunei
2 Rigs
128
57 52 42
17
0
30
60
90
120
150
Europe NorthAfrica
MiddleEast
North Sea Russia
Ye
ars
LTM Q4 2015 EBITDA split by region
7
Canada
1 Plat.
8
KCAD relevance Themes
Source: Marginal production costs: Knoema, Rig count: Baker Hughes
Focused on
production
drilling in
resilient markets
• KCAD operates in drilling
environments with lower lifting
costs
• Oil revenues are often critical to
government budgets in these
markets
• The Platforms business is
working on production platforms
where the majority of the capex
has already been invested (opex
focus)
Supporting data
Strong
international
land drilling
environment
• KCAD has no exposure to the US
land drilling market, where rig
count levels are much more
volatile and the market is
generally more commoditised
Operating in markets less impacted by the oil price reduction in 2015
9
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.
• KCAD has continued to achieve satisfactory safety results
• The group continues to perform ahead of industry peers in the International
Association of Drilling Contractors (IADC)
• Maintaining high safety and operational standards is a key priority for the business
Health, safety and environmental performance
KCAD TRIR at
end of 2015 was
0.451 injuries per
200,000 man
hours worked
IADC industry average
0.602 for 2015
10
Despite market environment, backlog remains strong
Backlog figures exclude revenue generated in the year to date.
$M
Total contract backlog as at 1 November 2015
Contract backlog by BU as at 1 November 2015
Total contract backlog as at 1 February 2016
Contract backlog by BU as at 1 February 2016
11
• Significant investment in the land rig fleet over
recent years
• All are high specification rigs built for the premium
land drilling market
• New build rig construction is initiated based on
signed long term contracts
• Land business utilisation held up well in 2015
• We saw good activity levels in Russia, Oman and
Algeria
• Nigeria and Europe were weaker areas where we
experienced softer utilisation than elsewhere in our
portfolio
• We are beginning to see some increased pressure
through 2016 in areas such as Russia
Rejuvenation of the land rig fleet
Well invested land fleet supporting utilisation
Historical and forecast utilisation
Land utilisation for 2016 and 2017 shows position at 1 March 2016.
12
Robust platform services contract backlog @ 1 February
Q4 2015 Q4 2014 Q4 2015 Q4 2014
YTD YTD Result Result
$m $m $m % $m $m $m %
Revenue 600.7 680.6 (79.9) -11.7% 157.7 167.6 (9.9) -5.9%
EBITDA
pre support allocation 172.6 161.8 10.8 6.7% 57.3 34.8 22.5 64.8%
Support cost allocation (8.4) (12.3) 3.9 -31.7% (1.9) (3.6) 1.6 -45.6%
EBITDA
post support allocation 164.2 149.5 14.7 9.8% 55.4 31.2 24.2 77.4%
margin 27.3% 22.0% 35.1% 18.6%
Variance Variance
13
• Lower revenue but higher EBITDA compared to Q4 2014, with higher revenues and
EBITDA than in Q3 2015
• Three new build rigs started up operations in Q4, two in Oman and one in Brunei
• We continue to experience difficult market conditions in Europe, Nigeria and Kurdistan due
to weaker utilisation
• Our operations in Russia, Algeria and Oman continued to see stable levels of utilisation
and EBITDA
• Overall our utilisation for the quarter was 76%, an increase of 3% on the prior quarter
which was 73%
• We have already seen increased pricing pressure and indications of reducing activity in
2016
Financial Performance to 31 December 2015
Land Drilling
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.
Bentec
14
• Revenues and EBITDA lower than Q4 2014 and the prior quarter
• Bentec activity gradually reduced during 2015 as order backlog was completed and
shipped to customers
• Lower levels of EBITDA from component sales in 2015 than 2014, although After Sales
results were in line with the prior year
• Market conditions are very difficult with a lack of opportunities and a lot of competition
Financial Performance to 31 December 2015
EBITDA is shown before and after allocation of central support costs (such as HR, Supply Chain and IT costs) to the operational
business segments. EBITDA is also shown before eliminations. 2014 and 2015 are presented on the same basis.
Q4 2015 Q4 2014 Q4 2015 Q4 2014
YTD YTD Result Result
$m $m $m % $m $m $m %
Revenue 235.4 293.1 (57.7) -19.7% 43.3 101.8 (58.5) -57.5%
EBITDA
pre support allocation 22.5 38.0 (15.4) -40.7% 2.7 16.7 (14.0) -83.9%
Support cost allocation (1.9) (2.7) 0.8 -30.0% (0.4) (0.6) 0.1 -22.3%
EBITDA
post support allocation 20.7 35.3 (14.6) -41.5% 2.3 16.2 (13.9) -86.0%
margin 8.8% 12.0% 5.2% 15.9%
Variance Variance
Platform Services
15
Financial Performance to 31 December 2015
• Revenues lower than both Q3 2015 and Q4 2014, with EBITDA lower than Q4 2014 but
slightly higher than Q3 2015
• Continued relatively strong performance despite challenging market conditions
• Some reduction in activity levels in certain markets such as the North Sea and Angola
• Additional cost pressures across all of our contracts
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.
Q4 2015 Q4 2014 Q4 2015 Q4 2014
YTD YTD Result Result
$m $m $m % $m $m $m %
Revenue 686.8 808.9 (122.1) -15.1% 159.6 211.3 (51.6) -24.4%
EBITDA
pre support allocation 95.4 106.8 (11.4) -10.6% 25.7 30.4 (4.7) -15.5%
Support cost allocation (5.9) (8.5) 2.5 -29.8% (1.4) (2.4) 1.0 -42.9%
EBITDA
post support allocation 89.5 98.3 (8.8) -9.0% 24.3 28.0 (3.7) -13.1%
margin 13.0% 12.2% 15.2% 13.2%
Variance Variance
RDS
16
Financial Performance to 31 December 2015
• Revenues and EBITDA lower than both Q4 2014 and the prior quarter
• Extremely difficult to secure new work particularly for new Greenfield projects, and we
have also experienced increased challenge on costs from our clients.
• We continue to aggressively manage our costs with significant reductions in headcount
both in terms of employees as well as contractors
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.
Q4 2015 Q4 2014 Q4 2015 Q4 2014
YTD YTD Result Result
$m $m $m % $m $m $m %
Revenue 168.1 317.9 (149.8) -47.1% 31.3 66.0 (34.7) -52.6%
EBITDA
pre support allocation 18.0 49.3 (31.3) -63.5% 0.1 6.9 (6.8) -98.8%
Support cost allocation (2.2) (3.0) 0.8 -27.2% (0.5) (0.9) 0.3 -37.8%
EBITDA
post support allocation 15.8 46.3 (30.5) -65.8% (0.5) 6.0 (6.5) -107.5%
margin 9.4% 14.6% -1.4% 9.2%
Variance Variance
MODUs
17
• Revenues and EBITDA lower than both Q4 2014 and the prior quarter
• At the end of 2015 our MODU business consisted solely of the Ben Rinnes jack up rig
after completing the sale of the Ben Loyal in the fourth quarter
• The Ben Rinnes operated under its contract offshore Angola throughout the fourth quarter
• Since the year end the rig has finished the contract and has been towed to a stacking
location in Gabon
• Due to collection delays we booked a bad debt provision against our MODU business unit
during the fourth quarter
Financial Performance to 31 December 2015
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.
Q4 2015 Q4 2014 Q4 2015 Q4 2014
YTD YTD Result Result
$m $m $m % $m $m $m %
Revenue 85.4 131.3 (45.9) -35.0% 18.2 26.4 (8.2) -31.1%
EBITDA
pre support allocation 23.6 28.9 (5.3) -18.3% (0.0) 9.3 (9.3) -100.3%
Support cost allocation (1.2) (2.1) 0.9 -42.1% (0.3) (0.5) 0.3 -48.2%
EBITDA
post support allocation 22.3 26.7 (4.4) -16.4% (0.3) 8.8 (9.1) -103.5%
margin 26.2% 20.3% -1.7% 33.2%
Variance Variance
Group Results Financial Performance to 31 December 2015
18
Revenue and EBITDA ($m) Q4
2015
$m
Q4
2014
$m
FY
2015
$m
FY
2014
$m
Revenue from business units 410.2 573.2 1,776.9 2,232.4
Eliminations (14.2) (37.0) (108.1) (121.5)
Total revenue 396.0 536.2 1,668.8 2,110.9
EBITDA from business units 81.2 90.1 312.5 356.2
Eliminations (0.1) (1.0) (1.5) (3.8)
Corporate costs/other (4.0) (5.6) (18.4) (21.8)
Exchange 2.0 (12.1) (2.8) (15.9)
Total EBITDA 79.1 71.4 289.8 314.7
Cash flow and working capital Financial Performance to 31 December 2015
19
Working Capital2
9
1Denotes the effect of foreign exchange rate changes on cash and bank overdrafts. 2Deltas denote current quarter working capital movement
Free Cash Flow
1
Impact of the $50m shareholder funding being used to purchase rigs
• Working capital impact has now fully unwound with the final $4m coming through in Q4 2015
• The permanent delta that will subsist is of course within capex
• Q4 capex cashflow of $25m would have otherwise been $29m
• Full year capex cashflow for 2015 (shown above as $128m) would have been $178 million, of this $119m was growth
capex spend
Q4 2015 Q4 2014 2015 2014
$'m $'m $'m $'m
Cash generated from operations 68.6 115.4 293.6 334.1
Tax paid (13.7) (15.8) (49.6) (55.4)
Cash flow from operating activities 54.9 99.6 244.0 278.7
Capital expenditure (24.9) (55.8) (128.0) (207.5)
Proceeds from sale of Fixed Assets 9.7 18.2 13.9 30.7
Interest received 5.8 2.3 19.5 2.8
Other (1.9) 0.9 0.0 0.0
Acquisition of non-controlling interests 0.0 0.0 (25.0) 0.0
Cash flow from investing activities (11.3) (34.4) (119.6) (174.0)
Interest paid (50.7) (47.3) (125.7) (108.6)
Foreign exchange (3.3) (0.3) (6.6) 0.1
Net Cash flow before debt
drawdown/(repayment)(10.4) 17.6 (7.9) (3.8)
Drawdown/(repayment) of debt and debt
issuance costs(1.9) 15.2 (22.2) 24.3
Net cash flow (12.3) 32.8 (30.1) 20.5
20
Capital structure Net leverage as at 31 December 2015
1 Based on Q4 2015 LTM EBITDA of $290 m. 2 Revolver is split $75/$175m non cash/cash, the amount shown represents the cash element. 3Facility and Recovery ratings shown as at 24 March 2016
Utilisation
31st December 2015 Coupon Maturity
Facility
Rating3
Recovery
Rating3 Net Leverage1
Revolver ($250m)2 54.4 L+400 May-19 Caa1/B 3/3 0.19x
Senior Secured Term Loan 369.4 L(100)+525 May-20 Caa1/B 3/3 1.27x
Total Bank Debt 423.8 1.46x
UK Finance Senior Secured Notes 375.0 7.250% May-21 Caa1/B 3/3 1.29x
Globe Luxembourg Senior Secured
Notes 500.0 9.625% May-18 Caa1/B 3/3 1.73x
Total Institutional Debt 1,298.8 4.48x
Finance lease & other debt 7.9 - Aug-18 - - 0.03x
Gross Debt 1,306.7 4.51x
Cash 52.5 0.18x
Net Debt 1,254.2 4.33x
Closing remarks
21
• Full year EBITDA of $290m delivered in challenging market conditions
• Additional $80m liquidity since year end through completion of Oman rig financing transaction
• Successful start up in Q4 of the final 3 rigs of our 8 new build rig programme
• Headwinds continue into 2016 driving further cost saving initiatives
• Backlog position of $6.3bn across a blue chip company base
22
Q & A [email protected]