kca deutag q1 2014 investor presentation...first quarter 2014 investor presentation disclaimer 1 the...

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 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 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

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 offshore with a focus on safety, quality and operational performance

1Group revenue and EBITDA of $513.9m (Q1 2013: $474.7m) and $80.8m (Q1 2013: $56.2m) respectively

2Improved operational and financial performance from Land Drilling, RDS, Platforms and MODUs

3Successful refinancing has pushed our earliest significant maturities out to 2018

4Contract backlog of $8.5bn (as at 1 May 2014) across a blue chip customer base

5Net debt/LTM EBITDA leverage fell from 4.0x at Q4 2013 to 3.41x by Q1 2014

1Pro-forma Q1 2014. See slide 17 for full details.

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 operator 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 &

ManufactureOwn & OperateOwn & Operate ManageManage

• 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% ofplatforms 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.2 High-specification mechanical equipment turning the drill string.

Europe (inc North

Sea)23%

Russia20%

Africa14%

Caspian 13%

Middle East 11%

SE Asia10%

Other9%

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

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

Aberdeen (HQ)

51EBITDA excludes results from the Ben Avon jack-up which was disposed of in March 2013 and is stated before normalisation 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 /Norway25 Plat.

Europe & Caspian8 Rigs

Azerbaijan7 Plat.

Russia15 Rigs

Middle East

12 Rigs

Angola3 Plat.

Africa17 Rigs

Sakhalin3 Plat.

Brunei 1 Rig

Myanmar 1 Plat.

126

55 5040

15

0

30

60

90

120

150

Europe NorthAfrica

MiddleEast

North Sea Russia

Ye

ars

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

TR

IR p

er

200,0

00 m

an

ho

urs

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

1 Total 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. 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 natureDrilling 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

0

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

0

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

1As presented in Q4 2013 pack.

Mar to Dec 2014

Q1 2014

Q1 2013

Variance2014 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

1 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.

Q1 2014

Q1 2013

Variance2014 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)


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



Platform Services

11



Q1 2014

Q1 2013

Variance2014 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




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 of the Ringhorne platform

RDS

12

• []


• 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


Q1 2014

Q1 2013

Variance2014 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




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


1EBITDA 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.2Post reallocation of support costs.3Excluding the results of the barges and the Ben Avon, Q1 2014 EBITDA would be $5.6m and Q1 2013 would be $4.5m.

Q1 2014

Q1 2013

Variance2014 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



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 ResultsFinancial Performance to 31 March 2014

14

Revenue and EBITDA ($m) Q1 2014

Q1 2013

2014 YTD

2013YTD

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 CapitalFinancial 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)

-

10.0Q1 2014 Delta* Q1 2013 Delta*

Cash

Im

pact

of

Delt

a (

$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 0 40 0 40

Foreign exchange (1) 4 (1) 4

Net Cash flow before debt repayment

60 0 60 0

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 StructurePre 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 2014Actual

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

1Barges sale assumed in Q2 2014.2Ben Avon jackup disposed of in March 2013, therefore results have been excluded.3New land rigs in 2013 annualised. 4Exclusion of lease charge payable on 2 Algerian rigs which were moved into KCA Deutag financial group in January 2014.

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 2014Pro-forma

Net

deb

t an

d E

BIT

DA

($m

)

Net Debt

LTM EBITDA

Net debt/LTMEBITDA

-135

-67

500

500

2

2

24

24 180 530

375 375

-200 0 200 400 600 800 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

1Net debt portrayed as a positive figure to simplify illustration.2See preceding slide for full reconciliation to group results.

Net debt1

$1,169m

$1,139m

2

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 & [email protected]

kca deutag q1 2014 investor presentation...first quarter 2014 investor presentation disclaimer 1 the...

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