Investor Presentation First Quarter 205 KCA Deutag is a leading international drilling and engineering company working onshore and offshore with a focus on safety, quality and operational performance www.kcadeutag.com
Disclaimer 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 forwardlooking 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.
Agenda Q Key Highlights 2 Business Update 3 Business Unit Financials 4 Group Results 5 Summary 2
Q 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 2 3 205 Group revenue and EBITDA of $466m (Q 204: $54m) and $76.m (Q 204: $80.8m) respectively Contract backlog of $7.9bn (at May 205) across a blue chip customer base Cost saving initiatives continue with 5% salary reduction implemented March 205 and all other areas progressing well 4 $50m rights issue proceeds received from our shareholders during Q 205 5 Successful period of new build rig start ups with the first 3 BP Khazzan rigs operational in Oman in Q and a further rig in Russia in April 205 3
Business update Integrated land drilling Offshore drilling services & design $5.5m / 43.6% of total¹ $4.0m /.8% of total¹ $97.6m / 28.% of total¹ $37.5m / 0.8% of total¹ Land drilling Bentec Bentec Platform services RDS 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 205 Strong H backlog continues from previous orders 3 new land rig orders, and one offshore drilling package provides a healthy H2 order book 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 4 LTM EBITDA, % split of total including MODUs, before corporate costs/ other of $38m. Note: MODUs LTM EBITDA $9.9m represented 5.7% of total EBITDA before corporate costs.
Cost saving initiatives continue. A drive to reduce staff costs and discretionary spending which has already led to significant savings a) 5% salary reduction implemented 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) 27 suppliers approached, negotiations closed with 75 b) Reduction in capex spending, with no new growth capex during 205 3. Significant senior management focus on working capital and the full delivery of the various cost reduction initiatives a) Bi-weekly 3 week cash forecasting process b) Monthly BU review meetings with KPI & forecasting updates 5
Khazzan: phase up and running 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 204 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 6
A diversified portfolio of assets PRESENCE IN KEY AREAS Years 50 20 90 60 30 0 27 Europe 56 5 North Africa Middle East 4 6 North Sea Russia Houston Ben Loyal jack-up rig LTM Q 205 EBITDA split by region St. Johns Aberdeen (HQ) London North Sea /Norway 27 Plat. Bergen Stavanger Europe & Caspian 7 Rigs Bad Bentheim Africa 4 Rigs Baku 7 Caspian Plat. Dubai Middle East 4 Rigs Nizwa Tyumen Russia 7 Rigs Myanmar Plat. Brunei Rig Russia Sakhalin 3 Plat. Angola 3 Plat. Ben Rinnes jack-up rig Regional offices Land Drilling Platform Services RDS offices MODUs Bentec 7 Map excludes work over land rigs, defined as being below 900HP.
Health, safety and environmental performance IADC industry average 0.75 2 for 204 KCAD TRIR at end of Q 205 was 0.3 injuries per 200,000 man hours worked Sustained progress made on improving TRIR performance, which is well below IADC industry average Achieved the best annual safety performance in company history 8 Total Recordable Incident Rate per 200,000 man hours. This is a rolling 2 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.
Despite market environment, backlog remains strong Total contract backlog as at February 205 Total contract backlog as at May 205 Contract backlog by BU as at February 205 Contract backlog by BU as at May 205 $M $M 9 NB: Backlog figures exclude revenue generated in the year to date.
Land Drilling Financial Performance to 3 March 205 Q 205 Q 204 Variance Q 205 Q 204 Variance Result Result YTD YTD $m $m $m % $m $m $m % Revenue 46.7 68.0 (2.3) -2.7% 46.7 68.0 (2.3) -2.7% EBITDA pre support allocation 40.4 38.5.9 5.0% 40.4 38.5.9 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. 6.0% 37.8 35.7 2. 6.0% margin 25.8% 2.3% 25.8% 2.3% Lower revenues compared to Q 204 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% 0 EBITDA is shown before and after allocation of central support costs (such as HR, Supply Chain and IT costs) to the operational business segments. 204 and 205 are presented on the same basis.
Bentec Financial Performance to 3 March 205 Q 205 Q 204 Variance Q 205 Q 204 Variance 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.3 0.8 0.5 NM.3 0.8 0.5 NM Support cost allocation (0.5) (0.7) 0.2-25.5% (0.5) (0.7) 0.2-25.5% EBITDA post support allocation 0.8 0. 0.7 NM 0.8 0. 0.7 NM margin 2.0% 0.5% 2.0% 0.5% Strong Q delivered as the 7-rig order for Enafor continues to make its way thorugh manufacturing. 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 Q 205 where more mature projects allow us to record strong results Pipeline looks sound for Bentec who received a number of new orders during Q for rigs and components albeit at lower margins EBITDA is shown before and after allocation of central support costs (such as HR, Supply Chain and IT costs) to the operational business segments. 204 and 205 are presented on the same basis. EBITDA is stated gross of eliminations of $.3m.
Platform Services Financial Performance to 3 March 205 Q 205 Q 204 Variance Q 205 Q 204 Variance Result Result YTD YTD $m $m $m % $m $m $m % Revenue 89.8 88.7. 0.6% 89.8 88.7. 0.6% EBITDA pre support allocation 24.5 25. (0.6) -2.4% 24.5 25. (0.6) -2.4% Support cost allocation (.8) (.9) 0. -5.8% (.8) (.9) 0. -5.8% EBITDA post support allocation 22.7 23.2 (0.5) -2.% 22.7 23.2 (0.5) -2.% margin 2.0% 2.3% 2.0% 2.3% 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 204 We continued work on the Hebron platform in Canada at similar levels to the prior quarter 2 EBITDA is shown before and after allocation of central support costs (such as HR, Supply Chain and IT costs) to the operational business segments. 204 and 205 are presented on the same basis.
RDS Financial Performance to 3 March 205 Q 205 Q 204 Variance Q 205 Q 204 Variance 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 7.7 (8.8) -49.7% 8.9 7.7 (8.8) -49.7% Support cost allocation (0.6) (0.7) 0. -8.9% (0.6) (0.7) 0. -8.9% EBITDA post support allocation 8.3 7.0 (8.7) -5.3% 8.3 7.0 (8.7) -5.3% margin 3.9% 7.7% 3.9% 7.7% 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 3 EBITDA is shown before and after allocation of central support costs (such as HR, Supply Chain and IT costs) to the operational business segments. 204 and 205 are presented on the same basis.
MODUs Financial Performance to 3 March 205 Q 205 Q 204 Variance Q 205 Q 204 Variance Result Result YTD YTD $m $m $m % $m $m $m % Revenue 2.2 40.7 (9.5) -47.9% 2.2 40.7 (9.5) -47.9% EBITDA pre support allocation 5.5 2.6 (7.) -56.% 5.5 2.6 (7.) -56.% Support cost allocation (0.4) (0.5) 0. -27.% (0.4) (0.5) 0. -27.% EBITDA post support allocation 5.2 2. (6.9) -57.4% 5.2 2. (6.9) -57.4% margin 24.3% 29.7% 24.3% 29.7% 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 Q 204 Excluding the self-erecting tender barges the comparable 204 Q figure for EBITDA before support cost allocation was $6.m The Ben Loyal suffered damage on February whilst jacking-up on location in the Gulf of Mexico. The rig had to return to port for repairs which are primarily covered by insurance (other than an excess) and following repair the rig went back on day rate in early April 4 EBITDA is shown before and after allocation of central support costs (such as HR, Supply Chain and IT costs) to the operational business segments. 204 and 205 are presented on the same basis.
Group Results Financial Performance to 3 March 205 Revenue and EBITDA ($m) Q 205 $m Q 204 $m 205 YTD $m 204 YTD $m Revenue from business units 507.7 520.2 507.7 520.2 Eliminations (4.5) (6.3) (4.5) (6.3) Total revenue 466.2 53.9 466.2 53.9 EBITDA from business units 84.8 88. 84.8 88. Eliminations (.3) (0.0) (.3) (0.0) Corporate costs/other (5.5) (6.2) (5.5) (6.2) Exchange (.9) (.) (.9) (.) Total EBITDA 76. 80.8 76. 80.8 5
Cash flow and working capital Financial Performance to 3 March 205 Free Cash Flow Working Capital 2 Q Q 205 204 205 204 YTD YTD $'m $'m $'m $'m Cash flow from operating activities 65.7 8.8 65.7 8.8 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 6.2.7 6.2.7 Acquisition of non-controlling interests (25.0) 0.0 (25.0) 0.0 Cash flow from investing activities (70.0) (7.5) (70.0) (7.5) Interest paid (2.9) (4.0) (2.9) (4.0) Foreign exchange 5.7 (.0) 5.7 (.0) Net Cash flow before debt drawdown/(repayment) (.5) 59.3 (.5) 59.3 Drawdown/(repayment) of debt and debt issuance costs (.9) (.7) (.9) (.7) Net cash flow (23.4) 57.6 (23.4) 57.6 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 Q 5 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 buyout of our former partners of our Omani business 9 9 6 Denotes the effect of foreign exchange rate changes on cash and bank overdrafts. 2 Deltas denote working capital movements YTD compared to the prior year.
Capital structure Net leverage as at 3 March 205 Amount Utilised Coupon Maturity Facility Rating Recovery Rating Net Leverage 2 Revolver ($250m) 3 33.4 L+400 May-9 B3/B 3/3 0.x Senior Secured Term Loan 372.2 L(00)+525 May-20 B3/B 3/3.20x Total Bank Debt 405.6.3x UK Finance Senior Secured Notes 375.0 7.250% May-2 B3/B 3/3.2x Globe Luxembourg Senior Secured Notes 500.0 9.625% May-8 B3/B 3/3.6x Total Institutional Debt,280.6 4.3x Finance lease & other debt 2.5 - Aug-8 - - 0.04x Gross Debt,293. 4.7x Cash 23.0 0.07x Net Debt 4,270. 4.0x 7 All facilities have ratings outlooks of positive / stable. 2 Based on Q 205 LTM EBITDA of $30m. 3 Revolver is split $75/$75m non cash/cash, the amount shown represents the cash element. 4 Net debt per the balance sheet is $,220.2. The difference to the above relates to capitalised arrangement fees of $49.9
Closing remarks Sound Q 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 205 Continued commitment to our cost saving initiatives Receipt of $50m of rights issue proceeds from our shareholders 8
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