Investor Presentation - KCA DEUTAG · Investor Presentation . Disclaimer. 1 . ... 2016 •...

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

Third 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 Q3 Key Highlights

2 Business Update

3 Business Unit Financials

4 Group Results

5 Summary

Agenda

Q3 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 YTD Group revenue and EBITDA of $1,272.8m (Q3 2014 YTD: $1,574.7m) and $210.8m (Q3 2014 YTD: $243.3m) respectively. Q3 2015 Group revenue of $398.5m (Q3 2014: $520.0m) and Q3 2015 EBITDA of $69.5m (Q3 2014: $73.5m) respectively

2 Contract backlog of $7.2bn (at 1 November 2015) across a blue chip customer base

3 Post quarter-end delivery of 2 new build rigs to customers in Oman and Brunei on schedule with 1 remaining to deliver in the fourth quarter

4 $129m of available liquidity at 30 September 2015 with additional $50m of committed funding from shareholders still available for draw down if required

5 Cost reduction programme continues to deliver an ongoing benefit to the bottom line with the business delivering improved margin year to date versus the prior year

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Business update

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Bentec Platform services RDS

1 LTM EBITDA, % split of total including MODUs, before corporate costs/ other of $36.8m. Note: MODUs LTM EBITDA $31.4m represented 9.8% of total EBITDA before corporate costs.

Integrated land drilling Offshore drilling services & design

• Our International operations continue to perform well despite market conditions

• Some weakness in the UK and Norway North Sea due to higher lifting costs

• Reduced capex spend by E&P companies continues to impact revenues

• Significant reductions in headcount implemented to counteract the reduced activity levels

• Completed delivery of 7 rig contract for customer in Algeria

• Reasonable utilisation expected through into 2016

• Tendering activity continuing to secure 2016 capacity

• Continue to see strong performance in core markets; Russia, Oman, and Algeria

• Activity levels remain weaker in Nigeria, Europe and Kurdistan where utilisation is very soft

$140.1m / 43.9% of total¹ $32.0m / 10.0% of total¹ $93.2m / 29.2% of total¹ $22.3m / 7.0% of total¹

Land drilling Bentec

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• Cost reduction initiatives have contributed to margin maintenance through the market downturn

Group margin evolution

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

KCAD operations are diversified across resilient Eastern Hemisphere markets

Aberdeen (HQ)

Map excludes work over land rigs, defined as being below 900HP.

PRESENCE IN KEY AREAS

North Sea /Norway 26 Plat.

Europe & Caspian 7 Rigs

7 Caspian Plat.

Russia 17 Rigs

Middle East

14 Rigs

Angola 3 Plat.

Africa 14 Rigs

Russia Sakhalin 3 Plat.

Brunei 1 Rig

Myanmar 1 Plat.

127

56 51 41 16

0306090

120150

Europe NorthAfrica

MiddleEast

North Sea Russia

Year

s

LTM Q3 2015 EBITDA split by region

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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

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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

• Maintaining good annual safety performance

Health, safety and environmental performance

KCAD TRIR at end of Q3 2015 was 0.341 injuries per 200,000 man hours worked

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Despite market environment, backlog remains strong

NB: Backlog figures exclude revenue generated in the year to date.

$M

Total contract backlog as at 1 August 2015

Contract backlog by BU as at 1 August 2015

Total contract backlog as at 1 November 2015

Contract backlog by BU as at 1 November 2015

Q3 2015 Q3 2014 Q3 2015 Q3 2014YTD YTD Result Result$m $m $m % $m $m $m %

Revenue 443.0 513.0 (70.0) -13.6% 138.8 156.1 (17.3) -11.1%EBITDApre support allocation 115.3 127.0 (11.7) -9.2% 38.3 40.1 (1.8) -4.5%Support cost allocation (6.4) (8.7) 2.3 -26.0% (1.9) (3.1) 1.2 -39.1%EBITDApost support allocation 108.8 118.3 (9.5) -8.0% 36.4 37.0 (0.6) -1.6%margin 24.6% 23.1% 26.2% 23.7%

Variance Variance

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• Lower revenues and EBITDA compared to Q3 2014, with lower revenues but higher EBITDA than in Q2 2015

• We continue to experience difficult market conditions in Europe, Nigeria and Kurdistan due to weaker utilisation

• Our operations in Russia, Algeria and Oman continue to enjoy high levels of utilisation and EBITDA

• Overall our utilisation for the quarter was 73%, in line with the prior quarter which was 74%

Financial Performance to 30 September 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.


Revenue 192.1 191.3 0.8 0.4% 51.6 101.3 (49.7) -49.1%EBITDApre support allocation 19.8 21.3 (1.4) -6.7% 3.9 13.5 (9.6) -71.4%Support cost allocation (1.5) (2.1) 0.7 -32.0% (0.5) (0.7) 0.2 -33.3%EBITDApost support allocation 18.4 19.1 (0.7) -3.9% 3.4 12.8 (9.4) -73.5%margin 9.6% 10.0% 6.6% 12.6%

Variance Variance

Bentec

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• Revenues and EBITDA lower than Q3 2014, with higher revenues but lower EBITDA compared to Q2 2015

• Bentec continues to focus on manufacturing rigs and components for customers in Russia and Azerbaijan with a good level of utilisation foreseen through into 2016

• Currently in final stages of completion of the last rig for KCAD in Oman

• Tendering activity ongoing to secure order backlog for the remainder of 2016

Financial Performance to 30 September 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. EBITDA is also shown before eliminations. 2014 and 2015 are presented on the same basis.



Variance Variance

Platform Services

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• Revenues lower than both Q2 2015 and Q3 2014, but EBITDA in line with Q3 2014 and higher than Q2 2015

• Continued relatively strong performance despite difficult market conditions

• Our Norway and UK businesses saw a small improvement on Q2 2015 due to improved profitability following cost reduction initiatives,

• Our International operations in Angola, Myanmar and Canada delivered a consistent performance quarter on quarter, whereas Azerbaijan saw slightly lower activity




Variance Variance

RDS

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• Continues to experience significantly reduced activity levels and extremely challenging market conditions, primarily due to a lack of opportunities for Greenfield projects

• We continue to reduce costs in this business in line with reduced activity levels, primarily through headcount reduction

• We continue to manage our costs to allow us to remain competitive


MODUs

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• Improved performance over Q2 2015 as a result of cost reduction measures on both rigs

• The self-erecting tender barges, which were sold in Q4 2014, contributed $2.8m of the EBITDA before support allocation during the first three quarters of 2014

• Our MODUs business consists of our two jack-up rigs; the Ben Loyal in the Gulf of Mexico and the Ben Rinnes operating offshore Angola. Both rigs were operating during Q3 2015




Revenue 67.2 104.9 (37.7) -35.9% 23.6 28.6 (5.0) -17.5%EBITDApre support allocation 23.6 19.6 4.1 20.8% 10.6 1.6 9.0 NMSupport cost allocation (1.0) (1.6) 0.6 -39.9% (0.3) (0.6) 0.3 -49.0%EBITDApost support allocation 22.6 18.0 4.7 26.2% 10.3 1.0 9.3 NMmargin 33.7% 17.1% 43.6% 3.6%

Variance Variance

Group Results Financial Performance to 30 September 2015

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Revenue and EBITDA ($m) Q3 2015 $m

Q3 2014 $m

2015 YTD $m

2014 YTD $m

Revenue from business units 416.9 560.0 1,366.7 1,659.3

Eliminations (18.4) (40.0) (93.9) (84.5)

Total revenue 398.5 520.0 1,272.8 1,574.8

EBITDA from business units 76.1 83.1 231.3 266.1

Eliminations (0.1) (1.5) (1.4) (2.6)

Corporate costs/other (4.4) (4.5) (14.3) (16.3)

Exchange (2.1) (3.6) (4.8) (3.8)

Total EBITDA 69.5 73.5 210.8 243.4

Cash flow and working capital Financial Performance to 30 September 2015

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Working Capital2

9

1Denotes the effect of foreign exchange rate changes on cash and bank overdrafts. 2Deltas denote current quarter working capital movement compared to the same period in the prior year

Free Cash Flow

1

Q3 2015 Q3 2014 2015 YTD 2014 YTD$'m $'m $'m $'m

Cash flow from operating activities 45.7 55.7 195.8 179.5

Capital expenditure (22.7) (68.2) (103.1) (151.7)Proceeds from sale of Fixed Assets 1.0 8.8 4.2 12.5Interest received 5.3 0.1 13.7 0.4Other 3.8 5.3 6.4 4.6Acquisition of non-controlling interests 0.0 0.0 (25.0) 0.0Cash flow from investing activities (12.6) (54.0) (103.8) (134.2)

Interest paid (12.6) (7.2) (75.0) (61.3)Foreign exchange 1.2 (8.4) (3.3) (14.3)Net Cash flow before debt drawdown/(repayment) 21.7 (13.9) 13.7 (30.3)

Drawdown/(repayment) of debt and debt issuance costs (14.9) 0.7 (31.5) (82.0)

Net cash flow 6.8 (13.2) (17.8) (112.3)

Impact of the $50m shareholder funding being used to purchase rigs • The 50 million dollars was booked as a cash in advance in Q1, with 27 million dollars unwinding prior to the start of Q3. A

further 19 million dollars unwound during Q3 giving $46m in total to date, leaving $4m left to unwind in Q4 • Normalising the above cashflows for this impact you would see the following:

• The Q3 working capital cash outflow of $12m would otherwise have been a $7m inflow • The YTD working capital inflow of $30m would otherwise have been an inflow of $26m • Q3 capex cashflow of $23m would otherwise have been $42m • YTD capex cashflow of $103m would have been $149m

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2014-2015 capex program is almost complete with all 8 new rigs on long term contracts

Rig Country Cost ($m)1 Contract length Status

Rig 1 Oman c.31 5yrs + 2x1yr options Operating



Rig 4 Russia c.30 3yrs + 3x1yr options Operating

Rig 5 Brunei c.37 3yrs + 3x1yr options Operating

Rig 6 Russia c.29 3yrs Operating


Rig 8 Oman c.31 5yrs + 2x1yr options In construction

New build land rigs schedule

New build land rig contracts

• All ongoing capex projects were initiated in 2014 and are supported by long term contracts

• Upfront contributions of $40m received from clients

• The 2015 growth capex plan is almost complete, with no new growth capex commitments currently proposed

• Maintenance capex spend for 2015 expected to be below average annual spend of $80m - $85m

Construction Operational

All new build capital expenditure is targeted at a minimum 18% IRR

• Total 2015 capex spend on ongoing new build construction projects c.$120m

• Remaining capex spend in 2015 c.$15m

• New build construction project spend c. $10m under budget for 2015

• All contracts remain in place without any re-negotiation of terms

PORig R'cd Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

1 20142 20143 20144 20145 20146 20147 20148 2014

20152014

1 Excludes cost of mobilisation given this is reimbursed by client

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Capital structure Net leverage as at 30 September 2015

1 Based on Q3 2015 LTM EBITDA of $282 m. 2 Revolver is split $75/$175m non cash/cash, the amount shown represents the cash element.

Utilisation 30th September

2015 Coupon Maturity Facility Rating Recovery

Rating Net Leverage1

Revolver ($250m)2 40.4 L+400 May-19 B3/B 3/3 0.14x Senior Secured Term Loan 370.3 L(100)+525 May-20 B3/B 3/3 1.31x Total Bank Debt 410.7 1.46x UK Finance Senior Secured Notes 375.0 7.250% May-21 B3/B 3/3 1.33x Globe Luxembourg Senior Secured Notes 500.0 9.625% May-18 B3/B 3/3 1.77x

Total Institutional Debt 1,285.7 4.56x Finance lease & other debt 9.7 - Aug-18 - - 0.03x Gross Debt 1,295.4 4.59x Cash 50.9 0.18x Net Debt 1,244.5 4.41x

Closing remarks

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• Stable Q3 performance in the current challenging market conditions

• $50m of committed funding from our shareholders still available for draw down if required

• Successful start up of 7 of the 8 new build rigs, with 1 more on track for delivery in 2015

• Cost initiatives continue to deliver bottom line savings

• Strong backlog position at $7.2bn across a blue chip company base

Investor Presentation - KCA DEUTAG · Investor Presentation . Disclaimer. 1 . ... 2016 •...

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