investor presentation - kca deutag · 2015-03-19 · q4 key highlights kca deutag is a leading...
TRANSCRIPT
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 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 Q4 Key Highlights
2 Business Update
3 Business Unit Financials
4 Group Results
5 Summary
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 2014 Group revenue of $2.1bn (2013: $2.1bn) and EBITDA of $314.7m
(2013: $301.2m) with growth from 3 of the 5 business segments
2 Q4 2014 Group revenue and EBITDA of $536.2m (Q4 2013: $596.6m) and
$71.4m (Q4 2013: $108.8m) respectively
3 Contract backlog of $8.1bn (as at 1 February 2015) across a blue chip
customer base
4 Cost savings and business efficiency measures implemented to offset
impact of difficult market conditions
5 Shareholders have committed to additional funding of up to $100m to
support growth capex with $50m being received in Q1, 2015
3
Market conditions - business update
4
Bentec Platform services RDS
1 Full year EBITDA, % split of total including MODUs, before corporate costs/ other of $38m.
Note: MODUs full year EBITDA $27m represented 8% of total EBITDA.
Integrated land drilling Offshore drilling services & design
• Working with clients to
provide operational
efficiencies
• Main volume impact is in
the UK North Sea (3
platforms moving to
stacking mode)
• Some projects ramping
up in activity
• Completion of major
projects had led to lower
activity since H2 2014
• Reduced capex spend by
oil majors has impacted
on activity
• Strong backlog in H1
2015 for external and
internal rigs and top
drives
• More difficult market for
Bentec to secure H2
backlog but some
success coming through
• Reasonably stable to
date
• Utilisation continues to be
softer in Nigeria and
Europe
• Russia remains strong
but Ruble devaluation
makes this challenging
• New builds coming online
throughout 2015
$150m / 42% of total¹ $32m / 9% of total¹ $98m / 28% of total¹ $46m / 13% of total¹
Land drilling Bentec
Responding to the challenging market environment
5
• Major cost saving initiative well underway
• 5% salary reduction implemented 1 March 2015, along side c.450
proposed redundancies worldwide
• All suppliers are being approached for discounts
• Business wide efficiency drive with location / BU specific cost
saving initiatives
• Maintaining high focus on working capital
• A reduction in our capital expenditure programme with no new
growth capex commitments expected during 2015
6
2015 committed and contracted growth capex
Rig Client Country Cost ($m)1 Contract length
Rig 1 BP Khazzan Oman c.31 5yrs + 2x1yr options
Rig 2 BP Khazzan Oman c.31 5yrs + 2x1yr options
Rig 3 BP Khazzan Oman c.31 5yrs + 2x1yr options
Rig 4 Lukoil Russia c.30 3yrs + 3x1yr options
Rig 5 Shell Brunei Brunei c.37 3yrs + 3x1yr options
Rig 6 Bashneft Russia c.29 3yrs
Rig 7 BP Khazzan Oman c.31 5yrs + 2x1yr options
Rig 8 BP Khazzan Oman c.31 5yrs + 2x1yr options
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
• Up front contributions of $40m received from clients
• Shareholders have committed to additional funding
of up to $100m to support the committed growth
capex with $50m being received in Q1, 2015
• No new growth capex commitments in 2015 currently
proposed
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.$130m
• EBITDA run rate attributable to all 8 new rigs c.$65-
75m per annum
• EBITDA contribution from those rigs that will start up
in 2015 is c.$45m
PO
Rig R'cd Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
1 2014
2 2014
3 2014
4 2014
5 2014
6 2014
7 2014
8 2014
20152014
1 Excludes cost of mobilisation given this is reimbursed by client
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
A diversified portfolio of assets
Aberdeen (HQ)
Map excludes work over land rigs, defined as being below 900HP.
PRESENCE IN KEY AREAS
North Sea
/Norway
27 Plat.
Europe &
Caspian
7 Rigs
7 Caspian
Plat.
Russia
16 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
0
30
60
90
120
150
Europe NorthAfrica
MiddleEast
North Sea Russia
Ye
ars
LTM Q4 2014 EBITDA split by region
7
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
TR
IR p
er
200,0
00 m
an
ho
urs
Total recordable incident rate improvement
TRIR
8
KCAD TRIR
at end of Q4
2014 was
0.351 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
9
Despite market environment, backlog remains strong
Total contract backlog as at 1 October 2014
Contract backlog by BU as at 1 October 2014
NB: Backlog figures exclude revenue generated in the year to date.
Total contract backlog as at 1 February 2015
Contract backlog by BU as at 1 February 2015
$483 $1,140 $724
$1,622
$3,969
$4 $121 $374
$4,377
$4,875
0
2,000
4,000
6,000
8,000
10,000
2014 2015 2016 2017+ Total
Contract Option
$1,261m $1,098m $5,998m $8,844m
$m
$487m
$1,137 $729 $1,650
$3,516
$45 $333
$4,232
$4,609
0
2,000
4,000
6,000
8,000
10,000
2014 2015 2016 2017+ Total
Contract Option
$m
$1,182m $1,062m $5,882m $8,125m
$2,030m
$144m
$5,636m
$90m
$224m
Land drilling
Bentec
Platforms
RDS
MODUs
$2,080m
$203m
$6,176m
$104m
$281m
Land drilling
Bentec
Platforms
RDS
MODUs
Q4
2014
Q41
2013 Variance
2014
YTD
20131
YTD Variance
$m $m $m % $m $m $m %
Revenue 167.6 185.7 (18.1) (9.8)% 680.6 684.8 (4.2) (0.6)%
EBITDA
pre support costs
allocation1
34.6 46.4 (11.8) (25.4)% 161.6 160.7 0.9 0.5%
Support costs allocation (3.4) (3.0) (0.4) 13.3% (12.1) (10.9) (1.2) 11.0%
EBITDA
post support costs
allocation1
31.2 43.4 (12.2) (28.0)% 149.5 149.8 (0.3) (0.2)%
Margin % 18.6% 23.3% 22.0% 21.9%
10
• Revenue and EBITDA for Q4, 2014 decreased on Q4, 2013 principally because of bad
debt provisions booked against certain receivables in Nigeria and Russia
• Activity and EBITDA in Q4, 2014 was also down on Q4, 2013 due to lower utilisation in
Nigeria and Europe plus contract start up activities in Algeria
• Russia remains strong with high utilisation levels and the new Lukoil rig, which spudded in
October, now fully operational
• The Middle East remains a good market with a year on year EBITDA increase, and we
expect this to continue with the new BP Khazzan rigs coming on line in 2015 and beyond
• Utilisation softened slightly in the quarter to 72%, down from 74% in the prior quarter
primarily due to Nigeria and Europe
Financial Performance to 31 December 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.
Q4
2014
Q41
2013 Variance
2014
YTD
20131
YTD Variance
$m $m $m % $m $m $m %
Revenue 101.8 57.8 44.0 76.1% 293.1 225.8 67.3 29.8%
EBITDA
pre support costs allocation1 16.8 11.3 5.5 48.9% 35.4 28.9 6.5 22.5%
Support costs allocation (1.7) (0.6) (1.1) NM (3.8) (2.8) (1.0) 35.7%
EBITDA
post support costs
allocation1
15.1 10.7 4.4 41.6% 31.6 26.0 5.5 21.3%
Margin % 14.8% 18.5% 10.8% 11.5%
Bentec
11
• Bentec delivered a very strong fourth quarter with 76% revenue growth from Q3, 2014
• 2 of the 7 rigs for Enafor Algeria were delivered in 2014, with the balance to be delivered in
the first half of 2015. Together with the rigs being constructed for the Land Drilling
business this provides a healthy backlog for Bentec into Q3
• Orders for 28 top drives obtained during 2014
• During the fourth quarter $3.2m of equity earnings from IDTEC, Bentec’s joint venture in
Oman, were included. This was significantly higher than in the prior year due to the higher
Oman workload from the Khazzan project and third party activity
Financial Performance to 31 December 2014
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 of
same basis. EBITDA shown is net of elimination of internal EBITDA on consolidation.
Platform Services
12
Financial Performance to 31 December 2014
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.
Q4
2014
Q41
2013 Variance
2014
YTD
20131
YTD Variance
$m $m $m % $m $m $m %
Revenue 211.3 216.5 (5.2) (2.4)% 808.9 755.6 53.3 7.1%
EBITDA pre support costs allocation1
30.1 34.5 (4.4) (12.8)% 106.6 96.5 10.1 10.5%
Support costs allocation (2.1) (2.2) 0.1 (4.5)% (8.2) (7.7) (0.5) 6.5%
EBITDA post support costs allocation1
28.0 32.3 (4.3) (13.4)% 98.4 88.5 9.6 10.9%
Margin % 13.3% 14.9% 12.2% 11.7%
• Our Platforms business continued to deliver strong earnings in Q4, 2014 with only a slight
reduction of 2% from the same period in the prior year
• This year on year quarterly reduction is due mainly to the release of a contractual related
provision in Azerbaijan in Q4, 2013 and lower Norway activity in Q4, 2014
• Full year EBITDA is up 11% on 2013, reflecting the award of previously announced
contracts in Angola, the Far East and Canada, as well as continued good execution of
existing contracts and delivery of service to our customers
RDS
13
• []
Financial Performance to 31 December 2014
• Our RDS business unit had lower revenues and EBITDA than both Q3, 2014 and Q4, 2013
largely as a result of lower activity on greenfield projects
• This drives a reduction in full year EBITDA of 13%, post allocation of support costs
• The Hebron project in Canada has now moved into the pre operational phase with our
Platform Services business, which drove lower activity for RDS
• A revised pricing strategy was agreed on another greenfield project to secure long term
work but with the effect of reducing EBITDA in the quarter
• Brownfield project activity remained relatively stable with a small increase in Norway
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.
Q4
2014
Q41
2013 Variance
2014
YTD
20131
YTD Variance
$m $m $m % $m $m $m %
Revenue 66.0 100.3 (34.3) (34.2)% 317.9 359.4 (41.5) (11.5)%
EBITDA pre support costs allocation1
7.0 17.1 (10.1) (59.1)% 49.4 56.0 (6.7) (11.9)%
Support costs allocation (1.0) (0.7) (0.3) 42.8% (3.1) (2.8) (0.3) 10.7%
EBITDA post support costs allocation1
6.0 16.4 (10.4) (63.3)% 46.2 53.2 (7.0) (13.1)%
Margin % 9.1% 16.3% 14.5% 14.8%
MODUs
14
• EBITDA improved from $10.4m in 2013 to $26.8m in 2014 reflecting strong operating
performance from our 2 jack-up rigs during 2014, together with improved performance
from the drilling barges in 2014 compared to the prior year
• The sale of the three tender barges was completed within the year with the Glen Esk
completed in August and the Glen Tanar and Glen Affric in October
• Both the remaining jack ups were on contract throughout Q4 2014 and achieved EBITDA2
of c.$8m
Financial Performance to 31 December 2014
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. 2Pre reallocation of support costs.
Q4
2014
Q41
2013 Variance
2014
YTD
2013
YTD Variance
$m $m $m % $m $m $m %
Revenue 26.4 41.6 (15.2) (36.5)% 131.3 156.7 (25.4) (16.2)%
EBITDA pre support costs allocation1
9.4 10.9 (1.5) (13.7)% 29.0 12.5 16.5 N/M
Support costs allocation (0.6) (0.6) (0.0) (0.0)% (2.2) (2.1) (0.1) 4.8%
EBITDA post support costs allocation1
8.8 10.3 (1.5) (14.4)% 26.8 10.4 16.4 N\M
Margin % 33.3% 24.7% 20.4% 6.6%
Group Results Financial Performance to 31 December 2014
15
Revenue and EBITDA ($m) Q4
2014
Q4
2013
2014
YTD
2013
YTD
Revenue from business units 573 602 2,232 2,183
Eliminations (37) (5) (121) (27)
Total revenue 536 597 2,111 2,156
EBITDA from business units 89 113 353 328
Corporate costs/other (6) (5) (22) (25)
Exchange gain / (loss) (12) 1 (16) (2)
Total EBITDA 71 109 315 301
Cash flow and working capital Financial Performance to 31 December 2014
16
Working Capital2
9
1Denotes the effect of foreign exchange rate changes on cash and bank overdrafts. 2Deltas denote working capital movements for full year 2013 and 2014 respectively.
Free Cash Flow
9
• Cash flow from operating activities was strengthened due to
improvements in working capital partially offset by higher cash taxes
• Capital expenditure was slightly increased on Q2 2014 as the Group
continues to invest in the land drilling fleet once secure contracts have
been won
Strong cash flows with improved year on year operating cash flows:
• Significant improvement in working capital position driven largely by
improved position on receivables
• Significant revenue growth 2013 vs 2012 with higher DSO drove
an increase in receivables in 2013
• 2014 year on year revenue is relatively flat with lower activity in
Q4, 2014 resulting in lower year end receivables than prior year
• Cash flow benefits of increased payables associated with advance
payments from customers principally for new rigs, together with
management of vendor payments
• Small increase in stock due to Bentec work in progress increases, inventory
for new land rigs partially offset by disposal of barges
Q4
2014
Q4
2013
2014
YTD
2013
YTD
Cash flow from operating activities 107.4 145.3 286.9 134.3
Capital expenditure (53.4) (26.5) (201.8) (127.1)
Proceeds from sale of Fixed Assets 18.2 (1.1) 30.7 53.0
Net interest (45.0) (41.6) (105.8) (93.1)
Other 6.6 (3.2) 7.9 (4.4)
Cash flow from investing activities (73.6) (72.4) (269.0) (171.6)
Equity injection 0.0 0.0 0.0 59.0
Foreign exchange1 14.4 5.6 0.1 3.6
Net Cash flow before debt
drawdown/(repayment)
48.2 78.5 18.0 25.3
Drawdown/(repayment) of debt and
debt issuance costs
(15.4) (13.8) 2.5 5.5
Net cash flow 32.8 64.7 20.5 30.8
61
(107) (120)
(100)
(80)
(60)
(40)
(20)
0
20
40
60
80
2014 Delta 2013 delta
Cash
im
pa
ct
of
de
lta (
$m
)
17
Capital structure Net leverage as at 31 December 2014
Amount
Utilised
Coupon Maturity Facility
Rating1
Recovery
Rating
Net Leverage2
Revolver ($250m)3 49.2 L+400 May-19 B3/B 3/3 0.16x
Senior Secured Term Loan 373.2 L(100)+525 May-20 B3/B 3/3 1.19x
Total Bank Debt 422.4 1.34x
UK Finance Senior Secured Notes 375.0 7.250% May-21 B3/B 3/3 1.19x
Globe Luxembourg Senior Secured Notes 500.0 9.625% May-18 B3/B 3/3 1.59x
Total Institutional Debt 875.0 2.78x
Finance lease & other debt 13.9 - Aug-18 - - 0.04x
Gross Debt 1,311.3 4.17x
Cash 62.4 0.20x
Net Debt 1,248.9 3.97x
1All facilities have ratings outlooks of positive / stable. 2Based on Q4 2014 LTM EBITDA of $315m; all LTM EBITDA figures exclude profits/losses from the Ben Avon, which was sold. 3Revolver is split $75/$175m non cash/cash, the amount shown represents the cash element.
326 351 353 315
1,169 1,265 1,273 1,249
3.59x 3.61x 3.61x 3.97x
0.00x
0.50x
1.00x
1.50x
2.00x
2.50x
3.00x
3.50x
4.00x
4.50x
5.00x
0
200
400
600
800
1,000
1,200
1,400
Q1 2014 Q2 2014 Q3 2014 Q4 2014
Net
de
bt/
LT
M E
BIT
DA
Net
de
bt
& L
TM
EB
ITD
A $
m
LTM EBITDA Net debt Net debt/EBITDA
Closing remarks
18
• Despite challenging market conditions in Q4 delivered full year on year EBITDA growth for 2014
• Continued delivery of important contract wins
• Backlog at February 2015 of $8.1bn continues to underpin future earnings despite difficult market
conditions
• Actions continue to optimise the group portfolio and increase business efficiency, with further
savings already being realised
• Underpinned by a stable and experienced management team focused on further delivery of
results
• Continued shareholder support for growth capex with committed additional funding of up to
$100m, $50m being received in Q1, 2015
19
Q & A [email protected]