C.A.T. oil Successfully Boosts Earnings and Profitability in Q2 2014

C.A.T. oil AG (O2C, ISIN: AT0000A00Y78), one of the leading providers of oil and gas field services in Russia and Kazakhstan, significantly boosted its earnings and profitability in the second quarter of the year. Despite the increased political uncertainties, C.A.T. oil experienced a very strong upturn in customers’ demand for its services and further increased operating activity levels in Western Siberia and Kazakhstan.

Manfred Kastner, CEO of C.A.T. oil, commented: “Although the political environment deteriorated, we fully concentrated on our operations in the second quarter. After challenges arising from abnormally cold weather in the first quarter, our operations picked up considerably in the second quarter both seasonally and compared to the same period of the previous year. Although we expect macroeconomic and political environment to remain volatile, we are confident in C.A.T. oil’s performance going forward. We have not been active in business activities restricted by the EU and the US sanctions for Russian oil industry and have no plans to change our business model. We remain fully committed to our operations and customers and will further grow our business in the second half of this year. We reiterate our 2014 guidance and remain adhered to our expansion plans.”

Double digit revenue growth in local currency

The Russian rouble, which the prevailing majority of C.A.T. oil’s service contracts are denominated in, devaluated by almost 18% yoy against the Euro in the first half of the year. In Q2 2014, the total service job count increased by 15.5% yoy to 1,148 jobs (Q2 2013: 994 jobs) but the average per job revenue declined 12.5% yoy to TEUR 98 (Q2 2013: TEUR 112) due to the lower value of the rouble. Despite significantly higher operating activity levels, the Company’s revenues thus edged up only 1.0% yoy to EUR 112.4 million in Q2 (Q2 2013: EUR 111.2 million) and were down 3.3% yoy to EUR 203.1 million in H1 2014 (H1 2013: EUR 210.1 million). In local currency, however, the revenues improved by 19% in Q2 and 14% in H1 2014.

Operating activities up across all segments

Well Services’ revenues stayed effectively flat yoy at EUR 58.3 million in Q2 2014 (Q2 2013: EUR 58.5 million). Driven by a strong expansion of the fracturing operations, the segment’s job count rose by 15.7% yoy to 1,077 jobs (Q2 2013: 931 jobs). The average per job revenue diminished 13.9% yoy to TEUR 54 (Q2 2013: TEUR 63), reflecting the rouble devaluation. The share of multi-stage fracturing jobs in the total fracturing job count rose to 24% in Q2 2014 (Q2 2013: 17%).

Drilling, Sidetracking and IPM’s revenues increased by 3.3% to EUR 53.5 million in Q2 2014 (Q2 2013: EUR 51.8 million). Thereby, the higher operating activity levels contributed to compensate negative currency effects. The segment reported a 12.3% yoy gain in the job count to 71 wells and sidetracks (Q2 2013: 63 jobs) and a significant expansion in the total drilling and sidetracking footage by 46.7% to 109.1 thousand meters (Q2 2013: 74.4 thousand meters).

High profitability with the EBITDA margin of 30.3%

C.A.T. oil significantly strengthened its earnings power and profitability due to the higher capacity utilization and efficiency gains, on the one hand, and the lower cost base, on the other hand. Cost of sales decreased by 5.4% yoy to EUR 84.7 million in Q2 (Q2 2013: EUR 89.5 million) and 5.7% yoy to EUR 160.9 million in H1 2014 (H1 2013: EUR 170.7 million).

Earnings before interest, tax, depreciation and amortization (EBITDA) elevated by 18.8% yoy to EUR 34.1 million in Q2 2014 (Q2 2013: EUR 28.7 million), with the EBITDA margin expanding to 30.3% (Q2 2013: 25.8%). In H1 2014, EBITDA rose by 4.3% yoy to EUR 54.9 million (H1 2013: EUR 52.7 million) and the EBITDA margin widened to 27.0% compared to 25.1% a year ago.

Earnings before interest and tax (EBIT) grew even stronger, by 44.1% yoy to EUR 22.6 million in Q2 2014 (Q2 2013: EUR 15.7 million) and the EBIT margin broadened to 20.1% (Q2 2013: 14.1%). In H1 2014, EBIT staged an 18.6% yoy increase to EUR 32.3 million (H1 2013: EUR 27.2 million), bringing the EBIT margin to 15.9% (H1 2013: 13.0%).

As of 30 June 2014, C.A.T. oil employed 2,873 (H1 2013: 2,641) people. The increase in the headcount by 8.8% yoy reflected new hires in the Drilling, Sidetracking and IPM segment.

Significantly increased net income

The Group’s net income advanced by 12.5% yoy to EUR 15.8 million in Q2 (Q2 2013: EUR 14.0 million) and 19.1% yoy to EUR 25.3 million in H1 2014 (H1 2013: EUR 21.2 million).

Robust balance sheet

Funds from operations grew by 39.3% yoy to EUR 30.9 million in Q2 2014 (Q2 2013: EUR 22.2 million) and 11.3% yoy to EUR 48.8 million in H1 2014 (H1 2013: EUR 43.8 million) due to the higher profit before tax and the lower negative effects of other non-cash positions compared to the respective reporting periods in 2013. Cash flow from operating activities diminished by 50.0% yoy to EUR 20.8 million in the second quarter (Q2 2013: EUR 41.5 million) and 44.4% yoy to EUR 26.4 million in the first half of the year (H1 2013: EUR 47.6 million), reflecting a higher level of net working capital. Scheduled payments for the ordered operating capacities led to an increase in capital expenditures by 49.7% yoy to EUR 24.6 million in Q2 2014 (Q2 2013: EUR 16.4 million) and 35.1% yoy to EUR 42.1 million in H1 2014 (H1 2013: EUR 31.1 million). Cash flow from investing activities represented a net outflow of EUR 24.3 million in Q2 2014 (Q2 2013: EUR 15.1 million) and EUR 41.7 million in H1 2014 (H1 2013: EUR 29.1 million). Cash flow from financing activities was a net inflow of EUR 10.3 million (Q2 2013: net outflow of EUR 10.4 million) and EUR 14.3 million in H1 2014 (H1 2013: net outflow of EUR 6.8 million).

As of 30 June 2014, cash and cash equivalents were down 4.7% to EUR 40.6 million from EUR 42.6 million as of 31 December 2013. C.A.T. oil maintained a solid balance sheet with an equity ratio of 61.7% as of 30 June 2014 (31 December 2013: 71.4%).

Adherence to the 2014-16 investment program despite increased political uncertainties

In early August, C.A.T. oil assessed the EU and USA sanctions imposed on the Russian oil industry. Based on the initial assessments, C.A.T. oil concludes that the export controls neither jeopardize its business model nor impact its expansion plans. Therefore, C.A.T. oil remains adhered to execution of its 2014-16 investment program of EUR 390 million in a timely and disciplined manner. For the current year, C.A.T. oil budgeted EUR 135 million in growth and maintenance capital expenditures. As the manufacturing schedules for the ordered equipment remain unchanged, C.A.T. oil continues anticipating the new operating capacities to be delivered to Russia before the yearend.

Management reiterates the outlook as market fundamentals stay solid

Despite the challenging geopolitical environment, C.A.T. oil sees high activity levels among its customers with the ongoing strong demand for complex and technologically sophisticated services. C.A.T. oil has been able to win additional tenders, bringing the 2014-16 total order book to EUR 785 million as of 28 August 2014 (27 May 2014: EUR 780 million).

Based on the solid operating and financial performance during the first six months of 2014, C.A.T. oil has confidently entered the second half of the year. The Company management believes that strong fundamentals of the Russian OFS market should enable C.A.T. oil to further expand its business going forward. C.A.T. oil reiterates its guidance for 2014 and continues projecting revenues of EUR 420 million to EUR 450 million and EBITDA of EUR 113 million to EUR 121 million (based on the average rouble-to-euro exchange rate of 48).

www.catoilag.com

1 As of 30 June 2014 and 31 December 2013 respectively