C.A.T. Oil Continues Its Growth Path in Q1 2014 Despite Challenging Environment

C.A.T. oil AG (O2C, ISIN: AT0000A00Y78), one of the leading providers of oil and gas field services in Russia and Kazakhstan, continued its growth path and accelerated its operating performance in the first quarter of the year. Despite reporting 2.5 times higher weather-related downtime days yoy, the Company increased its total service job count as well as its drilling and sidetracking footage by 4.3% and 17.9% yoy, respectively. The Russian rouble, which the prevailing majority of C.A.T. oil’s service contracts are denominated in, was persistently weak during the first three months of the year and as such had an impact on the financial results of the Company. Despite an 18.9% yoy rouble devaluation relative to the euro, the first quarter revenues of C.A.T. oil contracted by only 8.3% yoy to EUR 90.7 million (Q1 2013: EUR 98.9 million). Revenues in the first quarter were bolstered by solid customer demand and high operating activity levels. Although the EBITDA fell 13.1% yoy to EUR 20.9 million (Q1 2013: EUR 24.0 million), the EBITDA margin of 23.0%, down by only 1.3 percentage points yoy, once again demonstrated the Company’s ability to operate on a highly profitable basis. As such, C.A.T. oil confirms that the implementation of its 2014-16 investment program of EUR 390 million is fully on track. The Company reiterates its positive outlook for FY2014.

Manfred Kastner, CEO of C.A.T. oil, commented: "The first quarter 2014 marked a challenging, but successful start into the year for us. With our clear goal in mind to achieve sustainable growth and value generation, our view of 2014 remains unchanged. We continue to deliver state-of-the-art services and strive to be a partner of choice for our customers in our markets. Our 2014-16 expansion program to further accommodate our customers growing demand for more advanced services is well underway. We thus confidently reiterate our guidance for 2014 and continue to expect revenues in the range of EUR 420 to 450 million and an EBITDA of EUR 113 to 121 million (based on the average rouble-to-euro exchange rate of 48).”

Top-line development reflects the Russian rouble devaluation

In the first quarter 2014, C.A.T. oil faced two key challenges: Extremely low temperature in Western Siberia during the months of January and February, resulting in an abnormally high number of downtime days, as well as a steep rouble devaluation which negatively impacted the Company’s financial results. The Company’s consolidated revenues contracted 8.3% yoy to EUR 90.7 million (Q1 2013: EUR 98.9 million). In rouble terms, however, C.A.T. oil increased its revenues by 9.4% yoy. Despite the challenging environment, C.A.T. oil continued its growth path and materially elevated its operating activity levels across all reportable segments. The total job count accelerated 4.3% yoy to 909 jobs (Q1 2013: 872 jobs), whereas the average per job revenue declined 12.0% yoy to TEUR 100 (Q1 2013: TEUR 113) in the aftermath of the rouble devaluation.

The Company’s Well Services segment’s revenues decreased by 14.0% yoy to EUR 47.0 million (Q1 2013: EUR 54.7 million). The segment’s job count staged an upturn of 4.0% yoy to 856 jobs (Q1 2013: 823 jobs) driven by an increasing demand for multi-stage fracking services. The average per job revenue was down by 17.3% yoy to TEUR 55 (Q1 2013: TEUR 67) mainly owing to the negative foreign exchange effect.

Drilling, Sidetracking and IPM segment reported a decline in revenues of 2.9% yoy to EUR 42.9 million (Q1 2013: EUR 44.2 million), reflecting, on the one hand, a 17.9% yoy gain in the total drilling and sidetracking footage to 70 thousand meters (Q1 2013: 59 thousand meters) and, on the other hand, the devaluation effect. The segment’s job count was up 9.0% yoy to 53 wells and sidetracks (Q1 2013: 49 wells and sidetracks), whereas the share of horizontal wells and sidetracks surged to 57% of the Company’s overall drilling and sidetracking mix (Q1 2013: 40%).

Tight cost control and high profitability

While dynamically growing its operating activity levels, C.A.T. oil successfully managed its operating cost base. In the first three months of the year, the Company’s cost of sales went down 6.1% yoy to EUR 76.2 million (Q1 2013: EUR 81.1 million). Given a 30% expansion in C.A.T. oil’s sidetracking capacity in 2013 along with the new staff additions, the Company’s total weighted average headcount rose by 9.3% yoy to 2,837 employees (Q1 2013: 2,595 employees). With more than 90% of the Company’s operating costs in roubles, the effect of the rouble devaluation on the Company’s margins was minimal. However, the steep rise in weather-related downtime days put a strain on the margins. C.A.T. oil’s earnings before interest, tax, depreciation and amortization (EBITDA) diminished 13.1% yoy to EUR 20.9 million (Q1 2013: EUR 24.0 million). Nonetheless, the EBITDA margin stayed at a high level of 23.0% (Q1 2013: 24.3%). The Company’s earnings before interest and tax (EBIT) decreased 16.1% to EUR 9.7 million (Q1 2013: EUR 11.5 million), resulting in the EBIT margin of 10.7% (Q1 2013: 11.7%).

An impressive 32.1% yoy upturn in net income

The Company’s net financial result improved to EUR 0.1 million from EUR -1.6 million in Q1 2013, mainly due to the combined effect of foreign currency gains of TEUR 4 (Q1 2013: losses of EUR 1.0 million) and net interest income of EUR 0.1 million (Q1 2013: expenses of EUR 0.5 million). Based on the positive net financial result and a significant contraction in income tax expenses, the Group’s net income surged 32.1% yoy to EUR 9.5 million in Q1 2014 (Q1 2013: EUR 7.2 million).

Solid financial foundation with headroom for further growth

Despite a steep yoy rouble devaluation, the Company’s cash flow from operating activities was down only 6.1% yoy to EUR 5.7 million in Q1 2014 (Q1 2013: EUR 6.1 million). Driven by successful execution of the Company’s 2014-16 investment program, capital expenditures surged 18.9% yoy to EUR 17.5 million (Q1 2013: EUR 14.7 million). Cash flow from investing activities was a net outflow of EUR 17.3 million (Q1 2013: net outflow of EUR 14.0 million) and cash flow from financing activities was a net inflow EUR 4.0 million (Q1 2013: net inflow of EUR 3.7 million).

As of 31 March 2014, C.A.T. oil’s cash and cash equivalents stood at EUR 31.9 million, down 25.1% from EUR 42.6 million as of 31 December 2013. The Company had net cash of EUR 10.3 million as of 31 March 2014 compared to net cash of EUR 24.6 million as of 31 December 2013. The Company’s equity ratio remained solid and amounted to 70.1% as of 31 March 2014 (31 December 2014: 71.4%).

Investment program 2014-16 fully intact

In November 2013, C.A.T. oil announced its 2014-16 capital expenditure plans of EUR 390 million. This investment program stays fully intact. The Company will invest EUR 135 million in 2014 aiming at expansion of the operating capacities by 67% for drilling, 18% for sidetracking and 7% for fracking in the second half of the year. Execution of the program and manufacturing of the ordered new capacities are on schedule.

Supportive market environment

The Russian oilfield services market remains supportive to the Company’s expansionary plans as customers’ demand for more complex and technologically intense services accelerates. State-of-the-art horizontal drilling and multi-stage fracking are amongst C.A.T. oil’s important selling propositions. Shift in customers’ preferences towards these services is perfectly mirrored by the Company’s steeply growing share of horizontal jobs in the total drilling and sidetracking footage and multi-stage fracks in the total fracking job count. This development demonstrates C.A.T. oil’s advantageous position in the market.

Outlook reiterated for FY2014

Since the publication of the FY2013 results on 23 April 2014, the Company has been awarded additional service orders worth EUR 8 million for 2014 and EUR 18 million for 2015 (based on the average rouble-to-euro exchange rate of 48). This, once again, shows the customers’ trust and confidence in C.A.T. oil. As a results, the Company’s 2014-16 total order book stands at EUR 780 million as of 27 May 2014 (28 May 2013: EUR 538 million for 2013-15). Thereof, the 2014 order book amounts to EUR 423 million (28 May 2013: EUR 400 million).

Based upon encouraging industry trends and a supportive operating environment as well as the record order book the Company reiterates its guidance: In Fiscal Year 2014 C.A.T. oil continues to expect revenues in the range of EUR 420 to 450 million and EBITDA of EUR 113 to 121 million (based on the average rouble-to-euro exchange rate of 48).

www.catoilag.com

¹ As of 31 March 2014 and 31 December 2013 respectively