KCA DEUTAG GmbH

KCA Deutag GmbH

Bad Bentheim

Befreiender Konzernabschluss zum Geschäftsjahr vom 01.01.2023 bis zum 31.12.2023

KCA Deutag International Limited

Aberdeen/Vereinigtes Königreich

Annual Report and Financial Statements for the year ended 31 December 2023

Registered Number: 132385

Contents

Chairman's Statement

Strategic Report

Corporate Governance Report

Financial Review

Corporate Information

Directors' report for the year ended 31 December 2023

Independent auditors' report to the members of KCA Deutag International Limited

Consolidated Income Statement for the year ended 31 December 2023

Consolidated Statement of Comprehensive Income for the year ended 31 December 2023

Balance Sheets as at 31 December 2023

Consolidated Statement of Changes in Shareholders' Equity for the year ended 31 December 2023

Company Statement of Changes in Shareholders' Equity for the year ended 31 December 2023

Cash Flow Statements for the year ended 31 December 2023

Notes to the consolidated financial statements for the year ended 31 December 2023

Chairman's Statement

I am pleased to present my Chairman's Statement for the year ended 31 December 2023. While we continued to see an improvement in trading conditions during the year, the general macroeconomic environment remains volatile due to inflationary pressures, the continuing war in Ukraine and the conflict in Israel and Gaza which has triggered increased unrest in other parts of the region. Set against this challenging backdrop the Group has been undergoing a substantial strategic transformation with the acquisition of the Saipem Onshore Drilling business which has significantly strengthened our position across the Middle East and expanded our operations to Latin America.

A full year contribution from the first phase of the acquisition, completed in the fourth quarter of 2022, and the successful completion of the second and third phases in February and May 2023 has significantly contributed to the Group's trading performance, continuing on a positive trend year on year. Integration of the Saipem Onshore Drilling business has progressed well and will continue in 2024, as we maintain focus on delivering a seamless transition to our customers and generating the targeted synergies. We have already exceeded our original synergy target and continue to identify and capture additional opportunities thanks to the efforts of the combined organisation as we #becomeoneteam. The remaining 6 rigs in Argentina, Kazakhstan and Romania will all transfer together in one final closing process. This is subject to regulatory approvals and the finalisation of other local administrative processes and is expected to be completed in the first half of 2024.

Our Land drilling business unit has been successful in solidifying its position as a leading contractor in the Middle East with several awards in the region. Six rigs in Saudi Arabia were extended amounting to a total of 22 years of additional work which includes an equipment upgrade project whereby delivery of mechanised catwalks on two rigs will improve safety and operational performance. There was also success in Oman with extensions of four existing contracts as well as an award of a new three-year contract, with options that could extend this to five years. One rig in Pakistan also secured a new one-year contract. The Middle East is the core market for our land drilling business, and Kenera is continuing to grow its presence there with its Dammam service centre now operational to support the land fleet and other local customers. Building on a successful agreement established last year with a customer in Saudi Arabia, commitments to deliver top drives and iron roughnecks have been secured for a major unconventional gas project. This has further increased Kenera's installed base and highlights its commitment to providing technology and drilling solutions to major rig operators in the region.

During late 2023, we celebrated the delivery of two out of four new build rigs designed and built by Kenera which were the first to ever be constructed in Oman. The highly automated, fast-moving 1250hp rigs were designed with a focus on utilising the latest technologies to deliver safe, efficient, and sustainable drilling operations for Petroleum Development Oman ("PDO"). This investment demonstrates our commitment to delivering in-country value. During the year we also secured financing of $45m with a local bank to support this project. All four rigs will be operated by our Land drilling business unit for an initial contract duration of 10 years with a two-year option.

In support of the Group strategy, Kenera has advanced its position as a technology partner in clean energy and emissions control applications to support customers achieve a lower carbon future and play an active role in the energy transition. Kenera has continued to commercialise our Battery Energy Storage Solution ("BESS") with an extensive field trial conducted in the Middle East as well as our first contract award this year. The award will see Kenera custom-build a 10.3 Megawatt Hour (MWh) BESS that will optimise energy efficiency within a European facility to reduce its energy costs and carbon emissions.

Kenera has also been awarded a follow on contract in Norway to carry out an electrification project where the Askepott rig will become the first in Equinor's portfolio to be powered from onshore. The electrification work will enable energy efficient drilling operations and provide significant decreases in Green House Gas emissions. This project follows a successful campaign whereby CO ₂ and Nitrogen Oxides (NOx) reduction technologies were deployed as part of Equinor's long-term low emissions strategy for 2050 and resulted in the elimination of more than 85% of NOx emissions. Kenera continues to be focused on further developing decarbonisation technologies and solutions to support the energy transition.

During the year our Offshore business unit has won significant contract renewals with a one-year extension in Angola, two year extension in Azerbaijan and four extensions in the UKNS where each ranged from two to five years. All of these awards reinforce our position as a leading platform drilling contractor. We have also signed an exclusive partnership agreement with Pruitt, an industry leader in Managed Pressure Drilling (MPD) technology to collaborate on MPD opportunities globally. The partnership will support the delivery of best-in-class MPD technology solutions to enhance drilling and well delivery solutions for our customers.

During the year, we continued to evolve and embed our sustainability approach. Notably, we built on our existing sustainability steering group to create a sustainability steering committee. The change allowed us to bring in members of the executive leadership team to empower the committee and further improve our competence, policy definition, emissions management, and reporting. The Group's second sustainability report was published in March 2023 and provided an update on our sustainability performance and evolving Culture of Care sustainability strategy. For the first time, this report was developed in alignment with the Global Reporting Initiative (GRI) Standards - a widely used benchmark for sustainability - to allow us to continue identifying improvement and innovation opportunities to actively play our role in the energy transition, while we pledge to do more to measure and minimise emissions and the environmental impact of our global operations, as well as that of our customers.

KCA Deutag is a values-led organisation and is committed to creating, maintaining and celebrating a Culture of Care. The Group's Culture of Care is the guiding principle of our sustainability strategy that has three pillars:

Throughout 2023, as part of our Culture to Care and people strategy, we have continued to focus on four key themes: health and safety leadership; diversity, equity and inclusion; volunteering and social responsibility; and mental health and wellbeing. This has significantly improved employee engagement and has been positively embraced by a large proportion of our workforce globally. In regard to safety, in 2023 we continued to focus on several core ongoing safety campaigns, with a particular emphasis on embedding our safety culture and behaviours into the new enlarged organisation following the Saipem integration to ensure we continue to #becomeoneteam and #drivetozero incidents. We ended the year with a Total Recordable Incident Rate (TRIR) of 0.25 per 200,000 man-hours worked which is an improvement from 2022 and still at a level much better than the industry average. Due to all our campaigns, our people reported 7,242 Good Catches in 2023 - our programme that encourages and empowers workers to identify and report errors and hazards before incidents occur, feeding into ever-improving best practices and training. This is a rise of 58% for Good Catches in 2023, partly down to the growth of the organisation post-integration, but also having invested in promoting the system internally and highlighting monthly winners.

The financial results of the Group including continuing and discontinued operations for the year ending 31 December are as follows:

Figures in the table above have been extracted from Note 5 to the financial statements which also contains a reconciliation of EBITDA to operating profit (loss).

In 2023, Group revenues increased by 26.9% to $1,614.5 million (2022: $1,271.9 million) whilst our pre exceptional operating EBITDA increased by 54.6% to $384.1 million (2022: $248.4 million). Land drilling revenues and EBITDA were significantly increased, principally due to the Saipem acquisition along with the related synergy delivery and increased utilisation in Europe, Pakistan and Oman, which more than offset the impact of the abandonment of our Russian Land drilling business midway through 2022. Land rig utilisation in 2023 was 65%. Offshore services revenues and EBITDA have seen a slight decrease with higher activity in Azerbaijan, Angola and UKNS being offset by the impact of having to abandon the Sakhalin business during 2022 and the loss of pipe pool contract in Norway. Finally, in Kenera, there were two rig sales in 2023 compared to four in 2022 and lower services and engineering revenues causing both revenue and EBITDA to reduce, mainly as result of our exit from Russia. This was partly compensated by good growth in the Middle East market during the year.

Operating profit before exceptional items has almost doubled versus 2022 mainly driven by the increased contribution from the land drilling operations. However, due to increased finance costs, the Group has recorded an overall loss after tax of $21.8 million. Exceptional items drove a charge of $11.9 million for the year which was significantly reduced versus the prior year when an impairment charge was recorded in relation to the abandonment of the Russian business.

2024 Outlook

As we move into 2024, the Group remains focused on building on the success of the integration of the acquired businesses in Saudi Arabia, Kuwait and the UAE by replicating this work across the operations acquired in Latin America.

With the geopolitical backdrop becoming more uncertain in 2024, we will stay disciplined and focused on what we can control and provided the global economic conditions remain favourable, believe that our future results will be improved by already secured higher day rates, new build rig startups in Oman and a full year of activity in Latin America where utilisation has been increasing. We have identified additional acquisition synergies which we will continue to maximise as we proactively collaborate with our new colleagues to #becomeoneteam and provide a safe, seamless transition to customers.

The Group will continue to work with customers to maximise in country value in the countries in which we operate. An excellent example of this in 2023 was the step change in rig building capabilities demonstrated in Oman by the IDTEC joint venture with the completion of the first two rigs for the four rig contract. The construction of the final two rigs is well underway with these rigs due to start up operations in late 2024.

We are also making good progress with our strategy in clean energy and emissions control markets. Recent wins and promising projects will allow us to diversify our revenue streams and actively play our role in the energy transition. The Group will also continue to focus on how we can reduce the carbon emissions we make as a business, support our customers achieve their own objectives in this area and target new business opportunities as the energy transition gathers pace and scale.

Sadly, in February 2024, Angela Durkin, a highly valued member of our Board of Directors and Remuneration Committee Chair, unexpectedly passed away. As we mourn her passing and honour her legacy, we recognise the need to find a suitable replacement in 2024.

The Group is committed to its growth strategy and its targeted execution tactics to optimise and upgrade its business to #enhancethebrand and deliver accretive value for all our stakeholders: employees, customers, investors and the communities where we live and work.

Strategic Report

Market Dynamics and Positioning

In 2023 the Group has continued to focus on delivering high quality products and services to our customers combined with safe, effective, trouble-free operations. Activity has continued to be robust with steady pick up in several of our markets during 2023, and we have looked to grow our business while carefully managing our costs and staying focused on what we can control. We continue to look to differentiate ourselves from our competitors through our technology offerings and our best-in-class processes and people.

At the end of 2023 the Group has a healthy backlog position of $6.0 billion (2022 $6.6 billion) which was maintained by a number of significant contract extensions in the Middle East and Azerbaijan and wins across Latin America. In Offshore services our market position remains strong with all but one of our existing contracts fully secured for all of 2024. In Land drilling, activity levels have seen some improvement in the second half of 2023 which will continue into 2024, as well as the integration of 46 rigs during phase two and three of the Saipem acquisition. The Kenera business performed well in 2023 with the delivery of two of four newbuild rigs constructed in Oman, the opening of a service centre in Saudi Arabia and engineering activity levels improving in the energy transition market. This business unit continues to improve its market share, to develop its technology offerings and to diversify into the energy transition market outside of the traditional oil and gas sector.

2023 Performance

Overall, 2023 saw the further integration of the operations acquired from Saipem plus increased activity in some of our legacy markets which delivered strengthened results. The main themes of our business performance were:

Strategic Review

KCA Deutag is a leading drilling, engineering and technology partner in current and future global energy markets, delivering innovative solutions to ensure a secure, affordable and sustainable energy future.

In 2023 KCA Deutag had three business units.

Land: with over 135 years' experience drilling onshore wells, our Land business unit delivers safe and efficient operations to our customers. We operate a fleet of 131 land rigs, ranging from highly mobile units to large rigs capable of drilling extended reach wells. This reflects the fleet size after the addition of 46 rigs due to the completion of phase 2 and 3 of the acquisition of Saipem's onshore drilling business. A further 6 rigs remain to be acquired and this is expected to be completed in the first half of 2024. Located across the world, with a large proportion situated in the Middle East, we have extensive experience operating in a range of environments such as extreme desert temperatures.

Offshore: with over 40 years of platform drilling experience, we are one of the largest platform services operators in the world, safely delivering innovation to improve safety and operational performance. We are responsible, both directly and through affiliates, for managing drilling and maintenance operations on 29 offshore platforms including two jack-ups across the North Sea, Caspian Sea, Eastern Canada and Africa.

Kenera: expands the Group's offering in hydrocarbon and energy transition markets to deliver technology solutions that ensure a sustainable and responsible future. The business unit consolidates the skills, competencies and experience of the existing KCA Deutag group with those of Bentec - our land rig and oilfield equipment manufacturer, and RDS - our UK-based engineering and design specialist. Kenera has three dedicated segments covering innovative services, technology and engineering, and manufacturing.

In 2023, we introduced our new WE CARE core values - an evolution of our previous values to shape our Culture of Care and safeguard the future of KCA Deutag. The new values coincide with the integration of the majority of the Saipem business, giving all our people equal ownership in a new shared culture that allows us to work together in a #OneTeam Way.

Our WE CARE values are aligned with our sustainability strategy pillars of Caring for our People, Caring for our Future, and Caring for our Planet.

Our six core values are:

WELLBEING - Safety and wellbeing before all else. Driving to zero incidents, ensuring everyone goes home safely and fostering a Culture of Care that nurtures development, recognition, equity, diversity and a strong sense of belonging and community. We believe that all our 10,400 employees have the right to work in an accident-free workplace and have the responsibility to create and maintain a safe environment. At the end of 2023, we achieved a total recordable incident rate of 0.25 per 200,000 man-hours worked. There has been an improvement in performance since 2022 where we had recorded a rate of 0.27. We continue to strive to improve our behaviours, systems and processes with the aim of having zero incidents.

EXCELLENCE - Executing with excellence in all we do. Exceeding customer and stakeholder expectations through safe, ethical, compliant, consistent and reliable operating and financial performance, quality services and equipment and the delivery of innovative solutions.

CUSTOMER CENTRICITY - Relentlessly focused on customer satisfaction. Developing and delivering quality services and innovative products and solutions that are aligned with the current and future needs of our customers while always aspiring to be the partner of choice. With our renewed focus on customer centricity, we have actively engaged several of our main customers to secure multiple commitments to key contracts and extensions across all our business units.

AGILITY - Prepared for anything, anticipating everything. Proactively collaborating, adapting and learning so we are able to pivot as required while we maintain a discipline around affordability in all our work.

RETURNS - Generating value, delivering growth. Delivering profitable and sustainable growth, increased returns and greater value to all our stakeholders through disciplined financial management, investment and controls.

ENERGY TRANSITION - Innovating today for the energy of tomorrow. Committing to support and enable the energy transition and ensure security of supply through investment in affordable energy innovation and delivering upon our sustainability strategy and plan.

As part of our strategy for the future of KCA Deutag, transformation by optimising and upgrading our business is key to our success. To ensure our agility to accelerate transformation we have set up the KCA Deutag Agility Transformation Office (KATO). It will be critical to enabling, supporting and sustaining improvements and innovation with proper control, metrics and oversight to track and deliver accretive value with a consistent set of methodologies. The key objectives of KATO are to:

Through our collaborative approach we still continue to take action to #drivetozero incidents, optimise and upgrade our business, focus on returns and growth, and build a resilient, smart and sustainable platform that thrives in the face of change to #enhancethebrand and deliver accretive value to all our stakeholders.

Operating Review

Land Drilling

KCA Deutag's Land drilling business unit delivered average rig fleet utilisation of 65% in 2023, an increase from 61% in 2022. Utilisation continued to increase through the first quarter of 2023 when an additional two ex-Saipem rigs in Kuwait were added to the fleet. The third phase of the acquisition for the majority of the LATAM business at the end of April added a further 44 assets to the fleet, which includes 17 rigs stacked in Venezuela. Utilisation challenges in this new area saw Group utilisation drop to 58% (excluding the Venezuela rigs). Demand in Oman and Saudi Arabia remained strong with all of the rigs in Saudi Arabia being utilised. The continued increase in demand in Europe has seen activity strengthen throughout the year with all 5 rigs on contract in December 2023. Elsewhere a contract was secured and started in the new territory of Tunisia, and increased opportunities in Pakistan saw utilisation strengthen for the business unit to 65% by the year-end. Profitable opportunities remained scarce in Algeria and Iraq with all rigs being stacked at the end of the year, but we continue to participate in tendering activities in these and alternative markets. Throughout the operations there continues to be a strong focus on cost control to manage increasing procurement costs seen globally.

Middle East/Far East

Following the acquisition of the Saipem onshore drilling business at the end of October 2022, Saudi Arabia became the largest Land drilling operation with 36 rigs and a very significant level of contract backlog, further improved by the contract extensions on four legacy business rigs and two of the newly acquired rigs in 2023 where we were also successful in securing higher day rates. All 36 rigs were operating throughout 2023.

Oman averaged 74% utilisation for 2023, which is an increase from 70% in the previous year and back to levels seen in 2021. There is a continued lack of demand for the heavier (2,000 hp) rigs, although one began operations with BP in November 2023. Utilisation of the smaller rigs, which focus on oil production wells, remained strong. Following the Letter of Award in 2022 to build and deploy 4 new light drilling rigs on long-term ten-year contracts in Oman, construction of these technologically advanced units continued at our Kenera facilities and the first two rigs are due to start operations in Q1 2024. Rigs under contract also continued to secure contract extensions.

In Kuwait, we continue to drill successfully with both rigs supplied by our partner for the contract with Kuwait Oil Company (KOC). KCA Deutag leases and operates these rigs. The two additional rigs acquired from Saipem in February as part of the acquisition continued with their prevailing operating contracts (also with KOC), however both have since been released by the customer towards the end of their contracts, with the T-846 being stacked from November 2023, and the T-813 in early 2024. Both rigs are being tendered for work to start later in 2024 after completing a significant upgrade project.

Utilisation in Iraq remained low with one rig contracted for a drilling campaign in Northern Iraq (Kurdistan), however this was eventually terminated in April 2023 because of challenges faced by the customer. Overheads have been significantly reduced in Iraq accordingly, and we continue to review options for the seven rigs stacked there.

The utilisation and outlook for Pakistan was poor at the start of 2023 with all three rigs stacked. This improved in the second half of the year with the two rigs starting in July and September 2023. We continue to seek follow on work for these rigs as well as new opportunities for the remaining rig.

We returned to drilling operations in the UAE with the addition of two Saipem rigs from phase one of the acquisition. Whilst one rig is stacked, the other operated throughout the year with Sharjah National Oil Company.

Europe

The European business had another strong year whereby all available rigs were contracted by the end of the year. Tendering activity continues to remain high for both hydrocarbon and geothermal projects, although margins are being challenged with increasing competition for experienced rig crews across the continent. A long-term contract on an innovative geothermal project which secured utilisation for 1 year for 2 rigs began in Q3 2023. Additionally, a rig that mobilised to Albania during the course of 2022 for a long-term contract continued to drill throughout most of 2023. Due to a gap between wells this rig was stacked on a reduced operating rate in Q4 2023.

Latin America

Phase three of the acquisition of Saipem's onshore drilling business closed at the end of April 2023 with the addition of 44 rigs across Bolivia, Chile, Colombia, Ecuador, Peru and Venezuela. A mid-year dip in utilisation meant that at the time of closing the acquisition there was limited activity. However, a number of contracts have since been secured, largely with customers in Colombia and Ecuador, leading to the business strengthening through the second half of the year and this looks set to continue with the outlook for 2024 being positive as utilisation increases. The acquisition of the Argentinian business from Saipem is also planned to close in 2024, adding a further 3 rigs to the fleet.

Offshore Services

North Sea

While it has been a challenging year for cost inflation, retention and hiring, activity in the UK North Sea has remained stable in 2023, with five of ten platforms operating throughout the year across a range of customers, and a sixth recommencing activity in Q4 2023. In addition to this maintained activity level, Harbour, Enquest and CNOOC have exercised options on their contracts, extending them out for a further one to five years.

In Norway during 2023, four out of five of the Equinor fixed platforms operated through the year, and the two 'Cat J' jack-up rigs, also with Equinor, continued to operate. The Ringhorne fixed platform also operated throughout 2023 which is under contract with Var Energi.

Caspian

Throughout 2023 there continued to be a high level of activity and strong performance with bp in Azerbaijan. Procurement and warehousing services continued into its fourth year, and the new ACE platform was completed and sailed offshore during Q3 2023. In addition to strong activity levels, bp exercised options on the contract for a further two years.

Angola

The Kizomba TLP-A platform continued operations through 2023 with ExxonMobil, who extended the contract for a further year to the end of 2024.

Canada

The Hebron platform, which is under contract with ExxonMobil, continued to be in a planned maintenance mode throughout all of 2023, however crew levels were maintained and the platform is planned to be operational again in Q1 2024.

Kenera

Manufacturing

2023 saw the completion of construction, and acceptance of the first two of four highly automated rigs being designed and constructed by our Kenera business unit that will fulfil a 10-year drilling operations contract for our Land drilling business for PDO. These are the first ever rigs built in the Sultanate of Oman

Throughout the year, we have continued to expand our Middle East market for other component sales, such as top drive and iron roughnecks.

We continue to develop our Battery Energy Storage System (BESS), which aims to reduce Co ₂ emissions, with the completion of customer trials and the first sale to a European customer for delivery in 2024.

During 2022 we entered into a Technical Collaboration agreement with Clean Power Hydrogen Plc ("CPH2"), the UK-based green hydrogen technology and manufacturing group that has developed the IP-protected Membrane-Free Electrolyser ("MFE"). It is hoped Kenera will start production of MFE units in the next 12 months.

Services

Services have remained stable in our core markets and have started to grow in the Middle East as we expand with the establishment of the service centre in Dammam, Saudi Arabia from where we will service the growing installed base of Kenera products in the region and overhaul equipment from other manufacturers for both our own land rigs and third parties.

Technology and Engineering

We continued to see steady performance from our brownfield business via projects for Equinor, ExxonMobil and BP along with activity associated to our platform drilling contracts. In our Greenfield business we completed the ACE project and the resulting new platform has now successfully started up operations in the Caspian Sea.

During 2023 our Norway business worked on an energy optimisation project for the CAT-J rigs as well as smaller CO ₂ emissions recording and reduction projects. An electrification project on one of the CAT J's has also been started in late 2023.

Group Non-Financial and Sustainability Information Statement

The Group is committed to supporting the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and ensuring compliance with Climate-related Financial Disclosure (CRFD) requirements under the UK Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022. This CRFD report outlines the Group's progress made against the four pillars established by the Financial Reporting Council (FRC); Governance, Strategy, Risk Management and Metrics and Targets.

Governance

At KCA Deutag we believe that a commitment to strong corporate governance can help drive accountability, value and protection for all of our stakeholders. Our internal corporate governance structure and procedures now embed climate change as a material and strategic issue that is and will be regularly addressed by our Board and Executive Team through strategy and investment discussions, enterprise risk management, and performance review against our commitments.

Strategy

In service of our overall sustainability strategy, the Committee have been delivering against the commitments set forth in the Group's 2023 Sustainability Plan.

Risk Management

The Group has developed a comprehensive strategic planning and enterprise risk management ('ERM') process for identifying, assessing, and managing risk. These risks are presented and discussed at the executive Risk Management Committee meetings on a quarterly basis and summarised at Audit Committee meetings. The Group utilises this internal governance model to monitor the significant climate-related issues identified and consider how best to evolve the Group's strategy and risk exposure.

Metrics and Targets

The Group has continued to take proactive action in 2023 on defining and implementing metrics for CO ₂ emissions across our activities.

Principal Risks and Uncertainties

As with any business, the Group faces a number of risks and uncertainties in its day-to-day operations. The principal risks and uncertainties, and mitigating actions that are employed by the Group to manage those risks, are noted below. During the year the Group continued to apply an Enterprise Risk Management framework to drive the ongoing identification and monitoring of risks and to develop mitigation strategies to manage those risks. The methodology used to identify key risks is both a bottom up approach from the country and functional organisations as well as a top down review of the key strategic risks.

Asset Integrity and Compliance Regime

We are subject to increasingly stringent laws and regulations relating to environmental protection as well as being exposed to potentially substantial liability claims due to the hazardous nature of our business and the businesses to whom we provide services. An accident or a service failure can cause personal injury, loss of life, damage to property, equipment or the environment, consequential losses or the suspension of operations or possibly the termination of a contract. Furthermore, we may be liable for damages resulting from pollution both on land and in offshore waters. During the last few years, we have also seen many of our customers seek to pass on risk to their suppliers which may have historically been borne by the operator.

We have put in place robust processes and procedures to support each of the principal activities which we undertake. We seek to employ personnel with the relevant experience, qualifications and competencies and have the appropriate tracking mechanisms to ensure that our staff have demonstrable competencies for each of the tasks that they perform. We have a governance structure which ensures that our compliance with processes is validated periodically and that a culture of continuous improvement is reinforced. We have robust reporting mechanisms to report safety and environmental data at each operating unit and escalation processes to investigate incidents. We have a pre-defined contracting strategy with our clients setting out what exposures are acceptable and escalation mechanisms where we are asked to agree to contractual positions which fall outwith these set parameters. We have a comprehensive package of insurance coverage to further protect us from potential claims or incidents.

As well as our personnel, the provision of assets such as drilling rigs is a key component of our product and service offering. We offer a range of drilling rigs from new state of the art rigs designed for specific climates or for speed of movement, through to older assets which have been in operation for a number of years. These assets need to be regularly maintained and key components replaced over time to maintain the asset integrity of our equipment. We maintain a team of personnel specialised in maintaining these assets to ensure that they provide our clients with safe, effective and trouble-free operations with low levels of non-productive time. To remain competitive in the long term we must continue to invest in our assets and refresh our rig fleet on a periodic basis.

Compliance requirements continue to increase across the broad range of territories in which we operate. For example, during the past few years, we have seen new data privacy and data protection rules with large potential fines and other sanctions for non-compliance. We seek to address any new compliance requirements proactively using both our own internal resources as well as external advice.

Business Continuity and Sanctions Risk

Many of the key markets in which we operate are potentially at a higher risk of conflict and political upheaval. Over the past few years these have included Azerbaijan where there has been conflict with neighbouring Armenia, terrorist incidents in Algeria and Saudi Arabia and the threat of terrorism or unrest in Kurdistan and Iraq. More recently we have seen the war breaking out between Ukraine and Russia plus the events in Israel and Gaza following the attack by Hamas which has led to increased instability across the Middle East. We have also recently acquired operations across Latin America which is a region that is prone to some instability with the problems in Ecuador being the most recent. In addition, there is the potential threat of political and economic sanctions against certain sovereign states which by their very nature can be both unpredictable and potentially disruptive.

Certain markets in which we operate are also susceptible to governmental and political influence around contract award, local content requirements and bidding processes which may not always be transparent. We maintain robust processes to ensure that our staff have been trained to follow our own approved guidelines and ethical practices.

Before we enter a new country, we carry out risk assessments and third-party security reviews. To mitigate risks once operating in each country we have a robust emergency response system to ensure that we are able to move our personnel rapidly and safely in the event of an unplanned incident. We work with specialist third parties to maintain a good understanding of the security risks and how to react in each set of circumstances. Where possible we seek to limit our exposure to higher risk regions such that an emergency in one location does not have a material impact on the ability of the Group to continue operating. In the past we have been able to rapidly redeploy personnel when required and reduce costs in impacted countries to a minimum. We have access as required to specific legal and advisory expertise to support regulatory compliance in all our operations across disciplines such as export control and adherence to sanctions. We work with various governmental authorities to get assistance with ensuring compliance and making sure our staff have the appropriate awareness of rules and regulations.

Changes in the Market for Drilling and Engineering Services

Our core operations continue to be focused on delivering drilling and well engineering services to the oil and gas industry. We believe we provide high-quality services to our clients supported by a skilled workforce and high-quality assets. However, the technology, commercial models and ways of delivering services continue to evolve.

In North America there has been an increasing commoditisation of drilling services with consequent pressure on margins and increased competition from providers offering very similar services. Although the position in North America is different to the rest of the world, given the relative ease of access to oil and gas reserves through good transport infrastructure, certain of our other markets may move in a similar direction in the future. In the eastern hemisphere we have seen increasing competition from lower cost providers such as Chinese companies who are able to offer low-cost services and over time have provided an improving quality of assets and personnel.

As a result of inflationary pressures on the Group's cost base, remaining competitive against low-cost participants continues to be a challenge for the Group in 2023 and has also put pressure on operating margins across our business units.

In a number of markets, we are also seeing the way in which our customers are procuring services change. Integrated service companies, who can provide a full spectrum of service offerings, are securing contracts as a one stop shop for their clients. Other service companies are broadening the scope of their offerings potentially threatening work which KCA Deutag may have traditionally provided in the past.

Current trends across the oil and gas industry, and indeed our drilling peers, show a movement towards digitalisation, drilling optimisation software and operational technology data to gain better insight into operating performance, to drill wells more efficiently or to identify improvement opportunities. These tools and data driven insights can be used to identify cost savings, efficiency gains and revenue opportunities which could have a tangible impact on our financial bottom line. Increasingly clients are placing maximum age limits on rigs as well as looking for higher specification and technology supported rigs. This would be a risk to the business if we were to lag behind our competitors in the provision of digital services or if we are not able to recover the investments made to develop these solutions through the commercialisation of our digital offering.

In response to these threats we must ensure that we offer a compelling reason for our customers to procure our products and services through providing excellent service quality, which is cost competitive and industry leading. With the launch of the Kenera business unit, we believe we have enhanced our proposition to customers. We have to be a Group that is easy to do business with, which has a flexible commercial model and is able to form new alliances that can be mutually beneficial.

We also have to continually challenge ourselves to look at new ways of working, to develop new service offerings and to look at new sourcing models as markets continue to mature and evolve. A high focus on sourcing and costs in general is now particularly important as many of the markets in which we operate are seeing the return of significant levels of inflation and extended delivery lead times. The supply chain organisation is therefore spending more time with the operations, commercial and finance teams to plan, source and negotiate supply agreements as favourably as possible.

Credit Related Risk

Although many of our customers have historically been blue chip international oil companies, we also work for National Oil Companies, as well as independent operators. Because of the significant capital expenditure requirements for our clients to develop oil and gas assets, and the cyclical nature of commodity prices, some of our clients can become financially distressed. We have also seen some sovereign states heavily dependent upon oil and gas struggling to balance their budgets and consequently being unable to access sufficient foreign currencies such as US Dollars to settle liabilities. Local currencies can also become illiquid and very difficult to convert to other currencies.

In some markets, particularly those where we may have a low level of activity or only a single rig operating, it can be difficult to consistently make acceptable levels of return. We also experience tax and other local laws and rules being inconsistently applied which can result in additional and unexpected costs of doing business. In each of the countries in which we operate we are potentially subject to changes in tax laws, treaties or regulations which could have a material impact on our business.

We seek to mitigate credit risk through continuous monitoring of exposures to individual clients as well as overall exposure to particular geographies. Financial credit checks are required to be performed on new clients prior to tendering submissions and where possible we will seek payments in advance of services or protection via bank guarantees and similar mechanisms. We have robust escalation processes to chase overdue accounts including regular reviews with our senior management team. In some cases, we are able to leverage our position to push for the release of payments but where this is not possible early and robust legal processes are used to accelerate a conclusion to the process. Negotiating power can be limited once a contract has ended and there have been a few cases where payment of final invoices has taken longer than expected to resolve. We are also sometimes approached by customers for extended credit terms which we negotiate in order to obtain an acceptable resolution. We also structure contracts to be paid in US Dollars where possible. We seek appropriate professional advice before entering new markets and have internal review and approval mechanisms to challenge the returns we expect on new contracts. In some cases we have decided to exit markets where we have been unable to make a consistent level of acceptable return.

Currency Related Risks

We carry out our operations in a number of countries and are exposed to currency risk as those currencies become stronger or weaker against the US Dollar. Some of the countries in which we operate are heavily reliant on oil and gas and have historically seen significant exchange rate volatility as a result of commodity price variations. Our financial results are presented in US Dollars and these results are sensitive to either a relative strengthening or weakening against the US Dollar of the major currencies to which we are exposed. In general, we prefer to be paid in US Dollars but there are many markets where this is not possible and we also need to consider costs that will be payable in local currencies.

The Group employs a number of mechanisms to manage elements of exchange risk at a transaction, translation and economic level. Where possible we will seek to naturally hedge our exposures through matching currency revenue and expenditure which we are able to do by adjusting the proportion of our revenues paid in either US Dollar or local currency. In some situations, we have been able to hedge our Balance Sheet exposure by matching local currency assets with local currency liabilities. Where this is not possible, we may seek to hedge our currency exposures through the purchase of forward contracts. In terms of the overall economic risk we monitor our exposure to all of the key markets in which we operate. We aim to maintain a diversified geographical exposure without being overly reliant on any single country of operation.

Summaries of our geographical exposure and the sensitivity of our results to foreign exchange movements are included in Notes 5 and 21 to the financial statements.

Cyber Security Risk

Cyber security risk has been increasing over recent years due to the growing prevalence of cyber-attacks around the world. At the Company we experienced a cyber attack at the end of 2021, and therefore additional security measures have been implemented in order to try to enhance our security environment to minimise the potential of such an attack happening again. We engaged with third parties and worked on projects to strengthen our IT environment both from a security point of view as well as business recovery planning. Additional security software has been implemented and monthly cyber security training is provided to all employees with access to our systems.

Our operations continue to be increasingly dependent upon various IT systems, especially as an increased number of employees are hybrid working. Threats to IT systems associated with cyber security risks continue to grow and evolve including targeted attacks utilising viruses, malware, and phishing. The requirement to make key rig control systems remotely accessible is also an increasing risk as this can provide a potentially bigger target for malicious activities with larger impacts (e.g. financial, reputational, environmental and safety). The risks associated with cyber security include the loss of revenue, the loss of key back office systems, penalties for loss of sensitive personnel and customer data, as well as the loss or misappropriation of funds, damage to our reputation and potential for litigation.

Energy Transition Risk

Oil as an energy source is going through a period of major change where it will eventually no longer maintain its dominant position and over time will be replaced with alternative energy sources such as gas, hydrogen, nuclear, solar, wave and wind. The political and public awareness focus on this has increased driven by rising concerns around climate change. It is driving public opinion and consumer decision making which is increasingly influencing business and political policy. Over the medium to long term this will mean a reduction in global drilling activity.

Investors are now increasingly focusing on a company's approach towards policies on Environment, Social and Governance (ESG). There is a strong push from many clients towards environmental sustainability, e.g. reducing carbon footprint, eliminating waste, recycling and alternative energy sources. In 2022 we issued our first Sustainability Report which focused on measuring our corporate carbon footprint and using this baseline data to inform our Sustainability Strategy. Annually, we will issue an update to this report. On page 10 we make our first disclosures under the Group's non-financial and sustainability information statement.

To be sustainable as a business in the medium to long term and ensure access to markets, business opportunities and investors it is becoming essential to diversify into the wider alternative energy market. The risk of not doing this would be to impair our ability to have a profitable and sustainable long-term future as a business.

Ethics and Violation of Applicable Anti-Corruption Laws

We are an international business with operations in developing countries and in countries which are high on the Corruption Perceptions Index published by Transparency International. Violation of anti-corruption laws may result in criminal and civil sanctions and could subject us to other liabilities in the UK, the US and elsewhere. Legislation in the areas of ethics, bribery and tax evasion continue to evolve and place increasing responsibility on businesses to behave to a very high standard supported by the appropriate processes, controls and other safeguards.

We have developed an ethics and compliance programme which is supported by policies and procedures designed to assist our compliance with applicable laws and regulations and have trained our employees to comply with such laws and regulations. We have put in place appropriate assurance processes to monitor compliance and seek to continuously improve our systems of internal controls and to remedy any weaknesses.

Financial and Working Capital Risk

Our ability to service our debt and other financial obligations depends in large part on the levels of cash flow generated in our business. A surplus of cash would allow the Group to grow and manage the changes in business activity levels over time.

Where possible the Group seeks to secure long term debt financing which provides access to funds for a number of years into the future. The Group has sought to diversify its access to debt markets away from wholly traditional bank debt towards institutional debt by way of the corporate bond markets. Periodic reviews of fixed rate and variable rate interest rate exposures are also made with the aim of maintaining a balance between the two.

From time to time, we may need to access the capital markets to obtain long term and short-term financing. Our ability to access these financial markets could be limited by, amongst other things, oil and gas prices, our capital structure, credit ratings issued on our debt by credit rating agencies, the overall health of the global oil and gas market or the global economy in general. Whilst we try to access markets when conditions are favourable there is no guarantee of our ability to access these capital markets in the future.

Careful monitoring of cashflows and forecasts equips the business with the necessary analytics to monitor the situation and deal with any underperformance using tools such as further cost savings or capex reductions. The Group have continued to utilise and expand upon a number of 'self-help' mechanisms, including, but not limited to proactive working capital management and detailed monitoring of EBITDA forecasts, tight capital expenditure controls, inventory optimisation, cost reduction initiatives and weekly cash forecasts and cash calls.

Human Capital Risk

All of the services and operations which we perform require a diverse highly skilled and well-trained work force to provide the front-line services, as well as to support the fundamental business processes and control mechanisms. Across the oil and gas industry generally there has been an aging of the workforce which has been compounded in recent years by the industry downturn and a large reduction in the number of new recruits entering the sector. Continued access to a diverse pipeline of talent to be able to provide skilled staff and future management resources for the Group are critical.

The business must also position itself to source and deploy the right skills and experience to support operational growth as we target opportunities in the energy transition space.

Over the past few years, the Group has invested significantly in enhancing our processes and systems around human resources. We seek to provide our staff with a dynamic and supportive work environment and to remunerate them fairly in each of the markets in which we operate. Where the employees have the appropriate skills, ability and desire to progress we have put in place the necessary management tools to help them pursue their career ambitions with KCA Deutag. We have succession planning tools to assist in identifying and developing a diverse future talent pool and to help to ensure that we have the appropriate management resources to lead the Group in the future.

Local Market Risk

The markets in which we operate continue to change and evolve as local political and economic influences impact the industry in which we operate. Globalisation is slowing down and we are seeing increasing protectionism across the globe. In certain core markets, such as in the Middle East, we have also seen an increasing trend and pressure from governments to increase the local content of the services which we provide, both in terms of the provision of local skilled personnel as well as the focus on in-country value through the use of local suppliers or supply chain for the provision of goods or services. Where this can be achieved in a planned and structured way it can have benefits both for the local economies in which we operate, as well as allowing us to provide a more efficient and effective service to our clients.

We have a good track record of training and developing local staff in many of the countries in which we operate and so far as possible sourcing equipment locally, where this is cost effective and quality can be assured. As a result we have achieved a high rate of staff nationalisation in the markets in which we operate.

In some of our markets we have seen increasing influence from National Oil Companies where governments have sought to secure greater control and increased future participation in the economic benefits of their oil and gas assets. These companies have started to change the nature of the relationships with service companies and increasingly look to work through joint ventures or alliances which are also often closely aligned to local content. We will likely have to be prepared to work with these new models if we are to retain and grow our future business in some locations.

Merger and Acquisition Risk

As part of our growth strategy, we regularly identify and evaluate potential acquisition opportunities. Should we decide to acquire a business, there can be no assurance that such acquisition will not have material adverse consequences. Acquisitions we have already made, or future acquisitions, are subject to the risk that they may not be integrated successfully into our operations and may not achieve our desired financial objectives.

Any acquisition of a business entails numerous operational and financial risks. These include but are not limited to higher than expected acquisition costs, the possibility that we may not have identified appropriate acquisition targets or complete future acquisitions on satisfactory terms or realise expected synergies or cost savings within expected timelines. There may also be unforeseen expenses, delays or conditions imposed upon the acquisition, including regulatory approvals or consents. Exposure to unknown liabilities (including, but not limited to liabilities in relation to tax and environmental regulations and laws) as well as difficulty and cost in integrating the operations and personnel of acquired businesses with our existing operations and personnel represent potential risks in any transaction.

Management's attention could be diverted away from our day-to-day business. Relationships with key suppliers or customers of acquired businesses could be impaired due to changes in management and ownership as well as a result of restructuring logistics and information technology systems. With any acquisition there exists a risk of the inability to retain key employees of acquired businesses along with difficulty in avoiding labour disruptions in connection with any integration, particularly in connection with any headcount reduction. Substantial additional debt may need to be incurred, the cost of servicing which may affect our ability to service our existing short-term and long-term liabilities or otherwise negatively impact our cash flows. The occurrence of any such event in connection with an acquisition could adversely affect our business, financial condition and results of operations.

Oil and Gas Market Risk

The Group operates in the oil and gas sector which is a market driven, cyclical industry where activity is closely correlated with the market prices for oil and gas. Changes in these prices may lead to an increase or decrease in our activity levels. In recent years, the global COVID-19 pandemic had a negative impact on oil prices, the global economy, market conditions, customers and governments. This had a material negative impact on our business as almost all customers either reduced their level of operation or sought pricing discounts, although we have in recent times seen some recovery. Often in these circumstances we also see an increase in litigation and customer claims as clients attempt to minimise their costs and manage budgets.

We mitigate the impact of this risk through endeavouring to secure longer term contracts with our clients where possible, together with contractual protection for early termination. Many of our clients own oil and gas assets where the lifting costs are at the lower end of the spectrum and hence are still able to make positive returns even at lower energy prices. Most of our activity is in the eastern hemisphere where the economic cycles have historically been less volatile than in the western hemisphere. Where possible we employ a flexible resourcing model so that we are able to change manning levels as activity changes. Each of our business units has different exposure and sensitivity to changes in energy prices with the Kenera business being the most susceptible to reduced activity as their work is generally linked to new capex spend by our clients.

We operate a governance structure which aims to ensure that potential risks on contracts and projects are identified through review and challenge prior to execution. Our internal commercial and legal processes ensure that deviations to standard contracting principles must have the appropriate review and approval prior to commitment. This, together with robust contract assurance programmes and effective record retention, provides us with the ability to rigorously defend commercial claims as and when they arise.

By working in a manner which promotes the Group's six Core Values and behavioural framework, the Group's Directors have performed their duties with a view to promoting the success of the Group for the benefit of its members and can confirm that they have considered the following when acting as a Director:

On behalf of the Board of Directors

Corporate Governance Report

For the year ended 31 December 2023 the Group has applied the Wates Corporate Governance Principles for Large Private Companies (published by the Financial Reporting Council ('FRC') in December 2018 and available on the FRC website).

The Group continues to have a strong focus on Corporate Governance and seeks to comply with the Wates Principles where practical and possible.

Principle 1 - Purpose and Leadership

KCA Deutag is a leading drilling, engineering and technology partner in current and future global energy markets, delivering innovative solutions to ensure a secure, affordable and sustainable energy future.

With over 135 years of experience, we capitalise on our knowledge and expertise to develop and deliver safe quality services and products, and innovative technology that optimise performance and sustainability for our customers.

As a partner of choice, our WE CARE values drive us to execute with excellence and deliver accretive value to all our stakeholders: employees, customers, shareholders and the communities where we live and work.

Our global network of operations spans 25 countries, where we employ over 11,000 people in our Land, Offshore and Kenera business units. We currently operate or own 160 drilling rigs across the Middle East, Europe, Africa, Caspian Sea, Latin America and Canada.

In 2023 we updated our vision, purpose and core values to align them with our long-term strategy to safeguard the future of KCA Deutag. Our new WE CARE core values are aligned with our Culture of Care sustainability strategy pillars: Caring for our People, Caring for our Future and Caring for our Planet. Togher with our behaviour framework, our core values define what is important to us an organisation and are the guiding principles that govern our actions and decisions. The behavioural framework details the core behaviours and attitudes which define 'how' we are each expected to approach our work and is reinforced by regular communication and training for employees.

This builds on the Group's existing commitment to good governance and social responsibility. The Group promotes, amongst many other things, positive health, safety and wellbeing for all its people; ethical business practices; working with local community initiatives; and a culture of environmental stewardship in all its activities.

Principle 2 - Board Composition

The Group has a separate Chairman and Chief Executive to ensure that the balance of responsibilities, accountabilities and decision making across the Group are effectively maintained. The Chairman plays a pivotal role in creating the conditions for overall Board and individual director effectiveness.

The Directors have equal voting rights when making decisions, although certain matters are reserved for the Group's ultimate shareholders as defined in the Investment Agreement between the shareholders. All Directors have access to the advice and services of the Group General Counsel and may, if they wish, take professional advice at the Group's expense. Under the Investment Agreement, the Group's major shareholders are also able to appoint observers to attend Board meetings on their behalf.

The Board is comprised of non-Executive Directors as well as the Group's Chief Executive and Chief Financial Officer. The experience and composition of the Board is appropriate to a Group of our size and complexity. A biography for each member of the Board can be found on the Group's website: https://www.kcadeutag.com/whoweare/Pages/Meet-the-leadership-team.aspx

The Executive Leadership Team ensures that the values, strategy and culture are aligned, implemented and communicated to the workforce most notably through regular Executive Leadership Team meetings as well as town hall webinar presentations that are available to all employees worldwide to attend.

We are committed to making the Group an ever-more inclusive environment, thereby fostering a more diverse workforce which should further increase diversity at the most senior levels.

Principle 3 - Director Responsibilities

Accountability

Good governance supports open and fair business, ensures that the Group has the right safeguards in place and makes certain that every decision it takes is underpinned by the right considerations. Whilst Board oversight is always maintained, with certain decisions reserved to the Board, other key decisions are made by the individuals and committees with the most appropriate knowledge and industry experience.

The Board has a programme of meetings every year and each Board member has a clear understanding of their accountability and responsibilities.

The Directors and Committee members are asked to declare their interests at the start of each Board/Committee meeting so as to avoid any conflict of interest issues.

Committees

Audit Committee

The Committee's primary concerns are the integrity of the Group's financial statements; the effectiveness of internal controls; enterprise risk management; the performance of the internal audit function; the performance and independence of the external auditors; and the Group's compliance with legal and regulatory requirements. The audit committee also receives reports of compliance, ethics and whistleblowing matters.

The Committee has clearly defined terms of reference which are reviewed annually and outline the Committee's objectives and responsibilities relating to financial reporting, internal controls, risk management as well as overseeing compliance with legal and regulatory requirements and the application of appropriate accounting standards and procedures. Specific responsibilities include reviewing and recommending for approval the annual financial statements, reviewing the Group's accounting policies, reviewing the effectiveness of internal controls, internal audit and risk management processes and reviewing the scope, results and terms of engagement of the external audit. Currently, the Committee is also overseeing climate-related risks and reporting.

The Audit Committee meets quarterly and more frequently if required.

Remuneration Committee

The Remuneration Committee also has clearly defined terms of reference which are reviewed annually. The Committee, which meets at least three times a year, is responsible for making recommendations to the Board concerning the Group's remuneration strategy, recruitment framework and long-term incentive plans for senior executives. In doing so, the Committee takes advice from independent external consultants who provide updates on legislative requirements, best market practice and remuneration benchmarking, drawing on evidence from across the sectors in which the Group operates and from other sectors. Pay is aligned with performance and taking into account fair pay and conditions across the Group's workforce. The Group's remuneration policy for executives is consistent with companies of a similar size and complexity, as well as other companies operating within the oil and gas sector. The Directors' remuneration is disclosed on page 85 (note 26).

The Committee's primary objective is to set remuneration at a level that will enhance the Group's resources by attracting, retaining and motivating quality senior management who can deliver the Group's strategic ambitions within a framework that is aligned with shareholder interests.

The Committee firmly believes that retaining the best people on the right remuneration, with an emphasis on performance-related pay, strengthens the Group's ability to face challenges emanating from economic and market change, and to deliver long-term sustainable value for all stakeholders.

Compliance Investigation and Review Committee

The Group's Compliance Investigation Committee is chaired by the Group General Counsel and meets on an ad hoc basis as and when required. Attendees are the Chief Financial Officer, Senior Vice President, HR and Shared Services, Group Head of Internal Audit and the Group's Senior Ethics & Compliance Manager. The purpose of the Committee is to review whistleblowing reports, appoint investigation teams, review findings from investigations and decide upon the outcomes of investigations. The Committee also review the Group's management of key compliance risks and approves compliance related policies and standards. The Committee reports to the Group's Chief Executive Officer and a summary of matters discussed by the Committee is also discussed at the Audit Committee.

Risk Management Committee

The Risk Management Committee, consisting of the Chief Executive Officer, Chief Financial Officer, and Group General Counsel, supported by business unit and functional leads, ensures that inherent and emerging Group risks are identified and managed appropriately and in a timely manner. The Committee meets on a weekly or as required basis to deal with any specific risk-related items and to consider investment decisions on new projects and contracts.

The Board remains satisfied that the composition of the Committee strengthens the Group's approach to risk management and mitigation and that the Committee remains focused on the key risks affecting financial and operational performance.

To support the Committees' work and to enhance the cohesion of the Group's risk management approach, including the cascade of Group-wide messages and lessons learnt, heads of business units and functions attend meetings as required to discuss their respective risk management and mitigation plans.

Executive Leadership Team

The Board delegates authority for day-to-day management of the Group to the Executive Leadership Team under the leadership of the Chief Executive Officer according to an agreed Group Authorisation Matrix.

The Executive Leadership Team meet regularly and consists of individuals responsible for the strategic business units and key functions. A biography for each member of the Executive Leadership Team can be found on the Group's website: https://www.kcadeutag.com/executive-leadership-team

The Executive Leadership Team's duties include formulating strategy proposals for Board approval and ensuring that the agreed strategy is implemented in a timely and effective manner.

Integrity of Information

The Board receives regular information on all key aspects of the business including health and safety, risks and opportunities, the financial performance of the business, strategy, operational matters, and market conditions, all supported by Key Performance Indicators (KPIs).

Key financial information is collated from the Group's various accounting systems. The Group's finance function is appropriately qualified to ensure the integrity of this information and is provided with the necessary training to keep up to date with regulatory changes. Financial information is currently externally audited by Ernst & Young Limited on an annual basis, and financial controls are reviewed by the Group's internal audit function. Other key information is prepared by the relevant internal function. Processes for collecting data, as well as the reporting of that data, is reviewed on a cyclical basis by the Group's internal audit function with quarterly reporting provided to the Audit Committee.

Principle 4 - Opportunity and Risk

The Board seeks out opportunity whilst mitigating risk.

Opportunity

Long term strategic opportunities are highlighted in the annual Group budgeting and business planning process which results in the budget and five-year plan being presented to the Group Board each year. The Board seeks out opportunities drawn from the business as well as those presented to the shareholder group. Short term opportunities to improve performance, resilience and liquidity within the Group are collated through the weekly meetings of the Risk Management Committee.

Risk

The Group has an Enterprise Risk Management framework which consolidates the risk registers across the Group for any changes in underlying conditions. Risk registers are reviewed and updated twice-yearly by the business units and corporate functions to ensure they reflect the current risks facing the business. Annual presentations of the most significant risks are made by the business units and corporate functions to the Risk Management Committee.

Management continues to refine and enhance the Group's risk management framework and risk registers and works to ensure consistency across the Group. The Group's key operational risks and mitigations are outlined in the Strategic Report (on pages 18 to 23).

The Group's Strategic Risk Report which is presented to the Audit Committee and the Board on an annual basis includes key risks that are monitored by the Risk Management Committee and the Board. The Group's systems and controls are designed to manage, rather than to entirely eliminate, the risk of failure to achieve business objectives and can only provide reasonable and not an absolute assurance against a risk materialising.

Responsibilities

The Group has developed an Operating Framework based on its World Wide Standards which encapsulates the Group's operating rules, processes, best practice standards and delegated authorities.

Specifically, the Group Board approves an annual Budget and Business Plan, any contract above a certain value or any transaction that requires an unbudgeted allocation of capital (as described in the Group Authorisation Matrix), to ensure that the appropriate level of diligence has been performed in understanding the obligations, risks and terms of the contract. This enables the Group to protect the integrity and long-term sustainability of all its businesses, to meet its strategic objectives and to create value for all its stakeholders.

The Group's Risk Management Committee performs an oversight role in terms of the management and mitigation of risk within the Group's operations as well as reviewing new business opportunities before they are approved.

Principle 5 - Remuneration

The Remuneration Committee's primary objective is to set remuneration at a level that will enhance the Group's human resources by securing and retaining quality senior management who can deliver the Group's strategic ambitions in a manner consistent with both its purpose and the interests of its shareholders.

The Group is an active equal opportunities employer and promotes an environment free from discrimination, harassment and victimisation, where everyone receives equal treatment and career development regardless of age, gender, nationality, ethnic origin, religion, marital status, sexual orientation or disability. All decisions relating to employment practices (including remuneration) are objective, free from bias and based solely upon work criteria and individual merit.

Principle 6 - Stakeholders

The Board is clear that good governance and effective communication are essential on a day-to-day basis to deliver our purpose and to protect the Group's brand, reputation and relationships with all our stakeholders: employees, customers, shareholders, investors, suppliers and the communities where we live and work. The Board continues to seek to align the Group's strategic direction with its purpose and to the shareholders' long-term aspirations for sustainability and growth.

The Group's Chief Executive Officer and Chief Financial Officer provide the primary communication route between the Executive Leadership Team, the Board and the shareholders. Under the shareholders' Investment Agreement, the shareholders have the right to appoint Directors to the boards of group companies, including the Company, as well as sending observers to attend board meetings. The appointments of the current non-executive directors of KCA Deutag International Limited have been approved in accordance with the terms of the shareholders' Investment Agreement.

External Impacts

The Board is committed to social responsibility, community engagement and environmental sustainability. It achieves this in part through its commitment to our Culture of Care that ensures the safety, health and wellbeing of everyone who works with us, creating positive environmental and social impact; and seeking to be an employer of choice where everyone is valued and respected.

Stakeholders

The Board promotes accountability and transparency with all external stakeholders.

The Group also has in place its six WE CARE core values which provide the framework for effectively leading, supporting and managing employees. The Group Chief Executive Officer hosts town hall webinar meetings to provide a briefing on the Group's performance and allows individuals to raise questions and concerns. The Group monitors its employees' commitment to its guiding framework by asking members of senior management to submit a quarterly declaration confirming whether they have complied with the key requirements of critical World Wide Standards. All Group employees complete an annual appraisal with their line manager. This appraisal process is linked directly to each of the Group's core values giving a strong linkage of individual performance to these values.

If any employee wishes to highlight any inappropriate behaviour, they are encouraged to SPEAK UP and contact the independent whistleblowing services provider and a formal investigation follows.

The Executive Leadership Team has overseen a number of initiatives over the past few years to improve employee relations by seeking to expand the menu of flexible benefits on offer, encouraging more flexible working practices and wellbeing initiatives and updating the Group's intranet platform and channels of communication to share information, best practice, achievements and success.

The Group continues to comply with legal requirements in the UK in respect of Gender Pay Reporting and Payment Practices and Performance Reporting, both of which are published externally. The Group is constantly looking to improve in its engagement with all stakeholders as these relationships are key to ensuring that the decisions made by the Group reflect the interest of all. The Group's website (http://www.kcadeutag.com), intranet and social media channels provide extensive and up-to-date news on recent developments as well as regular updates from the Chief Executive Officer via his blog.

During 2023 Chief Executive Officer, Joseph Elkhoury, has continued to seek to increase employee engagement levels by conducting visits to Group locations and rigs, as well as continuing his "Chat with Joseph" sessions where small groups of staff have the opportunity to ask questions in an informal setting via online meetings. He also continues to engage with employees on a one-to-one basis in order to understand the current state of the business and concerns faced by employees.

Since his appointment as Chief Executive Officer in 2019, Joseph launched several #enhancethebrand improvement initiatives. These initiatives are led by separate teams that combine diverse groups of employees from different functions, business units and organisational levels to encourage proactive collaboration across the Company. One initiative in particular takes a bottom-up approach, the SKORE initiative, which encourages employees to provide process improvements to eliminate waste and reduce cost through Streamlining, Kollaboration, Outperforming, Retaining and Expanding. This initiative is aimed at ensuring the Group operates in an efficient and cost-effective manner while also looking to increase employee engagement, accountability and ownership. During 2023, the Group, as part of its strategy for the future, set-up the 'KCA Deutag Agility Transformation Office' (KATO) which looks to manage transformational projects for optimising and upgrading the business.

Activities of the Board in 2023

The Board operates a forward agenda of standing items appropriate to the Group's operating and reporting cycles. Items requiring Board approval or endorsement are clearly defined whilst other items are for monitoring or reviewing progress against strategic priorities, risk management or the adequacy of internal controls.

During 2023 the Board

External Auditors

The Audit Committee assesses the effectiveness of the Group's external auditors' performance every year after completion of the annual audit plan and during 2023 the Audit Committee evaluated their performance in relation to the 2022 audit. The evaluation takes the form of discussions with Management and other members of the Executive Management Team. The calibre of the external auditors, their governance, independence and professionalism continues to receive good feedback. Both management and the external auditors are committed to a positive working relationship that enhances the effective and efficient execution of the audit process.

Throughout 2023 the Audit Committee was satisfied that the Group's external auditors' engagement policy had been complied with and concluded that the external auditors remained objective and independent and that the audit process was robust.

Financial Review

Overview

The financial statements of the Group for the year ended 31 December 2023 have been prepared in accordance with UK-adopted international accounting standards (UK IFRS) in conformity with the requirements of the Companies (Jersey) Law 1991 and are presented in US Dollars, which is the principal functional and presentational currency of the Group's income streams and cash flows. Group loss after tax from continuing and discontinued operations was $33.7 million after including a number of exceptional items described below, compared with a loss after exceptional items of $374.6 million in 2022. Excluding exceptional items, which generated a tax credit of $1.4 million (2022: $0.4 million), the loss after tax from continuing and discontinued operations was $21.8 million (2022: loss $15.3 million). For the Group's continuing operations, the loss after tax, excluding exceptional items, was $21.8 million (2022: loss $62.1 million).

Trading Performance

Note 5 to the financial statements sets out the segmental analysis of the business analysed between Offshore services, Land drilling and Kenera, highlighting EBITDA performance before exceptional items which is the key financial performance indicator that the Group uses for its operations.

The following table sets out the 2023 figures:

^* before exceptional items

The above table has been extracted from Note 5 to the financial statements, which also includes the comparative information for 2022. These are the pro forma Group results and include continuing and discontinued operations.

Group revenues increased by 26.9% from 2022, with higher revenues in Land drilling offsetting lower revenues in Offshore services and Kenera. Offshore services revenues have seen a small decrease with higher activity in Azerbaijan and Angola along with increased activity in the UK North Sea which was offset by the impact of having to abandon the Sakhalin business during 2022. Kenera completed two rig sales in 2023 compared to four in 2022. Land drilling revenues have increased with the impact of the Saipem acquisition along with increased utilisation in Saudi Arabia, Oman and Europe more than offsetting the impact of the abandonment of our Russian Land drilling business.

Offshore services EBITDA was lower in 2023 due to weaker performance of the Norwegian sales and rental business as well as the loss of EBITDA relating to the abandoned Sakhalin business which was only partially offset by strong performance in all other areas.

In Land drilling the EBITDA results were positively impacted by the acquisition of Saipem's Land drilling business which more than offset the impact of the Russian abandonment.

Kenera EBITDA was lower due to two land rigs being delivered rather than four in the prior year. Higher engineering EBITDA offset lower performance in services.

The Group EBITDA margin was improved at 23.8% compared to 19.5% in 2022 mainly due to the impact of the Saipem acquisition leading to additional higher margin activity.

For the Group's continuing operations, revenue has increased to $1,614.5 million, an increase of 48.5% while EBITDA at $384.1 million represents an increase of 91.3% over 2022 performance. These significant increases are primarily due to the impact of the additional activity arising in Land Drilling from the Saipem acquisition. The Group's continuing operations EBITDA margin at 23.8% compares to 19.5% in 2022 with the increase largely due to the impact of higher margin activities from the ex-Saipem business.

Depreciation and Amortisation

Depreciation of the Group's tangible assets totalled $123.8 million (2022: $107.6 million) of which $118.1 million (2022: $102.2 million) related to depreciation of drilling rigs and equipment. Amortisation of intangible assets, which consist of the value of customer relationships and contracts, trade names and technology, amounted to $8.8 million (2022: $4.0 million). Depreciation of right of use assets of leased equipment amounted to $62.9 million (2022: $43.0 million).

Exceptional Items

The Group incurred the following exceptional items which are separately disclosed within Notes 10, 11, 12 and 13 to the financial statements:

During 2022 the Group incurred the following exceptional items which are separately disclosed within Notes 10, 11, 12 and 13 to the financial statements:

Finance Costs

Net finance costs for the Group in the year amounted to $161.8 million (2022: $81.2 million) and the analysis is shown in Note 7 to the financial statements.

During the year the Group amortised $4.6 million (2022: $1.8 million) of debt arrangement fees, relating to the Group's Senior Secured Notes, Floating Rate Notes, Payment in Kind Notes and Revolving Credit Facilities.

The net exchange loss of $10.2 million (2022: gain $17.1 million) includes accounting gains or losses arising on revaluation of cash held during the year in Naira in Nigeria and in Kwanzas in Angola. It also includes accounting losses of $2.8 million (2022: gain $5.5 million) arising on non-functional currency pension liabilities. In addition, it includes accounting gains or losses arising on the retranslation of Norwegian Krone and Sterling balances on USD functional entities as well as exchange gains or losses arising on the revaluation of US Dollar debt held in the Balance Sheet of Group companies whose functional currency is denominated in other currencies.

Taxation

Notes 9 and 23 to the financial statements set out the analysis of the Group's tax charge and breakdown of deferred tax respectively along with the Group's effective tax rate.

The 2023 total tax charge of $47.2 million (2022: $36.5 million) has increased from 2022. There was an increase in taxable profits which has resulted in a higher current tax charge of $39.1 million (2022: charge of $24.5 million). There was also a deferred tax charge arising in the year of $8.1 million (2022: charge of $12.0 million).

Net income tax liabilities in the Group Balance Sheet include $9.1 million (2022: $13.0 million) relating to uncertain tax positions where management has had to exercise judgement in determining the most likely outcome in respect of the relevant issue. Due to the uncertainty associated with such tax positions, it is possible that at a future date, on conclusion of these open tax positions, the final outcome may vary significantly. While a range of outcomes is reasonably possible, based on management's historic experiences of these issues, we believe a likely range of outcomes is additional liabilities of up to $2.2 million and a reduction in liabilities of around $5.5 million. The range of sensitivities depends upon quantification of the liability, risk of technical error and difference in approach taken by tax authorities in different jurisdictions.

Pillar Two

On 20 June 2023, the UK Finance Bill was substantively enacted in the UK, including legislation to implement the OECD Pillar Two income taxes rules. The Group is within the scope rules and the first period for which a Pillar Two tax return will be required for the Group is the accounting period ending on the 31 December 2024.

The Group has applied the exception in the Amendments to IAS 12 issued May 2023 and has neither recognised nor disclosed information about deferred tax assets or liabilities relating to Pillar Two income taxes.

The Group has performed necessary analysis in preparation of complying with the Pillar Two rules for the year ended 31 December 2024. Based on the analysis derived from the information in respect of the year ended 31 December 2023, the Group has identified potential exposure to Pillar Two top up taxes in Cyprus, but the amount is immaterial and expected to be a non-recurring event.

Capital Investment

During the year a total of $122.6 million (2022: $60.8 million) was invested in fixed assets, of which $114.6 million related to drilling rigs and equipment (2022: $56.5 million) which was primarily capital investment on two new Land drilling rigs as well as to maintain and reactivate the Land drilling fleet.

Group Cash flow and Debt

Net debt is defined as the excess of the Group's long and short term borrowings (including overdrafts) over cash, cash equivalents other deposits and capitalised debt arrangement fees. At the end of 2023, the Group held cash balances of $230.1 million (2022: $280.7 million).

KCA Deutag International Limited, its affiliates, or other related parties may or may not opportunistically purchase debt in one or more series of open market transactions from time to time.

Borrowings

At 31 December 2023 the Group's total bank borrowings were $1,126.4 million (2022: $1,050.0 million), 99.7% (2022: 100.0%) of which is due to mature in more than one year and 68.9% (2022: 66.7%) of the borrowings were at fixed rates. The increase in borrowings in 2023 is driven by:

Pensions

At 31 December 2023, the Group had a total of $106.6 million (2022: $99.9 million) of liabilities relating to various defined benefit pension schemes. The largest element thereof was $100.5 million (2022: $95.8 million) relating to unfunded liabilities in Germany where the Group pays out pensions to scheme members after retirement.

In the UK, the Group's two defined benefit pension schemes had a net deficit totalling $6.1 million (2022: $4.1 million) which is being funded by the Group over the medium term.

The increase in the Group's pension liabilities is mainly driven by the impact of the Euro/Dollar exchange rate on the German pension liabilities partially offset by lower discount rate assumptions.

Going Concern

The Group regularly monitors its funding position throughout the year to ensure that it has access to sufficient funds to meet its forecast cash requirements. Forecasts are regularly produced to give management's best estimates of forward liquidity, leverage and forecast covenant compliance as defined in the Group's loan documentation. This is done to identify risks to liquidity and covenant compliance and to enable management to formulate appropriate and timely mitigation strategies.

During the year, the Group secured additional bank loan borrowings of $41.5 million relating to the funding of the new PDO rigs in addition to its existing RCF and guarantee facilities.

The Directors have reviewed the most recent projections and forecasts as prepared as part of its budgeting and strategic planning process along with assessing severe but plausible downside sensitivity scenarios and their potential impacts on Group profitability and cash generation over the same period.

Underpinning the directors' assessment of going concern is:

Management have considered the following severe but plausible downside sensitivity cases which include:

Based on these scenarios, the Group would be able to remain compliant with its debt/EBITDA and liquidity covenants and would have sufficient cash throughout the going concern period and could implement further mitigations, such as cancellation of controllable capex and management of working capital, if required.

The Directors have also performed reverse stress testing which the Directors consider remote given the implausible reduction in EBITDA forecast required to trigger a covenant breach in the context of the current firm contract backlog. Based upon the analysis described above, the Directors have a reasonable expectation that the Group and Company has sufficient covenant headroom as well as adequate cash resources to meet all its liabilities as they fall due for the period analysed, which is to 30 September 2025. As a result, the Directors consider it appropriate to prepare the Group's and Company's financial statements on a going concern basis.

Corporate Information

Board of Directors

J Elkhoury

N Gilchrist

S Al Qahtani

A Durkin (deceased)

T Ehret

M Moufarrej

P Thomas

M Toninelli

Registered Office

13-14 Esplanade

St Helier

JE2 3QA

Principal Bankers

HSBC Bank plc 95 - 99 Union Street

Aberdeen

AB11 6BD

Independent Auditors

Ernst & Young LLP

2 Marischal Square

Broad Street

Aberdeen

AB10 1BL

Directors' report

The Directors present their report on the affairs of KCA Deutag International Limited ("the Company") and its subsidiary undertakings (together "the Group"), together with the audited consolidated financial statements, for the year ended 31 December 2023.

Strategic Report and Principal Activities

The Company's principal activity is as a holding company whose principal subsidiary undertakings provide drilling and related well and facilities engineering and technology services on a worldwide basis to the energy industry.

Further information regarding the Group, including important events and its progress during the year, events since the year end and likely future development is contained in the Chairman's Statement and in the Strategic Report on pages 3 to 23. Information has been included within the Directors' Report by reference as per below:

Results and Dividends

The Group made a loss after taxation of $33.7 million (2022: loss of $374.6 million) which has been deducted from retained earnings. The audited financial statements for the year ended 31 December 2023 are set out on pages 42 to 99. The Directors do not recommend the payment of an equity dividend. Non-equity dividends of $14.8 million (2022: $9.4 million) were paid in the year.

Directors

The Directors who served during the year and up to these financial statements being signed were as follows:

J Elkhoury

N Gilchrist

S Al Qahtani

A Durkin (deceased)

T Ehret

M Moufarrej

P Thomas

M Toninelli

Following the untimely passing of Director Angela Durkin on 1 February 2024, her appointment ceased on this date.

Substantial Shareholdings

At 31 December 2023, KCA Deutag International Limited is a private limited Company registered in Jersey. There is no shareholder which holds 25% or more of the shares in the Company and the Company is controlled by its Directors subject to an Investment Agreement between the Company and its shareholders.

Supplier Payment Policy

The Company and Group policy is to agree terms of payment with suppliers prior to entering into contractual relationships and to abide by those terms of payment.

Employees

The Group is committed to involving employees in the business through a policy of communication and consultation. Arrangements have been established for the regular provision of information to all employees through internal intranet articles, briefings and well-established formal consultation procedures.

Applications for employment by disabled persons are always fully considered, bearing in mind the aptitudes and abilities of the applicant. If employees become disabled every effort is made to ensure that their employment with the Group continues and that appropriate training is arranged. It is the policy of the Group that the training, career development and promotion of a disabled person should, as far as possible, be identical to that of a person who does not suffer from a disability.

Health and Safety at Work

The well-being of the employees is given the highest priority throughout the Group and it is the Group's policy not only to comply with health and safety measures, as required by law, but to act positively to prevent injury and ill health, and damage to the environment arising from its operations.

Environment

The Group has various subsidiaries that provide drilling and related well and facilities engineering services both onshore and offshore. In the execution of these services they undertake environmental risk assessments and site appraisals as standard. These assessments are discussed with the clients to improve the environmental performance of the operation as a whole, through the preparation and implementation of site-specific environmental plans.

The below figures provide details of annual Greenhouse Gas (GHG) emissions (scope 1 & 2 plus grey fleet use) from activities for which the Group is directly responsible from our head office facilities and a small fleet of company vehicles used in the UK and covers the financial year ended 31 December 2023. There is also grey fleet consumption (private vehicles used for business mileage). The methodology used to calculate total energy consumption and carbon emissions has been through the extraction of consumption data from invoices and meter readings during the period. Estimation was required for staff who take a car allowance and who drive business miles as this data is not currently recorded. Energy and fuel consumption has been converted to carbon (TCO ₂ e) using 2023 UK Government GHG Conversion Factors for Group reporting.

Fuel for transportation has been converted using statistical data sets published by the Department of Transport (http://www.gov.uk/government/statistical-data-sets/energy-and-environment-data-tables-env).

There have been two changes in the reporting since last year. The first relates to the diesel consumption and the grey fleet where employees who receive a car allowance are now being included in terms of assumed mileage. The second relates to the gas figures whereby previously we were using the meter readings whereas this year the data is coming directly from the grid. The key environmental risks identified in the UK include waste management, provision of utilities and fuel for company vehicles and forklifts. Further initiatives will be implemented in 2024 to improve energy efficiency which includes setting a default temperature setting for meeting rooms that re-sets daily and changing external group lighting to LED lighting.

The Group remains committed to reducing its carbon footprint and as mentioned in the Chairman's Statement we have published our third Sustainability Strategy report for the year 2023. As a responsible drilling and technology group we have an important role to play in improving energy efficiency and in developing new technologies to minimise greenhouse gas emissions generated by us and the work we undertake on behalf of our customers. As a business our aim is to improve efficiency and reduce our emissions and energy consumption to as low a level as is practically possible within the context of our own business operations. We continue to work on improving environmental sustainability by reducing our carbon footprint, eliminating waste, recycling and using alternative energy sources where possible.

Directors' Responsibilities Statement

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable Jersey law and UK adopted international accounting standards.

The Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the financial statements, the Directors are required to:

The Directors confirm that they have complied with the above requirements in preparing the financial statements.

The Directors are also responsible for ensuring that the financial statements comply with the Companies (Jersey) Law 1991 and safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company.

On behalf of the Board of Directors

Independent auditors' report to the members of KCA Deutag International Limited

Qualified Opinion

We have audited the financial statements of KCA Deutag International Limited (the "company") and its subsidiaries (the "group") for the year ended 31 December 2023 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Balance Sheets, the Consolidated and Company Statements of Changes in Shareholders' Equity, the Group and Company Statements of Cash Flows, and the related notes 1 to 32, including a summary of material accounting policy information. The financial reporting framework that has been applied in their preparation is applicable law and UK adopted international accounting standards.

In our opinion, except for the possible effects on the corresponding figures of the matter described in the basis for qualified opinion section of our report, the group financial statements:

In our opinion, the parent company financial statements:

Basis for qualified opinion

In the previous period, following the introduction of UK Government Sanctions, the Group discontinued all operations in Russia and wrote off all the assets to nil. This gave rise to a loss arising on the discontinued operations of $294.2m in the year ended 31 December 2022.

As a consequence of the UK Government sanctions banning the provision of audit services to entities connected with the Russian Federation, it was not possible to obtain sufficient appropriate audit evidence about these discontinued operations. Consequently, we were unable to determine whether any adjustment to these amounts was necessary. Our audit opinion on the financial statements for the period ended 31 December 2022 was modified accordingly. Our opinion on the current period's financial statements is also modified because of the possible effect of this matter on the comparability of the current period's figures and corresponding figures.

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements, including the UK FRC's Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group's and company's ability to continue as a going concern for a period to 30 September 2025.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group's and company's ability to continue as a going concern.

Other information

The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact.

As described in the basis for qualified opinion section of our report, we were unable to satisfy ourselves concerning the discontinued operations balances of $294.2m recorded in the year ended 31 December 2022 shown within the corresponding figures in the income statement for the year ended 31 December 2022. We have concluded that where the other information refers to these discontinued operations, it may be materially misstated for the same reason.

Matters on which we are required to report by exception

Arising from the limitation of our work referred to above:

We have nothing to report in respect of the following matters in relation to which the Companies (Jersey) Law 1991 requires us to report to you if, in our opinion:

Responsibilities of directors

As explained more fully in the directors' responsibilities statement set out on page 38, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group's and the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the company and management.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

Use of our report

This report is made solely to the company's members, as a body, in accordance with Article 113A of the Companies (Jersey) Law 1991. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Consolidated Income Statement for the year ended 31 December 2023

Consolidated Statement of Comprehensive Income for the year ended 31 December 2023

All items, with the exception of the remeasurements on defined benefit pension schemes, may subsequently be reclassified to the Income Statement.

The Notes on pages 48 to 99 form an integral part of the financial statements.

Balance Sheets as at 31 December 2023

The financial statements on pages 42 to 99 were approved by the Board of Directors on 18th April 2024 and signed on its behalf by

Registered Number: 132385

Consolidated Statement of Changes in Shareholders' Equity

Other reserves in the Balance Sheet consist of the hedging reserve, merger reserve, currency translation reserve, capital contribution reserve and non-controlling interests.

During 2023 the Company received $1.2 million from the trustees administering the 2020 restructuring of the KCA Deutag Group.

At 31 December 2023, the Group recorded a $3.7 million reduction in the value of its investment in Clean Power Hydrogen plc to reflect the market value applicable at that date.

Non-controlling interests represent the share of profits or losses attributable to non-Group shareholders of certain subsidiaries.

Company Statement of Changes in Shareholders' Equity for the year ended 31 December 2023

(i) During 2023 the Company received $1.2 million from the trustees administering the 2020 restructuring of the KCA Deutag Group.

Cash Flow statements

for the year ended 31 December 2023

Cash and cash equivalents as set out in the above Cash Flow Statement include overdraft facilities which form part of the Group's cash management strategy.

Notes to the consolidated financial statements for the year ended 31 December 2023

1 General information

KCA Deutag International Limited ('the Company') is a holding company whose principal subsidiary undertakings provide drilling and related well and facilities engineering services on a worldwide basis to the energy industry.

The Company is a private company, limited by shares, incorporated in Jersey. The address of its registered office is 13-14 Esplanade, St Helier, JE2 3QA.

2 Basis of preparation

The Group and Company financial statements have been prepared under UK adopted international accounting standards, IFRS Interpretations Committee (IFRS IC) and the Companies (Jersey) Law 1991. The financial statements have been prepared under the historical cost method. A summary of the significant Group accounting policies is set out below.

The Group regularly monitors its funding position throughout the year to ensure that it has access to sufficient funds to meet its forecast cash requirements. Forecasts are regularly produced to give management's best estimates of forward liquidity, leverage and forecast covenant compliance as defined in the Group's loan documentation. This is done to identify risks to liquidity and covenant compliance and to enable management to formulate appropriate and timely mitigation strategies.

During the year, the Group secured additional bank loan borrowings of $41.5 million relating to the funding of the new PDO rigs in addition to its existing RCF and guarantee facilities.

The Directors have reviewed the most recent projections and forecasts as prepared as part of its budgeting and strategic planning process along with assessing severe but plausible downside sensitivity scenarios and their potential impacts on Group profitability and cash generation over the same period.

Underpinning the directors' assessment of going concern is:

Management have considered the following severe but plausible downside sensitivity cases which include:

Based on these scenarios, the Group would be able to remain compliant with its debt/EBITDA and liquidity covenants and would have sufficient cash throughout the going concern period and could implement further mitigations, such as cancellation of controllable capex and management of working capital, if required.

The Directors have also performed reverse stress testing which the Directors consider remote given the implausible reduction in EBITDA forecast required to trigger a covenant breach in the context of the current firm contract backlog. Based upon the analysis described above, the Directors have a reasonable expectation that the Group and Company has sufficient covenant headroom as well as adequate cash resources to meet all its liabilities as they fall due for the period analysed, which is to 30 September 2025. As a result, the Directors consider it appropriate to prepare the Group's and Company's financial statements on a going concern basis.

3 Summary of material accounting policy information

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

a) Basis of consolidation

(i) Subsidiaries

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company for the year to 31 December 2023. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Subsidiaries are fully consolidated or deconsolidated from the effective date control is transferred to or from the Company. On acquisition, the assets and liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. Any excess of the fair values of the identifiable net assets over the cost of acquisition is recognised directly in the Income Statement.

All intra-group transactions, balances, income and expenses are eliminated on consolidation. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group.

(ii) Associates and joint ventures

An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control, through participation in the financial and operating policy decisions of the investee. The results and assets and liabilities of associates are incorporated in the financial statements using the equity method of accounting. The Group's share of its associates' post-acquisition profits or losses is recognised in the Income Statement within operating profit and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Losses of the associates in excess of the Group's interest in those associates are not recognised.

Any excess of the costs of acquisition over the Group's share of the fair values of the identifiable net assets of the associate at the date of acquisition is recognised as goodwill and included within the carrying amount of the associate. Any excess of the Group's share of the fair values of the identifiable net assets of the associate over the costs of acquisition is recognised directly in the Income Statement.

Where a Group company transacts with an associate, profits and losses are eliminated to the extent of the Group's interest in the relevant associate. Losses may provide evidence of an impairment of the asset transferred in which case appropriate provision is made for impairment.

Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. The Group has assessed the nature of its joint arrangements and determined them to be joint ventures. Joint ventures are accounted for using the equity method.

Under the equity method of accounting, interests in joint ventures are initially recognised at cost and adjusted thereafter to recognise the Group's share of the post-acquisition profits or losses and movements in other comprehensive income.

When the Group's share of losses in a joint venture equals or exceeds its interests in the joint ventures (which includes any long-term interests that, in substance, form part of the Group's net investment in the joint ventures), the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint ventures.

Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group's interest in the joint ventures. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the joint ventures have been changed where necessary to ensure consistency with the policies adopted by the Group.

b) Foreign currency translation

(i) Functional and presentation currency

The consolidated financial statements are presented in US Dollars. Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operated (the functional currency). The Company's functional and presentation currency is the US Dollar.

The exchange rates used in respect of the major currencies in which the Group operates, compared to the US Dollar, are as follows:

(ii) Transactions and balances

Transactions denominated in foreign currencies are translated and recorded at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rates ruling at the Balance Sheet date. Gains and losses arising on retranslation are recognised in the Income Statement for the year, except where hedge accounting is applied.

(iii) Group companies

On consolidation, the assets and liabilities of the Group's non US Dollar functional entities are translated at exchange rates prevailing on the Balance Sheet date. Income and expense items are translated at average monthly exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case the actual transaction rate will be used).

All resulting exchange differences are recognised as a separate component of equity. Such translation differences are recognised in the Income Statement in the year in which the operation is disposed of.

(iv) Goodwill and fair value adjustments

Goodwill and fair value adjustments arising on the acquisition of a non US Dollar functional entity are treated as assets and liabilities of the non US Dollar functional entity and translated at the closing exchange rate.

c) Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resource and assessing performance of the operating segments, has been identified as the Group's Board of Directors that make all strategic decisions. Key performance measures include EBITDA and rig utilisation.

EBITDA before exceptional items is the profit measure used by the group as a simple proxy for pre-tax cash flows from operating activities. It is defined as pre-exceptional operating profit underlying results before share of associates' post-tax results, interest, tax, depreciation, impairment and amortisation.

d) Business combinations and goodwill

(i) Business combinations accounted for using the acquisition method

Business combinations are accounted for using the acquisition method. All assets and liabilities of the acquiree are measured at fair value at the date of acquisition. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. Acquisition costs incurred are expensed and included in administrative expenses.

Goodwill arising on acquisition (representing the excess of fair value of the consideration given over the fair value of the separable net assets acquired) is recognised as an asset and reviewed for impairment at least annually. On disposal of an entity, the attributable amount of remaining goodwill is included in the determination of profit and loss on disposal.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability will be recognised through the Income Statement. If the contingent consideration is classified as equity, it will not be remeasured. Subsequent settlement is accounted for within equity.

When deferred consideration is payable on the acquisition of a business, an estimate of the amount payable is made at the date of acquisition and reviewed regularly thereafter, with any subsequent change in the estimated liability being reflected in the Income Statement. Where deferred consideration is payable after more than one year the estimated liability is discounted using an appropriate rate of interest.

(ii) Business combinations under common control

It is the Group's policy to account for business combinations involving entities under common control using predecessor accounting. Under predecessor accounting, the Group has elected to include the acquired entity's results and capital structure from the date of acquisition.

A merger reserve, recognised in equity, represents the differences on consolidation arising on the adoption of predecessor accounting. This comprises the difference between consideration paid and the book value of net assets acquired in the transaction. No additional goodwill is created or gain recognised.

e) Other intangible assets

Intangible assets are recognised at cost less accumulated amortisation and any provision for impairment. On acquisition of an entity, intangible assets are identified and evaluated to determine the fair value on the acquisition Balance Sheet. Amortisation is provided to write off the cost of each asset over its estimated useful life, using the straight-line method, on the following basis:

We perform an annual review of our intangible assets to determine the appropriateness of their carrying values. When determining the impairment charge for each intangible asset category management has assessed the current and likely future benefit obtained from the specific assets, taking into account the current market environment.

f) Property, plant and equipment

Property, plant and equipment held for use in the Group's operations, or for administrative purposes, are stated in the Balance Sheet at cost, net of accumulated depreciation and any provision for impairment. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Group's accounting policy.

Depreciation is provided on all property, plant and equipment, other than freehold land, at rates calculated to write off the cost, less estimated residual value, of each asset over their estimated useful life.

Assets are depreciated by the straight line method on the following basis:

Assets in the course of construction are not depreciated until ready for use.

The gain or loss arising on the disposal of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the Income Statement.

Asset lives and residual values are assessed at each Balance Sheet date. Where an impairment trigger is identified with relation to specific assets, a review is undertaken to confirm the appropriateness of the carrying value taking into account factors such as comparable asset values and available third party valuations.

g) Goodwill impairment

The Group performs impairment reviews in respect of goodwill annually, and other intangible assets and property, plant and equipment when circumstances indicate that the carrying amount may not be recoverable. An impairment charge is recognised when the recoverable amount of an asset, calculated as the higher of the asset's recoverable amount and its value per an independent third party valuation, is less than its carrying amount. In the absence of comparable market transactions, a discounted cash flow model has been used to value the assets, as such a model is equivalent to what a market participant would use as a methodology for asset valuation.

For the purpose of impairment testing, assets are allocated to the appropriate cash generating unit ("CGU"). The CGUs are aligned to the structure the Group uses to manage its business. Cash flows are discounted in determining the recoverable amount.

h) Net borrowing costs and interest income

Borrowing costs directly attributable to the construction of qualifying assets such as property, plant and equipment are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. All other borrowing costs are recognised in the Income Statement in the year in which they are incurred.

Interest income is accrued on a time basis, by reference to the principal amount outstanding and the effective interest rate applicable.

i) Investments in subsidiaries, associates and intercompany loans

Investments held as non-current assets are measured at cost less appropriate provision for impairment where the Directors consider that an impairment in value has occurred. The same process used to determine ECLs for trade and other receivables is also applied for intercompany loans (Note 16). Investments are considered for impairment at least annually. In respect of the accounting treatment for investments in associates for Group purposes see Note 3a) above.

j) Inventories

Inventories of spare parts which are held for use in the Group's drilling operations are stated at weighted average cost less a provision in respect of those spares attached to the older rigs and equipment. Other inventory and work in progress are valued at the lower of cost and net realisable value. Cost is calculated using the weighted average method.

k) Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, deposits with maturities of less than three months held with banks and bank overdrafts.

l) Trade receivables

Trade receivables, including contract assets, are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method less provision for an expected credit loss, if applicable. When determining the level of expected credit loss provision, management consider the age of the outstanding receivable along with prior experience in relation to the specific customer as well as the jurisdiction in which the balance is due before booking any provision.

When determining the level of expected credit loss provision required in respect of trade receivable balances, management also consider the creditworthiness and probability of the future default of the customer.

m) Taxation

The tax charge represents the sum of tax currently payable, deferred tax and management's estimated provision for current tax claims. Tax currently payable is based on the taxable profit for the year. Taxable profit differs from the profit reported in the Income Statement due to items that are not taxable or deductible in any year and also due to items that are taxable or deductible in a different year. The Group's liability for current tax is calculated using tax rates enacted or substantively enacted at the Balance Sheet date.

Deferred income tax is provided, using the full liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements.

The principal temporary differences arise from depreciation on property, plant and equipment, pension liabilities, tax losses carried forward and, in relation to acquisitions, the difference between the fair values of the net assets acquired and their tax base.

Tax rates enacted, or substantively enacted, by the Balance Sheet date are used to determine deferred income tax.

Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. Future taxable profits are determined based on business plans for individual subsidiaries in the Group. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when the probability of future taxable profits improves.

In relation to uncertain tax positions, a tax charge is created to reflect management's best estimate of the amount payable in relation to a portfolio of tax claims and the risk of occurrence of each claim as at the Balance Sheet date.

n) Employee benefits

(i) Pension obligations

A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a pension plan that is not a defined contribution plan.

Typically, defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.

The liability recognised in the Balance Sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation.

The interest income on scheme assets and the increase during the period in the present value of the scheme's liabilities arising from the passage of time are included in finance income/expense.

Remeasurement gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise.

Past-service costs are recognised immediately in the Income Statement.

For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.

(ii) End of service benefit accruals

As required under local legislation in a number of Middle East countries, the Group operates post-employment benefit schemes where payments are made to employees at the end of their service based on most recent salary and number of service years. These plans are not funded.

Accordingly, valuations of the obligations under the plans are carried out by an independent actuaries based on the projected unit credit method. The costs relating to such plans primarily consist of the present value of the benefits attributed on an equal basis to each year of service and the interest on this obligation in respect of employee service in previous years.

Current and past service costs related to post-employment benefits are recognised immediately in profit or loss while unwinding of the liability at discount rates used are recorded in profit or loss. Any changes in net liability due to actuarial valuations and changes in assumptions are taken as re-measurement in other comprehensive income.

Re-measurement gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised directly in other comprehensive income and transferred to retained earnings in the statement of changes in equity in the period in which they occur.

Changes in the present value of the defined benefit obligations resulting from plan amendments or curtailments are recognised immediately in profit or loss as past service costs.

End of service payments are based on employees' final salaries and allowances and their cumulative years of service, as stated under applicable national laws.

o) Financial assets and liabilities

Financial assets and financial liabilities are recognised on the Group's Balance Sheet when the Group becomes a party to the contractual provisions of the instrument.

(i) Derivative financial instruments and hedge accounting

The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group uses foreign exchange forward contracts and interest rate swap contracts to hedge these exposures. The Group does not use derivative financial instruments for speculative purposes.

The Group have elected to carry financial asset investments in listed equity investments at fair value through Other Comprehensive Income.

Derivatives are initially recognised at fair value on the date the contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.

The Group designates certain derivatives as either: hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); hedges of highly probable forecast transactions (cash flow hedges); or hedges of net investments in foreign operation (net investment hedges). The Group currently only uses cash flow hedges and did not enter into any fair value or net investment hedges during the reporting period.

Where hedging is to be undertaken, the Group documents at the inception of the transactions the relationship between the hedging instrument and the hedged item, as well as its risk management objective and strategy for undertaking the hedge transaction.

The Group also documents its assessment, both at hedge inception and on an on-going basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The Group performs effectiveness testing on an annual basis.

Changes in the fair value of cash flow hedges that are designated and effective as hedges of future cash flows are recognised directly in other comprehensive income and the ineffective portion is recognised immediately in the Income Statement. If the cash flow hedge of a firm commitment or forecasted transaction results in the recognition of a non-financial asset or a liability, then, at the time the asset or liability is recognised, the associated gains or losses on the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability.

If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to net profit or loss for the year.

For hedges that do not result in the recognition of an asset or a liability, amounts deferred in equity are recognised in the Income Statement in the same year in which the hedged item affects net profit or loss.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted transaction occurs.

Fair value measurements are classified using a fair value hierarchy that reflects the significance of the inputs used in the measurements, according to the following levels:

The fair value of forward currency contracts has been estimated based on market forward exchange rates at the Balance Sheet date, which is classified as level 2.

(ii) Bank borrowings

Interest-bearing bank loans and overdrafts are initially recorded at fair value including directly attributable transaction costs. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the Income Statement over the period of the borrowings using the effective interest method.

Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down and are amortised over the period of the loan.

(iii) Embedded derivatives

Embedded derivatives are recognised at fair value based on calculations using an established option pricing model, and are subsequently annually remeasured at their fair value. The carrying amount of an embedded derivative is reported within the same consolidated Balance Sheet category as the host contract.

p) Capital management

Where possible the Group seeks to secure long term debt financing which provides access to funds for a number of years into the future. Current secured long-term debt facilities for example have no significant capital repayments required until December 2025. The Group has sought to diversify its access to debt markets away from wholly traditional bank debt towards institutional debt by way of the corporate bond markets. The Group will seek to refinance these debt facilities as repayment dates get closer and to take advantage of market conditions. The Group also seeks to secure debt facilities with a light covenant structure and monitors these closely. Periodic reviews of interest rate exposures are also made looking at fixed rate and variable rate exposures with the aim of maintaining a balance between fixed and variable rates. The Group also works closely with its principal shareholders to discuss potential future financing requirements. All significant growth capital expenditure is approved by the Board.

q) Provisions

Provisions are measured at the net present value of the Directors' best estimate of the expenditure required to settle the present obligation at the Balance Sheet date. A discount is applied to the provision for the time value of money where this is significant. Provisions are provided where there is a present obligation based on past events that it is probable that an outflow will be required and the financial outcome can be reliably measured.

r) Revenue recognition

Revenue is recognised based on the gross amount received or receivable for services provided in the normal course of business, net of value-added tax and other sales related taxes. Revenue from Land drilling, Offshore services' platform drilling operations and Kenera operations is recognised in the accounting period in which the services are rendered, typically based on a day rate for rigs and/or manpower provided to the customer.

In Offshore services, the Group provides personnel to operate and maintain customer owned assets based on contractually agreed rates.

In Land drilling, the Group typically provides the drilling rig and crew to the customer on a day rate which varies dependent on activity. In our day rate drilling contracts, we typically receive compensation and incur costs for mobilisation, equipment modification or other activities prior to the commencement of a contract. Any such compensation may be paid through a lump-sum payment or other daily compensation.

Pre-contract compensation and costs are deferred until the contract commences and then spread on a straight-line basis over the primary term of the relevant drilling contract. The deferred pre-contract compensation and costs are amortised, using the straight-line method, into income or loss over the term of the initial contract period, regardless of the activity taking place, in a manner consistent with the economics of the customer contract. Where there are no elements of up-front consideration in a drilling contract, the Group recognises revenue in line with the amount to which we are contractually able to invoice the customer for performance obligations which have been completed to date. Therefore, the IFRS 15 expedient allowing the Group to recognise revenue in line with its right to invoice its customers has been applied in preparing these financial statements.

Mobilisation costs which are incurred in relation to the mobilisation of new rigs are capitalised and depreciated over the life of the rig. Mobilisation costs incurred on moving rigs to locations under a new customer contract are amortised on a straight line basis over the primary period of the new contracts.

Costs and revenues which are expected to be incurred or earned in relation to the demobilisation of rigs are accrued over the primary term of the drilling contract.

Any rig move costs for moving the rigs to new locations while operating under a drilling contract are expensed as incurred, with the relevant revenue being recognised when the rig move is complete.

Early termination fees in relation to Land drilling contracts are recognised as a point in time revenue stream at the time they are agreed with the customer and the Group has no future performance obligations under the relevant contract.

Incentive income is recognised when earned. Incentive income is earned in respect of contract Key Performance Indicators (KPIs) detailed in customer contracts, and revenue is recognised only when a KPI has been achieved and achievement has been agreed with a customer.

In Kenera, the Group provides personnel on a time-cost basis to customers to work on engineering projects as well as a number of contracts that are accounted for as engineering contracts as described in s) below.

Recognition of revenue from Kenera engineering contracts is described in s) below. For all other Kenera revenue streams revenue is recognised based upon completion of the relevant service or delivery of goods.

The Group recognises flow through revenue, which relates to reimbursable costs, based on the gross amount received or receivable in respect of its performance under the sales contract with the customer.

Interest income is accrued on a time basis, by reference to the principal amount outstanding and the effective interest rate applicable.

s) Engineering contracts

Where the outcome of a long term engineering contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the Balance Sheet date dependent on the relevant provisions in the contract with the customer. This is measured by the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs, except where this would not be representative of the stage of completion or the contractual position prevents this treatment in accordance with IFRS 15, which results in revenue being recognised at a point in time rather than with reference to the stage of completion of the contract. Revenue variations in contract work, claims and incentive payments are included to the extent that they have been agreed in writing by the customer. Typically the performance obligation in respect of these contracts is fulfilled on delivery.

When it is probable that total contract costs will exceed total revenue, the expected loss is recognised in full as an expense immediately.

Deferred income represents the value of advance payments received from customers for engineering contracts which are in excess of the value of work done at the Balance Sheet date.

t) Leases

Where the Group is a lessee almost all leases are recognised on the Balance Sheet. An asset (the right to use the leased item) and a financial liability to pay rentals are recognised.

The lease liability is measured at the present value of the future lease payments. The lease term includes all periods covered by extension options if exercise of the extension is reasonably certain. The present value is calculated based on an appropriate discount rate being the Group's incremental borrowing rate.

The right-of-use asset is initially measured based on the calculated lease liability plus any indirect costs, payments at or prior to lease commencement, dilapidation provisions less any lease incentives. Subsequent measurement is at cost less depreciation and any provision for impairment. The right-of-use asset is also adjusted based on any re-measurement of the lease liability.

The Group has also chosen to take advantage of the exemptions as allowed in the standard for certain short term leases and leases of low value assets:

i) Short term leases

This is defined as a lease which has a lease term of 12 months or less and does not contain a purchase option. In terms of assessing the duration of a lease, if a lease is more likely than not to be extended to a duration in excess of 12 months, then lessee accounting under IFRS 16 will apply.

ii) Low-value assets

The standard does not specify a value which would ensure an asset was of low-value however this is likely to apply to items such as tablets and personal computers and small items of office furniture and telephones. An asset can only be low-value if the lessee can benefit from the use of the asset on its own and the asset is not highly dependent on other assets.

Leases which meet the exemptions above continue to be charged to profit or loss on a straight-line basis over the period of the lease (net of any incentives received from the lessor).

u) Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade payables are initially recognised at fair value and subsequently held at amortised cost.

v) Exceptional items

Exceptional items shown within operating profit are those significant items which are separately disclosed by virtue of their size or incidence to enable a full understanding of the Group's financial performance. Transactions which may give rise to operational exceptional items include write-downs or impairments of assets including goodwill, restructuring costs, asset or business disposals and litigation settlements.

Exceptional items shown below operating profit are those significant non-operational items which are separately disclosed by virtue of their size or incidence to enable a full understanding of the Group's financial performance. Transactions which may give rise to non-operational exceptional items include gains or losses arising on financial restructuring.

w) Share capital

Ordinary shares and share premiums are classified as equity.

x) Dividends

Dividend distributions on ordinary shares are recognised as a liability in the Group's financial statements when they have been approved by Company's shareholders. Interim dividends are recognised when paid. Dividend income is recognised when the right to receive payment is established.

y) Disclosure of impact of accounting standards

i) New and amended standards adopted by the group

The Group has applied the following standards and amendments for the first time for their annual reporting period commencing 1 January 2023:

The amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods.

ii) New standards, amendments and interpretations not yet adopted

Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2023 reporting periods and have not been early adopted by the Group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

Company impact of new standards

The Company's principal accounting policies applied in the preparation of these financial statements are the same as those applied in the preparation of the Group's financial statements, except for investments in subsidiaries that are stated at cost, which is the fair value of the consideration paid, less provision for impairment. These policies have been consistently applied to all the years presented.

From the perspective of the Company, the principal risks and uncertainties are integrated with the principal risks of the KCA Deutag Group and are not managed separately.

7) Discontinued operations

The results of discontinued operations are reflected in a single line on the income statement. Additional disclosures are provided in Note 5. All other notes to the financial statements include amounts for continuing operations, unless indicated otherwise.

4 Significant accounting judgements and estimates

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

a) Critical accounting estimates and assumptions

(i) Useful economic lives of property, plant and equipment and other intangible assets

The annual depreciation charge for property, plant and equipment and other intangible assets is sensitive to changes in the estimated useful economic lives and residual values of the assets. The useful economic lives and residual values are re-assessed annually. They are amended when necessary to reflect current estimates, based on technological advancement, future investments, economic utilisation and the physical condition of the assets. See Notes 11 and 13 for the carrying amount of property, plant and equipment and other intangible assets and Notes 3f) and 3e) for the useful lives for each class of asset.

(ii) Estimated impairment of non current assets

The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in Note 3g). The recoverable amounts of the cash generating units (CGUs) have been determined based on value in use calculations. These calculations require the use of certain estimates of the future profitability and cash flows of each CGU. These are subject to the impact of changing market conditions, our competitors and the future operational performance of the Group. See Note 12 for the disclosure, key assumptions and sensitivity analysis in relation to the impairment calculation.

During the year ended 31 December 2023 a review was undertaken of the Group's intangible assets to determine the appropriateness of their carrying values. This review took account of current as well as forecast market conditions experienced by the Group. The benefit obtained from our customer relationships and contracts and trade names was assessed with respect to each business unit.

During the year ended 31 December 2023 a review was undertaken of the carrying values of the Group's Land drilling rigs. Factors considered included the age of the rig, client contract backlog and forecast utilisation, comparable rig data across the Group's fleet as well as current and forecast market conditions within the country in which the rig operates.

(iii) Retirement benefit obligations

The Group has an obligation to pay pension benefits to certain employees and former employees under defined benefit pension arrangements. The cost of these benefits and the present value of the obligation depend on a number of factors, including life expectancy, future salary increases, inflation, asset valuations and the discount rate on high quality corporate bonds. Management, with the assistance of qualified actuaries, estimates these factors in determining the net pension obligation at each Balance Sheet date. The assumptions reflect historical experience and estimated future trends. See Note 27 for the disclosures and key assumptions in relation to the retirement benefit obligations. See Note 27 for the disclosures, key assumptions and sensitivities in relation to the retirement benefit obligations.

(iv) Acquisition accounting

When determining the fair value of assets acquired and consideration paid as part of an acquisition, management have worked with valuation experts in order to conclude on the values which are used to arrive at the fair values and goodwill figures included in the financial statements with regard to significant acquisitions. Sensitivity analysis has been performed by the valuation experts around the fair value of the net assets acquired. The values included in Note 6 represent management's estimate as to their fair values at the date of acquisition, and goodwill arising on the acquisition, taking into account these sensitivities.

b) Critical judgements in applying the accounting policies

(i) Income taxes

The Group is subject to income taxes in numerous jurisdictions and judgement is required in determining the provision for uncertain tax positions in respect of income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.

(ii) Recoverability of deferred tax balances

The Group exercises judgement in determining if deferred tax assets can be recognised. They will only be recognised to the extent that it is probable that future taxable profits will be available. These are determined based on business plans for individual subsidiaries in the Group.

(iii) Provisions and contingent liabilities

We exercise judgement in determining the timing and quantum of all provisions to be recognised. Our assessment includes consideration of whether we have a present obligation, whether payment is probable and if so whether the amount can be estimated reliably. As part of this assessment, we also assess the likelihood of contingent liabilities occurring in the future which are not recognised as liabilities on our Balance Sheet. By their nature, contingent liabilities will be resolved only when one or more uncertain future events occur or fail to occur. We assess the likelihood that a potential claim or liability will arise and also quantify the possible range of financial outcomes.

(iv) Revenue recognition - performance obligations satisfied over time

Performance obligations arising from lump sum upfront payments such as mobilisation and demobilisation fees or customer funded capital expenditure, are amortised on a straight line basis over the primary period of the drilling contract. This treatment, in the Group's judgement, is consistent with the economics of the contract agreed with the customer.

(v) Discontinued operations

When considering the impact of the Group's exit from Russia, judgement was exercised as to when a disposal event took place in order to conclude that the Group's Russian operations represent a discontinued operation under IFRS 5. As a result of the UK and EU sanctions enacted in July 2022, followed by the award of the Group's Russian Land drilling rigs to a local company, it was concluded that this constituted a disposal event and the Russian businesses became discontinued operations during 2022.

5 Segmental reporting

The Group's primary segment reporting format is determined to be business segments. The Group is currently organised into three continuing business segments, which are as follows:

Reportable operating segments are identified as those that when aggregated represent at least 75% or more of the Group's external revenue. Discontinued operations represent the results of the Group's previously operated Russian businesses which were exited during 2022. Central overheads have been shown separately to provide additional information as a reconciliation to the primary statements. Central overheads consist of administration and related expenses of the Group. The KPI used to measure divisional profitability is EBITDA, before exceptional items.

EBITDA, a non-GAAP profit measure, is used as a simple proxy for pre-tax cash flows from operating activities. It is calculated as operating profit before exceptional items, share of associates' post-tax results, interest, tax, depreciation, impairment and amortisation.

The following tables present revenue, profit (loss) and certain asset and liability information regarding the Group's business segments for the year ended 31 December 2023.

The following tables present revenue, profit (loss) and certain asset and liability information regarding the Group's business segments for the year ended 31 December 2022.

Flow-through turnover is defined as turnover in respect of the purchase of equipment and materials on behalf of customers which is recharged at minimal or no margin.

The element of revenue recognised over time is not material.

Unallocated assets and liabilities represent investments, cash, derivatives, tax and borrowings.

All inter-segment revenues are priced on an arm's length basis and are fully eliminated on consolidation. Results arising from revenues between segments are not material.

Geographical Segments

The Group manages its business segments on a global basis divided into five geographical areas and does not manage nor maintain information on a country by country basis. As a result, the Group voluntarily presents additional geographical segmental information on an area basis. Jersey is the home country of the parent. The four main geographical areas are as follows:

The following tables present revenue, capital expenditure and certain asset information regarding the Group's geographical segments for the years ended 31 December 2023 and 2022.

6 Business combinations

During 2022 the Group signed a sale and purchase agreement to acquire Saipem SPA's Onshore Drilling Business. This acquisition is being completed in a number of phases across 2022 to 2024. In 2023, the Group continued its strategy to expand its Land drilling operations in key core markets following the 28 October 2022 first phase of the acquisition of Saipem SPA's Onshore Drilling Business, which encompassed Saudi Arabia, UAE and Africa where 100% of the ordinary share capital of each company was acquired. The subsequent phases also to acquire 100% of the ordinary share capital of each company continued with the completion of the acquisition of the Kuwait business on 31 January 2023 and the acquisition of the Latin America (LATAM) business on 30 April 2023. The remaining businesses in Argentina, Romania and Kazakhstan will be completed in 2024.

The fair value of the identifiable assets and liabilities of the acquired group as at the date of acquisition are set out in the table below. The cash outflow of $63.5 million per the Cash Flow Statement represents the cash consideration paid to the sellers in the year and excludes $18.8 million prepayment paid in 2022 in respect of the acquisition of the Kuwait Onshore Drilling business paid as part of Phase 1 in 2022 and excludes $2.7 million which remains to be settled over the coming months.

The total consideration for the acquisition was included in the SPA signed in 2022. A fair value remeasurement has been made to the cash purchase consideration provisionally allocated to Phase 1 of the acquisition. In Phase 1, the provisional consideration was allocated based on the cash payments made to the seller with an adjustment for a prepayment in respect of Kuwait ($18.8 million). The provisional consideration has been finalised within the 12 month period since acquisition and this has resulted in $60 million of cash consideration from Phase 1 being reallocated as a prepayment for LATAM Phase 3 to align with the overall assets acquired and to reflect the fair value of the respective phases.

Shares representing 10% of the voting rights were issued in 2022 by the ultimate parent company to the seller as part of the consideration on behalf of the Group and has resulted in an increase in amounts payable to the ultimate parent company.

The revenue included in the consolidated income statement of 2023 contributed by the whole group acquired under this transaction including Phase 1 was $518.0 million (2022: $77.9 million). The acquired group also contributed EBITDA of $197.2 million (2022: $26.2 million) over the same period.

If the acquired group had been consolidated from 1 January 2023, the consolidated income statement would include full year revenue of $568.7 million (2022: $407.0 million) and EBITDA of $202.3 million (2022: $105.9 million) resulting in statutory revenue of $1,665.2 million (2022: $1,416.4 million) and EBITDA of $390.7 million (2022: $328.3 million) for continuing operations.

7 Finance costs - net

a) Other finance costs include guarantee fees of $8.3 million (2022: $2.2 million). Other finance costs incurred in 2022 included $20.6 million of costs relating to the acquisition of Saipem SPA's Onshore Drilling Business.

b) Exchange losses include the exchange movements during the year on non-functional currency pension liabilities which are largely denominated in Euros, and on non-functional currency inter-company positions. The exchange losses also include the exchange movements on cash held during the year in Kwanzas in Angola and in Naira in Nigeria, incurred prior to conversion and repatriation of the cash.

8 Profit (loss) before taxation

Auditors' remuneration / services provided by the Group's auditors and their associates:

9 Taxation

The tax charge for the year varied from the standard effective rate of corporation tax for 2023 of 20% (2022: 19%) due to the following factors:

The Group's core businesses are Saudi Arabia (Land) and Azerbaijan (Offshore) therefore the above total tax charge has been reconciled to the standard corporate tax rate of these countries at 20%. This is a change from the UK standard rate of corporation tax which was used in previous years.

Other permanent differences relate to legal and professional fees and foreign exchange.

The Group has substantial activities in overseas jurisdictions where different rates of tax apply. The Group's effective rate of tax is therefore subject to fluctuations depending upon where the Group obtains contracts, the effective tax rates in the countries concerned and the availability of double tax relief. In many countries the Group's tax liability is calculated on the profits earned in local currency including exchange differences on the translation of US Dollar assets and liabilities into the local currency.

The Company, KCA Deutag International Limited, is tax resident in United Kingdom.

Factors affecting current and future tax charges

The main UK corporation tax rate, substantively enacted on 24 May 2021, increases from 19% to 25% from 1 April 2023.

Net income tax liabilities in the Group Balance Sheet include $9.1 million (2022: $13.0 million) relating to uncertain tax positions where management has had to exercise judgement in determining the most likely outcome in respect of the relevant issue. Due to the uncertainty associated with such tax positions, it is possible that at a future date, on conclusion of these open tax positions, the final outcome may vary significantly. While a range of outcomes is reasonably possible, based on management's historic experiences of these issues, we believe a likely range of outcomes is additional liabilities of up to $2.2 million and a reduction in liabilities of around $5.5 million. The range of sensitivities depends upon quantification of the liability, risk of technical error and difference in approach taken by tax authorities in different jurisdictions.

Pillar Two

On 20 June 2023, the UK Finance Bill was substantively enacted in the UK, including legislation to implement the OECD Pillar Two income taxes rules. The Group is within the scope rules and the first period for which a Pillar Two tax return will be required for the Group is the accounting period ending on the 31 December 2024.

The Group has applied the exception in the Amendments to IAS 12 issued May 2023 and has neither recognised nor disclosed information about deferred tax assets or liabilities relating to Pillar Two income taxes.

The Group has performed necessary analysis in preparation of complying with the Pillar Two rules for the year ended 31 December 2024. Based on the analysis derived from the information in respect of the year ended 31 December 2023, the Group has identified potential exposure to Pillar Two top up taxes in Cyprus, but the amount is immaterial and expected to be a non-recurring event.

10 Exceptional items

i) Reorganisation costs in 2023 of $5.7 million (2022: $3.4 million) primarily relate to the Group's cost reduction, restructuring and redundancy expenditure along with professional fees associated with the Group's strategic activities, including looking at potential mergers and acquisitions.

ii) In 2023 the Group booked a credit of $0.9 million (2022: charge of $3.6 million) relating to the settlement of contractual disputes with customers and suppliers in its Kenera business.

iii) Integration and transaction costs of $18.5 million (2022: $15.2 million) are associated with the purchase of the Saipem Onshore Drilling business.

iv) Included within other exceptional items is a gain of $1.0 million recognised in relation to the cash generated from the sales of Senior Secured Notes which have gone unclaimed since the Group debt restructuring completed in 2020.

v) In 2023 the Group booked a credit of $0.8 million in relation to a gain arising on the disposal of a Kenera prototype.

vi) In 2022 a charge of $1.6 million was recorded in respect of costs involved in responding to a cyber-attack in December 2021 which restricted access to a number of the Group's back-office systems. These were predominantly costs involved in the restoration of system access.

vii) On 30 December 2021 the Group entered into an agreement with Geoplex Drillteq Limited to sell several rigs and associated inventory in Nigeria with the intention to exit the Nigerian land drilling business. Approval was granted by the Nigerian authorities in March 2022 with a credit of $1.3 million being recorded representing the gain on the sale.

viii) During 2022, the Group recorded a credit of $3.8 million relating to the recovery of funds in Mexico which had previously been consigned with a third party under a performance security, following the expiry of a time limit applicable to any client claim against those funds.

11 Property, plant and equipment

The $507.5 million of disposals in drilling rigs and equipment in 2022 relates principally to the disposal of Russian and Nigerian rigs.

During the year ended 31 December 2022 an impairment review was undertaken on assets due to sanctions imposed on Russia. This resulted in an overall impairment charge of $122.0 million being recognised in the year.

As at 31 December 2023 cumulative capitalised interest of $0.8 million (2022: $nil) is included in the carrying value of drilling rigs and equipment. There was no interest capitalised during the year ended 31 December 2022.

In relation to assets in the course of construction as at 31 December 2023, there are amounts included as follows: $92.7 million (2022: $39.3 million) included in drilling, rigs and equipment; $1.8 million (2022: $1.2 million) in plant, machinery and vehicles. No depreciation has been charged in respect of these assets.

The Company held no property, plant and equipment as at 31 December 2023 (2022: nil).

12 Goodwill

The Group acquired 100% of the share capital of Abbot Group plc in 2008. All tangible and intangible assets were recognised at their fair value at acquisition and the residual excess over the net assets acquired was recognised as goodwill.

From 1 January 2022, the RDS and Bentec CGUs were combined to form the Kenera CGU.

In 2023 reclassification of a balance arising on the acquisition of Saipem Land drilling assets previously allocated to Intangible Assets has been treated as Goodwill ($11.6 million).

The carrying amounts of goodwill by business segment are Offshore services $205.2 million (2022: $205.2 million), Land drilling $112.0 million (2022: $129.0 million), and Kenera $56.9 million (2022: $56.9 million). The Directors will continue to keep the carrying value of goodwill, intangible and tangible assets under review in the coming year. There are no impairment charges in 2023. As a result of the annual review of the carrying value of its assets in 2022, a $120.0 million impairment charge was booked in respect of goodwill in the Land drilling business unit, as a result of the Group having to exit its Russian Land drilling operation.

Accumulated impairments as at 31 December 2023 for each CGU are as follows: Offshore services $229.6 million (2022: $229.6 million); Land drilling $613.2 million (2022: $613.2 million) and Kenera $319.0 million (2022: $319.0 million).

The Group tests goodwill annually for impairment or more frequently if there are any indications that goodwill may be impaired. Goodwill acquired through business combinations is allocated, at acquisition, to relevant CGUs. The recoverable amount, based on the value in use is compared to the carrying value to identify any impairment.

The recoverable amounts of the CGUs are determined from discounted cash flow calculations. The key assumptions for the discounted cash flow calculations are those regarding discount rates, growth rates, rig day rates, rig utilisation and capital investment. Management estimates discount rates using post tax rates that reflect current market assessments of the time value of money and risks specific to each of the CGUs.

The Group prepared updated financial forecasts in 2023, including cash flows for five years and extrapolated cash flows for the period beyond the initial five year plan based on expected growth rates for each CGU. These forecasts took into account current market conditions combined with management's view of future market conditions including rig day rates and rig utilisations, and capital investment. A terminal value has been applied to take account of the expected growth of each CGU into perpetuity.

Key assumptions used in the impairment test are:

Revenue growth rate is the average annual anticipated increase in each of the CGU's revenues over the five year forecast period. The long term growth rate has been assumed to be 2.0% (2022: 2.0%) for each of the CGUs after the end of the five year growth period.

As part of the annual impairment review, an assessment was made of the discount rates applicable to each CGU. As a result of this review, the discount rate for Kenera has been reduced compared to 2022 mainly due to lower country risk premiums.

EBITDA margin is annual EBITDA expressed as a percentage of annual revenues. The percentages in the table above show the average EBITDA margins for each of the CGUs over the five year forecast period.

Free cash flow is the average annual operating cash flow for each of the CGUs over the five year period.

Annual capital expenditure represents the average annual amount spent to purchase tangible fixed assets in the five year forecast period for the Group's Land drilling fleet.

Sensitivity analysis

The table above showing headroom for each CGU demonstrates that each CGU has sufficient headroom and unless there were significant deteriorations in the Group's operating performance the carrying value of each CGU's assets at 31 December 2023 does not require to be impaired. Based on sensitivity analysis performed it is believed that there are no reasonably possible changes which could cause an impairment.

As a result of having to exit our Russian Land operations during 2022, an impairment charge of $120 million was reflected in the 2022 Income Statement.

The variables which could result in the Group's trading performance deteriorating are discussed in the Business Review - Principal Risks and Uncertainties section on pages 18 to 23 of the Annual Report.

The table below shows the potential reduction on CGU recoverable amounts of a 1% movement in each of our CGUs' key assumptions:

13 Other intangible assets

The Company has no intangible assets (2022: nil).

14 Investments

Investments in subsidiaries are stated at cost. The carrying value of the Company's shares in subsidiaries is reviewed for impairment annually by management. The recoverable amount of the Group's CGUs is compared to the carrying value to determine whether any impairment charge is required. As a result of this review, there was no impairment charge booked in 2023 (2022: nil).

A list of subsidiary undertakings is given in Note 32.

During the year to 31 December 2023 the Group made funding contributions to its joint venture KCA Deutag Kazakhstan LLP of $0.1 million. At 31 December 2023, the Group recorded a $3.7 million reduction in the value of its investment in Clean Power Hydrogen plc to reflect the market value applicable at that date.

15 Inventories and work in progress

The value of provisions against inventory was $100.9 million (2022: $41.7 million).

The Company has no inventories (2022: nil).

16 Trade and other receivables

The Group operates in over 20 countries around the world and in certain of these countries slow or late payment of outstanding accounts is the norm.

During 2022, the Group released provisions of $8.2 million mainly in relation to balances paid by Nigerian customers.

The Group applies lifetime Expected Credit Losses ("ECLs") to trade receivables, accrued revenue, and contract assets upon their initial recognition.

The Group assesses the ECLs on its receivables, which are based on the age of the outstanding receivable along with prior experience in relation to the specific customer as well as the jurisdiction in which the balance is due before booking any provision. As well as considering historical factors, the Group also considers each customer's risk of default when determining the level of ECL provision.

Receivables are appropriately grouped by geographical region, product type or type of customer within each business unit, and separate calculations produced, if historical or forecast credit loss experience shows significantly different loss patterns for different customer segments.

Actual credit loss experience is then adjusted to reflect differences in economic conditions over the period the historical data was collected, current economic conditions, forward-looking information and the Group's view of economic conditions over the expected lives of the receivables.

The following tables present the Group's trade receivables by business segment:

Receivable days are calculated by allocating the closing trade receivables balance to current and prior year revenue. A receivable days calculation of 64 indicates that closing trade receivables represents the most recent 64 days of revenue.

17 Contract assets and liabilities

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers:

a) Significant changes in contract assets and contract liabilities

b) Revenue recognised in relation to contract liabilities

c) Unsatisfied Performance Obligations

d) Demobilisation revenues

18 Cash and cash equivalents

The Group did not hold a bank overdraft balance on its net facility as at 31 December 2023 or 31 December 2022.

The Group has a cash pooling working capital facility in which individual entities such as the Company can hold overdraft balances provided that the overall cash value held by all companies within the facility is in net credit. As at 31 December 2023, Group's overall net facility was in credit by $33.2 million (2022: $37.7 million). At consolidated Group level, the net credit value of $33.2 million is included within the 'cash at bank and in hand' value of $100.1 million. As at 31 December 2023, the Company's accounts were in credit by less than $0.1 million.

At 31 December 2023, the Group held cash on a money market fund account of $130.0 million (2022: $114.5 million). The fund has a "AAA" credit rating. The funds are immediately accessible, and the yield on the account as at 31 December 2023 was 5.32% (2022: 4.08%).

The non-cash movements on long-term borrowings of $39.5 million consist of:

19 Trade and other payables

20 Financial liabilities - borrowings

Maturity of financial liabilities

The average interest rate of the Group's borrowings at the Balance Sheet date including interest rate swaps was 12.8% (2022:11.8%).

As at 31 December 2023, the secured bank loan borrowings comprise of:

The liabilities of $500 million in relation to the Senior Secured Fixed Rate Notes arose on completion of a $500 million bond completed in December 2020. The Senior Secured Notes of $500 million are wholly denominated in US Dollars and bear interest at a fixed rate of 9.9% payable every 6 months. The maturity date of the Senior Secured Notes of $500 million is in December 2025. The Senior Secured Notes are listed on The International Stock Exchange (TISE).

The liabilities of $250 million in relation to the senior secured floating rate notes arose on completion of a $250 million issue completed in October 2022. The senior secured floating rate notes of $250 million are wholly denominated in US Dollars and bear interest at a floating rate based on Term SOFR plus a margin of 9.0%, payable every 6 months. The maturity date of the senior secured floating rate notes of $250 million is in December 2025. The senior secured floating rate notes are listed on The International Stock Exchange (TISE).

The liabilities of $234.9 million (2022: $200.0 million) in relation to the payment in kind notes arose on completion of a $200 million issue completed in October 2022. The payment in kind notes are wholly denominated in US Dollars and carry interest which is being accrued at a fixed rate of 15.0%. During 2023, a total of $34.9 million of unpaid interest has been formally added to the payment in kind notes liability value. The maturity date of the payment in kind notes is in October 2027.

The Company held no financial liabilities at either 31 December 2023 or 31 December 2022.

21 Financial instruments

The Group's multi-national operations expose it to a variety of financial risks that include the effects of changes in foreign currency exchange rates and interest rates. The Group has in place a risk management policy that seeks to limit the adverse effects on the financial performance of the Group by using foreign currency financial instruments and other instruments to fix interest rates.

a) Market risk

(i) Foreign exchange risk

The Group has a number of subsidiary companies whose revenue and expenses are denominated in currencies other than the US Dollar. The Group is exposed to foreign exchange risks primarily with respect to the US Dollar, Sterling, Euro, Norwegian Krone, Canadian Dollar, Angolan Kwanza, Azeri Manat as well as the various currencies of the Latin American countries in which the Group operates. The Company is exposed to foreign exchange risks primarily with respect to Sterling.

In order to protect the Group's Balance Sheet from movements in exchange rates, whenever practical, the Group seeks to achieve natural hedging by ensuring that expenses are borne in the same currency as related income. Where this is not possible, the Group has entered, to an extent, into forward exchange contracts to hedge the foreign currency exposure of its subsidiary companies. Changes in the forward contract fair values are booked through the Income Statement. At 31 December 2023, the Group had 14 foreign exchange forward contracts (2022: 6).

A movement of 10% is considered to represent a material fluctuation of exchange rates. Movements in all of the Group's major exchange rate pairings against the US Dollar have been considered as each has the potential to impact on the reported US Dollar consolidated profit/loss and net assets/liabilities.

If the US Dollar became 10% stronger against all other main currencies of the Group, as at 31 December 2023 this would give rise to exchange losses of $0.3 million impacting on operating profit (2022: gains of $0.9 million). If the US Dollar became 10% stronger against all other main currencies of the Company, as at 31 December 2023 this would give rise to exchange gains of $0.2 million impacting on operating profit (2022: gains of less than $0.1 million).

If the US Dollar became 10% weaker against all other main currencies of the Group, as at 31 December 2023 this would give rise to exchange gains of $0.3 million impacting on operating profit (2022: losses of $1.1 million). If the US Dollar became 10% weaker against all other main currencies of the Company, as at 31 December 2023 this would give rise to exchange losses of $0.3 million impacting on operating profit (2022: losses of less than $0.1 million).

If the US Dollar became 10% stronger against all other main currencies of the Group, as at 31 December 2023 this would give rise to a decrease in net finance costs of $9.9 million (2022: decrease in costs of $16.3 million). There would be no impact for the Company (2022: nil).

If the US Dollar became 10% weaker against all other main currencies of the Group, as at 31 December 2023 this would give rise to an increase in net finance costs of $10.9 million (2022: increase in costs of $18.0 million). There would be no impact for the Company (2022: nil).

(ii) Interest rate risk

The Group is exposed to interest rate risk on its interest-bearing borrowings and on its interest-generating cash balances. The Group's policy is to maintain a large percentage of its borrowings at fixed interest rates to generate the desired interest profile. As at 31 December 2023, approximately 69% (2022: 67%) of current and non-current borrowings were at fixed rates. The Company had no external borrowings at 31 December 2023 (2022: nil).

A movement of 1% is considered to represent a material fluctuation of interest rates.

If the average interest rate had been 1% higher during 2023, then the profit before taxation for the Group would have been $1.8 million lower (2022: $1.0 million higher). The impact for the Company would be that the profit before taxation would have been unchanged (2022: unchanged).

If the average interest rate had been 1% lower during 2023, assuming a floor rate of 0%, then the profit before taxation for the Group would have been $1.8 million higher (2022: $0.4 million lower). The impact for the Company would be that the profit before taxation would have been unchanged (2022: unchanged).

(iii) Price risk

Neither the Group nor the Company is exposed to any significant price risk in relation to financial instruments.

b) Credit risk

The Group's credit risk relates primarily to its trade receivables. The Group has a small number of customers who are primarily either well established international or national companies, or joint ventures thereof. An evaluation is carried out of the credit risk of each new customer, and when appropriate, suitable protections put in place through the use of trade finance instruments.

Each month, management review an aged debtor analysis and focus on debts which are overdue for payment. In addition, there is always a level of unbilled receivables which arise through certain contractual mechanisms and attention is also focused on getting these amounts billed to customers as quickly as possible.

A table showing the ageing of trade receivables is provided in Note 16.

The Group's policy is to deposit cash at institutions with an 'A' rating or better where possible. The Group held $130.0 million on a money market fund account with a 'AAA' rating at 31 December 2023 (2022: $114.5 million).

c) Liquidity risk

At 31 December 2023, the Group is financed with $750.0 million of other Senior Secured Notes, $234.9 million of payment in kind notes, $145.1 million of secured bank loans and a positive cash balance of $230.1 million. At 31 December 2023, 99.7% (2022: 100.0%) of the Group's borrowing facilities were due to mature in more than one year. The Company had no external borrowings at 31 December 2023 (2022: nil).

d) Capital risk

The Group monitors its capital risk with reference to its long-term funding structure and leverage ratios such as gross debt to EBITDA and net debt to EBITDA.

There is no covenant requirement in relation to the Company.

The table below analyses both the Group's and Company's derivative and non-derivative financial liabilities into relevant maturity groupings based on the remaining period from the Balance Sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

The table below analyses the Group's derivative financial instrument liabilities into relevant maturity groupings based on the remaining period from the Balance Sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows:

The Group had 14 forward foreign exchange contracts at 31 December 2023. The Company had 8 forward foreign exchange contracts at 31 December 2023. The maturity dates of these contracts range from January 2024 to August 2024.

The Group's derivative financial instrument assets were valued at $0.6 million as at 31 December 2023 (2022: $0.4 million). The Company has no derivative financial instrument assets or liabilities at 31 December 2023 (2022: $nil).

All of the Group's forward exchange contracts are categorised as cash flow hedges.

e) Fair value of non-derivative financial assets and financial liabilities

The fair value of short-term borrowings, trade and other payables, trade and other receivables, short-term deposits and cash at bank and in hand approximates to the carrying amount because of the short maturity of interest rates in respect of these instruments. Senior Secured Notes are publicly traded and as such the fair value is subject to fluctuation.

The levels referred to in the table above relate to the following Fair Value hierarchy:

Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities that can be accessed at the measurement date;

Level 2: Valuations containing inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly; and

Level 3: Valuations containing unobservable inputs.

f) Derivative financial instruments

The fair value of derivative financial instruments at the Balance Sheet date was as follows:

The Company had no derivative financial instruments at either 31 December 2023 or 31 December 2022.

The full fair value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months and, as a current asset or liability if the maturity of the hedged item is less than 12 months.

The Group's derivative financial instruments have been classified using the fair value hierarchy set out in the fair value accounting policy. The level in the fair value hierarchy that each instrument is categorised in is detailed in the table above.

There was no ineffectiveness recognised in the Income Statement from cash flow hedges in the year.

(i) Forward foreign exchange contracts

The notional principal amount of the outstanding forward foreign exchange contracts at 31 December 2023 was $33.4 million (2022: $12.3 million).

(ii) Interest rate swaps

The Group had no outstanding interest rate swaps at either 31 December 2023 or 2022. The Group only uses cash flow hedges and did not enter into any fair value or net investment hedges during the reporting year.

22 Provisions

Provisions have been analysed between current and non-current as follows:

Provisions of $3.1 million (2022: $2.5 million) relate mainly to warranty obligations in respect of guarantees provided in the normal course of business relating to equipment supplied. These are normally for a period of not more than two years. Dilapidation provisions of $0.1 million (2022: $0.1 million) are provided on leased premises for which the majority of leases expire in 2036.

23 Deferred tax

Deferred tax is calculated on temporary differences at the tax rate applicable to the country in which the liability or asset has arisen. The following are the deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior year.

There are no deferred tax liabilities or assets within the Company as at 31 December 2023 (2022: nil).

At 31 December 2023 the Group had deferred tax assets of $1.3 million arising from tax losses (2022: $5.6 million).

Fair market value relates to the unwinding of deferred tax liabilities arising from the acquisitions of assets from Saipem Onshore Drilling business in 2022 and Abbot Group plc in 2008.

Certain deferred tax assets and liabilities have been offset, including the asset balances analysed in the table above.

The following is an analysis of the deferred tax balances for financial reporting purposes:

The $60.4 million deferred tax asset is primarily made up of $24.8 million for the UK, $12.6 million for fair value on Saipem Onshore business, $7.2 million for Saudi Arabia, $6.5 million for Oman, $4.5 million for Azerbaijan and $2.8 million for Norway. The balance of $2.0 million is made up of a number of smaller items. The deferred tax asset comprises of $26.2 million of fixed asset timing differences, $12.6 million of FMV adjustments, $4.7 million of retirement obligations, $2.7 million tax losses and $14.2 million of other timing differences.

During the year ended 31 December 2023, the Group recognised a UK deferred tax asset of $24.0 million (2022: $30.0 million). The reduction is a result of an expected reduction in UK offshore services profitability. It is anticipated that taxable profits will arise in the foreseeable future in the UK against which the deferred tax asset will be offset.

The gross amount and expiry dates of losses available to carry forward as at 31 December 2023 are as follows:

The losses recognised of $2.7 million are in relation to $1.4 million for Oman and $1.3 million for Kuwait. These losses are forecast to be utilised in the next 5 years.

The losses not recognised primarily relate to $100.5 million for the UK, $35.3 million for Germany, $21.1 million for Saudi Arabia, $10.1 million for Iraq, $12.3 million for Algeria, $8.3 million for Kuwait, $6.5 million for Colombia and $6.5 million for Albania. The $36.9 million balance of losses is made up of smaller items.

The decrease of losses of $30.3 million primarily relate to utilisation of Norway losses and an adjustment to UK losses.

The gross amount and expiry dates of losses available to carry forward as at 31 December 2022.

Deferred tax has been recognised on unremitted earnings from overseas subsidiaries where payment is imminent. Where no payment is expected deferred tax is not recognised. As these earnings are continually reinvested by the Group, no tax is expected to be payable on them in the foreseeable future. If the earnings were remitted tax of $3.0 million would be payable (2022: $1.7 million).

24 Share capital

The nominal share capital of the Company is in US Dollar and is translated at the ruling exchange rate at the date of the transaction. The nominal value of each share is $0.01 for A shares and $0.001 for B, C and D.

Ordinary A shares carry voting rights but no voting rights attach to the ordinary B, C and D shares. Ordinary A shares participate in the proceeds of an exit, winding up or other return of capital in all circumstances, with ordinary B, C and D shares only participating above certain hurdle thresholds which are set out in the Articles of Association of the Company.

On 12 January 2023, 7,732 ordinary B $0.001 shares and 5,426 ordinary C $0.001 shares were issued. In addition, 1,199,535 ordinary D $0.001 shares were issued on 12 January 2023. These shares were reserved for allocation to Management Incentive Plan participants and the rights are detailed in the Company's Articles of Association.

25 Share premium

The share premium increase of $1.2 million at 31 December 2023 arose from the issue of shares during the year.

26 Employees and Directors

The other pension and end of service benefit costs shown above of $20.6 million (2022: $15.9 million) relate to contributions to defined contribution schemes and current service costs relating to the defined benefit schemes, as well as accruals made in relation to end of service benefit.

Included in the total above are $nil (2022: $26.2 million) costs relating to discontinued operations.

Included above are the emoluments of seven Directors of the Company. The emoluments of the highest paid director, including retirement benefit contributions, were $4.3 million (2022: $2.3 million). The Directors have no retirement benefits accruing under a defined benefit scheme.

The Company employs the Group's six Non Executive Directors.

27 Retirement benefit obligations

The Group operates a number of pension schemes in various countries. In respect of defined benefit schemes, the Group operates two funded schemes in the UK, whilst in Germany the particular schemes are unfunded in line with local practice in those countries.

a) UK schemes

The Group operates two funded defined benefit schemes in the UK as follows:

(i) The KCA Drilling defined benefit scheme has been closed to new members for a number of years with existing members continuing to accrue benefits based on their current salary and number of years' service with the Group.

The triennial actuarial valuation of the scheme is ongoing for 31 December 2022 by the Group's pension advisers and based on their year-end review as at 31 December 2023 the principal assumptions made by the actuaries were:

The expected return on plan assets is based on market expectation at the beginning of the period for returns over the entire life of the benefit obligation.

The life expectancy of a male member currently aged 40, retiring at age 65, is 88 years (2022: 89 years). The life expectancy of a female member currently aged 40, retiring at age 65, is 91 years (2022: 92 years).

The amounts recognised in the consolidated Income Statement are as follows:

Changes in the present value of the defined benefit obligation are as follows:

Changes in the fair value of plan assets are as follows:

Analysis of the movement in the Balance Sheet liability:

Contributions expected to be paid to the plan during the year beginning after the Balance Sheet date are $0.8 million (2022: $0.7 million).

Average life expectancy:

The average duration of the defined benefit plan obligation at the end of the reporting period is 13 years (2022: 14 years).

The sensitivity of the defined obligation to changes in the weighted principal assumption is:

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied when calculating the pension liability recognised within the statement of financial position.

The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to previous year.

The fair value of the plan assets was:

(ii) The OIS Teesside Limited defined benefit scheme is closed and the Group is responsible for the ongoing funding of the scheme.

The most recent triennial actuarial valuation of the scheme was carried out as at 31 December 2021 by the Group's pension advisers and based on their year-end review as at 31 December 2023 the principal assumptions made by the actuaries were:

The life expectancy of a male member currently aged 40, retiring at age 65, is 88 years (2022: 89 years). There are no female plan members.

The amounts recognised in the Balance Sheet are determined as follows:

The amounts recognised in the consolidated Income Statement are as follows:

Changes in the present value of the defined benefits obligation are as follows:

Changes in the fair value of plan assets are as follows

Analysis of the movement in the Balance Sheet (asset) liability:

Contributions expected to be paid during the annual year after the Balance Sheet date are nil (2022: nil). Average life expectancy:

The sensitivity of the defined obligation to changes in the weighted principal assumption is:

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied when calculating the pension liability recognised within the statement of financial position.

The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to previous year.

The fair value of the plan assets was:

Virgin Media v NTL Trustees

The judgement in the above High Court case has implications for Defined Benefit schemes which previously contracted-out of the state pension system between 1997 and 2016. The judge in this case ruled that, where benefit changes were made without a valid 'Section 37' certificate from the Scheme Actuary, those changes could be considered void. This ruling is currently subject to appeal. The schemes' actuaries and trustees will consider the impact for the schemes, but in line with many other schemes, are currently awaiting the outcome of the appeal process before concluding whether there are any material changes not covered by such a certificate. Due to the uncertainty in terms of the potential impact on the pension deficits for the two schemes, no adjustment has been made for this case in these financial statements.

b) Germany schemes

The Group operates four defined benefit schemes in Germany. The schemes are unfunded in common with local practice and the total liabilities of the schemes are included as a Balance Sheet provision.

The schemes have been closed to new members for a number of years with existing members continuing to accrue benefits based on their current salary levels and number of years' service with the Group.

The life expectancy of a male member currently aged 40, retiring at age 65, is 88 years (2022: 88 years). The life expectancy of a female member currently aged 40, retiring at age 65, is 91 years (2022: 91 years).

The most recent actuarial valuation of the schemes was carried out at 31 December 2023 by the Group's pension advisers and the principal assumptions made by the actuaries were:

The amount recognised in the Balance Sheet is:

The amounts recognised in the consolidated Income Statement are as follows:

Changes in the present value of the defined benefit obligations as included in the Balance Sheet are as follows: