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Q2 / H1 2015 results
Investor Presentation 30 July 2015
Information
Information and Forward-Looking Reflections
This document contains forward-looking reflections and information. By their nature, these reflections and information
include financial forecasts and estimates as well as the assumptions on which they are based, statements related to
projects, objectives and expectations concerning future operations, products and services or future performance. Although
Vallourec’s management believes that these forward-looking reflections and information are reasonable, Vallourec cannot
guarantee their accuracy or completeness and investors in Vallourec are hereby advised that these forward-looking
reflections and information are subject to numerous risks and uncertainties that are difficult to foresee and generally
beyond Vallourec’s control, which may mean that the actual results and developments differ significantly from those
expressed, induced or forecasted in the forward-looking reflections and information. These risks include those developed or
identified in the public documents filed by Vallourec with the AMF, including those listed in the “Risk Factors” section of the
Registration Document filed with the AMF on 10 April 2015 (N° D.15-0315).
Full year consolidated financial statements at 31 December are audited
Half year financial statements are subject to limited review by statutory auditors
Quarterly financial statements are unaudited and are not subject to any review
Unless otherwise specified, indicated variations are expressed
in comparison with the same period of the previous year
/ 2
H1 2015 at a glance
H1 2014 H1 2015
16,5%
3,2%
H1 2014 H1 2015 H1 2014 H1 2015
H1 2015 financial results strongly impacted by challenging market
conditions
(1) Earnings Before Interest, Taxes, Depreciation, Amortization, and Restructuring costs
(2) EBITDA over Revenues
(3) Non-GAAP measure defined as cash flow from operating activities minus gross capital expenditure
and plus/minus change in operating working capital requirement
/ 4
2,070
444
66
-23.1%
2,693 37
-85.1% -€34m
-13.3pt
(-28.7% at constant exchange rates)
In millions of €
3
Revenues EBITDA(1) &
EBITDA margin(2) Free cash flow(3)
Vallourec is implementing its plans
/ 5
ACTIONS TO FACE
STRUCTURAL FACTORS
ACTIONS TO FACE
CYCLICAL FACTORS
Short term measures
— Flexibility levers to adapt the mills to the
low load, i.e:
Reduction in working hours
Rolling mills stoppage
Advanced maintenance works
Reduction in contractors, …
Focus on cash & liquidity
— Working capital requirement strong
reduction
— 2015 capex reduction to around €300m
— Additional €90m multi-currency revolving
facility signed in June 2015
Global staff reduction of 1,600 jobs
over H1 2015, incl. close to 1,000
permanent jobs
Valens
— European industrial plan announced in April
2015, European capacity to be
reduced by 1/3rd
— Costs excl. raw material to be reduced by
10% by 2017
— Cash use optimization: capex average of
€350m p.a.
Total Raw materials
Manufacturing & Direct cost
on sales
SG&A & Other
Valens - Structurally reduce cost base
/ 6
2-year cost reduction targets(1)
(568)
(1) Full year effect in 2017, Assuming same volumes & cost base as in 2014
Data presented in millions of €, comparison year-on-year
2% 10%
2014 cost base
2014
EBITDA
Raw
materials
2014
revenues
SG&A
& Other
Manufacturing
& Direct cost
on sales
5,701
(1,753)
(2,495)
(598) 855
>450 initiatives o/w 2/3rd started
Targeted savings of 10% of added costs confirmed
€240m €350m €240m
€80m
€30m
Focus on H1 2015 financial results
H1 2014 Volume Currency Translation
Price/Mix H1 2015
In millions of €, comparison year-on-year
Revenues evolution severely impacted by drop in volumes
/ 8
-31.7%
+5.6% +3.0%
2,693
2,070
Lower volumes, notably in the USA
and in EAMEA
19,7% 22,3%
8,4% 8,0%
24,4% 19,5%
18,8% 18,5%
28,7% 31,7%
H1 2014 H1 2015
Revenues by region
19.0% 18.3%
10.3% 12.2% 4.7% 5.2%
66.0% 64.3%
H1 2014 H1 2015
Revenues breakdown for H1 2015
/ 9
Revenues by market
As % of total Group revenues, and change in % (comparison year-on-year)
Oil & Gas
Petrochemicals
Power Generation
Industry & Other
North America
South America
Asia & Middle-East
Rest of the world
Europe
-25.9%
-9.0%
-15.0%
-25.1%
-13.0%
-26.5%
-38.4%
-24.5%
-15.2%
/ 10
H1 2015: from Revenues to EBITDA
(1) As concerns the Amendment to IFRS 11, the impact of its application on the consolidated financial statements as at 30 June 2015 primarily translates to
a €60 million drop in sales in consideration for purchases; a €165 million drop in non-current assets, in consideration for other provisions and long-term
liabilities, and a drop in trade receivables of €33 million, in consideration for trade payables.
(2) Before depreciation and amortization
In millions of € H1
2015(1)
H1
2014
Change
YoY
Revenues 2,070 2,693 -23.1%
Industrial margin 336 733 -54.2%
As % of revenues 16.2% 27.2% -11.0pt
SG&A(2) (264) (273) -3.3%
As % of revenues 12.8% 10.1% +2.7pt
EBITDA 66 444 -85.1%
As % of revenues 3.2% 16.5% -13.3pt
EBITDA and margin down:
— Lower revenues: strong negative
volume effect, notably in EAMEA and
the USA, together with iron ore price
decrease in Brazil
— Mills operating well below production
capacity in H1 2015 leading to
inefficiencies and under-absorption of
fixed costs
— Lower SG&A (-11.2% y-o-y in Q2)
despite unfavourable exchange rates
/ 11
H1 2015: from EBITDA to Net Income
In millions of € H1
2015(1)
H1
2014
Change
YoY
EBITDA 66 444 -85.1%
Depreciation of industrial
assets (149) (148) +0.7%
Other (amortization,
exceptional, restructuring,
impairment…)
(145) (31) na
Operating income (loss) (228) 265 na
Financial income (loss) (37) (31) +19.4%
Income tax (15) (74) -79.7%
Non-controlling interests (5) 16 na
Net income (loss),
Group share (275) 144 na
Other charges of €145m mainly
composed by restructuring
charges and impairment
related to the implementation
of Valens (€111m)
Stable depreciation of industrial
assets
Income tax charge down
Non-controlling interests: decline
in US operations results
(1) As concerns the Amendment to IFRS 11, the impact of its application on the consolidated financial statements as at 30 June 2015 primarily translates to
a €60 million drop in sales in consideration for purchases; a €165 million drop in non-current assets, in consideration for other provisions and long-term
liabilities, and a drop in trade receivables of €33 million, in consideration for trade payables.
na: non applicable
In millions of €
Free cash flow & net debt
/ 12
Net
debt =
37.1%
of
equity
Dividends paid
Asset disposals
& other items
Net Debt as at
31 Dec. 2014
Net Debt as at
30 June 2015
Cash flow from
operating activities
Change in
WCR(1)
(1,547) (19)
(1) Change in operating Working Capital Requirement, +decrease / (increase)
+111 (89)
Gross capital
expenditure
(66)
(60) Free cash flow = €3m
(1,670)
Net
debt =
42.5%
of
equity
*Fixed rate including commercial paper drawn with a 1-12 month maturity / 13
Financial resources as at 30 June 2015
Figures as at 30 June 2015, unless otherwise specified
Long-term committed financing profile
Strong and diversified financial structure Optimized cost of financing
Variable rate Fixed rate
Approx. 66% of
gross debt raised
on capital markets
Bank &
Other Debt
Bond Debt
Comm.
Paper
/ 13
85% of gross debt
is at fixed rate*
Undrawn committed financing Drawn committed financing
15%
85%
1 778 1 770 1 733 1 031 1 017
605
1 835 1 835 1 790
1 190 1 190 1 078
0
1 000
2 000
3 000
4 000
Jun-15 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19
Outlook
2015 Outlook
/ 15
Q3 and Q4 2015 deliveries and margins expected to be
significantly below the level achieved in Q2, which will likely
result in a negative EBITDA for the full year
Based on current market conditions and currency
trends, Vallourec continues to target a positive free cash
flow generation in 2015 through:
— operating working capital strong reduction
— capital expenditure revision to around €300m
(vs. €350m initially planned)
Appendix
Strategic Update and
2-year competitiveness plan
Organization
efficiency
/ 18
Valens: a 2-year global plan to improve competitiveness and drive efficiency
Competitiveness plan
Valens: 2015-2016 (full year effect in 2017)
(1) Full year effect in 2017, Assuming same volumes & cost base as in 2014
(2) Versus previously announced capex target of €450 million
Effective as at 1 April 2015
Leaner organization
- 4 regions North America, South America,
Eastern Hemisphere, Europe
- Central monitoring of industrial resources
Costs
reduction
€350m
Target vs. 2014(1)
Cash use
optimization
Target from 2015(2)
Normalized capex
€350m
Manufacturing
& Direct costs
on sales
SG&A Total
Valens - Reduce added cost base
Before inflation, Including avoided costs
Full year effect in 2017, Assuming same volumes & cost base as in 2014
All types of costs addressed
— >450 cost reduction initiatives identified
— All divisions and regions covered
Global project organization structure, dedicated resources to support the
implementation, and specific tracking tool
Acceleration of the Lean Management approach a significant part of the
costs reduction for Manufacturing
In €m
base 2014
Targets
2015-2016 Base 2014, excl. Raw
material
Costs reduction
10% 14% 10%
/ 19
240m (60% variable costs)
80m 320m (50% variable costs)
In %
Previously announced
2014 capex
2015e Beyond 2015
Valens - Enforce strict capex discipline
Normalized capex at €350m p.a.
vs. €450m p.a. previously announced
Capex envelope sized for
business development, mix
improvement, and maintenance
Rigorous capex qualification and
authorization process
Capex execution supported by
project management resources
Target
Cash use optimization
/ 20
450
388
300
Maintenance:
€200m-€250m(1)
Premiumization /
Business dev.:
€100m-€150m
(1) Including forestation for €25 million
350
Optimal allocation of capital to be driven by ROCE targets
1
1
1
Capital allocation framework in line with shareholders’ interests
/ 21
Cash generated by operations
ROCE target
ROCE above WACC in 2018 under normalized oil market conditions
Conservative balance sheet
management while ensuring
operating flexibility
Capital expenditure to
maintain and grow the
company
Dividend
Decision
framework
3
2
1
2011 tube
production
capacity
400kt
500kt
1,500kt
2,400kt
2014 tube
production
capacity
750kt
800kt
1,350kt
≈2,900kt Total
2017 targeted
tube
production
capacity
750kt
800kt
900kt
≈2,450kt
Optimization of the industrial set-up
/ 22
/ 23
ROCE definition
ROCE = Net Operating Profit Less Adjusted Tax (NOPLAT) / Capital
Employed
“Capital Employed” as shown in the denominator is defined as the
sum of Net Fixed Asset and Operating Working Capital, minus
Goodwill
“NOPAT” as shown in the numerator is calculated as EBITDA minus
Depreciation and other non-cash items post tax shield (1- t(1))
(1) Taxes rate forecasted at 35% from 2015 onwards
H1 2015 financial data
Europe: very competitive
environment
Brazil:
• worsening local
macroeconomic environment
• iron ore sales significantly
down
EAMEA: volumes and mix
significantly down
USA: volumes decline,
destocking from distributors,
prices decreased in Q2
Brazil: revenues slightly
down y-o-y due to lower
drilling activity
Oil & Gas Industry & Other
Our markets in H1 2015
Conventional: lower
volumes along with pricing
pressure
Nuclear: favourable
comparison base in 2014
Lower demand and intense
competition
1,778
-25.1%
510
-25.9%
278
127
Power Generation
Petrochemicals
-9.0%
-15.0%
Data presented in millions of € / 25
H1 2015
H1 2014 1 778
127
278
510
1 331 108
253
378
Facing severe market conditions
Key market assumptions
/ 26
USA
Likely stabilization of the active rig count at a
very low level
Destocking from distributors expected to
continue throughout 2015
Price pressure started in H1 2015 intensifies
Q3 and Q4 2015 results expected to be
significantly below Q2, with no volume
recovery in H2 2015
-
- -
Weakening of the Euro
Power Generation: very competitive
environment
Industry & Other: very competitive
environment
Oil & Gas:
- Very low level of order inflow
- Ongoing destocking from some customers
- Price pressure / unfavourable mix
H2 2015 performance expected to decline
vs. H1, despite the favourable effect of a
stronger US dollar
-
+ -
-
EAMEA
Brazil
PBR’s 5-year E&P capex plan reduced, focus on
pre-salt maintained
PBR’s cash constraints
Deteriorating local macroeconomic environment /
Persisting oversupply in the iron ore market
O&G H2 2015 revenues expected to be
down vs. H1 2015
Industry & Other operations will continue to
suffer in H2 2015
- +/-
-
Capital Expenditure
/ 27
In millions of €
529
677
873 909
803
567
388
89
300 350
2008 2009 2010 2011 2012 2013 2014 H1 2015 FY 2015e Beyond 2015
H1 2015 balance sheet
/ 28 (1) As concerns the Amendment to IFRS 11, the impact of its application on the consolidated financial statements as at 30 June 2015 primarily translates to
a €60 million drop in sales in consideration for purchases; a €165 million drop in non-current assets, in consideration for other provisions and long-term
liabilities, and a drop in trade receivables of €33 million, in consideration for trade payables.
In millions of € 30 June 2015(1) 31 Dec. 2014
Non current assets 4,882 5,077
Inventories and
work-in-progress1,443 1,490
Trade and other receivables 895 1,146
Financial instruments 26 28
Other current assets 325 343
Cash & cash equivalents 975 1,147
TOTAL ASSETS 8,546 9,231
In millions of € 30 June 2015(1) 31 Dec. 2014
Equity, Group share 3,519 3,743
Non-controlling interests 406 426
Equity 3,925 4,169
Provisions and deferred tax 784 892
Bank debt 2,645 2,694
Financial instruments 206 173
Trade payables 555 807
Tax and other current liabilities 431 496
TOTAL EQUITY AND
LIABILITIES8,546 9,231
Net Debt 1,670 1,547
Net Debt / Equity 42.5% 37.1%
H1 2015 cash flow statement
/ 29
In millions of € H1 2015 H1 2014
Cash flow from operating activities
(FFO) (19) +360
Change in operating WCR
+decrease, (increase) +111 (185)
Net cash flow from operating activities
+92 +175
Gross capital expenditure (89) (138)
Financial investments - -
Dividends paid (66) (136)
Asset disposals & other items (60) (9)
Change in net debt (123) (108)
Net debt (end of period) 1,670 1,739
Q2 2015 financial data
/ 31
Q2 2015: from Revenues to EBITDA
(1) Before depreciation and amortization
In millions of € Q2
2015
Q2
2014
Change
YoY
Revenues 1,018 1,422 -28.4%
Industrial margin 142 403 -64.8%
As % of revenues 13.9% 28.3% -14.4pt
SG&A(1) (127) (143) -11.2%
As % of revenues 12.5% 10.1% +2.4pt
EBITDA 13 248 -94.8%
As % of revenues 1.3% 17.4% -16.1pt
/ 32
Q2 2015: from EBITDA to Net Income
In millions of € Q2
2015
Q2
2014
Change
YoY
EBITDA 13 248 -94.8%
Depreciation of industrial
assets (73) (77) -5.2%
Other (133) (15) na
Operating income (loss) (193) 156 na
Financial income (loss) (16) (11) +45.5%
Income tax 2 (46) -104.3%
Non-controlling interests (9) +11 na
Net income (loss), Group
share (199) 88 na
na: non applicable
Q2 2015 cash flow statement
/ 33
In millions of € Q2 2015 Q2 2014 Q1 2015
Cash flow from operating activities
(FFO) (38) +200 +19
Change in operating WCR
+decrease, (increase) +112 (128) (1)
Net cash flow from operating activities +74 +72 +18
Gross capital expenditure (41) (71) (48)
Financial investments - - -
Dividends paid (66) (113) -
Asset disposals & other items (34) +1 (26)
Change in net debt (67) (111) (56)
Net debt (end of period) 1,670 1,739 1,603
Investor Relations Contact - Vallourec Group
Tel: +33 1 49 09 39 76 / email: investor.relations@vallourec.com
www.vallourec.com
Leader in Premium Tubular Solutions
Euronext Paris: ISIN code: FR0000120354, Ticker: VK
USA: American Depositary Receipt (ADR) - ISIN code: US92023R2094, Ticker: VLOWY
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