Full Year 2015 results - · PDF fileFull Year 2015 results Investor Presentation 18 February 2016 . Information Information and Forward-Looking Reflections

Full Year 2015 results

Investor Presentation

18 February 2016

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).

/ 2

Quarterly statements are unaudited and not subject to any review.

Audit procedures have been carried out for the full year consolidated financial

statements.

Final certification will take place before the Registration Document is filed with the

AMF, mid-March 2016.

Unless otherwise specified, indicated variations are expressed in comparison with

the same period of the previous year.

Investor Presentation - 18 February 2016 / 2

2015 Financial Results

2015 Highlights

/ 4

(1) Earnings Before Interest, Taxes, Depreciation, and Amortization

EBITDA(1)

Net result

Free

cash flow(2)

Strong impact from volume fall

-€77m EBITDA recorded in FY 2015

Strong positive free cash flow in line with commitment

Strict discipline on capex (capped at €268m)

Tight working capital management

Including non-cash impairment charges of €296m, mainly in

Europe

€3,803m

-€77m

€135m

-€865m -6.4%

-33%

vs.€855m

Adaptation &

savings

Vigorous

implementation of

short-term &

structural measures

Global staff reduction of 3,500 (-14% of end 2014 headcount)

Significant SG&A reduction: -€55 million (-10% vs. FY2014)

(2) Non-GAAP measure defined as cash flow from operating activities minus gross

capital expenditure and plus/minus change in operating working capital requirement

Sales

Sharp volume fall on US and EAMEA O&G markets

1.4mt -39%

Volumes

Investor Presentation - 18 February 2016

Strong reaction in a difficult year

Positive FCF in a challenging year thanks to adaptation measures, solid execution of Valens plan and cash management initiatives

Full set of transformational initiatives announced on February 1st to structurally address the company’s challenges

— Enhancement of global industrial set-up driving significant

benefits, largely independent from market recovery

— €1bn capital increase with binding commitments from Bpifrance and NSSMC

— Reinforced R&D and industrial cooperation with long-term partner NSSMC

Transformed Vallourec positioned to benefit from expected market recovery and to achieve its long term financial targets


Q4 2014 Q4 2015 2014 2015 Q4 2014 Q4 2015 2014 2015

2015 financial results strongly impacted

by adverse market conditions

/ 6

Revenues

EBITDA(1)

Volumes sold

Free Cash Flow(2)

625 -48.8%

(1) Earnings Before Interest, Taxes, Depreciation and Amortization

(2) Non-GAAP measure defined as cash flow from operating activities minus gross capital expenditure

and plus/minus change in operating working capital requirement

In k tons

In millions of €

In millions of €

-35.8%

at cc.

In millions of €

320

2,323

1,411

-39.3%

1,665

861

3,803 5,701

-48.3%

-33.3%

Q4 2014 Q4 2015 2014 2015

236

-77

855

-77

-48.0%

at cc.

2014 2015

-139m +274 +135


SG&A Strict capex discipline

Valens and short term adaptation measures

implemented in 2015

/ 7

€350m

€80m

In millions of € In millions of €

-1,600

-1,900

Dec. 2014 June 2015 Dec. . 2015

Global Headcount

576 560

568

513

2012 2013 2014 2015

-3,500

-14%

700 initiatives o/w 2/3rd started

Targeted savings of 10% of added

costs confirmed

Fully in line with targeted savings

> €100m already achieved

803

567

388 268

2012 2013 2014 2015


Global staff reduction Valens savings update end of 2015

Revenues severely affected by drop in volumes


Q4 2014 Volume Currency Translation

Price/Mix Q4 2015 2014 Volume Currency Translation

Price/Mix 2015

€861m

€1,665m -48.3%

-48.8%

€3,803m

€5,701m

+2.5%

-33.3%

-39.3%

+3.5%

-0.3% +0.8%

2015 versus 2014 Q4 2015 versus Q4 2014

Revenues by region

Revenues breakdown for 2015


Revenues by market

As % of total Group revenues

Oil & Gas

Petrochemicals

Power Generation

Industry & Other

North America

Asia & Middle-East

Rest of the world

Europe

FY 2014 FY 2015

66.6% 62.1%

5.4% 5.1%

10.7% 14.7%

17.8% 17.6% 19.1% 22.3%

9.0% 10.8%

16.1% 15.7%

25.2% 22.4%

30.6% 28.8%

FY 2014 FY 2015

South America

In millions of € 2015(1) 2014 Change

YoY

Revenues 3,803 5,701 -33.3%

Industrial margin 451 1,453 -69.0%

As % of revenues 11.9% 25.5% -13.6pt

SG&A(2) (513) (568) -9.7%

As % of revenues -13.5% -10.0% -3.5pt

EBITDA (77) 855 -109.0%

As % of revenues -2.0% 15.0% -17.0pt

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 31 December 2015 primarily translates to a

€107 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

Revenues down 33.3%

Lower industrial margin despite lower

industrial fixed costs resulting from Valens

deployment

SG&A: reduced by €55m,

-11% at constant exchange rate

EBITDA: down by -€932m, mainly due to

under absorption of fixed costs

In millions of € 2015(1) 2014 Change

YoY

EBITDA (77) 855 -109.0%

Industrial depreciation (303) (311) -2.6%

Amortization,

restructuring and other (162) (101) +60.4%

Impairment (296) (1,104) na

Operating income

(loss) (838) (661) na

Financial income (loss) (75) (62) +21.0%

Income tax 15 (157) na

Non-controlling interests (33) 46 na

Net income (loss),

Group share (865) (924) na

/ 11

2015: from EBITDA to Net Income


Amortization, restructuring & other:

increase of €61m versus 2014 mainly due

to restructuring provisions linked to

Valens plan (€101m).

Impairment: fixed assets depreciation

for €163m (mainly in Europe), Serimax

goodwill depreciation for €36m, current

assets depreciation for €45m, VHET

depreciation for €52m

Financial income: -€13m, mainly due to

lower forex income

Positive income tax mainly related to

recognition of deferred tax assets in

particular in the USA




na: non applicable

/ 12

Positive FCF at €135m

Free Cash Flow


In millions of €

Q4 2015

2015 2014 Change

Cash flow from operating activities

(FFO) (A) (144) (229) 682 -911

Change in WCR (B)

+decrease, (increase) +353 +632 (20) +612

Gross capital expenditure (C) (109) (268) (388) +120

Free Cash Flow (A)+(B)+(C) 100 135(1) 274 -139

Full adaptation of WCR to activity drop : €632m release

(1) Free cash flow (FCF) is a non-GAAP measure and is defined as cash flow from operating activities minus gross capital expenditure and

plus/minus change in operating working capital requirement

In millions of €

Net debt


(1) Change in Working Capital Requirement, + decrease / (increase)

Net

debt =

37.1%

of

equity

Dividends

paid Asset disposals

& other items

Net Debt as at

31 Dec. 2014

Net Debt as at

31 Dec. 2015

Cash flow from

operating activities

Change in

WCR(1)

(1,547)

(229) +632

Gross capital

expenditure

(268) (69)

Free cash flow = € 135m

(38)

Net

debt =

50.0%

of

equity

(1,519)

Slight reduction of net debt

Gearing: 50% (43% under covenant calculation)

2016 outlook: Severe market conditions


Power Generation:

Conventional power generation activity to benefit

from slightly higher deliveries in 2016 compared to

2015

Nuclear power generation activity to slowdown in

2016 compared to 2015

Industry & Other: should continue to be affected

by the decrease in volumes and pricing pressure.

Oil & Gas:

2016 deliveries severely impacted

IOCs projects postponed. NOCs tenders disputed

Fierce competition leading to pricing pressure

-

EAMEA

Brazil

New downward adjustment of Petrobras’ 2015-2019

Business Plan on 12 January 2016 (-US$ 32 bn vs.

initial plan presented in June 2015)

Maintained focus on pre-salt should allow limited

decrease in tubes deliveries in 2016

Industry & Other operations to continue to suffer from

the depressed macroeconomic environment. Iron ore

prices expected to be lower than in 2015.

-

+

+/-

-

USA

Cost cuttings by operators, low demand and price

pressure to last well into 2016

End of destocking expected in H2 2016

- +/-

-

-

+

Targets

/ 15 Investor Presentation - 18 February 2016

Negative Free Cash Flow c. €-600m**

Net Debt not to exceed €1.5bn by year-end, after Tianda

acquisition, full consolidation of VSB and €1bn capital

increase

*At end of 2015 exchange rates

** Assuming same working capital level as end of 2015

Negative EBITDA, below 2015

Full Year 2016*

EBITDA

Cash Flow

Net Debt

Accelerating transformation

What we announced on February 1st 2016

Four strategic initiatives:

1. Project to reshape European operations*

2. Develop highly competitive production hubs in Brazil

and China**/***

3. Reinforce partnership with NSSMC**

4. Strengthen Balance Sheet


Operational and financial transformation to secure long

term profitability and reinforce shareholding base

* The implementation of the project is subject to prior consultation with relevant workers council

** Subject to competition authorities’ approval

*** Subject to relevant PRC authorities approval (including Competition authorities)

c.€400m*

c.€250m

c.€100m

2020 vs. 2015

Key financial benefits


* Gross savings

C. 50% of 2020 targeted benefits to be achieved in 2018

independently from any market recovery

Change in scope

• Positive EBITDA impact of full consolidation of

Tianda and VSB

Optimization of global production footprint

• New hubs production costs lower by 30%-40% than

existing routes

Valens plan

• €350m savings program of which c.€100m already

achieved in 2015

New initiatives

• New measures leading to additional savings of

€150m on top of Valens

Only recurring savings assumed beyond 2017

A

B

C

By 2020

c. 70%

c.50%

c. 80%

c.70%

By 2018

c.70%

c.40%

c. 50%

c.50% Total

EBITDA contribution achievable

with no market recovery

c. €750m

FTE reduction

Capacity reduction

in Europe

Production lines

closure

Asset disposals

Other cost savings

initiatives

New initiatives adding 60% savings to Valens plan

beyond 2015


1

4

1/3

Total savings of €350m of which

€100m achieved in 2015

2

3

5

Valens (2015/2016) New initiatives (2016/2020)

50%

4 production lines closed in Europe**

—2 rolling mills (Saint-Saulve and Deville)

—1 threading line in Germany (Mulheim)

—1 heat treatment line in Scotland (Bellshill)

Closure of two blast furnaces and one steel mill

in Belo Horizonte***

2,000 headcount reduction o/w 1,500 in

Europe (including 350 headcount in Saint-

Saulve steel plant)

Additional headcount reduction: 1,500 FTEs

thereof 1,000 FTEs in Europe

700 initiatives identified

Targeted savings of 10% of added cost

Including SG&A to be reduced by 14%

Capex control

Remainder Valens initiatives

Additional SG&A cost reduction

G&A & tax synergies* in Brazil following the

merger of VSB and VBR

Disposal of a majority stake in Saint-Saulve

French steel mill

A

Disposal of Vallourec Heat Exchanger Tubes

Forest disposal in Brazil*

Total EBITDA savings of €400m, on top of

already achieved €100m in 2015 from Valens

Additional cumulative cash generation

up to €260m

* Cash

impact

below

EBITDA level

None (reduction in number of shifts)

**The implementation of the project is subject to prior consultation with relevant workers council

*** Subject to competition authorities’ approval

Transformation timeline


2016 2017 2018

Project to reshape

European

operations*

Develop highly

competitive

production hubs in

Brazil and

China**/***

Saint Saulve steel mill asset disposal

VHET asset disposal

Streamlined and specialized Europe

VBR-VSB merger (triggering tax and G&A synergies)

Closure of Belo Horizonte blast furnace number 2

Tianda control

Closure of Belo Horizonte blast

furnace number 1 and steel plant

1

2

Most initiatives implemented by end of 2017




Forest disposal

A

c.€250m

2020 vs. 2015

Optimization of global production footprint


Benefits breakdown Key actions underlying achievement of benefits

VSB

— Immediate benefits of a better load

— Incremental volumes at VSB until 2020

— Favorable BRL/USD parity

Tianda

— 550kt PQF capacity out of which 200kt for export

— Highly competitive route for Chinese and international O&G

markets

— Enables an enlarged and highly competitive offer combining

VAM® connections with Tianda low cost tubes

— Resulting in a better mix and increased profitability of Tianda

pipes

Benefits driven

by volume

recovery

(c. 50%)

Benefits

independent

from volume

recovery

(c. 50%) Key drivers:

►Optimized routes with production costs lower

30-40% than existing ones

► Further margin upside associated with volume

recovery

B

Change in scope: consolidation impact

/ 22

VSB

Tianda

Initial impacts 2020 Target

EBITDA

— c.€40m in 2015

+ c.€200m Net debt

consolidated at end of

2016

Timing Considerations Drivers

Closing by Q4 2016

First full year P&L and Cash

Flow impact : 2017

EBITDA:

— c.€30m in 2014

+c.€160m. cash-out *

completed by end of 2016:

— Acquisition of a

majority stake

— Minority squeeze-out

anticipated

Net debt position for

Tianda close to zero at

acquisition

Full consolidation vs.

Minority stake

Margin to stay stable as

integrated margin growth

reflected in optimization of

production footprint

Full consolidation vs.

existing joint operation at

56% level

Supply agreement

maintained with NSSMC

with guaranteed volume

sold at cost + fee

Closing by Q4 2016

First full year P&L and Cash

Flow impact : 2017

* Maximum cash out of USD 175m.

** Based on Vallourec estimates

Total VSB &

Tianda

consolidation:

+c. €100m

EBITDA in

2020 of which

2/3 VSB and

1/3 Tianda**


C

0

100

200

300

400

500

600

700

800

2016 2017 2018 2019 2020

Additional gross EBITDA contribution from strategic initiatives independant from volume recovery

Additional gross EBITDA contribution assuming volume recovery

EBITDA contribution of ~€750m in 2020,

and additional cumulative cash generation of up to €260m

Additional EBITDA and cash contribution

from strategic initiatives


c.50% of the €750m incremental EBITDA

achievable in 2018 independently from volumes

Non EBITDA cumulative cash

generation from strategic initiatives EBITDA from strategic initiatives

0

50

100

150

200

250

300

2016 2017 2018 2019 2020

Cash savings from disposal of Brazilian forest and tax synergies, independant from volume recovery

Additional cash inflows dependant from volume recovery

Cash inflows from disposal of Brazilian forest and tax

Liquidity in excess of €2.3bn post restructuring costs,

and €1.6bn in absence of 2017 bond refinancing

2,4 2,2

1,0 (0,2) (0,6)

(0,0) (0,1) (0,7)

Liquidity as of

Jan. 2016

Capital increase

Tianda acquisition

2016 FCF Others Liquidity as of

Dec. 2016

Remaining restructuring

costs

Bond reimbursement

Pro forma

2,3

1,6

Evolution of liquidity over time (€bn)

Strong balance sheet flexibility,

independent from market outlook


Assuming bond

refinancing

1

Vallourec volume recovery to come from depletion

and supply / demand dynamics, not oil price evolution

(6.0)%

0.5%

Depletion to drive volume recovery


Above and beyond demand, field depletion is the key

factor: 5m Bpd need to be put in production every

year to maintain current oil supply

Oil supply / demand rebalancing is expected in the

short term – quarters rather than years

Rebound in E&P activity will then be shaped by the

large dispersion of projects economics and risk

profiles

Eventually, the E&P activity needed to develop the

required oil supply, through its marginal costs, will act

as the key driver of future oil price

Global oil production needs (2012-2035)

Source: International Energy Agency, “Oil Medium Term Market Report”

– February 2015

Demand growth

(per year)

Production decline

(per year)

Source: IEA– January 2016

Vallourec is well positioned to fully benefit

from market recovery


Proximity to all core markets with state of the art industrial footprint 1

Strong relationship with core global clients 2

Best-in-class product offering addressing all client needs reinforced by enlarged

partnership with NSSMC 3

Significantly reduced production costs, game changer to Vallourec competitiveness 4

Balance sheet flexibility 5

Investments over the years and major strategic initiatives announced

on February 1st put Vallourec in a very strong position

to benefit from market recovery

Appendix

Q4 2015 financial data

Q4 2014 Q4 2015 FY 2014 FY 2015

497

Oil & Gas (62.1% of FY 2015 Group’s revenues)


O&G revenues:

- EAMEA: Volumes and mix

significantly down in 2015 with

strong pressure on prices

- USA: Volumes sharply down

reflecting the 62% fall in active rig

count and destocking from

distributors associated with strong

pressure on prices

- Brazil: Volumes down in 2015

affected by lower drilling activity

/ 29

Oil & Gas revenues

-55.9%

-37.8%

In millions of €

1,128

3,796

2,361

Revenues by region

Revenues breakdown for Q4 2015


Revenues by market

As % of total Group revenues

Oil & Gas

Petrochemicals

Power Generation

Industry & Other

North America

South America

Asia & Middle-East

Rest of the world

Europe

18,9% 19,7%

10,0%

19,7%

28,2%

27,2%

13,1%

8,4%

29,8%25,0%

Q4 2014 Q4 2015Q4 2014 Q4 2015

67.6%

57.7%

5.6%

5.2%

12.1% 18.2%

18.5% 15.0%

In millions of € Q4

2015

Q4

2014

Change

YoY

Revenues 861 1,665 -48.3%

Industrial margin 55 405 -86.4%

As % of revenues 6.4% 24.3% -18pt

SG&A(1) (130) (158) -17.7%

As % of revenues -15.1% -9.5% -6pt

EBITDA (77) 236 -132.6%

As % of revenues -8.9% 14.2% -23pt

Q4 2015: from Revenues to EBITDA


(1) Before depreciation and amortization


2015

Q4

2014

Change

YoY

EBITDA (77) 236 -132.6%

Industrial depreciation (75) (85) -11.8%

Amortization, restructuring and other (12) (53) na

Impairment (281) (1,104) na

Operating income (loss) (445) (1,006) na

Financial income (loss) (23) (21) +9.5%

Income tax 27 (50) -154.0%

Net income of associates 1 1 na

Non-controlling interests (14) 17 na

Net income (loss), Group share (426) (1,093) na

/ 32

Q4 2015: from EBITDA to Net Income


na: non applicable

Q4 2015 cash flow statement



2015

Q4

2014

Q3

2015

Cash flow from operating activities

(FFO) (144) 166 (66)

Change in WCR

+decrease, (increase) +353 +156 +168

Net cash flow from operating activities 209 322 102

Gross capital expenditure (109) (183) (70)

Financial investments - - -

Dividends paid (1) (21) (2)

Asset disposals & other items 15 (8) 7

Change in net debt 114 110 37

Net debt (end of period) 1,519 1,547 1,633

FY 2015 financial data

Capital Expenditure


In millions of €

529

677

873909

803

567

388

268

200

2008 2009 2010 2011 2012 2013 2014 2015 2016 est.

Revenues by geographic region


In millions of € 2015 As % of

revenues

2014

As % of

revenues

Change

YoY

Europe 849 22.3% 1,090 19.1% -22.1%

North America 1,096 28.8% 1,747 30.6% -37.3%

South America 596 15.7% 919 16.1% -35.1%

Asia & Middle East 852 22.4% 1,434 25.2% -40.6%

Rest of World

410 10.8% 511 9.0% -19.8%

Total 3,803 100.0% 5,701 100.0% -33.3%

FY 2015 balance sheet


Net Debt 1 519 1 547

Net Debt / Equity 50.0% 37.1%




In millions of € 31 Dec. 2015(1) 31 Dec. 2014

Equity, Group share 2 646 3 743

Non-controlling interests 392 426

Equity 3 038 4 169

Provisions and deferred tax 721 892

Bank debt 2 150 2 694

Financial instruments 152 173

Trade payables 523 807

Tax and other current

liabilities 347 496

Liabilities disposal for sale 60

TOTAL EQUITY AND

LIABILITIES 6 991 9 231

In millions of € 31 Dec. 2015(1) 31 Dec. 2014

Non current assets 4 353 5 077

Inventories and

work-in-progress 1 066 1 490

Trade and other receivables 545 1 146

Financial instruments 20 28

Other current assets 307 343

Cash & cash equivalents 631 1 147

Assets held for sale 69

TOTAL ASSETS 6 991 9 231

2015 cash flow statement


In millions of € 2015 2014

Cash flow from operating activities (FFO) (229) 682

Change in WCR

+decrease, (increase) 632 (20)

Net cash flow from operating activities 403 662

Gross capital expenditure (268) (388)

Financial investments - -

Dividends paid (69) (163)

Asset disposals & other items (38) (27)

Change in net debt 28 84

Net debt (end of period) 1,519 1,547

Sharp fall in volumes sold


Approx. 39% drop in FY 2015

Approx. 49% drop in Q4 2015

- NA and EAMEA Oil & Gas

OCTG volumes severely

affected by the downturn

- US rig count down 62% to

698 at end Dec 2015 vs. 1,840

at end Dec 2014

- Saudi destocking impact

- EAMEA rig count down 13%

2013

2,159 k tons

2014

2,323 k tons

2015

1,411 k tons

Volumes sold 2013-2015

In k tons

487

543 545

584 551

583 564

625

412

362

317 320

Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15

Financial resources as at 31 December 2015


Figures as at 31 December 2015, unless otherwise specified

Long-term committed financing profile

In millions of €

Strong liquidity position:

- €631 million of cash on

balance sheet which covers

more than 163% of the short

term debt

- €1.790 billion undrawn MLT

committed facilities

€400 million revolving credit

facility signed in September 2015

maturing in 2019 (replacing four

undrawn bilateral lines of €100

million each maturing in July 2017)

1 763 1 763

1 060 1 017

606 592

1 790 1 790

1 590 1 590

1 078

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

déc.-15 déc.-16 déc.-17 déc.-18 déc.-19 déc.-20

Drawn committed financing Undrawn commited financing

>

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))


What we announced on February 1st 2016

/ 42

Transforming Vallourec through key decisive actions

/ 43

Operational and financial transformation to secure long term

profitability and reinforce shareholding base

1. Project to reshape European operations* Reduce capacity by 50% vs. 33% previously targeted

Rationalize and specialize our European operations

2. Develop highly competitive production hubs in Brazil and China**/*** Brazil: Merge VSB & VBR to create a unique optimized production hub

China: Create a new competitive route by taking control of highly competitive

Tianda operations

3. Reinforce partnership with NSSMC** Increase industrial cooperation in Brazil

Enhance worldwide R&D cooperation on VAM®

Reinforce equity-based relationship

4. Strengthen Balance Sheet Mix of equity instrument reserved to Bpifrance / NSSMC and rights issue, for

a total €1bn (respectively €490m and €510m, of which €445m to be subscribed

by the market ****)

Main tranche of the reserved equity instrument priced at €11 per share

Bpifrance and NSSMC to increase their stake to 15% each

Subscription commitment from Bpifrance and NSSMC representing half or

more of equity raised in all scenarios




**** Subject to shareholders’ meeting approval and completion of the right issue

Setting the path for a strong return to profitability and

cash generation

/ 44

Strategic initiatives to generate

c.€750m EBITDA contribution Most measures in place by end 2017

Progressive volume recovery to

generate c.€900m of EBITDA Assuming volumes back to 2014 level

Weathering short-term challenges to fully benefit from market recovery

ROCE > WACC

Normative FCF of

€500m-€600m

assuming €350m

annual Capex

€1.2bn - €1.4bn

EBITDA

TARGETS BY 2020

Focus on Strategic Initiatives

/ 45

1. Project to reshape European operations:

Fixing capacity issues*

/ 46

European overcapacity addressed, focusing on high value, specialized

activities

Project to streamline our European operations… o Closure of 2 out of the 4 large rolling mills

50% tube production capacity reduction vs. 2014 (1/3 in Valens plan)

o Downsizing finishing capacities

Closure of 1 heat treatment and 1 threading line

o Additional G&A reduction

o Total headcount reduction of 1,000 FTEs (in addition to Valens plan)

o Asset disposals: confirmation of the planned sale of a majority stake in Saint-

Saulve steel mill, and ongoing exclusive negotiations to dispose of Vallourec

Heat Exchanger Tubes (VHET)

… to create an optimized European footprint o Rolling activities concentrated in Germany, finishing activities mostly

concentrated in France

o Optimizing load factor by retaining 1 mill for each range of diameters

o Sustained emphasis on R&D


2. Develop highly competitive production hubs

Brazil: Optimizing operations*

/ 47

Optimized and highly competitive Brazilian operations

Rationalization of production set up with continued

industrial cooperation with NSSMC o Merger of VSB & VBR to create Vallourec Soluções tubulares do Brasil,

owned by Vallourec (84.6%), NSSMC (15.0%) & Sumitomo Corporation (0.4%)

o Supply agreement maintained with NSSMC

Allowing for o Shut down of Belo Horizonte’s 2 blast furnaces and steel mill

to concentrate all steel production in Jeceaba state-of-the-art facility

o Capex avoidance and rationalization of forest assets

o G&A and tax synergies

o Additional headcount reduction of 450 FTEs

Leveraging Jeceaba superior competitive position for export o Optimal operational performance in Jeceaba premium mill

o High operational leverage with associated margin improvement potential

o Highly competitive export route

o Supported by BRL/USD parity

* Subject to competition authorities’ approval

/ 48 / 48

Vallourec Soluções tubulares do Brasil*** VSB - Jeceaba

Blast

furnace

Steel

mill

Rolling

mill

Current industrial set up

Two independent production sites

2018 target

A single integrated and optimized

production set up

Jeceaba

Jeceaba

B.H

New, highly competitive industrial set-up

Vallourec – 56% NSSMC – 44%**

Vallourec – 100%

VBR – Belo Horizonte

Vallourec – 85% NSSMC – 15%

Renew partnership

between NSSMC

and Vallourec

Industrial

re-organization


Brazil – New industrial set-up*


** Including 3.6% owned by Sumitomo Corp.

*** Sumitomo Corp. owning 0.4%


China – Overview of Tianda

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Tianda Oil Pipe Company: a partner ready for integration within Vallourec

A Chinese seamless pipe manufacturer since 1993, listed on the Hong Kong

Stock Exchange

A state-of-the-art PQF mill (2010): 550kt production capacity coupled with

finishing capacities

Production costs at the lowest end of industry standards

Qualified by Tier one OCTG customers

A successful partnership with Vallourec:

o 19.5% stake acquired by Vallourec in 2011

o Two organizations already very close with existing operational co-management

A breakthrough addition to Vallourec global set-up


China – Taking control of Tianda*

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Key parameters of Tianda acquisition Strong rationale to reinforce

production footprint in China

Share purchase agreement signed on 29

January 2016 with the majority shareholder for

an additional 50.61% stake

Mandatory General Offer to be launched

subsequently for all remaining share

Deal to be closed in Q4 2016 after clearance

from PRC authorities

Maximum cash out of USD175m

Highly competitive route for Chinese and

international O&G markets

Production costs lower by 30%-40% compared

to existing routes for comparable products

Enables an enlarged and highly competitive

offer combining VAM® connections with Tianda

low cost standards for pipe production

Supporting VAM®’s market share

* Subject to relevant PRC authorities approval (including Competition authorities)

3. Reinforced partnership with NSSMC

A long lasting relationship

/51

1976 Licensing agreement between Sumitomo Metal and

Vallourec on VAM® connections

1965 Development by Vallourec of VAM®, the first premium

connection

1984

First VAM® R&D partnership between Sumitomo Metal

and Vallourec

2007 Creation of VSB, joint operation between Vallourec and

Sumitomo Metal

2009 Acquisition of a 1.7% stake in Vallourec by

Sumitomo Metal

1985

Creation of VAM USA with Sumitomo Metal

3. Reinforced partnership with NSSMC

New step taken today

/52

Enhance R&D cooperation

o Improving the efficiency of the 40+ year technical

cooperation on VAM® connections development

o Adding resources to the joint R&D operation for VAM®

connections to accelerate development and release of new

products and reduce time-to-market

o Enabling to strengthen VAM®’s worldwide premium

positioning

Create Vallourec Soluções tubulares do Brasil*

o 85% - 15% Vallourec – NSSMC / Sumitomo Corp. held

new entity as the result of merging VBR and VSB

o Continued technical and engineering partnership in Jeceaba

mill, leading to high operational efficiency

Reinforce equity-based relationship**

o NSSMC participating in Vallourec capital increase to

achieve a 15% equity position


** Subject to shareholders’ meeting approval and completion of the right issue

4. Strengthening the Balance Sheet

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€1bn equity raise*

o c. €510m in the form of a rights issue** • Commitment from NSSMC and Bpifrance to subscribe to the offering; €445m to be

subscribed by the market**

o c. €490m in the form of a reserved equity instrument (mandatory

convertible bond)** • c. €365m tranche convertible into shares at a conversion price of €11 per share**

• c. €125m tranche convertible into shares at the issue price of the rights issue**

• Subscription by NSSMC and Bpifrance

o Execution targeted for Q2 2016, subject to Vallourec shareholders’

approval and market conditions

Intention by Bpifrance to potentially acquire shares on the secondary market

prior to the launch of the rights issue o Participation of Bpifrance in the reserved equity instruments to be sized so that, in

combination with potential secondary purchases, Bpifrance increases its overall ownership to

15% after dilution from the rights issue and the conversion of the bonds

o Depending on the number of shares eventually acquired by Bpifrance on the market, market

subscription may vary by up to +/- approximately €90m

Benefits anticipated o Finance the Group’s recovery journey and transformation

o Reinforce the headroom vs. the gearing covenant

o Path to investment grade

o Anchor the capital structure around 2 long-term strategic and financial partners

* Subject to shareholders’ meeting approval and completion of the right issue

** Mid-point scenario

Reserved

Equity

Instrument

Instrument

Structure

Timing

€490m Mandatory Convertible Bond

2 tranches:

o Tranche A: €365m, convertible into shares at a

conversion price of €11 per share

o Tranche B: €125m, convertible into shares at the

issue price of the rights issue

Approval at shareholder meeting on 6 April 2016

Execution in Q2 2016, subject to market conditions

4. Capital Increase: Key Features*

/54

Rights

Issue

Instrument

Features

Timing

€510m Rights Issue

Commitment of Bpifrance and NSSMC in the rights

issue through exercise of rights owned by each

Remainder, €445m, to be subscribed by the market

Beneficiaries Nippon Steel & Sumitomo Metal Corporation

Bpifrance

Conversion

Conversion into shares subject to antitrust clearance

Bpifrance and NSSMC ownership post conversion:

15%1

Approval at shareholder meeting on 6 April 2016

Execution in Q2 2016, subject to market conditions

NSSMC and Bpifrance to bring

long-term support to Vallourec

through aligned 15% stake each

Commitment to maintain

independence of Vallourec

o Voting rights capped at 15% for

both NSSMC and Bpifrance

o Standstill agreement for the next

15 years

Commitment from NSSMC /

Bpifrance as Anchor Investors

1 Taking into account 1.5% shares already owned by

NSSMC, 5.3% shares already owned by Bpifrance

and shares acquired by Bpifrance on the market

before shareholders meeting

* Mid-point scenario

Towards a New Vallourec

/ 55

Towards a new Vallourec

/ 56

Key challenges today Transformed Vallourec

Overcapacity issues in Europe Overcapacity issue in Europe

addressed

Non competitive average production

costs

Development of 2 highly

competitive hubs

Potential short-term pressure on

Balance Sheet

Strong and flexible Balance

Sheet

Ability to fully fund the new

strategic plan

Increasing competition

Cost competitiveness

Innovation

Best-in-class Offer

Reorganized industrial setup at a glance


Global capacities rebalanced, Europe down to 25%

Unique position with state-of-the-art rolling and finishing capacities in every key region

Two highly competitive routes developed for international O&G markets: Brazil and China

at 30% – 40% lower costs compared with current routes for comparable products

Rolling capacity:

2018: 550kt, i.e. 20%

incl. 200kt for export

Rolling capacity:

2014: 800kt, i.e. 27%

2018: 800kt, i.e. 29% +300kt dedicated to NSSMC

Rolling capacity:

2014: 750kt, i.e. 25%

2018: 750kt, i.e. 27%

Rolling capacity:

2014: 1,350kt, i.e. 46%

2018: 700kt, i.e. 25%

CHINA

EUROPE

BRAZIL

NORTH

AMERICA

A competitive industrial set-up with low cost routes

Long term targets by 2020

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Reach €1.2bn - €1.4bn EBITDA

Restore financial strength & flexibility:

o Normative FCF of €500-€600m assuming €350m annual

Capex

o Net Debt/EBITDA < 1.0x

o Back to Investment Grade rating

Generate ROCE above WACC

Investor Relations Contact - Vallourec Group

Tel: +33 1 49 09 39 76 / email: [email protected]

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

/ 59

Documents

Full Year 2015 results - · PDF fileFull Year 2015 results Investor Presentation 18 February 2016 . Information Information and Forward-Looking Reflections