Vallourec Sa · EURONEXT:VK

Vallourec Sa — Q3 2014 Earnings Presentation

52 slides from Vallourec Sa's earnings presentation, Nov 6, 2014

  1. Slide 1: Third Quarter and First Nine Months 2014 Results

    Third Quarter and First Nine Months 2014 Results Investor Presentation November 6, 2014

  2. Slide 2: Information

    Information  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 variation

  3. Slide 3: Q3 / 9M 2014 in review

    Y vallourec Q3 / 9M 2014 in review

  4. Slide 4: Q3 / 9M 2014 financial performance

    Q3 / 9M 2014 financial performance Sales EBITDA & EBITDA Margin(1) In millions of € In millions of € and in % +1.7% -6.4% 3,969 4,036 661 619 +5.3% at cc. -2.6% 240 -27.1% 1,379 1,343 -3.7% 17.4% 175 16.7% 15.3% at cc. 13.0% Q3 2013 Q3 2014 9M 2013 9M 2014 Q3 2013 Q3 2014 9M 2013 9M 2014 Free Cash F

  5. Slide 5: Q3 / 9M 2014 Business Highlights

    Q3 / 9M 2014 Business Highlights

  6. Slide 6: Sales evolution

    Sales evolution Q3 2014 versus Q3 2013 9M 2014 versus 9M 2013 +1.7% -2.6% +7.8% -3.6% +1.1% -7.2% -2.5% €4,036m +3.5% €3,969m €1,379m €1,343m Q3 2013 Volume Currency Price/Mix Q3 2014 9M 2013 Volume Currency Price/Mix 9M 2014 Translation Translation /6

  7. Slide 7: Oil & Gas and Petrochemicals sales

    Oil & Gas (66.1% of 9M 2014 Group’s sales) Petrochemicals (5.0% of 9M 2014 Group’s sales) Oil & Gas Sales (€ m)  O&G sales: +2.5%  EAMEA: Sales increase y-o-y in 9M 2014. In Q3 2014, higher 2,604 2,668 volumes, but with a less favourable mix +6.1% at cc.  USA: Higher volumes supported by increase

  8. Slide 8: Power Generation (10.1% of 9M 2014 Group's sales)

    Power Generation (10.1% of 9M 2014 Group’s sales) Power Generation Sales (€ m) +6.5% 409 384 +7.3% at cc.  Conventional power generation market: continues to suffer from pricing pressure in an intensely competitive market  Nuclear power generation +3.1% market: sales up, benefiting 127 131 from th

  9. Slide 9: Industry & Other (18.8% of 9M 2014 Group's sales)

    Industry & Other (18.8% of 9M 2014 Group’s sales) Industry & Other Sales (€ m) Mechanicals -0.8% Automotive 764 758 Construction & Other +4.2%  In the EU: higher at cc. volumes offset by 309 320 negative price and product mix effect -5.3%  In Brazil: 180 151  Continuing deterioration 262 of local

  10. Slide 10: Q3 / 9M 2014 Financial Results

    Q3 / 9M 2014 Financial Results

  11. Slide 11: Q3 2014: from Sales to EBITDA

    Q3 2014: from Sales to EBITDA % In millions of € Q3 2014 Q3 2013 Change  EBITDA down 27.1%, margin down: Sales volumes (k tons) 564 545 +3.5%  Mostly as a result of lower sales in Sales 1,343 1,379 -2.6% Brazil Cost of sales1 (1,028) (985) +4.4%  And to a smaller extent: less Industrial margin 31

  12. Slide 12: 9M 2014: from Sales to EBITDA

    9M 2014: from Sales to EBITDA % In millions of € 9M 2014 9M 2013 Change  EBITDA down 6.4%, margin down: Sales volumes (k tons) 1,698 1,575 +7.8%  Weaker industrial margin at Sales 4,036 3,969 +1.7% €1,048m:  Less favourable volumes and Cost of sales1 (2,988) (2,862) +4.4% mix in Brazil Industrial

  13. Slide 13: 9M 2014: from EBITDA to Net Income

    9M 2014: from EBITDA to Net Income % In millions of € 9M 2014 9M 2013 Change EBITDA 619 661 -6.4%  Operating Profit down 11.1% As % of sales 15.3% 16.7% -1.4pt y-o-y to €345m: Depreciation of industrial assets (226) (202) +11.9%  Decrease in EBITDA Other (amortization,  Higher depreciation of ind

  14. Slide 14: Free Cash Flow

    Free Cash Flow In millions of € 9M 2014 9M 2013 Change Cash flow from operating activities +516 +504 +12 (FFO) (A) Change in operating WCR (B) (176) (313) +137 +decrease, (increase) Gross capital expenditure (C) (205) (317) +112 Free Cash Flow (A)+(B)+(C) +135 (126) +261  Positive FCF at €135m, vs.

  15. Slide 15: Capital Expenditure

    Capital Expenditure In millions of € 909 873 803 677 567 529 ~450 on average 400 2008 2009 2010 2011 2012 2013 2014e 2015e & beyond / 15

  16. Slide 16: Net debt

    Net debt In millions of € Net Debt as of Net Debt as of Dec. 31, 2013 Sept. 30, 2014 Free Cash Flow Dividends paid Asset disposals & other elements (1,631) +135 (142) (19) (1,657) Net debt = Net debt = 32.7% 31.3% of equity of equity / 16

  17. Slide 17: Financial resources as of September 30, 2014

    Financial resources as of September 30, 2014 Strong and diversified financial structure Optimized cost of financing 18%  Approx. 69% of  82% of gross debt gross debt raised is at fixed rate* on capital markets Bank & Other Debt Bond Debt Comm. 82% Paper Variable rate Fixed rate Approximately €3.6b

  18. Slide 18: Outlook

    Y vallourec Outlook

  19. Slide 19: 2014 Targets

    2014 Targets Assuming no significant changes in markets and currencies, Vallourec continues to target:  2014 sales close to those of 2013  EBITDA down by approximately 10% vs. 2013  Positive Free Cash Flow in 2014 / 19

  20. Slide 20: Appendix

    Y vallourec Appendix

  21. Slide 21: A worldwide leader

    A worldwide leader  Worldwide presence and regional leadership with Key figures over 24,000 employees in more than 20 countries 2013  Over 50 production facilities worldwide delivering a large spectrum of products for diversified applications 2,159kt Sales volume  Oil & Gas sales representing app

  22. Slide 22: Our strategy to create value

    Our strategy to create value  Continue to support our customers’ challenges More  Continue to differentiate from low-cost players premium  Improve Vallourec profitability  Provide “local content” & supply key markets domestically More  Enlarge Vallourec product offer along with local dedicated

  23. Slide 23: Regional leaderships

    Regional leaderships Europe China North America • Brazil ME/Africa/Asia  Reshaped production capacity to support growth over years to come / 23

  24. Slide 24: Bringing our premium solutions closer to our customers

    Bringing our premium solutions closer to our customers 9,900 3,200 2,600 8,400 Over 24,000 5 steel mills Sales & services employees* 14 pipe mills Forest & mine > 50 production 38 finishing units 6 R&D centers facilities * At December 31, 2013 / 24

  25. Slide 25: Safety and health, our top priorities

    Safety and health, our top priorities  Safety performance The Group is committed 9.3 9.4 and mobilized 7.1 5.5 for the safety 5.3 5.0 and health of its 3.2 2.8 2.6 employees 2.3 2.0 2008 2009 2010 2011 2012 2013 2014 target LTIR (1) TRIR (2)  34,000 workstation safety inspections  367 continuous

  26. Slide 26: Sales breakdown for the First Nine Months of 2014

    Sales breakdown for the First Nine Months of 2014 Sales by region Sales by market €3,969m €4,036m €3,969m €4,036m 26.6% 31.0% North America 65.6% 66.1% Oil & Gas 23.6% 17.4% South America Asia & Middle East 24.3% 23.9% Petrochemicals 5.5% 5.0% Rest of the World 6.4% 8.5% Power Generation 9.7% 10.1%

  27. Slide 27: Sales breakdown for the FY 2013

    Sales breakdown for the FY 2013 Sales by region Sales by market €5,326m €5,578m €5,578m €5,326m 28.8% 26.2% North America Oil & Gas 60.7% 65.8% 21.2% South America 22.0% Asia & Middle East 18.4% 26.2% Petrochemicals 6.7% 5.5% Rest of the World 8.4% Power Generation 12.1% 7.3% 10.3% Mechanicals 9.3%

  28. Slide 28: 2013: Another year of growth for Oil & Gas operations

    2013: Another year of growth for Oil & Gas operations Oil & Gas sales - In € million 66% of total sales +13% 50% of +14% 3,669 total sales +21% 3,233 2,841 +5% 2,239 2,355 2009 2010 2011 2012 2013  Capturing market growth in the USA, Brazil and EAMEA1  2013 acquisition of Lupatech assets (Brazil)

  29. Slide 29: Our position in Brazil

    Our position in Brazil  Long term partnership with Petrobras (since 1954)  Fully integrated local production  A complete product offering MINAS GERAIS — Premium OCTG — VAM® connections — Drill pipes — Risers and flowlines VMB Belo Horizonte Espirito  Dedicated pre-salt project team VSB Santo Bas

  30. Slide 30: Our position in the USA

    Our position in the USA Oil & Gas Shale Plays Vallourec operations Casper, WY Youngstown, OH Muskogee, OK Houma, LA Houston,TX Image: Hart Energy  Long-term relationships with distributors, large independents and international majors  Strong reputation of VAM® products and services / 30

  31. Slide 31: Ramp up of new operations on track

    Ramp up of new operations on track USA: New Youngstown mill  Enlarged local offer to better meet China: New Valinox mill customer needs (product range, lead  Inauguration: June 6, 2013 time and services)  Rapid ramp up throughout 2013 Saudi Arabia: Finishing mill Brazil: VSB  1st deliveries in H

  32. Slide 32: Update on ongoing industrial new set up

    Update on ongoing industrial new set up: Investments <€ 50m USA: New VAM Finishing unit France: doubling testing capacity  Youngstown, Ohio  2015-2017 program  Expected 1st delivery early 2015 France: steel mill revamping  Operating in Q3’ 2013  Improved efficiency Brazil: additional services 

  33. Slide 33: R&D resources

    R&D resources Vallourec Research Vallourec Research Center France Center Technology  Significant R&D Vallourec Research expenses (€87m in Vallourec Competence Center Germany 2013) Center USA  Extension of testing development capacities for Group’s key technologies Vallourec  More than 500 R&D Res

  34. Slide 34: Partnering with our customers to answer their most complex challenges

    Partnering with our customers to answer their most complex challenges  Creation of Key Account Managers  Development of customer Oil & Gas Power Generation Industry events  Development of specific project to answer specif customer needs: - Vallourec umbilicals with Total - Rio research center wit

  35. Slide 35: Energy trends confirming predominance of Oil & Gas

    Energy trends confirming predominance of Oil & Gas Energy demand trends by fuel Oil & Gas trends  Growth in Oil consumption in 15.1 emerging economies 13.1 2.2  Transport sector delivers a 1.7 0.9 large share of Oil demand 0.7 growth 3.3 2.8  The USA projected to become the largest global Oil pro

  36. Slide 36: OCTG market evolution

    OCTG market evolution Seamless OCTG Evolution Seamless OCTG Premium Demand CAGR: CAGR Premium: +5% +8% 14.9MT Premium* 11.1MT 38% Premium* 8.5MT 35% Premium 25% 617 API API API 390 75% 65% 62% 2007 2012 2018 2007 2012 2018 Seamless OCTG Market E&P Spending (Bln USD) * Including semi-Premium  Increa

  37. Slide 37: Oil & Gas Premium products for all applications

    Oil & Gas Premium products for all applications  Deep wells  Corrosive environments Shale Gas Arctic  Deviated and horizontal wells Development  High-temperature of corrosion-  High-pressure resistant  Offshore drilling steel tubes and threaded VAM® SG LT Grades connections CLEANWELL® that del

  38. Slide 38: SURF applications

    SURF applications FLNG - FPSO Export Lines Refineries Petrochemicals ’ ® b Topsides H \ Processing Unit Onshore Linepipe py ° ° y¥ vallourec

  39. Slide 39: Well profiles adapted to all reservoirs

    Well profiles adapted to all reservoirs All paths are possible:  Vertical well  Directional well  High deviated well  3D and complex well  Extended Reach Drilling (ERD) well  Ultra-ERD well  Horizontal well / 39

  40. Slide 40: What are the components of a well?

    What are the components of a well? Conductor Less technical Casing Surface 955 ft Casing 3500 ft Intermediate Casing 10385 ft Production Casing 12950 ft More technical Production Tubing 14000 ft 15015 ft / 40

  41. Slide 41: Specificities of shale applications

    Specificities of shale applications Challenging environment Low permeability / Low porosity Thin & wide formations Hydraulic fracturing Horizontal wells High bending High internal pressures during water High rotational torque injection phase High fatigue loads High tension loads induced by Copy

  42. Slide 42: Solutions: evolution of grades and connections requirements for Shale

    Solutions: evolution of grades and connections requirements for Shale Shale Oil Shale Gas Shallow Up to 10 000 ft >> 10 000 ft TVD < 2 000 ft 2 000 - 5 000 ft > 5 000 – 10 000ft Lateral length Premium Semi premium API Gas tight metal-to-metal seal + shoulder Fit for purpose Semi-flush and special cl

  43. Slide 43: Solutions: evolution of grades and connections requirements for HPHT

    Solutions: evolution of grades and connections requirements for HPHT 392°F 200°C 356°F 180°C Ultra 302°F 150°C HPHT 10 000 psi 15 000 psi 17 500 psi Extreme HPHT HPHT Testing VAM® TOP capacities VAM® 21 VM 125 HC SS / 43

  44. Slide 44: Unconventional drilling technologies require more premium OCTG

    Unconventional drilling technologies require more premium OCTG  Breakthrough technologies enable access to non-conventional shale reserves, requiring more tons of OCTG and more premium connections Difference between conventional drilling (vertical) and unconventional drilling (horizontal) Image: De

  45. Slide 45: Market environment in 2013 and into 2014e 1/2

    Market environment in 2013 and into 2014e 1/2 USA Eurozone Real GDP Industrial production Real GDP China 0.8% 3.8% 4.1% Real GDP 2.3% 2.9% -0.6% -0.4% 2.2% 2.2% 7.7% 7.7% 2012 2013 2014 7.5% Industrial production 2012 2013 2014 2012 2013 2014 2012 2013 2014 0.9% Industrial production -2.7% -0.9% 10.

  46. Slide 46: Market environment in 2013 and into 2014e 2/2

    Market environment in 2013 and into 2014e 2/2 2012 2013 2014e  Oil demand growth +1% expected in Oil Demand(1) (Bbl/d) 90.5 91.7 92.6 2014 Oil price:(2) Brent ($/bbl) 111.7 108.6 104.2  Global economy: global growth International benchmark acceleration confirmed but with many Gas price:(2) Henry H

  47. Slide 47: Oil & Gas market

    Oil & Gas market 1,800 Oil vs. Gas in the US(1) 1,600 Oil & Gas International rig count(1) Oil: 82% 1,600 1,400 1,400 1,200 1,200 1,000 # active rigs 1,000 # active rigs 800 800 Land: 75% 600 600 400 Gas: 18% 400 200 200 Offshore: 25% 0 0 Rig count drilling trajectories(1) Oil & Gas prices(2) 2,200

  48. Slide 48: The trends and market environments

    The trends and market environments North America Europe Markets’ overcapacity A dynamic but competitive Oil & Gas market Our export base for high-tech products We are one step ahead Consolidate our and must keep that advantage leadership and improve our competitiveness Brazil Asia, Africa, Middle Ea

  49. Slide 49: Q3 2014: from EBITDA to Net Income

    Q3 2014: from EBITDA to Net Income % In millions of € Q3 2014 Q3 2013 Change EBITDA 175 240 -27.1% As % of sales 13.0% 17.4% -4.4pt Depreciation of industrial (78) (66) +18.2% assets Other (amortization, exceptional items, (17) (15) na impairment, restructuring) Operating Profit 80 159 -49.7% Financ

  50. Slide 50: 9M 2014 Balance Sheet

    9M 2014 Balance Sheet In millions of € 30 Sept. 2014 31 Dec. 2013 In millions of € 30 Sept. 2014 31 Dec. 2013 Non current assets 6,121 5,827 Equity, Group share 4,872 4,601 Non-controlling interests 416 385 Inventories and 1,694 1,423 work-in-progress Equity 5,288 4,986 Trade and other 1,074 1,099 r

  51. Slide 51: Dividend for the year 2013

    Dividend for the year 2013 €2.1 €1.8 Option period: €0.81 €0.69 4-17 June 2014 Payment date: 25 June 2014 2012 2013 Earning per share Dividend per share  Dividend up 17.4% y-o-y  Dividend payable in cash or in shares at shareholders’ option / 51

  52. Slide 52: Leader in Premium Tubular Solutions

    Leader in Premium Tubular Solutions Euronext Paris: ISIN code: FR0000120354, Ticker: VK USA: American Depositary Receipt (ADR) - ISIN code: US92023R2094, Ticker: VLOWY Investor Relations Contact - Vallourec Group Tel: +33 1 49 09 39 76 / email: investor.relations@vallourec.com www.vallourec.com

Vallourec — Q3 2014 Earnings Presentation on 6ix