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Q2 / H1 2015 results Investor Presentation 30 July 2015

Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

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Page 1: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

Q2 / H1 2015 results

Investor Presentation 30 July 2015

Page 2: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

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

Page 3: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

H1 2015 at a glance

Page 4: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

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)

Page 5: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

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.

Page 6: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

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

Page 7: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

Focus on H1 2015 financial results

Page 8: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

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

Page 9: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

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%

Page 10: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

/ 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

Page 11: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

/ 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

Page 12: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

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

Page 13: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

*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

Page 14: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

Outlook

Page 15: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

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)

Page 16: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

Appendix

Page 17: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

Strategic Update and

2-year competitiveness plan

Page 18: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

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

Page 19: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

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 %

Page 20: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

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

Page 21: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

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

Page 22: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

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

Page 23: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

/ 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

Page 24: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

H1 2015 financial data

Page 25: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

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

Page 26: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

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

- +/-

-

Page 27: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

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

Page 28: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

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%

Page 29: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

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

Page 30: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

Q2 2015 financial data

Page 31: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

/ 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

Page 32: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

/ 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

Page 33: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

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

Page 34: Q2 / H1 2015 results - Vallourec - World leader in premium ... 2014 H1 2015 16,5% 3,2% H1 2014 H1 2015 H1 2014 H1 2015 H1 2015 financial results strongly impacted by challenging market

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