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
Investor Presentation - 18 February 2016 / 5
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
Investor Presentation - 18 February 2016
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
Investor Presentation - 18 February 2016
Global staff reduction Valens savings update end of 2015
Revenues severely affected by drop in volumes
Investor Presentation - 18 February 2016 / 8
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
Investor Presentation - 18 February 2016 / 9
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
Investor Presentation - 18 February 2016 / 10
(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
Investor Presentation - 18 February 2016
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
(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.
na: non applicable
/ 12
Positive FCF at €135m
Free Cash Flow
Investor Presentation - 18 February 2016
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
Investor Presentation - 18 February 2016 / 13
(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
Investor Presentation - 18 February 2016 / 14
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
/ 17 Investor Presentation - 18 February 2016
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
Investor Presentation - 18 February 2016 / 18
* 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
Investor Presentation - 18 February 2016 / 19
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
Investor Presentation - 18 February 2016 / 20
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
* 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)
Forest disposal
A
c.€250m
2020 vs. 2015
Optimization of global production footprint
Investor Presentation - 18 February 2016 / 21
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**
Investor Presentation - 18 February 2016
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
Investor Presentation - 18 February 2016 / 23
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
Investor Presentation - 18 February 2016 / 24
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
Investor Presentation - 18 February 2016 / 25
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
Investor Presentation - 18 February 2016 / 26
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)
Investor Presentation - 18 February 2016
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
Investor Presentation - 18 February 2016 / 30
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
Investor Presentation - 18 February 2016 / 31
(1) Before depreciation and amortization
In millions of € Q4
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
Investor Presentation - 18 February 2016
na: non applicable
Q4 2015 cash flow statement
Investor Presentation - 18 February 2016 / 33
In millions of € Q4
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
Investor Presentation - 18 February 2016 / 35
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
Investor Presentation - 18 February 2016 / 36
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
Investor Presentation - 18 February 2016 / 37
Net Debt 1 519 1 547
Net Debt / Equity 50.0% 37.1%
(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.
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
Investor Presentation - 18 February 2016 / 38
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
Investor Presentation - 18 February 2016 / 39
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
Investor Presentation - 18 February 2016 / 40
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))
/ 41 Investor Presentation - 18 February 2016
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
* 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)
**** Subject to shareholders’ meeting approval and completion of the right issue
Setting the path for a strong return to profitability and
cash generation
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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
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1. Project to reshape European operations:
Fixing capacity issues*
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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
* The implementation of the project is subject to prior consultation with relevant workers council
2. Develop highly competitive production hubs
Brazil: Optimizing operations*
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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
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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
2. Develop highly competitive production hubs
Brazil – New industrial set-up*
* Subject to competition authorities’ approval
** Including 3.6% owned by Sumitomo Corp.
*** Sumitomo Corp. owning 0.4%
2. Develop highly competitive production hubs
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
2. Develop highly competitive production hubs
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
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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
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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 competition authorities’ approval
** 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*
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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
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Towards a new Vallourec
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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
Investor Presentation - 18 February 2016 / 57
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
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