Q results. Investor Presentation 29 April 2015

Transcription

1 Q results Investor Presentation 29 April 2015

2 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 variations are expressed in comparison with the same period of the previous year 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 ). / 2

3 Q at a glance

4 Q financial results significantly affected by severe drop in Vallourec s Oil & Gas markets In millions of Sales EBITDA (1) & EBITDA margin (2) Free cash flow (3) 1, , % -10.4pt % (30) Q Q Q Q Q Q % (-24.2% at constant exchange rates) -73.0% - 66m Positive free cash flow target for 2015 confirmed (1) Earnings Before Interest, Taxes, Depreciation, and Amortization (2) EBITDA over Sales (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

5 Implementation of Valens competitiveness plan underway Execution of Valens plan on track, process launched aiming at: Downsizing European tube capacity by 1/3 rd by 2017, compared with 2014 Searching for a majority partner for the Saint-Saulve French steel mill Reducing fixed costs Group-wide 2,000 jobs could be impacted worldwide, o/w 3/4 in Europe / 5

6 Optimization of the industrial set-up 2011 tube production capacity 2014 tube production capacity 2017 targeted tube production capacity 400kt 750kt 750kt 500kt 800kt 800kt 1,500kt 1,350kt 900kt Total 2,400kt 2,900kt 2,450kt

7 Q financial & business highlights

8 Sales evolution severely impacted by drop in volumes In millions of, comparison year-on-year Lower volumes, mainly in EAMEA Y-o-Y comparison mainly benefiting from positive price / mix effect in the USA 1, % +7.0% +1.0% 1,052 Q Volume Currency Translation Price/Mix Q / 8

9 Sales breakdown for Q As % of total Group sales, and change in % (comparison year-on-year) Sales by market Sales by region 29.1% +8.4% 38.1% 64.7% 62.1% -20.6% 20.1% -29.3% 17.2% 5.2% +0.0% 6.3% 10.6% +5.9% 13.6% 19.5% -23.4% 18.0% 24.0% -41.6% 16.9% 6.0% -6.6% 6.8% 20.8% -16.3% 21.0% Q Q Q Q Oil & Gas Petrochemicals Power Generation Industry & Other North America South America Asia & Middle-East Rest of the world Europe / 9

10 Q1 2015: from Sales to EBITDA In millions of Q1 Q (1) 2014 Change YoY Sales 1,052 1, % Industrial margin % As % of Sales 18.4% 26.0% -7.6pt SG&A (2) (137) (130) +5.4% As % of Sales 13.0% 10.2% +2.8pt EBITDA % As % of Sales 5.0% 15.4% -10.4pt EBITDA and margin down: Lower sales due to strong volume decrease Drop in high margin EAMEA O&G sales Under-absorption of fixed costs, despite a good adaptation of variable costs to the reduced level of activity SG&A stable at constant exchange rates, including increased R&D expenses (1) As concerns the Amendment to IFRS 11, the impact of its application on the consolidated financial statements as at 31 March 2015 primarily translates to a 29 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 31 million, in consideration for trade payables. (2) Before depreciation and amortization / 10

11 Q1 2015: from EBITDA to Net Income In millions of Q1 Q (1) 2014 Change YoY EBITDA % Depreciation of industrial assets (76) (71) +7.0% Other (12) (16) na Operating income (loss) Financial income (loss) (35) 109 na (21) (20) +5.0% Income tax (17) (28) -39.3% Slightly higher depreciation of industrial assets: positive impact on depreciation from the adjustment in the carrying value of some assets in mainly offset by forex rate, and higher depreciation in the USA Stable financial result Net income impacted by EBITDA decrease Net income, Group share (76) 56 na (1) As concerns the Amendment to IFRS 11, the impact of its application on the consolidated financial statements as at 31 March 2015 primarily translates to a 29 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 31 million, in consideration for trade payables. na: non applicable / 11

12 Free cash flow & net debt In millions of Net Debt as of Dec. 31, 2014 Net Debt as of Mar. 31, 2015 Net debt = 37.1% of equity Cash flow from operating activities (1,547) +19 Change in WCR (1) (1) Gross capital Dividends paid expenditure - (48) Asset disposals & other items (26) Net debt = 38.2% of equity (1,603) Free cash flow = - 30m (1) Change in operating Working Capital Requirement, +decrease / -increase / 12

13 Financial resources as at 31 March 2015 Long-term committed financing profile 3,500 3,000 2,500 2,000 1,500 1, ,700 1,700 1,700 1,100 1,100 1,078 1,776 1,776 1,737 1,035 1, Mar-15 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Undrawn committed financing Drawn committed financing Strong liquidity position with approx. 3.5 billion of committed financings, including undrawn confirmed credit lines of 1.7 billion, with no significant repayment until 2017 Figures as at 31 March 2015, unless otherwise specified *Fixed rate including commercial paper drawn with a 1-12 month maturity / 13

14 Outlook

15 Facing severe market conditions in 2015 Key market assumptions - USA Reduced end-users consumption Destocking from distributors OCTG sales are expected to strongly decline due to very low level of orders and increasing price pressure Europe Weakening of the Euro Very competitive environment in Power Generation and Industry & Other European O&G drilling activity severely impacted by recent Brent price evolution European mills load substantially reduced + Brazil Weakening of the Brazilian real Petrobras should moderately reduce its 2015 drilling activity, while maintaining strong focus on pre-salt - Depressed local macroeconomic environment / Decline of iron ore prices +/ Asia, Middle East, RoW Low level of orders since Q Oil price weakness aggravating the postponement or cancellation of some E&P projects Ongoing destocking from some customers Pricing pressure Volumes and product mix expected to be significantly down / 15

16 Oil & Gas market attractive over MT & LT 2015 to be a low point in cycle World Oil Production Evolution breakdown (mb/d) (1) Demand growth and depletion will continue to drive E&P capex, and OCTG market growth Expected MT & LT growth in Oil & Gas production in the regions where Vallourec is well positioned (USA, Brazil) Most of this growth in favour of premium products (non conventional, off-shore, sour grades) World Oil Supply 2014 USA Canada Brazil RoW non-opec (2) Add. call on OPEC crude (3) +1.9 Iraq+1.1 World Oil Supply Vallourec has extended innovation capabilities, appropriate products and strong local positions in markets with highest potential (1) Source: IEA, Oil Medium Term Market Report - February 2015 (2) Rest of the World non-opec, including OPEC countries Natural Gas Liquids, biofuels & processing gains (3) Call on OPEC crude 2020 less OPEC Crude Production 2014 / 16

17 Vallourec has strong fundamentals to supply key regions USA Very reactive market NA oil production growth necessary to meet worldwide demand Gas needs to increase post-2017 Strong preference for local manufacturing VK #1 local supplier of premium OCTG Brazil Brazil to represent a significant part of global oil production increase (1) Petrobras focus on pre-salt, with excellent well productivity Strong local content requirement IOCs capex to restart once Brent price recover Unique partnership with Petrobras Fully integrated production process EAMEA E&P spending to grow (2) : Structural needs for O&G, notably in the Middle-East Jump in Africa complex drilling activity Far East growth based on complex premium projects NOCs capex resilient to Brent price evolution IOCs capex to restart once Brent price recover Innovative solutions Local content Extended offer to answer customer needs Barriers to entry remain for advanced premium products (1) Source: IEA Medium term Oil Market Report 2015 February 2015 (2) Source: Global Upstream Spending Analysis through 2020, Morgan Stanley - 11 February 2015 / 17

18 Vallourec suited to leverage market potential Vallourec s ability to weather the O&G markets downturn: Short-term flexibility levers activated Implementation of Valens underway, aiming at: 350m cost reduction with a full year effect in 2017 (1) : Structural cost base reduction Process launched to reduce European excess capacity 100m capex reduction p.a. compared to initial target of 450m Strong liquidity profile with conservative financial policy Vallourec well armed to become stronger after the trough (1) Assuming same volumes & cost base as in 2014 / 18

19 Vallourec committed to cash generation and return on capital 2015 Positive free cash flow target confirmed, despite a likely free cash outflow in H1 Long-term ROCE: > WACC in 2018, under normalized oil market conditions Maintain our strategy Adapt to the new environment Reinforce our focus on competitiveness Increased discipline on capital allocation / 19

20 Appendix

21 Strategic Update and 2-year competitiveness plan

22 # active rigs # active rigs $/bbl Oil market evolution severely impacting Oil & Gas sales Brent / WTI 2015 average prices significantly below 2014 average E&P expenses to decrease in 2015 vs US rig count fast reducing; International rig count more resilient Recent evolution is expected to severely impact Vallourec O&G operations, notably in the US and EAMEA Brent WTI Brent / WTI price evolution (1) Brent below $100 OPEP meeting 1/1/2015 International rig count (2) US rig count (2) 1,600 1,400 1,200 1,000 Total: -9% vs peak Land: -11%vs peak 2,000 1,800 1,600 1,400 1,200 Total: -52% vs peak 800 1, Oil: -56% vs peak Offshore: -7%vs peak Gas: -40% vs peak (1) Thomson Reuters data collected on 27 April 2015 as at 24 April tickers: <CL/1-NM> / <BRN/1-IP> (2) Baker Hughes as at end of March 2015 for International Rig Count and as at 24 April 2015 for US rig count / 22

23 MORE PREMIUM Reaffirming our long term strategy, while focusing on competitiveness Customer requests Our achievement so far 2019 target Reaffirming our strategy Heat treated deliveries (% of total tons) Innovative and premium products and services ~70% 58% % Leadership on the high end / high margin products Innovation in products and services Leader in premium tubular solutions / 23

24 MORE LOCAL Reaffirming our long term strategy, while focusing on competitiveness Customer requests Our achievement so far 2019 target Reaffirming our strategy Local content and local presence in high growth markets Breakdown of revenues by region (% of sales) 15% 27% 34% 31% + North America % 24% South America Europe 19% 16% Rest of the world 2019 = - + Continue to rebalance our assets portfolio closer to our customers Leverage local content opportunities Local presence in all high-growth markets / 24

25 MORE COMPETITIVE Reaffirming our long term strategy, while focusing on competitiveness Customer requests Our achievement so far target (1) Reaffirming our strategy Valens Competitive offer Capten savings to offset the inflation 70m p.a. 100m p.a. (2) 350m Our continued area of focus Need to accelerate: Valens to to 2014 FY effect in 2017 (or 10% of added costs) (1) Full year effect in 2017, Assuming same volumes & cost base as in 2014 (2) Calculated on the basis of savings on added costs offsetting the inflation / 25

26 Valens: a 2-year global plan to improve competitiveness and drive efficiency Competitiveness plan Valens: (full year effect in 2017) Costs reduction Cash use optimization Organization efficiency Target vs (1) Target from 2015 (2) Effective as at 1 April m Normalized capex 350m Leaner organization - 4 regions North America, South America, Eastern Hemisphere, Europe - Central monitoring of industrial resources (1) Full year effect in 2017, Assuming same volumes & cost base as in 2014 (2) Versus previously announced capex target of 450 million / 26

27 Valens - Structurally reduce cost base In millions of, comparison year-on-year 5,701 2-year cost reduction targets 1 (1,753) 350 2% 10% 30 (2,495) 1, (568) (30) Sales Raw materials Manufacturing & Direct cost on sales SG&A Other 2014 EBITDA Total Raw materials Manufacturing & Direct cost on sales SG&A (1) Full year effect in 2017, Assuming same volumes & cost base as in 2014 / 27

28 Valens - Reduce added cost base Targets Base 2014, excl. Raw material In % In m base 2014 Costs reduction Manufacturing & Direct costs on sales SG&A Total 10% 14% 10% 240m (60% variable costs) 80m 320m (50% variable costs) Before inflation, Including avoided costs Full year effect in 2017, Assuming same volumes & cost base as in 2014 All types of costs addressed >400 cost reduction initiatives already 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 / 28

29 Valens - Enforce strict capex discipline Target Cash use optimization Normalized capex at 350m p.a. vs. 450m p.a. previously announced 450 Capex envelope sized for business development, mix improvement, and maintenance Rigorous capex qualification and authorization process Premiumization / Business dev.: 100m- 150m Capex execution supported by project management resources Maintenance: 200m- 250m (1) Previously announced 2014 capex 2015 & beyond (1) Including forestation for 25 million / 29

30 Capital allocation framework in line with shareholders interests Decision framework Cash generated by operations 1 Capital expenditure to maintain and grow the company ROCE target ROCE above WACC in 2018 under normalized oil market conditions 21 Dividend 31 Conservative balance sheet management while ensuring operating flexibility Optimal allocation of capital to be driven by ROCE targets / 30

31 2014 dividend proposed to be maintained at 0.81 per share Dividend (1) Proposed dividend to: be maintained at 0.81 per share be paid in cash or in shares at shareholders option Payment date: 25 June 2015 Earning per share Dividend per share (1) Adjusted earning per share (excluding impairment impacts) / 31

32 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 / 32

33 Q financial data

34 Oil & Gas (62.1% of Q Group s sales) In millions of Q %, -29.4% at cc. Q USA: Fall of active rig count, combined with distributors destocking, is weighing heavily on OCTG demand and prices, and started to impact Q sales. Q sales were down year-on-year in US dollars but up year-on-year in euros, the decrease in volumes being offset by a positive price and mix effect, and a positive euro/dollar translation effect Q sales significantly impacted sequentially as Q benefited from the ramp-up of the new rolling mill during 2014 EAMEA: Sales significantly decreased in Q when compared with a strong Q1 2014, notably in the Middle-East Low deliveries over Q1 2015: low level of orders since Q2 2014, postponement / cancellation of projects by IOCs, ongoing destocking at Saudi Aramco Brazil: Q sales down y-o-y and down q-o-q due to seasonal effect / 34

35 Power Generation (13.6% of Q Group s sales) In millions of Q %, +3.0% at cc. Q Conventional: Continued to suffer from a highly competitive environment and pricing pressure Nuclear: Sales up y-o-y, as activity in Q was low due to the postponement of some deliveries / 35

36 Industry & Other (18.0% of Q Group s sales) In millions of Mechanicals Q Automotive -23.4%, -25.0% at cc. Construction & Other Q In the EU: Volumes slightly lower y-o-y. Negative price and product mix effect continued to weigh on sales in a competitive environment In Brazil: Very weak macroeconomic environment in the region, notably a depressed automotive market, drove sales strongly down y-o-y, Q iron ore sales strongly declined due to lower prices / 36

37 Capital Expenditure In millions of Q FY 2015e & beyond / 37

38 Q balance sheet In millions of 31 Mar (1) 31 Dec In millions of 31 Mar (1) 31 Dec Non current assets 5,032 5,077 Equity, Group share 3,715 3,743 Inventories and work-in-progress Trade and other receivables 1,600 1, ,146 Non-controlling interests Equity 4,193 4,169 Provisions and deferred tax Financial instruments Other current assets Cash & cash equivalents 1,203 1,147 Total assets 9,175 9,231 Bank debt 2,806 2,694 Financial instruments Trade payables Other current liabilities Total liabilities 9,175 9,231 Net Debt 1,603 1,547 Net Debt / Equity 38.2% 37.1% (1) As concerns the Amendment to IFRS 11, the impact of its application on the consolidated financial statements as at 31 March 2015 primarily translates to a 29 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 31 million, in consideration for trade payables. / 38

39 Q cash flow statement In millions of Q Q Q Cash flow from operating activities (FFO) Change in operating WCR +decrease, (increase) Net cash flows from operating activities (1) (57) Gross capital expenditure (48) (67) (183) Financial investments Dividends paid - (23) (21) Asset disposals & other items (26) (10) (8) Change in net debt (56) Net debt (end of period) 1,603 1,628 1,547 / 39

40 Leader in Premium Tubular Solutions Euronext Paris: ISIN code: FR , Ticker: VK USA: American Depositary Receipt (ADR) - ISIN code: US92023R2094, Ticker: VLOWY Investor Relations Contact - Vallourec Group Tel: / investor.relations@vallourec.com