FY 2018 RESULTS INVESTOR PRESENTATION. February 20, 2019

Transcription

1 FY 2018 RESULTS INVESTOR PRESENTATION February 20,

2 INFORMATION Quarterly financial statements are unaudited and are not subject to any review Half year financial statements are subject to limited review by statutory auditors Full year consolidated financial statements at 31 December are audited Unless otherwise specified, indicated variations are expressed in comparison with the same period of the previous year FORWARD-LOOKING STATEMENTS This document contains forward-looking statements. These statements include financial forecasts and estimates as well as 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 forwardlooking statements are reasonable, Vallourec cannot guarantee their accuracy or completeness and these forward-looking statements are subject to numerous risks and uncertainties that are difficult to foresee and generally beyond Vallourec s control, which may mean that actual results and developments may differ significantly from those expressed, induced or forecasted in the forward-looking statements. 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 March 21 st

3 TABLE OF CONTENTS Q4 and FY 2018 Highlights Q4 and FY 2018 Financial Results Outlook Appendices 3

4 1 Philippe Q4 & FY 2018 HIGHLIGHTS Crouzet, Chairman of the Management Board 4

5 KEY HIGHLIGHTS EBITDA of 89m vs. 43m in Q m in Q Restart of O&G in EA-MEA regions: quarter-on-quarter growth of 68% in revenue Free Cash Flow positive STRONG Q4 ACHIEVEMENTS Operating WCR decrease by 154m FY 2018 ON TRACK WITH RECOVERY PATH EBITDA of 150m Transformation Plan ahead of targets 445m gross savings achieved since 2016 Successful new routes deployment Continued focus on Free Cash Flow with net working capital requirement at 94 days of sales at end of year SOUND LIQUIDITY POSITION As at 31 December 2018, total available liquidity of 2.9bn including 2.2bn undrawn long-term facilities Banking covenant at 72% well below the limit of 100% 19 February 2019: extension of 600m bank facilities from 2020 to 2021 No major bank lines maturity before 2021 POSITIVE OUTLOOK Beyond North America, O&G recovery confirmed in key Vallourec markets: EA-MEA and Brazil Solid US market fundamentals 2018 bookings in EA-MEA O&G more than doubled vs. FY 2017 Restart of exploration activity in pre-salt Brazil as from 2020 New step in Transformation Plan: 2020 gross savings target increased to at least 650m, and divestiture of coal Powergen assets 5

6 Q KEY FIGURES: ACCELERATION IN EBITDA / FCF Sequential improvement driven by deliveries restart in EA-MEA O&G markets Q EBITDA at 89m, + 78m compared to Q Positive FCF VOLUMES (kt) REVENUE ( m) % 694 1,070 +4% 1,116 +6% at constant FX Q4 '17 Q4 '18 QUARTERLY EBITDA EVOLUTION ( m) Q4 '17 Q4 '18 FREE CASH FLOW ( m) m m 76 (5) Q4 '17 Q1 '18 Q2 '18 Q3 '18 Q4 '18 (26) Q4 '17 Q4 '18 6

7 FY 2018 KEY FIGURES: ON TRACK WITH RECOVERY PATH Strong O&G sales growth (+14% at constant exchange rates) EBITDA rebound: + 148m (+ 173m excluding provisions) Improvement in cash flow from operating activities, working capital impacted by catch-up of 2017 over-performance VOLUMES (kt) REVENUE ( m) 2,256 +5% 2,364 +5% 3,750 3, % at constant FX EBITDA ( m) FREE CASH FLOW ( m) m 122 (219) (220) (423) (216) (494) CFO op. WCR Capex Cash flow from operating activities 2 Including non-recurring operating working capital requirement variation caused by exceptionally low level at end of

8 TRANSFORMATION PLAN: 2020 SAVINGS TARGET OVER-ACHIEVED 2 YEARS AHEAD OF PLAN 2020 target of 400 million gross savings surpassed in 2018 GROSS COST SAVINGS ( m) HEADCOUNT EVOLUTION ( 14-18) - Group 445m achieved (3,025) (1,649) (770) (183) 1, Headcount '14 Europe SA NA ME MEA Africa Asia Headcount '18 HEADCOUNT EVOLUTION ( 14-18) - Europe % 8% 6% 9,815-31% 6,790 % total cost base (excluding raw materials, direct cost of sales, research and development)

9 TRANSFORMATION PLAN (CONT D): MAIN LEVERS: SAVINGS AND NEW ROUTES Savings and new routes (Brazil and China) enable a new cost competitiveness reflected by a sharp decrease in manufacturing cost Europe: capacity reduction by c.50% Two large capacity rolling mills closed, eliminating duplicates between France and Germany Heat treatment line and threading line closed in UK and Germany Reduction in steel capacity Closure of boiler line Powergen in Saint-Saulve Aggressive action plan in all regions on all cost levers Industrial costs, productivity gains, yield improvement, SG&A Divestiture of loss making activities (mostly France) Brazil: rationalization following merger of former VBR and VSB entities Shut down of blast furnace and steel plant in Barreiro initiated in 2017 and completed in July 2018, as planned Reorganization of industrial support functions and G&A Headcount reduction Contracts renegotiation Tianda: successful integration in Vallourec s footprint following acquisition end of 2016 Quality of industrial assets confirmed Premiumization of offer for local and export markets already yielding commercial successes MANUFACTURING COSTS EVOLUTION 1 Costs of sales (excl. raw materials) / ton ; Index 100 in SG&A REDUCTION All m -27% % Rebased cost of sales excluding raw materials, including forex, inflation and perimeter effects

10 NEW ROUTES DEPLOYMENT YIELDING RENEWED COMPETITIVENESS Share of Europe in rolling capacity reduced from c.45% in 2014 to c.25% in 2018 Ongoing transition to new routes offering a step change in competitiveness on recovering international markets In 2018, c. 250 kt of Premium products were rolled in VSB and Tianda for export outside their local markets (vs. 40kt in 2015) INDUSTRIAL FOOTPRINT Centre of technological excellence PRODUCTION CAPACITY (%kt) Rolling capacity: c.3mt/y 2014 Brazil c.30% c.45% Europe Oil and gas local market supply NA Highly competitive production hub Brazil Europe China Steel mills Tube mills R&D Highly competitive production hub Finishing unit Sales & Services office Plantation and mine North America China & RoW Brazil c.25% c.20% c.30% 2018 c.25% c.25% Europe North America 10

11 SAFETY FIRST A core value Commitment to the highest standards of the industry Performance strongly improved over the last years: LTIR: 1.02 vs in 2013 TRIR: 2.97 vs 5.48 in 2013 Since 2016, these indicators include subcontractors performance No fatality in 2018, 2017, 2016 and STRONG IMPROVEMENT OF SAFETY INDICATORS '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 LTIR TRIR

12 2 Olivier Q4 & FY 2018 FINANCIAL RESULTS Mallet Chief Financial Officer 12

13 Q EBITDA Q Q REVENUE BRIDGE 63 (2) (15) 1,116 Revenue improved + 46m YoY YoY 1,070» Positive volume effect due to strong growth in EA-MEA O&G largely offsetting decrease in Powergen» Slight negative mix mostly driven by Powergen decrease Q4 '17 In millions of euros Volume Effect Price / Mix Q FOREX Effect Q Q4 '18 Q Change YoY REVENUE 1, , % Cost of sales (910) (821) (944) -3.6% Industrial margin % (as % of revenue) 18.5% 14.6% 11.8% +6.7p.p. SG&A costs (106) (99) (117) -9.4% (as % of revenue) 9.5% 10.3% 10.9% -1.4p.p. Other income (expense), net (11) 2 2 Na EBITDA m EBITDA margin (as % of revenue) 8.0% 4.5% 1.0% +7.0p.p. QoQ» O&G in EA-MEA as main contributor, up 68% EBITDA improved + 78m YoY YoY QoQ» Better Oil & Gas volumes and prices in EA-MEA» Savings from the Transformation Plan» Industrial margin up 80m or +6.7p.p. despite raw materials cost increase» SG&A down, from 10.9% to 9.5% of revenue» Strong restart of deliveries in Oil & Gas EA-MEA 13

14 Q EBITDA TO NET INCOME Q4 Q3 Q4 Change In millions of euros YoY EBITDA m EBITDA as % of revenue 8.0% 4.5% 1.0% +7.0p.p. Depreciation of industrial assets (69) (63) (76) + 7m Amortization and other depreciation (8) (8) (11) na Operating loss reduced by 163m YoY, at 43m Driven by higher EBITDA and lower impairment charges as well as lower Assets disposal, restructuring, and other charges Includes in Q provisions for restructuring initiatives announced to the staff representative bodies in Germany Impairment of assets (38) (1) (64) na Asset disposals, restructuring and other (17) - (66) na OPERATING INCOME (LOSS) (43) (29) (206) + 163m Net financial income (loss) (55) (60) (34) - 21m PRE-TAX INCOME (LOSS) (98) (89) (240) + 142m Income tax (3) (2) 76 na Share in net income (loss) of associates na CONSOLIDATED NET INCOME (LOSS) (101) (90) (164) + 63m Non-controlling interests na NET INCOME (LOSS), GROUP SHARE (103) (92) (164) + 61m Financial charges Up as a result of the H bond issuance Income tax Variation explained by recognition of deferred tax assets notably in Brazil in Q

15 FY 2018 REVENUE BY MARKET All markets but Power Generation up YoY Oil & Gas +7.4% YoY (+14.0% 1 ) North America: Strong improvement Higher volumes and significant OCTG price increase in Q3 supported by higher activity Negative forex impact EA-MEA: Revenue up Higher OCTG revenue, most notably in Q4 South America: Slightly up Revenue increase partly offset by the weakening of the BRL Petrochemicals +28.4% YoY (+34.8% 1 ) Strong increase: driven by positive momentum in the US 289 7% 344 9% % FY 2018 revenue in millions of and as a % of revenue 3,921 2,469 63% Europe: Industry & Other +5.7% YoY (+13.1% 1 ) Higher prices for Mechanical Engineering and Automotive South America: Higher volumes in Mechanical Engineering and Automotive Power Generation -29.2% YoY (-27.6% 1 ) Conventional severely affected by decline in demand from coal Powergen industry, most notably in Asia Nuclear deliveries at low levels in 2018 Negative forex impact 1 At constant exchange rates 15

16 FY 2018 EBITDA REVENUE BRIDGE 3, (234) 3,921 Revenue Revenue growth driven by positive volume (+4.8%) and price/mix (+6.0%)» High volume growth thanks to OCTG market, despite declining Powergen activity» Positive price / mix effect in North America FY17 In millions of euros Volume Effect Price / Mix FY 2018 FOREX Effect FY 2017 FY18 Change YoY REVENUE 3,921 3, % Cost of sales (3,342) (3,297) 1.4% Industrial margin % (as % of revenue) 14.8% 12.1% +2.7p.p. SG&A costs (405) (440) -8.0% (as % of revenue) 10.3% 11.7% -1.4p.p. Other income (expense), net (24) (11) na EBITDA m EBITDA margin (as % of revenue) 3.8% 0.1% +3.7p.p.» Price increase in Industry Negative forex impact (-6.2%) EBITDA improved + 148m YoY Industrial margin from 12.1% to 14.8% of revenue, reflecting» Increase in activity» Positive impact from the Transformation Plan,» Despite increase in raw material prices and negative currency impact Sales, general and administrative costs (SG&A) down 8.0%, reflecting tight cost control» SG&A from 11.7% to 10.3 % of revenue 16

17 FY 2018 EBITDA TO NET INCOME VALLOUREC FY FY Change In millions of euros YoY EBITDA m EBITDA as % of revenue 3.8% 0.1% +3.7p.p. Depreciation of industrial assets (266) (297) + 31m Amortization and other depreciation (34) (44) na Impairment of assets (53) (65) na Asset disposals, restructuring and other (74) (79) na OPERATING INCOME (LOSS) (277) (483) + 206m Net financial income (loss) (220) (174) - 46m PRE-TAX INCOME (LOSS) (497) (657) + 160m Income tax (5) 100 na Share in net income (loss) of associates 2 (3) na CONSOLIDATED NET INCOME (LOSS) (500) (560) + 60m Non-controlling interests 2 (23) na NET INCOME (LOSS), GROUP SHARE (502) (537) + 35m Strong EBITDA improvement Continued restructuring efforts Restructuring measures and divestitures Provisioning of 2019 German restructuring initiatives announced to the staff representative bodies Financial charges Higher interest charges as a result of H2 17 and H1 18 bond issuances Pre-tax loss decrease by 160m mainly driven by EBITDA improvement and decrease in D&A Income tax Variation explained by (i) the recognition of deferred tax assets notably in Brazil in Q and (ii) business recovery in North America 17

18 DISCIPLINE ON WORKING CAPITAL MANAGEMENT RECONFIRMED QUARTERLY NET WORKING CAPITAL REQUIREMENT DAYS 1 Annual quarterly avg Period Q1.14 Q2.14 Q3.14 Q4.14 Q1.15 Q2.15 Q3.15 Q4.15 Q1.16 Q2.16 Q3.16 Q4.16 Q1.17 Q2.17 Q3.17 Q4.17 Q1.18 Q2.18 Q3.18 Q4.18 Annualized quarterly sales ( m) Net WCR 1 ( m) 5,084 5,688 5,372 6,660 4,208 4,072 3,488 3,444 2,684 3,052 2,772 3,351 3,132 3,732 3,856 4,280 3,449 3,928 3,844 4,464 1,745 1,906 1,981 1,829 1,873 1,783 1,473 1,088 1,098 1,114 1,028 1,051 1,206 1,165 1, ,147 1,222 1,310 1,152 Net working capital requirement at 94 days at end 2018: better level than any previous year but 2017 (exceptionally low at 84 days) Annual quarterly average performance comparable to 2017, and better than any previous year WCR days still highly seasonal 1 Net WCR defined as trade receivables plus inventories minus trade payables, net of provisions for inventories and trade receivables ; net WCR days are computed on an annualized quarterly sales basis 18

19 FY 2018 FREE CASH FLOW Free Cash Flow for the year was supported by improving cash from operating activities but affected by a significant non-recurring working capital requirement variation caused by exceptionally low level reached at end of 2017 m FY 2018 FY 2017 Change ( m) 1 Strong improvement in Cash flow from operating activities (+ 122m) Cash flow from operating activities (A) (210) (332) +122 Change in operating WCR (B) [+ decrease, (increase)] 1 (155) Net WCR days Gross capex (C) (129) (152) Operating WCR variation explained by exceptionally low level at end of change in net WCR benefited from an exceptional 84 days at end of year Catch-up effect in 2018, still showing a solid discipline with 94 days Free cash flow 3 (A)+(B)+(C) (494) (423) Capex spent consistent with the Group s recently reshaped industrial footprint 1 Operating WCR includes WCR as well as other operating liabilities and receivables 2 Net WCR defined as receivables plus inventories minus payables, net of provisions for inventories and trade receivables ; net WCR days computed on an annualized quarterly sales basis 3 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 19

20 QUARTERLY FREE CASH FLOW EVOLUTION m Q Q Q Q Q YoY Change Q4/Q4 ( m) 1 Cash flow from operating activities (A) (124) (83) (61) (54) (13) Change in operating WCR (B) [+ decrease, (increase)] (152) (84) (73) Gross capex (C) (66) (19) (19) (26) (65) +1 4 Free cash flow 2 (A)+(B)+(C) (26) (254) (164) (153) Improvement in cash flow from operating activities: accelerating in Q with + 111m (+ 122m in FY), showing the positive impact of restart in O&G in international markets, on top of price increases mid-year in the US 2 Decrease in operating WCR of 154m in Q Streamlined and modern industrial footprint allows moderate capex levels 4 Positive FCF in Q Operating working capital requirement includes WCR as well as other operating liabilities and receivables 2 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 20

21 FY 2018 NET DEBT (in millions of ) Net Debt as at 31 Dec H1 H2 Net Debt as at 31 Dec Free cash-flow = ( 494m) Cash Flow from Operating Activities (1,542) (144) (66) (236) Change in op. WCR 1 81 Gross capital expenditure (38) 26 Asset disposals & other items 2 (91) (47) (2,058) 1 Change in operating working capital requirement, + decrease/(increase) 2 H2 includes 41m paydown of NSSMC shareholder loan by VSB, without impact on gearing covenant 21

22 SOUND LIQUIDITY AS AT 31 DECEMBER FEB 2019: EXTENSION OF 600M BANK FACILITIES AVAILABLE LIQUIDITY AS AT 31 December 2018 ( m) 740 Cash MATURITIES OF BONDS ( m) 2,150 Undrawn Long Term Facilities ,890 Total Liquidity 2024 & After Net financial debt as at 31 December 2018 Net Financial Debt: 2,058m Strong liquidity as at 31 December 2018 Cash on hand: 740m Undrawn and fully available 2.2bn bank facilities Sound liquidity profile with no major bank lines maturity before 2021 Reinforced support from core banks: 600m bank facilities extended from 2020 to 2021 New amortization profile of bank facilities» 0.1bn maturing in 2019» 0.3bn maturing in 2020» 1.7bn maturing in 2021 (incl. 0,6bn extended)» 0.1bn maturing in 2027 OCEANE Bonds (400) (400) (550) (555) (250) Banking covenant 1 72% at year-end 2018, well below the 100% limit No impact from IFRS 16 S&P rating: B- Outlook negative 1 As defined in the banking agreements, the banking covenant ratio is the ratio of the Group s consolidated net debt (including the shareholder loan in Brazil) to the Group s equity, restated for reserves of changes in fair value of financial instruments and foreign currency translation reserve. This indebtedness ratio is tested once a year on the 31st December, and must be below a limit of 100% on this date. 22

23 3 Philippe OUTLOOK Crouzet, Chairman of the Management Board 23

24 NEW VALLOUREC BUSINESS MODEL European exposure drastically reduced to 25% of manufacturing capacities in 2018 Increased presence in the markets with highest growth potential in O&G: NA, SA, ME, SEA Transformation Plan leading to streamlined footprint with new highly competitive routes Empowered by A A staged recovery of the O&G markets where it has increased exposure B New savings initiatives supporting the recovery of industrial margin C Continuous cash management improvement 24

25 A VALLOUREC TO BENEFIT FROM THREE WAVES OF RECOVERY OF ITS KEY O&G MARKETS (%) of Vallourec s Oil & Gas revenue (avg.) 36% North America 52% EA-MEA 12% South America

26 A GLOBAL E&P CAPITAL SPENDING STEADILY RECOVERING Overall balanced supply/demand since 2017, despite short-term volatility, driving recovery in E&P capital spending after 4 years of under-investment Sustained demand growth for oil. Production decline rate remains the key factor driving the need for E&P capital spending «Meeting this [demand] growth in the near term means that approvals of conventional oil projects need to double from their current low levels» IEA director Fatih Birol, 12 Nov 2018 E&P CAPITAL SPENDING ($bn) Source: IHS, December CAGR: +8.9% Region LATAM Russia & Caspian CAGR 13% 6% North America 11% e 2020e 2021e Middle East Europe APAC Africa 0% 4% 9% 9% 26

27 A NORTH AMERICA: CONTINUED STRONG ACTIVITY Since 2017, the US market has sharply rebounded and shows a solid activity US OCTG MARKET SHIPMENT VOLUMES US Shipment in MT Source: Vallourec estimates VALLOUREC S STRENGTHS & INITIATIVES Context Strong rebound in OCTG market since 2017 Strong locally-integrated actor, full capacity utilization Debottlenecking of finishing capacities, to maximize domestic shipments and leverage Section 232 Increase services content: roll-out of Vallourec.Smart Rig count up 153% versus trough in mid 2016 Tube consumption per rig/month up 47% since 2014 Significant price recovery in Section 232 driving increased share of seamless vs. welded tubes (up 6% in 2018 versus 2017) North America E&P capital spending poised for strong growth over next years (CAGR : +10%) Source: IHS, December

28 A EA-MEA MARKET: RECOVERY NOW MATERIALIZING MEA and EA regions are showing strong restart: increasing number of tenders and FIDs 1 back to pre-2014 levels FIDs 1 EVOLUTION (worldwide excluding US unconventional) # of FIDs (reserves > 50mm barrels) Offshore Onshore # of EA-MEA FIDs Avg. '10 - '14 (per year) Source: Wood Mackenzie, FID: Final investment decision e VALLOUREC S STRENGTHS & INITIATIVES Context Already drastically improved competitiveness supported by new competitive routes Additional cost reductions (Brazil) and Premium offer (China) Bookings for O&G EA-MEA more than doubled in 2018 vs 2017 Due to long time between tenders, orders and tubes deliveries, rebound in deliveries apparent as from Q Final Investment Decisions continue to record strong growth Most projects now profitable above $50/b Number of FIDs back to pre-crisis levels Tenders from IOCs and NOCs increasing 28

29 A BRAZIL MARKET: REBOUND STARTING WITH EXPLORATION WELLS AS FROM 2020 Brazil paves the way for dynamic growth in activity as from 2020 BRAZIL BIDDING ROUNDS Year Acquired blocks Winners Total 72 VALLOUREC S STRENGTHS & INITIATIVES Only producer of seamless tubes in Brazil, with unique offer of local services Unique expertise of Brazilian pre-salt Long-term agreement renewed with Petrobras (effective July 2018) Supplier of choice for IOCs: multi-year agreement with Shell in Brazil signed on January 11th 2019* Source: ANP Blocks acquired by Petrobras Return of exploratory activities Context 14 th Concession round + 2 nd + 3 rd Production sharing rounds 10 new exploratory blocks 11.4 thousands km 2 of exploratory area (increase by 17% of Petrobras actual portfolio) RS 2.9bn invested in signature bonus By bidding rounds 2 rounds for marginal accumulations Source: Petrobras Average of Petrobras exploration wells per year Petrobras to relaunch its E&P programme $69bn E&P over (+13% versus previous plan) Restart of exploration activity as from 2020 leading to significantly increased total drilled wells/year (from 37 in 2018) After bidding in 6 rounds over the last 2 years, IOCs are starting exploration * Shell is the second largest E&P company in Brazil 29

30 B NEW SAVINGS INITIATIVES LAUNCHED 1 To complete Europe turn-around 2 and to continue reinforcing Vallourec new global footprint Brazil as best-in-class manufacturing base for local and export markets; Chinese operations to develop Premium capabilities New Savings initiatives leading to Additional gross savings of at least 200m over Total gross savings target increased from 400m to at least 650m by 2020 Strategic decision to launch divestiture of assets for conventional Powergen 30

31 B 1 NEW SAVINGS INITIATIVES: EUROPE TURNAROUND Extensive savings plan launched in Germany VALLOUREC S FOOTPRINT IN GERMANY KEY INITIATIVES Rath-Plug Mülheim Rath-Pilger Düsseldorf-Rath Reisholz Riesa Rolling mill / Finishing Threading R&D Full scope cost efficiency measures Large scale FTE reduction plan 1 : c.600 headcount reduction until 2020; c.18% of German current workforce One mill concept Pre-material and industrial costs reduction HQ & Sales Production flow optimization SG&A reduction GERMANY FTE HEADCOUNT 1 These restructuring measures are subject to prior consultation of the relevant staff representative bodies, and are expected to be implemented from ,935-14% 3,403-18% c.2,800 2, e Addressing declining conventional Powergen market Search for a partner to acquire the assets dedicated to coal-fired conventional power plants, including Reisholz mill (Germany) and VCHA mill (China) 31

32 B NEW SAVINGS INITIATIVES: GLOBAL FOOTPRINT 2 Brazil as a best-in-class manufacturing base for local and export markets Roll out Cost Savings comprehensive plan Productivity improvement Full year impact of steel production rationalization Sourcing efficiencies Brazil Develop Premium capabilities Roll Out Digital Premium Services Improvements in Process Capability through Industry 4.0 (automation, data science, IoT, etc.) Optimize mining operations Extension of capacity under study.chinese operations to develop Premium capabilities China Finalize Premium production set-up Tianda highly competitive facilities now fully integrated, to address local and export markets (Asia, Middle-East) Goal is to offer full scope product portfolio at highly competitive cost Finalize industrial set-up for Premium product production, enabling to increase value per ton and reduce exposure to domestic commodity market 32

33 C NEW SAVINGS INITIATIVES SUPPORTING MARGIN RECOVERY - CONTINUOUS CASH MANAGEMENT IMPROVEMENT SUPPORTING MARGIN RECOVERY CONTINUOUS CASH IMPROVEMENT Gross savings target increased from 400m to at least 650m by 2020 In line with average yearly cost savings achieved over above 5% of added cost base Industrial margin 8% 12% 15% SG&A as % sales 15% 12% 10% Launched a new structured program targeting to continue reducing working capital requirements needs: beyond usual seasonal movements (peak outflow in H1), target is to continue diminishing the number of days of working capital requirement on both quarterly average and end of year, from respectively 113 and 94 days of net WCR 1 Revised mid term Capex from 350 per year to 250m over the cycle (2019 around 180m), consistent with the needs of the renewed industrial footprint Net WCR defined as receivables plus inventories minus payables, net of provisions for inventories and trade receivables ; net WCR days computed on an annualized quarterly sales basis Leverage internal efforts to accelerate performance uptick in recovering O&G markets 33

34 OUTLOOK FOR 2019 NORTH AMERICA Based on current WTI prices, demand for OCTG tubes to remain at a high level Full year effect of 2018 price increases despite some pressure on H due to market softness in Q Increased shipments through debottlenecking SOUTH AMERICA O&G: drilling activity expected to remain broadly stable throughout the year Industry: should benefit from the Brazilian economy recovery, particularly in Automotive Mine: positive outlook, extension of capacity under study O&G: Continued increase in Oil & Gas activity In particular higher activity in North Sea, South East Asia, Middle East and Africa Increasing utilization of the competitive new routes Industry: EUROPE-AFRICA- MIDDLE EAST- ASIA Flattening volumes and some pressure on prices after a positive price increase in 2018 RAW MATERIALS & CURRENCIES Raw materials prices progressively stabilized in H after strong increase in H1 At current FX rates, the unfavourable currencies impact experienced in 2018 would not replicate in

35 OUTLOOK FOR 2019 Based on current economic and market trends 1, the Group targets: A strong increase in EBITDA, supported by the continuous growth in its Oil & Gas activity, additional savings as well as ongoing deployment of its new competitive manufacturing routes A continuous improvement in working capital requirement, beyond usual seasonal movements (peak outflow in H1), with a diminishing number of days of working capital requirement on both quarterly average and end of year Capex around 180 million, consistent with the needs of its renewed industrial footprint Based on the objectives outlined above, the Group would respect its banking covenant at the end of the year 1. Cf. paragraph Information and Forward-Looking Statements 35

36 4 APPENDICES 36

37 4 APPENDICES FINANCIAL APPENDICES 37

38 FY 2018 REVENUE BRIDGES REVENUE BRIDGE PER MARKET (119) 44 3,921 3,750 FY17 O&G Refining & Petrochems Power Gen Industry & other FY REVENUE BRIDGE BY GEOGRAPHY (87) 4 3,921 3,750 (7) FY17 Europe North America South America Asia & Middle East Rest of World FY18 38

39 REVENUE BREAKDOWN FY 2018 REVENUE BY REGION In millions of euros FY 2018 As % of revenues FY 2017 As % of revenues Change YoY Europe % % -1,2% North America 1, % 1, % 24.0% South America % % 2.1% Asia & Middle East 1, % 1, % -7.4% Rest of World % % 1,2% Total 3, % 3, % 4.6% REVENUE BY MARKET In millions of euros Q Change YoY FY 2018 As % of revenues FY 2017 As % of revenues Change YoY Oil & Gas % 2,469 63% 2,299 61% +7% Petrochemicals 84-10% 344 9% 268 7% +28% Oil & Gas, Petrochemicals % 2,813 72% 2,567 68% +10% Power Generation 60-52% 289 7% % -29% Mechanicals % % % +27% Automotive 34-13% 148 4% 144 4% +3% Construction & Other 55-27% 202 5% 263 7% -23% Industry & Other 235-1% % % +6% Total 1,116 +4% 3, % 3, % +5% 39

40 FY AND Q P&L Q Q Change YoY In millions of euros FY 2018 FY 2017 Change YoY 1,116 1, % REVENUE 3,921 3, % (910) (944) -3.6% Cost of sales 1 (3,342) (3,297) 1.4% % Industrial margin % 18.5% 11.8% +6.7p.p (as % of revenue) 14.8% 12.1% +2.7p.p (106) (117) -9.4% SG&A costs 1 (405) (440) -8.0% (11) 2 Na Other income (expense), net (24) (11) na m EBITDA m 8.0% 1.0% +7.0p.p EBITDA as % of revenues 3.8% 0.1% +3.7p.p (69) (76) + 7m Depreciation of industrial assets (266) (297) + 31m (8) (11) na Amortization and other depreciation (34) (44) na (38) (64) na Impairment of assets (53) (65) na (17) (66) na Asset disposals, restructuring and other (74) (79) na (43) (206) + 163m OPERATING INCOME (LOSS) (277) (483) + 206m (55) (34) - 21m Financial income (loss) (220) (174) - 46m (98) (240) + 142m PRE-TAX INCOME (LOSS) (497) (657) + 160m (3) 76 na Income tax (5) 100 na - - na Share in net income (loss) of associates 2 (3) na (101) (164) + 63m NET INCOME (LOSS) FOR THE CONSOLIDATED ENTITY (500) (560) + 60m 2 - na Non-controlling interests 2 (23) na (103) (164) + 61m NET INCOME (LOSS), GROUP SHARE (502) (537) + 35m 1 Before depreciation and amortization 40

41 BALANCE SHEET AS AT DECEMBER 31, 2018 Assets (in millions of ) 31-Dec Dec 2017 Liabilities 31-Dec Dec 2017 Equity, Group share 1,802 2,426 Net intangible assets Non-controlling interests Goodwill Total equity 2,264 2,885 Net property, plant and equipment 2,691 2,977 Shareholder loan Biological assets Bank loans and other borrowings (A) 1,797 1,817 Associates Employee benefits Other non-current assets Deferred tax liabilities Deferred tax assets Provisions and other long-term liabilities Total non-current assets 3,720 3,966 Total non-current liabilities 2,076 2,105 Inventories and work-in-progress 1,135 1,004 Provisions Trade and other receivables Overdrafts and other short-term borrowings (B) 1, Derivatives - assets 3 32 Trade payables Other current assets Derivatives - liabilities Cash and cash equivalents (C) 740 1,021 Tax and other current liabilities Total current assets 2,693 2,856 Total current liabilities 2,044 1,811 Assets held for sale - 64 Liabilities disposal for sale - 13 TOTAL ASSETS 6,413 6,886 TOTAL EQUITY AND LIABILITIES 6,413 6,886 Net debt (A+B-C) 2,058 1,542 Net income (loss), Group share (502) (537) Gearing ratio 91% 53% Banking covenant 72% 47% Estimated impact from IFRS 16 implementation on opening balance sheet as of January 2019, 1st: estimated increase by 80 to 100 million of net tangible assets (right of use), against the recognition of a lease debt Banking covenant not impacted by this change in methodology 41

42 4 APPENDICES BUSINESS APPENDICES 42

43 VALLOUREC AT A GLANCE FY 2018 Sales volume: 2,364Kt Sales: 3,921m Worldwide presence with c.19,000 employees in more than 20 countries Over 50 production facilities worldwide delivering a large spectrum of products for diversified applications, geographies and sectors Highly innovative with 6 advanced R&D and 4 connection test centers located in France, Germany, Brazil and the US employing over 500 researchers and technicians A clear and constant strategy: more premium, more local, more competitive Key markets OIL & GAS AND PETROCHEM INDUSTRY POWER GENERATION Revenue share (FY 2018) 72% 7% 21% 2,813m 819m 289m Key clients GLOBAL LEADER IN PREMIUM TUBULAR SOLUTIONS OPERATING ACROSS DIVERSIFIED END MARKETS AND GEOGRAPHIES 43

44 VALLOUREC PRODUCT OFFERING AND APPLICATIONS OIL & GAS INDUSTRY Copyright: Total Welding Construction Tubular solutions in infrastructure and complex architectural projects Production riser Mechanical Engineering tubes and rings for cranes, axles, hydraulic cylinders, mining and farming machinery Drill pipe Casing Tubing Flowline Umbilicals Automotive suspension and transmission parts, structural and passive safety components, shock absorbers, bearings for all types of vehicles 4 Tool joint Connection Leading-edge solutions for every application in the oil and gas industry OCTG 1 tubes including premium VAM 2 connections designed for oil and gas well equipment Complete range of drill pipes Line pipes and accessories 3 CONVENTIONAL POWER PLANT POWER GENERATION NUCLEAR POWER PLANT Key components for conventional and nuclear power plants Higher efficiency achieved for ultra super critical conventional coal fired power plants 1 Oil Country Tubular Goods, which entails products, mainly tubes, designed for oil and gas well equipment encompassing casing, tubing and accessories 2 Brand name of seamless pipe connections co-developed by NSSMC and Vallourec 3 For onshore and offshore hydrocarbon transportation as well as tubes for umbilicals 4 Light to off-highway vehicles 44

45 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 45