BNP PARIBAS HIGH YIELD & LEVERAGED FINANCE CONFERENCE. 19th January 2017

Transcription

1 BNP PARIBAS HIGH YIELD & LEVERAGED FINANCE CONFERENCE 19th January 2017

2 Information Full year consolidated financial statements at 31 December are audited Half year financial statements are subject to limited review by Statutory Auditors To date, third quarter 2016 financial information has not been audited nor subject to limited review by Statutory Auditors 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 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 forward looking 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 16 March 2016 (N D ). 2

3 Today s Presenters Olivier Mallet Chief Financial Officer since 2008 More than 20 years financial experience in various industries Etienne Bertrand Investor Relations & Financial Communication since 2006 More than 30 years in the Group in several positions Frédéric Bernet Corporate Treasury and Financing since 2014 More than 20 years financial experience in Finance and Treasury departments (PSA, Sequana) 3

4 CONTENTS I. Company Overview II. Update on Operating Environment and Group Strategy III. Credit Highlights IV. Financial Summary V. Q&A VI. Appendix CHARTE POWERPOINT VALLOUREC 4 4

5 Company Overview 19/01/2017 CHARTE POWERPOINT VALLOUREC 5

6 Vallourec at a glance 2016 LTM Sept Figures: Sales volume: 1,225kt Sales: 2,988m Worldwide presence with 21,000 employees 1 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 U.S. employing over 500 researchers and technicians A clear and constant strategy: more premium, more local, more competitive Key segments OIL & GAS POWER GENERATION INDUSTRY Revenue share (2016 LTM Sept) 1,915m 64% 16% 19% 492m 581m Key clients 1 At December 31, 2015 (permanent and temporary contracts) (1) Including Petrochemicals Global leader in premium tubular solutions operating across diversified end markets and geographies 6

7 Vallourec product offering and applications OIL & GAS Conventional power plant POWER GENERATION Nuclear power plant Welding Production riser Drill pipe Casing Tubing Flowline Umbilicals Copyright: Total 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 Key components for conventional and nuclear power plants Higher efficiency achieved for ultra super critical conventional coal fired power plants INDUSTRY Construction Tubular solutions in infrastructure and complex architectural projects Mechanical Engineering tubes and rings for cranes, axles, hydraulic cylinders, mining and farming machinery 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 Automotive suspension and transmission parts, structural and passive safety components, shock absorbers, bearings for all types of vehicles 4 7

8 Vallourec global industrial and commercial footprint Fully integrated set up : steel mill, rolling mills (including a new state-of-the-art small diameter mill), finishing linesl Major R&D Hub Streamlined manufacturing operations Center of excellence for high end premium in OCTG tubes and connections, power generation and European industrial applications North America 17% Europe 22% Asia 1 26% Fully integrated setup : steel and rolling mills in Belo Horizonte, new state-of-the-art still and rolling mills in Jeceaba finishing lines, upstream integration in Mine and Forrest. Brazil 18% RoW 2 17% RoW: Local finishing lines for OCTG (Saudi, Nigeria,.) Tianda rolling mill fully acquired in 2016 New facility specialised in nuclear island tubes Finishing facilities for OCTG and PowerGen Steel mills (5) Tube mills (21) R&D (6) Finishing unit (34) Sales & Services office Plantation and mine X% YTD Sept 2016 sales split Global footprint ensures efficient production profile and facilitates access to local customers 1 Includes Middle East 2 Includes other parts of South America except Brazil and rest of the world 8

9 Update on Operating Environment and Group Strategy 19/01/2017 CHARTE POWERPOINT VALLOUREC 9

10 Unprecedented industry challenges impacted Vallourec operations 1 $120 $70 Oil price plummeted in late 2014 WTI spot price Brent spot price $20 janv.-14 mai-14 sept.-14 janv.-15 mai-15 sept.-15 janv.-16 juin-16 oct.-16 Source: Bloomberg Oil rig count dropped World US $53 $51 Spending by oil & gas companies has been significantly impacted by the sharp drop in oil prices since 2014 Cost and capex cuts, optimised inventories Significant price pressure on tubular goods Power generation and Industry also faced a challenging macroeconomic environment These conditions have led to a significant drop in demand and prices for Vallourec s products , juin-13 nov.-13 avr.-14 sept.-14 févr.-15 juil.-15 déc.-15 mai-16 oct.-16 Source: Baker Hughes 3 E&P capex 1 programmes significantly cut Vallourec s performance was severely impacted Revenue ( m) EBITDA ( m) (33.3%) margin 15.0% n.m. n.m (500) Source: Company filings Sept 2016 LTM 0 (500) (77) (233) Sept 2016 LTM 10

11 Vallourec reacted with well-designed strategic initiatives to fully benefit from market recovery EBITDA related initiatives EBITDA impact 1 Consolidating structure Optimising footprint Merging Brazilian operations 2, with full consolidation of the new entity Acquiring Tianda in China 100m Developing production in Brazil and China low cost hubs 250m 750m Reinforcing competitiveness Implementing productivity improvement, efficiency and cost cutting initiatives Reducing European production capacity and focusing on high added-value products ~ 400m Initiatives to strengthen balance sheet and capital structure Cooperation with NSSMC 3 Strengthened capital structure Vallourec and NSSMC 3 agreed to deepen their more-than-30-years-long co-operation in R&D and continue codevelopment of premium connections Successfully completed a 959m capital increase in May 2016 Secured committed financing from banks, including partially extended 4 maturities on 1.1bn syndicated RCF Anchor investors Bpifrance and NSSMC increased their equity stakes to 15% each during the last rights issue Cash proceeds Divestments of non-core assets and some Brazilian forest assets; tax synergies from VSB merger Independently from any market recovery, c. 50% of 2020 targeted benefits to be achieved in 2018 Market recovery to allow for the full benefit of such strategic initatives and positive volume impact associated with operational leverage mitigated by price pressure 1 Incremental EBITDA impact to be achieved by 2020, pre inflation, assuming O&G markets have returned to normal levels 2 Consolidating Vallourec Tubos do Brasil and Vallourec & Sumitomo Tubos do Brasil (VSB) into New VSB with Vallourec as a majority stakeholder (84.6%); finalised on 1 October Nippon Steel & Sumitomo Metal Corporation 4 989m was extended of the total 1.1bn 11 11

12 Credit Highlights 19/01/2017 CHARTE POWERPOINT VALLOUREC 12

13 Credit highlights 1 Favourable long-term trends 2 World leader in premium tubular solutions 3 Extensive technological expertise and brand trust-recognition 4 State-of-the-art integrated and fully invested industrial set-up Strong focus on cost reduction Strengthened capital structure supported by committed anchor investors Strong and experienced management team 13

14 Thousand barrels per day 1 Favourable long-term trends OIL & GAS Demand for oil is expected to increase significantly Demand / supply balance IEA 1 estimates the excess supply, will be largely eliminated by end of 2017 Rebalancing of oil supply & demand should support recovery of oil prices Driving major E&P capex Source: IEA 1 Oil Market Report Sept Natural depletion of existing fields should drive OCTG 2 demand World crude and condensate production outlook Yet-to-find Fields in production Segregated condensate 2005A 2010A 2015E 2020E 2025E 2030E 2035E 2040E Source: Wood Mackenzie programmes Natural reservoir depletion of existing fields to remain the key driver impacting oil supply & demand balance (~6%) pa impact on oil supply Market dynamics hint at a recovery of the Oil & Gas sector in the near future 1 International Energy Agency 2 Oil Country Tubular Goods 14

15 2 Worldwide leader in Premium Tubes Leading positions in various, niche markets across the globe First seamless pipe actor to put new capacity 1 1 Premium OCTG in the USA Premium OCTG in Brazil dedicated to shale in the US Recognised technology leader globally for complex well designs Unmatched technical leadership and strong R&D 1 2 Premium tubes for power generation applications Drill pipes globally Differentiation through global premium services (network of over 200 VAM licensees, accessories shop ) Key partner in construction of modern supercritical or ultra-supercritical thermal power plants 2 Ball-bearings 1 tubes in Europe European leader in seamless tubes for mechanicals premium applications 1 Ball-bearings manufactured from seamless tubes 15

16 3 Extensive technological expertise and brand trust-recognition Proven know-how & technology R&D expense ( mm) % of revenues 1.7% 1.6% 1.7% 2.2% dedicated R&D centres in France, Germany, Brazil and the US 4 dedicated test centres in France, US, Brazil and Indonesia Over 500 researchers and technicians dedicated to R&D Industry benchmark for quality Number of new patents filed VAM connections setting the standard of quality and innovation for over 50 years Developed over 30 product lines to meet the most strict quality standards for operating in the harshest conditions Products tested and used in the most ambitious projects Close collaboration with customers Case study Developed innovative tubular solutions for E&P in hard-to-access deposits 1 ~80% of the products sold today did not exist in 2009 To strengthen co-operation, Vallourec opened an R&D in Brazil close to Petrobras CENPES research centre Case study In November 2015, Vallourec signed a fiveyear contract with Total for OCTG Vallourec has provided an extensive range of premium offshore solutions for such demanding projects as: Total E&P operations in Angola Total gas field project in the North Sea 1 For example ultra deep water and pre-salt fields 16

17 4 State-of-the-art integrated and fully invested industrial set-up A unique position with high-end rolling and finishing capabilities in all regions Two highly competitive routes developed in Brazil and China for international O&G markets Global capabilities redeployed with a shift from Europe to Asia and the Americas Centre of technological excellence North America Oil and gas local market supply New highly competitive production hub Brazil Europe China New highly competitive production hub Steel mills Tube mills R&D Finishing unit Sales & Services office Plantation and mine Anticipated capacity shift 1 (kt) (28%) 750 (26%) 1,350 (47%) 800 (29%) 750 (27%) Total: 2,900 Total: 2, (25%) (20%) A global industrial set-up with highly competitive low-cost export routes 1 Excluding 300kt in Jeceaba as NSSMC s purchase agreement 2 Including 200kt for exports 17

18 Major production hubs 4 State-of-the-art integrated and fully renewed industrial set-up Brazil NA China Expansion of production The exceptional spend on strategic projects initiated in 2008 is now behind Investments into the premium pipe mill (PQF) in Jeceaba ( ) Commissioned in 2011 Investment into a new pipe mill (FQM) in Youngstown (Ohio, US) ( ) Commissioned in 2013 capacity in Vallourec Changzhou for PowerGen applications ( ) Valinox Nucleaire Tubes Previous cycle of major investments occurred in late 1970 s OCTG / Line pipe for export Belo Horizonte tube mills dedicated for domestic markets OCTG for US shale market Centralized management combining MPM & FQM rolling mills Guangzhou ( ) Strategic minority share in Tianda Oil Pipe (2011); full control end 2016 OCTG focus on exports Historical CAPEX spend by region ( m) Asia South America North America Europe Modern, fully invested facilities with limited future CAPEX requirements Normative CAPEX assumed to be c. m350 18

19 5 Strong focus on cost reduction Valens plan introduced in February 2015 Cost reduction of 350m by 2017 Focus on cash optimization through CAPEX reduction and WCR optimisation In m Proven ability to cut costs CAPTEN ( 08-10) CAPTEN+ ( 11-13) Transformation plan rolled out in February 2016 Additional savings, on top of 350m Valens 2015 plan, of 150m Current savings in line with objectives m > 100m savings achieved in 2015 > 60m achieved in H Target cost reduction '10 Achieved cost reduction '10 Additional initiatives ('11-'13) Cost savings achieved in '08-'13 period Effective cost cutting Reducing global headcount Strict CAPEX discipline SG&A, in m (18)% Global headcount CAPEX, in m (48)% ,600-1, Total reduction of 5,600, (22% vs 2014) M M M 2016 FY 2014 H FY 2015 H M est. Proven ability to adapt and implement effective cost cutting measures 19

20 5 and development of an optimized industrial footprint Rationalization of Brazilian activities through the merger of VSB & VBR Optimising operations A single integrated and optimized production set up Brazil - BRL/USD benefits - Lower cost export route Shut down of 2 blast furnaces and steel mill in Belo Horizonte Supply agreement with NSSMC Capex optimization and rationalization of forest assets G&A and tax synergies Leveraging the Jeceaba plants superior competitive position for export Optimized and highly competitive Brazilian operations Developing new routes from Tianda Highly competitive route for Chinese and International O&G markets China In 2016 Vallourec has taken full control of Tianda Oil Pipe A state of the art PQF mill Qualified by Tier1 customers In partnership since 2011 Developed and enlarged offering of highly competitive solutions VAM connections on Tianda s highly competitive tubes Streamlining European operations Fixing capacity issues Hot rolling hub Closure of 2 out of the 4 large rolling mills (France) Sale of majority stake in steel mill and disposal of Vallourec Heat Exchanger Tubes to create an optimized European footprint Finishing hub Rolling activities concentrated in Germany, finishing activities in France Sustained emphasis on R&D Optimized industrial footprint with new highly competitive hubs 20

21 6 Strengthened capital structure Strong support from key stakeholders Balanced debt maturities In m Undrawn Credit Facilities Bonds Other long-term Short term debt Capital increase Successful c. 1bn capital increase in April m by Bpifrance and NSSMC 480m by other shareholders Liquidity Sept & after...supported by a solid liquidity profile Banks commitments In May 2016, new 450m RCF due in Feb 2020 Credit facilities extended in July billion RCF due in 2020, of which c. 1.0bn extended to Feb million RCF due in 2019 extended to July million RCF due in 2019 extended to Feb 2021 In m Column2 Cash and cash eq. Capital increase New RCF due 20 RCF extended to 21 for 989m RCF extended to 20 RCF extended to 21 Other undrawn RCF Column3 Total cash and cash eq. of 1,316m Total undrawn credit lines of 2,267m Solid liquidity profile providing flexibility to implement strategic initiatives and positioning the company for market recovery 21

22 6 supported by committed anchor investors Strong support from well-renowned, key stakeholders Vallourec s ownership structure (share of capital) Before rights issue (December 2015) 5.3% After rights issue (September 2016) 15.0% Cements the industrial partnership that has lasted more than 40 years Further synergies created and collaboration fostered Public (93.2%) including employees 1.5% 15.0% Public (70%) including employees (2.7%) French state-owned bank and sovereign wealth fund dedicated to promoting the financing and development of companies in France Illustrates French government s strong interest in Vallourec and strategic importance of the company Source: Bloomberg, company information BPI France and NSSM reiterated their commitment to Vallourec by increasing their stakes to 15% each after successful rights issue in April

23 7 Strong and experienced management team Chairman of the Management Board Philippe Crouzet 30 years of experience form the manufacturing industry Chairman of the Management Board since 2009 As of April 3rd, 2017 Chief Financial Officer Olivier Mallet More than 23 years financial experience in various industries CFO since 2008 Jean-Pierre Michel 38 years in the Group Development & Innovation Didier Hormet 22 years in the Group Europe Africa Hubert Paris 18 years in the Group Middle East Asia Edouard Guinotte 18 years in the Group Technology & Industry Philippe Carlier 20 years in the Group North America Nicolas de Coignac 23 years in the Group South Americ a Alexandre Lyra 24 years in the Group 23

24 Financial Summary 19/01/2017 CHARTE POWERPOINT VALLOUREC 24

25 Summary financials Revenue under pressure following sharp drop in oil price Significant fixed cost base has resulted in negative EBITDA Revenue M 9M EBITDA EBITDA margin (400) 17.7% 14.8% 16.5% 15.0% (2.0%) 0.0% (7.3%) (77) M (156) 9M 2016 Working capital has adapted to reduced level of activity Completion of investment cycle resulted in optimized capex Working Capital Capex % of revenues 17.2% 15.1% 10.2% 6.8% 7.0% 5.4% 4.7% M M M M 2016 Source: Company information 25

26 Q&A 26

27 Appendix 19/01/2017 CHARTE POWERPOINT VALLOUREC 27

28 5-year historical simplified consolidated income statement Year ended Dec 31 ( in millions) Revenues 5,296 5,326 5,578 5,701 3,803 COGS (3,745) (3,940) (4,036) (4,248) (3,353) SG&A (612) (600) (623) (597) (528) EBITDA (77) D&A (257) (303) (343) (361) (347) Impairment of assets and goodwill 0 (2) (26) (1,104) (296) Asset disposals and restructuring costs 10 (7) (17) (51) (118) Operating profit (661) (838) Net financial items (49) (98) (91) (62) (75) Profit before tax (723) (913) Income tax (192) (112) (148) (158) 15 Net profit of equity affiliates (0) Net profit from continuing operations (878) (898) Consolidated net profit (878) (898) Group share (924) (865) Source: Company information 28

29 5-year historical simplified consolidated balance sheet Year ended Dec 31 ( in millions) Net property, plant and equipment 4,066 4,320 4,151 3,523 3,161 Other non current assets 1,558 1,683 1,676 1,554 1,192 Inventories and work-in-progress 1,389 1,430 1,423 1,490 1,066 Trade and other receivables 1, ,099 1, Financial instruments Other current assets Cash & cash equivalents , Assets held for sale Total Assets 9,195 9,210 9,300 9,232 6,991 Equity, Group share 4,830 4,796 4,601 3,743 2,646 Non-controlling interests Provisions and deferred tax Employee benefits Bank debt 2,095 2,160 2,194 2,694 2,150 Other long term liabilities Financial instruments Trade payables Tax and other current liabilities Liabilities disposal for sale Total Equity and Liabilities 9,195 9,210 9,300 9,232 6,991 Source: Company information 29

30 5-year historical simplified consolidated cash flow statement Year ended Dec 31 ( in millions) Cash flow from operating activities (FFO) (229) Change in WCR + decrease, (increase) (337) (66) (183) (20) 632 Net cash flow from operating activities Gross capital expenditure (909) (803) (567) (388) (268) Asset disposals & other items Other investing activities, including acquisitions (67) (14) 9 9 (15) Net cash flow from investing activities (970) (814) (509) (375) (279) Free cash flow (602) (325) Dividends paid during the year (106) (183) (63) (163) (69) Proceeds drawn from new borrowings 1, ,126 2, Repayments of borrowings (236) (557) (2,030) (2,332) (858) Others (43) Net cash flow from financing activities (553) Impact of changes in exchange rate (22) (14) (56) 22 (55) Overall change in cash 234 (318) (484) Source: Company information 30

31 Leader in Premium Tubular Solutions Investor Relations Contact - Vallourec Group Tel: / investor.relations@vallourec.com 31