Vallourec Credit Update. 9 th & 10 th May 2017

Transcription

1 Vallourec Credit Update 9 th & 10 th May 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, first quarter 2017 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 21 March 2017 (N D ). 2

3 Today s Presenters Olivier Mallet Chief Financial Officer since 2008 More than 20 years financial experience in various industries 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 and Update on Operating Environment and Group Strategy II. Credit Highlights III. Financial Summary IV. Q&A V. Appendix CHARTE POWERPOINT VALLOUREC 4 4

5 Company Overview 05/05/2017 CHARTE POWERPOINT VALLOUREC 5

6 Vallourec at a glance 2017 LTM Mar. Figures: Sales volume: 1,505kt Sales: 3,077m Worldwide presence with 18,300 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 (2017 LTM Mar.) 1,984m 64% 16% 20% 485m 608m Key clients 1 At December 31, 2016 (permanent and temporary contracts). Before Tianda acquisition (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 lines 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 20% Europe 21% Asia 1 31% 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 Forest. South America 17% RoW 11% 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 1 Includes Middle East Steel mills (5) Tube mills (21) R&D (6) Finishing unit (34) Sales & Services office Plantation and mine X% LTM Mar 2017 sales split Global footprint ensures efficient production profile and facilitates access to local customers 8

9 janv.-14 avr.-14 juil.-14 nov.-14 févr.-15 juin-15 sept.-15 janv.-16 avr.-16 août-16 nov.-16 mars-17 janv.-14 mars-14 mai-14 juil.-14 sept.-14 nov.-14 janv.-15 mars-15 mai-15 juil.-15 sept.-15 nov.-15 janv.-16 mars-16 mai-16 juil.-16 sept.-16 nov.-16 janv.-17 mars-17 Signs of recovery following an unprecedented market downturn Sharp deterioration in the oil price since the start of 2014 has led to significant E&P capex cuts Depressed active rig count has put pressure on OCTG volumes and prices Oil price recovered from its trough in H2 2016, resulting first in an uptick in OCTG volumes and prices in the US Rig count & WTI ($ / bbl) US OCTG seamless price ($ / t) Vallourec volumes shipped (in kt) US Total WTI (right) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Source: Baker Hughes and Thomson Reuters Source: PipeLogix (average Seamless pipes) ,323 kt ,411 kt ,281 kt kt* * Tianda included 9

10 Vallourec reacted with well-designed strategic initiatives to fully benefit from market recovery New Perimeter EBITDA related initiatives Merging Brazilian operations 2, with full consolidation of the new entity Acquiring Tianda in China EBITDA impact 1 100m New cost competitive routes Developing production in Brazil and China low cost hubs 250m 750m Savings 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 951m 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 10 10

11 Transformation Plan: Strategic Initiatives fully executed Reshape European operations Closure of four facilities 2 rolling mills: Saint-Saulve and Déville-Lès-Rouen (France) 1 threading line: Mülheim (Germany) 1 heat treatment line: Bellshill (Scotland) Sale of a majority holding in Saint-Saulve steel mill Disposal of Vallourec Heat Exchanger Tubes Develop highly competitive production hubs VSB & VBR merger Shut down of Belo Horizonte s #2 blast furnace Shut down of Belo Horizonte s #1 blast furnace and steel mill 2018 Tianda acquisition Implementation of new routes Strengthen balance sheet by raising c. 1 bn equity Reinforce partnership with NSSMC New organization In line 11

12 Credit Highlights 05/05/2017 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 1 Favourable long-term trends OIL & GAS Rebalancing of oil supply & demand under way 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 OMR report Feb 2017 Global oil production needs ( ) 0.5% Fields in production Demand growth (per year) Production decline (per year) programmes Natural reservoir depletion of existing fields to remain the key driver impacting oil supply & demand balance (~6%) pa impact on oil supply 1 International Energy Agency 2 Oil Country Tubular Goods (6.0)% Source: International Energy Agency, Oil Medium Term Market Report February 2015 Market dynamics hint at a recovery of the Oil & Gas sector in the near future 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 1.6% 1.7% 2.2% 2.2% 2.0% 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 800 (28%) 750 (26%) Capacity shift 1 (kt) ,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 Investment into a 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 savings to be overachieved: Target : 350m 3 Achieved : 280m 4 Transformation Plan execution fully in line: Savings: Target of 400m over M already achieved in m to generate over 4 years ( ) New production routes and change of scope: Target : 350m confirmed Proven ability to cut costs Effective cost cutting Reducing global headcount Strict CAPEX discipline SG&A, in m 568 (21)% Global headcount CAPEX, in m (55)% ,600-1, Total reduction of 6,100, (24% vs 2014) FY 2014 H FY 2015 H FY Proven ability to adapt and implement effective cost cutting measures (1) Savings are before inflation (3) At 2014 volumes (2) 30% of this amount depending on market recovery (4) At current volumes 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 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 Long-Term debt maturity profile Capital increase Successful c. 1bn capital increase in April m by Bpifrance and NSSMC 480m by other shareholders In May 2016, new 450m RCF due in Feb 2020 Banks commitments 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 Q1 2017, Gearing covenant for raised from 75% to 100%...combined with a strong committed bank facilities profile In m Mar-17 Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 After Dec New RCF due 20 RCF extended to 21 for 989m RCF extended to 20 RCF extended to 21 Other RCF* Column2 Column3 (*) including 200m committed bank facilities maturing in July 2017 Total committed credit lines of 2,310m 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 (December 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 Advisor to the Management Board 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 America Alexandre Lyra 24 years in the Group 23

24 Financial Summary 05/05/2017 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 EBITDA EBITDA margin 17.7% 14.8% 16.5% 15.0% (2.0%) (7.4%) (400) (77) (219) Working capital has adapted to reduced level of activity Completion of investment cycle resulted in optimized capex Working Capital Capex % of revenues % 15.1% 10.2% 6.8% 7.0% 5.9% Source: Company information 25

26 Q Key figures Volumes shipped (In Ktons) Revenue (in m) Q Q Q Q Q Q EBITDA (1) (In m) Free cash flow (2) (in m) Q Q Q (21) Q Q Q (3) (72) (63) (239) (220) (1) Earnings Before Interest, Taxes, Depreciation and Amortization (2) Non-GAAP measure defined as cash flow from operating activities minus capital expenditure and plus/minus change in operating working capital requirement 26

27 2017 OUTLOOK Oil & Gas revenue in the US expected to rebound more significantly than previously foreseen, while timing of recovery in EAMEA still uncertain In Brazil, drilling activity expected to remain broadly stable compared to 2016 No major changes in other Group businesses Vallourec Transformation Plan to continue to bring its benefits Considering better than initially expected market trends in the US, the targeted EBITDA improvement of 50 to 100 million for FY 2017 when compared to 2016 to be in the upper part of the range 27

28 Q&A 28

29 Appendix 05/05/2017 CHARTE POWERPOINT VALLOUREC 29

30 5-year historical simplified consolidated income statement Year ended Dec 31 ( in millions) Revenues 5,326 5,578 5,701 3,803 2,965 COGS (3,940) (4,035) (4,248) (3,352) (2,727) SG&A (576) (560) (568) (513) (448) Other (24) (63) (30) (15) (9) EBITDA (77) (219) D&A (303) (343) (361) (347) (332) Impairment of assets and goodwill (2) (26) (1,104) (296) (71) Asset disposals and restructuring costs (7) (17) (51) (118) (127) Operating profit (661) (838) (749) Net financial items (98) (91) (62) (75) (131) Profit before tax (723) (913) (880) Income tax (112) (148) (157) Net profit of equity affiliates (0) (8) Net profit from continuing operations (878) (898) (808) Consolidated net profit (878) (898) (808) Group share (924) (865) (758) 30

31 5-year historical simplified consolidated balance sheet Year ended Dec 31 ( in millions) Net property, plant and equipment 4,320 4,151 3,523 3,161 3,618 Other non current assets 1,683 1,676 1,554 1,192 1,259 Inventories and work-in-progress 1,430 1,423 1,490 1,066 1,035 Trade and other receivables 969 1,099 1, Financial instruments Other current assets Cash & cash equivalents , ,287 Assets held for sale Total Assets 9,210 9,300 9,232 6,991 8,132 Equity, Group share 4,796 4,601 3,743 2,646 3,284 Non-controlling interests Shareholder loan Provisions and deferred tax Employee benefits Bank debt 2,160 2,194 2,694 2,150 2,574 Other long term liabilities Financial instruments Trade payables Tax and other current liabilities Liabilities disposal for sale Total Equity and Liabilities 9,210 9,300 9,232 6,991 8,132 31

32 5-year historical simplified consolidated cash flow statement Year ended Dec 31 ( in millions) Cash flow from operating activities (FFO) (229) (399) Change in WCR + decrease, (increase) (66) (183) (20) Net cash flow from operating activities (220) Gross capital expenditure (803) (567) (388) (268) (176) Free cash flow (328) (41) (395) Asset disposals & other items (98) Other investing activities, including acquisitions (14) 9 9 (15) 7 Cash flow for debt service (339) (486) Capital increase Dividends paid during the year (183) (63) (163) (69) (2) Proceeds drawn from new borrowings 708 2,126 2, Repayments of borrowings (557) (2,030) (2,332) (858) (586) Others (43) (16) Net cash flow from financing activities (553) 1,096 Impact of changes in exchange rate (14) (56) 22 (55) 44 Overall change in cash (318) (484)

33 Leader in Premium Tubular Solutions Investor Relations Contact - Vallourec Group Tel: / investor.relations@vallourec.com 33