H1 2018 RESULTS INVESTOR PRESENTATION
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 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 2018. 2
H1 2018 HIGHLIGHTS
H1 2018 AT A GLANCE IMPROVED FINANCIAL PERFORMANCE CONFIRMATION OF MARKET TRENDS IN OIL & GAS Revenue: 1,844m up 7.5% YoY (+17.6% at constant exchange rates) with positive momentum on the US O&G market Demand for OCTG continues to be strong in the U.S. Higher bookings in EA and MEA regions EBITDA: 18m, up 36m YoY Stable drilling activity in Brazil and longstanding partnership with Petrobras reinforced EFFICIENT TRANSFORMATION PLAN STRONG LIQUIDITY Significant gross savings in H1 2018 Blast furnace and steel mill shut down as planned in Belo Horizonte (Brazil) Closing of the divestitures of Vallourec Drilling Products and Fittings Strong liquidity: 0.9bn of cash and cash equivalent 2.2bn undrawn committed facilities 400m refinancing through bond issuance in April 2018 4
CONTINUING OUR WAY TOWARDS RECOVERY Ongoing savings and enhanced competitiveness through our Transformation Plan: Further significant cost reductions to be generated: Continuous efforts in Europe Additional savings targeted in Brazil Continuous focus on cash management: Capex and WCR discipline Developing our new competitive routes in China and Brazil: Industrial and commercial integration of Tianda successfully progressing Confirmation of VSB becoming highly competitive for export Already resulting in commercial successes on international markets Leveraging the progressive rebound of our main markets: Volumes recovery underway: Strong volume recovery already achieved in the US Higher number of FIDs in EA-MEA regions Positive environment for Industry in Europe and Brazil Price and mix to improve: Well underway in the US Starting to progress on most other markets 5
H1 2018 FINANCIAL RESULTS 6
H1 2018 REVENUE BY MARKET Revenue up 7.5% vs. H1 2017 +17.6% at constant exchange rates Oil & Gas +3.5% 1 (+15.2% 2 ) H1 2018 revenue in millions of and as a % of revenue Industry & Other +8.6% 1 (+16.9% 2 ) North America: Strong momentum Higher volumes and prices Negative forex impact EA-MEA: Improving activity Volumes up Prices up in Middle-East and South East Asia Partly offset by negative forex and deliveries of lower grade products in H1 Brazil: Slightly down Higher volumes mainly offset by the weakening of the BRL 1,106 60.0% 1,844 379 20.5% Europe: Higher prices for Mechanical Engineering and Automotive Brazil: Higher volumes in Mechanical Engineering and Automotive Strong increase Recovery in the US 1 H1 2018 versus H1 2017 2 At constant exchange rates Petrochemicals +64.2% 1 (+79.8% 2 ) 179 9.7% 180 9.8% Power Generation -4.8% 1 (-3.2% 2 ) Nuclear Lower revenue Conventional Slightly higher revenue 7
EFFICIENT IMPLEMENTATION OF THE TRANSFORMATION PLAN Transformation Plan execution on track: H1 2018 gross savings of 52m Gross savings achieved since the beginning of the Plan: 367m New competitive routes: Rationalization of European footprint implemented as planned and further adjustments in 2018 (Vallourec Drilling Products, Vallourec Fittings, Saint-Saulve boiler line) Continuous deployment of our new competitive manufacturing routes: Tianda and VSB GROSS SAVINGS FROM TRANSFORMATION PLAN (in m) 200 150 100 600 500 400 300 200 100 50 0 0 151 567 513 164 SG&A ADAPTATION SG&A (in m) 448 440 200 2014 2015 2016 2017 H1 2018 52 2016 2017 H1 2018 VALLOUREC IS CONFIDENT IT WILL ACHIEVE THE TARGETED 750m 2020 EBITDA CONTRIBUTION FROM ITS TRANSFORMATION PLAN 8
H1 2018 REVENUE AND EBITDA 1,716m 7.3% -10.1% +7.5% +17.6% 10.3% 1,844m Revenue Positive volume and price/mix, essentially in the US Negative forex impact EBITDA improved + 36m YoY H1 2017 VALLOUREC Currency Translation Volume Price/Mix H1 2018 H1 2018 H1 2017 Change In millions of euros YoY REVENUE 1,844 1,716 7.5% Cost of sales (1,611) (1,503) 7.2% Industrial margin 233 213 9.4% (as % of revenue) 12.6% 12.4% 0.2pt SG&A costs (200) (221) -9.5% (as % of revenue) 10.8% 12.9% -2.1pts Other income (expense), net (15) (10) na EBITDA 18 (18) + 36m Industrial margin up 20m Higher activity Savings from the Transformation Plan Partially offset by the increase in raw material prices and unfavorable currencies evolution Lower SG&A costs H1 2018 SG&A representing 10.8% of revenue vs. 12.9% in H1 2017 9
H1 2018 VS H1 2017: EBITDA TO NET INCOME VALLOUREC H1 H1 Change In millions of euros 2018 2017 YoY EBITDA 18 (18) + 36m EBITDA as % of revenue 1.0% -1.0% +2.0pts Depreciation of industrial assets (134) (151) -11.3% Amortization and other depreciation (19) (23) na Impairment of assets (13) - na Asset disposals, restructuring and other (57) 3 na OPERATING INCOME (LOSS) (205) (189) - 16m Net financial income (loss) (105) (101) 4.0% PRE-TAX INCOME (LOSS) (310) (290) - 20m Income tax - 18 na Share in net income (loss) of associates 1 (3) na CONSOLIDATED NET INCOME (LOSS) (309) (275) - 34m Non-controlling interests 2 21 na NET INCOME (LOSS), GROUP SHARE (307) (254) - 53m EARNINGS PER SHARE (in ) (0.7) (0.6) - 0.1 Higher EBITDA 57m of non-recurring asset disposals, restructuring and other : Restructuring measures in Europe and divestiture of the 2 remaining French Drilling Products entities Financial charges: Higher interest charges H1 2017 financial result included a loss related to the change in fair value of NSSMC shares Income tax: Tax gains reduced mainly as a consequence of the results recovery in North America 10
H1 2018: FREE CASH-FLOW Vallourec In millions of euros H1 2018 H1 2017 Change ( m) Q2 2018 Cash-flow from operating activities (FFO) (A) (144) (160) +16 (61) Change in operating WCR (B) [+ decrease, (increase)] (236) (104) -132 (84) Gross capital expenditure (C) (38) (61) +23 (19) Free cash-flow 1 (A)+(B)+(C) (418) (325) -93 (164) Improved cash flow from operating activities: Better EBITDA partly offset by higher financial interests and taxes Increase in Working Capital: Seasonal effect and increased production for H2 2018 deliveries Temporary increased inventories induced by Section 232 quotas Continuous efficient capex management 1 Free cash flow (FCF) is a non-gaap measure and is defined as cash flow from operating activities minus gross capital expenditure and plus/minus change in operating working capital requirement 11
1,271 1,422 1,343 1,665 1,052 1,018 872 861 671 763 693 838 783 933 964 1,070 862 982 STRONG FOCUS ON CASH MANAGEMENT 682 2014- H1 2018 CASH FLOW FROM OPERATIONS EVOLUTION (in m) (229) (399) (332) (144) 2014 2015 2016 2017 H1 2018 STRICT CAPEX MANAGEMENT (in m) 388 268 175 152 38 2014 2015 2016 2017 H1 2018 EVOLUTION OF SALES & OPERATING WCR IN DAYS 1, 800 1, 600 1, 400 1, 200 1, 000 800 600 400 162 160 154 122 135 125 100 115 149 133 135 114 141 114 111 121 114 84 180 160 140 120 100 80 60 40 Efficient working capital management: Continuous trend of reducing operating working capital in days of sales Efficient Reinvent program 200 0 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 Quarterly Sales (in m) Net PRI as days of quaterly sales 20 0 Strict Capex discipline 12
H1 2018 NET DEBT (in millions of ) Net Debt as at 31 Dec. 2017 (1,542) Cash-flow from operating activities (144) Change in WCR 1 Gross capital expenditure Asset disposals & other items Net Debt as at 30 June. 2018 (236) (38) 26 (1,934) Free cash-flow = - 418m Mainly disposal of the Drilling Products entities and Forex 1 Change in Working Capital Requirement, + decrease/(increase) 13
DEBT AND LIQUIDITY Bank & Other Financing (ST) 319m Commercial Papers (ST) 337m Bank & Other Financing (LT) 84m OCEANE (LT) 225m AVAILABLE LIQUIDITY AS AT 30 JUNE 2018 (in m) 919 GROSS DEBT BREAKDOWN (in m) 30 June 2018 2,150 Bonds (LT) 1,888m 3,069 Cash Undrawn Long Term Facilities Total Liquidity MATURITIES OF BONDS 1 (in m) Net debt as at 30 June 2018 Gross Debt: 2,853m Cash & Cash equivalents: 919m Net Debt: 1,934m Liquidity as at 30 June 2018 0.9bn of cash 2.2bn undrawn LT committed bank facilities LT committed bank facilities Total 2.2bn, of which: 0.1bn maturing in 2019 0.9bn maturing in 2020 1.1bn maturing in 2021 0.1bn maturing in 2027 Gearing covenant: 100% for 2018-2020, tested every 31/12 64.3% at 30 June 2018 OCEANE Bonds 2018 2019 2020 2021 2022 2023 2024 & After -400-550 -400-555 -250 1 LT Market Financing represents 96% of Long Term Debt S&P rating: B Outlook negative Liquidity reinforced and maturity extended in April 2018 400m bonds, due 2023 at 6.375% Coupon 14
OUTLOOK
OUTLOOK FOR 2018 NORTH AMERICA Demand for tubular products should stay strong: robust drilling activity Vallourec has realized as planned significant OCTG price increases as from H2 2018 S232 measures should eventually tighten the US OCTG market The Group is actively working on debottlenecking its US finishing capacities and is adapting its production routes to S232 measures, impacting imports to the US from Brazil EUROPE-AFRICA AND MIDDLE-EAST ASIA O&G: Vallourec anticipates higher deliveries from H2 2018 on Industry: Macro-economic environment expected to stay favorable Power Generation: Declining conventional power plant projects O&G: Drilling activity expected to remain stable. SOUTH AMERICA New long-term contracts signed with Petrobras have entered into force this summer Industry: Progressive recovery of Brazilian economy Transformation Plan will again generate significant savings this year Unfavorable forex and raw material prices vs. 2017, currently stabilized VALLOUREC TARGETS 2018 EBITDA TO IMPROVE VERSUS 2017, WITH H2 2018 SIGNIFICANTLY HIGHER THAN H1 2018 16
EURONEXT PARIS: ISIN CODE: FR0000120354, TICKER: VK USA: AMERICAN DEPOSITARY RECEIPT (ADR) - ISIN CODE: US92023R2094, TICKER: VLOWY Investor Relations Contact - Vallourec Group Tel: +33 1 49 09 39 76 Email: investor.relations@vallourec.com www.vallourec.com