Vallourec Sa · EURONEXT:VK
Vallourec Sa — H1 2016 Earnings Presentation
43 slides from Vallourec Sa's earnings presentation, Jul 28, 2016
Slide 1: Q2 / H1 2016 results
Q2 / H1 2016 results Investor Presentation 28 July 2016
Slide 2: Information
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 ex
Slide 3: Q2 / H1 2016 at a glance
Q2 / H1 2016 AT A GLANCE 28/07/2016 CHARTE POWERPOINT VALLOUREC 3
Slide 4: H1 2016 financial results impacted by severe adverse market conditions
H1 2016 financial results impacted by severe adverse market conditions In k tons VOLUMES SOLD In millions of € REVENUES 774 2,070 -26.1% YoY -30.7% YoY 572 1,434 H1 2015 H1 2016 H1 2015 H1 2016 In millions of € EBITDA (1) In millions of € FREE CASH FLOW(2) 3 - 317 66 (104) -320m H1 2015 H1 2016 H1 2
Slide 5: Q2 2016 better than Q1 2016, favourable customer mix
As expected, Q2 2016 better than Q1 2016, benefiting of deliveries with a favourable customer mix In k tons VOLUMES SOLD In millions of € REVENUES 362 1,018 321 251 763 671 Q2 2015 Q1 2016 Q2 2016 Q2 2015 Q1 2016 Q2 2016 In millions of € EBITDA (1) In millions of € FREE CASH FLOW(2) 33 13 -239 -78 (
Slide 6: Transformation plan in place to secure long term profitability
Transformation plan in place to secure long term profitability Four strategic initiatives announced on February 1st 2016 1. Reshaping European operations 2. Developing highly competitive production hubs in Brazil and China 3. Reinforcing partnership with NSSMC 4. Strengthening the Balance Sheet Targ
Slide 7: Vigorous implementation of transformation plan
Vigorous implementation of transformation plan Reshaping European operations Exclusive negotiations initiated with Ascometal to sell majority stake in Saint-Saulve steel mill Completion of mandatory discussions with workers’ councils in France Closure of the Déville-Lès-Rouen and Saint-Saulve (Franc
Slide 8: Pursuing adaptation measures
Pursuing adaptation measures STRICT CAPEX DISCIPLINE SG&A In millions of € In millions of € 803 295 272 273 264 567 225 388 268 200 2012 2013 2014 2015 2016 est. H1 2012 H1 2013 H1 2014 H1 2015 H1 2016 GLOBAL HEADCOUNT REDUCTION SAVINGS UPDATE Global Headcount -1,600 -1,900 > €100m savings achieved
Slide 9: Focus on H1 2016 financial results
FOCUS ON H1 2016 FINANCIAL RESULTS 28/07/2016 CHARTE POWERPOINT VALLOUREC 9
Slide 10: Cyclical downturn strong impact on volumes
Cyclical downturn strong impact on volumes VOLUMES SOLD IN H1 2016 DOWN MORE THAN 50% vs. H1 2013-2014 AVERAGE In k tons E&P Capex reduced by 42% 1189 1129 1134 between 2014 and 2016(1) 1030 774 637 572 H1 13 H2 13 H1 14 H2 14 H1 15 H2 15 H1 16 2013 2014 2015 H1 2016 2,159 k tons 2,323 k tons 1,411
Slide 11: Revenues severely affected by drop in volumes
Revenues severely affected by drop in volumes H1 2016 VERSUS H1 2015 €2,070m -26.1% -30.7% -3.4% -1.2% €1,434m H1 2015 Volume Currency Price/Mix H1 2016 Translation Investor Presentation - 28 July 2016 11
Slide 12: Revenues breakdown for H1 2016
Revenues breakdown for H1 2016 As % of total Group revenues Revenues by market Revenues by region 16.6% 31.7% 15.1% 60.2% 64.3% 18.5% 28.2% 19.5% 4.7% 5.2% 18.7% 15.8% 8.0% 12.2% 19.3% 22.3% 21.4% 18.3% H1 2015 H1 2016 H1 2015 H1 2016 North America Rest of the world Oil & Gas Power Generation South
Slide 13: H1 2016: from Revenues to EBITDA
H1 2016: from Revenues to EBITDA Change In millions of € H1 2016 H1 2015 YoY Revenues 1,434 2,070 -30.7% Revenues down 30.7% Cost of sales(1) (1,312) (1,734) -24.3% Lower industrial margin essentially due to drop in Industrial margin 122 336 -63.7% volumes, despite high adaptation of costs As % of r
Slide 14: H1 2016: from EBITDA to Net Income
H1 2016: from EBITDA to Net Income Change In millions of € H1 2016 H1 2015 YoY Other charges of €173 EBITDA (104) 66 na million mainly composed of Depreciation of industrial assets (141) (149) -5.4% restructuring charges of €83 million and impairment charges of €68 million mainly Other (amortization
Slide 15: Free Cash Flow
Free Cash Flow In millions of € H1 2016 H12015 Change Cash flow from operating activities (203) (19) -184 (FFO) (A) Change in WCR (B) (41) +111 -152 + decrease, (increase) Gross capital expenditure (C) (73) (89) +16 Free Cash Flow (A)+(B)+(C) (317) +3 -320 Negative FCF at - €317m in H1 2016 WCR incr
Slide 16: H1 Free Cash Flow and Net Debt
H1 Free Cash Flow and Net Debt In millions of € Net Debt as at Net Debt as at 31 Dec. 2015 30 June 2016 Net Net proceeds debt = of capital Dividends Asset disposals 25.4% increase paid & other items of equity Net (1) debt = (66) (944) 50.0% of equity Net Cash flow from debt = operating activities 65
Slide 17: Liquidity and Financing
Liquidity and Financing Net debt as at 30 June 2016: Long term drawn debt maturity profile (€m) - Gross debt €2.4 billion (incl. €1.1 billion LT 1 200 debt: bonds, leasing...) 1 000 - Cash : €1.4 billion 800 - Net debt : €944 million 600 1,122 1 ,111 1,064 1,033 Liquidity as at 30 June 2016: 400 618
Slide 18: Outlook
OUTLOOK 28/07/2016 CHARTE POWERPOINT VALLOUREC 18
Slide 19: Facing severe market conditions
Facing severe market conditions Confirmation of key market assumptions for 2016 USA EAMEA - Cost cuttings and activity reduction by operators, low demand and prices to last well into 2016 +/- Power Generation: +/- Inventory reduction to dissipate in H2 2016 +/- Conventional power generation activity
Slide 20: 2016 Guidance confirmed
2016 Guidance* confirmed EBITDA Negative EBITDA, below 2015 Cash Flow Negative Free Cash Flow of c. €(600)m** Net Debt not to exceed €1.5bn by year-end, after Tianda acquisition Net Debt and full consolidation of VSB * At end of 2015 exchange rates Investor Presentation - 28 July 2016 20 ** Assuming
Slide 21: Appendix
APPENDIX 28/07/2016 CHARTE POWERPOINT VALLOUREC 21
Slide 22: Adapting to challenges to best serve customer needs
Adapting to challenges to best serve customer needs Challenges Vallourec’s response Adaptation of fixed and variable costs Major E&P Capex cuts leading to Reshaping European operations significant drop in volumes 5 300 headcount reduction since end 2014 Cash initiatives Unprecedented length of cycli
Slide 23: Project to reshape European operations: Fixing capacity issues
1. Project to reshape European operations: Fixing capacity issues* Project to streamline our European operations… Closure of 2 out of the 4 large rolling mills 50% tube production capacity reduction vs. 2014 (1/3 in Valens plan) Asset disposals: confirmation of the planned sale of a majority stake i
Slide 24: Optimizing operations in Brazil
2. Develop highly competitive production hubs Optimizing operations in Brazil* Rationalization of production set-up with NSSMC Merger of VSB & VBR Supply agreement maintained with NSSMC Allowing for Shut down of Belo Horizonte’s 2 blast furnaces and steel mill Capex avoidance and rationalization of
Slide 25: China – developing a new route from Tianda
3. Develop highly competitive production hubs China – developing a new route from Tianda* A state-of-the-art PQF mill (2010): 500kt production capacity coupled with finishing capacities Qualified by Tier one OCTG customers A successful partnership with Vallourec : 19.5% stake acquired by Vallourec i
Slide 26: Reinforced partnership with NSSMC
4. Reinforced partnership with NSSMC A new step Enhance R&D cooperation Improving the efficiency of the 40+ year technical cooperation on VAM® connections development Adding resources to the joint R&D operation for VAM® connections to accelerate development and release of new products and reduce tim
Slide 27: Key Financial Benefits from Transformation Plan
Reminder of Key Financial Benefits from Transformation Plan EBITDA Contribution Achievable Independent from Market Recovery c. €750m By 2018 By 2020 Change in scope c. €100m Positive EBITDA impact of full consolidation of c.70% c. 70% Tianda and VSB Optimization of global production footprint c. €25
Slide 28: A streamlined and rebalanced industrial set-up
A streamlined and rebalanced industrial set-up NORTH AMERICA EUROPE Rolling capacity: Rolling capacity: 2014: 1,350kt, i.e. 46% CHINA 2014: 750kt, i.e. 25% 2018: 750kt, i.e. 27% 2018: 700kt, i.e. 25% Rolling capacity: 2018: 550kt, i.e. 20% incl. 200kt for export BRAZIL Rolling capacity: 2014: 800kt,
Slide 29: A successful c. €1bn capital increase
A successful c. €1bn capital increase Shareholder composition – June 2016 €480m Rights Issue 16,70% 2,60% 0,50% 15,00% €514m Mandatory 65,20% Convertible Bonds - Tranche A: €389 million converted at €11 per share - Tranche B: €125 million converted at €2.21 per share Bpifrance Participations & Caiss
Slide 30: Beyond the trough
BEYOND THE TROUGH 28/07/2016 CHARTE POWERPOINT VALLOUREC 30
Slide 31: Depletion to drive volume recovery
Depletion to drive volume recovery Global oil production needs (2012-2035) Above and beyond demand, field depletion is the key factor: 5m Bpd need Demand growth 0.5% (per year) to be put in production every year to maintain current oil supply Oil supply / demand rebalancing is expected in the short
Slide 32: H1 2016 financial data
H1 2016 FINANCIAL DATA 28/07/2016 CHARTE POWERPOINT VALLOUREC 32
Slide 33: Capital Expenditure
Capital Expenditure In millions of € 909 873 803 677 567 529 388 268 200 73 2008 2009 2010 2011 2012 2013 2014 2015 H1 2016 2016 est. Investor Presentation - 28 July 2016 33
Slide 34: Revenues by geography
Revenues by geography H1 As % of H1 As % of Change In millions of € 2016 revenues 2015 revenues YoY Europe 307 21.4% 461 22.3% -33.4% North America 238 16.6% 656 31.7% -63.7% South America 217 15.1% 383 18.5% -43.3% Asia & Middle East 404 28.2% 404 19.5% = Rest of World 268 18.7% 166 8.0% 61.4% Tota
Slide 35: H1 2016 Balance Sheet
H1 2016 Balance Sheet In millions of € 30 June 2016 31 Dec. 2015 In millions of € 30 June 2016 31 Dec. 2015 Non current assets 4,393 4,353 Equity, Group share 3,360 2,646 Non-controlling interests 350 392 Inventories and 1,008 1,066 Equity 3,710 3,038 work-in-progress Trade and other receivables 588
Slide 36: H1 2016 cash flow statement
H1 2016 cash flow statement In millions of € H1 2016 H1 2015 Cash flow from operating (203) (19) activities (FFO) Change in WCR (41) +111 +decrease, (increase) Net cash flow from operating (244) +92 activities Gross capital expenditure (73) (89) Capital increase +959 - Dividends paid (1) (66) Asset
Slide 37: Q2 2016 financial data
Q2 2016 FINANCIAL DATA 28/07/2016 CHARTE POWERPOINT VALLOUREC 37
Slide 38: Cyclical downturn strongly impacted volumes sold
Cyclical downturn strongly impacted volumes sold VOLUMES SOLD 2013-2016 In k tons 625 584 583 551 564 543 545 487 412 362 317 320 321 251 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 2013 2014 2015 H1 2016 2,159 k tons 2,323 k tons 1,411 k tons 572 k tons Inves
Slide 39: Q2 2016: from Revenues to EBITDA
Q2 2016: from Revenues to EBITDA Q2 Q2 Change Q1 In millions of € 2016 2015 YoY 2016 Revenues 763 1,018 -25.0% 671 Cost of sales(1) (691) (876) -21.1% (621) Industrial margin 72 142 -49.3% 50 As % of revenues 9.4% 13.9% -4.5pt 7.5% SG&A(1) (109) (127) -14.2% (116) EBITDA (32) 13 na (72) As % of reve
Slide 40: Q2 2016: from EBITDA to Net Income
Q2 2016: from EBITDA to Net Income Q2 Q2 Change Q1 In millions of € 2016 2015 YoY 2016 EBITDA (32) 13 na (72) Depreciation of industrial (71) (73) -2.7% (70) assets Other (25) (133) na (148) Operating income (128) (193) -33.7% (290) (loss) Financial income (loss) (34) (16) na (34) Income tax 18 2 na
Slide 41: Q2 2016 cash flow statement
Q2 2016 cash flow statement In millions of € Q2 2016 Q2 2015 Q1 2016 Cash flow from operating activities (68) (38) (135) (FFO) Change in operating WCR +20 +112 (61) +decrease, (increase) Net cash flow from operating (48) +74 (196) activities Gross capital expenditure (30) (41) (43) Capital increase
Slide 42: ROCE definition
ROCE definition ROCE = Net Operating Profit Less Adjusted Tax(1) (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 Depreciat
Slide 43: Investor Relations Contact - Vallourec Group
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: [email protected] www.vallourec.com