Vallourec SA · EURONEXT:VK
Vallourec SA — Q3 2011 Earnings Presentation
58 slides from Vallourec SA's earnings presentation, Nov 9, 2011
Slide 1: Q3 2011 results
Q3 2011 results Investor Presentation 9 November 2011 Q3 2011 Results
Slide 2: Information
Information Quarterly statements are unaudited and are not subject to any review 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 reflections and i
Slide 3: Agenda
1. Market environment 2. Financial results 3. Review by activity 4. Strategy & outlook 3 Q3 2011 Results
Slide 4: 1. Market environment
1. Market environment 4 Q3 2011 Results
Slide 5: Global market indicators
Global market indicators 2011e 2012e World GDP growth(1) Oct est. 3.0% 3.0% Slowdown in economic Sept est. 3.0% 3.4% activity in Q3, notably in June est. 3.4% 4.0% Europe Of which Europe Oct e 1.6% 0.3% Sept e 1.6% 0.9% Oil demand remains strong June e 1.9% 1.6% Oil Demand(2) (Bbl/d) Sept e 89.2 90.
Slide 6: Oil & Gas: Key market indicators (USA)
Oil & Gas: Key market indicators (USA) 2 500 USA Rig Count(1): 1,990 at 30 Sept. 2011 2 000 • +17.5% YTD 57% Horizontal: +20% at 1,135 1 500 Directional: +12% at 238 1 000 Vertical: +15% at 617 12% 500 31% • 53% of rigs employed in 0 oil drilling notably in D M Ju Se D M Ju Se D M Ju Se shale oil fi
Slide 7: Oil & Gas: Key market indicators (International)
Oil & Gas: Key market indicators (International) 12 120 Oil (1) Oil prices remain high Gas $ / MMbtu 10 100 Oil $ / Bbl 8 80 Average oil prices: 6 60 4 40 $90/bbl in Q3 versus 2 US Gas (2) 20 $102/bbl in Q2 0 0 Natural gas prices stable M 9 Ju 09 O D 9 Fe 09 Ju 0 D 0 Fe 10 Ju 1 Ja M 9 M 0 S 0 A 1 S
Slide 8: 2. Financial Results
2. Financial Results 8 Q3 2011 Results
Slide 9: Key figures
Key figures Sales Volume (k tonnes) Sales (€ million) +25% YoY +17% YoY 1 663 +7% QoQ 3 743 +1% QoQ 1 335 3 188 507 561 601 1189 1 290 1 306 9M 9M Q3 Q2 Q3 9M 9M Q3 Q2 Q3 2010 2011 2010 2011 2011 2010 2011 2010 2011 2011 EBITDA (€ million) Net income, Group share (€ million) as % of sales 20.8% 18.3
Slide 10: Volume and sales
Volume and sales +19% Q3’11 vs Q3’10 Volume 740 +7% Q3 vs Q2 2011 696 K tonnes 658 672 553 601 488 484 507 501 561 370 330 344 315 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 +10% Q3’11 vs Q3’10 1,620 1,613 1,820 +1% Q3 vs Q2 2011 Sales 1,384 1,313 1,303
Slide 11: Positive volume evolution in Q3 2011
Positive volume evolution in Q3 2011 Negative currency effect and lower nuclear sales Sales in € million +25% +25% 3,743 -2% +3% -8% +1% 3,188 +7% 1,306 1,290 -3% -3% Year on Year Sequential Scope Volume Currency Price / Mix Scope Volume Currency Price / Mix Q2 effect* effect translation effect Q3 9
Slide 12: EBITDA
EBITDA € million Q3 2011 Q2 2011 % change QoQ Q3 2010 % change YoY Sales volume (k tonnes) 601 561 +7.1% 507 +18.5% Sales 1,305.5 1,290.1 +1.2% 1,189.2 +9.8% Cost of sales (1) -933.1 -882.3 +5.8% -805.6 +15.8% As % of sales -71.5 % -68.4 % -67.7 % Selling, general and -139.3 -142.6 -2.3% -128.0 +8.8
Slide 13: Net income
Net income € million Q2 2011 % change Q3 2010 % change Q3 2011 QoQ YoY EBITDA 227.7 254.3 -10.5% 251.0 -9.3% Depreciation industrial assets -48.4 -47.3 -47.5 Other (amortization, impairment & restructuring) -13.9 -17.5 -19.9 Operating Income 165.4 189.5 -12.7% 183.6 -9.9% Financial Income -12.0 -17.
Slide 14: Cash flow
Cash flow € million Q3 2011 Q2 2011 Q3 2010 Gross cash flow from operations 205.7 192.7 213.7 Change in gross WCR * -173.4 -59.2 -108.0 Operating cash flow 32.3 133.5 105.7 Gross capital expenditure -227.5 -193.9 -226.8 Financial investments 0.0 -75.3 0.0 Dividends paid -84.0 -10.7 -9.1 Asset dispos
Slide 15: Capital expenditure
Capital expenditure € million 873 677 9M 2011 616 529 438 282 2006 2007 2008 2009 2010 2011 2012 2013 Capex Capex relating Other strategic Planned Capex to VSB Capex incl. USA 15 Q3 2011 Results
Slide 16: Other financial elements
Other financial elements At 30 September 2011: Net debt of €1,139 million Gearing ratio of 23.6% Liquidity profile Undrawn confirmed credit lines of €1.3 billion which includes revolving credit facility of €1 billion (maturity February 2016) 16 Q3 2011 Results
Slide 17: 3. Review by activity
3. Review by activity 17 Q3 2011 Results
Slide 18: Sales by application
Sales by application 9M 2010 9M 2011 Sales = €3,188m Sales = €3,743m Automotive 7% Oil & Gas Automotive 7% Oil & Gas Mechanical 51% 52% engineering 10% Mechanical engineering 13% Other 6% Petrochem. Other 7% 8% Petrochem. 8% Power generation Power generation 18% 13% Total Energy*: 77% of sales Total
Slide 19: Oil & Gas
Oil & Gas % of total sales 9M 2011 Sales € million 52% +20% YoY 1,961 +5% QoQ 1,634 634 650 681 9M 2010 9M 2011 Q3'2010 Q2'2011 Q3 2011 19 Q3 2011 Results
Slide 20: Oil & Gas
Oil & Gas United States Sales continued to increase during Q3 with high drilling activity in the shale plays Price increases compensate for the rise in raw material costs High oil prices continues to drive drilling in new shale plays (e.g. Utica, Ohio) Sales expected to remain at a high level during
Slide 21: Power Generation
Power Generation % of total sales 9M 2011 Sales € million - 15% YoY 13% 576 -4% QoQ 488 163 180 173 9M 2010 9M 2011 Q3 2010 Q2 2011 Q3 2011 Sales for coal-fired power plants increased due to higher volumes in Q3 Sales for nuclear power plants were down sequentially in Q3 and will increase in Q4 21 Q
Slide 22: Petrochemicals
Petrochemicals % of total sales 9M 2011 Sales € million 8% +11% YoY 280 flat QoQ 252 80 93 100 100 9M 2010 9M 2011 Q3 2010 Q2 2011 Q3 2011 Market continues to be active in the Middle East and Asia, but distributors in Europe showing signs of caution for 2012 Sales expected to remain at a similar lev
Slide 23: Non-Energy
Non-Energy +40% YoY % of total sales 9M 2011 Sales € million 1,014 1000 13% 900 7% 7% 800 471 726 Mechanical 700 Lower sales in Q3 engineering -2% QoQ due to seasonal 600 298 vacation period in 500 Europe 400 276 360 352 Distributor stocks 299 Automotive 300 231 below normal levels 169 161 116 due t
Slide 24: 4. Strategy and Outlook
4. Strategy and Outlook 24 Q3 2011 Results
Slide 25: Sound fundamentals: Growing energy consumption
Sound fundamentals: Growing energy consumption World energy consumption +53% 2010 – 2035 Source: International Energy Outlook, September 2011 25 Q3 2011 Results
Slide 26: Favourable trends in the Oil & Gas pipe market: More volume
Favourable trends in the Oil & Gas pipe market: More volume (MTon) ('000 feet) 14 1400 CAGR: 4% 12 11.7 1200 10 9.7 1000 8 7.6 800 6 600 4 400 2 200 0 0 2005 2010 2015 Annual OCTG Seamless Volumes (left scale) Drilled footage (right scale) Source: (1) IEA Gas Scenario, 2011 (2) Spears CAGR = compoun
Slide 27: Favourable trends in the Oil & Gas market: More Premium products
Favourable trends in the Oil & Gas market: More Premium products Demand for Premium OCTG products grows faster than standard products Premium products 11.7 MT getting more complex Advanced Premium 30% Pre-salt 7.6 MT Premium Conventional Premium Deep offshore 22% HP / HT API API Shale hydrocarbons 7
Slide 28: Vallourec's strategy to capture growth
Vallourec’s strategy to capture growth: •• Local Local leadership leadership More Local Presence •• Local Local content content •• Customer Customer intimacy intimacy •• Added Added value value More Premium •• Technological Technological leadership leadership •• Premium Premium Service Service •• VS
Slide 29: Towards a new Vallourec: Investing in competitive growth
Towards a new Vallourec: Investing in competitive growth New tube Nuclear China tubes mill in USA Nansha Tianda France Changzhou Nuclear 2012 OCTG 2011 Saudi Arabia Powergen tubes 2011 OCTG 2012 2013 threading 2011 PTCT Nigeria Indonesia OCTG VSB pipe 2009 threading and steel 2009 Sales in mill in B
Slide 30: Implementing our strategy: Increased capacities and premiumization
Implementing our strategy: Increased capacities and premiumization Rolling Expected Comments capacity rolling capacity 2011 2013 USA ~ 17% ~ 26% New capacity for small OD pipe 350kt Brazil ~ 21% ~ 27% New capacity for medium OD pipe 300kt Europe ~ 62% ~ 47% Rebalancing and streamlining capacity in E
Slide 31: VM2 in the USA: the new Youngstown pipe mill
VM2 in the USA: the new Youngstown pipe mill 31 Q3 2011 Results
Slide 32: VM2 in the USA: Small diameter pipe mill to serve local market
VM2 in the USA: Small diameter pipe mill to serve local market Market environment Development of shale hydrocarbons in North America driving strong demand for small diameter premium OCTG Strong ties with distributors and end users, who favour local supply Expected contribution to Group EBITDA 2011 S
Slide 33: Integrated production chain
Iron Ore Pelletizing Steel Making OCTG Fast Casing Rolling Mill Flex Line Blast Furnace Heat Treatment Coupling Shop 33 Q3 2011 Results
Slide 34: VSB in Brazil
VSB in Brazil: Adding capacity and optimizing our industrial footprint for OCTG State-of-the-art integrated facility; Commissioning successfully completed Serving the fast growing international Oil & Gas markets Focusing on Premium large order lots Exporting finished goods and feeding local finishin
Slide 35: VSB in Brazil: Expected contribution to Group EBITDA
VSB in Brazil: Expected contribution to Group EBITDA 2011 First sales in Q4 Start-up costs ≈ €80 – 90m (incl. €35m in H1) 2012 Load ≈ 50% Technical homologation of Premium products Still negative contribution due to load/mix: estimated €40 – 60m Progressive increase of load and mix (Premium vs. Stan
Slide 36: Other projects: Oil & Gas
Other projects: Oil & Gas Acquisition of Zamil Pipe, Saudi Arabia Heat treatment and threading facilities 100kt annual capacity Closing due Q4 2011 New VAM threading plant, Saudi Arabia Relocated at Zamil site To be commissioned in 2012 Vallourec Umbilicals New Premium activity for offshore Welded s
Slide 37: Other projects: Power generation
Other projects: Power generation Increased capacity for steam generator tubes (nuclear) Start-up of new capacity in Montbard, France First deliveries in H2 2011 Construction underway of new finishing capacity in Nansha, China Start-up in Q2 2013 New capacities for boiler pipes (coal-fired) Expansion
Slide 38: Leading to a more balanced currency exposure
Leading to a more balanced currency exposure Vallourec today is largely exposed to EUR/USD transaction risk: ≈ € 1bn net exposure (20% of total sales) This exposure will be diluted thanks to new capacities: New US mill for local market VSB sales exposed to BRL/USD The BRL exposure will play two fold
Slide 39: CAPTEN & CAPTEN+: Achievements and objectives
CAPTEN & CAPTEN+: Achievements and objectives Savings cost base* Reference CAPTEN: Cost savings of €280m** at end of 2010, ahead of €200m target CAPTEN+: Cost base to be reduced by additional €300m** by end of 2013 2007 2008 2009 2010 2011 - 2013 New programme CAPTEN+ launched in 2011 with broadened
Slide 40: Outlook 2011 – 2012
Outlook 2011 – 2012 H2 2011 Business environment positive in energy markets Project costs confirmed But cautious attitude from distributors in non-energy markets as a consequence of economic uncertainties And negative translation effect from currency evolution (BRL/€) EBITDA H2 2011 similar to H1 20
Slide 41: 2013 and beyond: Vallourec positioned to benefit from growing Oil & Gas markets
2013 and beyond: Vallourec ideally positionned to benefit from growing Oil & Gas markets New state-of-the-art capacity in place and running to deliver growth Reinforced local content offer and customer proximity to develop market penetration Optimized industrial footprint better allocation of produc
Slide 42: Leader in Premium Tubular Solutions
Leader in Premium Tubular Solutions Q3 2011 Results
Slide 43: Appendices
Appendices Investor Relations Contact - Vallourec Group Tel : +33 1 49 09 39 76 / email : investor.relations @vallourec.fr www.vallourec.com 43 Q3 2011 Results
Slide 44: Group profile
Group profile World leader in premium tubular solutions primarily serving the Energy markets, as well as other industrial applications Oil & Gas, Power Generation, Petrochemicals > 70% of sales Over 20,000 employees, integrated manufacturing facilities, advanced R&D, and presence in more than 20 cou
Slide 45: Vallourec applications for Energy and Non-Energy markets
Vallourec applications for Energy and Non-Energy markets 2010 Sales 6 € 4,491 m 2 6% 2 7% 9% 8% 1 5 17% 1 3 4 53% 4 1. Oil & Gas 2. Power generation 3. Petrochemicals 4. Mechanical engineering 5. Automotive 6. Construction & other 45 Q3 2011 Results
Slide 46: A worldwide leader
A worldwide leader 9,500 2,300 1,400 7,400 4 steel mills 10 Pipe mills 37 Finishing units Sales & Services Forest & 5 R&D centres mine 20,600 employees + 50 production facilities Employees at 31 December 2010 46 Q3 2011 Results
Slide 47: A. Group key assets and opportunities
A. Group key assets and opportunities 47 Q3 2011 Results
Slide 48: Strong relationship with blue chip clients
Strong relationship with blue chip clients Oil & Gas PowerGen Other … in all markets 48 Q3 2011 Results
Slide 49: Our products for Oil & Gas
Our products for Oil & Gas Oil Country Tubular Goods (OCTG) Casing – to consolidate the well Tubing – to convey oil & gas VAM® Premium Premium connections Connections Premium Casing Gas-tight metal to metal connections Premium Tubing Drill Pipes Premium Casing Linepipes Accessories Risers & Flowline
Slide 50: Global offer: Premium products for all applications
Global offer: Premium products for all applications Shale Gas Extended Reach Heavy Oil Arctic VAM® SG Hydroclean, VAM® SW LT Grades VAM® Express CleanWell VAM® HTF EXTREME APPLICATIONS: ADVANCED PREMIUM Deep Water Sour Gas Deep Well HPHT Salt Dome VAM® Riser SS, CRA VAM® 21 VAM® HP, VAM® 21 HC Grade
Slide 51: Ideally positioned to serve the Brazilian market
Ideally positioned to serve the Brazilian market Long term partnership with Petrobras (since 1954) Fully integrated local production A complete product offering MINAS GERAIS Premium OCTG VAM® connections Drill pipe to Belo Horizonte VMB n Sa Risers and flowlines Espirito ito VSB pír Santo Dedicated
Slide 52: Ideally positioned to serve the Oil & Gas market in the USA
Ideally positioned to serve the Oil & Gas market in the USA Image: Statoilhydro Oil & Gas Shale Plays Casper, WY Youngstown, OH Muskogee, OK Houma, LA Houston, TX Image: Hart Energy Vallourec operations • Long-term relationships with distributors, large independents and international majors • Strong
Slide 53: Importance of unconventional drilling technologies
Importance of unconventional drilling technologies Break-through technologies enable the industrial exploitation of non-conventional shale reserves Difference between conventional drilling (vertical) and unconventional drilling (horizontal) Image: Devon % Premium OCTG Tons per % Small OD Type of wel
Slide 54: B. 9M 2011 Results
B. 9M 2011 Results 54 Q3 2011 Results
Slide 55: EBITDA
EBITDA € million 9M 2011 9M 2010 % change Sales volume (k tonnes) 1,663 1,335 +24.5% Sales 3,743.4 3,188.4 + 17.4% Cost of sales (1) -2,609.9 -2,139.6 +22.0% As % of sales -69.7% -67.1% Selling, general and -427.8 -363.4 +17.7% (2) administrative costs (1) As % of sales -11.4% -11.4% Other income (e
Slide 56: Net income
Net income € million 9M 2011 9M 2010 % change EBITDA 685.4 663.8 +3.3% Depreciation industrial assets -149.3 -131.4 Other (amortization, impairment & restructuring) -39.3 -41.7 Operating Income 496.8 490.7 +1.2% Financial Income -36.4 -15.1 Income tax -137.7 -149.0 Net income of equity affiliates 0.
Slide 57: Balance sheet items
Balance sheet items € million 30/09/11 31/12/10 30/09/11 31/12/10 Non-current assets 4,957.8 4,616.9 Shareholders’ equity 4,479.1 4,556.4 Minority interests 340.5 267.2 Inventories and 1,423.3 1,190.3 Equity capital 4,819.6 4,823.6 work-in progress Trade receivables 1,052.2 863.6 Provisions and othe
Slide 58: Sales by region
Sales by region 9M 2010 9M 2011 Sales = €3,188 m Sales = €3,743 m France France North North 4% America 4% America Germany Germany 26% 26% 15% 14% Other Other E.U. 27 South E.U. 27 South 8% America 9% America Rest of 25% Rest of 22% the world the world 8% Asia and the Asia and the 6% Middle-East Midd