VALLOUREC: Vallourec reports third quarter and first nine months 2013 results

VALLOUREC: Vallourec reports third quarter and first nine months 2013 results

Vallourec reports third quarter and first nine months 2013 results

Boulogne-Billancourt, 7 November  2013 -  Vallourec, world  leader in  premium 
tubular solutions, today announced its results  for the third quarter and  the 
first  nine  months  of  2013.  The  consolidated  financial  statements  were 
presented by Vallourec's Management Board to its Supervisory Board.

Third quarter (Q3) 2013:
·    Revenues of € 1,379 million, up 3.4% versus Q3 2012
·    EBITDA of € 240 million, up 15.4% versus Q3 2012
·    EBITDA margin improved by 180 bp to 17.4% of revenues
·     Net income, Group  share of € 80  million (or €  0.6 per share),  up 
29.0% versus Q3 2012

First nine months (9M) of 2013:
·    Revenues of € 3,969 million, up 2.8% versus the first nine months  of 
2012
·     EBITDA of € 661  million, up 20.0% versus  the first nine months  of 
2012
·    EBITDA margin improved by 240 bp to 16.7% of revenues
·    Net  income, Group share of  € 177 million (or  € 1.4 per share),  up 
20.4% versus the first nine months of 2012

Commenting on  these results,  Philippe Crouzet,  Chairman of  the  Management 
Board, stated:
"The results for the third quarter and the first nine months reflect the  good 
sales performance achieved in Oil  & Gas, which represented approximately  67% 
of our  sales in  Q3, with  high premium  deliveries in  Brazil for  the  deep 
offshore market and in the Middle East.  In the USA, commissioning of the  new 
rolling mill enabled Vallourec to enlarge its offer of products and  services, 
thus increasing the sales volumes. However, the market continues to be  mainly 
shale oil  oriented resulting  in  a product  mix  which is  evolving  towards 
lower-margin semi-premium  connections. In  its  other activities,  the  Group 
faced sluggish market conditions.



The EBITDA margin improved and reached 17.4%  of revenues for Q3 and 16.7%  of 
revenues in the  first nine months.  Despite a lower  contribution of the  US, 
improvement of  Vallourec's profitability  was mainly  brought by  the  better 
sales mix combined with cost reductions implemented across the Group.



Over the full year 2013, Vallourec  continues to target an increase in  volume 
and sales and an improvement in  EBITDA margin. However, the current  weakness 
of the Brazilian real, the recent weakening of the US dollar against the  Euro 
and the  temporary  reduction  of  OCTG demand  in  Brazil  will  dampen  this 
improvement.

While these temporary factors  will also affect  the next quarters,  Vallourec 
remains very  much  focused  on  strengthening  its  premium  positioning  and 
enhancing its operating efficiency. The Group shall also benefit from its  new 
facilities coming into play after a  major investment cycle to take  advantage 
of the dynamic Oil & Gas market over the medium and long term."



Key figures for the third quarter (Q3) and first nine months (9M) 2013

                Q3        Q3     Change    Q2    Change   9M      9M    Change
In € million   2013      2012     YoY     2013    QoQ    2013    2012    YoY
Sales Volume                                          
(k tonnes)       545      525   +3.8%    543   +0.4%  1,575 1,557   +1.2%
                                                              
                                                             
Revenues      1,379   1,334   +3.4% 1,377   +0.1%  3,969  3,861  +2.8%
                                                                     
EBITDA                   +15.4%       +4.3%         +20.0%
                 240      208            230           661    551 
As % of          17.4%     15.6% +1.8pt    16.7% +0.7pt   16.7%   14.3% +2.4pt
revenues
Operating                +18.7%      +14.4%         +16.5%
income           159      134            139           388    333 
Net income,            +29.0%      +29.0%         +20.4%
Group share      80      62           62           177    147 

SALES VOLUME
In Q3 2013,  sales volume  of rolled tubes  shipped amounted  to 545  thousand 
tonnes, up 3.8% compared to Q3 2012, mainly driven by the growth of Oil &  Gas 
volumes.

Sales volume amounted  to 1,575 thousand  tonnes in the  first nine months  of 
2013, up 1.2% compared to the same period in 2012.

CONSOLIDATED REVENUES BY MARKET

                    Q3      Q3    Change   Q2    Change   9M      9M    Change
In € million       2013    2012    YoY    2013    QoQ    2013    2012    YoY
                                                       
                    925    816  +13.4%   911  +1.5%   2,604  2,332 +11.7%
Oil & Gas                                                            
                          -31.6%     -15.6%         -19.6%
Petrochemicals     65   95          77           217    270 
                                                       
Total Oil & Gas,    990    911  +8.7%    988  +0.2%   2,821  2,602 +8.4%
Petrochemicals                                                       
% of total          71.8%   68.3%         71.8%         71.1%   67.4%   
revenues
                                                                        
                          -8.0%      +5.0%          -7.7%
Power Generation    127    138           121           384    416 
% of total           9.2%   10.3%          8.7%          9.7%   10.8%   
revenues
                                                                        
                          -16.1%     +3.0%          -18.0%
Mechanical          104    124           101           309    377 
                          +5.3%      -9.1%          -1.1%
Automotive         60   57          66           180    182 
Construction &            -5.8%      -3.0%          -3.2%
other              98    104           101           275    284 
Total Industry &          -8.1%      -2.2%          -9.4%
other               262    285           268           764    843 
% of total          19.0%   21.4%         19.5%         19.2%   21.8%   
revenues
                                                                        
                                                             
                   1,379  1,334 +3.4%   1,377 +0.1%   3,969  3,861 +2.8%
Total                                                             

Oil & Gas, Petrochemicals

Oil & Gas^[1] revenues were up 13.4% in Q3 2013 versus Q3 2012, to reach € 925
million.

In the  first  nine  months  of  2013,  Oil  &  Gas  revenues  were  up  11.7% 
year-on-year to € 2,604 million representing 66% of total revenues compared to
60% in the first nine months of 2012.

In the USA,  where the Group  has a strong  market position in  the shale  oil 
market (oil  drilling  representing  approximately 78%^[2]  of  active  rigs), 
volumes increased thanks to an enlarged offer of products and services and the
ramp up of the new  rolling mill. The number of  active rigs^2 during Q3  2013 
remained flat since the beginning of the year and lower than in Q3 2012. Shale
gas drilling market  showed no sign  of recovery, resulting  in a product  mix 
driven  by  shale  oil  drilling  operations  evolving  towards   lower-margin 
semi-premium connections. Prices were stable sequentially in Q32013 but below
2012 level.
In the EAMEA^[3] area, Vallourec revenues  benefited from a strong order  book 
on a growing premium market driven  by high advanced premium needs notably  in 
the Middle  East, and  in deepwater  projects where  the Group  has a  leading 
position thanks to its VAM^® 21 and VAM^® HP premium connections. The level of
orders recorded  over  the  past  few  months  continues  to  be  strong.  The 
qualification of  premium products  at VSB  is being  finalized, according  to 
plan.

In Brazil, Vallourec continued  to benefit from a  good product mix driven  by 
the domestic Oil & Gas offshore market.  As announced by the Group during  its 
Investor Day at the end  of September, in a  context where the Brazilian  real 
weakened significantly  during  the  summer,  its  major  Brazilian  customer, 
Petrobras is prioritizing cash generation and increasing oil production in the
short term. For  Vallourec, this should  result, from Q4  2013 until  mid-year 
2014, in more tubing (tubes for oil production) and less casing (tubes for the
equipment of new wells), temporarily reducing tonnages of OCTG tubes delivered
on the domestic market.

Petrochemicals revenues amounted to € 65 million in Q3 2013, down 31.6%
year-on-year.
In the first nine months of 2013, Petrochemicals revenues amounted to € 217
million, down 19.6% year-on-year in a very competitive environment, and
represented 5% of total consolidated revenues.

Power Generation, Industry & other

Power Generation revenues  amounted to  € 127 million  in Q3  2013, down  8.0% 
versus Q3  2012. Some  projects having  been rescheduled  over 2014,  revenues 
relating to the  equipment of nuclear  power plants continued  to be  affected 
negatively.
In the first nine months of 2013, Power Generation revenues amounted to €  384 
million, down 7.7%
year-on-year, representing 10% of total consolidated revenues.

Industry & other revenues amounted to € 262 million in Q3 2013, down 8.1% when
compared to Q3 2012. There was no sign of recovery in the industry  operations 
in Europe,  with  continuous pressure  on  prices.  In Brazil,  the  level  of 
activity  in  the  automotive  market  remained  dynamic  after  the  recovery 
experienced earlier  in the  year. In  Q3 2013,  iron ore  revenues were  down 
compared with Q3 2012. Iron ore contract prices are however expected to be  up 
in Q4 2013 compared to Q4 2012.
In the first nine months of 2013, Industry & other revenues amounted to €  764 
million, down 9.4% year-on-year, representing  19% of total revenues  compared 
to 22% in the first nine months of 2012.
For the  end of  2013, Vallourec  sees no  sign of  recovery in  its  activity 
Industry & other, with the exception of the Brazilian automotive market.

RESULTS

Summary consolidated income statement

                Q3        Q3     Change    Q2    Change   9M      9M    Change
In € million   2013      2012     YoY     2013    QoQ    2013    2012    YoY
Sales Volume                                           
(k tonnes)       545      525   +3.8%    543   +0.4%  1,575  1,557  +1.2%
                                                                     
                                                             
Revenues      1,379   1,334   +3.4% 1,377   +0.1%  3,969  3,861  +2.8%
                                                                     
Cost of         -985     -984                   -0.6%  -2,862  -2,867  -0.2%
sales^1                           +0.1%   -991                      
(as % of         71.4%     73.8% -2.4pt    72.0% -0.6pt   72.1%   74.3% -2.2pt
revenues)
SG&A costs^1    -139    - 134   +3.7%     -140  -0.7%  -411   -430   -4.4%
(as % of         10.1%     10.0% +0.1pt    10.2% -0.1pt   10.4%   11.1% -0.7pt
revenues)
EBITDA                   +15.4%       +4.3%         +20.0%
                 240      208            230           661    551 
As % of          17.4%     15.6% +1.8pt    16.7% +0.7pt   16.7%   14.3% +2.4pt
revenues
Operating                +18.7%      +14.4%         +16.5%
income           159      134            139           388    333 
Net income,            +29.0%      +29.0%         +20.4%
Group share      80      62           62           177    147 

1.Before depreciation and amortization

Analysis of Q3 2013 Results

Revenues increased by  3.4% versus Q3  2012 to €  1,379 million. The  negative 
currency translation effect
(-8%) due to weaker US dollar and Brazilian real versus the Euro together with
the lower level of prices in the US Oil & Gas market were more than offset  by 
a positive volume (+4%) and an  overall positive product mix effect  resulting 
in particular from a higher proportion of Oil & Gas revenues.

The cost of sales, at  71.4% of revenues in Q3,  improved compared to Q3  2012 
(73.8% of revenues). The better mix, notably  in Brazil and in EAMEA, and  the 
positive effect of  the new mills  ramp up,  were partly offset  by the  lower 
level of activity  in European Power  Generation and Industry  markets and  by 
some one-off maintenance works in the European steel mills.
Sales, general  and administrative  costs (SG&A)  amounted to  € 139  million, 
representing a slight increase in value but stable as a percentage of revenues
at 10.1%.

EBITDA for Q3 was therefore  up € 32 million, or  15.4% year-on-year to €  240 
million. Despite lower-margin product mix and lower prices in the USA,  EBITDA 
margin improved by 180 bp to 17.4% of revenues
(vs. 15.6% of revenues  in Q3 2012) as  a result of higher  Oil & Gas  premium 
revenues in EAMEA and in Brazil and cost management efficiency.

Analysis of the first nine months of 2013 Results

Revenues amounted to € 3,969 million in the first nine months of 2013, up 2.8%
when compared to the first nine months of 2012, reflecting higher volumes  and 
a positive mix effect, which  were partly offset by  lower OCTG prices in  the 
USA when  compared  to the  same  period last  year  and a  negative  currency 
translation effect due to  the weakened Brazilian real  and US dollar  against 
the Euro.

The cost of  sales amounted to  € 2,862 million  or 72.1% of  revenues in  the 
first nine months of 2013, representing a decrease compared to the first  nine 
months of  2012 (74.3%  of revenues).  This improvement  was mainly  due to  a 
better mix with a higher proportion of  Oil & Gas revenues and continued  cost 
reductions.
The sales, general and administrative costs (SG&A) were down in value and as a
percentage of revenues at
10.4% to reach € 411 million.

The EBITDA in the first nine months  of 2013 totalled € 661 million, up  20.0% 
year-on-year. Compared to  the first nine  months of 2012,  the EBITDA  margin 
improved by 240 bp to 16.7%  of revenues. Despite lower contribution from  the 
US Oil & Gas market, the improvement  in the Group profitability was due to  a 
better sales mix,  more favourable  hedged rates on  deliveries, an  efficient 
cost control and the continuing ramp up of the new mills.

Operating income amounted to € 388 million  in the first nine months of  2013, 
16.5% above the  prior year  level. This  improvement results  from an  EBITDA 
increase partly offset by higher depreciation and amortization
(€ +36 million year-on-year) notably in Brazil and in the US.

Financial result amounted to € -76 million year-to-date and slightly increased
compared to the same period in 2012, mainly due toanegative exchange  result 
in 2013. Interest expensesdecreasedyear-on-year, as  the impact of a  higher 
level of gross debt has been more than offset by a lower average cost of debt.

Net income, Group share amounted to € 177 million, 20.4% above prior year. The
effective tax rate reached 35% over the period.

The current weakness of the Brazilian real and the recent weakening of the  US 
dollar against the Euro will have a negative translation impact on the Q4 2013
results.

Cash flow

                        Q3        Q3 2012       Q2        9M        9M 2012
In € million           2013     restated^1     2013      2013     restated^1
Gross cash flow from                +164      +170                +368
operations             +204                            +504 
Change in gross WCR       -111            -7       -71      -313          -165
[+ decrease, -
increase]
                                   +157       +99      +191          +203
Operating cash flows     +93 
Gross capital             -119          -153      -100      -317          -494
expenditure
Financial                                        
Investments             -           -     -     -           - 
Dividends paid              -7          -7      -52        -59          -182
Asset disposals &                   +27       +34       +30           +23
other elements          +18 
Change in net debt
[+decrease,                -15           +24       -19      -155          -450
-increase]
Net debt (end of         1,769         1,643     1,754     1,769         1,643
period)

1.Figures for the  2012 period  have been restated  with the  impact of  the 
    change in method of accounting for actuarial gains and losses on  employee 
    benefits (revised standard IAS 19) 

Gross cash flow from operations  amounted to € 504  million in the first  nine 
months of 2013 compared to
€ 368 million in the same period  last year. This improvement was largely  due 
to the improved EBITDA.
Over the period, gross working capital requirements increased by € 313 million
reflecting notably the ramping up of the new mills.

In the first nine months of 2013, gross capital expenditure amounted to €  317 
million, down
35.8% year-on-year  as the  strategic capex  are  coming to  an end  with  the 
completion of Vallourec's major investments. Capex for the full year 2013  are 
now expected to be around € 600 million, against a previous estimate of €  650 
million, thanks to efficient capital expenditures control.
The Group  closed, on  October 11,  2013,  the acquisition  of the  assets  of 
Lupatech's Tubular Services Rio das Ostras Unit, an Oil & Gas services company
based in Rio das Ostras, RJ, Brazil. This acquisition, for a total cash amount
of around € 21 million, will  broaden the range of services currently  offered 
by the  Group  in  Brazil and  will  help  Vallourec expand  its  offering  of 
inspection, maintenance, and tube coating services.

As of September 30,  2013, total dividends  paid by the  Group over the  first 
nine months amounted to  € 59 million, including  € 36.5 million cash  outflow 
for the payment of the dividend by the holding company to its shareholders.

As a result, over the first nine  months, net debt increased by € 155  million 
to reach €  1,769 million  at the  end of  September 30  2013, representing  a 
gearing ratio of 35.2%. Net debt was broadly stable when compared to June  30, 
2013 (up € 15 million) and is expected to reach approximately € 1.8 billion at
the end of the year.
As of September  30, 2013, Vallourec  had close  to € 3  billion of  committed 
financings, which included undrawn confirmed credit lines of € 1.6 billion.

OUTLOOK 2013
In 2013, Vallourec continues to target an increase in volume and sales and  an 
improvement in EBITDA margin. This improved performance in the Group's results
will, however, be impacted by the current weakness of the Brazilian real,  the 
recent weakening of the US dollar against the Euro and the temporary reduction
of OCTG demand in Brazil.

While these temporary factors  will also affect  the next quarters,  Vallourec 
remains very  much  focused  on  strengthening  its  premium  positioning  and 
enhancing its operating efficiency. The Group shall also benefit from its  new 
facilities coming into play after a  major investment cycle to take  advantage 
of the dynamic Oil & Gas market over the medium and long term.

About Vallourec

Vallourec is a world leader in premium tubular solutions primarily serving the
energy markets, as well as other industrial applications.

With over 23,000 employees, integrated manufacturing facilities, advanced  R&D 
and a  presence in  more than  20 countries,  Vallourec offers  its  customers 
innovative global solutions to meet the energy challenges of the 21st century.

Listed on the NYSE Euronext in Paris (ISIN code: FR0000120354, Ticker VK)  and 
eligible for the Deferred  Settlement System (SRD),  Vallourec is included  in 
the following indices: MSCI World Index, Euronext 100 and CAC 40.

In the United States, Vallourec has  established a sponsored Level 1  American 
Depositary Receipt  (ADR) program  (ISIN code:  US92023R2094, Ticker:  VLOWY). 
Parity between ADR and a Vallourec ordinary share has been set at 5:1.

www.vallourec.com

Presentation of Q3 and the first nine months of 2013 results

Thursday 7   *Analyst conference call at 6:30 pm (CET) to be held in
November       English.

           To participate in the call, please dial:
           0800279 4992 (UK), 0805 631 580 (France),
           1877 280 2342 (USA), +44(0)20 3427 1907 (Other countries)
           Conferencecode: 6368839

             *Slides will be available on the website at:

           http://www.vallourec.com/en/finance/investor-relations/

             *A replay of the conference call will be available until 14
               November 2013.

           To listen to the replay, please dial:
           (0)20 3427 0598 (UK),(0)1 74 20 28 00 (France),
           347 366 9565 (USA), +44(0)20 3427 0598 (Other countries)
           Access code: 6368839

Calendar

02/26/2014 Release of fourth quarter and Full Year 2013 results
05/07/2014 Release of first quarter 2014 results
05/28/2014 Shareholders' General Assembly

For further information, please contact
Investor relations                Press relations
Etienne Bertrand                  Caroline Philips
Tel: +33 (0)1 49 09 35 58         Tel: +33 (0)1 41 03 77 50
etienne.bertrand@vallourec.com   caroline.philips@vallourec.com

Appendices

Documents accompanying this release:

  *Sales volume (k tonnes)

  *Sales by geographic region

  *Summary consolidated income statement

  *Summary consolidated balance sheet

Sales volume

                           2013          2012      Change
In thousands of tonnes                              YoY
Q1                         487      504   -3.4%
Q2                         543      528   +2.8%
Q3                         545      525   +3.8%
Q4                                       535       
                                                        
Total                                   2,092       

Sales by geographic region

                        9M       As % of       9M       As % of  Change
In € million           2013      revenues     2012      revenues  YoY
                                        
Europe                 758     19.1%     876     22.7% -13.5%
North America         1,057     26.6%    1,125     29.1%  -6.0%
South America          936     23.6%     874     22.6%  +7.1%
Asia & Middle East     966     24.3%     650     16.8% +48.6%
Rest of World          252      6.4%     336      8.8% -25.0%
                                                                 
Total                 3,969    100.0%    3,861    100.0%  +2.8%

Summary consolidated income statement

VALLOUREC        Q3    Q3 2012   Change   Q2   Change   9M    9M 2012   Change
In € million    2013  restated^1  YoY    2013   QoQ    2013  restated^1  YoY
                                                         
Revenues       1,379  1,334   +3.4% 1,377  +0.1% 3,969  3,861   +2.8%
                                                         
Cost of        -985      -984   +0.1% -991   -0.6% -2,862   -2,867   -0.2%
sales^2                                                    
SG&A costs^2   -139      -134   +3.7% -140   -0.7% -411      -430   -4.4%
Other income    -15        -8          -16          -35       -13 
(expense), net
                                                                        
EBITDA                208  +15.4%       +4.3%        551  +20.0%
               240                    230         661 
EBITDA as % of  17.4%      15.6%        16.7%        16.7%      14.3%      
revenues
Depreciation
of industrial   -66       -57  +15.8%  -72   -8.3% -202      -166  +21.7%
assets
Other
(amortization,
exceptional     -15       -17          -19          -71       -52 
items,
impairment &
restructuring)
OPERATING             134  +18.7%      +14.4%        333  +16.5%
INCOME         159                    139         388 
Financial       -26       -24   +8.3%  -22  +18.2%  -76       -72   +5.6%
income^2
INCOME BEFORE         110  +20.9%      +13.7%        261  +19.5%
TAX            133                    117         312 
Income tax^2    -45       -33          -42         -109       -78 
Net income of                                              4
equity          2        -1           -3          3           
affiliates
CONSOLIDATED           76 +18.4%     +25.0%        187  +10.2%
NET INCOME      90                    72         206 
Minority        -10       -14          -10          -29       -40 
interests
NET INCOME,            62 +29.0%     +29.0%        147  +20.4%
GROUP SHARE     80                    62         177 
EARNING PER            0.5                           1.2
SHARE           0.6                    0.5          1.4           
(in €)

1.Figures for the  2012 period  have been restated  with the  impact of  the 
    change in method of accounting for actuarial gains and losses on  employee 
    benefits (revised standard IAS 19) 

2.Before depreciation and amortization

Summary consolidated balance sheet

VALLOUREC
In € million
                    30-Sep     31-Dec                      30-Sep    31-Dec
      Assets         2013       2012        Liabilities     2013      2012
                             restated^1                            restated^1
                                         Shareholders'             4,729 
                                         equity            4,614 
Intangible assets,          224  Minority                  415
net                  215               interests          410  
Goodwill                    511  Total equity           
                     501                                 5,024    5,144 
Net tangible fixed          4,320 
assets              4,128 
Biological assets           196  Bank loans and            1,410 
                     180               other borrowings  1,399 
Investments in              162  Employee benefits         215
equity affiliates    159                                  207  
Other non-current           408  Deferred tax              190
assets               473               liabilities        201  
Deferred tax assets         213  Other long-term           210
                     171               liabilities        244  
Total non-current           6,034   Total non-current         2,025 
assets              5,827               liabilities       2,051 
Inventories and             1,430   Provisions                153
work-in-progress    1,646                                  155  
Trade and other                        Overdrafts and            750
receivables         1,043     969  other short-term   987  
                                         bank borrowings
Derivatives -               59  Trade payables            678
assets                75                                 794  
Other current               203  Derivatives -             15
assets               373               liabilities         21  
Cash and cash               546  Other current             476
equivalents          617               liabilities        549  
Total current               3,207   Total current             2,072 
assets              3,754               liabilities       2,506 
TOTAL ASSETS                9,241   TOTAL LIABILITIES         9,241 
                    9,581                                 9,581 

Net debt                    1,614   Net income, Group         217
                    1,769               share              177  

1.Figures for the  2012 period  have been restated  with the  impact of  the 
    change in method of accounting for actuarial gains and losses on  employee 
    benefits (revised standard IAS 19) 

[1]Excluding Petrochemicals
[2]Baker Hughes (USA rig count) - end of September 2013
[3]EAMEA: Europe, Africa, Middle East, Asia

Information

Quarterly statements are unaudited and not subject to any review.



Unless otherwise specified, indicated variations are expressed in comparison
with the same period of the previous year.

131107_Vallourec press release_Q3 2013_PDF

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