This presentation is not for publication, release, or distribution directly or indirectly in the United States, Canada, Australia or Japan
Shareholders’ Meeting
April 6, 2016
This presentation is not for publication, release, or distribution directly or indirectly in the United States, Canada, Australia or Japan
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 expressed in comparison with the
same period of the previous year
Disclaimer
This presentation contains forward-looking reflections and information. By their nature, these reflections and information include financial forecasts and estimates as
well as the 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 reflections and information are reasonable, Vallourec cannot guarantee
their accuracy or completeness and investors in Vallourec are hereby advised that these forward-looking reflections and information are subject to numerous risks
and uncertainties that are difficult to foresee and generally beyond Vallourec’s control, which may mean that the actual results and developments differ significantly
from those expressed, induced or forecasted in the forward-looking reflections and information. 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 17 March 2016 (N°
D.16-0141).
Annual General Meeting - 2016
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Information
Disclaimer
No communication or information relating to the contemplated capital increase discussed in this presentation may be distributed to the public in any jurisdiction in
which registration or approval is required. No action has been (or will be) undertaken in any jurisdiction outside of France where such steps would be required. The
subscription for or purchase of securities of Vallourec may be subject to legal or statutory restrictions in certain jurisdictions. Vallourec assumes no responsibility for
any violation of such restrictions by any person. The distribution of this presentation in certain jurisdictions may be restricted by law.
European Economic Area
This presentation does not constitute a prospectus within the meaning of Directive 2003/71/EC as amended to the extent that such amendments have been
implemented in the Member States of the European Economic Area (the "Prospectus Directive"). The rights issue discussed herein will be open to the public in
France only pursuant to a prospectus having received the visa of the French Autorité des marchés financiers (the "AMF") and prepared in accordance with the
Prospectus Directive. With respect to each Member State of the European Economic Area other than France which has implemented the Prospectus Directive (the
"Member State"), no action has been undertaken or will be undertaken to make an offer to the public of securities requiring a publication of a prospectus in any
Member State. As a result, the securities of Vallourec may only be offered in the Member States (i) to qualified investors, as defined by the Prospectus Directive; or
(ii) in any other circumstances, not requiring Vallourec to publish a prospectus as provided under Article 3(2) of the Prospectus Directive. For the purposes of this
paragraph, "securities offered to the public" in a given Member State means any communication, in any form and by any means, of sufficient information about the
terms and conditions of the offer and the securities so as to enable an investor to decide to buy or subscribe for the securities, as the same may be varied in that
Member State. This selling restriction applies in addition to any other selling restrictions which may be applicable in the Member States who have implemented the
Prospectus Directive.
Annual General Meeting - 2016
/3
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Information
United Kingdom
The distribution of this presentation is directed only at (i) persons outside the United Kingdom, subject to applicable laws, or (ii) persons having professional
experience in matters relating to investments who fall within the definition of "investment professionals" in Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 as amended (the "Order") or (iii) high net worth bodies corporate, unincorporated associations and partnerships and trustees
of high value trusts as described in Article 49(2) (a) to (d) of the Order (all such persons together being referred to as “relevant persons”). The rights issue is only
available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such rights will be engaged in only with, relevant persons. Any
person who is not a relevant person should not act or rely on, this presentation or any information contained herein.
United States
This presentation does not constitute an offer or invitation to sell or purchase, or any solicitation of any offer to purchase or subscribe for, any securities of Vallourec
in the United States of America. Securities may not be offered, subscribed or sold in the United States of America absent registration under the U.S. Securities Act
of 1933, as amended (the "U.S. Securities Act"), except pursuant to an exemption from, or in a transaction not subject to, the registration requirements thereof. The
securities of Vallourec have not been and will not be registered under the U.S. Securities Act and Vallourec does not intend to make a public offer of its securities in
the United States of America.
Forward-looking statements
This presentation includes forward-looking statements relating to the Vallourec’s (“Vallourec or the “Group”) expectations or objectives, including forward-looking
statements relating to certain financial and operating metrics used by the Group. These statements are sometimes identified by the use of the future or conditional
tense, as well as terms such as “estimate”, “believe”, “have the objective of”, “intend to”, “expect”, “result in”, “should” and other similar expressions. It should be
noted that the realization of the expectations or objectives expressed or implied by these forward-looking statements is dependent on circumstances and facts,
including those arising in the future, that may be outside of the Group’s control. Forward-looking statements and information about objectives may be affected by
known and unknown risks, uncertainties and other factors that may significantly alter the future results, performance and accomplishments planned or expected by
the Group. These factors may include changes in the Group’s economic and commercial situation, regulations and the risk factors described in Chapter 5 of
Vallourec's 2015 Registration Document filed with the AMF under number D.16-0141 on March 16, 2016 and in chapter 2 of the securities note which received visa
number 16-073 from the AMF on March 16, 2016. Vallourec makes no undertaking to update any forward-looking statements except as required by applicable law or
regulation.
.
Annual General Meeting - 2016
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2015 in Review and Outlook
Philippe Crouzet
Chairman of the Board
This presentation is not for publication, release, or distribution directly or indirectly in the United States, Canada, Australia or Japan
2015 highlights
2015 saw a sharp volume fall on Oil & Gas markets
Since the beginning of the crisis, Vallourec has :
— Taken significant short term adaptation measures
— Launched a global roadmap of strategic initiatives aimed to reinforce:
• Our competitive industrial set-up
• Our commercial and technical offering
• Our financial structure
Our objective is to restore growth and profitability beyond the cycle
Annual General Meeting - 2016
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Agenda
1. 2015 highlights
2. 2015 financial results
3. Transformation Plan
4. Capital increase
5. Outlook
Annual General Meeting - 2016
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2015
Highlights
Jean-Pierre Michel
Chief Executive Officer
This presentation is not for publication, release, or distribution directly or indirectly in the United States, Canada, Australia or Japan
Quality
Safety
Continuous progress on our core values
No fatalities
Reach highest
standards
TRIR = 3,25
Objective exceeded
LTIR = 1,24
Key differentiating
factor
Annual General Meeting - 2016
Number of claims halved
Over 92% of orders
delivered on time
Objective exceeded
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Commercial successes
Power Generation
Oil & Gas
Contract & cooperation with Doosan for
coal-fired conventional power plants
Frame agreements with TOTAL and
Wintershall
Contracts with EDF and AREVA for tubes for
steam generators to be used in nuclear power
plants
Stampede contract for the Gulf of Mexico
Certification of our Nansha factory by the
Chinese Authority for Nuclear Safety
Industry
Involvement in important architectural
projects : Ancenis bridge, Musée des
Confluences, Mont Saint-Michel,…
Annual General Meeting - 2016
Kaombo in Angola, an ultra-deep offshore
project (OCTG & Line Pipe)
First delivery of tubes for umbilicals for the
Glenlivet project in the North sea
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Innovation capabilities maintained at a high level
R&D spending
Patents (1st filing)
6 Research & Development and testing centers
500 researchers and technicians
3 main fields :
— Steels, tubes and premium solutions
— Ease of use and TCO (Total Cost of Ownership)
— New markets
Annual General Meeting - 2016
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Certification of connections
Certification of connections required to validate the performance of a given
product for the given application
Tests based on industrial standards and/or client specifications
More than 30 connections certified in 2015 for our largest clients: Petrobras,
Shell, Chevron, BP, ExxonMobil, etc.
Annual General Meeting - 2016
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R&D and connection test centers
A unique global network
Europe
North America
x2 in
France
x1 in
the
US
in
France
6
x1 in
R&D
centers Brazil
In the
US
4
in
Test
centers Brazil
In
Indonesia
X2 in
Germany
South America
Asia
Capacity of connection test benches
(in number of trials per year)
100
129 129 129
171
229
200 214
2011 2012 2013 2014 2015 2016 2017 2018
Annual General Meeting - 2016
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2015
Financial Results
Olivier Mallet
Chief Financial Officer
This presentation is not for publication, release, or distribution directly or indirectly in the United States, Canada, Australia or Japan
2015 Highlights
Volumes
1.4Mt
-39 %
Revenues
€3,803m
EBITDA(1)
-€77m
Net result
-33 %
vs. €855m
-€865m
Sharp volume fall on US and EAMEA Oil & Gas markets
Strong impact from volume fall
-€77m EBITDA recorded in FY 2015
Including non-cash impairment charges of €296m, mainly in Europe
-6.4 %
Free
cash flow(2)
Adaptation &
savings
€135m
Vigorous implementation of
short-term & structural
measures
Positive Free Cash Flow in line with guidance
Strict discipline on WCR and Capex (capped at €268m)
Global staff reduction of 3,500 (-14% vs. end 2014 headcount)
Significant SG&A reduction: -€55 million (-10% vs. FY2014)
(1) Earnings Before Interest, Taxes, Depreciation, and Amortization
(2) Non-GAAP measure defined as cash flow from operating activities minus gross capital expenditure and
plus/minus change in operating working capital requirement
Annual General Meeting - 2016
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Valens Plan and short-term adaptation measures
Strict capex discipline
SG&A
In millions of €
In millions of €
576
803
560
568
567
388
513
268
2012
2013
2014
2015
2012
2013
2014
2015
Valens Plan savings update
Global staff reduction
(at year-end 2015)
Global Headcount
700 initiatives o/w 2/3rd already in place
-1,600
Targeted savings of 10% of added costs
confirmed
-1,900
-3,500
-14 %
Dec. 2014
Jun. 2015
Fully in line with targeted savings
> €100m savings already achieved
Dec. 2015
Annual General Meeting - 2016
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Market developments
Industry & Other
Oil & Gas
-32.6 %
Europe: strong competitive pressure
Brazil:
• Very challenging macro environment
• Significant decrease in iron ore prices
Conventional: falling volumes and negative
price effect
• Capex reduction by IOCs
• Destocking by certain NOCs
205
-8.4 %
EAMEA: weaker order book and strong
competition
678
559
Power Generation
-37.8 %
In millions
of €
2,361
USA: lower OCTG demand
Brazil: drop in drilling activity
Petrochemicals
-28.8 %
Very competitive environment, lack of new
projects
Nuclear: slight decrease in revenues
Annual General Meeting - 2016
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Revenue breakdown
As % of total Group revenues
Revenues by market
Revenues by region
30.6 %
66.6 %
28.8 %
62.1 %
25.2 %
22.4 %
15.7 %
5.1 %
5.4 %
16.1 %
10.8 %
10.7 %
14.7 %
9.0 %
17.6 %
17.8 %
19.1 %
22.3 %
FY
2014
2014
FY
2015
2015
FY
2014
2014
FY
2015
2015
Oil & Gas
Power Generation
North America
Rest of the world
Petrochemicals
Industry & Other
Asia & Middle East
Europe
South America
Annual General Meeting - 2016
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Positive free cash flow and stable net debt
In millions of €
Net Debt as at
31 Dec. 2015
Net Debt as at
31 Dec. 2014
Change in
WCR(1)
Gross capital
expenditure
Net
debt =
37.1 %
of equity
Dividends
paid
(268)
Cash flow from
operating activities
Asset disposals &
other items
(69)
(1,547)
(229)
(38)
Net
debt =
50.0 %
of equity
(1,519)
+632
Free Cash Flow = +€135m
Slight reduction of net debt
Gearing: 50 % (43 % under covenant calculation)
(1) Change in Working Capital Requirement, + decrease / (increase)
Annual General Meeting - 2016
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Financial resources as at 31 December 2015
Long-term committed financing profile
A sound liquidity position:
(In millions of €)
4 500
Financements
Long Terme
(Obligations,
Long-term financing
(Bonds,
leasing, etc.)
Leasings…)
Lignes
bancaires
confirmées
Long term
committed
bank financing
4 000
520
Nouvelles
lignescommitted
bancairesbank
confirmées
New long term
facilities *
3 500
3 000
2 500
1 790
520
520
1 590
1 590
- €1,790 billion MLT committed facilities
1 790
2 000
In March 2016, Vallourec reached agreements for new
revolving credit facilities of around €520 million:
450
1 500
1 000
- €631 million of cash on balance sheet which covers
more than 163% of the short term debt
1 078
1 763
1 763
1 060
500
1 017
606
592
Dec.
19
déc.-19
>>Dec.
20
déc.-20
- An additional revolving credit facility for €450 million,
maturing in 2020, granted to Vallourec SA
0
Dec.
15
déc.-15
Dec.
16
déc.-16
Dec.
17
déc.-17
Dec.
18
déc.-18
* These new credit facilities will become available subject to the closing of the contemplated
rights issue with preferential subscription rights in the context of the overall capital increase of
approximately €1 billion
Annual General Meeting - 2016
- A 3-year extension of the US$80 million revolving credit
facility, granted to Vallourec Star
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2016 Outlook:
Unfavourable market conditions persist
USA
-
Cost cutting by operators, low demand and pricing pressure
expected to last well into 2016
+/- End of destocking expected in H2 2016
Brazil
+
-
New downward adjustment of Petrobras’ 2015-2019 Business
Plan announced on 12 January 2016 (-US$32bn vs. initial plan
presented in June 2015)
Maintained focus on pre-salt should limit the decrease in tubes
deliveries in 2016
Industry & Other operations continue to suffer from the
depressed macroeconomic environment. Iron ore prices
expected to be lower than in 2015
Annual General Meeting - 2016
EAMEA
+/- Power Generation:
+
-
Conventional power generation activity to benefit from slightly
higher deliveries in 2016 compared to 2015
Nuclear power generation activity to slowdown in 2016
compared to 2015
Industry & Other: should continue to be affected by the
decrease in volumes and pricing pressure
Oil & Gas:
2016 deliveries severely impacted
IOCs projects postponed. NOCs tenders disputed
Strong competition leading to pricing pressure
/ 21
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2016 Guidelines
Q1 2016 Unaudited Financial Items
Revenues
Revenues of €671 million
EBITDA
EBITDA expected to be slightly
better than in Q4 2015 (-€77m)
Net Debt
Net debt of €1.8 billion as at 31
March 2016
Annual General Meeting - 2016
Full Year 2016*
EBITDA
Cash Flow
Net Debt
2016 EBITDA lower than in 2015
2016 free cash flow of approximately €-600
million (assuming a stable working capital
requirement)
Net debt not exceeding €1.5 billion at the end
of the year 2016, after the acquisition of
Tianda, the full consolidation of VSB and the
contemplated capital increase of
approximately €1 billion
* Based on exchange rates at the end of 2015
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Accelerating Transformation
Philippe Crouzet
Chief Executive Officer
This presentation is not for publication, release, or distribution directly or indirectly in the United States, Canada, Australia or Japan
What we announced on 1 February 2016
Four major strategic initiatives:
1. Project to reshape European operations*
2. Develop highly competitive production hubs in Brazil and China**
3. Reinforce partnership with NSSMC***
4. Strengthen Balance Sheet
An operational and financial transformation project to pave the way for a return to growth
and profitability
Annual General Meeting - 2016
* The implementation of this project is subject to prior consultation with relevant workers councils
** Subject to relevant PRC authorities’ approval (including Competition authorities)
*** Subject to approval by the Competition authorities
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Project to reshape European operations
1
Streamline our European operations*
— 50% capacity reduction in tube production vs 2014
• Closure of 2 out of the 4 mass production rolling mills
• Closure of 1 heat treatment line and 1 threading line
— Total headcount reduction of 1,000 FTEs (in addition to Valens plan)
— Asset disposals
Create an optimised European footprint
— Concentration of rolling activities in Germany and finishing activities in
France
— Mill load optimisation across the cycle
— Sustained emphasis on R&D
Vallourec is addressing European overcapacity issue by focusing on
high value added activities
Annual General Meeting - 2016
* The implementation of this project is subject to prior consultation with relevant workers councils
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A highly competitive production hub in Brazil
2
Rationalization of production set up through continued industrial cooperation with NSSMC*:
— Merger of VSB & VBR to create Vallourec Soluções Tubulares do Brasil owned by Vallourec (84.6%),
NSSMC (15%) and Sumitomo Corporation (0.4%)
— Supply agreement maintained with NSSMC
Allowing for:
— Shutdown of Belo Horizonte’s 2 blast furnaces and steel mill to concentrate all steel production in
Jeceaba plant
— Rationalisation of industrial investments and forestry assets
— G&A and tax synergies
Leveraging VSB’s highly competitive position for export
— Optimal operational performance
— Favourable BRL/USD parity
Optimised and highly competitive Brazilian operations
Annual General Meeting - 2016
* Subject to approval by the Competition authorities
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A highly competitive production hub in China
2
Acquisition of Tianda Oil Pipe*
A Chinese seamless pipe manufacturer, in which Vallourec acquired
a stake of 19.5% in 2011
A state-of-the-art PQF mill, with 500 kt production capacity coupled
with finishing capabilities
The most competitive production costs in the industry
Qualified by Tier One OCTG customers
A successful partnership with Vallourec
Tianda: A partner ready for integration within Vallourec
Annual General Meeting - 2016
* Subject to relevant PRC authorities’ approval (including Competition authorities)
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A highly competitive production hub in China
2
Key parameters of Tianda acquisition*
A strong rationale for the acquisition
Agreement to purchase an additional
50.61% stake signed on 29 January 2016
Production costs 30%-40% lower than
existing routes for comparable products
Mandatory General Offer to be launched
subsequently for all remaining shares
Enables an enlarged and highly
competitive offer combining VAM®
connections and Tianda’s low-cost tubes
A maximum cash-out of US$175m
Supporting VAM®’s market share
A new pillar in Vallourec’s industrial and commercial setup
Annual General Meeting - 2016
* Subject to relevant PRC authorities approval
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A reinforced partnership with NSSMC
2012
Merger of Nippon Steel and Sumitomo Metal creating NSSMC, the
world’s No 2 steel producer
2009
Acquisition of a 1.7% stake in Vallourec by Sumitomo Metal, and of a 1.5% stake in
Sumitomo Metal by Vallourec
2007
Vallourec and Sumitomo Tubos do Brazil create VSB
1985
First VAM® R&D partnership between Sumitomo Metal and Vallourec
1984
Creation of VAM® USA with Sumitomo Metal
1976
VAM® licensing agreement between Vallourec and Sumitomo Metal
1965
Vallourec creates VAM®, the first premium connection
Annual General Meeting - 2016
3
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Reinforced partnership with NSSMC
3
Enhance R&D cooperation to consolidate VAM® leadership
— A new dynamic after 40+ years of technical cooperation
— Additional resources to accelerate innovation and development of new
products
Create Vallourec Soluções Tubulares do Brasil
— A new 85%-15% entity resulting from the merger VBR and VSB*
— Continuing the technical partnership at Jeceaba plant
Reinforce equity-based relationship
— NSSMC will participate in Vallourec’s capital increase to reach a 15% equity
stake*
Annual General Meeting - 2016
* Subject to approval by the Competition authorities and the General Shareholders’ Meeting
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Strengthening the balance sheet: capital increase
4
Total capital increase of €1.0bn
— ~€515m, reserved to NSSMC and Bpifrance
— ~€485m, subscription via a rights issue with preferential subscription rights
Benefits
— Finance the Group’s recovery and transformation
— Provide liquidity headroom
— Return to “Investment Grade” rating by rating agencies
— Anchor the capital structure around two strategic partners
Timetable
— Submission for approval of shareholders in the Ordinary and Extraordinary General Shareholders’
Meeting on April 6th, 2016
— Operation to be launched subject to market conditions and the approval of the French Autorité des
Marchés Financiers on the prospectus relating to this transaction
Annual General Meeting - 2016
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Most projects to be achieved before the end of 2017
2016
1
2017
2018
Sale of majority stake in St-Saulve steel mill
Project to reshape
European operations*
Sale of VHET
Streamline and specialization of European operations*
2
Develop highly competitive
production hubs in Brazil
and China
3
4
Reinforce partnership with
NSSMC**
Strengthen Balance
Sheet
VBR-VSB merger**
Closure of Belo Horizonte blast furnace number 2
Closure of Belo Horizonte blast furnace
number 1 and steel plant
Acquisition of Tianda***
Mandatory convertible bond issue
Improved R&D and industrial cooperation
Capital increase****
Operational and financial transformation to insure the long-term
profitability of Vallourec and reinforce shareholder base
Annual General Meeting - 2016
* The implementation of the project is subject to prior consultation with relevant workers council
** Subject to approval by relevant authorities (especially anti-trust authorities)
*** Subject to approval by relevant Chinese authorities (especially anti-trust authorities)
**** Subject to approval by the General Shareholders Assembly and completion of the rights issue
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Strategic initiatives contribution: EBITDA
Additional €750m EBITDA contribution by 2020
C
c.€100m
100
M€
Change in scope (consolidation of Tianda, VSB)
New production hubs
B
c.€250m
250
M€
(Costs lower by 30 % to 40% compared to existing routes)
Cost reduction:
A
c.€400m*
400M€
• Valens plan: €350m (o/w €100m savings achieved in 2015)
• New transformation plan: €150m savings in addition to Valens Plan
• Recurrent savings post-2017
2020 vs. 2015
c. 50% of 2020 targeted benefits will be achieved in 2018, independently from volume
recovery
Annual General Meeting - 2016
* Gross Savings
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EBITDA and cash flow contribution from strategic initiatives
Cumulated additional EBITDA
Cumulated cash flow generation
(excluding EBITDA)
800
300
700
250
600
500
200
400
150
300
100
200
50
100
0
0
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
Additional gross EBITDA contribution from strategic
initiatives, independent from volume recovery
Cash savings from disposal of Brazilian forest and tax
synergies, independent from volume recovery
Additional EBITDA contribution dependent from volume recovery
Additional cash savings dependent from volume recovery
~ €750m additional EBITDA, and ~ €260m additional cash flow generation
Annual General Meeting - 2016
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Contribution of Oil & Gas recovery
Rebalancing of oil supply & demand is expected over the next
quarters
mb/d
Demand/Supply Balance until 4Q16*
mb/d
100
3
2,5
95
2
1,5
90
1
0,5
85
0
-0,5
80
-1
-1,5
75
-2
Impl. stock ch.&misc (RHS)
Annual General Meeting - 2016
Demand
Source : IAE data and Vallourec forecasts– March 2016
Supply*
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Contribution of Oil & Gas recovery
E&P Capex recovery is the key driver of tube demand
Recovery will be driven by natural field depletion
0.5%
Demand growth
(per year)
Production decline
(per year)
(6.0)%
Volume recovery to 2014 level will lead to an additional
EBITDA contribution of €900m in 2020
E&P = Exploration & Production
Annual General Meeting - 2016
Source : Agence Internationale de l’Energie, “Oil Medium Term Market Report” – February 2015
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A necessary transformation to return to growth and profitability
€1.2bn - €1.4bn EBITDA in
2020
Additional contribution to EBITDA:
• Strategic initiatives: €750m
Normalized Free Cash
Flow of €500m-€600m
• Volumes recovery: €900m
ROCE > WACC
A transformed and more competitive Vallourec to fully benefit from market
recovery
Annual General Meeting - 2016
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Strengthening the
Balance Sheet
Olivier Mallet
Chief Financial Officer
This presentation is not for publication, release, or distribution directly or indirectly in the United States, Canada, Australia or Japan
Transaction rationale
Strengthening
the Balance
Sheet
Creating a Stable
Shareholder
Base
Capital raise of approximately 1 billion euros to :
— Finance the Group’s transformation plan
— Strengthen the Group’s financial flexibility in relation to its main banking covenants
— Improve the Group’s credit profile with the aim of returning to an "Investment Grade" rating
Support from strategic shareholders Bpifrance and NSSMC :
— Equity stake increased to 15% each, in particular through the subscription to mandatory convertible bonds
— Commitment by both shareholders to subscribe to the rights issue with preferential subscription rights pro rata to
their respective existing stake
Annual General Meeting - 2016
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Transaction structure*
Tranche A
Mandatory
Convertible
Bonds
~ 389 M€
Reserved to
NSSMC and
Bpifrance
Equity instrument used for regulatory reasons (necessary authorizations from Brazilian
antitrust authority)
Objective : Bpifrance and NSSMC each hold, on a diluted basis (after conversion of their
Tranche A Mandatory Convertible Bonds), 15 % of the share capital
Issuance on the basis of a price per underlying share of €11
Righs issue
(share
issuance with
preferential
subscription
rights to
existing
shareholders)
~ 485 M€
Tranche B
Mandatory
Convertible
Bonds
~ 125 M€
Subscribed by
the public,
NSSMC and
Bpifrance
Reserved to
NSSMC and
Bpifrance
Strengthen Vallourec’s equity and preserve the interests of all shareholders (through the grant
of preferential subscription rights)
One Right per exiting share
Committment by NSSMC and Bpifrance to participate pro rata to their respective share
ownership
Economically equivalent to the pro rata participation of Bpifrance and NSSMC in the rights
issue, on the same conditions provided to other shareholders exercising their rights, and
enabling them to maintain their respective ownership to15% of the share capital
* (illustrative amounts based on current assumptions)
Annual General Meeting - 2016
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Key terms of the Mandatory Convertible Bonds issuance
Tranche A
Objective
Terms(1)
Tranche B
Objective
Terms
Issue date
Economically replicates a capital increase reserved to NSSMC and Bpifrance, allowing NSSMC and Bpifrance to hold a
15% stake each of the share capital after full conversion of the bonds
Amount: Approximately €389m (illustrative amount based on current assumptions)
Issue price: corresponding to €11 per underlying share
Conversion :
When antitrust clearance is obtained
No later than 24 months after issuance
Coupon : None
Economically replicates pro rata participation of NSSMC and Bpifrance in the capital increase as if Tranche A had
granted them rights for the rights issue, allowing each of them to maintain their stake to 15% of the share capital
Amount: Approximately €125m (illustrative amount based on current assumptions)
Issue price : Subscription price in the Rights Issue
Conversion : Identical to Tranche A
Coupon : None
On the closing date of the Rights Issue
Annual General Meeting - 2016
1
For additional information, see the prospectus filed with the AMF on March 16 (16-0079)
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This presentation is not for publication, release, or distribution directly or indirectly in the United States, Canada, Australia or Japan
Financial resolutions permitting transaction implementation
Assumptions used in the drafting of the resolutions to be considered at the General
Meeting :
Resolutions based on assumptions at February 1, 2016 to enable successful launching of the transaction
regardless of market conditions and trend in share price
Taking into account the flexibility of sizing of the respective equity offerings of the two equity instruments
(rights and mandatory convertible bonds)
Based upon which, the following were considered :
— A possible reduction in the nominal value of Vallourec shares, reduced from 2 euros to 0.01 euro per
share (26th resolution)
— Ceilings on the number of shares issued through the rights issue and the conversion of mandatory
convertible bonds calculated based on a nominal value of 0.01 euro per share, and on the basis of the
maximum possible size for each of the two instruments (18th through 20th resolutions)
These assumptions, which are theoretical based on the current share price level, have since then
been updated, and the current share price level has permitted to withdraw of the 26th resolution
related to the reduction of the nominal value per share
Annual General Meeting - 2016
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Financial resolutions permitting the transactions to go forward
Initial assumptions
The following assumptions were retained :
Current assumptions as of the date of the general meeting
(assumptions in case of launch)
Current assumptions include the following elements:
Reduction of the nominal value per share to 0.01 euro
No reduction of nominal value per share, which remains at 2 euros
Subscription price equal to 0.01 euro
Bpifrance holds 10.32 % of share capital
18th resolution: the ceiling assumes that Bpifrance retains 15% of
share capital before the launch of the rights issue
19th and 20th resolutions : ceilings assume that Bpifrance retains a
5.3% equity stake before launch of the capital raise
18th resolution : rights issue
Ceiling of €680m, or 68 billion shares
Global ceiling of 85 billion shares
19th and 20th resolutions : mandatory convertible bonds reserved
to NSSMC et Bpifrance
Tranche A: cumulative ceiling of 45m shares
Tranche B: cumulative ceiling of 12.5 billion shares
Included in the global ceiling
18th resolution : rights issue
Expected amount: ~ €485m, of which ~ €57m will be subscribed by
Bpifrance and NSSMC
19th and 20th resolutions : mandatory convertible bonds issued to
NSSMC and Bpifrance
Amount anticipated for Tranche A: ~ €389m
Amount anticipated for Tranche B: ~ €125m
These three resolutions are conditional upon each other
At this stage, the following elements are yet to be determined:
Date of launch of the transactions
Issue price in connection with the rights issue and the Tranche B
mandatory convertible bond issuance
These three resolutions are conditional upon each other
Annual General Meeting - 2016
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Shareholders and governance
Targeted shareholding structure
Additional governance elements
Lock-ups (12 months) and orderly disposal
Bpifrance (15% of share
capital)(*)
NSSMC (15% of share
capital and voting
rights)
Public1 (70%)
including
employees2
Note : ownership after completion of the rights issue and post-conversion of the mandatory
convertible bonds
Standstill clauses (subject to certain exceptions)
− Voting rights for NSSMC and Bpifrance capped at
15% for a period of 15 years from February 1, 2016
Supervisory Board nomination
− Nomination of a Bpifrance representative (13th
resolution of the current meeting)
− Nomination of a NSSMC representative (resolution to
be proposed at the first general meeting following the
conversion of the mandatory convertible bonds)
(*)
Bpifrance has the ability, for a period of 4 years from February 1, 2016, to benefit from
double voting rights, subject to limiting the exercise of its voting rights to 15% in total at
general meetings
1
Including Caisse des Dépôts et Consignations (CDC) and treasury shares
12/31/2015 employees held 7.63% of share capital
2 At
Annual General Meeting - 2016
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Outlook
Philippe Crouzet
Chief Executive Officer
This presentation is not for publication, release, or distribution directly or indirectly in the United States, Canada, Australia or Japan
Vallourec is Well Positioned to Fully Benefit from Market
Recovery
1
Proximity to all core markets with state-of-the-art industrial footprint
2
Strong relationship with core global clients
3
Best-in-class product offering addressing all client needs
4
Significantly reduced production costs
5
Strengthened capital structure
Investments over the years and major strategic initiatives announced on February 1, 2016
put Vallourec in a very strong position to benefit from market recovery
Annual General Meeting - 2016
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A Confirmed Long-Term Strategy
More
premium
More
local
Annual General Meeting - 2016
More
competitive
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Compensation and Governance
Committee
Vivienne Cox
Chairman of the Supervisory Board
Pierre Pringuet
Vice-Chairman of the Supervisory Board
This presentation is not for publication, release, or distribution directly or indirectly in the United States, Canada, Australia or Japan
Vallourec, a Company with a Supervisory Board and a
Management Board
Chairman
Vivienne
Cox
Vice-Chairman
Lead Member
Pierre Pringuet
Maria Pilar
Albiac-Murillo
Philippe
Altuzarra
Cédric
de Bailliencourt
Olivier
Bazil
Laurence
Broseta
Pascale
Chargrasse
Bpifrance
Participations
Bertrand Finet
José Carlos
Grubisich
Henri
Poupart-Lafarge
Alexandra
Schaapveld
Annual General Meeting - 2016
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Activity of Governance bodies in 2015
Supervisory Board: 10 meetings
Finance and Audit Committee: 8 meetings
Appointments, Compensation and Governance Committee: 7 meetings
Strategy Committee: 2 meetings
+ 1 Supervisory Board meeting dedicated to strategy (5 hours)
+ Discussions on Strategy at each Supervisory Board session
Management Board
1 meeting per week
Annual General Meeting - 2016
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The Appointments, Compensation and Governance Committee
Pierre Pringuet
Chairman of the Committee,
Vice-Chairman of the
Supervisory Board
Pascale
Chargrasse
Alexandra
Schaapveld
Employee shareholder
representative
Independent member
Shareholders ‘meeting- April ,6 2016
Michel de Fabiani
independent member,
Former Chairman of the
Committee
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The Appointments, Compensation and Governance Committee
Michel de Fabiani
Shareholders ‘meeting- April ,6 2016
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Activity of the Committee in 2015 (1/2)
1. Governance – Supervisory Board
Evaluation of Members’ independence
Composition of the Board and end term for Supervisory Board
Members
Selection process for new Supervisory Board members
Supervisory Board evaluation
2. Management
Talent review
Succession Plans
Shareholders ‘meeting- April ,6 2016
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Activity of the Committee in 2015 (2/2)
3. Management Board compensation:
Management compensation
̶ Benchmark
̶ Top management compensation policy
̶ Code AFEP-MEDEF
Variable compensation
̶ Set new performance criteria
̶ Assessement of performance criteria achievement
4. Evolution of the Executive retirement plan
Shareholders ‘meeting- April ,6 2016
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A stable compensation structure
2015
Fixed Compensation for the 3 Management Board Members is unchanged in 2015
versus 2014.
Variable compensation is based on objectives related to :
— Financial performance
— Operating performance
— And social, corporate and environmental responsibility
Shareholders ‘meeting- April ,6 2016
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A stable compensation structure
2016
Stability of the compensation structure and amount for Management Board while
renewed
— identical terms related to termination package (under performance conditions)
— Executive retirement plan
• Closure of the defined-benefits scheme (Art39)
• Individual pension scheme subject to performance criteria (Art82) with same level of final pension
for top executive management
• Cost optimisation
Shareholders ‘meeting- April ,6 2016
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This presentation is not for publication, release, or distribution directly or indirectly in the United States, Canada, Australia or Japan
2015 compensation for Philippe Crouzet
Mr. Philippe CROUZET has made the decision to voluntarily waive the variable portion of
his 2015 remuneration and his allocation of performance shares and options to subscribe
for shares allocated in 2015.
2014
2015
Fixed Compensation
798,000 €
798,000 €
Annual variable compensation
613,346 €
0€
4, 404 €
4,404 €
1,415,750 €
802,404 €
Performance Shares
473,841 €
0€
Stock options
142,085 €
0€
2,031,676 €
802,404 €
Car
Total
Total
Shareholders ‘meeting- April ,6 2016
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Performance in a very severe reversal in the oil cycle
The 2015 variable compensation has been set up with regards to the Group’s strategic
objectives
Jean-Pierre Michel
Criteria
Olivier Mallet
Target
Achieved
Target
Achieved
7,5 %
0%
7,5 %
0%
22,5 %
15,3 %
22,5 %
15,3 %
15 %
15,1 %
15 %
15,1 %
Safety, Environment, Pillars of progress
30 %
21,1%
30 %
27,8 %
Total in % of fixed part
75 %
52 %
75 %
58 %
Financial performance objectives
EBITDA
Competitiveness/
Cost reduction plan
Free Cash Flow
Operating performance objectives
Shareholders ‘meeting- April ,6 2016
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2015 compensation for Jean-Pierre Michel
2014
2015
Fixed Compensation
450,000 €
450,000 €
Annual variable compensation
236,763 €
232,239 €
4,932 €
5,012 €
Total
691,695 €
687,251 €
Performance Shares
222,984 €
137,505 €
Stock options
66,725 €
45,900 €
981,404 €
870,656 €
Car
Total
Shareholders ‘meeting- April ,6 2016
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2015 compensation for Olivier Mallet
2014
2015
Fixed Compensation
420,000 €
420,000 €
Annual variable compensation
267,704 €
245,107 €
5,461 €
5,400 €
Total
693,165 €
670,507 €
Performance Shares
222,984 €
137,505 €
Stock options
66,725 €
45,900 €
982,874 €
853,912 €
Car
Total
Shareholders ‘meeting- April ,6 2016
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Long Term Instruments :
Performance Shares and Stock Options
Performance shares and stock options are fully allocated under performance conditions,
upon requierements of resolutions voted during the 2014 Shareholder meeting.
— 50% of criteria are performance criteria linked to Vallourec performance only
• Performance Shares: return on capital employed (ROCE)
• Stock options : EBITDA
— 50% of criteria are linked to Vallourec performance compared with the performance of a panel of
comparable companies
• Performance Shares: Total Shareholder Return (TSR) compare to a panel of comparable
companies
• Stock options: EBITDA margin compare to a panel of comparable companies
Hedging is prohibited
Shareholders ‘meeting- April ,6 2016
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Long Term Instruments : Performance Shares
Performance Shares
Allocation years
2009
2010
2011
2012
2013*
2014*
2015*
Vesting Years
2011
2012
2013
2014
2016
2017
2018
Number of shares allocated to the
Management Board
17,000
17,000
17,068
17,068
17,068
29,700
15,930(1)
Number of shares vested out of total
number of shares allocated
18,321
15,640
3,208
2,787
ND
ND
ND
Percentage of shares vested out of total
number of shares allocated
107 %
92 %
19 %
16 %
ND
ND
ND
* As of 2013, performance share plans are 3+2 (3 years of vesting + 2 years of holding) instead of 2+2.
% of shares definitively allocated demonstrate how demanding the performance criteria are.
(1)
Philippe Crouzet has made the decision to voluntarily waive his 13 770 performance shares allocated in 2015.
Shareholders ‘meeting- April ,6 2016
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Long Term Instruments : Stock Options
Stock options
2009
2010
2011
2012
2013
2014
2015
Maximum number of options allocated to
Management Board
80,000
60,000
60,000
0
60,000
35,100
17,000 (1)
Exercise Price
51.67 €
71.17 €
60.71 €
37 €
46.15 €
38.53 €
22.60 €
Number of options vested out of total
number of options allocated
53,600
29,598
24,000
0
ND
ND
ND
67 %
49 %
40 %
-
ND
ND
ND
Year
Percentage of options vested out of total
number of options allocated
% of Options definitively allocated demonstrate how demanding the performance criteria are.
(1) Philippe
Crouzet has made the decision to voluntarily waive his 18100 stock options allocated in 2015.
Shareholders ‘meeting- April ,6 2016
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Statutory Auditor’s reports
Fiscal year ended 31 Dec. 2015
April 6, 2016
This presentation is not for publication, release, or distribution directly or indirectly in the United States, Canada, Australia or Japan
Statutory Auditor’s reports
Reports on the resolutions submitted to your approval
— Ordinary shareholders’ meeting
• Report on the statutory financial statements (1st resolution)
• Report on the consolidated financial statements (2nd resolution)
• Report on regulated agreements and commitments (4th to 9th resolutions)
— Extraordinary shareholders’ meeting
• Report on the transactions on share capital (19th to 24th resolutions and 26th resolution)
Other report
— Report on the report prepared by the Chairman of the Supervisory Board on internal control and risk
management procedures
Annual General Meeting - 2016
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Reports on the statutory and consolidated financial statements
(Ordinary shareholders’ Meeting)
Opinions on the financial statements: unqualified opinions
— Report on the statutory financial statements (1st resolution)
• The justification of our assessments relates to the valuation of participating interests
• We draw your attention to Note E5 to the financial statements concerning the subsequent events
— Report on the consolidated financial statements (2nd resolution)
• The financial statements of your Group are prepared in accordance with IFRS ; no accounting changes occur
in 2015
• We draw your attention to Note C35 to the consolidated financial statements concerning the subsequent events
• The justification of our assessments relates to the following estimates and assumptions: goodwill, intangible
and tangible assets and provisions and retirement benefits
We have verified the appropriateness of the information disclosed in the management
report and the notes to the financial statements (in particular the accuracy and the
fairness of the information related to the remunerations received by the directors and
commitments in their favor)
Annual General Meeting - 2016
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Report on regulated agreements and commitments
(4th to 9th resolutions)
Agreements and commitments authorized during the past year
— We have not been advised of any agreement or commitment authorized during the year
Agreements and commitments authorized since the year end closing
— Reshaping of the additional defined benefit pension scheme of the Management Board
(6th, 8th and 9th resolutions)
Agreements and commitments to be re-submitted for approval of the shareholders’
meeting
— Renewal of termination duties provisions of Management Board members: the monetary termination
benefit of two Management Board members (4th and 7th resolutions) and the non-compete obligation of
the Chairman of the Management Board (5th resolution)
Agreements and commitments previously approved by the shareholders (no resolution to
be approved)
Annual General Meeting - 2016
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Report on the transactions on share capital
(Extraordinary Shareholders’ Meeting)
Your Management Board recommends that you confer on it the authority to decide:
— The issue of mandatory convertible bonds without prefential subscription rights reserved for Nippon Steel &
Sumitomo Metal Corporation (19th resolution) and for Bpifrance Participations (20th resolution)
— The issue of shares and/or securities giving access to the capital of the Company reserved for members of
company savings plans and employees (21st to 23rd resolution)
— The free grant of shares (24th resolution)
— The share capital reduction for reasons other than losses by reducing the nominal value of the shares
(26th resolution)
We have performed the procedures that we considered necessary in accordance with the
professional guidelines applicable in France. We have comments on:
— The choice of inputs used to calculate the issue price and amount of Mandatory Convertible Bonds tranche A
— The methods used to determine the price of Mandatory Convertible Bonds tranche B
We have no comment on the information given in the Management Board’s report in connection
with the proposed transactions
We shall issue a supplementary report, if necessary, when these delegations are used by your
Management Board
Annual General Meeting - 2016
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Other reports
Report on the report prepared by the Chairman of the Supervisory Board on internal
control and risk management procedures (no resolution to be approved)
We have reviewed the internal control and risk management procedures related to the
preparation and processing of the accounting and financial information and the existing
documentation
We have nothing to report on the information in respect of these procedures described in
the report prepared by the Chairman of the Supervisory Board
We attest that the Chairman of the Supervisory Board’s report includes the other
disclosures required by French law.
Annual General Meeting - 2016
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Ordinary and Extraordinary
Shareholders’ Meeting
6 avril 2016