Challenging time ahead for Vallourec

Vallourec, a provider of premium tubular solutions, has announced an update of its 2014 guidance, following a significant temporary reduction in demand for its Oil & Gas operations in Brazil and in EAMEA.

In Brazil, Petrobras has decided to eliminate most of its tube inventories by year end, while maintaining its drilling plans. This will be a one-time adjustment. It will heavily weigh on Vallourec’s sales in the second semester of 2014, with an estimated net EBITDA impact of circa €60 million. In addition, the Brazilian non Oil & Gas activities are impacted by the continued deterioration in the local macroeconomic environment, and declining iron ore prices.

In EAMEA, the level of orders has strongly reduced resulting from E&P operators adjusting their inventories and delaying some tenders for premium products. This will impact deliveries through the end of the year and in the first half of 2015. It does not change the positive structural trends resulting from major E&P capex programs in the region, required to offset depletion and support growing demand.

The Group has taken several actions on the operational front to mitigate these temporary negative impacts, in Brazil, Vallourec is adapting its mills to the lower load.

To adjust to a lower demand in EAMEA, Vallourec is adapting its industrial operations servicing those markets, in addition to the recently announced measures aiming at structurally improving its European cost base.

As a result, the Group now targets EBITDA to be down by approximately 10% when compared to 2013.

The Group remains focused on Free Cash Flow generation and has accordingly decided to reduce its capital expenditures by €100 million (down from an initial target of €500 million for 2014).

Philippe Crouzet, Chairman of the Management Board, said: “The Group is facing a more challenging environment mainly due to temporary adjustments by selected large customers, and has taken immediate measures to adjust to this new situation. Management remains convinced of the long-term attractiveness of the global Oil & Gas end markets the Group serves and committed to implementing its strategy aimed at taking full advantage of these favorable structural trends.”

Press Release, June 11, 2014

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