Press release

Vallourec reports third quarter and first nine months 2021

results

Meudon (France), November 17th 2021 - Vallourec, a world leader in premium tubular solutions, announces today its results for the third quarter and first nine months 2021. The Board of Directors of Vallourec SA, meeting on November 17th 2021, approved the Group's third quarter and first nine months 2021 accounts.

Q3 2021: solid year-on-year revenue and EBITDA growth driven by the dynamism of the Oil & Gas market in North America and the strong mine contribution

  • €834 million revenue, up 16.4%
  • €128 million EBITDA, up 80%, EBITDA margin increasing to 15.3% vs. 9.9% in Q3 2020
  • Free cash flow at (€103) million versus €35 million in Q3 2020, driven by a working capital rebuilt for (€93) million along with stronger activity
  • Acquisition of the minority shares of VAM USA and Vallourec Star for an amount of €118 million, leading to full ownership of all North American entities
  • As of September 30th, 2021, strong liquidity position at €1,014 million

A decisive move to strengthen Vallourec competitiveness and profitability: launch of the disposal process of the German assets and progressive relocation of their Oil & Gas activities to Brazil to serve international market

  • A two-legged transformation
    • Launch of the disposal process of German assets
    • Progressive transfer of their rolling activity for Oil & Gas to Brazil
  • Game changer for Vallourec's performance in international Oil & Gas markets
    • Brazilian hub to deliver the full range of premium tubular products to international markets
    • Allowing better competitiveness and enhanced margin and cash flow generation
    • And positive CO2 impact, driven by the excellent carbon footprint of Brazilian operations
  • Clear benefits for Vallourec and its stakeholders
    • €130 million run rate EBITDA increase
    • €20 million Capex reduction
    • -30%reduction of CO2 content of tubes produced in Brazil vs. Germany

2021 Outlook

As a result of the recent decline in iron ore prices, and based on their current level, Vallourec targets full year EBITDA close to the lower end of the €475 to €525 million target communicated on July 21st, 2021. Stronger than anticipated order momentum leading into 2022 combined with the evolution of raw material and energy prices will result in a larger increase in inventories through year end. As a result, Vallourec now targets free cash flow consumption for 2021 to be between €(380) and (300) million, representing mainly the rebuilding of working capital along with the activity recovery, and inclusive of one-time costs associated with the financial restructuring.

Information

Half-year financial statements were subject to limited review by statutory auditors.

Quarterly financial 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.

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Edouard Guinotte, Chairman of the Board of Directors and Chief Executive Officer, declared:

"With the global economy recovering post-Covid, Vallourec confirmed its good operating momentum in the third quarter with a solid revenue and EBITDA growth. The Group benefited from increased activity and pricing on the North American Oil & Gas market and a strong contribution from its iron ore mine in Brazil as well as the positive effects of its savings initiatives, while deliveries to the EA-MEA Oil & Gas sector remained significantly below their pre-crisis levels.

Looking ahead towards the end of 2021, we expect our Mining activity to reflect the recent decline of iron ore prices. However, we expect to continue benefiting from increased activity in North America and build up our order book for EA-MEA Oil & Gas markets.

While our highly efficient production hubs in North America, Brazil and China allow us to benefit from improving market dynamics, our operations in Germany are still underperforming despite several improvement steps. With a view to achieving a step-change in the Group's competitiveness on International markets, today we are launching the disposal process of our German assets and the upgrade of our capabilities in Brazil. This will drive our Brazilian operations to deliver the full range of our premium offer to their local customers and international markets and allow Vallourec to fully benefit from their extreme competitiveness as well as their lower CO2 content.

I am expecting this transformational project to restore and sustain Vallourec's leadership and profitability on EA-MEA markets."

Key figures

9 Months

9 Months

Change

In € million

Q3 2021

Q3 2020

Change

2021

2020

1,130

1,191

-5.1%

Production shipped (k tons)

391

319

22.8%

2,378

2,412

-1.4%

Revenue

834

716

16.4%

356

182

+€174m

EBITDA

128

71

+€57m

15.0%

7.5%

+7.5p.p.

(as a % of revenue)

15.3%

9.9%

+5.4p.p.

299

(507)

+€806m

Operating income (loss)

72

7

+€65m

(49)

(636)

+€587m

Net income, Group share

(7)

(69)

+€62m

(300)

(223)

-€77m

Free cash-flow

(103)

35

-€138m

993

2,329

-€1,336m

Net debt

993

2,329

-€1,336m

Information

Half-year financial statements were subject to limited review by statutory auditors.

Quarterly financial 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.

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I - CONSOLIDATED REVENUE BY MARKET

At

At constant

9 Months

9 Months

constant

Change

In € million

Q3 2021

Q3 2020

Change

exchange

2021

2020

exchange

rates

rates

1,343

1,641

-18.1%

-13.6% Oil & Gas, Petrochemicals

456

443

3.0%

1.8%

937

601

55.9%

67.8%

Industry & Other

348

208

67.2%

64.2%

98

170

-42.6%

-42.4%

Power Generation

30

65

-54.4%

-56.2%

2,378

2,412

-1.4%

4.7%

Total

834

716

16.4%

14.6%

Over the third quarter of 2021, Vallourec recorded a €834 million revenue, up 16.4% compared with the third quarter of 2020 (+15% at constant exchange rates) with:

  • a +23% volume increase mainly driven by Oil & Gas in North America and Industry & Other
  • a -8% price/mix due to Oil & Gas in EA-MEA more than offsetting the rebound in prices in North America
  • a +2% currency conversion effect mainly related to EUR/BRL.

Over the first nine months of 2021, revenue totaled €2,378 million, almost stable versus the first nine months of 2020 (+4.7% at constant exchange rate) with:

  • a -5% volume effect due to Oil & Gas in EA-MEA and to a lesser extent in North America, partly offset by higher deliveries in Industry and Other.
  • a +10% price/mix effect mainly driven by iron ore prices and Oil & Gas in North America.
  • a -6% currency conversion effect mainly related to EUR/BRL.

Oil & Gas, Petrochemicals (54.7% of Q3 2021 consolidated revenue)

In Q3 2021, Oil & Gas revenue reached €408 million, stable year-on-year(-1% at constant exchange rates).

  • In North America, Oil & Gas revenue more than doubled thanks to higher volumes and prices.
  • In EA-MEA, Oil & Gas revenue decreased, reflecting lower shipments as well as an unfavorable price/mix, resulting from the reduced backlog built during Covid-19 crisis
  • In South America, Oil & Gas revenue increased, reflecting mainly higher deliveries of project line pipes projects.

Over the first nine months of 2021, Oil & Gas revenue totaled €1,209 million, a (€271) million decrease or -18%year-on-year(-14% at constant exchange rates), mainly due to lower shipments in EA-MEAand to a lesser extent in North America.

In Q3 2021, Petrochemicals revenue was €48 million, up +43% year-on-year (+40% at constant exchange rates) notably due to a better price/mix and to an increase in deliveries in North America and South America.

Over the first nine months of 2021, Petrochemicals revenue totaled €134 million, down 17% year-on-year(-13% at constant exchange rates).

In Q3 2021, revenue for Oil & Gas and Petrochemicals amounted to €456 million, up 3% compared with Q3 2020 (+2% at constant exchange rates).

Over the first nine months of 2021, revenue for Oil & Gas and Petrochemicals totaled €1,343 million, down - 18% compared with 9M 2020 (-14%at constant exchange rates).

Information

Half-year financial statements were subject to limited review by statutory auditors.

Quarterly financial 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.

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Industry & Other (41.7% of Q3 2021 consolidated revenue)

Industry & Other revenue amounted to €348 million in Q3 2021, increasing by 67% year-on-year (+64% at constant exchange rates):

  • In Europe, Industry revenue was up reflecting higher volumes.
  • In South America, Industry & Other revenue was up mainly driven by the mine, reflecting higher iron ore prices while volumes remained stable at 2.2Mt. Higher sales were as well recorded in Industry markets driven by increased volumes and prices.

Over the first nine months of 2021, Industry & Other revenue totaled €937 million, up +56% year-on-year(+68% at constant exchange rates) as a result of a higher contribution from the mine (reflecting higher iron ore prices and volumes at 6.5Mt versus 5.6Mt over the first nine months of 2020) and of higher deliveries in Industry markets in Europe and South America, despite an unfavorable currency conversion effect.

Power Generation (3.6% of Q3 2021 consolidated revenue)

Power Generation revenue amounted to €30 million in Q3 2021, down 54% year-on-year(-56%at constant exchange rates), reflecting notably the disposal of Valinox Nucléaire SAS on May 31st 2021.

For the first nine months of 2021, revenue totaled €98 million, down 43% year-on-year(-42%at constant exchange rates).

II - CONSOLIDATED RESULTS ANALYSIS

Q3 2021 consolidated results analysis

In Q3 2021, EBITDA reached €128 million (compared with €71 million in Q3 2020), and EBITDA margin 15.3% of revenue (versus 9.9% in Q3 2020), as a result of:

  • An industrial margin of €207 million, or 24.8% of revenue, versus €154 million and 21.5% of revenue in Q3 2020. Higher deliveries and prices in Oil & Gas in North America, the higher contribution of the mine in volume and prices as well as savings did largely more than offset the lower activity in Oil & Gas in EA-MEA, and the increase in raw material and energy costs.
  • A 3% decrease in sales, general and administrative costs (SG&A) at €75 million or 9.0% of revenue versus 10.8% in Q3 2020.

Operating income was positive at €72 million, compared to €7 million in Q3 2020, resulting mainly from the EBITDA improvement.

Financial income was negative at (€36) million, compared with (€64) million in Q3 2020, reflecting the new balance sheet structure.

Income tax amounted to (€41) million mainly related to Brazil, compared to (€21) million in Q3 2020.

This resulted in a net income, Group share, of (€7) million, compared to (€69) million in Q3 2020.

Information

Half-year financial statements were subject to limited review by statutory auditors.

Quarterly financial 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.

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9M 2021 consolidated results analysis

Over the first nine months of 2021, EBITDA reached €356 million, a €174 million increase year-on-year, at

15.0% of revenue, including:

  • An industrial margin of €618 million, or 26% of revenue, up 37% year-on-year, reflecting a higher contribution of the mine in volume and prices, a higher activity for Oil & Gas in North America and in Industry markets along with savings more than offsetting lower activity in Oil & Gas in EA-MEA.
  • Sales, general and administrative costs (SG&A) down 7% at €233 million, reflecting adaptation measures, and representing 9.8% of revenue.

Operating income was positive at €299 million compared to a loss of (€507) million in 9M 2020 (which was negatively impacted by impairment charges for €441 million and by restructuring costs), resulting from the improvement in EBITDA, lower depreciation of industrial assets and the positive effects from the sale of Reisholz buildings and land as well as from the favorable Brazilian Supreme Court decision on PIS/COFINS tax claim.

Financial income was negative at (€211) million, compared to (€179) million in 9M 2020. Net interest expenses amounted to €126 million versus €149 million in 9M 2020, reflecting our new balance sheet structure in Q3. Other financial income of (€42) million, compared with +€15 million in 9M 2020, included notably one-offs such as the positive effects of the PIS/COFINS tax litigation in Brazil for €28 million and the actualization of the DBOT leasing debt for €24 million resulting from exercising the repurchase option, more than offset by (€70) million cost of exercising the option of DBOT repurchase as well as the net impact of the financial restructuring for (€42) million.

Income tax amounted to (€141) million mainly related to Brazil.

As a result, net income, Group share, amounted to (€49) million, compared to (€636) million in 9M 2020.

III - CASH FLOW & FINANCIAL POSITION

Cash flow from operating activities

In Q3 2021, cash flow from operating activities was positive at €18 million, compared to (€32) million in Q3 2020, reflecting mainly the improved EBITDA and the lower financial interests paid, partly offset by higher tax.

For the first nine months of 2021, cash flow from operating activities was positive at €16 million compared to (€128) million in 9M 2020, mainly due to higher EBITDA and lower financial interests paid, more than offsetting increased tax. It included debt restructuring fees (€56 million) and adaptation measures (€30 million).

Operating working capital requirement

Operating working capital requirement increased by (€93) million in Q3 2021, versus a decrease of €94 million in Q3 2020, mainly as a result of activity increase. Net working capital requirement decreased to 111 days of sales, compared to 120 days in Q3 2020.

For the first nine months of 2021, operating working capital requirement increased by (€232) million versus an increase of (€5) million in 9M 2020.

Capex

Capital expenditure was (€28) million in Q3 2021, compared with (€27) million in Q3 2020, and was (€84) million in 9M 2021 compared to (€90) million in 9M 2020.

Free cash flow

As a result, in Q3 2021, free cash flow was negative (€103) million versus €35 million in Q3 2020.

Free cash flow for 9M 2021 was negative (€300) million, compared with (€223) million in 9M 2020.

Information

Half-year financial statements were subject to limited review by statutory auditors.

Quarterly financial 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.

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Vallourec SA published this content on 17 November 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 17 November 2021 17:59:14 UTC.