Boulogne-Billancourt (
Q3 results: solid EBITDA generation despite unprecedented drop in O&G market
|
Financial Restructuring engaged
|
Continued commercial momentum
|
Launching structural measures to foster competitiveness
|
2020 Outlook confirmed
|
Key figures
9 Months 2020 | 9 Months 2019 | Change | In € million | Q3 2020 | Q3 2019 | Change |
1,191 | 1,771 | -32.7% | Production shipped (k tons) | 319 | 595 | -46.4% |
2,412 | 3,169 | -23.9% | Revenue | 716 | 1,060 | -32.5% |
182 | 253 | -€71m | EBITDA | 71 | 84 | -€13m |
7.5% | 8.0% | -0.5p.p. | (as a % of revenue) | 9.9% | 7.9% | +2.0p.p. |
(507) | (8) | -€499m | Operating income (loss) | 7 | 10 | -€3m |
(636) | (227) | -€409m | Net income, Group share | (69) | (60) | -€9m |
(223) | (117) | -€106m | Free cash-flow | 35 | 26 | +€9m |
2,329 | 2,104 | +€225m | Net debt | 2,329 | 2,104 | +€225m |
While the Covid-19 pandemic continued to strongly impact the world economy and the activity of our customers worldwide, we generated over the third quarter a solid EBITDA and a positive free cash flow, in line with our expectations. This performance rewards our continuous efforts to improve competitiveness and the decided execution of strong adaptation measures launched in 2020 to face this unprecedented crisis.
Our markets remain more volatile than ever and their evolution highly uncertain, and despite some recent slight signs of improvement in
In this context,
Finally, I would like to sincerely thank all our customers and partners, who continue to support us despite this unprecedented context as well as our teams across all regions for their continuous and exemplary commitment and dedication.
I - CONSOLIDATED REVENUE BY MARKET
9 Months 2020 | 9 Months 2019 | Change | At constant exchange rates | In € million | Q3 2020 | Q3 2019 | Change | At constant exchange rates |
1,641 | 2,280 | -28.0% | -24.5% | Oil & Gas, Petrochemicals | 443 | 755 | -41.3% | -33.9% |
601 | 734 | -18.1% | -3.7% | Industry & Other | 208 | 253 | -17.8% | 4.3% |
170 | 155 | 9.7% | 12.3% | Power Generation | 65 | 52 | 25.0% | 28.8% |
2,412 | 3,169 | -23.9% | -17.9% | Total | 716 | 1,060 | -32.5% | -21.7% |
Over the third quarter of 2020,
- a volume impact of -46% mainly driven by Oil & Gas in
North America and EA-MEA - a positive price/mix effect of +25% reflecting a better price/mix in Oil & Gas in EA-MEA and
South America , more than offsetting lower prices inNorth America - a currency conversion effect of -11% mainly related to EUR/BRL.
Over the first nine months of 2020, revenue totaled €2,412 million, down 24% versus the first nine months of 2019 (-18% at constant exchange rate). Volume effect was -33%, price/mix effect +15% and currency conversion effect -6%.
Oil & Gas, Petrochemicals (62% of Q3 2020 consolidated revenue)
Oil & Gas revenue reached €410 million in Q3 2020, a (€261) million decrease or -39% year-on-year (-31% at constant exchange rates), reflecting lower revenue in
- In
North America , Oil & Gas revenue decrease was driven by lower deliveries due to the unprecedented decrease in rig count, as well as to lower prices. - In EA-MEA, Oil & Gas revenue decrease reflected lower volumes while high alloy deliveries positively impacted the price/mix
- In
South America , Oil & Gas revenue strong increase reflected the forecast increase in deliveries of premium OCTG for pre-salt offshore, despite an unfavorable currency conversion effect.
Over the first nine months of 2020, Oil & Gas revenue totaled €1,480 million, a (€586) million decrease or -28% year-on-year (-25% at constant exchange rates).
Petrochemicals revenue was €33 million in Q3 2020, down 61% year-on-year (-54% at constant exchange rates) notably due to lower sales of line pipes in
Over the first nine months of 2020, Petrochemicals revenue totaled €161 million, down 25% year-on-year (-21% at constant exchange rates).
In Q3 2020, revenue for Oil & Gas and Petrochemicals amounted to €443 million, down 41% compared with Q3 2019 (-34% at constant exchange rates) due to lower O&G volumes in
Over the first nine months 2020, revenue for Oil & Gas and Petrochemicals totaled €1,641 million, down 28% compared with 9M 2019 (-24% at constant exchange rates).
Industry & Other (29% of Q3 2020 consolidated revenue)
Industry & Other revenue amounted to €208 million in Q3 2020, down 18% year-on-year (+4% at constant exchange rates):
- In
Europe , Industry revenue was down year on year reflecting lower volumes and prices. - In
South America , Industry & Other revenue was up, as a result of higher revenue from the iron ore mine reflecting both higher volumes and prices, and of the overall stability of our sales to the Industry market before unfavorable currency conversion effect.
Over the first nine months of 2020, Industry & Other revenue totaled €601 million, down 18% year-on-year
(-4% at constant exchange rates) primarily as a result of unfavorable conversion currency effect and lower shipments.
Power Generation (9% of Q3 2020 consolidated revenue)
Power Generation revenue amounted to €65 million in Q3 2020, up 25% year-on-year (+29% at constant exchange rates), as a result of timing of project deliveries.
The closure of the Reisholz site in
For the first nine months of 2020, revenue totaled €170 million, up 10% year-on-year (+12% at constant exchange rates).
II – CONSOLIDATED RESULTS ANALYSIS
Q3 2020 consolidated results analysis
In Q3 2020, EBITDA reached €71 million compared with €84 million in Q3 2019, at 9.9% of revenue versus 7.9% in Q3 2019, as a result of:
- An industrial margin of €154 million, compared with €177 million in 2019, at 21.5% of revenue (versus 16.7% year on year), reflecting the lower activity in Oil & Gas in
North America and to a lower extent in Industry inEurope , partially offset by (i) savings, (ii) a higher mine contribution and (iii) a positive contribution of Oil & Gas inSouth America , while lower Oil & Gas volumes in EA-MEA were offset by higher price/mix. - A 17% decrease in sales, general and administrative costs (SG&A) at €77 million or 10.8% of revenues, reflecting our strong cost savings measures.
Operating result was positive at €7 million, compared with €10m in Q3 2019, including lower depreciation and amortization charges.
Financial result was negative at (€64) million, compared to (€56) million in Q3 2019, reflecting mainly higher net financial expenses.
Income tax amounted to (€21) million mainly related to
This resulted in a net loss, Group share, of (€69) million, compared to (€60) million in Q3 2019.
9M 2020 consolidated results analysis
For the first nine months of 2020, EBITDA reached €182 million, a (€71) million decrease year on year, at 7.5% of revenue versus 8% for the first nine months of 2019, including:
- An industrial margin of €451 million, down (€107) million compared with 9M 2019, reflecting primarily lower activity in Oil & Gas in
North America , and to a smaller extent in Industry inEurope . This was partially offset by (i) savings, (ii) a higher mine contribution, and (iii) a positive contribution of Oil & Gas inSouth America , while the impact of lower volumes in O&G EA-MEA was offset by high alloys deliveries. - Sales, general and administrative costs (SG&A) down 14% at €250 million, reflecting our savings and adaptation plan, and representing 10.4% of revenue.
Operating result decreased by (€499) million to a loss of (€507) million, reflecting mainly the impairment charge recorded in Q2 2020. “Asset disposal, restructuring costs and other” charges increased by (€49) million and included restructuring provisions related to the closure of the Reisholz site in
Financial result was negative at (€179) million, stable compared to (€178) million in 9M 2019. It included higher interest expenses partially offset by other financial income of which notably the settlement in Q1 of a dispute in
Income tax amounted to (€51) million mainly related to
As a result, net loss, Group share, amounted to (€636) million, compared to (€227) million in the first nine months of 2019.
III - CASH FLOW & FINANCIAL POSITION
Cash flow from operating activities
In Q3 2020, cash flow from operating activities reached (€32) million, compared to (€2) million in Q3 2019, reflecting mainly the lower EBITDA as well as higher restructuring cash-out.
For the first nine months of 2020, cash flow from operating activities was negative at (€128) million compared to €8 million for the first nine months of 2019, mainly due to the lower EBITDA and to a lesser extent to higher taxes paid, financial expenses and restructuring cash-out.
Operating working capital requirement
Operating working capital requirement decreased by €94 million in Q3 2020, versus a decrease of €71 million in Q3 2019, as a result of activity decline. Net working capital requirement increased to 120 days of sales, compared to 105 days in Q3 2019, impacted notably by customer mix and fixed inventories.
For the first nine months of 2020, operating working capital requirement increased by (€5) million versus an increase of (€46) million for the first nine months of 2019.
Capex
Capital expenditure was (€27) million in Q3 2020, compared to (€43) million in Q3 2019, and was (€90) million for the first nine months of 2020 compared to (€79) million for the first nine months of 2019.
Free cash flow
As a result, in Q3 2020, free cash flow was positive at €35 million versus €26 million in Q3 2019.
Free cash flow for the first nine months of 2020 was negative at (€223) million compared with (€117) million for the first nine months of 2019.
Asset disposals & other items
Asset disposals & other items amounted to (€37) million in Q3 2020 and were mostly related to negative currency effects on net debt as well as cash collateral related to bid and performance bonds. For the first nine months of 2020, they amounted to (€75) million as a result mainly of negative currency effects on net debt as well as the repayment of leasing debts (IFRS16), and as cash collateral related to bid and performance bonds.
Net debt and liquidity
As at
As at
Cash as at
At the same date, long term debt amounted to €1,749 million and short-term debt to €1,929 million, including €1,712 million drawn from the €1,724 million committed banking facilities maturing in
Based on
IV – LAUNCHING STRUCTURAL MEASURES TO FOSTER COMPETITIVENESS
In addition to the 1/3 workforce reduction already implemented in
In
- In
France , this will imply a reduction of c.350 positions in production facilities as well as in support functions, including the closure of Déville heat treatment facility. The implementation of these measures is subject to consultation of the work’s councils. - In
Germany , on top of the previous plan, the Group will implement a full set of additional measures including further on-going headcount reduction with c.200 positions over 2021-2022 and intensive use of short time work before implementation of working time reduction thanks to an existing company agreement.
In
V –OUTLOOK CONFIRMED FOR 2020
Oil & Gas
- In
North America , after the sharp drop in drilling activity of shale operators (rig count down 75% sinceDecember 19 ), the rig count has bottomed out since mid-August. Average 2020 OCTG prices, significantly below 2019 levels, are expected to start recovering in early 2021.
- In EA-MEA, delayed projects mainly from IOCs and NOCs are offset in 2020 by the positive effect of the backlog of high alloys products delivered this year.
- In
Brazil , the 2020 drilling activity in pre-salt is increasing yoy, as anticipated.
Industry & Other
- In
Europe , demand from Industry is still impacted by Covid-19 crisis. - In
Brazil , the overall level of Industry activity is expected to remain stable in 2020 compared to 2019.
- Volume of iron ore produced in
Brazil is expected to be higher than in 2019, notably thanks to the use of mobile processing units. Iron ore prices have so far stayed at favorable levels, but a limited decline is expected in Q4.
Costs savings
- Confirmation of the full year target of €130 million gross savings on top of the full adaptation of variable costs (including direct labor).
- Strict cash control with capex envelope of c.€160m.
Free cash flow
- Targeted to be positive in H2, including a significant release of working capital
Information and Forward-Looking Statements
This press release contains forward-looking statements. These statements include financial forecasts and estimates as well as 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 statements are reasonable,
Cautionary Statement
This press release does not, and shall not, in any circumstances constitute a public offering or an invitation to the public in connection with any offer.
No communication and no information in respect of this transaction may be distributed to the public in any jurisdiction where a registration or approval is required. No steps have been or will be taken in any jurisdiction (other than
This announcement is not a prospectus within the meaning of Regulation (EU) 2017/1129 of the
In
This press release does not constitute an offer of the securities to the public in the
This press release does not constitute or form a part of any offer or solicitation to purchase or subscribe for securities in
The distribution of this press release in certain countries may constitute a breach of applicable law. The information contained in this press release does not constitute an offer of securities for sale in
Presentation of Q3 & 9M 2020 results
Analyst conference call / audio webcast at
- To listen to the audio webcast:
https://channel.royalcast.com/vallourec-en/#!/vallourec-en/20201118_1
- To participate in the conference call, please dial (password to use is “Vallourec”):
- +44 (0) 20 3003 2666 (
UK ) - +33 (0) 1 7037 7166 (
France ) - +1 212 999 6659 (
USA )
- +44 (0) 20 3003 2666 (
- Audio webcast replay and slides will be available on the website at:
https://www.vallourec.com/en/investors
About
Listed on Euronext in
In
Calendar
Release of 2020 full year results |
For further information, please contact:
Investor relations Jérôme Friboulet Tel: +33 (0)1 49 09 39 77 Investor.relations@vallourec.com | Press relations Héloïse Rothenbühler Tél: +33 (0)1 41 03 77 50 heloise.rothenbuhler@vallourec.com | |
Individual shareholders Toll Free Number (from actionnaires@vallourec.com | |
Appendices
Due to rounding, numbers presented throughout this and other documents may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures.
Documents accompanying this release:
- Sales volume
- Forex
- Revenue by geographic region
- Revenue by market
- Summary consolidated income statement
- Summary consolidated balance sheet
- Banking covenant
- Free cash flow
- Cash flow statement
- Definitions of non-GAAP financial data
Sales volume
In thousands of tons | 2020 | 2019 | Change |
Q1 | 450 | 571 | -21.2% |
Q2 | 422 | 605 | - 30.2% |
Q3 | 319 | 595 | - 46.4% |
Total | 1,191 | 1,771 |
Forex
Average exchange rate | 9 Months 2020 | 9 Months 2019 | |
EUR / USD | 1.13 | 1.12 | |
EUR / BRL | 5.71 | 4.36 | |
USD / BRL | 5.08 | 3.88 |
Revenue by geographic region
In € million | 9 Months 2020 | As % of revenue | 9 Months 2019 | As % of revenue | Change | Q3 2020 | As % of revenue | Q3 2019 | As % of revenue | Change |
406 | 16.8% | 457 | 14.4% | -11.2% | 141 | 19.7% | 146 | 13.8% | -3.4% | |
581 | 24.1% | 981 | 31.0% | -40.8% | 99 | 13.8% | 313 | 29.5% | -68.4% | |
532 | 22.1% | 508 | 16.0% | 4.7% | 209 | 29.2% | 179 | 16.9% | 16.8% | |
664 | 27.5% | 883 | 27.9% | -24.8% | 197 | 27.5% | 334 | 31.5% | -41.0% | |
Rest of the world | 229 | 9.5% | 340 | 10.7% | -32.6% | 71 | 9.9% | 88 | 8.3% | -19.3% |
Total | 2,412 | 100% | 3,169 | 100% | -23.9% | 716 | 100% | 1,060 | 100% | -32.5% |
Revenue by market
9 Months 2020 | As % of revenue | 9 Months 2019 | As % of revenue | Change | In € million | Q3 2020 | As % of revenue | Q3 2019 | As % of revenue | Variation |
1,480 | 61.4% | 2,066 | 65.2% | -28.4% | Oil & Gas | 410 | 57.3% | 671 | 63.3% | -38.9% |
161 | 6.7% | 214 | 6.8% | -24.8% | Petrochemicals | 33 | 4.6% | 84 | 7.9% | -60.7% |
1,641 | 68.0% | 2,280 | 71.9% | -28.0% | Oil & Gas, Petrochemicals | 443 | 61.9% | 755 | 71.2% | -41.3% |
220 | 9.1% | 291 | 9.2% | -24.4% | Mechanicals | 66 | 9.2% | 90 | 8.5% | -26.7% |
41 | 1.7% | 92 | 2.9% | -55.4% | Automotive | 14 | 2.0% | 29 | 2.7% | -51.7% |
340 | 14.1% | 351 | 11.1% | -3.1% | Construction & Other | 128 | 17.9% | 134 | 12.6% | -4.5% |
601 | 24.9% | 734 | 23.2% | -18.1% | Industry & Other | 208 | 29.1% | 253 | 23.9% | -17.8% |
170 | 7.0% | 155 | 4.9% | 9.7% | Power Generation | 65 | 9.1% | 52 | 4.9% | 25.0% |
2,412 | 100% | 3,169 | 100% | -23.9% | Total | 716 | 100% | 1,060 | 100% | -32.5% |
Summary consolidated income statement
9 Months 2020 | 9 Months 2019 | Change | In € million | Q3 2020 | Q3 2019 | Change |
2,412 | 3,169 | -23.9% | Revenue | 716 | 1,060 | -32.5% |
(1,961) | (2,611) | -24.9% | Cost of sales | (562) | (883) | -36.4% |
451 | 558 | -19.2% | Industrial Margin | 154 | 177 | -13.0% |
18.7% | 17.6% | +1.1p.p. | (as a % of revenue) | 21.5% | 16.7% | +4.8p.p. |
(250) | (291) | -14.1% | Sales, general and administrative costs | (77) | (93) | -17.2% |
(19) | (14) | na | Other | (6) | - | na |
182 | 253 | -€71m | EBITDA | 71 | 84 | -€13m |
7.5% | 8.0% | -0.5p.p. | (as a % of revenue) | 9.9% | 7.9% | +2.0p.p. |
(158) | (183) | -13.7% | Depreciation of industrial assets | (47) | (57) | -17.5% |
(37) | (44) | na | Amortization and other depreciation | (10) | (15) | na |
(441) | (30) | na | Impairment of assets | - | (9) | na |
(53) | (4) | na | Asset disposals, restructuring costs and non-recurring items | (7) | 7 | na |
(507) | (8) | -€499m | Operating income (loss) | 7 | 10 | -€3m |
(179) | (178) | 0.6% | Financial income/(loss) | (64) | (56) | 14.3% |
(686) | (186) | -€500m | Pre-tax income (loss) | (57) | (46) | -€11m |
(51) | (39) | na | Income tax | (21) | (17) | na |
(2) | (2) | na | Share in net income/(loss) of equity affiliates | (1) | (1) | na |
(739) | (227) | -€512m | Net income | (79) | (64) | -€15m |
(103) | - | na | Attributable to non-controlling interests | (10) | (4) | na |
(636) | (227) | -€409m | Net income, Group share | (69) | (60) | -€9m |
(55.6) | (0.5) | na | Net earnings per share (in €) * | (6.0) | (0.1) | na |
na = not applicable
* 9M 2020 and Q3 2020 figures adjusted for new number of shares following reverse stock split effective on
Summary consolidated balance sheet
In € million | |||||
Assets | Liabilities | ||||
Equity - Group share * | 378 | 1,467 | |||
Non-controlling interests | 354 | 513 | |||
Net intangible assets | 53 | 63 | Total equity | 732 | 1,980 |
24 | 364 | Shareholder loan | 8 | 21 | |
Net property, plant and equipment | 2,136 | 2,642 | Bank loans and other borrowings (A) | 1,749 | 1,747 |
Biological assets | 43 | 62 | Lease debt (D) | 87 | 104 |
Equity affiliates | 125 | 129 | Employee benefit commitments | 213 | 228 |
Other non-current assets | 99 | 132 | Deferred taxes | 19 | 9 |
Deferred taxes | 205 | 249 | Provisions and other long-term liabilities | 64 | 61 |
Total non-current assets | 2,685 | 3,641 | Total non-current liabilities | 2,132 | 2,149 |
Inventories | 855 | 988 | Provisions | 80 | 121 |
Trade and other receivables | 533 | 638 | Overdraft and other short-term borrowings (B) | 1,929 | 2,077 |
Derivatives - assets | 29 | 7 | Lease debt (E) | 25 | 30 |
Other current assets | 176 | 237 | Trade payables | 445 | 580 |
Cash and cash equivalents (C) | 1,349 | 1,794 | Derivatives - liabilities | 13 | 18 |
Other current liabilities | 263 | 329 | |||
Total current assets | 2,942 | 3,664 | Total current liabilities | 2,755 | 3,155 |
Total assets | 5,627 | 7,305 | Total equity and liabilities | 5,627 | 7,305 |
* Net income (loss), Group share | (636) | (338) | |||
Net debt (A+B-C) | 2,329 | 2,031 | |||
Lease debt (D+E) | 112 | 134 |
Banking covenant
As defined in the banking agreements, the “banking covenant” ratio is the ratio of the Group’s consolidated net debt including the “financial lease debt” and the shareholder loan in
Banking covenant (in € million) | |||
Net debt (excluding financial lease debt) | 2,329 | 2,031 | |
Financial lease debt | 30 | 50 | |
Net debt | 2,359 | 2,081 | |
Shareholder loan | 8 | 21 | |
Restated net debt (1) | 2,367 | 2,102 | |
Equity | 732 | 1,980 | |
Foreign currency translation reserve - Group share (a) | 1,122 | 608 | |
Reserves - changes in fair value of financial instruments (a) | (13) | (4) | |
Equity restated (2) | 1,841 | 2,584 | |
Ratio of banking covenant restated (1)/(2) | 128.6% | 81.3% | |
(a) Including minority interests. |
Free cash flow
9 Months 2020 | 9 Months 2019 | Change | In € million | Q3 2020 | Q3 2019 | Change |
(128) | 8 | -€136m | Cash flow from operating activities (A) | (32) | (2) | -€30m |
(5) | (46) | +€41m | Change in operating WCR [+ decrease, (increase)] (B) | 94 | 71 | +€23m |
(90) | (79) | -€11m | Gross capital expenditure (C) | (27) | (43) | +€16m |
(223) | (117) | -€106m | Free cash flow (A)+(B)+(C) | 35 | 26 | +€9m |
Cash flow statement
9 Months 2020 | 9 Months 2019 | In € million | Q3 2020 | Q3 2019 |
(128) | 8 | Cash flow from operating activities | (32) | (2) |
(5) | (46) | Change in operating WCR [+ decrease, (increase)] | 94 | 71 |
(133) | (38) | Net cash flow from operating activities | 62 | 69 |
(90) | (79) | Gross capital expenditure | (27) | (43) |
(75) | 12 | Asset disposals & other items | (37) | (19) |
(298) | (105) | Change in net debt [+ decrease, (increase)] | (2) | 7 |
2,329 | 2,104 | Financial net debt (end of period) | 2,329 | 2,104 |
Definitions of non-GAAP financial data
Banking covenant: as defined in the banking agreements, the “banking covenant” ratio is the ratio of the Group’s consolidated net debt including the “financial lease debt” and the shareholder loan in
Data at constant exchange rates: the data presented « at constant exchange rates » is calculated by eliminating the translation effect into euros for the revenue of the Group’s entities whose functional currency is not the euro. The translation effect is eliminated by applying Year N-1 exchange rates to Year N revenue of the contemplated entities.
Free cash flow: Free cash-flow (FCF) is defined as cash flow from operating activities minus gross capital expenditure and plus/minus change in operating working capital requirement.
Gross capital expenditure: gross capital expenditure is defined as the sum of cash outflows for acquisitions of property, plant and equipment and intangible assets and cash outflows for acquisitions of biological assets.
Industrial margin: the industrial margin is defined as the difference between revenue and cost of sales (i.e. after allocation of industrial variable costs and industrial fixed costs), before depreciation.
Lease debt: defined as the present value of unavoidable future lease payments
Net debt: consolidated net debt is defined as Bank loans and other borrowings plus Overdrafts and other short-term borrowings minus Cash and cash equivalents. Net debt excludes lease debt.
Net working capital requirement: defined as working capital requirement net of provisions for inventories and trade receivables; net working capital requirement days are computed on an annualized quarterly sales basis.
Operating working capital requirement: includes working capital requirement as well as other receivables and payables.
Working capital requirement: defined as trade receivables plus inventories minus trade payables (excluding provisions).
1 The implementation of these measures is subject to consultation of the work’s councils
Attachment
Vallourec -press-release-Q3&9M-2020_
© OMX, source