Vallourec : Fourth Quarter and Full Year 2020 Results Press Release

Press release

Vallourec reports fourth quarter and full year 2020 results

Boulogne-Billancourt (France), February 17th 2021 - Vallourec, a world leader in premium tubular solutions, today announces its results for the fourth quarter and full year of 2020. The consolidated financial information was presented by Vallourec's Management Board to its Supervisory Board on February 16th 2021.

FY 2020: Strong impact of O&G market downturn on EBITDA mitigated by highly resilient margin

•  €3,242 million revenue, down 22% year-on-year (-15% at constant exchange rates)

•  €258 million EBITDA versus €347 million in 2019

•  EBITDA margin maintained almost stable, at 8.0% of revenue vs 8.3% in 2019

•  Free cash flow of (€111) million versus (€41) million in 2019

•  Net debt at €2,214 million as of December 31st 2020 versus €2,031 million as of December 31st 2019

•  Cash position at €1,390m as of 31/12/2020

Q4 2020: Positive cash flow generation

•  €830 million revenue, down 17% year-on-year (-5% at constant exchange rates)

•  €76 million EBITDA, or 9.2% of revenue versus 9.4% in Q4 2019

•  Net income impacted by impairment charges for €409 million

•  Positive free cash flow of €112 million, versus €76 million in Q4 2019 with major achievements in working capital management

Major step in the financial restructuring, with an agreement in principle supported by 92% of creditors as of February 12th

•  Deleveraging of €1,800 million

•  Residual debt refinanced over 5 years

•  Market guarantees committed for 5 years

•  Apollo and SVPGlobal to become the largest shareholders of the Group

2020 gross savings at €165 million, largely overachieving our €130 million target

2021 Outlook:

•  Oil and Gas activity expected to remain subdued in 2021

•  Iron ore mine expected to bring an increased contribution

•  Continuous cost savings and cash management initiatives along the year

•  EBITDA targeted between €250 and €300 million

•  Free cash flow targeted between (€380) and (€300) million

Information

Quarterly statements are unaudited and not subject to any review. Audit procedures have been carried out for the full year consolidated financial statements. Final certification will take place before the URD "Universal Registration Document" is filed with the AMF, by end of March 2021. Unless otherwise specified, indicatedvariations are expressed in comparison with the same period of the previous year.

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Key figures

2020	2019	Change	In € million	Q4 2020	Q4 2019	Change
1,599	2,291	-30.2%	Production shipped (k tons)	408	520	-21.5%
3,242	4,173	-22.3%	Revenue	830	1,004	-17.3%
258	347	-€89m	EBITDA	76	94	-€18m
8.0%	8.3%	-0.3p.p.	(as a % of revenue)	9.2%	9.4%	-0.2p.p.
(1,002)	(17)	-€985m	Operating income (loss)	(495)	(9)	-€486m
(1,206)	(338)	-€868m	Net income, Group share	(570)	(111)	-€459m
(111)	(41)	-€70m	Free cash-flow	112	76	+€36m
2,214	2,031	+€183m	Net debt	2,214	2,031	+€183m

Edouard Guinotte, Chairman of the Management Board, declared:

"Although Vallourec's revenue in 2020 was strongly impacted by the considerable drop of its activity due to Covid pandemic impact on oil demand and E&P activity worldwide, the Group has demonstrated its capacity to adapt, achieving an almost stable EBITDA margin year-on-year.

In addition, two weeks ago, we achieved a key milestone in the Group's financial restructuring, by reaching an agreement in principle with our main creditors. The implementation of this agreement, which is still subject to customary conditions precedent, will enable Vallourec to rebalance its capital structure by reducing its debt and securing the necessary liquidity to roll out its strategic plan. It will open a new chapter in Vallourec's history with our future shareholders, Apollo and SVPGlobal, whose in-depth knowledge of our markets will support the Group's value creation ambition.

Looking ahead, we expect Oil and Gas activity to globally remain subdued in 2021. While drilling should gradually restart in North America, and continue growing off-shore Brazil, EA-MEA should face difficult market conditions with no recovery visible before 2022. Our Industry markets are expected to slowly restart in 2021, and Vallourec's iron ore mine activity should bring an increased contribution. In this context, we will continue deploying our cost savings and cash management initiatives along the year.

I would like to sincerely thank our teams across the world for their dedication and collective engagement this year. They can be very proud of the way they adapted to multiple crises while staying true to our values. I would also like to thank all our customers, partners and stakeholders who have maintained their trust in Vallourec despite the challenging context. Together, with a restructured balance sheet, we will be positioned to seize future growth opportunities in our markets."

Information

I - CONSOLIDATED REVENUE BY MARKET

2020

At

2019

Changeconstant exchange rates

In € million

Q4 2020

Q4 2019

ChangeAt constant exchange rates

2,207 826 210

3,042 939 192

-27.4% -12.0%

-22.6% Oil & Gas, Petrochemicals

566

762

-25.7% -17.2%

9.4%

5.6% 11.5%

Industry & Other

Power Generation

225 39

205 37

9.8% 39.0%

5.4% 10.8%

3,242

4,173

-22.3%

-14.7%

Total

830

1,004

-17.3%

-4.7%

In 2020, Vallourec recorded revenue of €3,242 million, down 22% compared with 2019 (-15% at constant exchange rates) with:

•  a volume impact of -30% mainly driven by Oil & Gas in North America and in EA-MEA

•  a positive price/mix effect of +16% including a better price/mix in Oil & Gas in EA-MEA and South America and lower prices in North America

•  a currency conversion effect of -8% mainly related to EUR/BRL.

Q4 2020 revenue amounted to €830 million, down 17% compared with Q4 2019 (-5% at constant exchange rate). Volume effect was -22%, price/mix effect +17% and currency conversion effect -13%.

Oil & Gas, Petrochemicals (68% of annual consolidated revenue)

Oil & Gas revenue reached €2,007 million in 2020, a (€745) million decrease or -27% year-on-year (-22% at constant exchange rates), reflecting lower revenue in North America and in EA-MEA.

•  In North America, Oil & Gas large revenue decrease was driven by lower deliveries due to the unprecedented decrease in rig count, as well as by lower prices

•  In EA-MEA, Oil & Gas revenue decrease reflected lower volumes while high alloy products positively impacted the price/mix

•  In South America, Oil & Gas revenue strong increase reflected, as forecast, the increase in deliveries of premium OCTG for pre-salt offshore and higher price/mix, partially offset by an unfavorable currency conversion effect.

In Q4 2020, Oil & Gas revenue totaled €527 million, a (€159) million decrease or -23% year-on-year (-14% at constant exchange rates).

•  In North America, Oil & Gas revenue decrease was driven by lower deliveries and prices, although rig count started to recover in Q4.

•  In EA-MEA, Oil & Gas revenue decrease reflected lower volumes while price/mix was still positively impacted by high alloy products deliveries.

•  In South America, Oil & Gas revenue was stable, with higher deliveries being offset by an unfavorable currency conversion effect.

In 2020, Petrochemicals revenue was €200 million, down 31% year-on-year (-26% at constant exchange rates) notably due to lower deliveries of line pipes in North America as well as pressure on prices.

In Q4 2020, Petrochemicals revenue totaled €39 million, down 49% year-on-year (-42% at constant exchange rates).

In 2020, revenue for Oil & Gas and Petrochemicals amounted to €2,207 million, down 27% compared with 2019 (-23% at constant exchange rates).

In Q4 2020, revenue for Oil & Gas and Petrochemicals totaled €566 million, down 26% compared with 2019 (- 17% at constant exchange rates).

Information

Industry & Other (25% of annual consolidated revenue)

Industry & Other revenue amounted to €826 million in 2020, down 12% year-on-year (+6% at constant exchange rates):

•  In Europe, Industry revenue was down 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, which reached 7.9Mt (up 26% versus 2019), and prices, and of the overall stability of our sales to the Industry market before unfavorable currency conversion effect.

In Q4 2020, Industry & Other revenue totaled €225 million, up 10% year-on-year (+39% at constant exchange rates), primarily as a result of higher revenue from the mine, and despite lower sales to the Industry market in Europe.

Power Generation (6% of annual consolidated revenue)

Power Generation revenue amounted to €210 million in 2020, up 9% year-on-year (+11% at constant exchange rates), as a result of timing of project deliveries.

The closure of the Reisholz site in Germany, dedicated to coal-fired conventional power plants, is effective since summer 2020.

In Q4 2020, revenue totaled €39 million, up 5% year-on-year (+11% at constant exchange rates) as a result of timing of project deliveries.

II - CONSOLIDATED RESULTS ANALYSIS

Q4 2020 consolidated results analysis

In Q4 2020, EBITDA reached €76 million compared with €94 million in Q4 2019, at 9.2% of revenue versus 9.4% in Q4 2019, as a result of:

•  An industrial margin of €157 million, compared with €180 million in Q4 2019, at 18.9% of revenue (versus 17.9%), reflecting the lower activity in Oil & Gas in North America, partially offset by (i) savings, (ii) a higher mine contribution.

•  A 14% decrease in sales, general and administrative costs (SG&A) at €75 million or 9.0% of revenues, reflecting strong cost savings.

Operating result was negative at (€495) million, compared with (€9) million in Q4 2019, impacted by an impairment charge of €409 million mainly related to tangible fixed assets in Europe, and higher restructuring provisions (mainly in France and Germany).

Financial result was negative at (€48) million, compared with (€66) million in Q4 2019, reflecting stable net interest expenses together with the positive one-off effect of a favorable decision on a litigation in Brazil for €15 million.

Income tax amounted to (€45) million mainly related to Brazil, compared to (€36) million in Q4 2019.

This resulted in a net loss, Group share, of (€570) million, compared with (€111) million in Q4 2019.

Information