Vallourec — Interim / Quarterly Report 2015

Nov 9, 2015

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Press Release November 2015 www.vallourec.com

Vallourec reports third quarter and first nine months 2015 results

Q3 2015 financial results continued to be impacted by tough market conditions:

Revenues at ⁄872 million down 35.1 % year-on-year (down 34.3% at constant exchange rates)

EBITDA at -⁄66 million in Q3 2015, compared to ⁄1 Positive free cash flow of ⁄32 million

9M 2015 financial results:

Revenues at ⁄2,942 million, down 27.1% year-on-year (down 32.3% at constant exchange rates) EBITDA at ⁄0 million in 9M 2015, compared to ⁄619 million in 9M 2014 Positive free cash flow of ⁄35 million in 9M 2015 Ongoing measures to adapt to the downturn: Global staff reduction of 2,500 over the first nine months of 2015, i.e.: approx. 11% of total headcount, including close to 1,700 permanent jobs. Reduction of 13% of SG&A costs in Q3 2015 Reduction of ⁄168 million of working capital requirement in Q3 2015 Further capital expenditure reduction to stand below ⁄300 million in 2015 Outlook:

Further deterioration in Q4 2015 resulting in negative EBITDA in 2015 Positive free cash flow generation target maintained for 2015 No improvement in market conditions expected in the short term

Boulogne-Billancourt (France), 9 November 2015 œ Vallourec, world leader in premium tubular solutions, today announces its results for the third quarter and first nine months of 2015. The consolidated financial statements were presented by Vallourec‘s Management Board to its Supervisory Board on 9 November 2015.

Commenting on these results, Philippe Crouzet, Chairman of the Management Board, said:

—The adverse market environment we have been facing since the beginning of the year has continued to deteriorate. While the decline in production from mature oil fields and US shale plays will trigger a recovery of E&P investments in the medium term, we do not expect market conditions to improve in the short term.

This environment severely affects our revenues and profitability. Vallourec teams are more committed than ever to adapt. We are vigorously implementing short-term measures, which are proving effective, and Valens, our two-year competitiveness plan, is well on track to reac Our sales and marketing forces are equally mobilized to meet our customers‘ needs through best-in-class products, competitive offers and innovative solutiosig n ature.

We maintain our relentless focus on cash through cost reduction, tight working capital management and strict capex discipline, and reiterate our target to generate positive free cash flow in 2015.“

Information

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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Key figures

9M	9M	Change	In millions of euros	Q3	Q3	Change
2015	2014	YoY		2015	2014	YoY
1,091 1,698 -35.7%			Sales Volume(k tons) 317 564 -43.8%
2,942 4,036 -27.1%			Revenues 872 1,343 -35.1%
0 619 -100.0%			EBITDA (66) 175 -137.7%
0.0% 15.3% _-15.3pt _			As % of revenues -7.6% 13.0% _-20.6pt _
(393) 345 -213.9%			Operating income(loss)(1) (165) 80 -306.3%
(439) 169 -359.8%			Net income(loss), Group share (164) 25 -756.0%
+35 +135 -⁄100 m Free cash flow(2) +32 +98 -⁄66 m

(1) Comprises ⁄(133) million of other charges, includi(120) million of restructuri n g charges and impairment related to the g ⁄ implementation of Valens

(2) Free cash flow (FCF) is a non-GAAP measure and is defined as cash flow from operating activities minus gross capital expenditure and plus/minus change in operating working capital requirement

na: not applicable

I - CONSOLIDATED REVENUES BY MARKET

9M	9M	Change	In millions of euros	Q3	Q3	Change
2015	2014	YoY		2015	2014	YoY
2,021 2,869 -29.6% Oil & Gas, Petrochemicals 402 409 -1.7% Power Generation 519 758 -31.5% Industry & Other 2,942 4,036 Total				582 964 -39.6% 149 131 +13.7% 141 248 -43.1% 872 1,343

For the third quarter of 2015, Vallourec recorded revenues of ⁄872 million, down 35.1% compared with the third quarter of 2014 (down 34.3% at constant exchange rates). The significant decrease in volumes (-43.8%) was slightly offset by a positive price/mix effect (9.5%).

For the first nine months of 2015, Vallourec recorded revenues of ⁄2,942 million, down 27.1% compared with the first nine months of 2014 (down 32.3% at constant exchange rates) mainly resulting from a negative volume effect (-35.7%), in particular for Oil & Gas in EAMEA and in the USA, and despite positive translation (+3.3%) and price/mix (+5.3%) effects.

Oil & Gas, Petrochemicals (68.6% of revenues)

Oil & Gas revenues were ⁄1,864 million in 9M 2015, down 30.1% year-on-year (down 34.8% at constant exchange rates):

In the USA , volumes sold were down over the first nine months, reflecting the fall in the active rig count of 54% along with destocking from distributors. Prices continued to decrease in Q3.

In the EAMEA[1] region, as a result of the postponement of projects by IOCs and of the destocking in Saudi Arabia, volumes and mix were significantly down in 9M 2015 compared with a strong 9M 2014. A few tenders were launched by NOCs in the Middle East during Q3 2015 in a context of intensifying competition leading to acute pressure on prices.

In Brazil , revenues were down year-on-year in 9M 2015 due to lower drilling activity when compared to 2014, despite Q3 2015 benefiting from anticipated deliveries.

Petrochemicals revenues were ⁄157 million in 9M 2015, down 21.9% year-on-year (down 25.4% at constant exchange rates) due to lower demand in a highly competitive environment.

1 EAMEA: Europe, Africa, Middle East, Asia

Information 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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Power Generation (13.7% of revenues)

Power Generation revenues amounted to ⁄402 million in 9M 2015, down 1.7% year-on-year (down 5.1% at constant exchange rates):

Conventional power generation revenues were down in a very competitive environment.

In nuclear , revenues were up year-on-year, explained by a favorable comparable in 2014.

Industry & Other (17.7% of revenues)

Industry & Other revenues amounted to ⁄519 million in 9M 2015, down 31.5% year-on-year (down 30.1% at constant exchange rates):

In Europe , revenues were down year-on-year in a very competitive environment. The mining activity remained depressed while the lack of demand in the Oil & Gas industry triggered production shift from some competitors towards Mechanical and Structural applications.

In Brazil , revenues were down year-on-year, strongly impacted by the ongoing deterioration of the macroeconomic environment. Vallourec‘s activiin the region is affec ed in particular by the severe t y downturn in the automotive and construction sectors. 9M 2015 iron ore revenues were significantly down year-on-year, due to the 44% drop in iron ore spot prices compared with 9M 2014.

II - 9M 2015 CONSOLIDATED RESULTS ANALYSIS

For the first nine months of 2015, EBITDA stood at ⁄0 million, down by ⁄619 million year-on-year. This was due to:

Lower consolidated revenues at ⁄2,942 million, down -27.1% (down -32.3% at constant exchange rates), mainly resulting from a negative volume effect (-35.7%), notably for Oil & Gas in EAMEA and in the USA, and despite positive translation (+3.3%) and price/mix (+5.3%) effects.

Lower industrial margin at ⁄396 million, down -62.2%. Despite a high adaptation of variable costs, and lower industrial fixed costs, industrial margin was impacted by the inefficiency of low load in the mills.

Sales, general and administrative costs (SG&A) declined by 13.1% in Q3 2015 to ⁄119 m 6.6% to ⁄383 million for the first nine months of 2015, representing an improvemeor ⁄35 million at constant exchange rate. This improvement comes from an overall focus on cost reduction, first results of Valens G&A actions, and was achieved despite unfavorable exchange rates and inflation.

deterioration results mainly from lower EBITDA and ⁄120 million of restructuring charges and impairment related to the implementation of Valens booked in 9M 2015. The depreciation of industrial assets remained broadly stable at ⁄228 million.

The income tax charge amounted to ⁄ months of 2014.

Non-controlling interests were a charge of ⁄ 9M 2014, mainly explained by the decline in US operations results.

Net result, Group share was a loss of ⁄439 million in 9M 2015 , compared with a profit of ⁄1 9M 2014.

Information

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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III - CASH FLOW & FINANCIAL POSITION

Vallourec generated a positive free cash flow of ⁄32 million in Q3 2015. Over 9M 2015, positive free cash flow amounted to ⁄35 million, compared with ⁄135 million in 9M 2014. This is primarily explained by:

Negative cash flow from operating activities resulting from the drop in EBITDA;

A reduction in operating working capital requirement in 9M 2015 (+⁄279 million), compared with an increase of ⁄176 million in 9M 2014, mainly driven by inventory reduction linked to activity levels; in Q3 2015 the operating working capital requirement decreased by ⁄168 million million generated in H1 2015;

in 9M 2014.

As at 30 September 2015, Group net debt increased by ⁄86 million to ⁄1,633 million compared with the end of 2014 but showing an improvement of +⁄37 million over Q3 2015.

The gearing ratio was 48.3% compared with 37.1% at the end of 2014.

IV - LIQUIDITY PROFILE

As part of its continuous effort to maintain a strong liquidity position, in September 2015 Vallourec extended the maturity of ⁄400 million of committed facilities from July 2017 to July 2019. This successful operation underlies confidence in the credit quality of Vallourec.

At 30 September 2015, Vallourec‘s consists of ⁄600 mil ion of available cash œwhich exceed l iquidity position the financial short term debt to be repaidœ and ⁄1.8 billion of undrawn committed facilities with no amortization until 2017.

Vallourec‘s gross debt amounts to ⁄2.2 billion of which ⁄1.6 billion is in long term bonds. The next bond repayment will occur in February 2017 for ⁄650 million.

V - SHORT-TERM ADAPTATION AND VALENS PLAN

Over the first nine months of 2015, global staff reduction was 2,500, representing approximately 11% of total headcount, including close to 1,700 permanent jobs.

Action plans have been implemented to adapt the mills‘ have enabled over 80% of the variable costs (excluding raw materials) associated with the lost volume to be removed.

The Valens plan is well on track with approximately 2/3rd of the 700 initiatives already started notably on manufacturing costs and SG&A. These initiatives, along with an overall focus on cost reduction, contributed to the reduction of industrial fixed costs and of S&GA.

The targeted savings of 10% of added costs, with a full year effect in 2017, is confirmed.

The process to structurally reduce our European steel and tube capacity, and our worldwide overhead costs is being implemented according to plan.

VI - MARKET TRENDS & OUTLOOK

Vallourec expects its Oil & Gas deliveries and results to be impacted by sustained adverse market conditions:

In the EAMEA region, customers have intensified the control of their cash outflows, leading to decreased CAPEX and inventory optimisation with a material impact on demand. As a result, the very weak order inflow since the beginning of the year combined with strong price pressure will lead to low deliveries and weigh on the coming quarters‘ results, despite the favorable effect of a stronger US dollar.

Information

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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In the USA , the performance in Q4 2015 should continue to be impacted by low demand and persistent pressure on prices. The ongoing reduction in the active rig count will keep demand low and lead to further destocking from distributors over the next quarters. However, the reductions in US crude production should contribute to a progressive rebalancing in crude oil supply and demand.

In Brazil, due to reduced drilling activity and a phasing of H2 deliveries concentrated in Q3 2015 Vallourec expects its Q4 2015 revenues to be significantly down. On 5 October 2015, Petrobras announced a further reduction of its 2016 E&P investments. This new cut is expected to have a moderate impact on revenues in 2016 thanks to a focus maintained on the development of pre-salt basins. Vallourec anticipates a progressive increase in deliveries no earlier than 2017.

Power Generation activity should remain broadly stable in an increasingly competitive environment, benefiting from sustained bookings in particular in the Chinese conventional market.

Industry & Other operations in Brazil will continue to suffer in Q4 2015 from the deteriorating local macroeconomic environment, while persisting oversupply in the iron ore market will result in significantly lower prices than in 2014.

The market environment for Industry & Other operations in Europe should remain very competitive.

Compared to Q3 2015, the Group expects Q4 2015 results to further deteriorate, being notably affected by the unfavorable phasing of Oil & Gas deliveries in Brazil. For the full year 2015, EBITDA will be negative. The operating working capital requirement will continue to be strongly reduced in Q4 2015, and the capital expenditure will stand below ⁄300 million. The Group continues to target a positive free cash flow generation in 2015.

As the Group does not expect market conditions to improve in the short term, Vallourec teams are more committed than ever to vigorously implementing both short-term adaptation measures and the Valens structural cost reduction program, and promptly delivering on them.

Information

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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About Vallourec

Vallourec is a world leader in premium tubular solutions primarily serving the energy markets, as well as other industrial applications.

With over 23,000 employees in 2014, integrated manufacturing facilities, advanced R&D and a presence in more than 20 countries, Vallourec offers its customers innovative global solutions to meet the energy challenges of the 21[st] century.

Listed on Euronext in Paris (ISIN code: FR0000120354, Ticker VK) and eligible for the Deferred Settlement System (SRD), Vallourec is included in the following indices: Euronext 100 and SBF 120.

In the United States, Vallourec has established a sponsored Level 1 American Depositary Receipt (ADR) program (ISIN code: US92023R2094, Ticker: VLOWY). Parity between ADR and a Vallourec ordinary share has been set at 5:1.

www.vallourec.com Follow us on Twitter @Vallourec

Presentation of Q3 / 9M 2015 results

Monday 9 November 2015

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Live presentation followed by a Q&A session with analysts at 6 pm (Paris time) in English.

To access the slides and listen to the presentation and the Sell-side analysts Q&A session, please connect to the webcast ( live and replay) :http://edge.media-server.com/m/go/vallourecQ32015

The slides and audio webcast wi website ( http://www.vallourec.com/EN/GROUP/FINANCE ).

To listen to the conference call. Please dial:

0800 279 4992 (UK), 0805 631 579 (FR), 1 877 280 2342 (USA), +44(0)20 3427 1911 (other countries) Conference ID: 8417547

To listen to the replay of the conference call (until 16 November 2015), please dial: 0800 358 7735 (UK), 0800 949 597 (FR), 1 866 932 5017 (USA), +44(0)20 3427 0598 (other countries) Access number: 8417547

Information

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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Information and Forward-Looking Reflections

This press release 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 -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 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 section of the Registration Document filed with the AMF on 10 April 2015 (N° D.15-0315).

Calendar

18 February 2016 Release of fourth quarter and full year 2015 results

For further information, please contact

Investor relations

Etienne Bertrand Tel: +33 (0)1 49 09 35 58 etienne.bertrand@vallourec.com

Press relations

Héloïse Rothenbühler Tel: +33 (0)1 41 03 77 50 heloise.rothenbuhler@vallourec.com

Investor relations

Christophe Le Mignan Tel: +33 (0)1 49 09 38 96 christophe.lemignan@vallourec.com

Individual shareholders

Investor relations team Tel: +33 (0)1 49 09 39 76 actionnaires@vallourec.com

Information

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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Appendices

Documents accompanying this release:

• ° Sales volume

• ° Forex

• ° Revenues by geographic region

• ° Revenues by market

• ° Cash flow statement

• ° Free cash flow

• ° Summary consolidated income statement

• ° Summary consolidated balance sheet

• ° Tube production capacity

Sales volume

In thousands of tons			Change
	2015	2014
			YoY
Q1 Q2 Q3
	412	551	-25.2%
	362	583	-37.9%
	317	564	-43.8%
Q4		625
Total	1,091	2,323

Forex

Average exchange rate	9M 2015	9M 2014
EUR / USD 1.11 1.35 EUR / BRL 3.53 3.10 USD / BRL 3.16 2.29

Revenues by geographic region

In millions of euros	9M		9M		Change
	2015		2014		YoY
Europe	679 23.1%		775 19.2% -12.4%
North America	881 29.9%		1,250 31.0% -29.5%
South America	524 17.8%		701 17.4% -25.2%
Asia & Middle East	618 21.0%		965 23.9% -36.0%
Rest of World	240 8.2%		345 8.5% -30.4%
			4,036
Total	2,942

Information

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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Revenues by market

In millions of euros	9M		9M		Change	Q3	Change
	2015		2014		YoY	2015	YoY
Oil & Gas	1,864 63.4_%_		2,668 66.1% -30.1%			533	-40.1%
Petrochemicals	157 5.3_%_		201 5.0% -21.9%			49	-33.8%
Oil & Gas, Petrochemicals
	2,021		2,869			582
Power Generation	402		409			149	+13.7
Mechanicals	281 9.5%		320 7.9% -12.2%			77	-29.4%
Automotive	90 3.1%		151 3.7% -40.4%			25	-45.7%
Construction & Other	148 5.0%		287 7.2% -48.4%			39	-58.1%
Industry & Other	519		758			141
Total	2,942		4,036			872

Cash flow statement

9M	9M	In millions of euros	Q3	Q3	Q2	Q1
2015	2014		2015	2014	2015	2015
(85) +516 Cash flow from operating activities			(66) +156 (38) +19 +168 +9 +112 (1)
+279 (176) Change in operating WCR + decrease, (increase)
+194 +340 Net cash flow from operating activities			+102 +165 +74 +18
(159) (205) Gross capital expenditure			(70) (67) (41) (48) - - - - (2) (6) (66) - 7 (10) (34) (26)
- - Financial investments
(68) (142) Dividends paid
(53) (19) Asset disposals & other items
(86) (26) Change in net debt			+37 +82 (67) (56)
1,633 1,657 Net debt (end of period)			1,633 1,657 1,670 1,603

Free cash flow

9M	9M		In millions of euros	Q3	Q3
		Change				Change
2015	2014			2015	2014
(85) +516 -601 +279 (176) +455 (159) (205) +46			Cash flow from operating activities (FFO)(A) (66) +156 -222 Change in operating WCR(B) +168 +9 +159 + decrease, (increase) Gross capital expenditure(C) (70) (67) -3
+35 +135 -100			Free cash flow (A)+(B)+(C) +32 +98 -66

Information

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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Summary consolidated income statement

9M	9M	Change	In millions of euros	Q3	Q3	Change
2015(1)	2014	YoY		2015	2014	YoY
2,942 4,036 -27.1% REVENUES 872 1,343 -35.1%
(2,546) (2,988) -14.8% Cost of sales(2) (812) (1,028) -21.0%
396 1,048 -62.2% 60 315 -81.0%
13.5% 26.0% -12.5 pt (as % of revenues) 6.9% 23.5% -16.6 pt
(383) (410) -6.6% SG&A costs(2) (119) (137) -13.1% (13) (19) na Other income (expense), net (7) (3) na
0 619 -100.0% EBITDA (66) 175 -137.7%
0.0% 15.3% -15.3pt EBITDA as % of revenues -7.6% 13.0% -20.6 pt (228) (226) +0.9% Depreciation of industrial assets (79) (78) +1.3% (165) (48) na Other (amortization, exceptional items, impairment & restructuring) (20) (17) na
(393) 345 -213.9% OPERATING INCOME (LOSS) (165) 80 -306.3%
(52) (41) +26.8% Financial income (loss) (15) (10) +50.0%
(445) 304 -246.4% PRE-TAX INCOME (LOSS) (180) 70 -357.1%
(12) (107) -88.8% Income tax 3 (33) -109.1% (1) 1 na Share in net income (loss) of associates (1) 1 na
(458) 198 -331.3 % NET INCOME (LOSS) FOR THE CONSOLIDATED ENTITY (178) 38 -568.4%
19 29 na Non-controlling interests 14 (13) na
(439) 169 -359.8% NET INCOME (LOSS), GROUP SHARE (164) 25 -756.0%
(3.4) 1.3 na EARNINGS PER SHA (1.3) 0.2 na

(1) As concerns the Amendment to IFRS 11, the impact of its application on the consolidated financial statements as at 30 September 2015 primarily translates to a ⁄85 million drop in sales in consideration for purchases; a ⁄165 million drop in non-current assets, in consideration for other provisions and long-term liabilities, and a drop in trade receivables of ⁄33 million, in consideration for trade payables.

(2) Before depreciation and amortization

na: not applicable

Information

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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Summary consolidated balance sheet

In millions of euros
	30-Sept		31-Dec				30-Sept		31-Dec
Assets					Liabilities
	2015(1)		2014				2015(1)		2014
Net intangible assets Goodwill Net property, plant and equipment Biological assets Associates Other non-current assets Deferred tax assets					Equity, Group share Non-controlling interests
							2,989 3,743
	149 166						391 426
	357 332				Total equity		3,380 4,169
					Bank loans and other borrowings Employee benefits Deferred tax liabilities Provisions and other long-term liabilities
	3,243 3,523
	146 214						1,768 1,782
	184 184						207 244
	229 435						219 256
	182 223						46 229
Total non-current assets	4,490 5,077				Total non-current liabilities		2,240 2,511
Inventories and work-in-progress Trade and other receivables Derivatives - assets Other current assets Cash and cash equivalents					Provisions Overdrafts and other short-term borrowings Trade payables Derivatives - liabilities Tax and other current liabilities
	1,227 1,490						250 163
	734 1,146						469 912
	24 28						488 807
	300 343						163 173
	604 1,147						389 496
Total current assets	2,889 4,154				Total current liabilities		1,759 2,551
					TOTAL EQUITY AND LIABILITIES
TOTAL ASSETS	7,379 9,231						7,379 9,231
Net debt	1,633 1,547				Net income (loss), Group share		(439) (924)
Gearing ratio	48.3% 37.1%

(1) As concerns the Amendment to IFRS 11, the impact of its application on the consolidated financial statements as at 30 September 2015 primarily translates to a ⁄85 million drop in sales in consideration for purchases; a ⁄165 million drop in non-current assets, in consideration for other provisions and long-term liabilities, and a drop in trade receivables 33 million, in consideration f o r trade f ⁄ payables.

Tube production capacity

In thousands of tons	2017 targeted tube production capacity	2014 tb
		ue production capacity	2011 tube production capacity
USA 750 750 400 Brazil 800 800 500 Europe 900 1,350 1,500
Total ~2,450 ~2,900 2,400

Information

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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